[DRAFT FEBRUARY 20, 1996]
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                              -------------------
                                   FORM 10-K
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                      THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
                              -------------------
                           RJR NABISCO HOLDINGS CORP.
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                                <C>                          <C>
           DELAWARE                         1-10215                          13-3490602
(State or other jurisdiction of    (Commission file number)     (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
 
                               RJR NABISCO, INC.
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                                <C>                          <C>
           DELAWARE                         1-6388                           56-0950247
(State or other jurisdiction of    (Commission file number)     (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
 
                          1301 AVENUE OF THE AMERICAS
                            NEW YORK, NEW YORK 10019
                                 (212) 258-5600
    (Address, including zip code, and telephone number, including area code,
    of the principal executive offices of RJR Nabisco Holdings Corp. and RJR
                                 Nabisco, Inc.)
                              -------------------
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 

                                        NAME OF EACH
                                        EXCHANGE ON
         TITLE OF EACH CLASS          WHICH REGISTERED
------------------------------------------------------
 
RJR NABISCO HOLDINGS CORP.
 Common Stock, par value $.01 per
 share                                    New York
 Series B Depositary Shares               New York
 Series C Depositary Shares               New York
RJR NABISCO, INC.
 8.30% Senior Notes due April 15, 1999     New York
 8% Notes due January 15, 2000            New York
 8% Notes Due 2001                        New York
 8 5/8% Notes due 2002                    New York
 7 5/8% Notes due September 15, 2003      New York
 8.75% Senior Notes due April 15, 2004     New York
 8 3/4% Notes due 2005                    New York
 8 3/4% Notes due 2007                    New York
 9 1/4% Debentures due 2013               New York
 
SUBSIDIARIES OF THE REGISTRANTS
RJR NABISCO HOLDINGS CAPITAL TRUST I
 10% Trust Originated Preferred
  Securities                              New York
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                      None
 
   INDICATE BY CHECK MARK WHETHER THE REGISTRANTS (1) HAVE FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANTS WERE REQUIRED TO FILE SUCH REPORTS), AND (2) HAVE BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO __
 
   INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANTS' KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]
 
   THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY NON-AFFILIATES OF RJR
NABISCO HOLDINGS CORP. ON JANUARY 31, 1996 WAS APPROXIMATELY $8.9 BILLION.
CERTAIN DIRECTORS OF RJR NABISCO HOLDINGS CORP. ARE CONSIDERED AFFILIATES FOR
PURPOSES OF THIS CALCULATION BUT SHOULD NOT NECESSARILY BE DEEMED AFFILIATES FOR
ANY OTHER PURPOSE. NONE OF THE VOTING STOCK OF RJR NABISCO, INC. IS HELD BY ANY
NON-AFFILIATE.
 
   INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANTS' CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: JANUARY 31, 1996:

RJR NABISCO HOLDINGS CORP.: 272,973,182 SHARES OF COMMON STOCK, PAR VALUE, $.01
    PER SHARE RJR NABISCO, INC.: 3,021.86513 SHARES OF COMMON STOCK, PAR 
                         VALUE $1,000 PER SHARE

                              -------------------
 
RJR NABISCO, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(A)
AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
                              -------------------
 
                      DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE DEFINITIVE PROXY STATEMENT OF RJR NABISCO HOLDINGS CORP. TO BE
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO REGULATION 14A OF
THE SECURITIES EXCHANGE ACT OF 1934 ON OR PRIOR TO APRIL 30, 1996 ARE
INCORPORATED BY REFERENCE INTO PART III OF THIS REPORT.
 
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<PAGE>
                                     INDEX
 
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                                                                                            PAGE
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<S>          <C>                                                                            <C>
PART I
Item 1.      Business....................................................................     1
                 (a) General Development of Business.....................................     1
                 (b) Financial Information about Industry Segments.......................     2
                 (c) Narrative Description of Business...................................     3
                       Tobacco...........................................................     3
                       Food..............................................................    13
                       Other Matters.....................................................    18
                 (d) Financial Information about Foreign and Domestic Operations             
                       and Export Sales..................................................    18
Item 2.      Properties..................................................................    18
Item 3.      Legal Proceedings...........................................................    18
Item 4.      Submission of Matters to a Vote of Security Holders.........................    19
             Executive Officers of the Registrants.......................................    20
 
PART II
Item 5.      Market for Registrants' Common Equity and Related Stockholder Matters.......    23
Item 6.      Selected Financial Data.....................................................    24
Item 7.      Management's Discussion and Analysis of Financial Condition and                 26
               Results of Operations.....................................................
Item 8.      Financial Statements and Supplementary Data.................................    41
Item 9.      Changes in and Disagreements with Accountants on Accounting and                 
               Financial Disclosure......................................................    41
 
PART III
Item 10.     Directors and Executive Officers of the Registrants.........................    42
Item 11.     Executive Compensation......................................................    42
Item 12.     Security Ownership of Certain Beneficial Owners and Management..............    42
Item 13.     Certain Relationships and Related Transactions..............................    42
 
PART IV
Item 14.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K............    43
</TABLE>
<PAGE>
                                     PART I
 
ITEM 1. BUSINESS
 
  (a) General Development of Business
 
    The operating subsidiaries of RJR Nabisco Holdings Corp. ("RJRN Holdings")
and its wholly-owned subsidiary, RJR Nabisco, Inc. ("RJRN") (collectively the
"Registrants"), comprise one of the largest tobacco and food companies in the
world. In the United States, the tobacco business is conducted by R. J. Reynolds
Tobacco Company ("RJRT"), the second largest manufacturer of cigarettes, and the
packaged food business is conducted by Nabisco Holdings Corp. ("Nabisco
Holdings") through its wholly-owned subsidiary, Nabisco, Inc. ("Nabisco"), the
largest manufacturer and marketer of cookies and crackers. Outside the United
States, the tobacco operations are conducted by R. J. Reynolds Tobacco
International, Inc. and beginning on January 1, 1996, R.J. Reynolds
International (collectively "Reynolds International"), and the food operations
are conducted by Nabisco International, Inc. ("Nabisco International") and
Nabisco Ltd (formerly Nabisco Brands Ltd). RJRT's and Reynolds International's
tobacco products are sold around the world under a variety of brand names.
Nabisco's food products are sold in the United States, Canada, Latin America,
certain European countries and certain other international markets. For
financial information with respect to RJRN's industry segments, lines of
business and operations in various geographic locations, see Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 16 to the consolidated financial statements, and the
related notes thereto, of RJRN Holdings and RJRN as of December 31, 1995 and
1994 and for each of the years in the three-year period ended December 31, 1995
(the "Consolidated Financial Statements").
 
    RJRN Holdings was organized as a Delaware corporation in 1988 at the
direction of Kohlberg Kravis Roberts & Co., L.P. ("KKR"), a Delaware limited
partnership, to effect the acquisition of RJRN, which was completed on April 28,
1989 (the "Acquisition"). As a result of the Acquisition, RJRN became an
indirect, wholly owned subsidiary of RJRN Holdings. After a series of holding
company mergers completed on December 17, 1992, RJRN became a direct, wholly
owned subsidiary of RJRN Holdings. The business of RJRN Holdings is conducted
through RJRN.
 
    RJRN was incorporated as a holding company in 1970. RJRT can trace its
origins back to its formation in 1875. Activities were confined to the tobacco
industry until the 1960's, when diversification led to investments in
transportation, energy and food. With the acquisition of Del Monte Corporation
("Del Monte") in 1979 (which was sold in 1989), RJRN began to concentrate its
focus on consumer products. This strategy led to the acquisition of Nabisco
Holdings Corp. (formerly Nabisco Brands, Inc.) in 1985.
 
    In recent years subsidiaries of RJRN Holdings and RJRN have completed a
number of acquisitions and have divested certain businesses. In 1995, these
acquisitions included (i) certain trademark and other assets of Kraft Foods'
U.S. and Canadian margarine and tablespreads business; (ii) certain trademarks
and other assets of Primo Foods Limited, a Canadian manufacturer of dry pasta,
canned tomatoes and pasta and pizza sauces; (iii) a 50% interest in Royal
Beech-Nut (pty) Ltd., a South African subsidiary of Del Monte Royal Foods, Ltd;
(iv) the assets of Avare and Gumz, two Brazilian milk product companies; (v)
O.y. P.c. Rettig Ab, Finland's second largest tobacco company and (vi) a
significant interest and management control of the Tanzania Tobacco Company. The
1995 divestitures included (i) the sale of the Ortega Mexican Food business
and (ii) the sale of New York Style Bagel Chip business.
 
    In 1994, acquisitions included (i) the KNOX gelatin brand; (ii) an
approximately 99% interest in Establecimiento Modelo Terrabusi S.A., Argentina's
second largest biscuit and pasta maker; (iii) a 76% interest in the Yelets
tobacco processing plant in Russia; (iv) a controlling interest in a cigarette
manufacturer in the Krasnodar region of southern Russia; and (v) a 90% interest
in Shimkent Confectionery Enterprises and a site for a new cigarette factory in
Kazakhstan.
 
                                       1
<PAGE>
    RJRN will continue to assess its businesses to evaluate their consistency
with strategic objectives. Although RJRN may acquire and/or divest additional
businesses in the future, no other decisions have been made with respect to any
such acquisitions or divestitures. RJRN Holdings' and RJRN's credit agreement,
dated as of April 28, 1995, as amended (the "1995 RJRN Credit Agreement"), and
credit agreement, dated as of April 28, 1995, as amended (the "RJRN Commercial
Paper Facility" and, together with the 1995 RJRN Credit Agreement, the "New
RJRN Credit Agreements"), prohibit the sale of all or any substantial portion of
certain assets of RJRN Holdings or its subsidiaries.
 
    On January 26, 1995, Nabisco Holdings completed the initial public offering
of 51,750,000 shares of its Class A Common Stock at an initial offering price of
$24.50 per share. Nabisco used all of the approximately $1.2 billion of net
proceeds from the initial public offering to repay a portion of its initial
borrowing under its credit agreement, dated as of December 6, 1994 (the "1994
Nabisco Credit Agreement"). RJRN owns 100% of the outstanding Class B Common
Stock of Nabisco Holdings, which represents approximately 80.5% of the economic
interest in Nabisco Holdings and approximately 97.6% of the total voting power
of Nabisco Holdings' outstanding common stock. In connection with the offering,
RJRN Holdings, RJRN and Nabisco Holdings entered into agreements to exchange
certain services, to establish tax sharing arrangements and to provide RJRN with
certain preemptive and registration rights with respect to Nabisco Holdings and
Nabisco securities.
 
    In 1995, RJRN and Nabisco engaged in a series of related transactions that
were designed, among other things, to enable Nabisco to obtain long term debt
financing independent of RJRN and to repay its intercompany debt to RJRN.
Specifically, on April 28, 1995, Nabisco Holdings and Nabisco entered into a
credit agreement with various financial institutions (as amended, the "1995
Nabisco Credit Agreement") to replace the 1994 Nabisco Credit Agreement. Among
other things, the 1995 Nabisco Credit Agreement was designed to permit Nabisco
to prepay intercompany debt and incur long-term debt, to increase Nabisco's
committed facility from $1.5 billion to $3.5 billion and to extend its term from
364 days to five years. On June 5, 1995, RJRN and Nabisco consummated offers to
exchange approximately $1.8 billion aggregate principal amount of newly issued
notes and debentures (the "New Notes") of Nabisco for the same amount of notes
and debentures (the "Old Notes") issued by RJRN (the "Exchange Offers"). As part
of the transaction, RJRN returned to Nabisco approximately $1.8 billion of
intercompany notes that had been issued by Nabisco and were held by a
non-Nabisco affiliate of RJRN. The New Notes issued by Nabisco in the Exchange
Offers have interest rates, principal amounts, maturities and redemption
provisions identical to the corresponding Old Notes issued by RJRN. Nabisco
subsequently borrowed approximately $2.4 billion under the 1995 Nabisco Credit
Agreement to (a) repay or repurchase an additional $2.1 billion of intercompany
notes of Nabisco and its subsidiaries; (b) repay approximately $125 million of
outstanding borrowings under the 1994 Nabisco Credit Agreement; (c) repay
approximately $89 million of an intercompany note from Nabisco to Nabisco
Holdings; and (d) pay a $79 million dividend to Nabisco Holdings. Nabisco
Holdings used the payments it received to repay the balance of a $168 million
intercompany note to RJRN. Concurrently with the Exchange Offers, RJRN also
obtained consents to certain indenture modifications from holders of the Old
Notes and holders of approximately $3.58 billion of its other outstanding debt
securities (the "Consent Solicitations").
 
    During 1994, the percentage voting power of RJRN Holdings held by
partnerships affiliated with KKR (the "KKR Partnerships") decreased
substantially and in 1995 the KKR Partnerships divested their remaining
interests in RJRN Holdings voting securities primarily in connection with the
acquisition of Borden, Inc. by certain of the KKR Partnerships.
 
  (b) Financial Information about Industry Segments
 
    During 1995, 1994 and 1993, RJRN's industry segments were tobacco and food.
 
    For information relating to industry segments for the years ended December
31, 1995, 1994 and 1993, see Note 16 to the Consolidated Financial Statements.
 
                                       2
<PAGE>
  (c) Narrative Description of Business
 
                                    TOBACCO
 
    The tobacco line of business is conducted by RJRT and Reynolds
International, which manufacture, distribute and sell cigarettes. Cigarettes are
manufactured in the United States by RJRT and in over 40 foreign countries and
territories by Reynolds International and subsidiaries or licensees of RJRT and
are sold throughout the United States and in more than 170 markets around the
world. In 1995, approximately 58% of total tobacco segment net sales (after
deducting excise taxes) and approximately 69% of total tobacco segment operating
income (before amortization of trademarks and goodwill) were attributable to
domestic tobacco operations.
 
DOMESTIC TOBACCO OPERATIONS
 
    The domestic tobacco business is conducted by RJRT which is the second
largest cigarette manufacturer in the United States. RJRT's largest selling
cigarette brands in the United States include WINSTON, DORAL, CAMEL, SALEM,
MONARCH and VANTAGE. RJRT's other cigarette brands, including MORE, NOW, BEST
VALUE, STERLING, MAGNA and CENTURY, are marketed to meet a variety of smoker
preferences. All RJRT brands are marketed in a variety of styles. Based on data
collected for RJRT by an independent market research firm, RJRT had an overall
share of retail consumer cigarette sales during 1995 of 27%, a decrease of
approximately 1 share point from 1994. During 1995, RJRT and the largest
domestic cigarette manufacturer, Philip Morris Incorporated, together sold, on a
shipment basis, approximately 72% of all cigarettes sold in the United States.
 
    In November 1994, RJRT confirmed press reports that it was developing
ECLIPSE, a cigarette that primarily heats rather than burns tobacco and thereby
substantially reduces second-hand smoke. The cigarette remains under development
and RJRT continues to assess a possible market introduction of an ECLIPSE
cigarette.
 
    A primary long-term objective of RJRT is to increase earnings and cash flow
through selective marketing investments in its key brands and continual
improvements in its cost structure and operating efficiency. Marketing programs
for full-price brands are designed to build brand awareness and add value to the
brands by building brand loyalty among current adult smokers and attracting
adult smokers of competitive brands. In 1995, these efforts included the
continuation and refinement of conversion, continuity and relationship-building
programs such as the CAMEL Genuine Taste Mission, the expanded regional
introduction of the SALEM Preferred line extension and the introduction of a
line of cigarette brands from a new operating unit, Moonlight Tobacco. RJRT
believes it is essential to compete in all segments of the cigarette market, and
accordingly it offers a range of lower-priced brands including DORAL, MONARCH
and BEST VALUE, intended to appeal to more cost-conscious adult smokers. For a
discussion on competition in the tobacco business, see "Business--Tobacco--
Competition" in this Item 1.
 
    RJRT's domestic manufacturing facilities, consisting principally of
factories and leaf storage facilities, are located in or near Winston-Salem,
North Carolina and are owned by RJRT. Cigarette production is conducted at the
Tobaccoville cigarette manufacturing plant (approximately two million square
feet) and the Whitaker Park cigarette manufacturing complex (approximately one
and one-half million square feet). RJRT believes that its cigarette
manufacturing facilities are among the most technologically advanced in the
United States. RJRT also has significant research and development facilities in
Winston-Salem, North Carolina.
 
    RJRT's cigarettes are sold in the United States primarily to chain stores,
other large retail outlets and through distributors to other retail and
wholesale outlets. Except for McLane Company, Inc., which represented
approximately 13% of RJRT's sales, no RJRT customers accounted for more than 10%
of sales for 1995. RJRT distributes its cigarettes primarily to public
warehouses located throughout the United States that serve as local distribution
centers for RJRT's customers.
 
                                       3
<PAGE>
    RJRT's products are sold to adult smokers primarily through retail outlets.
RJRT employs a decentralized marketing strategy that permits its sales force to
be flexible in responding to local market dynamics by designing individual
in-store programs to fit varying consumption patterns. RJRT uses print media,
billboards, point-of-sale displays and other methods of advertising. Since 1971,
television and radio advertising of cigarettes has been prohibited in the United
States.
 
INTERNATIONAL TOBACCO OPERATIONS
 
    Reynolds International operates in over 170 markets around the world.
Although overall foreign cigarette sales (excluding China, in which production
data indicates an approximate 2% per annum growth rate) have increased at a rate
of only 1% per annum in recent years, Reynolds International believes that the
American Blend segment, in which Reynolds International primarily competes, is
growing significantly faster. Although Reynolds International is the second
largest of two international cigarette producers that have significant positions
in the American Blend segment, its share of sales in this segment is
approximately one-third of the share of Philip Morris International Inc., the
largest American Blend producer.
 
    Reynolds International has strong brand presence in Western Europe and is
well established in its other key markets in the Middle East/Africa, Asia and
Canada. Reynolds International is aggressively pursuing development
opportunities throughout the world.
 
    Reynolds International markets nearly 100 brands of which WINSTON, CAMEL and
SALEM, all American Blend cigarettes, are its international leaders. WINSTON,
Reynolds International's largest selling international brand, has a significant
presence in Puerto Rico and has particular strength in the Western Europe and
Middle East/Africa regions. CAMEL is sold in approximately 140 markets worldwide
and is Reynolds International's second largest selling international brand.
SALEM is the world's largest selling menthol cigarette and is particularly
strong in Far East markets. Reynolds International also markets a number of
local brands in various foreign markets. None of Reynolds International's
customers accounted for more than 10% of sales in 1995.
 
    More than 20% of Reynolds International's 1995 volume was U.S.-made product,
with the remainder manufactured outside the U.S. Reynolds International brands
are manufactured in owned or joint-venture facilities in 19 locations outside
the United States, and through licensing agreements in about 20 other countries.
Reynolds International owned or joint-venture manufacturing locations include
Canada, the Canary Islands, China, the Czech Republic, Finland, Germany, Hong
Kong, Hungary, Indonesia, Kazakhstan, Malaysia, Poland, Portugal, Romania,
Russia, Switzerland, Tanzania, Turkey, Ukraine and Vietnam.
 
    Certain of Reynolds International's foreign operations are subject to local
regulations that set import quotas, restrict financing flexibility, affect
repatriation of earnings or assets and limit advertising. In recent years,
certain trade barriers for cigarettes, particularly in Asia and Eastern Europe,
have been liberalized. This may provide opportunities for all international
cigarette manufacturers, including Reynolds International, to expand operations
in such markets; however, there can be no assurance that the liberalizing trends
will be maintained or extended or that Reynolds International will be successful
in pursuing such opportunities.
 
RAW MATERIALS
 
    In its domestic production of cigarettes, RJRT primarily uses domestic
burley and flue cured leaf tobaccos purchased at domestic auction. RJRT also
purchases oriental tobaccos, grown primarily in Turkey and Greece, and certain
other non-domestic tobaccos. Reynolds International uses a variety of tobacco
leaf from both United States and international sources. RJRT and Reynolds
International believe there is a sufficient supply of tobacco in the worldwide
tobacco market to satisfy their current production requirements.
 
                                       4
<PAGE>
    Tobacco leaf is an agricultural commodity subject in the United States to
government production controls and price supports that can affect market prices
substantially. The tobacco leaf price support program is subject to
Congressional review and may be changed at any time. In addition, Congress
enacted the Omnibus Budget Reconciliation Act of 1993, which assesses financial
penalties against manufacturers if cigarettes produced in the United States do
not contain at least 75% (by weight) domestically grown flue cured and burley
tobaccos. In December 1994, Congress enacted the Uruguay Round Agreements Act to
replace this domestic content requirement with a tariff rate quota system that
keys tariffs to import volumes. The tariff rate quotas have been established by
the United States with overseas tobacco producers and became effective on
September 13, 1995. Compliance with domestic content restrictions increased raw
material costs slightly in 1994 but these costs were down slightly in 1995
during the period when the domestic content requirement was not applicable.
 
COMPETITION
 
    Generally, the markets in which RJRT and Reynolds International conduct
their businesses are highly competitive, with a number of large participants.
Competition is conducted on the basis of brand recognition, brand loyalty,
quality and price. For most of RJRT's and Reynolds International's brands,
substantial advertising and promotional expenditures are required to maintain or
improve a brand's market position or to introduce a new brand. Anti-smoking
groups have undertaken activities designed to inhibit cigarette sales, the form
and content of cigarette advertising and the testing and introduction of new
cigarette products.
 
    Because television and radio advertising for cigarettes is prohibited in the
United States and brand loyalty has tended to be higher in the cigarette
industry than in other consumer product industries, established cigarette brands
in the United States have a competitive advantage. RJRT has repositioned or
introduced brands designed to appeal to adult smokers of the largest selling
cigarette brand in the United States, but there can be no assurance that such
efforts will be successful.
 
    In addition, increased selling prices and taxes on cigarettes have resulted
in additional price sensitivity of cigarettes at the consumer level and in a
proliferation of discounted brands in the savings segment of the market.
Generally, sales of cigarettes in the savings segment are not as profitable as
those in other segments.
 
LEGISLATION AND OTHER MATTERS AFFECTING THE CIGARETTE INDUSTRY
 
    The advertising, sale and use of cigarettes has been under attack by
government and health officials in the United States and in other countries for
many years, principally due to claims that cigarette smoking is harmful to
health. This attack has resulted in: a number of substantial restrictions on the
marketing, advertising and use of cigarettes; diminishing social acceptability
of smoking; and activities by anti-smoking groups designed to inhibit cigarette
sales, the form and content of cigarette advertising and the testing and
introduction of new cigarette products. Together with manufacturers' price
increases in recent years and substantial increases in state and federal excise
taxes on cigarettes, this has had and will likely continue to have an adverse
effect on cigarette sales.
 
    Cigarettes are subject to substantial excise taxes in the United States and
to similar taxes in many foreign markets. The federal excise tax per pack of 20
cigarettes was last increased in January 1993 to its current rate of 24 cents
per pack. In addition, all states and the District of Columbia impose excise
taxes at levels ranging from a low of 2.5 cents to a high of 81.5 cents per pack
of cigarettes. Increases in these state excise taxes could also have an adverse
effect on cigarette sales. In 1994, five states enacted excise tax increases
ranging from 7.5 cents to 50 cents per pack. In 1995, the cigarette excise tax
in four states was increased by amounts which ranged from 5 cents to 24 cents
per pack. In one state, a temporary 10 cent tax, scheduled to expire in 1995,
was extended through 1997.
 
    In January 1993, the U.S. Environmental Protection Agency (the "EPA")
released a report on the respiratory effects of environmental tobacco smoke
("ETS") which concludes that ETS is a known
 
                                       5
<PAGE>
human lung carcinogen in adults and in children causes increased respiratory
tract disease and middle ear disorders and increases the severity and frequency
of asthma. RJRT has joined other parties from the tobacco and distribution
industries in a lawsuit against the EPA seeking a determination that the EPA did
not have the statutory authority to regulate ETS, and that, given the current
body of scientific evidence and the EPA's failure to follow its own guidelines
in making the determination, the EPA's classification of ETS was arbitrary and
capricious.
 
    In February 1994, the Commissioner of the U.S. Food and Drug Administration
(the "FDA"), which historically has refrained from asserting jurisdiction over
cigarette products, stated that he intended to cause the FDA to work with the
U.S. Congress to resolve the regulatory status of cigarettes under the Food,
Drug and Cosmetic Act. During the second quarter of 1994, hearings were held in
this regard, and RJRT and other members of the United States cigarette industry
were asked to provide voluntarily certain documents and other information to
Congress. In August 1995, the Commissioner of the FDA, with the support of the
Clinton Administration, announced that he was asserting jurisdiction over
cigarettes and certain other tobacco products and issued a notice and request
for comments on proposed regulations. The proposed regulations would prohibit or
impose stringent limits on a broad range of sales and marketing practices,
including bans on sampling, sponsorship by brand name, and distribution of
non-tobacco items carrying brand names. The FDA's proposed rule would also limit
advertising in print and on billboards to black and white text, impose new
labeling language, and require cigarette manufacturers to fund a $150
million-a-year campaign to discourage minors from using tobacco products. RJRT
and other cigarette manufacturers have submitted responses to the proposed
rules.
 
    The purported purpose of the FDA's assertion of jurisdiction was to curb the
use of tobacco products by underage youth. RJRT believes, however, that the
assertion of jurisdiction and the scope of the proposed rules would materially
restrict the availability of cigarettes and RJRT's ability to market its
cigarette products to adult smokers. RJRT, together with the other four major
domestic cigarette manufacturers and an advertising agency, filed suit on the
day of the Commissioner's announcement in the U.S. District Court for the Middle
District of North Carolina seeking to enjoin the FDA's assertion of jurisdiction
(Coyne Beahm v. United States Food & Drug Administration). Similar suits have
been filed in the same court by manufacturers of smokeless tobacco products, by
operators of retail stores and by advertising interests. RJRT is unable to
predict whether or when the FDA will adopt final rules asserting jurisdiction
over cigarettes or the scope of such final rules if adopted, but such rules
could have an adverse effect on cigarette sales and RJRT. It is also unable to
predict the outcome of the litigation seeking to enjoin the FDA's rulemaking.
 
    In March 1994, the U.S. Occupational Safety and Health Administration
("OSHA") announced proposed regulations that would restrict smoking in the
workplace to designated smoking rooms that are separately exhausted to the
outside. Although RJRT cannot predict the form or timing of any regulations that
may be finally adopted by OSHA, if the proposed regulations are adopted, RJRT
expects that many employers who have not already done so would prohibit smoking
in the workplace rather than make expenditures necessary to establish designated
smoking areas to accommodate smokers. RJRT submitted comments on the proposed
regulations during the comment period which closed in February 1996. Because
many employers currently do not permit smoking in the workplace, RJRT cannot
predict the effect of any regulations that may be adopted, but incremental
restrictions on smokers could have an adverse effect on cigarette sales and
RJRT.
 
    In July 1994, an amendment to a Florida statute became effective which
allows the state of Florida to bring an action in its own name against the
tobacco industry to recover amounts paid by the state under its Medicaid program
to treat illnesses statistically associated with cigarette smoking. The amended
statute does not require the state to identify the individual who received
medical care, permits a lawsuit to be filed as a class action, and eliminates
the comparative negligence and assumption of risk defenses. The Florida statute
is being challenged on state and federal constitutional grounds in a
 
                                       6
<PAGE>
lawsuit brought by Philip Morris Companies Inc., Associated Industries of
Florida, Publix Supermarkets, and National Association of Convenience Stores in
June 1994. On June 26, 1995, the trial court judge granted in part the
plaintiffs' motion for summary judgment finding portions of the statute
unconstitutional. Both plaintiffs and defendants appealed this decision which
the Florida supreme court accepted for direct appeal. Oral argument was heard on
November 6, 1995.
 
    The Florida House and Senate passed a bill that would repeal the Florida
statute retroactively which was vetoed by the Governor. The Florida House and
Senate have indicated that they are considering action to override that veto.
Similar legislation, without Florida's elimination of defenses, has been
introduced in the Massachusetts and New Jersey legislatures. RJRT is unable to
predict whether other states will enact similar legislation and whether lawsuits
will be filed under these statutes or their outcome, if filed. A suit against
the tobacco industry was filed under the Florida statute on February 21, 1995.
See "Business--Tobacco--Litigation Affecting the Cigarette Industry" below in
this Item 1.
 
    Legislation imposing various restrictions on public smoking has also been
enacted in forty-eight states and many local jurisdictions, and many employers
have initiated programs restricting or eliminating smoking in the workplace.
Seventeen states have enacted legislation designating a portion of increased
cigarette excise taxes to fund either anti-smoking programs, health care
programs or cancer research. Federal law prohibits smoking on all domestic
airline flights of six hours duration or less and the U.S. Interstate Commerce
Commission has banned smoking on buses transporting passengers inter-state.
Certain common carriers have imposed additional restrictions on passenger
smoking.
 
    A number of foreign countries have also taken steps to discourage cigarette
smoking, to restrict or prohibit cigarette advertising and promotion and to
increase taxes on cigarettes. Such restrictions are, in some cases, more onerous
than restrictions imposed in the United States. In June 1988, Canada enacted a
ban on cigarette advertising, which was struck down on grounds of
constitutionality by the Supreme Court of Canada in 1995.
 
    In 1990, RJRT and other U.S. cigarette manufacturers, through The Tobacco
Institute, announced a tobacco industry initiative to assist retailers in
enforcing minimum age laws on the sale of cigarettes, to support the enactment
of state laws requiring the adult supervision of cigarette vending machines in
places frequented by minors, to seek the uniform establishment of 18 as the
minimum age for the purchase of cigarettes in all states, to distribute
informational materials to assist parents in combatting peer pressure on their
children to smoke and to limit voluntarily certain cigarette advertising and
promotional practices. In 1995, wholesalers, retailers and the tobacco industry
including RJRT formed the Coalition for Responsible Tobacco Retailing and
launched a new program (We Card) focused on stopping underage access to
cigarettes. In 1992, the Alcohol, Drug Abuse and Mental Health Act was signed
into law. This act requires states to adopt a minimum age of 18 for purchases of
tobacco products and to establish a system to monitor, report and reduce the
illegal sale of tobacco products to minors in order to continue receiving
federal funding for mental health and drug abuse programs. In January, 1996,
regulations implementing this legislation were announced by the Department of
Health and Human Services.
 
                                       7
<PAGE>
    In 1964, the Report of the Advisory Committee to the Surgeon General of the
U.S. Public Health Service concluded that cigarette smoking was a health hazard
of sufficient importance to warrant appropriate remedial action. Since 1966,
federal law has required a warning statement on cigarette packaging. Since 1971,
television and radio advertising of cigarettes has been prohibited in the United
States. Cigarette advertising in other media in the United States is required to
include information with respect to the "tar" and nicotine yield content of
cigarettes, as well as a warning statement.
 
    During the past three decades, various laws affecting the cigarette industry
have been enacted. In 1984, Congress enacted the Comprehensive Smoking Education
Act (the "Smoking Education Act"). Among other things, the Smoking Education
Act: (i) establishes an interagency committee on smoking and health that is
charged with carrying out a program to inform the public of any dangers to human
health presented by cigarette smoking; (ii) requires a series of four health
warnings to be printed on cigarette packages and advertising on a rotating
basis; (iii) increases type size and area of the warning required in cigarette
advertisements; and (iv) requires that cigarette manufacturers provide annually,
on a confidential basis, a list of ingredients used in the manufacture of
cigarettes to the Secretary of Health and Human Services. The warnings currently
required on cigarette packages and advertisements (other than billboards) are as
follows: (i) "Surgeon General's Warning: Smoking Causes Lung Cancer, Heart
Disease, Emphysema, And May Complicate Pregnancy"; (ii) "Surgeon General's
Warning: Quitting Smoking Now Greatly Reduces Serious Risks To Your Health";
(iii) "Surgeon General's Warning: Smoking By Pregnant Women May Result in Fetal
Injury, Premature Birth, and Low Birth Weight"; and (iv) "Surgeon General's
Warning: Cigarette Smoke Contains Carbon Monoxide." Similar warnings are
required on outdoor billboards. In 1990, the Fire Safe Cigarette Act of 1990 was
enacted, which directed the Consumer Product Safety Commission to conduct and
oversee research begun under the direction of the Cigarette and Little Cigar
Fire Safety Act of 1984 to assess the practicability of developing a performance
standard to reduce cigarette ignition propensity. The Commission presented a
final report to Congress in 1993 describing the results of the research. The
Commission concluded that, while "it is practicable to develop a performance
standard to reduce cigarette ignition propensity, it is unclear that such a
standard would effectively address the number of cigarette-ignited fires." The
Commission further found that additional work would be required before the
actual development of a performance standard. Nevertheless, the Commission
reported that a test method developed by the National Institute of Standards and
Technology was valid and reliable within reasonable limits and could be suitable
for use in a performance standard. Although RJRT cannot predict whether further
legislation on this subject may be enacted, some form of regulation of
cigarettes based on their propensity to ignite soft furnishings may result.
 
    Since the initial report in 1964, the Secretary of Health, Education and
Welfare (now the Secretary of Health and Human Services) and the Surgeon General
have issued a number of other reports which purport to find the nicotine in
cigarettes addictive and to link cigarette smoking and exposure to cigarette
smoke with certain health hazards, including various types of cancer, coronary
heart disease and chronic obstructive lung disease. These reports have
recommended various governmental measures to reduce the incidence of smoking.
 
    In addition to the foregoing, legislation and regulations potentially
detrimental to the cigarette industry, generally relating to the taxation of
cigarettes and regulation of advertising, labeling, promotion, sale and smoking
of cigarettes, have been proposed from time to time at various levels of the
federal government. During the last Congress, the Clinton administration and
federal legislators introduced bills that would have significantly increased the
federal excise tax on cigarettes, eliminated the deductibility of the cost of
tobacco advertising, banned smoking in public buildings and on any scheduled
airline flight, and given the Food and Drug Administration authority to reduce
and eliminate nicotine in tobacco products. This legislation was not enacted.
 
    It is not possible to determine what additional federal, state, local or
foreign legislation or regulations relating to smoking or cigarettes will be
enacted or to predict any resulting effect thereof on
 
                                       8
<PAGE>
RJRT, Reynolds International or the cigarette industry generally, but such
legislation or regulations could have an adverse effect on RJRT, Reynolds
International or the cigarette industry generally.
 
LITIGATION AFFECTING THE CIGARETTE INDUSTRY
 
    Various legal actions, proceedings and claims are pending or may be
instituted against RJRT or its affiliates or indemnitees, including those
claiming that lung cancer and other diseases have resulted from the use of or
exposure to RJRT's tobacco products. During 1995, 101 new actions were filed or
served against RJRT and/or its affiliates or indemnitees and 22 such actions
were dismissed or otherwise resolved in favor of RJRT and/or its affiliates or
indemnitees without trial. A total of 132 such actions in the United States and
two against RJRT's Canadian subsidiary were pending on December 31, 1995. As of
February 16, 1996, 144 active cases were pending against RJRT and/or its
affiliates or indemnitees, 142 in the United States and two in Canada. The
United States cases are in 22 states and are distributed as follows: 90 in
Florida; 10 in Louisiana; 5 in Texas; 4 in each of Indiana, Kansas and
Tennessee; 3 in each of Mississippi, California, Pennsylvania; 2 in each of
Alabama, Colorado, Massachusetts and Minnesota; and one in each of Missouri, 
Nevada, New Hampshire, New Jersey, New York, North Carolina, Rhode Island, 
South Carolina and West Virginia. Of the 142 active cases in the United 
States, 116 are pending in state court and 26 in federal court.
 
    Five of the 142 active cases in the United States involve alleged
non-smokers claiming injuries resulting from exposure to environmental tobacco
smoke. Six cases, which are described more specifically below, purport to be
class actions on behalf of thousands of individuals. Purported classes include
individuals claiming to be addicted to cigarettes and flight attendants alleging
personal injury from exposure to environmental tobacco smoke in their workplace.
Four of the active cases were brought by state attorneys general seeking, inter
alia, recovery of the cost of Medicare funds paid by their states for treatment
of citizens allegedly suffering from tobacco related diseases or conditions. In
addition, one case was brought by the State of Florida seeking similar rulings
under a special state statute.
 
    The plaintiffs in these actions seek recovery on a variety of legal
theories, including strict liability in tort, design defect, negligence, breach
of warranty, failure to warn, fraud, misrepresentation, unfair trade practices,
conspiracy, unjust enrichment, indemnity and common law public nuisance.
Punitive damages, often in amounts ranging into the hundreds of millions of
dollars, are specifically pleaded in 20 cases in addition to compensatory and
other damages. The defenses raised by RJRT and/or its affiliates, where
applicable, include preemption by the Federal Cigarette Labeling and Advertising
Act, as amended (the "Cigarette Act") of some or all such claims arising after
1969; the lack of any defect in the product; assumption of the risk; comparative
fault; lack of proximate cause; and statutes of limitations or repose. Juries
have found for plaintiffs in two smoking and health cases in which RJRT was not
a defendant, but in one such case, which has been appealed by both parties, no
damages were awarded. The jury awarded plaintiffs $400,000 in the other such
case, Cipollone v. Liggett Group, which award was overturned on appeal and the
case was subsequently dismissed.
 
    On June 24, 1992, the United States Supreme Court in Cipollone held that
claims that tobacco companies failed to adequately warn of the risks of smoking
after 1969 and claims that their advertising and promotional practices
undermined the effect of warnings after that date were preempted by the
Cigarette Act. The Supreme Court also held that claims of breach of express
warranty, fraud, misrepresentation and conspiracy were not preempted. The
Supreme Court's decision was announced through a plurality opinion, and further
definition of how Cipollone will apply to other cases must await rulings in
those cases.
 
    Certain legislation proposed in recent years in Congress, among other
things, would eliminate any such preemptive effect on common law damage actions
for personal injuries. RJRT is unable to predict whether such legislation will
be enacted and, if so, in what form, or whether such legislation would be
 
                                       9
<PAGE>
intended by Congress to apply retroactively. The passage of such legislation
could increase the number of cases filed against cigarette manufacturers,
including RJRT.

    Set forth below are descriptions of the class action lawsuits, a suit in
which plaintiffs seek to act as private attorneys general, actions brought by
state attorneys general in Massachusetts, Minnesota, Mississippi and West
Virginia, an action brought by the State of Florida and pending investigations
relating to RJRT's tobacco business.
 
    In 1991, Broin v. Philip Morris Company, a purported class action against
certain tobacco industry defendants, including RJRT, was brought by flight
attendants claiming to represent a class of 60,000 individuals, alleging
personal injury caused by exposure to environmental tobacco smoke in their
workplace. In December 1994, the Florida state court certified a class
consisting of "all non-smoking flight attendants who are or have been employed
by airlines based in the United States and are suffering from diseases and
disorders caused by their exposure to secondhand cigarette smoke in airline
cabins." The defendants appeal of this certification to the Florida Third
District Court of Appeal was denied on January 3, 1995. A motion for rehearing
has been filed.
 
    In March 1994, Castano v. The American Tobacco Company, a purported class
action, was filed in the United States District Court for the Eastern District
of Louisiana against tobacco industry defendants, including RJRT, seeking
certification of a class action on behalf of all United States residents who
allegedly are or claim to be addicted, or are the legal survivors of persons who
allegedly were addicted, to tobacco products manufactured by defendants. The
complaint alleges that cigarette manufacturers manipulated the levels of
nicotine in their tobacco products to induce addiction in smokers. Plaintiffs'
motion for certification of the class was granted in part on February 17, 1995.
The district court certified core liability issues (fraud, negligence, breach of
warranty, both express and implied, intentional tort, strict liability and
consumer protection statutes), and punitive damages. Not certified were issues
of injury-in-fact, proximate cause, reliance, affirmative defenses, and
compensatory damages. In July 1995, the Fifth Circuit Court of Appeals agreed to
hear defendants' appeal of this class certification. A decision is expected in
1996.
 
    In March 1994, Lacey v. Lorillard Tobacco Company, a purported class action,
was filed in Circuit Court, Fayette County, Alabama against three cigarette
manufacturers, including RJRT. Plaintiff, who claims to represent all smokers
who have smoked or are smoking cigarettes manufactured and sold by defendants in
the state of Alabama, seeks compensatory and punitive damages not to exceed
$48,500 per class member and injunctive relief arising from defendants' alleged
failure to disclose additives used in their cigarettes. In April 1994,
defendants removed the case to the United States District Court for the Northern
District of Alabama.
 
    In May 1994, Engle v. R.J. Reynolds Tobacco Company, was filed in Circuit
Court, Eleventh Judicial District, Dade County, Florida against tobacco
manufacturers, including RJRT, and other members of the industry, by plaintiffs
who allege injury and purport to represent a class of all United States citizens
and residents who claim to be addicted, or who claim to be legal survivors of
persons who allegedly were addicted, to tobacco products. On October 28, 1994, a
state court judge in Miami granted plaintiffs' motion to certify the class. The
defendants appealed that ruling to the Florida Third District Court of Appeal
which, on January 31, 1996, decided to certify a class limited to Florida
citizens or residents. The defendants are considering seeking a rehearing.
 
    In September 1994, Granier v. American Tobacco Company, a purported class
action apparently patterned after the Castano case, was filed in the United
States District Court for the Eastern District of Louisiana against tobacco
industry defendants, including RJRT. Plaintiffs seek certification of a class
action on behalf of all residents of the United States who have used and
purportedly became addicted to tobacco products manufactured by defendants. The
complaint alleges that cigarette manufacturers manipulated the levels of
nicotine in tobacco products for the purpose of addicting 
 
                                       10
<PAGE>
consumers. By agreement of the parties, all action in this case is stayed 
pending determination of the motion for class certification in the Castano 
case.

    In January 1995, a purported class action was filed in the Ontario Canada
Court of Justice against RJR-MacDonald, Inc. and two other Canadian cigarette
manufacturers. The lawsuit, then captioned Le Tourneau, v. Imperial Tobacco
Company, seeks certification of a class of persons who have allegedly become
addicted to the nicotine in cigarettes or who had such alleged addiction
heightened or maintained through the use of cigarettes, and who have allegedly
suffered loss, injury, and damage in consequence, together with persons with
Family Law Act claims in respect to the claims of such allegedly addicted
persons, and the estates of such allegedly addicted persons. Theories of
recovery pleaded include negligence, strict liability, failure to warn, deceit,
negligent misrepresentation, breach of implied warranty and conspiracy. The
relief sought consists of damages of one million dollars for each of the three
named plaintiffs, punitive damages, funding of nicotine addiction rehabilitation
centers, interest and costs. On June 2, 1995, the plaintiffs, on consent, were
granted leave to file an amended statement of claim to remove Le Tourneau as
representative plaintiff and add two additional representative plaintiffs. The
case is now captioned Caputo v. Imperial Tobacco Limited.
 
    In June 1994, in Mangini v. R.J. Reynolds Tobacco Company, the California
Supreme Court ruled that the plantiffs' claim that an RJRT advertising campaign
constitutes unfair competition under the California Business and Professions
Code was not preempted by the Cigarette Act. The plantiffs are acting as private
attorneys general. This opinion allows the plaintiffs to pursue their lawsuit
which had been dismissed at the trial court level. The defendants' Petition for
Certiorari to the United States Supreme Court was denied in December 1994. The
case has been remanded to the trial court.
 
    In June 1994, in Moore v. The American Tobacco Company, RJRN and RJRT were
named along with other industry members as defendants in an action brought by
the Mississippi state attorney general on behalf of the state to recover state
funds paid for health care and medical and other assistance to state citizens
allegedly suffering from diseases and conditions allegedly related to tobacco
use. This suit, which was brought in Chancery (non-jury) Court, Jackson County,
Mississippi also seeks an injunction from "promoting" or "aiding and abetting"
the sale of cigarettes to minors. Both actual and punitive damages are sought in
unspecified amounts. Motions by the defendants to dismiss the case or to
transfer it to circuit (jury) court were denied on February 21, 1995 and the
case will proceed in Chancery Court. RJRN and other industry holding companies
have been dismissed from the case.
 
    In August 1994, RJRT and other U.S. cigarette manufacturers were named as
defendants in an action instituted on behalf of the state of Minnesota and of
Blue Cross and Blue Shield of Minnesota to recover the costs of medical expenses
paid by the state and by Blue Cross/Blue Shield that were incurred in the
treatment of diseases allegedly caused by cigarette smoking. The suit, Minnesota
v. Philip Morris, alleges consumer fraud, unlawful and deceptive trade
practices, false advertising and restraint of trade, and it seeks injunctive
relief and money damages, trebled for violations of the state antitrust law.
Motions by the defendants to dismiss all claims of Blue Cross/Blue Shield and
certain substantive claims of the State of Minnesota, and by plaintiffs to
strike certain of the defendants' defenses, were denied on May 19, 1995. An
intermediate appeals court declined to hear the defendants' appeal from the
ruling denying the motion to dismiss all claims of Blue Cross/Blue Shield on the
ground that it lacks standing to bring the action, but the Minnesota Supreme
Court has agreed to do so. Oral argument was heard January 29, 1996 and a
decision is pending.
 
    In September 1994, the Attorney General of West Virginia filed suit against
RJRT, RJRN and twenty-one additional defendants in state court in West Virginia.
The lawsuit, McGraw v. American Tobacco Company, is similar to those previously
filed in Mississippi and Minnesota. It seeks recovery for medical expenses
incurred by the state in the treatment of diseases statistically associated with
cigarette smoking and requests an injunction against the promotion and sale of
cigarettes and tobacco products to minors. The lawsuit also seeks a declaration
that the state of West Virginia, as plaintiff, is 
 
                                       11
<PAGE>
not subject to the defenses of
statute of repose, statute of limitations, contributory negligence, comparative
negligence, or assumption of the risk. On May 3, 1995, the judge granted
defendants' motion to dismiss eight of the ten causes of action pleaded. The
defendants have filed motions to dismiss the remaining two counts. On October
20, 1995, at a hearing on the defendants' joint motion to prohibit prosecution 
of the action due to plaintiff's unlawful retention of counsel under a 
contingent fee arrangement, in a ruling from the bench, the contingent fee
agreement between the West Virginia Attorney General and private attorneys
preparing the case was held to be void on the grounds that the Attorney General
has no constitutional, legislative, or statutory authority for entering into
such an agreement.
 
    On February 21, 1995, the state of Florida filed a suit under a special
state statute against RJRT and RJRN, along with other industry members, their
holding companies and other entities. The state is seeking Medicaid
reimbursement under various theories of liability and injunctive relief to
prevent the defendants from engaging in consumer fraud and to require that
defendants: disclose and publish all research conducted directly or indirectly
by the industry; fund a corrective public education campaign on the issues of
smoking and health in Florida; prevent the distribution and sale of cigarettes
to minors under the age of eighteen; fund clinical smoking cessation programs in
the state of Florida; dissolve the Council for Tobacco Research and the Tobacco
Institute or divest ownership, sponsorship, or membership in both; and disgorge
all profits from sales of cigarettes in Florida. On defendants' motion, the case
was stayed until July 7, 1995 and that stay has been extended pending appeals by
the plaintiffs and the defendants in connection with the constitutional
challenge to the Florida statute discussed above. See "Business--Tobacco--
Legislation and Other Matters Affecting the Cigarette Industry" in this Item 1.
 
    On November 28, 1995, RJRT and other domestic cigarette manufacturers filed
petitions for declaratory judgment in Massachusetts (Federal Court) and Texas
(State Court, Austin Texas) as to potential Medicaid reimbursement suits that
had been threatened by the Attorneys General of those states. On January 22,
1996, a similar petition for declaratory judgement was filed in Maryland (State
Court).
 
    On December 19, 1995, the Commonwealth of Massachusetts filed suit against
cigarette manufacturers including RJRT and additional defendants including trade
associations and wholesalers, seeking reimbursement of Medicaid and other costs
incurred by the state in providing health care to citizens allegedly suffering
from diseases or conditions purportedly caused by cigarette smoking. The
complaint also seeks orders requiring the manufacturing defendants to disclose
and disseminate prior research; fund a corrective campaign and smoking cessation
program; disclose nicotine yields of their products; and pay restitution.
 
    RJRT understands that a grand jury investigation being conducted in the
Eastern District of New York is examining possible violations of criminal law in
connection with activities relating to the Council for Tobacco Research--USA,
Inc., of which RJRT is a sponsor. RJRT is unable to predict the outcome of this
investigation.
 
    RJRT received a civil investigative demand dated January 11, 1994 from the
U.S. Department of Justice requesting broad documentary information from RJRT.
Although the request appears to focus on tobacco industry activities in
connection with product development efforts, it also requests general
information concerning contacts with competitors. RJRT is unable to predict the
outcome of this investigation.
 
                              -------------------
 
    Litigation is subject to many uncertainties, and it is possible that some of
the tobacco-related legal actions, proceedings or claims could be decided
against RJRT or its affiliates or indemnitees. Determinations of liability or
adverse rulings against other cigarette manufacturers that are defendants in
similar actions, even if such rulings are not final, could adversely affect the
litigation against RJRT or 
 
                                       12
<PAGE>
its affiliates or indemnitees and increase the number of such claims. Although 
it is impossible to predict the outcome of such events or their effect on RJRT,
a significant increase in litigation activities could have an adverse effect 
on RJRT. RJRT believes that it has a number of valid defenses to any such 
actions, including but not limited to those defenses based on preemption 
under the Cipollone decision, and RJRT intends to defend vigorously all such 
actions.

    RJRN Holdings and RJRN believe that the ultimate outcome of all pending
litigation matters should not have a material adverse effect on the financial
position of either RJRN Holdings or RJRN; however, it is possible that the
results of operations or cash flows of RJRN Holdings or RJRN in particular
quarterly or annual periods or the financial condition of RJRN Holdings and RJRN
could be materially affected by the ultimate outcome of certain pending
litigation matters. Management is unable to derive a meaningful estimate of the
amount or range of any possible loss in any particular quarterly or annual
period or in the aggregate.
 
                                      FOOD
 
    The food line of business is conducted by operating subsidiaries of Nabisco
Holdings. RJRN owns 100% of the outstanding Class B Common Stock of Nabisco
Holdings, which represents approximately 80.5% of the economic interest in
Nabisco Holdings and approximately 97.6% of the total voting power of Nabisco
Holdings' outstanding common stock. Nabisco's businesses in the United States
are comprised of the Nabisco Biscuit, Specialty Products, LifeSavers, Planters,
Food Service and Fleischmann's companies (collectively, the "Domestic Food
Group"). Nabisco's businesses outside the United States are conducted by Nabisco
Ltd and Nabisco International (collectively, the "International Food Group").
Nabisco Ltd was recently shifted from the Domestic Food Group (formerly the
North American Food Group) to the International Food Group.
 
    Food products are sold under trademarks owned or licensed by Nabisco and
brand recognition is considered essential to their successful marketing. None of
Nabisco's customers accounted for more than 10% of sales for 1995.
 
DOMESTIC FOOD GROUP OPERATIONS
 
    Nabisco Biscuit Company. Nabisco Biscuit Company is the largest manufacturer
and marketer in the United States cookie and cracker industry with nine of the
ten top selling brands, each of which had annual net sales of over $100 million
in 1995. Overall, in 1995, Nabisco Biscuit had a 40.8% share of the domestic
cookie category and a 55.3% share of the domestic cracker category, in the
aggregate more than three times the share of its closest competitor. Leading
Nabisco Biscuit cookie brands include OREO, CHIPS AHOY!, NEWTONS and
SNACKWELL'S. Leading Nabisco Biscuit cracker brands include RITZ, PREMIUM,
NABISCO HONEY MAID GRAHAMS, WHEAT THINS and TRISCUIT.

    OREO and CHIPS AHOY! are the two largest selling cookies in the United
States. OREO, the leading sandwich cookie, is Nabisco Biscuit's largest selling
cookie brand. Line extensions such as OREO DOUBLE STUF, FUDGE COVERED OREO and
Reduced Fat OREO continue to increase the brand's appeal to targeted consumer
groups. CHIPS AHOY! is the leader in the chocolate chip cookie segment with line
extensions such as CHUNKY CHIPS AHOY! and CHEWY CHIPS AHOY! broadening its
appeal and adding incremental sales.
 
    NEWTONS, the oldest Nabisco Biscuit cookie brand, is the fourth leading
cookie brand in the United States. The introduction of FAT FREE FIG and APPLE
NEWTONS in 1992, FAT FREE CRANBERRY, STRAWBERRY and RASPBERRY NEWTONS in 1993
and FAT FREE REDUCED CALORIE CRANBERRY and BLUEBERRY, as well as NEWTONS
COBBLERS in 1995 have expanded the appeal of NEWTONS and added incremental
sales.

 
                                       13
<PAGE>

 
    Nabisco Biscuit's cracker business is led by RITZ, the largest selling
cracker in the United States, as well as RITZ BITS, RITZ BITS SANDWICHES 
and REDUCED FAT RITZ successful product line extensions which, together with 
RITZ, accounted for 13.2% of cracker sales in the United States in 1995. In 
addition, PREMIUM, the oldest Nabisco cracker brand and the leader in the 
saltine cracker segment, is joined by NABISCO HONEY MAID GRAHAMS, WHEAT THINS 
and TRISCUIT to comprise, along with RITZ, five of the six largest selling 
cracker brands in the United States.
 
    In 1992, Nabisco Biscuit became the leading manufacturer and marketer of no
fat/reduced fat cookies and crackers with the introduction of the SNACKWELL'S
line, which is now the third largest cookie brand in the U.S.  Nabisco Biscuit 
also acquired Stella D'oro, a leading producer of breadsticks, breakfast 
biscuits, specialty cakes, pastries and snacks. This line of specialty items 
gave Nabisco Biscuit access to new areas within supermarkets, further 
broadening Nabisco's cookie and cracker portfolio.
 
    Nabisco Biscuit's other cookie and cracker brands, which include NUTTER
BUTTER, NILLA WAFERS, BARNUM'S ANIMAL CRACKERS, BETTER CHEDDARS, HARVEST CRISPS,
CHICKEN IN A BISKIT and CHEESE NIPS, compete in consumer niche segments. Many
are the first or second largest selling brands in their respective segments.
 
    In 1994, Nabisco entered the breakfast snack aisle with the launch of
SNACKWELL'S cereal bars and granola bars and the repositioning of TOASTETTES
toaster pastries.
 
    Nabisco Biscuit's products are manufactured in 14 Nabisco Biscuit owned
bakeries and in 16 facilities with which Nabisco Biscuit has production
agreements. These facilities are located throughout the United States. Nabisco
Biscuit is in the process of modernizing certain of its facilities. Nabisco
Biscuit also operates a flour mill in Toledo, Ohio which supplies over 85% of
its flour needs.
 
    Nabisco Biscuit's products are sold to major grocery and other large retail
chains through Nabisco Biscuit's direct store delivery system. The system is
supported by a distribution network utilizing 10 major distribution warehouses
and 129 shipping branches where shipments are consolidated for delivery to
approximately 119,000 separate delivery points. Nabisco believes this
sophisticated distribution and delivery system provides it with a significant
service advantage over its competitors.
 
    Specialty Products Company. The Specialty Products Company manufactures and
markets a broad range of food products, with sauces and condiments, pet snacks,
hot cereals and dry mix desserts representing the largest categories. Many of
its products are first or second in their product categories. Well-known brand
names include A.1. steak sauces, GREY POUPON mustards, MILK-BONE pet snacks,
CREAM OF WHEAT hot cereals and ROYAL desserts. In September 1995, Specialty
Products exited the Mexican food category, with the sale of its Ortega Mexican
food business.
 
    Specialty Products' primary entries in the sauce and condiment segments are
A.1. and A.1. BOLD steak sauces, the leading lines of steak sauces, and GREY
POUPON mustards, which include the leading Dijon mustard. Specialty Products
also markets REGINA wine vinegar, the leader in its segment of the vinegar 
market. 
 
    Specialty Products is the second largest manufacturer of pet snacks in the
United States with MILK-BONE dog biscuits. MILK-BONE products include MILK-BONE
ORIGINAL BISCUITS, FLAVOR SNACKS, DOG TREATS and BUTCHER'S CHOICE. 

    Specialty Products participate in the dry mix dessert category with ROYAL
and SNACKWELL'S brand gelatins and puddings. Specialty Products also
participates in the non-dessert gelatin category with KNOX unflavored gelatins
and has lines of regional products including COLLEGE INN broths, VERMONT MAID
syrup, MY-T-FINE puddings, DAVIS baking powder and BRER RABBIT 
 
                                       14
<PAGE>
molasses and syrup. 
 
    Nabisco, through the Specialty Products Company, manufactures hot cereals,
participating in the cook-on-stove and mix-in-bowl segments of the category.
CREAM OF WHEAT, the leading wheat-based hot cereal, and CREAM OF RICE
participate in the cook-on-stove segment and eight varieties of INSTANT CREAM OF
WHEAT participate in the mix-in-bowl segment. Quaker Oats Company is the most 
significant participant in the hot cereal category.
 
    Specialty Products manufactures its products in four plants as well as in 
six facilities with which it has production agreements. Specialty Products 
sells to retail grocery chains through independent brokers and to drugstores, 
mass merchandisers and other major retail outlets through a direct sales 
force. The products are sold and distributed by Nabisco's Sales & Integrated 
Logistics Group.
 
    LifeSavers Company. The LifeSavers Company manufactures and markets
non-chocolate candy and gum primarily for sale in the United States. LifeSavers'
well-known brands include LIFE SAVERS candy, BREATH SAVERS sugar free mints,
BUBBLE YUM bubble gum, FRUIT STRIPE gum, CARE*FREE sugarless gum, NOW & LATER
fruit chewy taffy and GUMMI SAVERS fruit chewy candy. LIFE SAVERS is the largest
selling non-chocolate candy brand in the United States, with a 1995 share of 
4.9% of the non-chocolate candy category. BREATH SAVERS is the largest selling
sugar free breath mint in the United States and BUBBLE YUM is the largest 
selling chunk bubble gum in the United States. LifeSavers' products are 
seasonally strongest in the fourth quarter.
 
    LifeSavers sells its products in the United States primarily to grocery
stores, drug stores, mass merchandisers, convenience stores, membership club
stores and food service, military and vending machine suppliers. The products
are sold and distributed by Nabisco's Sales & Integrated Logistics Group.
LifeSavers currently owns and operates four manufacturing facilities.
 
    Planters Company. The Planters Company produces and/or markets nuts and
snacks largely for sale in the United States, primarily under the PLANTERS
trademark. Planters is the clear leader in the packaged nut category, with a
market share of seven times that of its nearest competitor. Planters' products 
are commodity oriented and are seasonally strongest in the fourth quarter.
 
    Planters sells its products in the United States primarily to grocery
stores, drug stores, mass merchandisers, convenience stores, membership club
stores and food service, military and vending machine suppliers. The products
are sold and distributed by Nabisco's Sales & Integrated Logistics Group.
Planters currently owns and operates two manufacturing facilities.
 
    Food Service Company. The Food Service Company sells through non-grocery
channels a variety of specially packaged food products of the Domestic Food
Group, including cookies, crackers, hot cereals, sauces and condiments for the
food service and vending machine industry. Food Service is also a leading
regional supplier of premium frozen pies to in-store supermarket bakeries,
wholesale clubs and food service accounts through Plush Pippin. The Food 
Service products are distributed by Nabisco's Sales & Integrated Logistics 
Group.
 
    Fleischmann's Company. The Fleischmann's Company manufactures and markets
various margarines and spreads as well as no-fat egg products and non-fat
chocolate yogurt.
 
    Fleischmann's is the second largest margarine producer in the United
States. Fleischmann's participates in all segments of the margarine category,
with the FLEISCHMANN'S, BLUE BONNET and MOVE OVER BUTTER brands. Fleischmann's
Company strengthened its position in the margarine category in 1995, with the
purchase of the Kraft margarine business which includes the PARKAY, TOUCH OF
BUTTER and CHIFFON brands acquired from Kraft Foods, Inc. in October, 1995.
Fleischmann's margarines are currently manufactured in two owned facilities and
in six facilities  
                                       15
<PAGE>
with which Fleischmann's has production agreements. Fleischmann's is the 
market leader in the healthy packaged egg category with EGG BEATERS and in 
1995, introduced SNACKWELL'S Nonfat Chocolate Yogurt. Distribution for 
Fleischmann's is principally direct from plant to retailer warehouses through 
Nabisco's Sales & Integrated Logistics Group and with respect to the 1995 
acquired products, for a temporary period through Kraft's distribution system.
 
    Sales & Integrated Logistics Group. The Sales & Integrated Logistics Group
handles sales and distribution for the Specialty Products, LifeSavers, Planters
and Fleischmann's Companies and distribution for the Food Service Company. It
sells to retail grocery chains through independent brokers and a direct sales
force, and to drug stores, mass merchandisers and other major retail outlets
through its direct sales force. The products are distributed from twenty-one
distribution centers located throughout the United States.
 
INTERNATIONAL FOOD GROUP OPERATIONS
 
    Nabisco Ltd. Nabisco Ltd conducts Nabisco's Canadian operations through a
biscuit division, a grocery division and a food service division. Excluding
private label brands, the biscuit division produced nine of the top ten cookies
and nine of the top ten crackers in Canada in 1995. Nabisco Ltd's cookie and
cracker brands in Canada include OREO, CHIPS AHOY!, FUDGEE-O, PEEK FREANS,
DAD'S, DAVID, PREMIUM PLUS, RITZ, TRISCUIT and STONED WHEAT THINS. These
products are manufactured in five bakeries in Canada and are sold through a
direct store delivery system, utilizing 11 sales offices and distribution
centers and a combination of public and private carriers. Nabisco Ltd also
markets a variety of single-serve cookies, crackers and salty snacks under such
brand names as MINI OREO, RITZ BITS SANDWICHES and CRISPERS.
 
    Nabisco Ltd's grocery division produces and markets canned fruits and
vegetables, fruit juices and drinks and pet snacks. The grocery division is the
leading canned fruit producer in Canada and is the second largest canned
vegetable producer in Canada. Canned fruits, vegetables, soups and fruit juices
and drinks are marketed under the DEL MONTE trademark, pursuant to a license
from the Del Monte Corporation, and under the AYLMER trademark. The grocery
division also markets MILK-BONE pet snacks and MAGIC baking powder, each a
leading brand in Canada. Nabisco Ltd's grocery division operated six
manufacturing facilities in 1995, five of which were devoted to canned products,
principally fruits and vegetables, and one of which produced pet snacks. The
grocery division's products are sold directly to retail chains and are
distributed through five regional warehouses. In 1995, Nabisco Ltd acquired the
PRIMO brand of dry pasta, canned tomatoes and other Italian food products which
are manufactured in two facilities and sold and distributed by a direct store
delivery system.
 
    In 1995, Nabisco Ltd re-entered the margarine and tablespread business with
its acquisition of the PARKAY, TOUCH OF BUTTER and CHIFFON brands from Kraft
Canada Inc. These products are currently manufactured and distributed under
agreements with Kraft Canada.

    Nabisco Ltd's food service division sells a variety of specially packaged
food products including cookies, crackers and canned fruits and vegetables as
well as condiments to non-grocery outlets. The food service division has its own
sales and marketing organization and sources product from Nabisco Ltd's other
divisions.
 
    Nabisco International. Nabisco International is a leading producer of
biscuits, powdered dessert and drink mixes, baking powder, pasta, milk products
and other grocery items, industrial yeast and bakery ingredients. Nabisco
International also exports a variety of Domestic Food Group products to markets
in Europe and Asia from the United States and is one of the largest
multinational packaged food businesses in Latin America.
 
                                       16
<PAGE>
 
    Nabisco International manufactures and markets biscuits and crackers under
the NABISCO brand, yeast, baking powder and bakery ingredients under the
FLEISCHMANN'S and ROYAL brands, desserts and drink mixes under the ROYAL brand,
processed milk products under the GLORIA brand and canned fruits and vegetables
under the DEL MONTE brand pursuant to a license from the Del Monte Corporation.
Nabisco International's largest market is Brazil, where it operates 16 plants.
Nabisco International is the market leader in powdered desserts in Spain and
most of Latin America, in the yeast category in Brazil and certain other Latin
American countries, in biscuits in Peru, Spain, Venezuela and Uruguay, and in
canned vegetables in Venezuela. Nabisco International also maintains a strong
position in the processed milk category in Brazil and expanded its market share
through the 1995 acquisitions of Avare and Gumz. In Argentina, Nabisco
International acquired 71% of Establecimiento Modelo Terrabusi S.A. in April
1994 and increased its interest in the Argentine biscuit and pasta company to
approximately 99% in October and November 1994. Nabisco International has
operations in 17 Latin American countries.
 
    Nabisco International significantly increased its presence in Europe through
its 1993 and 1994 100% acquisition of Royal Brands S.A. in Spain and Royal
Brands Portugal. Nabisco International's products in Spain include biscuits
marketed under the ARTIACH and MARBU trademarks, powdered dessert mixes marketed
under the ROYAL trademark and various other foods, including canned meats and
juices.
 
    Nabisco International reentered the South African market through the
acquisition of 50% of Royal Beech-Nut (Pty) Ltd., which it previously owned.
Royal Beech-Nut markets baking powder and powdered dessert mixes under the ROYAL
brand, chewing gum under the BEECHIES and CARE*FREE brands and candy under the
LIFESAVERS and BEECH-NUT brands.
 
    Nabisco International's grocery products are sold to retail outlets through
its own sales forces and independent wholesalers and distributors. Industrial
yeast and bakery products are sold to the bakery trade through Nabisco
International's own sales forces and independent distributors.
 
RAW MATERIALS
 
    Various agricultural commodities constitute the principal raw materials used
by Nabisco in its food businesses. These raw materials are purchased on the
commodities market and through supplier contracts. Prices of agricultural
commodities tend to fluctuate due to various seasonal, climatic and economic
factors which generally also affect Nabisco's competitors. Nabisco believes that
all of the raw materials for its products are in plentiful supply and are
readily available from a variety of independent suppliers.
 
COMPETITION
 
    Generally, the markets in which the Domestic Food Group and the
International Food Group conduct their business are highly competitive.
Competition consists of large domestic and international companies, local and
regional firms and generic and private label products of food retailers.
Competition is conducted on the basis of brand recognition, brand loyalty, 
quality and price. Substantial advertising and promotional expenditures are 
required to maintain or improve a brand's market position or to introduce a 
new product.
 
    The trademarks under which the Domestic Food Group and the International
Food Group market their products are generally registered in the United States
and other countries in which such products are sold and are generally renewable
indefinitely. Nabisco and certain of its subsidiaries have from time to time
granted various parties exclusive licenses to use one or more of their
trademarks in particular 

                                       17
<PAGE>
locations. Nabisco does not believe that such licensing arrangements have a 
material effect on the conduct of its domestic or international business.
 
                                 OTHER MATTERS
 
ENVIRONMENTAL MATTERS
 
    The U.S. Government and various state and local governments have enacted or
adopted laws and regulations concerning protection of the environment. The
regulations promulgated by the Environmental Protection Agency and other
governmental agencies under various statutes have resulted in, and will likely
continue to result in, substantial expenditures for pollution control, waste
treatment, plant modification and similar activities.
 
    In April 1995, RJRN Holdings was named a potentially responsible party (a
"PRP") with certain third parties under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") with respect to a superfund
site at which a former subsidiary of RJRN had operations. Certain subsidiaries
of the Registrants have also been named as PRPs with third parties or may have
indemnification obligations under CERCLA with respect to an additional thirteen
sites.
 
    RJRN Holdings' subsidiaries have been engaged in a continuing program to
assure compliance with U.S., state and local laws and regulations. Although it
is difficult to identify precisely the portion of capital expenditures or other
costs attributable to compliance with environmental laws and to estimate the
cost of resolving these CERCLA matters, RJRN Holdings and RJRN do not expect
such expenditures or other costs to have a material adverse effect on the
financial condition of either RJRN Holdings or RJRN.
 
EMPLOYEES
 
    At December 31, 1995, RJRN Holdings together with its subsidiaries had
approximately 76,000 full time employees. None of RJRT's operations are
unionized. Most of the unionized workers at Nabisco's operations are represented
under a national contract with the Bakery, Confection and Tobacco Workers Union,
which was ratified in September 1992 and which will expire in September 1996.
Other unions represent the employees of a number of Nabisco's operations and
several of Reynolds International's operations are unionized. RJRN believes that
its relations with these employees and with their unions are good.
 
  (d) Financial Information about Foreign and Domestic Operations and Export
Sales
 
    For information about foreign and domestic operations and export sales for
the years 1993 through 1995, see "Geographic Data" in Note 16 to the
Consolidated Financial Statements.
 
ITEM 2. PROPERTIES
 
    For information pertaining to the RJRN Holdings' and RJRN's assets by lines
of business and geographic areas as of December 31, 1995 and 1994, see Note 16
to the Consolidated Financial Statements.
 
    For information on properties, see Item 1.

ITEM 3. LEGAL PROCEEDINGS
 
    In the fourth quarter of 1995, purported RJRN Holdings stockholders for
themselves and derivatively for RJRN Holdings and Nabisco Holdings filed three
putative class and derivative actions in the Court of Chancery of the State of
Delaware in and for New Castle County against members of 
 
                                       18
<PAGE>
RJRN Holdings Board of Directors. The actions were consolidated in December 
1995. The plaintiffs allege, among other things, that the individual 
defendants breached their fiduciary duty and wasted corporate assets by 
undertaking the Exchange Offer and Consent Solicitations completed by RJRN 
and Nabisco in June 1995 and by amending, in August 1995, RJRN Holdings By-Law 
provisions concerning the calling of shareholder meetings and procedures for 
shareholder action by written consent. The plaintiffs allege that management 
took these and other actions to wrongfully obstruct a spin-off of Nabisco, to 
enrich the defendants at the expense of RJRN Holdings, its shareholders and 
Nabisco Holdings and to entrench the defendants in the management and control 
of RJRN Holdings. RJRN Holdings believes that these allegations are without 
merit and is defending the consolidated action vigorously.
 
    For information about other litigation and legal proceedings, see
"Business--Tobacco--Litigation Affecting the Cigarette Industry" and "Other
Matters--Environmental Matters" in Item 1.
 
                            ------------------------
 
    Litigation is subject to many uncertainties, and it is possible that some of
the tobacco-related legal actions, proceedings or claims could be decided
against RJRT or its affiliates or indemnitees. Determinations of liability or
adverse rulings against other cigarette manufacturers that are defendants in
similar actions, even if such rulings are not final, could adversely affect the
litigation against RJRT or its affiliates or indemnitees and increase the number
of such claims. Although it is impossible to predict the outcome of such events
or their effect on RJRT, a significant increase in litigation activities could
have an adverse effect on RJRT. RJRT believes that it has a number of valid
defenses to any such actions, including but not limited to those defenses based
on preemption under the Cipollone decision, and RJRT intends to defend
vigorously all such actions.
 
    RJRN Holdings and RJRN believe that the ultimate outcome of all pending
litigation matters should not have a material adverse effect on the financial
position of either RJRN Holdings or RJRN; however, it is possible that the
results of operations or cash flows of RJRN Holdings or RJRN in particular
quarterly or annual periods or the financial condition of RJRN Holdings and RJRN
could be materially affected by the ultimate outcome of certain pending
litigation matters. Management is unable to derive a meaningful estimate of the
amount or range of any possible loss in any particular quarterly or annual
period or in the aggregate.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     In January, 1996, Brooke Group Ltd. commenced a solicitation of consents
from the shareholders of RJRN Holdings to (i) a non-binding resolution seeking
the immediate spin-off of the shares of Nabisco Holdings, and (ii) certain
changes to the By-laws of RJRN Holdings which would allow holders of not less
than 25% of its Common Stock to require a special meeting and would delete By-
law provisions establishing certain administrative procedures for actions by
written consent.  The consent solicitation closed on February 15, 1996.  A
ministerial review of the validity of the consents by an independent inspector 
of elections had not been completed as of February 22, 1996.  On February 20, 
1996, however, Brooke Group Ltd. declared that it had received consents from 
holders of 50.4 percent of the voting stock with respect to a spin-off and 
53.8 percent of such holders with respect to By-law changes.

 
                                       19
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANTS
EXECUTIVE OFFICERS OF RJRN HOLDINGS
 
    The executive officers of RJRN Holdings are Charles M. Harper (Chairman of
the Board), Steven F. Goldstone (Chief Executive Officer and President), Gerald
I. Angowitz (Senior Vice President, Human Resources and Administration), John J.
Delucca (Senior Vice President and Treasurer), Robert S. Roath (Senior Vice
President and Chief Financial Officer), Richard G. Russell (Senior Vice
President and Controller), Robert F. Sharpe Jr. (Senior Vice President and
General Counsel), and H. Colin McBride (Vice President, Assistant General
Counsel and Secretary). Mr. Roath is married to Jo-Ann Ford who was, until
December 31, 1995, Senior Vice President, Law and Secretary. The following table
sets forth certain information regarding such officers.
 
<TABLE>
<CAPTION>
                                 YEAR
                                FIRST
                               ELECTED              BUSINESS EXPERIENCE DURING THE PAST
    NAME                AGE    DIRECTOR              FIVE YEARS AND OTHER INFORMATION
    ----                ---    --------             -----------------------------------
<S>                     <C>    <C>        <C>
 
Charles M. Harper        68      1993     Chairman since May 1993; Chief Executive Officer, May
                                            1993-December 1995. For more than five years prior
                                            thereto, Chairman and, until 1992, Chief Executive
                                            Officer of ConAgra, Inc. Member of the Board of
                                            Directors of Nabisco Holdings, Nabisco, ConAgra,
                                            Inc., E.I. du Pont de Nemours and Company, Norwest
                                            Corp., Peter Kiewit Sons', Inc. and Valmont
                                            Industries, Inc.
 
Steven F. Goldstone      50      1995     Chief Executive Officer since December 1995; President
                                            since October 1995; prior thereto General Counsel,
                                            March 1995-January 1996; previously Senior Partner
                                            with law firm of Davis, Polk & Wardwell until October
                                            1995 and for more than five years prior thereto.
 
Gerald I. Angowitz       46      --       Senior Vice President of Human Resources and
                                            Administration, March 1995-Present; prior thereto,
                                            Vice President of Human Resources, January 1994-March
                                            1995; Vice President of Employee Benefits, January
                                            1992-December 1993; Senior Director of Benefits
                                            Planning and Analysis, June 1991-December 1991;
                                            previously Principal of the consulting firm of Kwasha
                                            Lipton, 1989-1991.
 
John J. Delucca          52      --       Senior Vice President and Treasurer, September 1993-
                                            Present; Treasurer of Nabisco Holdings, October 1994-
                                            February 1995; prior thereto, Managing Director and
                                            Chief Financial Officer, Hascoe Associates,
                                            1991-1993; President and Chief Financial Officer,
                                            Lexington Group, 1990-1991; Senior Vice President,
                                            Finance and Managing Director, Trump Group,
                                            1988-1990.
</TABLE>
 
                                       20
<PAGE>
<TABLE>
<CAPTION>
                                 YEAR
                                FIRST
                               ELECTED              BUSINESS EXPERIENCE DURING THE PAST
    NAME                AGE    DIRECTOR              FIVE YEARS AND OTHER INFORMATION
    ----                ---    --------             -----------------------------------
<S>                     <C>    <C>        <C>
Robert S. Roath          53      --       Senior Vice President and Chief Financial Officer, May
                                            1995-Present; prior thereto, Senior Vice President
                                            and Controller, 1991-May 1995; Vice President and
                                            Controller, 1990-1991; previously Vice President and
                                            Corporate Controller, Colgate-Palmolive Company,
                                            1988-1990.
 
Richard G. Russell       50      --       Senior Vice President and Controller, May 1995-Present;
                                            previously Partner at the accounting firm of Deloitte
                                            & Touche LLP for more than five years.
 
Robert F. Sharpe Jr.     43      --       Senior Vice President and General Counsel, January
                                            1996-Present; previously Vice President, Tyco
                                            International Ltd., July 1994-January 1996; Vice
                                            President, Assistant General Counsel and Secretary,
                                            RJRN Holdings and RJRN, 1989-July 1994.
 
H. Colin McBride         50      --       Vice President, Assistant General Counsel and
                                            Secretary, December 1995-Present; previously Vice
                                            President and Assistant General Counsel for more than
                                            five years.
</TABLE>
 
EXECUTIVE OFFICERS OF RJRN HOLDINGS OR ITS SUBSIDIARIES NOT LISTED ABOVE
 
    Set forth below are the names, ages, positions and offices held and a brief
account of the business experience during the past five years of certain
executive officers of RJRN Holdings or its subsidiaries, other than those listed
above.
 
<TABLE>
<CAPTION>
                                   YEAR
                                  FIRST
                                 ELECTED            BUSINESS EXPERIENCE DURING THE PAST
    NAME                  AGE    DIRECTOR             FIVE YEARS AND OTHER INFORMATION
    ----                  ---    --------           -----------------------------------
<S>                       <C>    <C>        <C>
 
H. John Greeniaus         51       1992     Vice Chairman since June 1995; President and Chief
                                              Executive Officer of Nabisco Holdings and of
                                              Nabisco since October 1994; prior thereto,
                                              Chairman and Chief Executive Officer of Nabisco,
                                              1993-1994, and President and Chief Executive
                                              Officer of Nabisco, 1987-1993. Member of the Board
                                              of Directors of Nabisco Holdings and Nabisco.
 
James W. Johnston         49       1992     Vice Chairman since June 1995; Chairman of RJRT
                                              since 1989, Chairman of R.J. Reynolds Tobacco
                                              Worldwide since October 1993 and Chairman of
                                              Reynolds International since October 1993; Chief
                                              Executive Officer of RJRT, 1989-July 1995. Member
                                              of the Board of Directors of Sealy Corporation and
                                              Wachovia Corporation.
</TABLE>
 
                                       21
<PAGE>
<TABLE>
<CAPTION>
                                   YEAR
                                  FIRST
                                 ELECTED            BUSINESS EXPERIENCE DURING THE PAST
    NAME                  AGE    DIRECTOR             FIVE YEARS AND OTHER INFORMATION
    ----                  ---    --------           -----------------------------------
<S>                       <C>    <C>        <C>
Pierre de Labouchere      41       --       Chief Executive Officer and President of Reynolds
                                              International, December 1995-Present; prior
                                              thereto, President of Eastern Europe, Middle East
                                              and Africa Region, Reynolds International,
                                              1994-December 1995; Regional Vice
                                              President--European and Special Markets, Reynolds
                                              International, 1991-1994; Vice
                                              President--Scandinavia and Tax-Free Europe,
                                              Reynolds International, 1987-1991.
 
Andrew J. Schindler       51       --       President and Chief Executive Officer of RJRT since
                                              July 1995; previously President and Chief
                                              Operating Officer of RJRT, May 1994-June 1995;
                                              Executive Vice President--Operations, RJRT,
                                              1991-1994; Senior Vice President-Operations, RJRT,
                                              1989-1991.
 
J. Thomas Pearson         54       --       Senior Vice President, Taxation, 1988-Present.
 
Huntley R. Whitacre       53       --       Senior Vice President of Investor Relations, August
                                              1995-Present; prior thereto, Vice President of
                                              Investor Relations for more than five years.
 
Jason H. Wright           35       --       Senior Vice President of Worldwide Communications,
                                              February 1994-Present; prior thereto, Vice
                                              President of Worldwide Communications, 1993-1994;
                                              Vice President of Financial Communications,
                                              1990-1993.
 
Jeffrey A. Kuchar         41       --       Vice President and General Auditor, 1993-Present;
                                              prior thereto, Director of Finance and Business
                                              Development, Specialty Products Company, Nabisco,
                                              1993; Director of Financial Planning, Specialty
                                              Products Company, Nabisco, 1992-1993; Assistant
                                              Corporate Controller, 1987-1991.
</TABLE>
 
                                       22
<PAGE>
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
    The common stock of RJRN Holdings, par value $.01 per share (the "Common
Stock"), is listed and traded on the New York Stock Exchange (the "NYSE"). Since
completion of the Acquisition there has been no public trading market for the
common stock of RJRN.
 
    As of January 31, 1996, there were approximately 65,000 record holders of
the Common Stock. All of the common stock of RJRN is owned by RJRN Holdings. 
The Common Stock closing price on the NYSE for February 20, 1996 was $32 5/8.
 
    The following table sets forth, for the calendar periods indicated, the high
and low sales prices per share for the Common Stock on the NYSE Composite Tape,
as reported in the Wall Street Journal:
                                                         HIGH         LOW
                                                         ----         ---
1995:
  First Quarter*..................................   $      32 1/2    $25
  Second Quarter*.................................          31 1/4     25 1/4
  Third Quarter...................................          33 1/4     26 3/8
  Fourth Quarter..................................          33 3/8     27 7/8
 
 
                                                         HIGH         LOW
                                                         ----         ---
1994:
  First Quarter*..................................   $      40 5/8    $28 1/8
  Second Quarter*.................................              35     27 1/2
  Third Quarter*..................................          35 5/8     28 1/8
  Fourth Quarter*.................................          36 1/4     26 9/16
 
------------
 
* Adjusted to reflect a one-for-five reverse stock split
 
    The Board of Directors of RJRN Holdings declared an initial quarterly cash
dividend of $.375 per share payable on April 1, 1995. During 1995, RJRN Holdings
continued to pay such a quarterly cash dividend on the Common Stock, adjusted to
take into account the one-for-five reverse split of the Common Stock described
below. Cash dividends paid by RJRN to RJRN Holdings are set forth in the
Consolidated Statements of Cash Flows in the Consolidated Financial Statements.
 
    The operations of RJRN Holdings and RJRN are conducted through RJRN's
subsidiaries and, therefore, RJRN Holdings and RJRN are dependent on the
earnings and cash flow of RJRN's subsidiaries to satisfy their respective
obligations and other cash needs. Certain Nabisco credit facilities limit the
amount of dividends, distributions and advances by Nabisco Holdings and its
subsidiaries to RJRN Holdings and its non-Nabisco subsidiaries. Moreover, the
New RJRN Credit Agreements and certain policies adopted by the Board of
Directors of RJRN Holdings limit the payment by RJRN Holdings of dividends on
the Common Stock in excess of certain specific amounts. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Financial Condition" and "RJRN Holdings' Board of
Directors Policies" and Note 11 to the Consolidated Financial Statements. RJRN
Holdings does not believe that the provisions of the New RJRN Credit Agreements
or its adopted policies concerning distributions to stockholders will limit its
ability to pay its anticipated quarterly dividends.
 
    A one-for-five reverse split of the Common Stock of RJRN Holdings was
approved by its stockholders on April 12, 1995. The reverse stock split resulted
in a dividend and earnings per share five times higher with a corresponding
reduction in the number of shares outstanding.
 
    RJRN Holdings has indicated that, under normal circumstances, it does not
plan to issue additional equity securities for purposes of balance sheet
improvement.
 
                                       23
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
 
    The selected consolidated financial data of RJR Nabisco Holdings Corp.
("RJRN Holdings") presented below as of December 31, 1995 and 1994 and for each
of the years in the three-year period ended December 31, 1995 was derived from
the consolidated financial statements of RJRN Holdings (the "Consolidated
Financial Statements"), which have been audited by Deloitte & Touche LLP,
independent auditors. In addition, the consolidated financial data of RJRN
Holdings presented below as of December 31, 1993, 1992 and 1991 and for each of
the years in the two year period ended December 31, 1992 was derived from the
audited consolidated financial statements of RJRN Holdings as of December 31,
1993, 1992 and 1991 and for the years ended December 31, 1992 and 1991, which
are not presented herein. The data should be read in conjunction with the
Consolidated Financial Statements, related notes and other financial information
included herein.
 
<TABLE>
<CAPTION>
                                                             FOR THE YEARS ENDED DECEMBER 31,
                                                    ---------------------------------------------------
<S>                                                 <C>        <C>        <C>        <C>        <C>
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)       1995       1994       1993       1992       1991
                                                    -------    -------    -------    -------    -------
RESULTS OF OPERATIONS
 Net sales.......................................   $16,008    $15,366    $15,104    $15,734    $14,989
                                                    -------    -------    -------    -------    -------
 Cost of products sold...........................     7,468      6,977      6,640      6,326      6,088
 Selling, advertising, administrative and
   general expenses..............................     5,412      5,210      5,731      5,788      5,358
 Amortization of trademarks and goodwill.........       636        629        625        616        609
 Restructuring expense...........................       154         --        730        106         --
                                                    -------    -------    -------    -------    -------
   Operating income(1)...........................     2,338      2,550      1,378      2,898      2,934
 Interest and debt expense.......................      (899)    (1,065)    (1,209)    (1,449)    (2,217)
 Other income (expense), net(2)..................      (173)      (110)       (58)         7        (69)
                                                    -------    -------    -------    -------    -------
   Income before income taxes....................     1,266      1,375        111      1,456        648
 Provision for income taxes......................       580        611        114        680        280
                                                    -------    -------    -------    -------    -------
   Income (loss) before minority interest in
     income of Nabisco...........................       686        764         (3)       776        368
 Minority interest in income of Nabisco..........       (59)        --         --         --         --
                                                    -------    -------    -------    -------    -------
   Income (loss) before extraordinary item.......       627        764         (3)       776        368
 Extraordinary item--loss on early
   extinguishments of debt, net of income taxes
   and minority interest.........................       (16)      (245)      (142)      (477)        --
                                                    -------    -------    -------    -------    -------
 Net income (loss)...............................       611        519       (145)       299        368
 Preferred stock dividends(3)....................       110        131         68         31        173
                                                    -------    -------    -------    -------    -------
 Net income (loss) applicable to common stock....   $   501    $   388    $  (213)   $   268    $   195
                                                    -------    -------    -------    -------    -------
                                                    -------    -------    -------    -------    -------
PER SHARE DATA
 Income (loss) before extraordinary item per
   common and common equivalent share(4)(5)......   $  1.58    $  2.06    $ (0.26)   $  2.73    $  1.10
                                                    -------    -------    -------    -------    -------
                                                    -------    -------    -------    -------    -------
 Dividends per share of Common Stock.............   $  1.50         --         --         --         --
 Dividends per share of Series A Preferred
   Stock(4)......................................        --    $  2.92    $  3.34    $  3.34    $  0.49
 Dividends per share of Series C Preferred
   Stock(4)......................................   $  6.01    $  3.94         --         --         --
BALANCE SHEET DATA
 (AT END OF PERIODS)
 Working capital(6)..............................   $   436    $(1,231)   $   202    $   730    $   165
 Total assets....................................    31,518     31,408     31,295     32,041     32,131
 Total debt(6)...................................     9,847     11,149     12,448     14,218     14,531
 RJRN Holdings' obligated mandatorily redeemable
   preferred securities of subsidiary trust
   holding solely junior subordinated
   debentures(3).................................       954         --         --         --         --
 Stockholders' equity(3)(4)(7)...................    10,329     10,908      9,070      8,376      8,419
</TABLE>
 
                                                   (Footnotes on following page)
 
                                       24
<PAGE>
(Footnotes from preceding page)
 
------------
 
(1) The 1995 amount includes approximately $49 million for the consolidation and
    relocation of the international tobacco headquarter's operations and certain
    of its sales facilities. The 1992 amount includes a gain of $98 million on
    the sale of the ready-to-eat cold cereal business.
 
(2) The 1995 amount includes approximately $103 million for fees and expenses
    incurred in connection with certain debt refinancings by RJRN, Nabisco
    Holdings and Nabisco.
 
(3) On September 21, 1995, RJR Nabisco Holdings Capital Trust I (the "Trust")
    exchanged approximately $949 million of its preferred securities (the "Trust
    Preferred Securities"), representing undivided interests in 97% of the
    assets of the Trust, for 37,956,060 of the 50,000,000 Series B Depositary
    Shares (the "Series B Depositary Shares") outstanding, each representing
    one-tenth of a share of the 50,000 outstanding shares of RJRN Holdings'
    Series B Cumulative Preferred Stock, par $.01 per share (the "Series B
    Preferred Stock"). RJRN Holdings retired the exchanged shares, leaving
    12,043.94 shares of the Series B Preferred Stock outstanding. The sole 
    asset of the Trust is junior subordinated debentures of RJRN Holdings. 
    Upon redemption of the junior subordinated debentures, which have a final 
    maturity of December 31, 2044, the Trust Preferred Securities will be 
    mandatorily redeemed. The outstanding junior subordinated debentures have 
    an aggregate principal amount of approximately $978 million and an annual 
    interest rate of 10%.
 
(4) On November 8, 1991, RJRN Holdings issued 52,500,000 shares of Series A
    Conversion Preferred Stock, par value $.01 per share ("Series A Preferred
    Stock"), and sold 210,000,000 $.835 depositary shares (the "Series A
    Depositary Shares"), each of which represented one-quarter of a share of
    Series A Preferred Stock. On May 6, 1994, RJRN Holdings issued 26,675,000
    shares of Series C Conversion Preferred Stock, par value $.01 per share (the
    "Series C Preferred Stock"), and sold 266,750,000 Series C Depositary Shares
    (the "Series C Depositary Shares"), each of which represented one-tenth of a
    share of Series C Preferred Stock. On November 15, 1994, each outstanding
    Series A Depositary Share converted into one share of RJRN Holdings' Common
    Stock.
 
(5) The loss before extraordinary item per common and common equivalent share
    reported for the year ended December 31, 1993 would have increased by $.82
    per share if the weighted average number of shares of Series A Depositary
    Shares outstanding during the period had been excluded from the earnings per
    share calculation.
 
(6) Working capital at December 31, 1994 included $1.35 billion of borrowings
    under the 1994 Nabisco Credit Agreement, a substantial portion of which was
    used in connection with the refinancing of certain debt. On January 26,
    1995, such borrowings were substantially reduced through the application of
    approximately $1.2 billion of net proceeds received from the initial public
    offering of 51,750,000 shares of Nabisco Holdings' Class A Common Stock.
 
(7) RJRN Holdings' stockholders' equity at December 31 of each year from 1995 to
    1991 includes non-cash expenses related to accumulated trademark and
    goodwill amortization of $4.280 billion, $3.644 billion, $3.015 billion,
    $2.390 billion and $1.774 billion respectively.
 
                See Notes to Consolidated Financial Statements.
 
                                       25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
    The operating subsidiaries of RJR Nabisco Holdings Corp. ("RJRN Holdings")
and its wholly-owned subsidiary, RJR Nabisco, Inc. ("RJRN"), comprise one of the
largest tobacco and food companies in the world. In the United States, the
tobacco business is conducted by R. J. Reynolds Tobacco Company ("RJRT"), the
second largest manufacturer of cigarettes, and the packaged food business is
conducted by Nabisco Holdings Corp. ("Nabisco Holdings") through its
wholly-owned subsidiary, Nabisco, Inc. ("Nabisco"), the largest manufacturer and
marketer of cookies and crackers (the "Domestic Food Group"). Outside the United
States, the tobacco operations are conducted by R.J. Reynolds Tobacco
International, Inc. and beginning on January 1, 1996, R.J. Reynolds
International (collectively "Reynolds International"), and the food operations
are conducted by Nabisco International, Inc. and Nabisco Ltd (collectively, the
"International Food Group").
 
    The following is a discussion and analysis of the consolidated financial
condition and results of operations of RJRN Holdings. The discussion and
analysis should be read in connection with the consolidated financial statements
and the related notes thereto of RJRN Holdings as of December 31, 1995 and 1994
and for each of the years in the three year period ended December 31, 1995 (the
"Consolidated Financial Statements").
 
                             RESULTS OF OPERATIONS
 
    Summarized financial data for RJRN Holdings is as follows:
<TABLE>
<CAPTION>
                                                                                          % CHANGE FROM
                                                                                           PRIOR YEAR
                                                                                          -------------
                                                       1995        1994        1993       1995     1994
                                                      -------     -------     -------     ----     ----
                                                           (DOLLARS IN MILLIONS)
<S>                                                   <C>         <C>         <C>         <C>      <C>
Net Sales:
 RJRT.............................................    $ 4,480     $ 4,570     $ 4,949      (2 )%     (8)%
 Reynolds International...........................      3,234       3,097       3,130       4 %      (1)%
                                                      -------     -------     -------
 Total Tobacco....................................      7,714       7,667       8,079       1 %      (5)%
                                                      -------     -------     -------
 Domestic Food Group..............................      6,020       5,729       5,491       5 %       4%
 International Food Group.........................      2,274       1,970       1,534      15 %      28%
                                                      -------     -------     -------
 Total Food.......................................      8,294       7,699       7,025       8 %      10%
                                                      -------     -------     -------
                                                      $16,008     $15,366     $15,104       4 %       2%
                                                      -------     -------     -------
                                                      -------     -------     -------
Operating Company Contribution(1):
 RJRT.............................................    $ 1,420     $ 1,450     $ 1,173      (2 )%     24%
 Reynolds International...........................        643         755         644     (15 )%     17%
                                                      -------     -------     -------
 Total Tobacco....................................      2,063       2,205       1,817      (6 )%     21%
                                                      -------     -------     -------
 Domestic Food Group..............................        890         935         813      (5 )%     15%
 International Food Group.........................        239         177         136      35 %      30%
                                                      -------     -------     -------
 Total Food.......................................      1,129       1,112         949       2 %      17%
 Headquarters.....................................        (64)       (138)        (33)     54 %      --%
                                                      -------     -------     -------
                                                      $ 3,128     $ 3,179     $ 2,733      (2 )%     16%
                                                      -------     -------     -------
                                                      -------     -------     -------
Operating Income:
 RJRT.............................................    $   954     $ 1,085     $   453     (12 )%    140%
 Reynolds International...........................        546         716         413     (24 )%     73%
                                                      -------     -------     -------
 Total Tobacco....................................      1,500       1,801         866     (17 )%    108%
                                                      -------     -------     -------
 Domestic Food Group..............................        687         730         478      (6 )%     53%
 International Food Group.........................        215         157         100      37 %      57%
                                                      -------     -------     -------
 Total Food.......................................        902         887         578       2 %      53%
 Headquarters.....................................        (64)       (138)        (66)     54 %    (109) %
                                                      -------     -------     -------
                                                      $ 2,338     $ 2,550     $ 1,378      (8 )%     85%
                                                      -------     -------     -------
                                                      -------     -------     -------
</TABLE>
 
                                                   (Footnotes on following page)
 
                                       26
<PAGE>
INDUSTRY SEGMENTS
 
    The percentage contributions of each of RJRN Holdings' industry segments to
net sales and operating company contribution during the last five years were as
follows:
 
<TABLE>
<CAPTION>
                                                    1995    1994    1993    1992    1991
                                                    ----    ----    ----    ----    ----
<S>                                                 <C>     <C>     <C>     <C>     <C>
Net Sales:
 Total Tobacco...................................    48 %    50 %    53 %    57 %    57 %
 Total Food......................................    52      50      47      43      43
                                                    ----    ----    ----    ----    ----
                                                    100 %   100 %   100 %   100 %   100 %
                                                    ----    ----    ----    ----    ----
                                                    ----    ----    ----    ----    ----
Operating Company Contribution(1)(2):
 Total Tobacco...................................    65 %    66 %    66 %    74 %    75 %
 Total Food......................................    35      34      34      26      25
                                                    ----    ----    ----    ----    ----
                                                    100 %   100 %   100 %   100 %   100 %
                                                    ----    ----    ----    ----    ----
                                                    ----    ----    ----    ----    ----
</TABLE>
 
------------
 
(1) Operating company contribution represents operating income before
    amortization of trademarks and goodwill and exclusive of restructuring
    expenses. Restructuring expenses amounted to $154 million for 1995
    (RJRT-$100 million, Reynolds International-$54 million) and $730 million for
    1993 (RJRT-$355 million, Reynolds International-$189 million, Domestic Food
    Group-$132 million, International Food Group-$21 million and
    Headquarters-$33 million.)
 
(2) Contributions by industry segments were computed without effects of
    Headquarters' expenses.
 
TOBACCO
 
    The tobacco business is conducted by RJRT and Reynolds International.
 
    1995 vs. 1994. The worldwide tobacco business reported net sales of $7.71
billion in 1995, an increase of 1% from the 1994 level of $7.67 billion. The net
sales increase in 1995 resulted primarily from a higher proportion of domestic
full price sales, higher selling prices worldwide and favorable foreign currency
developments that more than offset the impact of an overall worldwide tobacco
volume decline. Worldwide tobacco volume for 1995 decreased 2% from the prior
year. Operating company contribution for the worldwide tobacco business of $2.06
billion in 1995 declined 6% from the 1994 level of $2.20 billion due to lower
operating company contribution at both the domestic tobacco business and the
international tobacco business. Operating income for the worldwide tobacco
business in 1995 of $1.50 billion declined 17% from the 1994 level of $1.80
billion, reflecting the lower operating company contribution and a 1995
restructuring expense related to the domestic and international tobacco
businesses of $100 million and $54 million, respectively.
 
    Net sales for RJRT amounted to $4.48 billion in 1995, a decline of 2% from
the 1994 level of $4.57 billion. The decline in net sales in 1995 resulted
primarily from an overall volume loss of 5% (approximately $320 million),
partially offset by a higher proportion of full price sales (approximately $140
million) and higher selling prices in both the full price and savings segments
(approximately $67 million). RJRT's volume declined slightly in the full price
segment during 1995 despite an industry average increase of approximately 2%
due to the pattern of wholesale purchases and the erosion of market share of
certain brands during the first six months of 1995. However, RJRT's share of
full price segment stablized during the third and fourth quarters of 1995.
RJRT's volume in the savings segment declined by 13% during 1995 which exceeded
industry average, reflecting an erosion of market share of certain brands in the
segment due to RJRT's decision to be more selective in its participation in that
segment. RJRT's full price volume as a percentage of total volume in 1995 and
1994 amounted to 63% and 60%, respectively. Comparable figures for the domestic
cigarette market in 1995 and 1994 amounted to 70% and 67%, respectively.
 
    RJRT's operating company contribution was $1.42 billion in 1995, a 2%
decline from the 1994 level of $1.45 billion, as lower manufacturing costs
(approximately $67 million), the higher proportion
 
                                       27
<PAGE>
of full price sales (approximately $118 million), reduced merchandising costs
(approximately $13 million), lower administrative expenses (approximately $14
million) and higher selling prices (approximately $67 million) were more than
offset by the decline in overall volume (approximately $196 million) and an
increase in marketing expenses (approximately $97 million). RJRT's operating
income was $954 million in 1995, a decline of 12% from the 1994 level of $1.09
billion. The decline in operating income for 1995 reflected the lower RJRT
operating company contribution and a restructuring expense in 1995 of $100
million.
 
    Reynolds International recorded net sales of $3.23 billion in 1995, an
increase of 4% from the 1994 level of $3.10 billion. The increase in net sales
for 1995 primarily resulted from favorable foreign currency developments
(approximately $113 million) and higher pricing (approximately $42 million),
offset in part by unfavorable mix (approximately $17 million). Overall volume
increased by 1%. Reynolds International's operating company contribution of $643
million in 1995 decreased 15% from the 1994 level of $755 million primarily due
to costs and expenses incurred in connection with the consolidation and
relocation of its headquarter's operations and certain sales facilities
(approximately $49 million), trade stock realignment (approximately $22 
million), write-off of certain export receivables (approximately $16 million),
higher administrative costs (approximately $19 million), higher promotional and
selling expenses (approximately $25 million), higher manufacturing costs
(approximately $13 million) and unfavorable mix (approximately $10 million),
which were partially offset by higher pricing (approximately $42 million). The
decline in operating income for 1995 reflected the lower Reynolds International
operating company contribution and a restructuring expense in 1995 of $54
million.
 
    1994 vs. 1993. Despite declines in net sales for both the domestic and
international tobacco businesses, the worldwide tobacco business reported profit
gains for 1994. RJRT's net sales decline resulted principally from overall lower
pricing and volume which more than offset the impact of a higher proportion of
sales from full price brands. Reynolds International's net sales decline was
primarily attributable to a reduction in trade inventory levels and price
repositioning in Canada and Puerto Rico which more than offset higher selling
prices and volume. Overall, net sales from the worldwide tobacco business
amounted to $7.67 billion in 1994, a decline of 5% from the 1993 level of $8.08
billion. Worldwide volume for 1994 was flat compared to 1993. Operating company
contribution for the worldwide tobacco business grew to $2.21 billion in 1994
from $1.82 billion in 1993, an increase of 21% that resulted from improved
margins in both the domestic and international businesses. Operating income for
the worldwide tobacco business rose to $1.80 billion in 1994, an increase of
108% from the 1993 level of $866 million, as a result of the increase in
operating company contribution discussed above and the 1993 restructuring
expense of $544 million.
 
    Net sales for RJRT amounted to $4.57 billion in 1994, a decrease of 8% from
the 1993 level of $4.95 billion. The decrease primarily reflects the impact of
industry-wide price reductions on full price brands (approximately $500 million)
which went into effect during the second half of 1993, lower volume in the
savings segment (approximately $60 million) primarily due to RJRT's decision to
be more selective in its participation in that segment and lower volume in the
full price segment (approximately $300 million) primarily due to increased
competitor activities during the second half of 1994. These factors more than
offset the impact of a higher proportion of sales from full price brands
(approximately $400 million), higher selling prices in the savings segment
(approximately $60 million) and higher selling prices in the full price segment
during the fourth quarter of 1994 as compared to the fourth quarter of 1993
(approximately $40 million). RJRT's full price volume as a percentage of total
volume amounted to 60% in 1994 versus 56% in 1993. RJRT's operating company
contribution was $1.45 billion in 1994, a 24% increase from the 1993 level of
$1.17 billion, as reduced promotional and selling expenses (approximately $650
million) more than offset the decline in net sales. RJRT's operating income was
$1.09 billion in 1994, an increase of 140% from the 1993 level of $453 million.
The increase in operating income for 1994 from the prior year reflects the
increase in RJRT's operating company contribution discussed above and the 1993
restructuring expense of $355 million.
 
    Reynolds International recorded net sales of $3.10 billion in 1994, a
decrease of 1% from the 1993 level of $3.13 billion. The net sales decrease for
1994 primarily resulted from a reduction in trade
 
                                       28
<PAGE>
inventory levels (approximately $75 million), repositioning of prices in Canada
and Puerto Rico to enhance brand competitiveness (approximately $60 million),
and unfavorable foreign exchange developments, primarily in Europe and the
Middle East (approximately $30 million), which were offset in part by higher
selling prices throughout Reynolds International's markets (approximately $70
million) and an increase in volume in certain regions (approximately $60
million). Reynolds International's operating company contribution rose to $755
million in 1994, an increase of 17% compared to the 1993 level of $644 million.
The increase in operating company contribution for 1994 was due to lower product
costs in all regions (approximately $100 million), reduced promotional expenses
(approximately $70 million), the higher selling prices (approximately $70
million) and higher volume (approximately $15 million), which more than offset
price repositioning in Canada and Puerto Rico (approximately $50 million), the
reduction in trade inventories (approximately $30 million), higher operating
expenses to support expansion of business activity primarily in Eastern Europe
(approximately $30 million) and unfavorable foreign exchange developments
(approximately $20 million). Reynolds International's operating income was $716
million in 1994, an increase of 73% from the 1993 level of $413 million. The
increase in operating income reflects the increase in Reynolds International's
operating company contribution discussed above and the 1993 restructuring
expense of $189 million.
 
    1995 Governmental Activity
 
    Congress enacted legislation effective January 1, 1994 (the Omnibus Budget
Reconciliation Act of 1993) that assesses financial penalties against
manufacturers if cigarettes produced in the United States do not contain at
least 75% (by weight) domestically grown flue cured and burley tobaccos. In
December 1994, Congress enacted the Uruguay Round Agreements Act to replace this
domestic content requirement with a tariff rate quota system that keys tariffs
to import volumes. The tariff rate quotas have been established by the United
States with overseas tobacco producers and became effective on September 13,
1995. Domestic content requirements and tariff rate quotas increased raw
material costs slightly in 1994 but these costs were down slightly in 1995
during the period when the domestic content requirement was not applicable.
 
    In February 1994, the Commissioner of the U.S. Food and Drug Administration
(the "FDA"), which historically has refrained from asserting jurisdiction over
cigarette products, stated that he intended to cause the FDA to work with the
U.S. Congress to resolve the regulatory status of cigarettes under the Food,
Drug and Cosmetic Act. During the second quarter of 1994, hearings were held in
this regard, and RJRT and other members of the United States cigarette industry
were asked to provide voluntarily certain documents and other information to
Congress. In August 1995, the Commissioner of the FDA, with the support of the
Clinton Administration, announced that he was asserting jurisdiction over
cigarettes and certain other tobacco products and issued a notice and request
for comments on proposed regulations. The proposed regulations would prohibit or
impose stringent limits on a broad range of sales and marketing practices,
including bans on sampling, sponsorship by brand name, and distribution of
non-tobacco items carrying brand names. The FDA's proposed rule would also limit
advertising in print and on billboards to black and white text, impose new
labeling language, and require cigarette manufacturers to fund a $150
million-a-year campaign to discourage minors from using tobacco products. RJRT
and other cigarette manufacturers have submitted responses to the proposed
rules.
 
    The purported purpose of the FDA's assertion of jurisdiction was to curb the
use of tobacco products by underage youth. RJRT believes that the assertion of
jurisdiction and the scope of the proposed rules would materially restrict the
availability of cigarettes and RJRT's ability to market its cigarette products
to adult smokers. RJRT, together with the other four major domestic cigarette
manufacturers and an advertising agency, filed suit on the day of the
Commissioner's announcement in the U.S. District Court for the Middle District
of North Carolina seeking to enjoin the FDA's assertion of jurisdiction (Coyne
Beahm v. United States Food & Drug Administration). Similar suits have been
filed in the same court by manufacturers of smokeless tobacco products, by
operators of retail stores and by advertising interests. RJRT is unable to
predict whether the FDA will adopt final rules asserting
 
                                       29
<PAGE>
jurisdiction over cigarettes or the scope of such final rules, if adopted. It is
also unable to predict the outcome of the litigation seeking to enjoin the FDA's
rulemaking.
 
    In March 1994, the U.S. Occupational Safety and Health Administration
("OSHA") announced proposed regulations that would restrict smoking in the
workplace to designated smoking rooms that are separately exhausted to the
outside. Although RJRT cannot predict the form or timing of any regulations that
may be finally adopted by OSHA, if the proposed regulations are adopted, RJRT
expects that many employers who have not already done so would prohibit smoking
in the workplace rather than make expenditures necessary to establish designated
smoking areas to accommodate smokers. RJRT submitted comments on the proposed
regulations during the comment period which closed in February, 1996. Because
many employers currently do not permit smoking in the workplace, RJRT cannot
predict the effect of any regulations that may be adopted, but incremental
restrictions on smokers could have an adverse effect on cigarette sales and
RJRT.
 
    In July 1994, an amendment to a Florida statute became effective which
allows the state of Florida to bring an action in its own name against the
tobacco industry to recover amounts paid by the state under its Medicaid program
to treat illnesses statistically associated with cigarette smoking. The amended
statute does not require the state to identify the individual who received
medical care, permits a lawsuit to be filed as a class action and eliminates the
comparative negligence and assumption of risk defenses. The Florida statute is
being challenged on state and federal constitutional grounds in a lawsuit
brought by Philip Morris Companies Inc., Associated Industries of Florida,
Publix Supermarkets, and National Association of Convenience Stores in June
1994. On June 26, 1995, the trial court judge granted in part the plaintiffs'
motion for summary judgment finding portions of the act unconstitutional. Both
plaintiffs and defendants appealed this decision which the Florida supreme court
accepted for direct appeal. Oral argument was heard on November 6, 1995.
 
    The Florida House and Senate passed a bill that would repeal the Florida
statute retroactively which was vetoed by the Governor. The Florida House and
Senate have indicated that they are considering action to override that veto.
Similar legislation, without Florida's elimination of defenses, has been
introduced in the Massachusetts and New Jersey legislatures. RJRT is unable to
predict whether other states will enact similar legislation and whether lawsuits
will be filed under these statutes or their outcome, if filed. A suit against
the tobacco industry under the Florida statute was filed on February 21, 1995.
 
    Various states and local jurisdictions have enacted legislation imposing
restrictions on public smoking, increasing excise taxes and designating a
portion of the increased cigarette excise taxes to fund anti-smoking programs,
health care programs or cancer research. Many employers have also initiated
programs restricting or eliminating smoking in the workplace.
 
    It is not possible to determine what additional federal, state or local
legislation or regulations relating to smoking or cigarettes will be enacted or
to predict any resulting effect thereof on RJRT, Reynolds International or the
cigarette industry generally, but such legislation or regulations could have an
adverse effect on RJRT, Reynolds International or the cigarette industry
generally.
 
    For a description of certain litigation affecting RJRT and its affiliates,
see Item 1, "Business-- Tobacco-- Litigation Affecting the Cigarette Industry" 
and Note 12 to the Consolidated Financial Statements.
 
FOOD
 
    The food business is conducted by the Domestic Food Group and the
International Food Group. The Domestic Food Group is comprised of the Nabisco
Biscuit, Specialty Products, LifeSavers, Planters, Food Service and
Fleischmann's companies.
 
    1995 vs. 1994. Nabisco Holdings reported net sales of $8.29 billion in 1995,
an increase of 8% from the 1994 level of $7.70 billion, with the Domestic Food
Group up 5% and the International Food Group up 15%. The Domestic Food Group's
increase was primarily attributable to volume gains at
 
                                       30
<PAGE>
Nabisco Biscuit (approximately $228 million), reflecting new product
introductions and product line extensions, volume gains at Food Service
(approximately $37 million), volume gains at Fleischmann's (approximately $18
million) and the impact of the October, 1995 acquisition of the Parkay margarine
brand (approximately $64 million), which were offset in part by volume declines
at Planters (approximately $40 million) and the impact of the September, 1995
sale of the Ortega brand (approximately $39 million). The International Food
Group's net sales increase for 1995 was primarily due to improved results in
Brazil (approximately $120 million), reflecting a continuation of the country's
economic recovery, the favorable impact of recent business acquisitions
(approximately $112 million) and the favorable performance from businesses in
Iberia, Canada and Venezuela (approximately $65 million), partially offset by
lower net sales in Mexico (approximately $30 million) due to the devaluation of
the peso.
 
    Nabisco Holdings' operating company contribution was $1.13 billion in 1995,
an increase of 2% from the 1994 level of $1.11 billion, with the International
Food Group higher by 35% and the Domestic Food Group lower by 5%. The 1995
period includes a net pre-tax gain of $11 million from the sale of the Ortega
Mexican food ($18 million gain) and New York Style Bagel Chip ($7 million loss)
businesses, and the favorable impact of recent business acquisitions
(approximately $18 million). Excluding these items and the results of operations
from the business disposals in both years, Nabisco Holdings' operating
company contribution was $14 million lower than the 1994 level, with the
International Food Group higher by 32% and the Domestic Food Group lower by 8%.
The Domestic Food Group's adjusted operating company contribution decrease for 
1995 (approximately $70 million) reflects investment spending behind new 
product initiatives and intense competitive conditions in biscuits and nuts. 
The International Food Group's adjusted operating company contribution 
increase for 1995 (approximately $56 million) was primarily due to the profit 
impact of increased sales in Brazil, Iberia, Canada and Venezuela 
(approximately $34 million).
 
    Nabisco Holdings' operating income was $902 million in 1995, an increase of
2% from the 1994 level of $887 million, as a result of the changes in operating
company contribution discussed above.
 
    1994 vs. 1993. Nabisco Holdings reported net sales of $7.70 billion in 1994,
an increase of 10% from the 1993 level of $7.03 billion, with the Domestic Food
Group up 4% and the International Food Group up 28%. The Domestic Food Group's
increase was primarily attributable to significant volume gains at Nabisco
Biscuit, reflecting the success of new product introductions and product line
extensions in the U.S. biscuit market (approximately $215 million) and volume
increases from Specialty Products (approximately $13 million). The International
Food Group's increase was primarily the result of the favorable impact of recent
acquisitions (approximately $345 million) and improved business conditions in
Brazil (approximately $70 million) as a result of its second-half 1994 economic
recovery.
 
    Nabisco Holdings' operating company contribution was $1.11 billion in 1994,
an increase of 17% from the 1993 level of $949 million, with the Domestic Food
Group up 15% and the International Food Group up 30%. The Domestic Food Group's
increase for 1994 was primarily due to the increase in net sales (approximately
$40 million) and savings from productivity programs (approximately $135
million), including previously established restructuring programs, which were
offset in part by competitive pricing pressures (approximately $35 million) and
the absence of a 1993 gain on the sale of certain assets (approximately $17
million). The International Food Group's increase in operating company
contribution for 1994 was primarily due to recent acquisitions (approximately
$40 million) and strong results in Canada (approximately $7 million), partially
offset by unfavorable business results in Mexico (approximately $7 million). The
devaluation of the Mexican peso was not material to earnings in 1994.
 
    Nabisco Holdings' operating income was $887 million in 1994, an increase of
53% from the 1993 level of $578 million, as a result of the increase in
operating company contribution discussed above and the 1993 restructuring
expense of $153 million.
 
                                       31
<PAGE>
RESTRUCTURING EXPENSE
 
    RJRN Holdings recorded a pre-tax restructuring expense of $154 million in
the fourth quarter of 1995 ($104 million after tax) related to a program
announced on October 13, 1995 to reorganize its worldwide tobacco operations.
The 1995 restructuring program was primarily undertaken in order to streamline
operations and improve profitability. The 1995 restructuring program was
implemented in the latter part of 1995 and will be substantially completed
during 1996. A significant portion of the 1995 restructuring program will be a
cash expense. The major components of the 1995 restructuring program were
workforce reductions totaling 1,260 employees (approximately $132 million), the
rationalization and closing of facilities relating to the international tobacco
operations (approximately $8 million) and equipment and lease abandonments at
the domestic tobacco operations (approximately $14 million). At December 31,
1995, approximately $102 million of severance pay and benefits remained to be
paid. Anticipated annual future cash savings from the plan are estimated to be
in excess of approximately $70 million after tax.
 
    RJRN Holdings recorded a pre-tax restructuring expense of $730 million in
the fourth quarter of 1993 ($467 million after tax) related to a program
announced on December 7, 1993. The 1993 restructuring program was undertaken to
respond to a changing consumer product business environment and to streamline
operations and improve profitability. The 1993 program, which was implemented in
the latter part of 1993 and substantially completed during 1995, consisted of
workforce reductions, reassessment of raw material sourcing and production
arrangements, contract termination costs, abandonment of leases and the
rationalization and closing of manufacturing and sales facilities. Approximately
75% of the restructuring program required cash outlays. At December 31, 1995,
approximately $21 million for severance pay and benefits remained to be paid.
 
    During 1994, a change in the estimated cost of the 1993 restructuring
program resulted in a credit to income of $23 million related to changes in the
number of workforce reductions and an increase in cost of $21 million associated
with the rationalization and abandonment of manufacturing and sales facilities.
The net adjustment during 1994 of the above changes was reflected in selling,
advertising, administrative and general expenses.
 
INTEREST AND DEBT EXPENSE

     1995 vs. 1994. RJRN and Nabisco manage interest rate exposure by adjusting
their mix of floating rate debt and fixed rate debt. As part of managing such
interest rate exposure, RJRN and Nabisco enter into various interest rate
arrangements from time to time.

Following adoption of a policy change in 1994, RJRN canceled all of its
financial interest rate arrangements with optionality.  During 1994, as part of
its current strategy to manage interest rate exposure, RJRN effectively
neutralized the effects of any future changes in market interest rates on the
remainder of its outstanding interest rate swaps, options, caps and other
financial instruments through the purchase of offsetting positions.  Net
unrealized gains and losses on the remaining interest rate instruments at the
time such instruments were neutralized are being amortized as additional
interest expense during 1995, 1996 and 1997 of approximately $39 million,
$28 million and $5 million, respectively.

     During 1995, Nabisco began managing its own interest rate exposure.  As
part of managing its interest rate exposure, Nabisco entered into interest rate
swaps and caps to effectively fix a portion of its interest rate exposure on its
floating rate debt.  The impact of these agreements was not significant.

     Consolidated interest and debt expense amounted to $899 million in 1995, a
decrease of 16% from 1994. The decline is primarily due to refinancings
completed during 1994 and repayments of debt with the proceeds from the
issuances of preferred stock during 1994 and Nabisco Holdings Class A Common
Stock during the first quarter of 1995.  These factors more than offset the
impact of higher market interest rates.

     1994 vs. 1993.  Consolidated interest and debt expense of $1.06 billion in
1994 decreased 12% from 1993, primarily as a result of refinancings of debt
during 1993 and 1994 and lower debt levels resulting primarily from the
application of proceeds from the issuance of preferred stock.  These factors
more than offset the impact of higher market interest rates during 1994,
including the effects thereof on RJRN's interest rate instruments described
below.

     As mentioned above, RJRN entered into interest rate arrangements to manage
its interest rate exposure.  The impact on interest expense from the utilization
of interest rate instruments by RJRN in 1994 resulted in additional interest
expense of $22 million, which includes $45 million associated with the written
instruments.  The impact of interest rate instrument utilization in 1993
included gains which lowered interest expense by approximately $70 million.


 
                                       32
<PAGE>
 
OTHER INCOME (EXPENSE), NET
 
    Consolidated other income (expense), net for 1995 includes a pre-tax charge
of approximately $103 million for fees and expenses incurred in connection with
(i) the exchange of approximately $1.8 billion aggregate principal amount of
newly issued notes and debentures (the "New Notes") of Nabisco for the same
amount of notes and debentures (the "Old Notes") issued by RJRN (the "Exchange
Offers") and (ii) the solicitation of consents by RJRN to certain indenture
modifications from holders of the Old Notes and holders of approximately $3.58
billion of its other outstanding debt securities (the "Consent Solicitations").
The Exchange Offers, the Consent Solicitations and certain related transactions
were designed, among other things, to enable Nabisco to obtain long-term debt
financing independent of RJRN and to repay its intercompany debt to RJRN.
 
INCOME TAXES
 
    RJRN Holdings' provision for income taxes for 1993 was increased by $96
million as a result of the enactment of certain federal tax legislation during
the third quarter of 1993 which increased federal corporate income tax rates to
35% from 34%, retroactively to January 1, 1993. The components of this increase
to RJRN Holdings' provision for income taxes included an $86 million non-cash
charge resulting primarily from the remeasurement of the balance of deferred
federal income taxes at the date of enactment of the new federal tax legislation
for the change in the income tax rates, and a $10 million charge resulting from
the increase in current federal income taxes accrued for the change in the
income tax rates and other effects of the new tax legislation. Also during 1993,
RJRN Holdings' provision for income taxes was decreased by a $108 million credit
primarily resulting from a change in the functional currency, for U.S. federal
income tax purposes, relating to foreign branch operations.
 
NET INCOME
 
    1995 vs. 1994. RJRN Holdings reported net income of $611 million in 1995,
$92 million higher than the $519 million reported in 1994. The increase in net
income for 1995 primarily reflects the impact in 1995 of lower interest and debt
expense and a lower amount of loss from early extinguishment of debt which more
than offset the impact in 1995 of lower operating company contribution, the
domestic and international tobacco restructuring expenses, the fees and expenses
incurred in connection with the Exchange Offers and the Consent Solicitations
and the minority interest in income of Nabisco.
 
    1994 vs. 1993. RJRN Holdings' net income of $519 million in 1994 includes an
after-tax extraordinary loss of $245 million related to the repurchase and
redemption of debt during the year. Excluding the extraordinary loss in 1994, as
well as a similar extraordinary item which resulted in a $142 million after-tax
loss in 1993, RJRN Holdings would have reported net income of $764 million for
 
                                       33
<PAGE>
1994, an increase of $767 million from 1993. The increase resulted primarily
from the improvement in operating company contribution by both the Tobacco and
Food operations, the impact of lower interest expense and the 1993 restructuring
expense of $730 million, offset in part by a $65 million charge related to the
realignment of Headquarters' functions at the holding company discussed below.
 
    During the fourth quarter of 1994, RJRN Holdings approved and adopted a plan
to realign Headquarters' functions, transferring certain responsibilities to the
operating companies and significantly streamlining the holding company. The plan
reflected expectations of a lower level of financings and other activities at
the holding company as RJRN Holdings concludes the post-LBO period. The costs
and expenses associated with this decision resulted in a charge of approximately
$65 million before tax, a significant portion of which was a cash expense. The
majority of the charge was related to accrued employee termination benefits for
the 25% of Headquarters' employees terminated (approximately $40 million). This
cost was incurred pursuant to a continuing plan for employee termination
benefits that provided for the payment of specified amounts of severance and
benefits to terminated employees. The remainder of the charge (approximately $25
million) was related to the abandonment of leases of certain corporate office
facilities as a result of the realignment and streamlining and the reduced need
for office space. The plan was implemented in the first quarter of 1995 and was
substantially completed during 1995. At December 31, 1995, approximately $14
million of severance pay and benefits remained to be paid.
 
    RJRN Holdings' net income (loss) applicable to its common stock for 1995,
1994 and 1993 of $501 million, $388 million and ($213) million, respectively,
includes a deduction for preferred stock dividends of $110 million, $131 million
and $68 million, respectively.
 
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
 
    In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS No. 121").
SFAS No. 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used and for long-lived assets and certain identifiable intangibles
to be disposed of. SFAS No. 121 requires that (i) long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable and (ii) long-lived
assets and certain identifiable intangibles to be disposed of generally be
reported at the lower of carrying amount or fair value less cost to sell. SFAS
No. 121 is effective for financial statements for fiscal years beginning after
December 15, 1995. The adoption of the SFAS No. 121 is not expected to
materially effect the financial position or results of operations of RJRN
Holdings and RJRN.
 
    In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS No. 123"). SFAS No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans. SFAS No. 123
encourages all entities to adopt a fair value based method of accounting for
stock-based compensation plans in which compensation cost is measured at the
date the award is granted based on the value of the award and is recognized over
the employee service period. However, SFAS No. 123 allows an entity to continue
to use the intrinsic value based method prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25"),
with proforma disclosures of net income and earnings per share as if the fair
value based method had been applied. APB No. 25 requires compensation expense to
be recognized over the employee service period based on the excess, if any, of
the quoted marked price of the stock at the date the award is granted or other
measurement date, as applicable, over an amount an employee must pay to acquire
the stock. SFAS No. 123 is effective for financial statements for fiscal years
beginning after December 15, 1995. RJRN Holdings and RJRN currently plan to
continue to apply the methods prescribed by APB No. 25.
 
                                       34
<PAGE>
                       LIQUIDITY AND FINANCIAL CONDITION
 
DECEMBER 31, 1995
 
    Net cash flows from operating activities for 1995 were $1.67 billion, a
decrease of $89 million from the 1994 level of $1.75 billion. The decrease in
net cash flows from operating activities reflects lower income before
extraordinary item which more than offsets the impact of lower working capital
requirements and lower interest paid.
 
    The components of net cash flows from operating activities are as follows:
 
<TABLE>
<CAPTION>
                                                                                YEAR ENDED
                                                                               DECEMBER 31,
                                                                             ----------------
                                                                              1995      1994
                                                                             ------    ------
                                                                               (DOLLARS IN
                                                                                MILLIONS)
<S>                                                                          <C>       <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
  Net income..............................................................   $  611    $  519
                                                                             ------    ------
  Adjustments to reconcile net income to net cash flows from operating
    activities:
    Depreciation of property, plant and equipment.........................      482       454
    Amortization (principally intangibles)................................      689       698
    Deferred income tax benefit...........................................     (172)      (11)
    Non-cash interest and debt expense....................................       15       119
    Extraordinary item--loss on early extinguishments of debt.............       29       377
    Increase in accounts and notes receivable.............................     (351)      (69)
    Decrease in inventories...............................................      159       111
    Increase in prepaid expenses and excise taxes.........................      (61)      (18)
    (Increase) decrease in other assets and deferred charges..............        9       (55)
    Decrease in accounts payable and accrued liabilities..................       (2)     (363)
    Increase in income taxes accrued......................................       54        26
    Increase (decrease) in other noncurrent liabilities...................      123       (37)
    Other, net............................................................       80         3
                                                                             ------    ------
        Total adjustments.................................................    1,054     1,235
                                                                             ------    ------
    Net cash flows from operating activities..............................   $1,665    $1,754
                                                                             ------    ------
                                                                             ------    ------
</TABLE>
 
                                       35
<PAGE>
    Free cash flow, another measure used by management to evaluate liquidity and
financial condition and which represents cash available for the repayment of
debt and certain other corporate purposes before the consideration of any debt
and equity financing transactions, acquisition expenditures and divestiture
proceeds, resulted in inflows of $348 million and $769 million for 1995 and
1994, respectively. The lower level of free cash flow in 1995 compared with 1994
primarily reflects lower operating company contribution, higher operating
working capital requirements, capital expenditures, tax and dividend payments
and the payment of fees and expenses for the Exchange Offers and the Consent
Solicitations, which more than offset the impact of lower interest paid.
 
    The components of free cash flow are as follows:
<TABLE>
<CAPTION>
                                                                               YEAR ENDED
                                                                              DECEMBER 31,
                                                                            -----------------
                                                                             1995       1994
                                                                            ------     ------
                                                                               (DOLLARS IN
                                                                                MILLIONS)
<S>                                                                         <C>        <C>
OPERATING INCOME.........................................................   $2,338     $2,550
  Amortization of intangibles............................................      636        629
  Restructuring expense..................................................      154         --
                                                                            ------     ------
OPERATING COMPANY CONTRIBUTION...........................................    3,128      3,179
  Depreciation and other amortization....................................      535        522
  Increase in operating working capital..................................     (563)      (414)
  Capital expenditures...................................................     (744)      (670)
  Change in other assets and liabilities.................................      125         12
                                                                            ------     ------
OPERATING CASH FLOW*.....................................................    2,481      2,629
  Taxes paid.............................................................     (566)      (496)
  Interest paid..........................................................     (788)      (986)
  Dividends paid.........................................................     (598)      (395)
  Other, net.............................................................     (181)        17
                                                                            ------     ------
FREE CASH FLOW...........................................................   $  348     $  769
                                                                            ------     ------
                                                                            ------     ------
</TABLE>
 
------------
 
* Operating cash flow, which is used internally to evaluate business
  performance, includes, in addition to net cash flows from (used in) operating
  activities as recorded in the Consolidated Statement of Cash Flows, proceeds
  from the sale of capital assets less capital expenditures, and is adjusted to
  exclude income taxes paid and items of a financial nature (such as interest
  paid, interest income, and other miscellaneous financial income or expense
  items).
 
                                  ------------
 
    During 1995, RJRN Holdings, RJRN, Nabisco Holdings and Nabisco entered into
a series of transactions designed to refinance long-term debt, lower debt
levels, manage interest rate exposure and refinance certain preferred
securities. At December 31, 1995, the effective interest rate on RJRN Holdings'
consolidated long-term debt increased to 8.0% from 7.7% at December 31, 1994,
primarily due to a lower proportion of consolidated indebtedness subject to
floating interest rates and higher average market interest rates for 1995.
Future effective interest rates may vary as a result of RJRN's and Nabisco's
ongoing management of their respective interest rate exposure, changing market
interest rates, refinancing activities and changes in the ratings assigned to
RJRN's and Nabisco's debt securities by independent rating agencies. RJRN
Holdings' total debt (notes payable and long-term debt, including current
maturities) and total capital (total debt, obligations on redeemable preferred
securities of subsidiary trust and total stockholders' equity) levels at
December 31, 1995 amounted to approximately $9.8 billion and $21.1 billion,
respectively, of which total debt and total capital were approximately $1.3
billion and $927 million lower, respectively, than the corresponding amounts at
December 31, 1994. The lower debt and capital levels were primarily due to the
application of approximately $1.2 billion of net proceeds from the Nabisco
Holdings' initial public offering to repay debt. RJRN Holdings' ratio of total
debt and obligations on redeemable preferred securities of subsidiary trust to
total stockholders' equity at December 31, 1995 and 1994 was 1.0-to-1.

 
                                       36
<PAGE>
RJRN's ratio of total debt to common equity was 0.8-to-1.0 at December 31, 1995
compared with 1.0-to-1 at December 31, 1994.
 
    Currently, RJRN and its subsidiaries have four principal committed credit
facilities. On April 28, 1995, RJRN Holdings and RJRN entered into a new $2.75
billion three year revolving bank credit agreement with various financial
institutions (as amended, the "1995 RJRN Credit Agreement") and a new $750
million 364 day credit facility to support RJRN commercial paper (as amended,
the "RJRN Commercial Paper Facility," and together with the 1995 RJRN Credit
Agreement, the "New RJRN Credit Agreements"). Among other things, the New RJRN
Credit Agreements were designed to remove restrictions on the ability of Nabisco
Holdings and its subsidiaries to incur or prepay debt and allow RJRN to reduce
the aggregate amount of commitments under its banking facilities from $6 billion
to $3.5 billion by replacing its $5.0 billion revolving bank credit facility
dated December 1, 1991 (as amended, the "1991 RJRN Credit Agreement"), and its
$1.0 billion commercial paper facility dated as of April 5, 1993 (as amended and
together with the 1991 RJRN Credit Agreement, the "Old RJRN Credit Agreements").
 
    On April 28, 1995, Nabisco Holdings and Nabisco entered into a credit
agreement with various financial institutions (as amended, the "1995 Nabisco
Credit Agreement") to replace the credit agreement dated as of December 6, 1994
between Nabisco and various financial institutions (the "1994 Nabisco Credit
Agreement"). Among other things, the 1995 Nabisco Credit Agreement was designed
to permit Nabisco to prepay intercompany debt and incur long-term debt, to
increase Nabisco's committed facility from $1.5 billion to $3.5 billion and to
extend its term from 364 days to five years. On November 3, 1995, the 1995
Nabisco Credit Agreement was amended to, among other things, reduce the
committed facility to $2.0 billion from $3.5 billion. Also on November 3, 1995,
Nabisco Holdings and Nabisco entered into a 364 day credit facility (the
"Nabisco Commercial Paper Facility," and together with the 1995 Nabisco Credit
Agreement, the "1995 Nabisco Credit Agreements") for $1.5 billion primarily to
support the issuance of Nabisco commercial paper borrowings.
 
    The 1995 RJRN Credit Agreement provides for the issuance of up to $800
million of irrevocable letters of credit. Availability is reduced by the
aggregate amount of borrowings outstanding and letters of credit issued under
the 1995 RJRN Credit Agreement and by the amount of outstanding RJRN commercial
paper in excess of $750 million. At December 31, 1995, there were no borrowings
outstanding and approximately $496 million stated amount of letters of credit
issued under the 1995 RJRN Credit Agreement and approximately $224 million in
RJRN commercial paper outstanding. Accordingly, the amount available under the
1995 RJRN Credit Agreement at December 31, 1995 was approximately $2.3 billion.
 
    The RJRN Commercial Paper Facility provides a 364 day back-up line of credit
to support RJRN commercial paper issuances of up to $750 million. Availability
is reduced by an amount equal to the aggregate amount of outstanding RJRN
commercial paper. At December 31, 1995, there was approximately $224 million of
RJRN commercial paper outstanding, leaving approximately $526 million available
under the facility to support the issuance of additional RJRN commercial paper.
 
    The 1995 Nabisco Credit Agreement provides for the issuance of up to $300
million of irrevocable letters of credit. Availability is reduced by the
aggregate amount of borrowings outstanding and letters of credit issued under
the 1995 Nabisco Credit Agreement and by the amount of outstanding Nabisco
commercial paper in excess of $1.5 billion. At December 31, 1995, there were no
borrowings outstanding and no letters of credit issued under the 1995 Nabisco
Credit Agreement and approximately $1.3 billion in Nabisco commercial paper
outstanding. Accordingly, the amount available under the 1995 Nabisco Credit
Agreement at December 31, 1995 was approximately $2.0 billion.
 
    The Nabisco Commercial Paper Facility is a 364 day facility that primarily
supports Nabisco commercial paper issuances of up to $1.5 billion. Availability
is reduced by an amount equal to the aggregate amount of outstanding Nabisco
commercial paper. At December 31, 1995, there was
 
                                       37
<PAGE>
approximately $1.3 billion of Nabisco commercial paper outstanding, leaving
approximately $200 million available under the facility to support the issuance
of additional Nabisco commercial paper.
 
    On January 26, 1995, Nabisco Holdings completed the initial public offering
of 51,750,000 shares of its Class A Common Stock, par value $.01 per share
("Class A Common Stock"), at an initial offering price of $24.50 per share.
Nabisco used all of the approximately $1.2 billion of net proceeds from the
initial public offering to repay a portion of its borrowings under the 1994
Nabisco Credit Agreement. The completion of Nabisco Holdings' initial public
offering and the corresponding reduction in RJRN's proportionate economic
interest in Nabisco Holdings from 100% to approximately 80.5% resulted in an
adjustment of approximately $401 million to the carrying amount of RJRN's
investment in Nabisco Holdings. Such adjustment was reflected as additional
paid-in capital by RJRN Holdings and RJRN.
 
    On April 1, July 1 and October 1, 1995 and January 1, 1996, RJRN Holdings
paid a quarterly dividend on its common stock, par value $.01 per share (the
"Common Stock"), of $.375 per share. RJRN Holdings expects to continue to pay a
quarterly cash dividend on the Common Stock equal to $.375 per share or $1.50
per share on an annualized basis. RJRN Holdings believes that its ability to pay
these dividends will not be limited by the restrictions under the New RJRN
Credit Agreements and the 1995 Nabisco Credit Agreements or by the policies of
its Board of Directors described below.
 
    On April 12, 1995, the stockholders of RJRN Holdings approved a one-for-five
reverse stock split and the corresponding reduction in the number of authorized
shares of Common Stock from 2,200,000,000 to 440,000,000. Accordingly, the rates
at which shares of ESOP Convertible Preferred Stock, par value $.01 per share,
and Series C Conversion Preferred Stock, par value $.01 per share, will convert
into shares of Common Stock have been proportionately adjusted.
 
    On June 5, 1995, RJRN and Nabisco consummated the Exchange Offers. As part
of the transaction, RJRN returned to Nabisco approximately $1.8 billion of
intercompany notes that had been issued by Nabisco and were held by a
non-Nabisco affiliate of RJRN. The New Notes issued by Nabisco in the Exchange
Offers have interest rates, principal amounts, maturities and redemption
provisions identical to the corresponding Old Notes issued by RJRN. Nabisco
subsequently borrowed approximately $2.4 billion under the 1995 Nabisco Credit
Agreement to (a) repay or repurchase an additional $2.1 billion of intercompany
notes of Nabisco and its subsidiaries; (b) repay approximately $125 million of
outstanding borrowings under the 1994 Nabisco Credit Agreement; (c) repay
approximately $89 million of an intercompany note from Nabisco to Nabisco
Holdings; and (d) pay a $79 million dividend to Nabisco Holdings. Nabisco
Holdings used the payments it received to repay the balance of a $168 million
intercompany note to RJRN. Concurrently with the Exchange Offers, RJRN
consummated the Consent Solicitations. The Exchange Offers, the Consent
Solicitations and certain related transactions were designed, among other
things, to enable Nabisco to obtain long-term debt financing independent of RJRN
and to repay its intercompany debt to RJRN.
 
    On June 5, 1995, RJRN applied the approximately $2.3 billion that it
received from Nabisco and Nabisco Holdings in repayment of the intercompany
notes to repay a portion of its borrowings under the 1991 RJRN Credit Agreement.
RJRN used an additional approximately $330 million of borrowings under the 1995
RJRN Credit Agreement to repay the balance of its obligations under the Old RJRN
Credit Agreements and to pay certain expenses associated with the Exchange
Offers, the Consent Solicitations and related transactions.
 
    On June 28, 1995 Nabisco issued $400 million principal amount of 6.70% Notes
Due 2002, $400 million principal amount of 6.85% Notes Due 2005 and $400 million
principal amount of 7.55% Debentures Due 2015. On July 14, 1995, Nabisco issued
$400 million principal amount of 7.05% Notes Due 2007. The net proceeds from the
issuance of such debt securities were used to repay a portion of the borrowings
under the 1995 Nabisco Credit Agreement.
 
    On July 1 and October 1, 1995 and January 1, 1996, Nabisco Holdings paid a
quarterly dividend on its common stock of $.1375 per share. Nabisco Holdings
expects to continue to pay a quarterly cash
 
                                       38
<PAGE>
dividend on its common stock equal to $.1375 per share or $.55 per share on an
annualized basis (approximately $146 million). RJRN would receive approximately
$117 million of the annualized Nabisco Holdings dividend.
 
    On July 17, 1995, Nabisco redeemed its outstanding 8 5/8% Sinking Fund
Debentures Due March 15, 2017 at a price of $1,051.75 for each $1,000 principal
amount of debentures, plus accrued interest. The aggregate redemption price and
accrued interest on these debentures was approximately $442 million. The
redemption resulted in an extraordinary loss of approximately $29 million ($16
million after tax and minority interest).
 
    On July 24, 1995, RJRN issued $400 million aggregate principal amount of 8%
Notes Due 2001 and $250 million aggregate principal amount of 8 3/4% Notes Due
2007 under a $1.0 billion debt shelf registration statement filed during 1995.
Approximately $352 million of debt securities remains unissued under the shelf 
as of December 31, 1995. The net proceeds from the issuance of these securities
have been or will be used to repay borrowings under the 1995 RJRN Credit
Agreement, to retire RJRN commercial paper and for general corporate purposes.
 
    On September 21, 1995, RJRN Holdings issued approximately $978 million
aggregate principal amount of its 10% Junior Subordinated Debentures due 2044
(the "Junior Subordinated Debentures") to a newly formed controlled affiliate,
RJR Nabisco Holdings Capital Trust I (the "Trust"). The Trust, in turn,
exchanged approximately $949 million of its preferred securities (the "Trust
Preferred Securities"), representing undivided interests in 97% of the assets of
the Trust, for 37,956,060 of the 50,000,000 Series B Depositary Shares (the
"Series B Depositary Shares") outstanding, each representing one-tenth of a
share of the 50,000 outstanding shares of RJRN Holdings' Series B Cumulative
Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"). RJRN
Holdings retired the exchanged shares, leaving 12,043.94 shares of the Series B 
Preferred Stock outstanding. The sole asset of the Trust is the Junior 
Subordinated Debentures. Upon redemption of the Junior Subordinated 
Debentures, which have a final maturity of December 31, 2044, the Trust 
Preferred Securities will be mandatorily redeemed. The transaction resulted 
in a charge of approximately $5 million to RJRN Holdings' paid in capital as 
the fair value of the Trust Preferred Securities issued exceeded the book 
carrying value of the retired Series B Preferred Stock.
 
    On November 14, 1995, Nabisco filed a shelf registration statement with the
Securities and Exchange Commission for $1.0 billion of debt.
 
    At December 31, 1995, RJRN had outstanding interest rate instruments with a
notional principal amount of $0, net.
 
    At December 31, 1995, Nabisco had outstanding fixed interest rate swaps with
an aggregate notional principal amount of $1.0 billion and expiration dates
occurring within six months. Also at December 31, 1995, Nabisco had outstanding
interest rate caps with an aggregate notional principal amount of $1.0 billion,
all with future effective dates commencing within six months and with expiration
dates one year thereafter.
 
    At December 31, 1995, the aggregate amount of consolidated indebtedness
subject to floating interest rates approximated $642 million. This represents a
decrease of $3.7 billion from the year end 1994 level of $4.3 billion, primarily
due to the application of approximately $1.2 billion of the net proceeds from
the Nabisco Holdings' initial public offering to repay a portion of Nabisco's
borrowing under the 1994 Nabisco Credit Agreement, Nabisco's interest rate
instruments entered into during 1995 and the issuance of $1.6 billion of fixed
rate debt by Nabisco and $650 million of fixed rate debt by RJRN to refinance
bank and commercial paper borrowings.
 
    As a result of the level of market interest rates at December 31, 1995 and
1994 compared with the interest rates associated with RJRN Holdings'
consolidated debt obligations, the estimated fair value amounts of RJRN
Holdings' long-term debt reflected in its Consolidated Balance Sheets is higher
by $246 million and lower by $444 million than the carrying amounts (book
values) of such debt at December 31, 1995 and 1994, respectively. For additional
disclosures concerning the fair value of
 
                                       39
<PAGE>
RJRN Holdings' consolidated indebtedness as well as the fair value of its
interest rate arrangements at December 31, 1995 and 1994, see Notes 11 and 12 to
the Consolidated Financial Statements.
 
    The payment of dividends and the making of distributions by RJRN Holdings to
its stockholders are subject to direct and indirect restrictions under certain
financing agreements and debt instruments of RJRN Holdings and RJRN and their
subsidiaries. The New RJRN Credit Agreements generally restrict cumulative
common and preferred dividends and distributions by RJRN Holdings after April
28, 1995 to $1 billion, plus 50% of cumulative consolidated net income, as
defined in the New RJRN Credit Agreements, after January 1, 1995, plus the
aggregate cash proceeds of up to $250 million in any twelve month period from
issuances of equity securities. The New RJRN Credit Agreements and certain other
financing agreements also limit the ability of RJRN Holdings and its
subsidiaries to incur indebtedness, engage in transactions with stockholders and
affiliates, create liens, sell or dispose of certain assets and certain
subsidiaries' stock, issue certain equity securities and engage in certain
mergers or consolidations.
 
    Among other things, the 1995 Nabisco Credit Agreements generally restrict
common and preferred dividends and distributions after April 28, 1995 by Nabisco
Holdings to its stockholders, including RJRN, to $300 million plus 50% of
Nabisco Holdings' cumulative consolidated net income, as defined in the 1995
Nabisco Credit Agreements, after January 1, 1995. In general, loans and advances
by Nabisco Holdings and its subsidiaries to RJRN are effectively subject to a
$100 million limit and may only be extended to RJRN's foreign subsidaries. The
1995 Nabisco Credit Agreements also limit the ability of Nabisco Holdings and
its subsidiaries to incur indebtedness, engage in transactions with stockholders
and affiliates, create liens, sell or dispose of certain assets and certain
subsidiaries' stock and engage in certain mergers or consolidations. These
restrictions have not had and are not expected to have a material effect on the
ability of Nabisco Holdings to pay its anticipated dividends, or on the ability
of RJRN to meet its obligations.
 
    Management of RJRN Holdings and its subsidiaries are continuing to review
various strategic transactions, including but not limited to, acquisitions,
divestitures, mergers and joint ventures. No assurance may be given that any
such transactions will be announced or completed.
 
    RJRN Holdings has indicated that, under normal circumstances, it does not
plan to issue additional equity securities for purposes of balance sheet
improvement.
 
    Capital expenditures were $744 million, $670 million and $615 million for
1995, 1994 and 1993, respectively. The current level of expenditures planned for
1996 is expected to be in the range of approximately $700 million to $750
million (approximately 60% Food and 40% Tobacco), which will be funded primarily
by cash flows from operating activities. Management expects that its capital
expenditure program will continue at a level sufficient to support the strategic
and operating needs of RJRN Holdings' operating subsidiaries.
 
    RJRN Holdings' subsidiaries have operations in many countries, utilizing
many different functional currencies in its foreign subsidiaries and branches.
Significant foreign currency net investments are located in Germany, Canada,
Hong Kong, Brazil, Argentina and Spain. Changes in the strength of these
countries' currencies relative to the U.S. dollar result in direct charges or
credits to equity for non-hyperinflationary countries and direct charges or
credits to the income statement for hyperinflationary countries. Translation
gains or losses resulting from foreign-denominated borrowings that are accounted
for as hedges of certain foreign currency net investments, also result in
charges or credits to equity. RJRN Holdings' subsidiaries also have significant
exposure to foreign exchange sale and purchase transactions in currencies other
than its functional currency. The exposures include the U.S. dollar, German
mark, Japanese yen, Swiss franc, Hong Kong dollar, Singapore dollar and
cross-rate exposure among the French franc, British pound, Italian lira and the
German mark. These exposures are managed to minimize the effects of foreign
currency transactions on its cash flows.
 
                                       40
<PAGE>
RJRN HOLDINGS' BOARD OF DIRECTORS POLICIES
 
    In November 1994, the Board of Directors of RJRN Holdings adopted a policy
stating that RJRN Holdings will limit, until December 31, 1998, the aggregate
amount of cash dividends on its capital stock. Under this policy, during that
period RJRN Holdings will not pay any extraordinary cash dividends and will
limit the aggregate amount of its cash dividends, cash distributions and
repurchases for cash of capital stock and subordinated debt to an amount equal
to the sum of $500 million plus (i) 65% of RJRN Holdings' cumulative
consolidated net income before extraordinary gains or losses and restructuring
charges subsequent to December 31, 1994 and (ii) net cash proceeds of up to $250
million in any year from the sale of capital stock of RJRN Holdings or its
subsidiaries (other than proceeds from the Nabisco Holdings initial public
offering) to the extent used to repay, purchase or redeem debt or preferred
stock.
 
    Also in November 1994, the Board of Directors of RJRN Holdings adopted a
policy providing that RJRN Holdings will not declare a dividend or distribution
to its stockholders of the shares of capital stock of a subsidiary before
December 31, 1996. RJRN Holdings has also adopted a policy setting forth its
intention not to make such a distribution prior to December 31, 1998 if that
distribution would cause the ratings of the senior indebtedness of RJRN to be
reduced from investment grade to non-investment grade or if, after giving effect
to such distribution, any publicly-held senior indebtedness of the distributed
company would not be rated investment grade. The Board of Directors of RJRN
Holdings is committed to effecting a spin-off of Nabisco Holdings at the
appropriate time. There is no assurance that any such distribution will take
place. Additional policies provide that an amount equal to the net cash proceeds
from any issuance and sale of equity by RJRN Holdings or from any sale outside
the ordinary course of business of material assets owned or used by subsidiaries
in the tobacco business, in each case before December 31, 1998, will be used
either to repay, purchase or redeem consolidated indebtedness or to acquire
properties, assets or businesses to be used in existing or new lines of business
and that an amount equal to the net cash proceeds of any secondary sale of
shares of Nabisco Holdings before December 31, 1998 will be used to repay,
purchase or redeem consolidated debt. No assurance can be given that RJRN
Holdings will issue or sell any equity or sell any material assets outside the
ordinary course of business.
 
ENVIRONMENTAL MATTERS
 
    The U.S. Government and various state and local governments have enacted or
adopted laws and regulations concerning protection of the environment. The
regulations promulgated by the Environmental Protection Agency and other
governmental agencies under various statutes have resulted in, and will likely
continue to result in, substantial expenditures for pollution control, waste
treatment, plant modification and similar activities.
 
    In April 1995, RJRN Holdings was named a potentially responsible party (a
"PRP") with certain third parties under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") with respect to a superfund
site at which a former subsidiary of RJRN had operations. Certain subsidiaries
of RJRN Holdings and RJRN have also been named as PRPs with third parties or may
have indemnification obligations under CERCLA with respect to an additional
thirteen sites.
 
    RJRN Holdings' and RJRN's subsidiaries have been engaged in a continuing
program to assure compliance with U.S., state and local laws and regulations.
Although it is difficult to identify precisely the portion of capital
expenditures or other costs attributable to compliance with environmental laws
and to estimate the cost of resolving these CERCLA matters, RJRN Holdings and
RJRN do not expect such expenditures or other costs to have a material adverse
effect on the financial condition of either RJRN Holdings or RJRN.

                           -------------------------

    The foregoing discussion in "Management's Discussion and Analysis of 
Financial Condition and Results of Operations" contains forward-looking 
statements which reflect Management's current views with respect to future 
events and financial performance.  These forward-looking statements are
subject to certain risks and uncertainties, including, but not limited to, the
effects on financial performance and future events, competitive pricing for 
products, success of new product innovations and acquisitions, local economic 
conditions and the effects of currency fluctuations in countries in which RJRN 
Holdings and its subsidiaries do business, domestic and foreign government 
regulation, ratings of RJRN Holdings' or its subsidiaries' securities and,
in the case of the tobacco business, litigation. For additional information
concerning factors affecting future events and policies and RJRN Holdings' 
performance, see Part I, Items 1 through 3 and Part II Item 5 of this report.
Due to such uncertainties and risks, readers are cautioned not to place undue 
reliance on such forward-looking statements, which speak only as of the date 
hereof. 
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
    Refer to the Index to Financial Statements and Financial Statement Schedules
on page 47 for the required information.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
    None.
 
                                       41
<PAGE>
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
 
    Item 10 is hereby incorporated by reference to RJRN Holdings' Definitive
Proxy Statement to be filed with the Securities and Exchange Commission on or
prior to April 30, 1996. Reference is also made regarding the executive officers
of the Registrants to "Executive Officers of the Registrants" following Item 4
of Part I of this Report.
 
ITEM 11. EXECUTIVE COMPENSATION
 
    Item 11 is hereby incorporated by reference to RJRN Holdings' Definitive
Proxy Statement to be filed with the Securities and Exchange Commission on or
prior to April 30, 1996.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    Item 12 is hereby incorporated by reference to RJRN Holdings' Definitive
Proxy Statement to be filed with the Securities and Exchange Commission on or
prior to April 30, 1996.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    Item 13 is hereby incorporated by reference to RJRN Holdings' Definitive
Proxy Statement to be filed with the Securities and Exchange Commission on or
prior to April 30, 1996.
 
                                       42
<PAGE>
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
<TABLE>
     <S>    <C>   <C>
     (a)      1.  The financial statements listed in the accompanying Index to Financial
                  Statements and Financial Statement Schedules are filed as part of this report.
              2.  The financial statement schedules listed in the accompanying Index to Financial
                  Statements and Financial Statement Schedules are filed as part of this report.
              3.  The exhibits listed in the accompanying Index to Exhibits are filed as part of
                  this report.
     (b)          Reports on Form 8-K filed in Fourth Quarter 1995
                  None.
     (c)          Exhibits
                  See Exhibit Index.
     (d)          Financial Statement Schedules.
                  See Index to Financial Statements and Financial Statement Schedules.
</TABLE>
 
                                       43
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York on February 22, 1996.

 
                                          RJR NABISCO HOLDINGS CORP.

 
                                          By:   /s/ STEVEN F. GOLDSTONE
                                             ................................
                                                    (Steven F. Goldstone)
                                                       President and
                                                    Chief Executive Officer
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on February 22, 1996.


           SIGNATURE                           TITLE
           ---------                           -----
     /s/ CHARLES M. HARPER        Chairman of the Board and
 ................................   Director
      (Charles M. Harper)

                                  President and Chief Executive
     /s/ STEVEN F. GOLDSTONE       Officer (principal executive
 ................................   officer)
     (Steven F. Goldstone)

                                  Senior Vice President and Chief
/s/ ROBERT S. ROATH                Financial Officer (principal
 ................................   financial officer)
       (Robert S. Roath)

     /s/ RICHARD G. RUSSELL       Senior Vice President and
 ................................   Controller (principal
      (Richard G. Russell)         accounting officer)

               *                  Director
 ................................
      (John T. Chain, Jr.)

               *                  Director
 ................................
      (Julius L. Chambers)

               *                  Director
 ................................
      (John L. Clendenin)

               *                  Director
 ................................
      (H. John Greeniaus)

               *                  Director
 ................................
        (Ray J. Groves)

               *                  Director
 ................................
      (James W. Johnston)

               *                  Director
 ................................
     (John G. Medlin, Jr.)

               *                  Director
 ................................
      (Rozanne L. Ridgway)
 
                                         *By:     /s/ ROBERT F. SHARPE, JR.
                                               .............................
                                               (Robert F. Sharpe, Jr.)
                                                  Attorney-in-Fact
 
                                       44
<PAGE>
                                   SIGNATURES
 
    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York on February 22, 1996.
 
                                          RJR NABISCO, INC.
 


                                          By:   /s/ STEVEN F. GOLDSTONE
                                             ................................
                                                    (Steven F. Goldstone)
                                                       President and
                                                    Chief Executive Officer


 
    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on February 22, 1996.


           SIGNATURE                           TITLE
           ---------                           -----
     /s/ CHARLES M. HARPER        Chairman of the Board and
 ................................   Director
      (Charles M. Harper)

                                  President and Chief Executive
     /s/ STEVEN F.GOLDSTONE        Officer (principal executive
 ................................   officer)
     (Steven F. Goldstone)

                                  Senior Vice President and Chief
       /s/ ROBERT S. ROATH         Financial Officer (principal
 ................................   financial officer)
       (Robert S. Roath)

     /s/ RICHARD G. RUSSELL       Senior Vice President and
 ................................   Controller (principal
      (Richard G. Russell)         accounting officer)

               *                  Director
 ................................
      (John T. Chain, Jr.)

               *                  Director
 ................................
      (Julius L. Chambers)

               *                  Director
 ................................
      (John L. Clendenin)

               *                  Director
 ................................
      (H. John Greeniaus)

               *                  Director
 ................................
        (Ray J. Groves)

               *                  Director
 ................................
      (James W. Johnston)

               *                  Director
 ................................
     (John G. Medlin, Jr.)

               *                  Director
 ................................
      (Rozanne L. Ridgway)
 
                                         *By:  /s/ ROBERT F. SHARPE, JR.
                                              ..............................
                                               (Robert F. Sharpe, Jr.)
                                                  Attorney-in-Fact
 
                                       45
<PAGE>
                      [THIS PAGE INTENTIONALLY LEFT BLANK]
 
                                       46
<PAGE>
        INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
 
<TABLE>
<CAPTION>
                                                                                     PAGE
                                                                                  -----------
<S>                                                                               <C>
FINANCIAL STATEMENTS
  Report of Deloitte & Touche LLP, Independent Auditors........................           F-1
  Consolidated Statements of Income and Retained Earnings--Years Ended December
    31, 1995, 1994 and 1993....................................................           F-2
  Consolidated Statements of Cash Flows--Years Ended December 31, 1995,
    1994 and 1993..............................................................           F-3
  Consolidated Balance Sheets--December 31, 1995 and 1994......................           F-4
  Notes to Consolidated Financial Statements...................................      F-5-F-45
 
FINANCIAL STATEMENT SCHEDULES
 
    For the years ended December 31, 1995, 1994 and 1993:
 
  Schedule I    --Condensed Financial Information of Registrants...................     S-1-S-8
  Schedule II   --Valuation and Qualifying Accounts................................         S-9
</TABLE>
 
                                       47
<PAGE>
             REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
 
RJR Nabisco Holdings Corp.:
RJR Nabisco, Inc.:
 
    We have audited the accompanying consolidated balance sheets of RJR Nabisco
Holdings Corp. ("RJRN Holdings") and RJR Nabisco, Inc. ("RJRN") as of December
31, 1995 and 1994, and the related consolidated statements of income and
retained earnings and cash flows for each of the three years in the period ended
December 31, 1995. Our audits also included the financial statement schedules of
RJRN Holdings and RJRN as of December 31, 1995 and 1994, and for each of the
three years in the period ended December 31, 1995 as listed in the accompanying
index to financial statements and financial statement schedules. These financial
statements and financial statement schedules are the responsibility of the
companies' management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of RJRN Holdings and
RJRN at December 31, 1995 and 1994, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
 
DELOITTE & TOUCHE LLP
 
New York, New York
January 29, 1996
(February 16, 1996 as
to Note 12)
 
                                      F-1
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                         YEAR ENDED               YEAR ENDED              YEAR ENDED
                                        DECEMBER 31,             DECEMBER 31,            DECEMBER 31,
                                            1995                     1994                    1993
                                   -----------------------   ---------------------   ---------------------
                                      RJRN                     RJRN                    RJRN
                                    HOLDINGS       RJRN      HOLDINGS      RJRN      HOLDINGS      RJRN
                                   ----------   ----------   --------   ----------   --------   ----------
<S>                                <C>          <C>          <C>        <C>          <C>        <C>
NET SALES (NOTE 2)...............  $   16,008   $   16,008   $ 15,366   $   15,366   $ 15,104   $   15,104
                                   ----------   ----------   --------   ----------   --------   ----------
Costs and expenses (Note 2):
 Cost of products sold...........       7,468        7,468      6,977        6,977      6,640        6,640
 Selling, advertising,
   administrative and general
   expenses......................       5,412        5,412      5,210        5,198      5,731        5,723
 Amortization of trademarks and
   goodwill......................         636          636        629          629        625          625
 Restructuring expense ..........         154          154         --           --        730          730
                                   ----------   ----------   --------   ----------   --------   ----------
     OPERATING INCOME............       2,338        2,338      2,550        2,562      1,378        1,386
Interest and debt expense (Notes
  9 and 11)......................        (899)        (872)    (1,065)      (1,065)    (1,209)      (1,186)
Other income (expense), net (Note
  2).............................        (173)        (175)      (110)        (121)       (58)         (88)
                                   ----------   ----------   --------   ----------   --------   ----------
     Income before income
       taxes.....................       1,266        1,291      1,375        1,376        111          112
Provision for income taxes (Note
  4).............................         580          594        611          614        114          116
                                   ----------   ----------   --------   ----------   --------   ----------
     INCOME (LOSS) BEFORE
       MINORITY INTEREST IN
       INCOME OF NABISCO.........         686          697        764          762         (3)          (4)
Minority interest in income of
  Nabisco........................         (59)         (59)        --           --         --           --
                                   ----------   ----------   --------   ----------   --------   ----------
     INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM...............         627          638        764          762         (3)          (4)
Extraordinary item--loss on early
  extinguishments of debt, net of
  income taxes and minority
  interest (Note 5)..............         (16)         (16)      (245)        (245)      (142)        (135)
                                   ----------   ----------   --------   ----------   --------   ----------
     NET INCOME (LOSS)...........         611          622        519          517       (145)        (139)
Less preferred stock dividends...         110           --        131           --         68           --
                                   ----------   ----------   --------   ----------   --------   ----------
     Net income (loss) applicable
         to common stock.........         501          622        388          517       (213)        (139)
Retained earnings (accumulated
  deficit) at beginning of
  period.........................        (364)          16       (883)        (459)      (738)        (320)
Common stock and other
  dividends......................        (569)          --       (262)          --       (178)          --
Dividends paid to parent and
  charged to retained earnings...          --         (267)        --          (42)        --           --
Amounts reclassified to paid-in
  capital........................         432           --        393           --        246           --
                                   ----------   ----------   --------   ----------   --------   ----------
RETAINED EARNINGS (ACCUMULATED
  DEFICIT) AT END OF PERIOD (NOTE
  14)............................  $       --   $      371   $   (364)  $       16   $   (883)  $     (459)
                                   ----------   ----------   --------   ----------   --------   ----------
                                   ----------   ----------   --------   ----------   --------   ----------
Net income (loss) per common and
  common equivalent share (Note
  3):
 Income (loss) before
   extraordinary item............  $     1.58           --   $   2.06           --   $  (0.26)          --
 Extraordinary item..............       (0.05)          --      (0.79)          --      (0.53)          --
                                   ----------   ----------   --------   ----------   --------   ----------
     Net income (loss)...........  $     1.53           --   $   1.27           --   $  (0.79)          --
                                   ----------   ----------   --------   ----------   --------   ----------
                                   ----------   ----------   --------   ----------   --------   ----------
Dividends per share of Common
  Stock (Note 13)................  $     1.50           --         --           --         --           --
Dividends per share of Series A
  Preferred Stock (Note 13)......          --           --   $   2.92           --   $   3.34           --
Dividends per share of Series C
  Preferred Stock (Note 13)......  $     6.01           --   $   3.94           --         --           --
Average number of common and
  common equivalent shares
  outstanding (in thousands) 
  (Note 3).......................     326,643           --    307,625           --    269,839           --
                                   ----------   ----------   --------   ----------   --------   ----------
                                   ----------   ----------   --------   ----------   --------   ----------
</TABLE>
 
                See Notes to Consolidated Financial Statements.
 
                                      F-2
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                               YEAR ENDED            YEAR ENDED           YEAR ENDED
                                              DECEMBER 31,          DECEMBER 31,         DECEMBER 31,
                                                  1995                  1994                 1993
                                            -----------------    ------------------   ------------------
                                              RJRN                 RJRN                 RJRN
                                            HOLDINGS   RJRN      HOLDINGS    RJRN     HOLDINGS    RJRN
                                            --------  -------    --------  --------   --------  --------
<S>                                         <C>       <C>        <C>       <C>        <C>       <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
 (NOTE 6).................................  $ 1,665   $ 1,699    $  1,754  $  1,719   $  1,769  $  1,604
                                            --------  -------    --------  --------   --------  --------
CASH FLOWS FROM (USED IN) INVESTING
 ACTIVITIES:
 Capital expenditures.....................     (744 )    (744)       (670)     (670)      (615)     (615)
 Divestitures of businesses...............      162       162          --        --        450       450
 Acquisitions of businesses...............     (429 )    (429)       (510)     (510)      (128)     (128)
 Net proceeds from issuance of subsidiary
  common stock............................    1,201     1,201          --        --         --        --
 Other, net...............................       75        75          39        39         32        32
                                            --------  -------    --------  --------   --------  --------
   Net cash flows from (used in) investing
    activities............................      265       265      (1,141)   (1,141)      (261)     (261)
                                            --------  -------    --------  --------   --------  --------
CASH FLOWS FROM (USED IN) FINANCING
 ACTIVITIES:
 Net borrowings (repayments) under credit
   agreements.............................   (3,100 )  (3,100)      2,911     2,911     (2,614)   (2,614)
 Net proceeds from the issuance
   (repayments) of commercial paper.......      644       644         (49)      (49)       342       342
 Proceeds from issuance of other long-term
   debt...................................    2,324     2,324          16        16      1,965     1,965
 Repayments of other long-term debt.......   (1,285 )  (1,285)     (4,666)   (4,666)    (1,977)   (1,429)
 Increase (decrease) in notes payable.....      (44 )     (44)         18        18        (24)      (24)
 Proceeds from issuance of Common Stock...       13        --          54        --          9        --
 Proceeds from issuance of Series B
  Preferred Stock.........................       --        --          --        --      1,250        --
 Proceeds from issuance of Series C
  Preferred Stock.........................       --        --       1,734        --         --        --
 Dividends paid on Common Stock...........     (307 )      --          --        --         --        --
 Dividends paid on Nabisco Holdings'
   common stock...........................      (15 )     (15)         --        --         --        --
 Dividends paid on Series A Preferred
  Stock...................................       --        --        (175)       --       (175)       --
 Dividends paid on Series B Preferred
  Stock...................................      (97 )      --        (116)       --        (33)       --
 Dividends paid on Series C Preferred
  Stock...................................     (160 )      --         (85)       --         --        --
 Dividends paid on ESOP Preferred Stock...      (19 )      --         (19)       --        (20)       --
 Dividends paid on redeemable Convertible
  Preferred Stock.........................       --        --          --        --        (13)       --
 Repurchase of preferred stock............       --        --          (3)       --       (105)       --
 Repurchases and cancellations of common
   stock and stock options................       (2 )      --          (1)       --         (1)       --
 Retirements of ESOP preferred stock......       (5 )      --          (4)       --         (1)       --
 Financing and advisory fees paid.........     (114 )    (114)        (60)       (6)       (48)       (9)
 Capital contributions from/issuance of
   common stock to parent.................       --        --          --     1,680         --     1,214
 Dividends paid to parent.................       --      (267)         --       (42)        --       (48)
 Other, net--including intercompany
  transfers...............................       44      (288)         46      (230)        63      (621)
                                            --------  -------    --------  --------   --------  --------
   Net cash flows used in financing
    activities............................   (2,123 )  (2,145)       (399)     (368)    (1,382)   (1,224)
                                            --------  -------    --------  --------   --------  --------
Effect of exchange rate changes on cash
 and cash equivalents.....................        4         4          (6)       (6)       (10)      (10)
                                            --------  -------    --------  --------   --------  --------
   Net change in cash and cash
    equivalents...........................     (189 )    (177)        208       204        116       109
Cash and cash equivalents at beginning of
 period...................................      423       409         215       205         99        96
                                            --------  -------    --------  --------   --------  --------
Cash and cash equivalents at end of
 period...................................  $   234   $   232    $    423  $    409   $    215  $    205
                                            --------  -------    --------  --------   --------  --------
                                            --------  -------    --------  --------   --------  --------
</TABLE>
 
                See Notes to Consolidated Financial Statements.
 
                                      F-3
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
                          CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                  DECEMBER 31,       DECEMBER 31,
                                                                      1995               1994
                                                                -----------------  -----------------
                                                                  RJRN               RJRN
                                                                HOLDINGS   RJRN    HOLDINGS   RJRN
                                                                --------  -------  --------  -------
<S>                                                             <C>       <C>      <C>       <C>
ASSETS
Current assets:
 Cash and cash equivalents (Note 6)............................ $    234  $   232  $    423  $   409
 Accounts and notes receivable, net (Note 6)...................    1,334    1,327       934      934
 Inventories (Note 7)..........................................    2,489    2,489     2,580    2,580
 Prepaid expenses and excise taxes.............................      503      503       426      426
                                                                --------  -------  --------  -------
     TOTAL CURRENT ASSETS......................................    4,560    4,551     4,363    4,349
                                                                --------  -------  --------  -------
Property, plant and equipment--at cost.........................    8,386    8,386     7,767    7,767
Less accumulated depreciation..................................   (2,696)  (2,696)   (2,333)  (2,333)
                                                                --------  -------  --------  -------
 Net property, plant and equipment (Note 8)....................    5,690    5,690     5,434    5,434
                                                                --------  -------  --------  -------
Trademarks, net of accumulated amortization of $1,745 and
 $1,491, respectively..........................................    8,265    8,265     8,506    8,506
Goodwill, net of accumulated amortization of $2,502 and $2,124,
 respectively..................................................   12,536   12,536    12,681   12,681
Other assets and deferred charges..............................      467      466       424      423
                                                                --------  -------  --------  -------
                                                                $ 31,518  $31,508  $ 31,408  $31,393
                                                                --------  -------  --------  -------
                                                                --------  -------  --------  -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Notes payable (Note 9)........................................ $    268  $   268  $    296  $   296
 Accounts payable..............................................      755      755       548      548
 Accrued liabilities (Note 10).................................    2,649    2,490     2,532    2,488
 Current maturities of long-term debt (Note 11)................      150      150     1,970    1,970
 Income taxes accrued (Note 4).................................      302      302       248      248
                                                                --------  -------  --------  -------
     TOTAL CURRENT LIABILITIES.................................    4,124    3,965     5,594    5,550
                                                                --------  -------  --------  -------
Long-term debt (less current maturities) (Note 11).............    9,429    9,429     8,883    8,883
Other noncurrent liabilities...................................    3,016    2,365     2,235    1,836
Deferred income taxes (Note 4).................................    3,666    3,596     3,788    3,714
Commitments and contingencies (Note 12)
RJRN Holdings' obligated mandatorily redeemable preferred
 securities of subsidiary trust holding solely junior
 subordinated debentures (Note 11)*                                  954       --        --       --
Stockholders' equity (Notes 13 and 14):
 ESOP convertible preferred stock--14,990,677 and 15,315,130
   shares issued and outstanding at December 31, 1995 and 1994,
   respectively................................................      240       --       245       --
 Series B preferred stock--12,044 and 50,000 shares issued and
  outstanding at December 31, 1995 and 1994, respectively......      301       --     1,250       --
 Series C convertible preferred stock--26,675,000 shares issued
   and outstanding at December 31, 1995 and 1994...............        3       --         3       --
 Common stock--272,807,942 and 272,331,377 shares issued and
  outstanding at December 31, 1995 and 1994, respectively......        3       --         3       --
 Paid-in capital...............................................   10,110   11,958    10,157   11,558
 Cumulative translation adjustments............................     (176)    (176)     (164)    (164)
 Retained earnings (accumulated deficit).......................       --      371      (364)      16
 Receivable from ESOP..........................................     (137)      --      (186)      --
 Loans receivable from employees...............................       (7)      --       (14)      --
 Unamortized value of restricted stock.........................       (8)      --       (22)      --
                                                                --------  -------  --------  -------
     TOTAL STOCKHOLDERS' EQUITY................................   10,329   12,153    10,908   11,410
                                                                --------  -------  --------  -------
                                                                $ 31,518  $31,508  $ 31,408  $31,393
                                                                --------  -------  --------  -------
                                                                --------  -------  --------  -------
</TABLE>
 
------------
 
* The sole asset of the subsidiary trust is the junior subordinated debentures
  of RJRN Holdings. Upon redemption of the junior subordinated debentures, which
  have a final maturity of December 31, 2044, the preferred securities will be
  mandatorily redeemed. The outstanding junior subordinated debentures have an
  aggregate principal amount of approximately $978 million and an annual
  interest rate of 10%.
 
                See Notes to Consolidated Financial Statements.
 
                                      F-4
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    This Summary of Significant Accounting Policies is presented to assist in
understanding the consolidated financial statements of RJR Nabisco Holdings
Corp. ("RJRN Holdings") and RJR Nabisco, Inc. ("RJRN") (the "Consolidated
Financial Statements") included in this report. These policies conform to
generally accepted accounting principles.
 
  Consolidation
 
    Consolidated Financial Statements include the accounts of RJRN Holdings and
RJRN and their subsidiaries.
 
  Cash Equivalents
 
    Cash equivalents include all short-term, highly liquid investments that are
readily convertible to known amounts of cash and so near maturity (three months
or less) that they present an insignificant risk of changes in value because of
changes in interest rates.
 
  Inventories
 
    Inventories are stated at the lower of cost or market. Various methods are
used for determining cost. The cost of U.S. tobacco inventories is determined
principally under the LIFO method. The cost of remaining inventories is
determined under the FIFO, specific lot and weighted average methods. In
accordance with recognized trade practice, stocks of tobacco, which must be
cured for more than one year, are classified as current assets.
 
  Depreciation
 
    Property, plant and equipment are depreciated principally by the
straight-line method over the estimated useful lives of the assets as follows:
13-25 years for land improvements, 20-50 years for buildings and leasehold
improvements and 3-20 years for machinery and equipment.
 
  Trademarks and Goodwill
 
    Values assigned to trademarks are amortized on the straight-line method over
a 40 year period. Goodwill is also amortized on the straight-line method over a
40 year period.
 
    In evaluating the value and future benefits of trademarks and goodwill, the
recoverability from operating income is measured. Under this approach, the
carrying value of goodwill and trademarks would be reduced if it is probable
that management's best estimate of future operating income before amortization
of trademarks and goodwill from related operations, on an undiscounted basis,
will be less than the carrying amount of trademarks and goodwill over the
remaining amortization period.
 
  Other Income (Expense), Net
 
    Interest income, gains and losses on foreign currency transactions and other
items of a financial nature are included in "Other income (expense), net".
 
  Income Taxes
 
    Income taxes are calculated for RJRN on a separate return basis.
 
  Excise Taxes
 
    Excise taxes are excluded from "Net sales" and "Cost of products sold".
 

                                      F-5
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
 
  Reclassifications and Restatements
 
    Certain prior years' amounts have been reclassified to conform to the 1995
presentation. In addition, financial data of the prior years has been restated
and financial data of the current year presented to give effect to the
one-for-five reverse stock split discussed in Note 3 to the Consolidated
Financial Statements.
 
  Advertising
 
    Advertising costs are generally expensed as incurred.
 
  Interest Rate Arrangements
 
    When interest rate swaps and purchased options and other interest rate
arrangements effectively hedge interest rate exposures, the differential to be
paid or received is accrued and recognized in interest expense and may change as
market interest rates change. If an arrangement is terminated or effectively
terminated prior to maturity, then the realized or unrealized gain or loss is
effectively recognized over the remaining original life of the agreement if the
hedged item remains outstanding, or immediately, if the underlying hedged
instrument does not remain outstanding. If the arrangement is not terminated or
effectively terminated prior to maturity, but the underlying hedged instrument
is no longer outstanding, then the unrealized gain or loss on the related
interest rate swap, option or other interest rate arrangement is recognized
immediately. In addition, for written options and other financial instruments
(or components thereof) having a risk profile substantially similar to written
options, changes in market value result in the current recognition of any
related gains or losses.
 
  Foreign Currency Arrangements
 
    Forward foreign exchange contracts and other hedging arrangements
entered into generally mature at the time the hedged foreign currency
transactions are settled. Gains or losses on forward foreign exchange
transactions are determined by changes in market rates and are generally
included at settlement in the basis of the underlying hedged transaction. To the
extent that the underlying hedged foreign currency transaction does not occur,
gains and losses are recognized immediately.
 
  Use of Estimates
 
    The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. See Note 12
to the Consolidated Financial Statements for discussion of significant 
commitments and contingencies.
 
  New Accounting Pronouncements
 
    In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of ("SFAS No. 121").
SFAS No. 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used and for long-lived assets and certain identifiable intangibles
to be disposed of. SFAS No. 121 requires that (i) long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
 
                                      F-6
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

carrying amount of an asset may not be recoverable and (ii) long-lived assets
and certain identifiable intangibles to be disposed of generally be reported at
the lower of carrying amount or fair value less cost to sell. SFAS No. 121 is
effective for financial statements for fiscal years beginning after December 15,
1995. The adoption of the SFAS No. 121 is not expected to materially effect the
financial position or results of operations of RJRN Holdings and RJRN.
 
    In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS No. 123"). SFAS No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans. SFAS No. 123
encourages all entities to adopt a fair value based method of accounting for
stock-based compensation plans in which compensation cost is measured at the
date the award is granted based on the value of the award and is recognized over
the employee service period. However, SFAS No. 123 allows an entity to continue
to use the intrinsic value based method prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25"),
with proforma disclosures of net income and earnings per share as if the fair
value based method had been applied. APB No. 25 requires compensation expense to
be recognized over the employee service period based on the excess, if any, of
the quoted marked price of the stock at the date the award is granted or other
measurement date, as applicable, over an amount an employee must pay to acquire
the stock. SFAS No. 123 is effective for financial statements for fiscal years
beginning after December 15, 1995. RJRN Holdings and RJRN currently plan to
continue to apply the methods prescribed by APB No. 25.
 
NOTE 2--OPERATIONS
 
    Net sales and cost of products sold exclude excise taxes of $3.832 billion,
$3.578 billion and $3.757 billion for 1995, 1994 and 1993, respectively.
 
    Consolidated other income (expense), net for 1995 includes a pre-tax charge
of approximately $103 million for fees and expenses incurred in connection with
(i) the exchange of approximately $1.8 billion aggregate principal amount of
newly issued notes and debentures (the "New Notes") of Nabisco, Inc. ("Nabisco")
for the same amount of notes and debentures (the "Old Notes") issued by RJRN
(the "Exchange Offers") and (ii) the solicitation of consents by RJRN to certain
indenture modifications from holders of the Old Notes and holders of
approximately $3.58 billion of its other outstanding debt securities (the
"Consent Solicitations"). The Exchange Offers, the Consent Solicitations and
certain related transactions were designed, among other things, to enable
Nabisco to obtain long-term debt financing independent of RJRN and to repay its
intercompany debt to RJRN.
 
    RJRN Holdings recorded a pre-tax restructuring expense of $154 million in
the fourth quarter of 1995 ($104 million after tax) related to a program
announced on October 13, 1995 to reorganize its worldwide tobacco operations.
The 1995 restructuring program was primarily undertaken in order to streamline
operations and improve profitability. The 1995 restructuring program was
implemented in the latter part of 1995 and will be substantially completed
during 1996. A significant portion of the 1995 restructuring program will be a
cash expense. The major components of the 1995 restructuring program were work
force reductions totaling 1,260 employees (approximately $132 million), the
rationalization and closing of facilities relating to the international tobacco
operations (approximately $8 million) and equipment and lease abandonments at
the domestic tobacco operations (approximately
 
                                      F-7
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 2--OPERATIONS--(CONTINUED)

$14 million). At December 31, 1995, approximately $102 million of severance pay 
and benefits remained to be paid. Anticipated annual future cash savings from 
the plan are estimated to be in excess of approximately $70 million after tax.
 
    During the fourth quarter of 1994, RJRN Holdings approved and adopted a plan
to realign Headquarters' functions, transferring certain responsibilities to the
operating companies and significantly streamlining the holding company. The plan
reflected expectations of a lower level of financings and other activities at
the holding company as RJRN Holdings concludes the post-LBO period. The costs
and expenses associated with this decision resulted in a charge of approximately
$65 million before tax, a significant portion of which was a cash expense. The
majority of the charge was related to accrued employee termination benefits for
the 25% of Headquarters' employees terminated (approximately $40 million). This
cost was incurred pursuant to a continuing plan for employee termination
benefits that provided for the payment of specified amounts of severance and
benefits to terminated employees. The remainder of the charge (approximately $25
million) was related to the abandonment of leases of certain corporate office
facilities as a result of the realignment and streamlining and the reduced need
for office space. The plan was implemented in the first quarter of 1995 and was
substantially completed during 1995. At December 31, 1995, approximately $14
million of severance pay and benefits remained to be paid.
 
    RJRN Holdings recorded a pre-tax restructuring expense of $730 million in
the fourth quarter of 1993 ($467 million after tax) related to a program
announced on December 7, 1993. The 1993 restructuring program was undertaken to
respond to a changing consumer product business environment and to streamline
operations and improve profitability. The 1993 program, which was implemented in
the latter part of 1993 and substantially completed during 1995, consisted of
workforce reductions, reassessment of raw material sourcing and production
arrangements, contract termination costs, abandonment of leases and the
rationalization and closing of manufacturing and sales facilities. Approximately
75% of the restructuring program required cash outlays. At December 31, 1995,
approximately $21 million for severance pay and benefits remained to be paid.
 
    During 1994, a change in the estimated cost of the 1993 restructuring 
program resulted in a credit to income of $23 million related to changes in 
the number of workforce reductions and an increase in cost of $21 million 
associated with the rationalization and abandonment of manufacturing and sales 
facilities. The net adjustment during 1994 of the above changes was reflected 
in selling, advertising, administrative and general expenses.
 
NOTE 3--EARNINGS PER SHARE
 
    Earnings per share is based on income applicable to the consolidated group,
including the portion of income of Nabisco Holdings Corp. ("Nabisco Holdings")
applicable to the consolidated group based on RJRN's approximately 80.5%
economic ownership interest in Nabisco Holdings and Nabisco Holdings' primary
earnings per share. Earnings per share is also based on the weighted average
number of shares of RJRN Holdings' common stock, par value $.01 per share (the
"Common Stock"), $.835 Depositary Shares ("Series A Depositary Shares") and
Series C Depositary Shares ("Series C Depositary Shares") outstanding during the
period and Common Stock assumed to be outstanding to reflect the effect of
dilutive options. RJRN Holdings' other potentially dilutive securities are not
included in the earnings per share calculation because the effect of excluding
interest and dividends on such securities for the period would exceed the
earnings allocable to the Common Stock into which such securities would be
 
                                      F-8
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 3--EARNINGS PER SHARE--(CONTINUED)

converted. Accordingly, RJRN Holdings' earnings per share and fully diluted
earnings per share are the same. The net loss per common and common equivalent
share reported for the year ended December 31, 1993 would have increased by $.91
per share if the weighted average number of shares of Series A Depositary Shares
outstanding during the period had been excluded from the earnings per share
calculation.
 
    Net income per common and common equivalent share, including the average
number of common and common equivalent shares outstanding, reflects a
one-for-five reverse stock split approved by the RJRN Holdings' stockholders on
April 12, 1995.
 
NOTE 4--INCOME TAXES
 
    The provision for income taxes consisted of the following:
 
<TABLE>
<CAPTION>
                                                YEAR ENDED           YEAR ENDED          YEAR ENDED
                                               DECEMBER 31,         DECEMBER 31,        DECEMBER 31,
                                                   1995                 1994                1993
                                             -----------------    ----------------    ----------------
                                               RJRN                 RJRN                RJRN
                                             HOLDINGS     RJRN    HOLDINGS    RJRN    HOLDINGS    RJRN
                                             --------     ----    --------    ----    --------    ----
<S>                                          <C>          <C>     <C>         <C>     <C>         <C>
Current:
  Federal................................      $525       $540      $401      $466      $295      $366
  Foreign and other......................       227       227        221      221        169      169
                                             --------     ----    --------    ----    --------    ----
                                                752       767        622      687        464      535
                                             --------     ----    --------    ----    --------    ----
Deferred:
  Federal................................      (190)      (191)      (40)     (102)     (298)     (367)
  Foreign and other......................        18        18         29       29        (52)     (52 )
                                             --------     ----    --------    ----    --------    ----
                                               (172)      (173)      (11)     (73 )     (350)     (419)
                                             --------     ----    --------    ----    --------    ----
Provision for income taxes...............      $580       $594      $611      $614      $114      $116
                                             --------     ----    --------    ----    --------    ----
                                             --------     ----    --------    ----    --------    ----
</TABLE>
 
                                      F-9
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 4--INCOME TAXES--(CONTINUED)
 
    The components of the deferred income tax liability disclosed on the
Consolidated Balance Sheet at December 31, 1995 and 1994 included the following:
 
<TABLE>
<CAPTION>
                                                    DECEMBER 31, 1995     DECEMBER 31, 1994
                                                    ------------------    ------------------
                                                      RJRN                  RJRN
                                                    HOLDINGS     RJRN     HOLDINGS     RJRN
                                                    --------    ------    --------    ------
<S>                                                 <C>         <C>       <C>         <C>
Deferred tax assets:
  Pension liabilities............................    $ (101)    $ (101)    $  (88)    $  (88)
  Other postretirement liabilities...............      (338)      (338)      (326)      (326)
  Restructuring and other accrued liabilities....      (142)      (142)      (226)      (226)
                                                    --------    ------    --------    ------
        Total deferred tax assets................      (581)      (581)      (640)      (640)
                                                    --------    ------    --------    ------
Deferred tax liabilities:
  Property and equipment.........................     1,008      1,008      1,049      1,049
  Trademarks.....................................     2,765      2,765      2,784      2,784
  Other..........................................       427        357        531        457
                                                    --------    ------    --------    ------
        Total deferred tax liabilities...........     4,200      4,130      4,364      4,290
                                                    --------    ------    --------    ------
          Net deferred tax liabilities before
valuation allowance..............................     3,619      3,549      3,724      3,650
  Valuation allowance............................        47         47         64         64
                                                    --------    ------    --------    ------
  Net deferred income taxes......................    $3,666     $3,596     $3,788     $3,714
                                                    --------    ------    --------    ------
                                                    --------    ------    --------    ------
</TABLE>
 
    Pre-tax income (loss) for domestic and foreign operations is shown in the
following table:
 
<TABLE>
<CAPTION>
                                              YEAR ENDED            YEAR ENDED            YEAR ENDED
                                             DECEMBER 31,          DECEMBER 31,          DECEMBER 31,
                                                 1995                  1994                  1993
                                          ------------------    ------------------    ------------------
                                            RJRN                  RJRN                  RJRN
                                          HOLDINGS     RJRN     HOLDINGS     RJRN     HOLDINGS     RJRN
                                          --------    ------    --------    ------    --------    ------
<S>                                       <C>         <C>       <C>         <C>       <C>         <C>
Domestic (includes U.S. exports).......    $  782     $  807     $  867     $  868     $ (169)    $ (168)
Foreign................................       484        484        508        508        280        280
                                          --------    ------    --------    ------    --------    ------
Pre-tax income.........................    $1,266     $1,291     $1,375     $1,376     $  111     $  112
                                          --------    ------    --------    ------    --------    ------
                                          --------    ------    --------    ------    --------    ------
</TABLE>
 
                                      F-10
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 4--INCOME TAXES--(CONTINUED)
 
    The differences between the provision for income taxes and income taxes
computed at statutory U.S. federal income tax rates are explained as follows:
 
<TABLE>
<CAPTION>
                                         YEAR ENDED          YEAR ENDED          YEAR ENDED
                                        DECEMBER 31,        DECEMBER 31,        DECEMBER 31,
                                            1995                1994                1993
                                      -----------------   ----------------   ------------------
                                        RJRN                RJRN               RJRN
                                      HOLDINGS    RJRN    HOLDINGS   RJRN    HOLDINGS    RJRN
                                      --------   ------   --------   -----   --------   -------
<S>                                   <C>        <C>      <C>        <C>     <C>        <C>
Income taxes computed at statutory
U.S. federal income tax rates.......    $443     $  452    $  481    $ 481    $   39    $    39
State taxes, net of federal
  benefit...........................      52         52        54       54        23         23
Goodwill amortization...............     125        125       124      124       125        125
Federal rate change impact on
deferred income taxes...............      --         --        --       --        86         86
Decrease in deferred tax amounts,
  primarily for a change in the
  functional currency relating to
  foreign branch operations.........      --         --        --       --      (108)      (108)
Taxes on foreign operations at rates
  different than statutory U.S.
  federal rate......................      (4)        (4)       (6)      (6)      (14)       (14)
FSC income exclusion................     (15)       (15)      (14)     (14)      (14)       (14)
Other items, net....................     (21)       (16)      (28)     (25)      (23)       (21)
                                      --------   ------   --------   -----   --------   -------
Provision for income taxes..........    $580     $  594    $  611    $ 614    $  114    $   116
                                      --------   ------   --------   -----   --------   -------
                                      --------   ------   --------   -----   --------   -------
Effective tax rate..................    45.8%      46.0%     44.5%    44.7%    102.7%     103.8%
                                      --------   ------   --------   -----   --------   -------
                                      --------   ------   --------   -----   --------   -------
</TABLE>
 
    At December 31, 1995, there was $1.752 billion of accumulated and
undistributed income of foreign subsidiaries. These earnings are intended by
management to be reinvested abroad indefinitely. Accordingly, no applicable U.S.
federal deferred income taxes or foreign withholding taxes have been provided
nor is a determination of the amount of unrecognized U.S. federal deferred
income taxes practicable.
 
    RJRN Holdings' provision for income taxes for 1993 was increased by $96
million as a result of the enactment of certain federal tax legislation during
the third quarter of 1993 which increased federal corporate income tax rates to
35% from 34%, retroactively to January 1, 1993. The components of this increase
to RJRN Holdings' provision for income taxes included an $86 million non-cash
charge resulting primarily from the remeasurement of the balance of deferred
federal income taxes at the date of enactment of the new federal tax legislation
for the change in the income tax rates, and a $10 million charge resulting from
the increase in current federal income taxes accrued for the change in the
income tax rates and other effects of the new tax legislation. Also during 1993,
RJRN Holdings' provision for income taxes was decreased by a $108 million credit
primarily resulting from a change in the functional currency, for U.S. federal
income tax purposes, relating to foreign branch operations.
 
                                      F-11
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 4--INCOME TAXES--(CONTINUED)
 
    During 1993, $101 million of previously recognized deferred income tax
benefits for operating loss carryforwards ($36 million), minimum tax credit
carryforwards ($44 million) and other carryforward items ($21 million) were
realized for federal tax purposes.
 
NOTE 5--EXTRAORDINARY ITEM
 
    Early extinguishment of debt resulted in the following extraordinary losses:
 
<TABLE>
<CAPTION>
                                                      YEAR ENDED         YEAR ENDED         YEAR ENDED
                                                     DECEMBER 31,       DECEMBER 31,       DECEMBER 31,
                                                         1995               1994               1993
                                                    ---------------   ----------------   ----------------
                                                      RJRN              RJRN               RJRN
                                                    HOLDINGS   RJRN   HOLDINGS   RJRN    HOLDINGS   RJRN
                                                    --------   ----   --------   -----   --------   -----
<S>                                                 <C>        <C>    <C>        <C>     <C>        <C>
Cash paid in excess of net carrying amount (book
value) of debt extinguished.......................    $(21)    $(21)   $ (348)   $(348)   $ (206)   $(196)
Write-off of debt issuance costs..................      (8)     (8 )      (29)     (29)      (12)     (12)
                                                    --------   ----   --------   -----   --------   -----
Extraordinary item--loss on early extinguishment
  of debt before income taxes.....................     (29)    (29 )     (377)    (377)     (218)    (208)
Benefit for income taxes..........................      10      10        132      132        76       73
                                                    --------   ----   --------   -----   --------   -----
Extraordinary item--loss on early estinguishment
  of debt, net of income taxes, before minority
  interest........................................     (19)    (19 )     (245)    (245)     (142)    (135)
Minority interest.................................      (3)     (3 )       --       --        --       --
                                                    --------   ----   --------   -----   --------   -----
Extraordinary item--loss on early extinguishment
  of debt, net of income taxes and minority
  interest........................................    $(16)    $(16)   $ (245)   $(245)   $ (142)   $(135)
                                                    --------   ----   --------   -----   --------   -----
                                                    --------   ----   --------   -----   --------   -----
</TABLE>
 
    See Note 11 to the Consolidated Financial Statements for further discussion
of early extinguishments of debt.
 
                                      F-12
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 6--SUPPLEMENTAL CASH FLOWS INFORMATION
 
    A reconciliation of net income (loss) to net cash flows from operating
activities follows:
 
<TABLE>
<CAPTION>
                                               YEAR ENDED            YEAR ENDED            YEAR ENDED
                                              DECEMBER 31,          DECEMBER 31,          DECEMBER 31,
                                                  1995                  1994                  1993
                                           ------------------    ------------------    ------------------
                                             RJRN                  RJRN                  RJRN
                                           HOLDINGS     RJRN     HOLDINGS     RJRN     HOLDINGS     RJRN
                                           --------    ------    --------    ------    --------    ------
<S>                                        <C>         <C>       <C>         <C>       <C>         <C>
CASH FLOWS FROM (USED IN) OPERATING
  ACTIVITIES:
  Net income (loss).....................    $  611     $  622     $  519     $  517     $ (145)    $ (139)
                                           --------    ------    --------    ------    --------    ------
  Adjustments to reconcile net income
    (loss) to net cash flows from
    operating activities:
    Depreciation of property, plant and
      equipment.........................       482        482        454        454        448        448
    Amortization (principally
intangibles)............................       689        689        698        698        701        701
    Deferred income tax benefit.........      (172)      (173)       (11)       (73)      (350)      (419)
    Non-cash interest and debt
      expense...........................        15         15        119        119        295        273
    Extraordinary item--loss on early
extinguishments of debt.................        29         29        377        377        218        208
    (Increase) decrease in accounts and
      notes receivable..................      (351)      (344)       (69)       (61)        75         84
    Decrease in inventories.............       159        159        111        111         80         80
    Increase in prepaid expenses and
      excise taxes......................       (61)       (61)       (18)       (18)       (37)       (37)
    (Increase) decrease in other assets
      and deferred charges..............         9          9        (55)       (57)        (4)        43
    Increase (decrease) in accounts
      payable and accrued liabilities...        (2)       (22)      (363)      (363)       308        312
    Increase (decrease) in income taxes
      accrued...........................        54         54         26         51        (53)        54
    Increase (decrease) in other
      noncurrent liabilities............       123        122        (37)       (37)       215         24
    Other, net..........................        80        118          3          1         18        (28)
                                           --------    ------    --------    ------    --------    ------
        Total adjustments...............     1,054      1,077      1,235      1,202      1,914      1,743
                                           --------    ------    --------    ------    --------    ------
    Net cash flows from operating
      activities........................    $1,665     $1,699     $1,754     $1,719     $1,769     $1,604
                                           --------    ------    --------    ------    --------    ------
                                           --------    ------    --------    ------    --------    ------
</TABLE>
 
    Cash payments for income taxes and interest were as follows:
 
<TABLE>
<CAPTION>
                                                 YEAR ENDED          YEAR ENDED           YEAR ENDED
                                                DECEMBER 31,        DECEMBER 31,         DECEMBER 31,
                                                    1995                1994                 1993
                                              ----------------    ----------------    ------------------
                                                RJRN                RJRN                RJRN
                                              HOLDINGS    RJRN    HOLDINGS    RJRN    HOLDINGS     RJRN
                                              --------    ----    --------    ----    --------    ------
<S>                                           <C>         <C>     <C>         <C>     <C>         <C>
Income taxes paid, net of refunds..........     $583      $583      $496      $496     $  408     $  408
Interest paid..............................     $788      $784      $986      $986     $  912     $  912
</TABLE>
 
                                      F-13
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 6--SUPPLEMENTAL CASH FLOWS INFORMATION--(CONTINUED)
 
    Cash equivalents at December 31, 1995 and 1994, valued at cost (which
approximates market value), totaled $115 million and $364 million, respectively,
and consisted principally of domestic and Eurodollar time deposits and
certificates of deposit.
 
    At December 31, 1995 and 1994, cash of $17 million and $60 million,
respectively, was held in escrow as collateral for letters of credit issued in
connection with certain foreign currency debt.
 
    On February 7, 1990, RJRN entered into an arrangement in which it agreed to
sell for cash substantially all of its subsidiaries' domestic trade accounts
receivable generated during a five-year period to a financial institution.
Pursuant to amendments entered into in 1992, the length of the receivable
program was extended an additional year. During 1995, the arrangement was
further amended to October 1996 for only domestic trade accounts receivable
generated by Nabisco. The accounts receivable have been and will continue to be
sold with limited recourse at purchase prices reflecting the rate applicable to
the cost to the financial institution of funding its purchases of accounts
receivable and certain administrative costs. During 1995, 1994 and 1993, total
proceeds of approximately $8.0 billion, $7.9 billion and $8.2 billion,
respectively, were received in connection with this arrangement. The amount of
total proceeds received applicable to Nabisco's domestic trade accounts
receivable generated during 1995, 1994 and 1993 were approximately $5.5
billion, $5.3 billion and $4.9 billion, respectively. At December 31, 1995 and
1994, the accounts receivable balance has been reduced by approximately $418
million and $391 million, respectively, due to the receivables sold.
 
    For information regarding certain non-cash financing activities, see Notes
11 and 13 to the Consolidated Financial Statements.
 
NOTE 7--INVENTORIES
 
    The major classes of inventory are shown in the table below:
 
<TABLE>
<CAPTION>
                                                            DECEMBER 31,    DECEMBER 31,
                                                                1995            1994
                                                            ------------    ------------
<S>                                                         <C>             <C>
Finished products........................................      $  755          $  771
Leaf tobacco.............................................       1,152           1,299
Raw materials............................................         231             206
Other....................................................         351             304
                                                            ------------    ------------
                                                               $2,489          $2,580
                                                            ------------    ------------
                                                            ------------    ------------
</TABLE>
 
    At December 31, 1995 and 1994, approximately $1.0 billion and $1.2 billion,
respectively, of domestic tobacco inventories was valued under the LIFO method. 
The current cost of LIFO inventories at December 31, 1995 and 1994 was greater 
than the amount at which these inventories were carried on the Consolidated 
Balance Sheets by $146 million and $141 million, respectively.
 
    For the years ended December 31, 1995, 1994 and 1993, net income was
increased by $29 million, $10 million and $6 million, respectively, as a result
of LIFO inventory liquidations. The LIFO liquidations resulted from programs to
reduce leaf durations consistent with forecasts of future operating
requirements.
 
                                      F-14
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 8--PROPERTY, PLANT AND EQUIPMENT
 
    Components of property, plant and equipment were as follows:
 
<TABLE>
<CAPTION>
                                                            DECEMBER 31,    DECEMBER 31,
                                                                1995            1994
                                                            ------------    ------------
<S>                                                         <C>             <C>
Land and land improvements...............................     $    319        $    323
Buildings and leasehold improvements.....................        1,899           1,856
Machinery and equipment..................................        5,615           5,056
Construction-in-process..................................          553             532
                                                            ------------    ------------
                                                                 8,386           7,767
Less accumulated depreciation............................       (2,696)         (2,333)
                                                            ------------    ------------
    Net property, plant and equipment....................     $  5,690        $  5,434
                                                            ------------    ------------
                                                            ------------    ------------
</TABLE>
 
NOTE 9--NOTES PAYABLE
 
    Notes payable consisted of the following:
 
<TABLE>
<CAPTION>
                                                            DECEMBER 31,    DECEMBER 31,
                                                                1995            1994
                                                            ------------    ------------
<S>                                                         <C>             <C>
Notes payable to banks...................................      $  268          $  296
                                                            ------------    ------------
                                                            ------------    ------------
</TABLE>
 
Weighted average interest rate for notes payable consisted of the following:
 
<TABLE>
<S>                                                         <C>             <C>
Notes payable to banks...................................       5.05%           9.77%
                                                                 ---             ---
                                                                 ---             ---
</TABLE>
 
NOTE 10--ACCRUED LIABILITIES
 
    Accrued liabilities consisted of the following:
 
<TABLE>
<CAPTION>
                                                            DECEMBER 31,    DECEMBER 31,
                                                                1995            1994
                                                            ------------    ------------
<S>                                                         <C>             <C>
Marketing and advertising................................      $  532          $  553
Payroll and employee benefits............................         424             380
Excise taxes.............................................         277             260
Accrued interest.........................................         254             189
Other....................................................       1,162           1,150
                                                            ------------    ------------
                                                               $2,649          $2,532
                                                            ------------    ------------
                                                            ------------    ------------
</TABLE>
 
NOTE 11--LONG-TERM DEBT AND INTEREST AND DEBT EXPENSE
 
    Interest and debt expense consisted of the following:
 
<TABLE>
<CAPTION>
                                                      YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                     DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                         1995            1994            1993
                                                     ------------    ------------    ------------
<S>                                                  <C>             <C>             <C>
Cash interest.....................................       $884           $  946          $  914
Non-cash interest and debt expense................         15              119             295
                                                        -----           ------          ------
                                                         $899           $1,065          $1,209
                                                        -----           ------          ------
                                                        -----           ------          ------
</TABLE>
 
                                      F-15
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 11--LONG-TERM DEBT AND INTEREST AND DEBT EXPENSE--(CONTINUED)
 
    Long-term debt consisted of the following:
 
<TABLE>
<CAPTION>
                                                           DECEMBER 31, 1995         DECEMBER 31, 1994
                                                         ----------------------     -------------------
                                                           DUE          DUE           DUE        DUE
                                                          WITHIN       AFTER         WITHIN     AFTER
                                                         ONE YEAR   ONE YEAR(1)     ONE YEAR   ONE YEAR
                                                         --------   -----------     --------   --------
<S>                                                      <C>        <C>             <C>        <C>
Nabisco Holdings Long-term Debt:
  7.75% debentures with annual sinking fund payments
    through 2003.......................................    $  3       $    38        $   --     $   --
  6.11-8.3% Notes due 1996 through 2015................       5         2,937            --         --
  1994 Nabisco Credit Agreement........................      --            --         1,350         --
  1995 Nabisco Credit Agreement, variable interest
    (varies with prime rate and LIBOR--weighted average
    interest rate of 6.0% at December 31, 1995), due
    April 28, 2000(2)..................................      --            --            --         --
  Nabisco commercial paper, variable interest (varies
    with LIBOR - weighted average interest rate of 6.0%
    at December 31, 1995)(3)...........................      --         1,289            --         --
  Other indebtedness...................................      16            91            13        139
                                                         --------   -----------     --------   --------
      Total Nabisco Holdings long-term debt............      24         4,355         1,363        139
                                                         --------   -----------     --------   --------
RJRN Long-term Debt:
  8.625% debentures with annual sinking fund payments
    through 2017 (net of $59 million of such debentures
    held by RJRN on December 31, 1994 for future
    sinking fund requirements).........................      --            32           400        634
  5.56-9.25% Notes, due 1996 through 2013..............     117         4,121           200      4,932
  5.375-10% foreign currency debt, due 2000 to 2001....      --           548            --        500
  1991 RJRN Credit Agreement...........................      --            --            --      1,750
  1995 RJRN Credit Agreement, variable interest (varies
    with prime rate and LIBOR--weighted average
    interest rate of 6.09% at December 31, 1995), due
    December 31, 1997(4)...............................      --            --            --         --
  RJRN commercial paper, variable interest (varies with
LIBOR - weighted average interest rate of 6.27% at
  December 31, 1995)(5)................................      --           224            --        864
  Other indebtedness...................................       9           149             7         64
                                                         --------   -----------     --------   --------
      Total RJRN long-term debt........................     126         5,074           607      8,744
                                                         --------   -----------     --------   --------
      Total long-term debt.............................    $150       $ 9,429        $1,970     $8,883
                                                         --------   -----------     --------   --------
                                                         --------   -----------     --------   --------
</TABLE>
 
------------
 
(1) The payment of debt through December 31, 2000 is due as follows (in
    millions): 1997--$61; 1998--$31; 1999--$1,944 and 2000--$1,319.
 
(2) Nabisco maintains a revolving credit facility of $2.0 billion (as amended,
    the "1995 Nabisco Credit Agreement"), of which $2.0 billion is unused at
    December 31, 1995. Availability of the unused portion is reduced by the
    aggregate amount of letters of credit issued under the 1995 Nabisco Credit
    Agreement and by the amount of outstanding Nabisco commercial paper in
    excess of $1.5 billion. At December 31, 1995, there were no letters of
    credit issued under the 1995 Nabisco Credit Agreement. A commitment fee of
    .15% per annum is payable on the total facility.
 
(3) Nabisco maintains a 364-day revolving credit facility primarily to support 
    Nabisco commercial paper issuances of up to $1.5 billion (the "Nabisco 
    Commercial Paper Facility"). Availability is reduced
 
                                      F-16
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 11--LONG-TERM DEBT AND INTEREST AND DEBT EXPENSE--(CONTINUED)

   by an amount equal to the aggregate amount of outstanding Nabisco commercial
    paper. A commitment fee of .1% per annum is payable on the total facility.
 
(4) RJRN maintains a revolving credit facility of $2.75 billion (as amended, the
    "1995 RJRN Credit Agreement"), of which $2.75 billion was unused at December
    31, 1995. Availability of the unused portion is reduced by $496 million for
    the extension of irrevocable letters of credit issued under the 1995 RJRN
    Credit Agreement and by the amount of outstanding RJRN commercial paper in
    excess of $750 million. A commitment fee of .225% per annum is payable on
    the total facility.
 
(5) RJRN maintains a 364-day back-up line of credit to support RJRN commercial
    paper issuances of up to $750 million (as amended, the "RJRN Commercial
    Paper Facility"), which expires in April 1996. Availability is reduced by an
    amount equal to the aggregate amount of outstanding RJRN commercial paper. A
    commitment fee of .175% per annum is payable on the total facility.
 
                              -------------------
 
    Based on RJRN's and Nabisco's intention and ability to continue to
refinance, for more than one year, the amount of their respective commercial
paper borrowings in the commercial paper market or with additional borrowings
under their respective credit agreements, domestic commercial paper borrowings
have been included under "Long-term debt."
 
    During 1993, RJRN repurchased for approximately $1.0 billion in cash certain
of its subordinated debentures consisting of $153 million aggregate principal
amount of its 15% Payment-in-Kind Debentures due May 15, 2001 (the "15%
Subordinated Debentures"), $82 million aggregate principal amount of its 13 1/2%
Subordinated Debentures due May 15, 2001 (the "13 1/2% Subordinated Debentures")
and $768 million aggregate principal amount (approximately $671 million accreted
amount) of its Subordinated Discount Debentures due May 15, 2001 (the
"Subordinated Discount Debentures"). The principal or accreted amounts of such
debentures was refinanced from proceeds of debt securities maturing after 1998,
including debt securities issued during 1993. The purchase of most of such
amount had been temporarily funded with borrowings under RJRN's revolving credit
facility (as amended, the "1991 RJRN Credit Agreement").
 
    The remaining portion of a participation in an employee stock ownership plan
established by RJRN Holdings (the "ESOP") was repurchased on January 15, 1993
for cash, plus accrued and unpaid interest thereon.
 
    RJRN Holdings redeemed on May 1, 1993, 100% of the aggregate principal
amount of its outstanding Senior Converting Debentures due 2009 (the "Converting
Debentures") at a price of $1,000 for each $1,000 principal amount of Converting
Debentures, plus accrued and unpaid interest thereon, for the period from
February 9, 1989 through April 30, 1993, of $937.54 for each $1,000 principal
amount of Converting Debentures.
 
    During 1993, RJRN issued $750 million principal amount of 8% Notes due 2000,
$500 million principal amount of 8 3/4% Notes due 2005 and $500 million
principal amount of 9 1/4% Debentures due 2013. Also during 1993, RJRN issued
medium-term notes maturing in the years 1995-1998 having an aggregate initial
offering price of approximately $230 million. The net proceeds from the sale of
these debt securities and the Series B Preferred Stock Offering (as hereinafter
defined) were used for general corporate purposes, which included refinancings
of indebtedness, working capital, capital expenditures, acquisitions and
repurchases and redemptions of securities. Pending such uses, proceeds were used
to repay indebtedness under the 1991 RJRN Credit Agreement or for short-term
liquid investments.
 
    A portion of the net proceeds collected from the sale of RJRN Holdings'
ready-to-eat cold cereal business during 1992 was used on February 5, 1993 to
redeem $216 million principal amount of
 
                                      F-17
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 11--LONG-TERM DEBT AND INTEREST AND DEBT EXPENSE--(CONTINUED)

RJRN's 9 3/8% Sinking Fund Debentures due 2016 (the "9 3/8% Debenture") at a
price of $1,065.63 for each $1,000 principal amount of 9 3/8% Debentures, plus
accrued and unpaid interest thereon.
 
    On May 15, 1994, RJRN redeemed substantially all of its approximately $2
billion in outstanding subordinated debentures. The subordinated debentures
redeemed consisted of the Subordinated Discount Debentures, the 15% Subordinated
Debentures and the 13 1/2% Subordinated Debentures at redemption prices of 107
1/2%, 107 1/2% and 106 3/4%, respectively, plus accrued interest. Approximately
$1.2 billion principal or accreted amount of such debentures was refinanced with
proceeds of debt securities maturing after 1998 that were issued during 1993.
Such proceeds had been used to temporarily reduce indebtedness under the 1991
RJRN Credit Agreement. In addition, the redemption of such debentures was funded
with approximately $900 million of net proceeds from the sale of 266,750,000
Series C Depositary Shares completed on May 6, 1994 in connection with the
issuance of 26,675,000 shares of Series C Conversion Preferred Stock, par value
$.01 per share ("Series C Preferred Stock").
 
    On November 30, 1994, RJRN redeemed $1.5 billion of 10 1/2% Senior Notes due
1998 (the "10 1/2% Senior Notes"); $373.5 million of 8 3/8% Sinking Fund
Debentures due 2017 and approximately $24.8 million of 7 3/8% Sinking Fund
Debentures due 2001. On December 2, 1994, RJRN redeemed $100 million of the 13
1/2% Subordinated Debentures. The redemption price for the 10 1/2% Senior Notes
was equal to $1,071 plus accrued interest for each $1,000 principal amount of
notes. The redemption price for the 8 3/8% Sinking Fund Debentures due 2017 was
equal to $1,054.44 plus accrued interest for each $1,000 principal amount of
debentures. The redemption price for the 7 3/8% Sinking Fund Debentures due 2001
was equal to $1,005.60 plus accrued interest for each $1,000 principal amount of
debentures. The redemption price for the 13 1/2% Subordinated Debentures was
equal to $1,067.50 plus accrued interest for each $1,000 principal amount of
debentures. These redemptions were funded with borrowings under the 1991 RJRN
Credit Agreement, internally generated cash flow, and, in the case of the 8 3/8%
Sinking Fund Debentures due 2017, proceeds from RJRN Holdings' Series C
Preferred Stock Offering (as hereinafter defined).
 
    On December 7, 1994, Nabisco borrowed $1.35 billion under its credit
agreement dated as of December 6, 1994 (the "1994 Nabisco Credit Agreement") to
repay a portion of Nabisco's intercompany indebtedness to RJRN. RJRN used the
proceeds of the repayment to reduce borrowings under the 1991 RJRN Credit
Agreement.
 
    On January 26, 1995, Nabisco Holdings completed the initial public offering
of 51,750,000 shares of its Class A Common Stock, par value $.01 per share
("Class A Common Stock"), at an initial offering price of $24.50 per share.
Nabisco used all of the approximately $1.2 billion of net proceeds from the
initial public offering to repay a portion of its borrowings under the 1994
Nabisco Credit Agreement.
 
    On April 28, 1995, RJRN entered into the 1995 RJRN Credit Agreement and the
RJRN Commercial Paper Facility (together with the 1995 RJRN Credit Agreement,
the "New RJRN Credit Agreements"). Among other things, the New RJRN Credit
Agreements were designed to remove restrictions on the ability of Nabisco
Holdings and its subsidiaries to incur or prepay debt and to allow RJRN to
reduce the aggregate amount of commitments under its banking facilities from $6
billion to $3.5 billion by replacing its 1991 RJRN Credit Agreement and its $1.0
billion commercial paper
 
                                      F-18
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 11--LONG-TERM DEBT AND INTEREST AND DEBT EXPENSE--(CONTINUED)

facility dated as of April 5, 1993 (as amended and together with the 1991 RJRN
Credit Agreement, the "Old RJRN Credit Agreements").
 
    On April 28, 1995, Nabisco Holdings and Nabisco entered into the 1995
Nabisco Credit Agreement with various financial institutions to replace the 1994
Nabisco Credit Agreement. Among other things, the 1995 Nabisco Credit Agreement
was designed to permit Nabisco to prepay intercompany debt and incur long-term
debt, to increase Nabisco's committed facility from $1.5 billion to $3.5 billion
and to extend its term from 364 days to five years. On November 3, 1995, the
1995 Nabisco Credit Agreement was amended to, among other things, reduce the
committed facility to $2.0 billion from $3.5 billion. Also on November 3, 1995,
Nabisco Holdings and Nabisco entered into a 364 day credit facility (the
"Nabisco Commercial Paper Facility" and together with the 1995 Nabisco Credit
Agreement, the "1995 Nabisco Credit Agreements") for $1.5 billion primarily to
support the issuance of commercial paper borrowings.
 
    On June 5, 1995, RJRN and Nabisco consummated the Exchange Offers. As part
of the transaction, RJRN returned to Nabisco approximately $1.8 billion of
intercompany notes that had been issued by Nabisco and were held by a
non-Nabisco affiliate of RJRN. The New Notes issued by Nabisco in the Exchange
Offers have interest rates, principal amounts, maturities and redemption
provisions identical to the corresponding Old Notes issued by RJRN. Nabisco
subsequently borrowed approximately $2.4 billion under the 1995 Nabisco Credit
Agreement to (a) repay or repurchase an additional $2.1 billion of intercompany
notes of Nabisco and its subsidiaries; (b) repay approximately $125 million of
outstanding borrowings under the 1994 Nabisco Credit Agreement; (c) repay
approximately $89 million of an intercompany note from Nabisco to Nabisco
Holdings; and (d) pay a $79 million dividend to Nabisco Holdings. Nabisco
Holdings used the payments it received to repay the balance of a $168 million
intercompany note to RJRN. Concurrently with the Exchange Offers, RJRN
consummated the Consent Solicitations. The Exchange Offers, the Consent
Solicitations and certain related transactions were designed, among other
things, to enable Nabisco to obtain long-term debt financing independent of RJRN
and to repay its intercompany debt to RJRN.
 
    On June 5, 1995, RJRN applied the approximately $2.3 billion that it
received from Nabisco and Nabisco Holdings in repayment of the intercompany
notes to repay a portion of its borrowings under the 1991 RJRN Credit Agreement.
RJRN used an additional approximately $330 million of borrowings under the 1995
RJRN Credit Agreement to repay the balance of its obligations under the Old RJRN
Credit Agreements and to pay certain expenses associated with the Exchange
Offers, the Consent Solicitations and the related transactions.
 
    On June 28, 1995, Nabisco issued $400 million principal amount of 6.70%
Notes Due 2002, $400 million principal amount of 6.85% Notes Due 2005 and $400
million principal amount of 7.55% Debentures Due 2015. On July 14, 1995, Nabisco
issued $400 million principal amount of 7.05% Notes Due 2007. The net proceeds
from the issuance of such debt securities were used to repay a portion of the
borrowings under the 1995 Nabisco Credit Agreement.
 
    On July 17, 1995, Nabisco redeemed its outstanding 8 5/8% Sinking Fund
Debentures Due March 15, 2017 at a price of $1,051.75 for each $1,000 principal
amount of debentures, plus accrued interest. The aggregate redemption price and
accrued interest on these debentures was approximately $442 million. The
redemption resulted in an extraordinary loss of approximately $29 million ($16
million after tax and minority interest).
 
                                      F-19
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 11--LONG-TERM DEBT AND INTEREST AND DEBT EXPENSE--(CONTINUED)
 
    On July 24, 1995, RJRN issued $400 million aggregate principal amount of 8%
Notes Due 2001 and $250 million aggregate principal amount of 8 3/4% Notes Due
2007 under a $1.0 billion debt shelf registration statement. Approximately $352
million of debt securities remains unissued under the shelf as of December 31,
1995. The net proceeds from the issuance of these securities have been or will
be used to repay borrowings under the 1995 RJRN Credit Agreement, to retire RJRN
commercial paper and for general corporate purposes.
 
    On September 21, 1995, RJRN Holdings issued approximately $978 million
aggregate principal amount of its 10% Junior Subordinated Debentures due 2044
(the "Junior Subordinated Debentures") to a newly formed controlled affiliate,
RJR Nabisco Holdings Capital Trust I (the "Trust"). The Trust, in turn,
exchanged approximately $949 million of its preferred securities (the "Trust
Preferred Securities"), representing undivided interests in 97% of the assets of
the Trust, for 37,956,060 of the 50,000,000 Series B Depositary Shares (the
"Series B Depositary Shares") outstanding, each representing one-tenth of a
share of the 50,000 outstanding shares of RJRN Holdings' Series B Cumulative
Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"). RJRN
Holdings retired the exchanged shares, leaving 12,043.94 shares of the Series B 
Preferred Stock outstanding. The transaction resulted in a charge of 
approximately $5 million to RJRN Holdings' paid-in capital as the fair value of
the Trust Preferred Securities issued, which was the book carrying value 
assigned to these securities, exceeded the book carrying value of the retired 
Series B Preferred Stock. The difference between the assigned value of the 
Trust Preferred Securities and its redemption value will be amortized to 
interest expense over its term. The sole asset of the Trust is the Junior 
Subordinated Debentures. Upon maturity or redemption of the Junior Subordinated 
Debentures, which have a final maturity of December 31, 2044, the Trust 
Preferred Securities will be mandatorily redeemed. The Junior Subordinated 
Debentures are redeemable at the option of RJRN Holdings, in whole or in part, 
on or after August 19, 1998, at a redemption price equivalent to $25 per Junior 
Subordinated Debenture to be redeemed, plus accrued and unpaid interest 
thereon, to the redemption date. Upon the repayment of the Junior Subordinated 
Debentures, whether at maturity, upon redemption or otherwise, the proceeds 
thereof will be promptly applied to redeem the Trust Preferred Securities. 
Holders of Trust Preferred Securities have no right to require the Trust to 
redeem the Trust Preferred Securities at the option of the holders. Cash 
distributions on the Trust Preferred Securities are cumulative at an annual 
rate of 10% of the liquidation amount of $25 per security and are payable 
quarterly in arrears, but only to the extent that interest payments are made on 
the Junior Subordinated Debentures. Cash distributions in arrears for more than 
one quarter will bear interest at 10% of the liquidation amount per security 
compounded quarterly.
 
    On November 14, 1995, Nabisco filed a shelf registration statement with the
Securities and Exchange Commission for $1.0 billion of debt.
 
    At December 31, 1995, RJRN had outstanding interest rate instruments with a
notional principal amount of $0, net. (See Note 12 to the Consolidated Financial
Statements for additional disclosures regarding interest rate arrangements).
 
    At December 31, 1995, Nabisco had outstanding fixed interest rate swaps with
an aggregate notional principal amount of $1.0 billion and expiration dates
occurring within six months. Also at December 31, 1995, Nabisco had outstanding
interest rate caps with an aggregate notional principal amount of $1.0 billion,
all with future effective dates commencing within six months and with expiration
dates one year thereafter. (See Note 12 to the Consolidated Financial Statements
for additional disclosures regarding interest rate arrangements).
 
                                      F-20
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 11--LONG-TERM DEBT AND INTEREST AND DEBT EXPENSE--(CONTINUED)
 
    The estimated fair value of RJRN Holdings' consolidated long-term debt as of
December 31, 1995 and 1994 was approximately $10.1 billion and $10.7 billion,
respectively, based on available market quotes, discounted cash flows and book
values, as appropriate. The estimated fair value is higher by $246 million and
lower by $444 million than the carrying amounts (book values) of RJRN Holdings'
long-term debt at December 31, 1995 and 1994, respectively, as a result of the
level of market interest rates at December 31, 1995 and 1994 compared with the
interest rates associated with RJRN Holdings' debt obligations. Considerable
judgment was required in interpreting market data to develop the estimates of
fair value. In addition, the use of different market assumptions and/or
estimation methodologies may have had a material effect on the estimated fair
value amounts. Accordingly, the estimated fair value of RJRN Holdings'
consolidated long-term debt as of December 31, 1995 and 1994 is not necessarily
indicative of the amounts that RJRN Holdings could realize in a current market
exchange.
 
    The payment of dividends and the making of distributions by RJRN Holdings to
its stockholders are subject to direct and indirect restrictions under certain
financing agreements and debt instruments of RJRN Holdings and RJRN and their
subsidiaries. The New RJRN Credit Agreements generally restrict cumulative
common and preferred dividends and distributions by RJRN Holdings after April
28, 1995 to $1 billion, plus 50% of cumulative consolidated net income, as
defined in the New RJRN Credit Agreements, after January 1, 1995, plus the
aggregate cash proceeds of up to $250 million in any twelve month period from
issuances of equity securities. The New RJRN Credit Agreements and certain other
financing agreements also limit the ability of RJRN Holdings and its
subsidiaries to incur indebtedness, engage in transactions with stockholders and
affiliates, create liens, sell or dispose of certain assets and certain
subsidiaries' stock, issue certain equity securities and engage in certain
mergers or consolidations.
 
    Among other things, the 1995 Nabisco Credit Agreements generally restrict
common and preferred dividends and distributions after April 28, 1995 by Nabisco
Holdings to its stockholders, including RJRN, to $300 million plus 50% of
Nabisco Holdings' cumulative consolidated net income, as defined in the 1995
Nabisco Credit Agreement, after January 1, 1995. In general, loans and advances
by Nabisco Holdings and its subsidiaries to RJRN are effectively subject to a
$100 million limit and may only be extended to RJRN's foreign subsidiaries. The
1995 Nabisco Credit Agreements also limit the ability of Nabisco Holdings and
its subsidiaries to incur indebtedness, engage in transactions with stockholders
and affiliates, create liens, sell or dispose of certain assets and certain
subsidiaries' stock and engage in certain mergers or consolidations. These
restrictions have not had and are not expected to have a material effect on the
ability of Nabisco Holdings to pay its anticipated dividends, or on the ability
of RJRN to meet its obligations.
 
    In November 1994, the Board of Directors of RJRN Holdings adopted a policy
stating that RJRN Holdings will limit, until December 31, 1998, the aggregate
amount of cash dividends on its capital stock. Under this policy, during that
period RJRN Holdings will not pay any extraordinary cash dividends and will
limit the aggregate amount of its cash dividends, cash distributions and
repurchases for cash of capital stock and subordinated debt to an amount equal
to the sum of $500 million plus (i) 65% of RJRN Holdings' cumulative
consolidated net income before extraordinary gains or losses and restructuring
charges subsequent to December 31, 1994 and (ii) net cash proceeds of up to $250
million in any year from the sale of capital stock of RJRN Holdings or its
subsidiaries (other than

 
                                      F-21
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 11--LONG-TERM DEBT AND INTEREST AND DEBT EXPENSE--(CONTINUED)

proceeds from the Nabisco Holdings initial public offering) to the extent used
to repay, purchase or redeem debt or preferred stock.
 
    Also in November 1994, the Board of Directors of RJRN Holdings adopted a
policy providing that RJRN Holdings will not declare a dividend or distribution
to its stockholders of the shares of capital stock of a subsidiary before
December 31, 1996. RJRN Holdings has also adopted a policy setting forth its
intention not to make such a distribution prior to December 31, 1998 if that
distribution would cause the ratings of the senior indebtedness of RJRN to be
reduced from investment grade to non-investment grade or if, after giving effect
to such distribution, any publicly-held senior indebtedness of the distributed
company would not be rated investment grade. The Board of Directors of RJRN
Holdings is committed to effecting a spin-off of Nabisco Holdings at the
appropriate time. There is no assurance that any such distribution will take
place. Additional policies provide that an amount equal to the net cash proceeds
from any issuance and sale of equity by RJRN Holdings or from any sale outside
the ordinary course of business of material assets owned or used by subsidiaries
in the tobacco business, in each case before December 31, 1998, will be used
either to repay, purchase or redeem consolidated indebtedness or to acquire
properties, assets or businesses to be used in existing or new lines of business
and that an amount equal to the net cash proceeds of any secondary sale of
shares of Nabisco Holdings before December 31, 1998 will be used to repay,
purchase or redeem consolidated debt. No assurance can be given that RJRN
Holdings will issue or sell any equity or sell any material assets outside the
ordinary course of business.
 
NOTE 12--COMMITMENTS AND CONTINGENCIES
 
TOBACCO-RELATED LITIGATION
 
    Various legal actions, proceedings and claims are pending or may be
instituted against R.J. Reynolds Tobacco Company ("RJRT") or its affiliates 
or indemnitees, including those claiming that lung cancer and other diseases
have resulted from the use of or exposure to RJRT's tobacco products. During
1995, 101 new actions were filed or served against RJRT and/or its affiliates or
indemnitees and 22 such actions were dismissed or otherwise resolved in favor of
RJRT and/or its affiliates or indemnitees without trial. A total of 132 such
actions in the United States and two against RJRT's Canadian subsidiary were
pending on December 31, 1995. As of February 16, 1996, 144 active cases were
pending against RJRT and/or its affiliates or indemnitees, 142 in the United
States and two in Canada. The United States cases are in 22 states and are
distributed as follows: 90 in Florida; 10 in Louisiana; 5 in Texas; 4 in each of
Indiana, Kansas and Tennessee; 3 in each of Mississippi, California and
Pennsylvania; 2 in each of Alabama, Colorado, Massachusetts and Minnesota; and
one in each of Missouri, Nevada, New Hampshire, New Jersey, New York, North
Carolina, Rhode Island, South Carolina and West Virginia. Of the 142 active
cases in the United States, 116 are pending in state court and 26 in federal
court.
 
    Five of the 142 active cases in the United States involve alleged
non-smokers claiming injuries resulting from exposure to environmental tobacco
smoke. Six cases, which are described more specifically below, purport to be
class actions on behalf of thousands of individuals. Purported classes include
individuals claiming to be addicted to cigarettes and flight attendants alleging
personal injury from exposure to environmental tobacco smoke in their workplace.
Four of the active cases were brought by state attorneys general seeking, inter
alia, recovery of the cost of Medicare funds paid by their states for
 
                                      F-22
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 12--COMMITMENTS AND CONTINGENCIES--(CONTINUED)

treatment of citizens allegedly suffering from tobacco related diseases or
conditions. In addition, one case was brought by the State of Florida seeking
similar rulings under a special state statute.
 
    The plaintiffs in these actions seek recovery on a variety of legal
theories, including strict liability in tort, design defect, negligence, breach
of warranty, failure to warn, fraud, misrepresentation, unfair trade practices,
conspiracy, unjust enrichment, indemnity and common law public nuisance.
Punitive damages, often in amounts ranging into the hundreds of millions of
dollars, are specifically pleaded in 20 cases in addition to compensatory and
other damages. The defenses raised by RJRT and/or its affiliates, where
applicable, include preemption by the Cigarette Act of some or all such claims
arising after 1969; the lack of any defect in the product; assumption of the
risk; comparative fault; lack of proximate cause; and statutes of limitations or
repose. Juries have found for plaintiffs in two smoking and health cases in
which RJRT was not a defendant, but in one such case, which has been appealed by
both parties, no damages were awarded. The jury awarded plaintiffs $400,000 in
the other such case, Cipollone v. Liggett Group, Inc., which award was
overturned on appeal and the case was subsequently dismissed.
 
    On June 24, 1992, the United States Supreme Court in Cipollone held that
claims that tobacco companies failed to adequately warn of the risks of smoking
after 1969 and claims that their advertising and promotional practices
undermined the effect of warnings after that date were preempted by the
Cigarette Act. The Supreme Court also held that claims of breach of express
warranty, fraud, misrepresentation and conspiracy were not preempted. The
Supreme Court's decision was announced through a plurality opinion, and further
definition of how Cipollone will apply to other cases must await rulings in
those cases.
 
    Certain legislation proposed in recent years in Congress, among other
things, would eliminate any such preemptive effect on common law damage actions
for personal injuries. RJRT is unable to predict whether such legislation will
be enacted and, if so, in what form, or whether such legislation would be
intended by Congress to apply retroactively. The passage of such legislation
could increase the number of cases filed against cigarette manufacturers,
including RJRT.
 
    Set forth below are descriptions of the class action lawsuits, a suit in
which plaintiffs seek to act as private attorneys general, actions brought by
state attorneys general in Massachusetts, Minnesota, Mississippi and West
Virginia, an action brought by the State of Florida and pending investigations
relating to RJRT's tobacco business.
 
    In 1991, Broin v. Philip Morris Company, a purported class action
against certain tobacco industry defendants, including RJRT, was brought by
flight attendants claiming to represent a class of 60,000 individuals, alleging
personal injury caused by exposure to environmental tobacco smoke in their
workplace. In December 1994, the Florida state court certified a class
consisting of "all non-smoking flight attendants who are or have been employed
by airlines based in the United States and are suffering from diseases and
disorders caused by their exposure to secondhand cigarette smoke in airline
cabins." The defendants appeal of this certification to the Florida Third
District Court of Appeal was denied on January 3, 1995. A motion for rehearing
has been filed.
 
    In March 1994, Castano v. The American Tobacco Company, a purported class
action, was filed in the United States District Court for the Eastern District
of Louisiana against tobacco industry defendants, including RJRT, seeking
certification of a class action on behalf of all United States
 
                                      F-23
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 12--COMMITMENTS AND CONTINGENCIES--(CONTINUED)

residents who allegedly are or claim to be addicted, or are the legal survivors
of persons who allegedly were addicted, to tobacco products manufactured by
defendants. The complaint alleges that cigarette manufacturers manipulated the
levels of nicotine in their tobacco products to induce addiction in smokers.
Plaintiffs' motion for certification of the class was granted in part on
February 17, 1995. The district court certified core liability issues (fraud,
negligence, breach of warranty, both express and implied, intentional tort,
strict liability and consumer protection statutes), and punitive damages. Not
certified were issues of injury-in-fact, proximate cause, reliance, affirmative
defenses, and compensatory damages. In July 1995, the Fifth Circuit Court of
Appeals agreed to hear defendants, appeal of this class certification. A 
decision is expected in 1996.
 
    In March 1994, Lacey v. Lorillard Tobacco Company, a purported class action,
was filed in Circuit Court, Fayette County, Alabama against three cigarette
manufacturers, including RJRT. Plaintiff, who claims to represent all smokers
who have smoked or are smoking cigarettes manufactured and sold by defendants in
the state of Alabama, seeks compensatory and punitive damages not to exceed
$48,500 per class member and injunctive relief arising from defendants' alleged
failure to disclose additives used in their cigarettes. In April 1994,
defendants removed the case to the United States District Court for the Northern
District of Alabama.
 
    In May 1994, Engle v. R.J. Reynolds Tobacco Company, was filed in Circuit
Court, Eleventh Judicial District, Dade County, Florida against tobacco
manufacturers, including RJRT, and other members of the industry, by plaintiffs
who allege injury and purport to represent a class of all United States citizens
and residents who claim to be addicted, or who claim to be legal survivors of
persons who allegedly were addicted, to tobacco products. On October 28, 1994, a
state court judge in Miami granted plaintiffs' motion to certify the class. The
defendants appealed that ruling to the Florida Third District Court of Appeal
which, on January 31, 1996, decided to certify a class limited to Florida
citizens or residents. The defendants are considering seeking a rehearing.
 
    In September 1994, Granier v. American Tobacco Company, a purported class
action apparently patterned after the Castano case, was filed in the United
States District Court for the Eastern District of Louisiana against tobacco
industry defendants, including RJRT. Plaintiffs seek certification of a class
action on behalf of all residents of the United States who have used and
purportedly became addicted to tobacco products manufactured by defendants. The
complaint alleges that cigarette manufacturers manipulated the levels of
nicotine in tobacco products for the purpose of addicting consumers. By
agreement of the parties, all action in this case is stayed pending
determination of the motion for class certification in the Castano case.
 
                                      F-24
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 12--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
 
    In January 1995, a purported class action was filed in the Ontario Canada
Court of Justice against RJR-MacDonald, Inc. and two other Canadian cigarette
manufacturers. The lawsuit, then captioned Le Tourneau v. Imperial
Tobacco Company seeks certification of a class of persons who have
allegedly become addicted to the nicotine in cigarettes or who had such alleged
addiction heightened or maintained through the use of cigarettes, and who have
allegedly suffered loss, injury, and damage in consequence, together with
persons with Family Law Act claims in respect to the claims of such allegedly
addicted persons, and the estates of such allegedly addicted persons. Theories
of recovery pleaded include negligence, strict liability, failure to warn,
deceit, negligent misrepresentation, implied warranty and conspiracy. The relief
sought consists of damages of one million dollars for each of the three named
plaintiffs, punitive damages, funding of nicotine addiction rehabilitation
centers, interest and costs. On June 2, 1995, the plaintiffs, on consent, were
granted leave to file an amended statement of claim to remove Le Tourneau as
representative plaintiff and add two additional representative plaintiffs. The
case is now captioned Caputo v. Imperial Tobacco Limited.
 
    In June 1994, in Mangini v. R.J. Reynolds Tobacco Company, the California
Supreme Court ruled that the plantiffs' claim that an RJRT advertising campaign
constitutes unfair competition under the California Business and Professions
Code was not preempted by the Cigarette Act. The plantiffs are acting as private
attorneys general. This opinion allows the plaintiffs to pursue their lawsuit
which had been dismissed at the trial court level. The defendants' Petition for
Certiorari to the United States Supreme Court was denied in December 1994. The
case has been remanded to the trial court.
 
    In June 1994, in Moore v. The American Tobacco Company, RJRN and RJRT were
named along with other industry members as defendants in an action brought by
the Mississippi state attorney general on behalf of the state to recover state
funds paid for health care and medical and other assistance to state citizens
allegedly suffering from diseases and conditions allegedly related to tobacco
use. This suit, which was brought in Chancery (non-jury) Court, Jackson County,
Mississippi also seeks an injunction from "promoting" or "aiding and abetting"
the sale of cigarettes to minors. Both actual and punitive damages are sought in
unspecified amounts. Motions by the defendants to dismiss the case or to
transfer it to circuit (jury) court were denied on February 21, 1995 and the
case will proceed in Chancery Court. RJRN and other industry holding companies
have been dismissed from the case.
 
    In August 1994, RJRT and other U.S. cigarette manufacturers were named as
defendants in an action instituted on behalf of the state of Minnesota and of
Blue Cross and Blue Shield of Minnesota to recover the costs of medical expenses
paid by the state and by Blue Cross/Blue Shield that were incurred in the
treatment of diseases allegedly caused by cigarette smoking. The suit, Minnesota
v. Philip Morris, alleges consumer fraud, unlawful and deceptive trade
practices, false advertising and restraint of trade, and it seeks injunctive
relief and money damages, trebled for violations of the state antitrust law.
Motions by the defendants to dismiss all claims of Blue Cross/Blue Shield and
certain substantive claims of the State of Minnesota, and by plaintiffs to
strike certain of the defendants' defenses, were denied on May 19, 1995. An
intermediate appeals court declined to hear the defendants' appeal from the
ruling denying the motion to dismiss all claims of Blue Cross/Blue Shield on the
ground that it lacks standing to bring the action, but the Minnesota Supreme
Court has agreed to do so. Oral argument was heard January 29, 1996 and a
decision is pending.
 
    In September 1994, the Attorney General of West Virginia filed suit against
RJRT, RJRN and twenty-one additional defendants in state court in West Virginia.
The lawsuit, McGraw v. American
 
                                      F-25
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 12--COMMITMENTS AND CONTINGENCIES--(CONTINUED)

Tobacco Company, is similar to those previously filed in Mississippi and
Minnesota. It seeks recovery for medical expenses incurred by the state in the
treatment of diseases statistically associated with cigarette smoking and
requests an injunction against the promotion and sale of cigarettes and tobacco
products to minors. The lawsuit also seeks a declaration that the state of West
Virginia, as plaintiff, is not subject to the defenses of statute of repose,
statute of limitations, contributory negligence, comparative negligence, or
assumption of the risk. On May 3, 1995, the judge granted defendants' motion to
dismiss eight of the ten causes of action pleaded. The defendants have filed
motions to dismiss the remaining two counts. On October 20, 1995, at a hearing
on the defendants' joint motion to prohibit prosecution of the action due to
plaintiff's unlawful retention of counsel under a contingent fee arrangement, in
a ruling from the bench, the contingent fee agreement between the West Virginia
Attorney General and private attorneys preparing the case was held to be void on
the grounds that the Attorney General has no constitutional, legislative, or
statutory authority for entering into such an agreement.
 
    On February 21, 1995, the state of Florida filed a suit against RJRT and
RJRN, along with other industry members, their holding companies and other
entities. The state is seeking Medicaid reimbursement under various theories of
liability and injunctive relief to prevent the defendants from engaging in
consumer fraud and to require that defendants: disclose and publish all research
conducted directly or indirectly by the industry; fund a corrective public
education campaign on the issues of smoking and health in Florida; prevent the
distribution and sale of cigarettes to minors under the age of eighteen; fund
clinical smoking cessation programs in the state of Florida; dissolve the
Council for Tobacco Research and the Tobacco Institute or divest ownership,
sponsorship, or membership in both; and disgorge all profits from sales of
cigarettes in Florida. On defendants' motion, the case was stayed until July 7,
1995 and that stay has been extended pending appeals by the plaintiffs and the
defendants in connection with the constitutional challenge to the Florida
statute discussed below.
 
    The suit by the state of Florida was brought under a statute which was
amended effective July 1994 to allow the state to bring an action in its own
name against the tobacco industry to recover amounts paid by the state under its
Medicaid program to treat illnesses statistically associated with cigarette
smoking. The amended statute does not require the state to identify the
individual who received medical care, permits a lawsuit to be filed as a class
action and eliminates the comparative negligence and assumption of risk
defenses. The Florida statute was challenged on state and federal constitutional
grounds in a lawsuit brought by Philip Morris Companies Inc., Associated
Industries of Florida, Publix Supermarkets and National Association of
Convenience Stores in June 1994. On June 26, 1995 the trial court judge granted
in part the plaintiffs' motion for summary judgment finding portions of the
statute unconstitutional. Both plaintiffs and defendants appealed this decision
which the Florida Supreme Court accepted for a direct appeal. Oral argument was
heard on November 6, 1995.
 
    The Florida House and Senate passed a bill that would repeal the Florida
statute retroactively which, on June 15, 1995, was vetoed by the Governor. The
Florida House and Senate have indicated that they are considering action to
override that veto. Similar legislation, without Florida's elimination of
defenses, has been introduced in the Massachusetts and New Jersey legislatures.
RJRT is unable to predict whether legislation will be enacted in these states,
whether other states will introduce and enact similar legislation, whether
lawsuits will be filed under statutes, if enacted, or the outcome of any such
lawsuits, if filed.
 
                                      F-26
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 12--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
 
    On November 28, 1995, RJRT and other domestic cigarette manufacturers filed
petitions for declaratory judgment in Massachusetts (Federal Court) and Texas
(State Court, Austin Texas) as to potential Medicaid reimbursement suits that
had been threatened by the Attorneys General of those states. On January 22,
1996, a similar petition for declaratory judgement was filed in Maryland (State
Court).
 
    On December 19, 1995, the Commonwealth of Massachusetts filed suit against
cigarette manufacturers including RJRT and additional defendants including trade
associations and wholesalers, seeking reimbursement of Medicaid and other costs
incurred by the state in providing health care to citizens allegedly suffering
from diseases or conditions purportedly caused by cigarette smoking. The
complaint also seeks orders requiring the manufacturing defendants to disclose
and disseminate prior research; fund a corrective campaign and smoking cessation
program; disclose nicotine yields of their products; and pay restitution.
 
    RJRT understands that a grand jury investigation being conducted in the
Eastern District of New York is examining possible violations of criminal law in
connection with activities relating to the Council for Tobacco Research--USA,
Inc., of which RJRT is a sponsor. RJRT is unable to predict the outcome of this
investigation.
 
    RJRT received a civil investigative demand dated January 11, 1994 from the
U.S. Department of Justice requesting broad documentary information from RJRT.
Although the request appears to focus on tobacco industry activities in
connection with product development efforts, it also requests general
information concerning contacts with competitors. RJRT is unable to predict the
outcome of this investigation.
 
                              -------------------
 
    Litigation is subject to many uncertainties, and it is possible that some of
the tobacco-related legal actions, proceedings or claims could be decided
against RJRT or its affiliates or indemnitees. Determinations of liability or
adverse rulings against other cigarette manufacturers that are defendants in
similar actions, even if such rulings are not final, could adversely affect the
litigation against RJRT or its affiliates or indemnitees and increase the number
of such claims. Although it is impossible to predict the outcome of such events
or their effect on RJRT, a significant increase in litigation activities could
have an adverse effect on RJRT. RJRT believes that it has a number of valid
defenses to any such actions, including but not limited to those defenses based
on preemption under the Cipollone decision, and RJRT intends to defend
vigorously all such actions.
 
    RJRN Holdings and RJRN believe that the ultimate outcome of all pending
litigation matters should not have a material adverse effect on the financial
position of either RJRN Holdings or RJRN; however, it is possible that the
results of operations or cash flows of RJRN Holdings or RJRN in particular
quarterly or annual periods or the financial condition of RJRN Holdings and RJRN
could be materially affected by the ultimate outcome of certain pending
litigation matters. Management is unable to derive a meaningful estimate of the
amount or range of any possible loss in any particular quarterly or annual
period or in the aggregate.
 
                                      F-27
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 12--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
 
COMMITMENTS
 
    At December 31, 1995, other commitments totalled approximately $777 million,
principally for minimum operating lease commitments, the purchase of leaf
tobacco inventories, the purchase of machinery and equipment and other
contractual arrangements.
 
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND SIGNIFICANT CONCENTRATIONS
OF CREDIT RISK
 
    Certain financial instruments with off-balance sheet risk have been entered
into by RJRN and Nabisco to manage their interest rate and foreign currency
exposures.

    RJRN and Nabisco have each adopted policies to utilize interest rate
instruments that will adjust the mix of floating rate debt and fixed rate debt
on a one for one basis.

 
Interest Rate Arrangements
 
    During 1995, Nabisco began managing its own interest rate exposure by
adjusting its mix of floating rate debt and fixed rate debt. As part of managing
its interest rate exposure, Nabisco entered into interest rate swaps and caps
during 1995 to effectively fix a portion of its interest rate exposure on its
floating rate debt. The impact of these arrangements was not significant. At 
December 31, 1995, Nabisco had outstanding fixed interest rate swaps with an
aggregate notional principal amount of $1.0 billion and expiration dates within
six months. Also at December 31, 1995, Nabisco had outstanding interest rate
caps with an aggregate notional principal amount of $1.0 billion, all with
future effective dates commencing within six months and with expiration dates
one year thereafter.
 
    RJRN also manages its interest rate exposure by adjusting its mix of 
floating rate debt and fixed rate debt. During 1994, RJRN cancelled all of its
financial interest rate arrangments with optionality. Such cancelled instruments
increased 1994 interest expense by $45 million. Also during 1994, as part of its
current strategy to manage interest rate exposure, RJRN effectively neutralized
the effects of any future changes in market interest rates on the remainder of
its outstanding interest rate swaps, options, caps and other financial
instruments through the purchase of offsetting positions. Net unrealized gains
and losses on the remaining interest rate instruments at the time such
instruments were neutralized are currently being amortized to interest expense
through 1997. As a result of the 1994 activity, the net notional principal
amount of outstanding interest rate instruments has been $0. The impact to
interest expense from the utilization of interest rate instruments by RJRN has
resulted in additional interest expense during 1995 and 1994 of approximately
$39 million and $22 million (which included the $45 million stated above),
respectively, and lower interest expense during 1993 of approximately $70
million. In addition, additional interest expense will be recorded during 1996
and 1997 of approximately $28 million and $5 million, respectively, in
connection with the 1994 activity. At December 31, 1995, RJRN had outstanding
interest rate swaps, options, caps and other interest rate arrangements with
 
                                      F-28
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 12--COMMITMENTS AND CONTINGENCIES--(CONTINUED)

financial institutions having a total gross notional principal amount of $2.8
billion and a net notional amount of $0. These arrangements entered into by RJRN
mature as follows:
 
<TABLE>
<CAPTION>
                                                          GROSS NOTIONAL PRINCIPAL AMOUNT
                                                     ------------------------------------------
    TYPE OF INSTRUMENT                                1996        1997        1998       TOTAL
    ------------------                               ------      ------      ------      ------
<S>                                                  <C>         <C>         <C>         <C>
                                                               (AMOUNTS IN MILLIONS)
Variable rate pay swaps.........................     $  600      $  750      $   50      $1,400
Fixed rate pay swaps............................        600         750          50       1,400
                                                     ------      ------      ------      ------
                                                     $1,200      $1,500      $  100      $2,800
                                                     ------      ------      ------      ------
                                                     ------      ------      ------      ------
</TABLE>
 
 
Foreign Currency Arrangements
 
    RJRN Holdings' subsidiaries have operations in many countries, utilizing
many different functional currencies in its foreign subsidiaries and branches.
Significant foreign currency net investments are located in Germany, Canada,
Hong Kong, Brazil, Argentina and Spain. Changes in the strength of these
countries' currencies relative to the U.S. dollar result in direct charges or
credits to equity for non-hyperinflationary countries and direct charges or
credits to the income statement for hyperinflationary countries. Translation
gains or losses resulting from foreign-denominated borrowings that are accounted
for as hedges of certain foreign currency net investments, also result in
charges or credits to equity. RJRN Holdings' subsidiaries also have significant
exposure to foreign exchange sale and purchase transactions in currencies other
than its functional currency. The exposures include the U.S. dollar, German
mark, Japanese yen, Swiss franc, Hong Kong dollar, Singapore dollar, Spanish
peseta and cross-rate exposure among the French franc, British pound, Italian 
lira and the German mark. These exposures are managed to minimize the effects 
of foreign currency transactions on its cash flows.
 
    At December 31, 1995 and 1994, RJRN had outstanding forward foreign exchange
contracts with banks to purchase or sell an aggregate notional principal amount
of $959 million and $713 million, respectively. The weighted average maturity
of the arrangements outstanding at December 31, 1995 approximated four months.
Such contracts were primarily entered into to hedge future commitments. The 
purpose of RJRN's foreign currency hedging activities is to protect RJRN from 
risk that the eventual dollar cash flows resulting from transactions with 
international parties will be adversely affected by changes in exchange rates.
 
    At December 31, 1995 and 1994, Nabisco had outstanding forward foreign
exchange contracts with banks to purchase or sell an aggregate notional
principal amount of $142 million and $94 million, respectively. Such contracts
were primarily entered into to hedge future commitments. The purpose of
Nabisco's foreign currency hedging activities is to protect Nabisco from risk
that the eventual dollar cash flows resulting from transactions with
international parties will be adversely affected by changes in exchange rates.
 
    The above interest rate and foreign currency arrangements entered into by
RJRN and Nabisco involve, to varying degrees, elements of market risk as a
result of potential changes in future interest and foreign currency exchange
rates. To the extent that the financial instruments entered into remain
outstanding as effective hedges of existing interest rate and foreign currency
exposure, the impact of
 
                                      F-29
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 12--COMMITMENTS AND CONTINGENCIES--(CONTINUED)

such potential changes in future interest and foreign currency exchange rates on
the financial instruments entered into would offset the related impact on the
items being hedged. Also, RJRN and Nabisco may be exposed to credit losses in
the event of non-performance by the counterparties to these financial
instruments. However, RJRN and Nabisco continually monitor their positions and
the credit ratings of their counterparties and therefore, do not anticipate 
any non-performance.
 
    There are no significant concentrations of credit risk with any individual
counterparties or groups of counterparties as a result of any financial
instruments entered into including those financial instruments discussed above.
 
SUMMARY FINANCIAL INSTRUMENTS FAIR VALUE INFORMATION
 
    At December 31, 1995 and 1994, the carrying amounts and estimated fair
values of financial instruments entered into by RJRN and Nabisco were as
follows:
<TABLE>
<CAPTION>
                                                    DECEMBER 31, 1995               DECEMBER 31, 1994
                                               ----------------------------    ----------------------------
                                                   ASSETS/(LIABILITIES)            ASSETS/(LIABILITIES)
                                               ----------------------------    ----------------------------
   RJRN FINANCIAL INSTRUMENTS                  CARRYING VALUE    FAIR VALUE    CARRYING VALUE    FAIR VALUE
   --------------------------                  --------------    ----------    --------------    ----------
                                                                  (AMOUNTS IN MILLIONS)
<S>                                            <C>               <C>           <C>               <C>
Interest rate swaps:
  Variable rate pay swaps...................      $     (1)       $       -       $      -        $     (76)
                                               --------------    ----------    --------------    ----------
  Fixed rate pay swaps......................      $    (11)       $     (44)      $      -        $       4
                                               --------------    ----------    --------------    ----------
Forward foreign exchange contracts..........      $      2        $       9       $     (1)       $      (4)
                                               --------------    ----------    --------------    ----------

    NABISCO FINANCIAL INSTRUMENTS
--------------------------------------------
Interest rate swaps:
  Fixed rate pay swaps......................      $      -        $      (2)      $      -        $       -
                                               --------------    ----------    --------------    ----------
Interest rate caps..........................      $      3        $       1       $      -        $       -
                                               --------------    ----------    --------------    ----------
Forward foreign exchange contracts..........      $      -        $       -       $      -        $       -
                                               --------------    ----------    --------------    ----------
</TABLE>
 
                                      F-30
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 13--CAPITAL STOCK AND PAID-IN CAPITAL
 
    The changes in Common Stock and paid-in capital are shown as follows:
<TABLE><CAPTION>
                                                                              1995                        1994
                                                                     -----------------------     -----------------------
                                                                       SHARES        AMOUNT        SHARES        AMOUNT
                                                                     -----------     -------     -----------     -------
                                                                                    (DOLLARS IN MILLIONS)
<S>                                                                  <C>             <C>         <C>             <C>
Common Stock--$0.01 par value--authorized 440,000,000 shares at
 December 31, 1995:
 Balance at beginning of year....................................    272,331,377     $     3     227,602,258     $     2
 Shares issued during the period.................................        543,787          --       2,781,575          --
 Conversion of Series A Preferred Stock..........................             --          --      42,000,000           1
 Shares repurchased and
   cancelled.....................................................        (67,222)         --         (52,456)         --
                                                                     -----------     -------     -----------     -------
     Balance at end of year......................................    272,807,942     $     3     272,331,377     $     3
                                                                     -----------     -------     -----------     -------
                                                                     -----------     -------     -----------     -------
Paid-in capital:
 Balance at beginning of year....................................                    $10,157                     $ 8,787
 Shares issued during the period, net of stock issuance costs....                         13                       1,754
 Tax benefits recorded on shares issued to management, dividends
   on restricted stock and dividends on ESOP shares allocated....                          4                           9
 Shares and stock options repurchased and cancelled..............                         (2)                         (1)
 Fees and other expenses.........................................                        (30)                         --
 Gain on sale of subsidiary common stock.........................                        401                          --
 Amounts reclassified from retained earnings.....................                       (432)                       (393)
 Other...........................................................                         (1)                           1
                                                                                     -------                     -------
     Balance at end of year......................................                    $10,110                     $10,157
                                                                                     -------                     -------
                                                                                     -------                     -------
<CAPTION>
                                                                            1993
                                                                   -----------------------
                                                                     SHARES        AMOUNT
                                                                   -----------     -------
<S>                                                                  <C>           <C>
Common Stock--$0.01 par value--authorized 440,000,000 shares at
 December 31, 1995:
 Balance at beginning of year....................................  226,929,708     $     2
 Shares issued during the period.................................      738,582          --
 Conversion of Series A Preferred Stock..........................           --          --
 Shares repurchased and cancelled................................      (66,032)         --
                                                                   -----------     -------
     Balance at end of year......................................  227,602,258     $     2
                                                                   -----------     -------
                                                                   -----------     -------
Paid-in capital:
 Balance at beginning of year....................................                  $ 9,057
 Shares issued during the period, net of stock issuance costs....                      (16)
 Tax benefits recorded on shares issued to management, dividends
   on restricted stock and dividends on ESOP shares allocated....                        3
 Management shares and stock options repurchased and cancelled...                       (2)
 Fees and other expenses.........................................                       --
 Gain on sale of subsidiary common stock.........................                       --
 Amounts reclassified from retained earnings.....................                     (246)
 Other...........................................................                       (9)
                                                                                   -------
     Balance at end of year......................................                  $ 8,787
                                                                                   -------
                                                                                   -------
</TABLE>
 
    At December 31, 1995, RJRN Holdings' outstanding classes of capital stock
consisted of the following: the Common Stock, the Series B Preferred Stock, the
Series C Preferred Stock and the ESOP Convertible Preferred Stock, stated value
of $16.00 per share and par value of $.01 per share (the "ESOP Preferred
Stock"). In addition, RJRN Holdings had its Cumulative Convertible Preferred
Stock, stated value of $25 per share and par value of $.01 per share (the
"Cumulative Convertible Preferred Stock"), outstanding until the fourth quarter
of 1993 and its Series A Conversion Preferred Stock, par value $.01 per share
(the "Series A Preferred Stock"), outstanding until the fourth quarter of 1994.
All of the classes of preferred stock of RJRN Holdings rank senior to the Common
Stock as to dividends and preferences in liquidation. RJRN Holdings' charter
authorized 150,000,000 preferred shares at December 31, 1995 and 1994.
 
    On November 1, 1990, RJRN Holdings issued and/or registered 72,032,000
shares of the Cumulative Convertible Preferred Stock. The Cumulative Convertible
Preferred Stock paid cash dividends at a rate of 11.5% of stated value per
annum, payable quarterly in arrears commencing January 15, 1991. The Cumulative
Convertible Preferred Stock was convertible after May 1, 1991 into shares of
Common Stock at a conversion price of $45 of stated value per share of Common
Stock. Holders of the Cumulative Convertible Preferred Stock converted 379
shares of the stock into 210 shares of Common Stock during 1992 and another
123,523 shares into 68,595 shares of Common Stock during 1993. On December 6,
1993, the outstanding Cumulative Convertible Preferred Stock was redeemed at a
redemption price of $27.0125 per share plus accrued and unpaid dividends.

                                      F-31
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 13--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED)
 
    On April 10, 1991, the ESOP borrowed $250 million from RJRN Holdings (the
"ESOP Loan") to purchase 15,625,000 shares of ESOP Preferred Stock. The ESOP
Loan, which was renegotiated in 1993, has a final maturity in 2006 and bears
interest at the rate of 8.2% of its stated value per annum. At December 31,
1995, the ESOP Preferred Stock is convertible into 2,998,135 shares of Common
Stock, subject to adjustment in certain events, and bears cumulative dividends
at a rate of 7.8125% of stated value per annum at least until April 10, 1999,
payable semi-annually in arrears commencing January 2, 1992, when, as and if
declared by the board of directors of RJRN Holdings. The ESOP Preferred Stock is
redeemable at the option of RJRN Holdings, in whole or in part, at any time on
or after April 10, 1999, at an initial optional redemption price of $16.25 per
share. The initial optional redemption price declines thereafter on an annual
basis in the amount of $.125 a year to $16 per share on April 10, 2001, plus
accrued and unpaid dividends. Holders of ESOP Preferred Stock have voting rights
with respect to certain matters submitted to a vote of the holders of the Common
Stock. Effective January 1, 1992, RJRN's matching contributions to eligible
employees under its Capital Investment Plan are being made in the form of ESOP
Preferred Stock. RJRN's matching contribution obligation in respect of each
participating employee is equal to $.50 for every pre-tax dollar contributed by
the employee, up to 6% of the employee's pay. The shares of ESOP Preferred Stock
are allocated at either the floor value of $16 a share or the fair market value
of one-fifth of a share of Common Stock, whichever is higher. During 1995, 1994
and 1993, approximately $23 million, $22 million and $29 million, respectively,
was contributed to the ESOP by RJRN or RJRN Holdings and approximately $19
million, $19 million and $20 million, respectively, of ESOP dividends were used
to service the ESOP's debt to RJRN Holdings.
 
    On November 8, 1991, RJRN Holdings issued 52,500,000 shares of Series A
Preferred Stock and sold 210,000,000 Series A Depositary Shares, each of which
represented one-quarter of a share of Series A Preferred Stock. Each share of
Series A Preferred Stock paid cash dividends at a rate of $3.34 per annum,
payable quarterly in arrears commencing February 18, 1992. On November 15, 1994,
the 210,000,000 Series A Depository Shares converted automatically into
42,000,000 shares of Common Stock.
 
    On August 18, 1993, RJRN Holdings issued 50,000 shares of Series B Preferred
Stock, and sold 50,000,000 Series B Depositary Shares at $25 per Series B
Depositary Share ($1.25 billion) in connection with such issuance (the "Series B
Preferred Stock Offering"). Each share of Series B Preferred Stock bears
cumulative cash dividends at a rate of $2,312.50 per annum, or $2.3125 per
Series B Depositary Share, and is payable quarterly in arrears commencing
December 1, 1993. Each Series B Depositary Share represents .001 ownership
interest in a share of Series B Preferred Stock of RJRN Holdings. At RJRN
Holdings' option, on or after August 19, 1998, RJRN Holdings may redeem shares
of the Series B Preferred Stock (and the Depositary will redeem the number of
Series B Depositary Shares representing the shares of Series B Preferred Stock)
at a redemption price equivalent to $25 per Series B Depositary Share plus
accrued and unpaid dividends thereon. RJRN Holdings' ability to redeem the
Series B Preferred Stock is subject to certain restrictions in its credit
agreements. On September 21, 1995, RJRN Holdings retired approximately 76% of
the outstanding Series B Preferred Stock in connection with the exchange of
approximately $949 million amount of Trust Preferred Securities for 37,956,060 
of the 50,000,000 Series B Depositary Shares. (See Note 11 to the Consolidated
Financial Statements.)
 
    On May 6, 1994, RJRN Holdings completed the issuance of 26,675,000 shares of
Series C Preferred Stock in connection with the sale of 266,750,000 Series C
Depositary Shares at $6.50 per
 
                                      F-32
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 13--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED)

depositary share. Approximately $900 million of the net proceeds from the sale
of the Series C Depositary Shares was applied to the redemption of RJRN's
subordinated debentures on May 15, 1994. The remaining proceeds from the sale of
the Series C Depositary Shares were used to repay indebtedness under the 1991 
RJRN Credit Agreement and for short-term liquid investments until they were 
applied to redeem certain of RJRN's sinking fund debentures. Each share of 
Series C Preferred Stock bears cumulative cash dividends at a rate of $6.012 
per annum, or $.6012 per Series C Depositary Share, payable quarterly in 
arrears. Each Series C Depositary Share represents a one-tenth ownership 
interest in a share of Series C Preferred Stock of RJRN Holdings. Each share of 
Series C Preferred Stock will mandatorily convert into two shares of Common 
Stock on May 15, 1997, subject to adjustment in certain events, plus accrued 
and unpaid dividends thereon. In addition, at RJRN Holdings' option, RJRN 
Holdings may redeem shares of the Series C Preferred Stock (and the Depositary 
will redeem the number of Series C Depositary Shares representing such shares 
of Series C Preferred Stock) at a redemption price to be paid in shares of 
Common Stock (or, following certain circumstances, other consideration), plus 
accrued and unpaid dividends. The optional redemption price declines from 
$112.286 per share by $.01656 per share on each day following May 6, 1994 to 
$95.246 per share on March 15, 1997 and is $94.25 thereafter.
 
    The completion on January 26, 1995 of the Nabisco Holdings' initial public
offering of 51,750,000 shares of its Class A Common Stock and the corresponding
reduction in RJRN's proportionate economic interest in Nabisco Holdings from
100% to approximately 80.5% resulted in an adjustment of approximately $401
million to the carrying amount of RJRN's investment in Nabisco Holdings. Such
adjustment was reflected as additional paid-in capital by RJRN Holdings and
RJRN.
 
    On April 1, July 1 and October 1, 1995 and January 1, 1996, RJRN Holdings
paid a quarterly dividend on the Common Stock of $.375 per share. RJRN Holdings
expects to continue to pay at least a quarterly cash dividend on the Common
Stock equal to $.375 per share or $1.50 per share on an annualized basis.
 
    On April 12, 1995, the stockholders of RJRN Holdings approved a one-for-five
reverse stock split and the corresponding reduction in the number of authorized
shares of Common Stock from 2,200,000,000 to 440,000,000. Accordingly, the rates
at which shares of ESOP Preferred Stock and Series C Preferred Stock convert
into shares of Common Stock were proportionately adjusted.
 
    On July 1 and October 1, 1995 and January 1, 1996, Nabisco Holdings paid a
quarterly dividend on its common stock of $.1375 per share. Nabisco Holdings
expects to continue to pay a quarterly cash dividend on its common stock equal
to at least $.1375 per share or $.55 per share on an annualized basis
(approximately $146 million). RJRN would receive approximately $117 million of
the annualized Nabisco Holdings dividend.
 
                                      F-33
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 13--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED)
 
    The changes in stock options are shown as follows:
<TABLE>
<CAPTION>
                                                        1995                           1994                    1993
                                            ----------------------------   ----------------------------     ----------
                                              OPTIONS          PRICE         OPTIONS          PRICE          OPTIONS
                                            -----------     ------------   -----------     ------------     ----------
<S>                                         <C>             <C>            <C>             <C>              <C>
Balance at beginning of year:
 Stock Option Plan......................      3,754,672     $25.00-52.25     4,648,022     $25.00-52.25      5,071,189
 Long Term Incentive Plan...............     12,411,651      22.60-57.80    12,926,527      22.60-57.80      3,930,920
Options granted:
 Stock Option Plan......................         14,400            30.00        32,160            34.40             --
 Long Term Incentive Plan...............     12,823,060      26.88-32.25       355,400      27.50-37.20      9,842,620
Options exercised:
 Stock Option Plan......................       (153,960)           25.00      (918,947)     25.00-28.75       (223,209)
 Long Term Incentive Plan...............        (14,137)     22.82-29.69        (7,171)           27.80             --
Options repurchased and cancelled:
 Stock Option Plan......................     (2,340,491)     25.00-34.38        (6,563)     25.00-56.25       (199,958)
 Long Term Incentive Plan...............    (11,639,260)     22.82-54.69      (863,105)     27.80-50.65       (847,013)
                                            -----------                    -----------                      ----------
Balance at end of year:
 Stock Option Plan......................      1,274,621      25.00-52.25     3,754,672      25.00-52.25      4,648,022
 Long Term Incentive Plan...............     13,581,314      22.60-57.80    12,411,651      22.60-57.80     12,926,527
                                            -----------                    -----------                      ----------
                                             14,855,935      22.60-57.80    16,166,323      22.60-57.80     17,574,549
                                            -----------                    -----------                      ----------
                                            -----------                    -----------                      ----------
 
<CAPTION>
                                             PRICE
                                          ------------
<S>                                         <C>
Balance at beginning of year:
 Stock Option Plan......................  $25.00-52.25
 Long Term Incentive Plan...............   37.50-57.80
Options granted:
 Stock Option Plan......................            --
 Long Term Incentive Plan...............   22.60-45.65
Options exercised:
 Stock Option Plan......................         25.00
 Long Term Incentive Plan...............            --
Options repurchased and cancelled:
 Stock Option Plan......................   25.00-42.75
 Long Term Incentive Plan...............   27.80-50.00
Balance at end of year:
 Stock Option Plan......................   25.00-52.25
 Long Term Incentive Plan...............   22.60-57.80
                                           22.60-57.80
</TABLE>
 
    At December 31, 1995, options were exercisable as to 3,437,549 shares,
compared with 8,794,841 shares at December 31, 1994, and 4,003,608 shares at
December 31, 1993. As of December 31, 1995, options for 7,374,069 shares of
Common Stock were available for future grant.
 
    To provide an incentive to attract and retain key employees responsible for
the management and administration of the business affairs of RJRN Holdings and
its subsidiaries, on June 15, 1989 the board of directors of RJRN Holdings 
adopted the Stock Option Plan for Directors and Key Employees of RJR Nabisco 
Holdings Corp. and Subsidiaries (the "Stock Option Plan") pursuant to which 
options to purchase Common Stock may be granted. On June 16, 1989, the Stock 
Option Plan was approved by the written consent of the holders of a majority of 
the Common Stock. Non-employee directors or key employees of RJRN Holdings or 
any subsidiary of RJRN Holdings are eligible to be granted options under the 
Stock Option Plan. A maximum of 6,000,000 shares of Common Stock (which may be 
adjusted in the event of certain capital changes) may be issued under the Stock 
Option Plan. The options to key employees granted under the Stock Option Plan 
generally vest over a three year period and the exercise price of such options 
is generally the fair market value of the Common Stock on the date of grant. On 
March 1, 1994, the Stock Option Plan was amended to satisfy the requirements of
a nondiscretionary formula plan for stock option grants to directors. Each 
eligible director is, upon becoming a director, granted an option under the 
Stock Option Plan to purchase 6,000 shares of Common Stock. The options have an 
exercise price equal to the fair market value of the Common Stock on the date 
of grant. They cannot be exercised for six months following the date of grant 
but, thereafter, are exercisable for ten years from the date of grant. In 
addition, each eligible director receives an annual grant of stock options 
which is made on the date of the director's election or re-election to the 
Board of Directors. The annual grant is intended to deliver a predetermined 
value, and the number of shares of Common Stock subject to the option is 
determined based on an internal valuation methodology. In 1995 and 1994, each 
eligible director received a stock option to purchase 1,400 shares and 1,180 
shares, respectively, of Common Stock. The annually granted stock options have 
a ten year term and vest over three years (33% on the first and second 
anniversaries of the date of grant and 34% on the third anniversary).

 
                                      F-34
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 13--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED)
 
    On August 1, 1990, the board of directors of RJRN Holdings adopted the 1990
Long Term Incentive Plan (the "1990 LTIP") which was approved on such date by
the written consent of the holders of a majority of the Common Stock. The 1990
LTIP authorizes grants of incentive awards ("Grants") in the form of "incentive
stock options" under Section 422 of the Internal Revenue Code, other stock
options, stock appreciation rights, restricted stock, purchase stock, dividend
equivalent rights, performance units, performance shares or other stock-based
grants. Awards under the 1990 LTIP may be granted to key employees of, or other
persons having a unique relationship to, RJRN Holdings and its subsidiaries.
Directors who are not also employees of RJRN Holdings and its subsidiaries are
ineligible for Grants. A maximum of 21,000,000 shares of Common Stock (which may
be adjusted in the event of certain capital changes) may be issued under the
1990 LTIP pursuant to Grants. The 1990 LTIP also limits the amount of shares
which may be issued pursuant to "incentive stock options" and the amount of
shares subject to Grants which may be issued to any one participant. As of
December 31, 1995, purchase stock, stock options other than incentive stock
options, restricted stock, performance shares, performance units and other
stock-based grants have been granted under the 1990 LTIP. The options granted
before July 1, 1993 under the 1990 LTIP generally will vest over a three year
period ending each December 31. Options granted on and after July 1, 1993, vest
over a three year period beginning from the date of grant. The exercise prices
of outstanding LTIP options are between $22.60 and $57.80 per share. On April
27, 1995, employees of RJRN, RJRT and R.J. Reynolds Tobacco International, Inc.
("Reynolds International") with outstanding stock options under the LTIP and the
Stock Option Plan were permitted to elect to surrender 100% of their outstanding
LTIP and Stock Option Plan stock options (less the stock options permitted to be
exchanged for Nabisco LTIP options, as described below) in exchange for a new
grant of options under the LTIP. Options to purchase 8,389,656 shares of Common
Stock were surrendered and 8,389,656 were reissued pursuant to this program.
These options have an exercise price of $27.00 and are 100% vested but not
exercisable for three years. On April 27, 1995 and on June 13, 1995, certain key
employees were granted premium options to purchase shares of Common Stock. These
options have an exercise price that is 10% above the fair market value on the
date of the grant ($29.70 and $28.88, respectively) and vest over a three year
period. In connection with the purchase stock grants awarded during 1995, 1994
and 1993, 16,529 shares, 0 shares and 124,444 shares, respectively, of Common
Stock were purchased and options to purchase a specified number of shares were
granted upon the optionee purchasing a stated dollar amount of Common Stock. In
addition, an arrangement was made in 1995 to enable a purchaser to borrow on a
secured basis from RJRN Holdings the price of the stock purchased. The current
annual interest rate on the 1995 arrangement, which was set in December 1995 at
the then applicable federal rate for long-term loans, is 6.26%. These borrowings
plus accrued interest and taxes must generally be repaid within two years
following termination of active employment. During 1995 and 1994, 30,000 shares
and 884,100 shares, respectively, of Common Stock were awarded in connection
with restricted stock grants made. These shares are subject to restrictions that
will lapse 3 years from the date of grant (or earlier under certain
circumstances). Other stock-based awards were made in 1995 and 1994 under the
1990 LTIP to individuals who previously acquired certain purchase stock under
the 1990 LTIP. Under this program, such individuals receive grants of Common
Stock or cash at the Company's election on either three or four annual grant
dates beginning July 1994 and ending either July 1, 1996 or July 1, 1997. The
fair market value of Common Stock to be awarded on each grant date is equal to
the excess, if any, of (i) 33% or 25%, respectively, of the maximum amount the
individual could have borrowed to acquire purchase stock, over (ii) the then
fair market value of the same percentage of such individual's purchase stock.
The grant is increased by the amount of presumed borrowing costs and the
 
                                      F-35
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 13--CAPITAL STOCK AND PAID-IN CAPITAL--(CONTINUED)

amount necessary to hold the individual harmless from income taxes due as a
result of the grant. No grant will be made on a grant date if, on such grant
date, the amount determined under clause (ii) above equals or exceeds the amount
determined in clause (i) above.
 
    In connection with the initial public offering of shares of Nabisco Holdings
in January 1995, the board of directors of Nabisco Holdings adopted the Nabisco
Holdings Corp. 1994 Long Term Incentive Plan (the "Nabisco LTIP") which is
substantially similar to the LTIP except that stock-based awards are denominated
in shares of Class A Common Stock of Nabisco Holdings. On January 19, 1995,
January 27, 1995 and March 31, 1995, employees of Nabisco with outstanding
stock options under the LTIP and the Stock Option Plan were permitted to elect
to surrender 100% of their outstanding LTIP and the Stock Option Plan stock
options in exchange for the grant of options under the Nabisco LTIP. Charles M.
Harper, as chairman of the board of directors of Nabisco Holdings, was permitted
to surrender 50% of his outstanding LTIP options on January 19, 1995 in exchange
for Nabisco LTIP options. Options to purchase a total of 5,119,884 shares of
Common Stock were surrendered pursuant to this program. Also on March 31, 1995
and for one employee on June 16, 1995, employees of RJRN with outstanding stock
options under the LTIP and the Stock Option Plan were permitted to elect to
surrender 20% of their outstanding LTIP and Stock Option Plan stock options in
exchange for the grant of options under the Nabisco LTIP. Options to purchase a
total of 103,319 shares of Common Stock were surrendered pursuant to this
program. Also on January 19, 1995, RJRN Holdings purchased one-half of Mr.
Harper's restricted LTIP purchase shares (62,222 shares) at the then fair market
value ($28.125 per share), and he used the proceeds to acquire similarly
restricted shares of Class A Common Stock of Nabisco Holdings.
 
NOTE 14--RETAINED EARNINGS AND CUMULATIVE TRANSLATION ADJUSTMENTS
 
    Retained earnings (accumulated deficit) at December 31, 1995, 1994 and 1993
includes non-cash expenses related to accumulated trademark and goodwill
amortization of $4.280 billion, $3.644 billion and $3.015 billion, respectively.
 
    The changes in cumulative translation adjustments are shown as follows:
 
<TABLE>
<CAPTION>
                                                           YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                          DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                              1995            1994            1993
                                                          ------------    ------------    ------------
<S>                                                       <C>             <C>             <C>
Balance at beginning of period.........................      $ (164)         $ (102)         $  (47)
  Translation and other adjustments....................         (12)            (62)            (55)
                                                             ------          ------          ------
Balance at end of period...............................      $ (176)         $ (164)         $ (102)
                                                             ------          ------          ------
                                                             ------          ------          ------
</TABLE>
 
NOTE 15--RETIREMENT BENEFITS
 
    RJRN and its subsidiaries sponsor a number of non-contributory defined 
benefit pension plans covering most U.S. and certain foreign employees. Plans
covering regular full-time employees in the tobacco operations as well as the
majority of salaried employees in the corporate groups and food operations
provide pension benefits that are based on credits, determined by age, earned
throughout an employee's service and final average compensation before
retirement. Plan benefits are offered as lump sum or annuity options. Plans
covering hourly as well as certain salaried employees in the corporate groups
and food operations
 
                                      F-36
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 15--RETIREMENT BENEFITS--(CONTINUED)

provide pension benefits that are based on the employee's length of service and
final average compensation before retirement. RJRN's policy is to fund the cost
of current service benefits and past service cost over periods not exceeding 30
years to the extent that such costs are currently tax deductible. Additionally,
RJRN and its subsidiaries participate in several (i) multi-employer plans, which
provide benefits to certain union employees, and (ii) defined contribution 
plans, which provide benefits to certain employees in foreign countries. 
Employees in foreign countries who are not U.S. citizens are covered by various 
post-employment benefit arrangements, some of which are considered to be defined
benefit plans for accounting purposes.
 
    A summary of the components of pension expense for RJRN-sponsored plans
follows:
 
<TABLE>
<CAPTION>
                                                             YEAR ENDED     YEAR ENDED     YEAR ENDED
                                                            DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                                1995           1994           1993
                                                            ------------   ------------   ------------
<S>                                                         <C>            <C>            <C>
Defined benefit pension plans:
  Service cost--benefits earned during the period.........     $   69         $   97         $   76
  Interest cost on projected benefit obligation...........        265            256            255
  Less actual return on plan assets.......................       (555)           (17)          (388)
  Net amortization and deferral...........................        308           (245)           122
                                                               ------         ------         ------
      Total...............................................         87             91             65
Multi-employer and other defined contribution plans.......         39             36             32
                                                               ------         ------         ------
      Total pension expense...............................     $  126         $  127         $   97
                                                               ------         ------         ------
                                                               ------         ------         ------
</TABLE>
 
    The principal plans used the following actuarial assumptions for accounting
purposes:
 
<TABLE>
<CAPTION>
                                                  DECEMBER 31,     DECEMBER 31,
                                                      1995             1994
                                                  ------------     ------------
<S>                                               <C>              <C>
Weighted average discount rate.................        7.00%           8.75%
Rate of increase in compensation levels........        5.00%           5.00%
Expected long-term rate of return on assets....        9.50%           9.50%
</TABLE>
 
                                      F-37
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 15--RETIREMENT BENEFITS--(CONTINUED)
 
    The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets at December 31, 1995 and 1994 for RJRN's defined
benefit pension plans.
<TABLE>
<CAPTION>
                                               U.S. PLANS                                          FOREIGN PLANS
                ------------------------------------------------------------------------  --------------------------------
                         DECEMBER 31, 1995                    DECEMBER 31, 1994                  DECEMBER 31, 1995
                -----------------------------------  -----------------------------------  --------------------------------
                  PLANS WHOSE       PLANS WHOSE        PLANS WHOSE       PLANS WHOSE        PLANS WHOSE      PLANS WHOSE
                ASSETS EXCEEDED     ACCUMULATED      ASSETS EXCEEDED     ACCUMULATED      ASSETS EXCEEDED    ACCUMULATED
                  ACCUMULATED    BENEFITS EXCEEDED     ACCUMULATED    BENEFITS EXCEEDED     ACCUMULATED       BENEFITS
                   BENEFITS          ASSETS(1)          BENEFITS          ASSETS(1)          BENEFITS      EXCEEDED ASSETS
                ---------------  ------------------  ---------------  ------------------  ---------------  ---------------
<S>             <C>              <C>                 <C>              <C>                 <C>              <C>
Actuarial
 present value
 of:
 Vested
  benefits.....     $   216            $2,823            $ 2,318             $ 89              $ 154            $ 231
 Non-vested
  benefits.....          16                23                 26                2                  6               30
                      -----             -----              -----              ---                ---              ---
 Accumulated
   benefit
   obligation..         232             2,846              2,344               91                160              261
 Effect of
   future
   salary
   increases...          29               355                252                8                 46               51
                      -----             -----              -----              ---                ---              ---
 Projected
   benefit
   obligation..         261             3,201              2,596               99                206              312
Plan assets at
 fair market
 value.........         254             2,704              2,542               40                178              127
                      -----             -----              -----              ---                ---              ---
Plan assets in
 excess of
 (less than)
 projected
 benefit
 obligation....          (7)             (497)               (54)             (59)               (28)            (185)
Unrecognized
 net (gain)
 loss..........           6               157               (256)              (6)                13               31
Unrecognized
 prior service
 cost..........           1               (15)               (30)              (6)                (6)              21 
                      -----             -----              -----              ---                ---              ---
Net pension
 liabilities
 recognized in
 the
 Consolidated
Balance
 Sheets........     $     0            $ (355)           $  (340)            $(71)             $ (21)           $(133)
                      -----             -----              -----              ---                ---              ---
                      -----             -----              -----              ---                ---              ---
 
<CAPTION>
 
                        DECEMBER 31, 1994
                 --------------------------------
                   PLANS WHOSE      PLANS WHOSE
                 ASSETS EXCEEDED    ACCUMULATED
                   ACCUMULATED       BENEFITS
                    BENEFITS      EXCEEDED ASSETS
                 ---------------  ---------------
<S>             <C>               <C>
Actuarial
 present value
 of:
 Vested
  benefits.....       $ 143            $ 187
 Non-vested
  benefits.....           5               25
                        ---              ---
 Accumulated
   benefit
   obligation..         148              212
 Effect of
   future
   salary
   increases...          39               40
                        ---              ---
 Projected
   benefit
   obligation..         187              252
Plan assets at
 fair market
 value.........         170              106
                        ---              ---
Plan assets in
 excess of
 (less than)
 projected
 benefit
 obligation....         (17)            (146)
Unrecognized
 net (gain)
 loss..........           6               29
Unrecognized
 prior service
 cost..........          (7)              23
                        ---              ---
Net pension
 liabilities
 recognized in
 the
 Consolidated
 Balance
 Sheets........       $ (18)           $ (94)
                        ---              ---
                        ---              ---
</TABLE>
 
------------
 
(1) Of the net pension liability, $(292) million and $2 million were related
    to qualified plans at December 31, 1995 and 1994, respectively.
 
    At December 31, 1995, approximately 97 percent of the plans' assets were
invested in listed stocks and bonds and other highly liquid investments. The
balance consisted of various income producing investments.
 
    In addition to providing pension benefits, RJRN provides certain health care
and life insurance benefits for retired employees and their dependents.
Substantially all of its regular full-time employees, including certain
employees in foreign countries, may become eligible for those benefits if they
reach retirement age while working for RJRN. Effective January 1, 1992, RJRN
adopted Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions ("SFAS No. 106").
Under SFAS No. 106, RJRN is required to accrue the costs for retirees' health
and other postretirement benefits other than pensions and recognize the unfunded
and unrecognized accumulated benefit obligation for these benefits. RJRN had
previously accrued a liability for postretirement benefits other than pensions
and as a result, SFAS No. 106 did not have a material impact on the financial
statements of either RJRN Holdings or RJRN.
 
                                      F-38
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 15--RETIREMENT BENEFITS--(CONTINUED)
 
    Net postretirement health and life insurance benefit cost consisted of the
following:
 
<TABLE>
<CAPTION>
                                                           YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                          DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                              1995            1994            1993
                                                          ------------    ------------    ------------
<S>                                                       <C>             <C>             <C>
Service cost--benefits earned during the period........       $ 18            $ 17            $ 16
Interest cost on accumulated postretirement benefit
  obligation...........................................         62              62              60
                                                               ---             ---             ---
  Net postretirement health care and life insurance
    costs..............................................       $ 80            $ 79            $ 76
                                                               ---             ---             ---
                                                               ---             ---             ---
</TABLE>
 
    RJRN's postretirement health and life insurance benefit plans currently are
not funded. The status of the plans was as follows:
 
<TABLE>
<CAPTION>
                                                                      DECEMBER 31,    DECEMBER 31,
                                                                          1995            1994
                                                                      ------------    ------------
<S>                                                                   <C>             <C>
Actuarial present value of accumulated postretirement benefit
  obligation:
  Retirees.........................................................      $  696           $638
  Fully eligible active plan participants..........................         124             95
  Other active plan participants...................................         255            216
Unrecognized actuarial amounts.....................................         (62)            49
                                                                      ------------       -----
Accrued postretirement health care and life insurance costs........      $1,013           $998
                                                                      ------------       -----
                                                                      ------------       -----
</TABLE>
 
    The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8% in 1995 and 7% in 1996 gradually
declining to 5% by the year 2000 and remaining at that level thereafter. A one
percentage point increase in the assumed health care cost trend rate for each
year would increase the accumulated postretirement benefit obligation as of
December 31, 1995 and the aggregate of the service and interest cost components
of the net postretirement benefit cost for the year then ended by approximately
$54.5 million and $4.7 million, respectively.
 
    The assumed discount rate used in determining the accumulated postretirement
benefit obligation was 7% and 8.75% as of December 31, 1995 and 1994,
respectively.
 
    Effective January 1, 1993, RJRN adopted Statement of Financial Accounting
Standards No. 112, Employers' Accounting for Postemployment Benefits ("SFAS No.
112"). Under SFAS No. 112, RJRN is required to accrue the costs for
preretirement postemployment benefits provided to former or inactive employees
and recognize an obligation for these benefits. The adoption of SFAS No. 112 did
not have a material impact on the financial statements of either RJRN Holdings
or RJRN.
 
                                      F-39
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 16--SEGMENT INFORMATION
 
  Industry Segment Data
 
    RJRN is engaged principally in the manufacture, distribution and sale of
tobacco products, cookies, crackers and other food products. Cigarettes are
manufactured in the United States by RJRT and in over 40 foreign countries and
territories by Reynolds International and subsidiaries or licensees of RJRT and
are sold throughout the United States and in more than 170 markets around the
world including Western Europe, the Middle East, Africa, Asia and Canada. RJRN,
through its 80.5% owned subsidiary Nabisco Holdings, also manufactures and
markets cookies, crackers, non-chocolate candy and gum products, nuts and
snacks, various margarines and spreads and other specialty products under
several brand names in the United States, Canada, Europe, Asia and Latin
America. See the Management's Discussion and Analysis of Financial Condition and
Results of Operations, appearing elsewhere herein, for further discussion of
RJRN's operations. Summarized financial information for these operations is
shown in the following tables.
 
<TABLE>
<CAPTION>
                                                           YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                          DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                              1995            1994            1993
                                                          ------------    ------------    ------------
<S>                                                       <C>             <C>             <C>
Net sales:
  Tobacco..............................................     $  7,714        $  7,667        $  8,079
  Food.................................................        8,294           7,699           7,025
                                                          ------------    ------------    ------------
    Consolidated net sales.............................     $ 16,008        $ 15,366        $ 15,104
                                                          ------------    ------------    ------------
                                                          ------------    ------------    ------------
Operating income:
  Tobacco(1)(2)........................................     $  1,500        $  1,801        $    866
  Food(1)(2)...........................................          902             887             578
  Headquarters (2).....................................          (64)           (138)            (66)
                                                          ------------    ------------    ------------
    Consolidated operating income......................     $  2,338        $  2,550        $  1,378
                                                          ------------    ------------    ------------
                                                          ------------    ------------    ------------
Capital expenditures:
  Tobacco..............................................     $    231        $    215        $    224
  Food.................................................          513             455             391
                                                          ------------    ------------    ------------
    Consolidated capital expenditures..................     $    744        $    670        $    615
                                                          ------------    ------------    ------------
                                                          ------------    ------------    ------------
Depreciation expense:
  Tobacco..............................................     $    236        $    228        $    237
  Food.................................................          244             218             206
  Headquarters.........................................            2               8               5
                                                          ------------    ------------    ------------
    Consolidated depreciation expense..................     $    482        $    454        $    448
                                                          ------------    ------------    ------------
                                                          ------------    ------------    ------------
</TABLE>
 
<TABLE>
<CAPTION>
Assets:                                                    DECEMBER 31, 1995      DECEMBER 31, 1994
                                                           -----------------      -----------------
<S>                                                        <C>                    <C>
  Tobacco.............................................          $19,226                $19,420
  Food................................................           12,239                 11,803
  Headquarters(3).....................................               53                    185
                                                               --------               --------
    Consolidated assets...............................          $31,518                $31,408
                                                               --------               --------
                                                               --------               --------
</TABLE>
 
------------
 
(1) Includes amortization of trademarks and goodwill for Tobacco and Food for
    the year ended December 31, 1995, of $409 million and $227 million,
    respectively; for the year ended December 31, 1994, of $404 million and $225
    million, respectively; and for the year ended December 31, 1993, of $407
    million and $218 million, respectively.
 
                                         (Footnotes continued on following page)
 
                                      F-40
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 16--SEGMENT INFORMATION--(CONTINUED)
 
(Footnotes continued from preceding page)
(2) The 1995 and 1993 amounts include the effects of a restructuring expense at
    Tobacco (1995-- $154 million; 1993--$544 million), Food (1993--$153 million)
    and Headquarters (1993--$33) (See Note 2 to the Consolidated Financial
    Statements).
 
(3) Cash and cash equivalents for the domestic tobacco operations are included 
    in Headquarters' assets.
 
  Geographic Data
 
    The following tables show certain financial information relating to RJRN's
continuing operations in various geographic areas.
 
<TABLE>
<CAPTION>
                                                           YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                          DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                              1995            1994            1993
                                                          ------------    ------------    ------------
<S>                                                       <C>             <C>             <C>
Net sales:
  United States (including U.S. export sales)..........     $ 11,295        $ 11,144        $ 11,570
  Europe...............................................        2,184           1,934           1,671
  Other geographic areas...............................        3,261           3,039           2,794
  Less transfers between geographic areas(1)...........         (732)           (751)           (931)
                                                          ------------    ------------    ------------
    Consolidated net sales.............................     $ 16,008        $ 15,366        $ 15,104
                                                          ------------    ------------    ------------
                                                          ------------    ------------    ------------
Operating income:(2)
  United States........................................     $  1,749        $  2,090        $  1,211
  Europe...............................................          299             272              40
  Other geographic areas...............................          354             326             193
  Headquarters.........................................          (64)           (138)            (66)
                                                          ------------    ------------    ------------
    Consolidated operating income(3)...................     $  2,338        $  2,550        $  1,378
                                                          ------------    ------------    ------------
                                                          ------------    ------------    ------------
</TABLE>
 
<TABLE>
<CAPTION>
                                                           DECEMBER 31, 1995      DECEMBER 31, 1994
                                                           -----------------      -----------------
<S>                                                        <C>                    <C>
Assets:
  United States.........................................        $25,606                $26,447
  Europe................................................          2,663                  2,141
  Other geographic areas................................          3,171                  2,749
  Headquarters..........................................             78                     71
                                                               --------               --------
    Consolidated assets.................................        $31,518                $31,408
                                                               --------               --------
                                                               --------               --------
Liabilities of RJRN Holdings' operations located in
  foreign countries.....................................        $ 2,100                $ 1,725
                                                               --------               --------
                                                               --------               --------
</TABLE>
 
------------
 
(1) Transfers between geographic areas (which consist principally of tobacco
    transferred principally from the United States to Europe) are generally made
    at fair market value.
 
(2) The 1995 and 1993 amounts include the effects of restructuring expenses of
    $154 million and $730 million, respectively (see Note 2 to the Consolidated
    Financial Statements).
 
(3) Includes amortization of trademarks and goodwill of $636 million, $629
    million and $625 million for the 1995, 1994 and 1993 periods, respectively.
 
                                      F-41
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 17--CONDENSED FINANCIAL INFORMATION OF NABISCO HOLDINGS CORP.
 
    The food segment of RJRN Holdings is conducted through the operating
subsidiaries of Nabisco Holdings. Nabisco Holdings' domestic operations consist
of Nabisco Biscuit, Specialty Products, LifeSavers, Planters, Food Service and
Fleischmann's Companies (the "Domestic Food Group"). Nabisco Holdings'
operations outside the United States consists of Nabisco International, Inc. and
Nabisco Ltd (collectively, the "International Food Group").
 
    Consolidated condensed financial information of Nabisco Holdings at December
31, 1995 and 1994, and for each of the years in the three year period ended
December 31, 1995 is as follows:
 
NABISCO HOLDINGS CORP.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
 
(DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                            YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                           DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                               1995            1994            1993
                                                           ------------    ------------    ------------
<S>                                                        <C>             <C>             <C>
NET SALES
  Domestic Food Group...................................      $6,020          $5,729          $5,491
  International Food Group..............................       2,274           1,970           1,534
                                                              ------          ------          ------
                                                               8,294           7,699           7,025
                                                              ------          ------          ------
Costs and expenses:
  Costs of products sold................................       4,776           4,295           3,831
  Selling, advertising, administrative and general
    expenses............................................       2,389           2,292           2,245
Amortization of trademarks and goodwill.................         227             225             218
Restructuring expense...................................          --              --             153
                                                              ------          ------          ------
    OPERATING INCOME....................................         902             887             578
Interest expense........................................        (349)           (376)           (416)
Other income (expense), net.............................         (17)            (20)            (19)
                                                              ------          ------          ------
    Income before income taxes..........................         536             491             143
Provision for income taxes..............................         222             224              51
                                                              ------          ------          ------
    INCOME BEFORE EXTRAORDINARY ITEM....................         314             267              92
Extraordinary item--loss on early extinguishment of
  debt, net of income taxes.............................         (19)             --              --
                                                              ------          ------          ------
    NET INCOME..........................................      $  295          $  267          $   92
                                                              ------          ------          ------
                                                              ------          ------          ------
</TABLE>
 
                                      F-42
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 17--CONDENSED FINANCIAL INFORMATION OF NABISCO HOLDINGS CORP.--(CONTINUED)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
 
(DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                           YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                          DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                              1995            1994            1993
                                                          ------------    ------------    ------------
<S>                                                       <C>             <C>             <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES...............        $ 657           $ 499          $ 539
                                                          ------------    ------------       ------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
  Capital expenditures.................................         (513)           (455)          (391)
  Acquisitions of businesses...........................         (291)           (449)          (128)
  Divestitures of businesses...........................          162              --            463
  Other, net...........................................           14              18             15
                                                          ------------    ------------       ------
      Net cash flows used in investing activities......         (628)           (886)           (41)
                                                          ------------    ------------       ------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
  Increase (decrease) in notes payable.................           27             (52)            --
  Repayment of intercompany debt, net..................       (2,361)             --             --
  Net proceeds from the issuance of commercial paper...        1,284              --             --
  Proceeds from issuance of other long-term debt.......        1,587           1,353              8
  Changes in intercorporate indebtedness, net..........           --             570           (265)
  Repayments of other long-term debt...................       (1,817)            (12)           (35)
  Net proceeds from issuance of common stock...........        1,201              --             --
  Dividends paid on common stock.......................          (73)             --             --
  Dividends and distributions to parent................           --          (1,338)            --
  Other................................................           --              --           (130)
                                                          ------------    ------------       ------
      Net cash flows from (used in) financing
        activities.....................................         (152)            521           (422)
                                                          ------------    ------------       ------
Effect of exchange rate changes on cash and cash
  equivalents..........................................           (1)             (1)            (2)
                                                          ------------    ------------       ------
      Net change in cash and cash equivalents..........     $   (124)       $    133         $   74
Cash and cash equivalents at beginning of period.......          245             112             38
                                                          ------------    ------------       ------
Cash and cash equivalents at end of period.............     $    121        $    245         $  112
                                                          ------------    ------------       ------
                                                          ------------    ------------       ------
</TABLE>
 
                                      F-43
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 17--CONDENSED FINANCIAL INFORMATION OF NABISCO HOLDINGS CORP.--(CONTINUED)
CONSOLIDATED CONDENSED BALANCE SHEETS
 
(DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                      DECEMBER 31,    DECEMBER 31,
                                                                          1995            1994
                                                                      ------------    ------------
<S>                                                                   <C>             <C>
ASSETS
Current assets:
  Cash and cash equivalents........................................     $    121        $    245
  Accounts and notes receivable, net...............................          523             346
  Deferred income taxes............................................           64              83
  Inventories......................................................          865             783
  Prepaid expenses.................................................           51              42
                                                                      ------------    ------------
    TOTAL CURRENT ASSETS...........................................        1,624           1,499
                                                                      ------------    ------------
Property, plant and equipment, net.................................        3,132           2,873
Trademarks, net....................................................        3,977           4,088
Goodwill, net......................................................        3,477           3,380
Other assets and deferred charges..................................           93              46
                                                                      ------------    ------------
    TOTAL ASSETS...................................................     $ 12,303        $ 11,886
                                                                      ------------    ------------
                                                                      ------------    ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Notes payable....................................................     $     76        $     37
  Accounts payable.................................................          511             356
  Accrued liabilities..............................................          882             783
  Intercompany payable with RJRN...................................           --              78
  1994 Nabisco Credit Agreement....................................           --           1,350
  Current maturities of long-term debt*............................           24             310
  Income taxes accrued.............................................          131              48
                                                                      ------------    ------------
    TOTAL CURRENT LIABILITIES......................................        1,624           2,962
                                                                      ------------    ------------
Long-term debt (less current maturities)*..........................        4,355           3,943
Other noncurrent liabilities.......................................          724             772
Deferred income taxes..............................................        1,356           1,329
Stockholders' equity...............................................        4,244           2,880
                                                                      ------------    ------------
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.....................     $ 12,303        $ 11,886
                                                                      ------------    ------------
                                                                      ------------    ------------
</TABLE>
--------------

* The 1994 amounts for current and non-current maturities of long-term debt 
  include intercompany indebtedness with RJRN or one of its subsidiaries of 
  approximately $297 million and $3.8 billion, respectively.



                                      F-44
<PAGE>
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
NOTE 18--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
 
    The following is a summary of the quarterly results of operations and per
share data for RJRN Holdings for the quarterly periods of 1995 and 1994:
 
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                              FIRST     SECOND    THIRD     FOURTH
                                                              ------    ------    ------    ------
<S>                                                           <C>       <C>       <C>       <C>
1995
  Net sales.................................................  $3,540    $4,081    $4,063    $4,324
  Operating income..........................................     620       644       641       433
  Income before extraordinary item..........................     198       153       232        44
  Net income................................................     198       153       216        44
  Per share data: (1)                              
    Income before extraordinary item........................  $  .51    $  .37    $  .61    $  .10
    Net income..............................................     .51       .37       .56       .10
    Common Stock dividends declared.........................      --      .375      .375      .375
    Market price of Common Stock............................
      --high................................................  32 1/2    31 1/4    33 1/4    33 3/8
      --low.................................................      25    25 1/4    26 3/8    27 7/8
</TABLE>
 
<TABLE>
<CAPTION>
                                                              FIRST     SECOND    THIRD     FOURTH
                                                              ------    ------    ------    ------
<S>                                                           <C>       <C>       <C>       <C>
1994
  Net sales.................................................  $3,572    $3,784    $3,966    $4,044
  Operating income..........................................     632       675       678       565
  Income before extraordinary item..........................     194       192       216       162
  Net income................................................     195        46       216        62
  Per share data: (1)
    Income before extraordinary item........................  $  .12    $  .11    $  .11    $  .08
    Net income..............................................     .12       .01       .11       .02
    Market price of Common Stock............................
      --high................................................  40 5/8        35    35 5/8    36 1/4
                                                                                                26
      --low.................................................  28 1/8    27 1/2    28 1/8      9/16
</TABLE>
 
------------
 
(1) Earnings per share is computed independently for each of the periods
    presented; therefore, the sum of the earnings per share amounts for the
    quarters may not equal the total for the year.
 
                          ----------------------------
 
                                      F-45
<PAGE>
                                                                      SCHEDULE I
 
                           RJR NABISCO HOLDINGS CORP.
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
              CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                           YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                          DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                              1995            1994            1993
                                                          ------------    ------------    ------------
<S>                                                       <C>             <C>             <C>
Administrative expenses................................     $     --        $    (12)       $     (8)
Interest and debt expense..............................          (29)             --             (23)
Other income (expense), net............................            2              11              30
                                                          ------------    ------------    ------------
      Loss before income taxes.........................          (27)             (1)             (1)
Benefit for income taxes...............................          (15)             (3)             (2)
                                                          ------------    ------------    ------------
      Income (loss) before equity in income (loss) from
        subsidiaries...................................          (12)              2               1
Equity in income (loss) from subsidiaries, net of
  income taxes.........................................          639             762              (4)
                                                          ------------    ------------    ------------
      Income (loss) before extraordinary item..........          627             764              (3)
Extraordinary item--loss on early extinguishments of
  debt, net of income taxes (including equity in
  extraordinary losses from subsidiaries of $16 and
  $135 for 1995 and 1993, respectively)................          (16)           (245)           (142)
                                                          ------------    ------------    ------------
      Net income (loss)................................          611             519            (145)
Less preferred stock dividends.........................          110             131              68
                                                          ------------    ------------    ------------
      Net income (loss) applicable to common stock.....          501             388            (213)
Retained earnings (accumulated deficit) at beginning of
  period...............................................         (364)           (883)           (738)
Common stock and other dividends.......................         (569)           (262)           (178)
Amounts reclassified to paid-in capital................          432             393             246
                                                          ------------    ------------    ------------
Retained earnings (accumulated deficit) at end of
  period...............................................     $     --        $   (364)       $   (883)
                                                          ------------    ------------    ------------
                                                          ------------    ------------    ------------
</TABLE>
 
                 See Notes to Condensed Financial Information.
 
                                      S-1
<PAGE>
                                                                      SCHEDULE I
 
                           RJR NABISCO HOLDINGS CORP.
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                       CONDENSED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                           YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                          DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                              1995            1994            1993
                                                          ------------    ------------    ------------
<S>                                                       <C>             <C>             <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
  Net income (loss)....................................     $    611        $    519        $   (145)
                                                          ------------    ------------    ------------
  Adjustments to reconcile net income (loss) to net
    cash flows from (used in) operating activities:
    Deferred income tax provision......................            1              62              69
    Non-cash interest and debt expense.................           --              --              22
    Extraordinary item--loss on early extinguishments
      of debt..........................................           --              --              10
    Equity in (income) loss from subsidiaries,
      net of income taxes..............................         (623)           (517)            139
    Other, net.........................................          (23)            (29)             70
                                                          ------------    ------------    ------------
        Total adjustments..............................         (645)           (484)            310
                                                          ------------    ------------    ------------
    Net cash flows from (used in) operating
      activities.......................................          (34)             35             165
                                                          ------------    ------------    ------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
  Dividends received from subsidiary...................          267              42              48
  Investment in subsidiary.............................           --          (1,680)         (1,214)
                                                          ------------    ------------    ------------
    Net cash flows from (used in) investing
      activities.......................................          267          (1,638)         (1,166)
                                                          ------------    ------------    ------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES (NOTE
  A):
  Repayments of long-term debt.........................           --              --            (548)
  Proceeds from issuance of Common Stock...............           13              54               9
  Proceeds from issuance of Series B Preferred Stock...           --              --           1,250
  Proceeds from issuance of Series C Preferred Stock...           --           1,734              --
  Dividends paid on Common Stock.......................         (307)             --              --
  Dividends paid on Series A Preferred Stock...........           --            (175)           (175)
  Dividends paid on Series B Preferred Stock...........          (97)           (116)            (33)
  Dividends paid on Series C Preferred Stock...........         (160)            (85)             --
  Dividends paid on ESOP Preferred Stock...............          (19)            (19)            (20)
  Dividends paid on redeemable Convertible Preferred
    Stock..............................................           --              --             (13)
  Repurchase of preferred stock........................           --              (3)           (105)
  Repurchases and cancellations of common stock and
    stock options......................................           (2)             (1)             (1)
  Retirement of ESOP preferred stock...................           (5)             (4)             (1)
  Financing and advisory fees paid.....................           --             (54)            (39)
  Other, net--including intercompany transfers.........          332             276             684
                                                          ------------    ------------    ------------
    Net cash flows from (used in) financing
      activities.......................................         (245)          1,607           1,008
                                                          ------------    ------------    ------------
    Net change in cash and cash equivalents............          (12)              4               7
Cash and cash equivalents at beginning of period.......           14              10               3
                                                          ------------    ------------    ------------
Cash and cash equivalents at end of period.............     $      2        $     14        $     10
                                                          ------------    ------------    ------------
                                                          ------------    ------------    ------------
</TABLE>
 
                 See Notes to Condensed Financial Information.
 
                                      S-2
<PAGE>
                                                                      SCHEDULE I
 
                           RJR NABISCO HOLDINGS CORP.
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            CONDENSED BALANCE SHEETS
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                      DECEMBER 31,    DECEMBER 31,
                                                                          1995            1994
                                                                      ------------    ------------
<S>                                                                   <C>             <C>
ASSETS
Current assets:
  Cash and cash equivalents........................................     $      2        $     14
  Accounts and notes receivable, net...............................            7              --
                                                                      ------------    ------------
        TOTAL CURRENT ASSETS.......................................            9              14
                                                                      ------------    ------------
Investment in subsidiary...........................................       12,182          11,410
Other assets and deferred charges..................................            1               1
                                                                      ------------    ------------
                                                                        $ 12,192        $ 11,425
                                                                      ------------    ------------
                                                                      ------------    ------------
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued liabilities.........................     $    159        $     44
                                                                      ------------    ------------
        TOTAL CURRENT LIABILITIES..................................          159              44
                                                                      ------------    ------------
Intercompany payable, net..........................................          651             399
Deferred income taxes..............................................           70              74
Junior Subordinated Debentures (Note B)............................          983              --
Commitments and contingencies (Note C)
Stockholders' equity (Note D):
  ESOP convertible preferred stock--14,990,677 and 15,315,130
    shares issued and outstanding at December 31, 1995 and 1994,
    respectively...................................................          240             245
  Series B preferred stock--12,044 and 50,000 shares issued and
    outstanding at December 31, 1995 and 1994, respectively........          301           1,250
  Series C convertible preferred stock--26,675,000 shares issued
    and outstanding at December 31, 1995 and 1994..................            3               3
  Common stock--272,807,942 and 272,331,377 shares issued and
    outstanding at December 31, 1995 and 1994, respectively........            3               3
  Paid-in capital..................................................       10,110          10,157
  Cumulative translation adjustments...............................         (176)           (164)
  Retained earnings (accumulated deficit)..........................           --            (364)
  Receivable from ESOP.............................................         (137)           (186)
  Loans receivable from employees..................................           (7)            (14)
  Unamortized value of restricted stock............................           (8)            (22)
                                                                      ------------    ------------
        TOTAL STOCKHOLDERS' EQUITY.................................       10,329          10,908
                                                                      ------------    ------------
                                                                        $ 12,192        $ 11,425
                                                                      ------------    ------------
                                                                      ------------    ------------
</TABLE>
 
                 See Notes to Condensed Financial Information.
 
                                      S-3
<PAGE>
                                                                      SCHEDULE I
 
                           RJR NABISCO HOLDINGS CORP.
          SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                    NOTES TO CONDENSED FINANCIAL INFORMATION
 
NOTE A--SUPPLEMENTAL CASH FLOWS
INFORMATION
 
    For information regarding certain non-cash financing activities, see Notes
11 and 13 to the Consolidated Financial Statements.
 
NOTE B--JUNIOR SUBORDINATED DEBENTURES
 
    On September 21, 1995, RJRN Holdings issued approximately $978 million
aggregate principal amount of its Junior Subordinated Debentures to the Trust.
The Trust, in turn, exchanged approximately $949 million of its Trust Preferred
Securities for 37,956,060 of the 50,000,000 Series B Depositary Shares 
outstanding, each representing one-tenth of a share of the 50,000 outstanding 
shares of Series B Preferred Stock. RJRN Holdings retired the exchanged shares,
leaving 12,043.94 shares of the Series B Preferred Stock outstanding. See Note 
11 to the Consolidated Financial Statements for additional information regarding
this transaction.
 
    The obligations of RJRN Holdings under the Junior Subordinated Debentures
are unsecured obligations and will be subordinate and junior in right of payment
to all senior indebtedness of RJRN Holdings, but senior to all future stock
issuances and to any future guarantee entered into by RJRN Holdings in respect
of its capital stock. As of December 31, 1995, RJRN Holdings had no senior
indebtedness other than its guarantee of RJRN's obligations under the New RJRN
Credit Agreements. The payment of distributions out of moneys held by the Trust
and payments on liquidation of the Trust and the redemption of Trust Preferred
Securities are guaranteed by RJRN Holdings on a subordinated basis. RJRN
Holdings' guarantee is subordinate and junior in right of payment to any senior
indebtedness of RJRN Holdings and to the Junior Subordinated Debentures, and
senior to all capital stock now or hereafter issued by RJRN Holdings and to any
guarantee now or hereafter entered into by RJRN Holdings in respect of its
capital stock.
 
    Interest on the Junior Subordinated Debentures is payable quarterly in
arrears. RJRN Holdings has the right to extend the interest payment period under
certain circumstances. RJRN Holdings has the right to redeem the Junior
Subordinated Debentures, in whole or in part, on or after August 19, 1998, upon
not less than 30 nor more than 60 days notice. Certain covenants of RJRN
Holdings applicable to the Junior Subordinated Debentures limit the ability of
RJRN Holdings to declare or pay any dividends on, or redeem, purchase, acquire
or make a distribution or liquidation payment with respect to any of its common
or preferred stock, or make any guarantee payment, if RJRN Holdings is in
default of any of its payments or guarantees with respect to the Junior
Subordinated Debentures.
 
NOTE C--COMMITMENTS AND CONTINGENCIES
 
    RJRN Holdings has guaranteed the indebtedness of RJRN under the New RJRN
Credit Agreements.
 
    For disclosure of additional contingent liabilities, see Note 12 to the
Consolidated Financial Statements.
 
NOTE D--STOCKHOLDERS' EQUITY
 
    RJRN Holdings' stockholders approved a one-for-five reverse split of the
Common Stock on April 12, 1995. For additional information, see Note 13 to the
Consolidated Financial Statements.
 
                                      S-4
<PAGE>
                                                                      SCHEDULE I
 
                               RJR NABISCO, INC.
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
              CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                           YEAR ENDED      YEAR ENDED      YEAR ENDED
                                                          DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                              1995            1994            1993
                                                          ------------    ------------    ------------
<S>                                                       <C>             <C>             <C>
Administrative expenses................................     $      1        $    (99)       $     (7)
Restructuring expense..................................           --              --             (33)
Interest and debt expense..............................         (614)         (1,009)         (1,105)
Other income (expense), net............................          922           1,153           1,391
                                                          ------------    ------------    ------------
      Income before income taxes.......................          309              45             246
Provision (benefit) for income taxes...................           80             (17)             40
                                                          ------------    ------------    ------------
Income before equity in income (loss) from
  subsidiaries.........................................          229              62             206
Equity in income (loss) from subsidiaries, net of
  income taxes.........................................          409             700            (210)
                                                          ------------    ------------    ------------
      Income (loss) before extraordinary item..........          638             762              (4)
Extraordinary item-loss on early extinguishments of
  debt net of income taxes (including equity in
  extraordinary losses from subsidiary of $16 million
  for 1995.............................................          (16)           (245)           (135)
                                                          ------------    ------------    ------------
Net income (loss)......................................          622             517            (139)
Retained earnings (accumulated deficit) at beginning of
  period...............................................           16            (459)           (320)
Dividends paid to parent and charged to retained 
  earnings ............................................         (267)            (42)             --
                                                          ------------    ------------    ------------
Retained earnings (accumulated deficit) at end of
  period...............................................     $    371        $     16        $   (459)
                                                          ------------    ------------    ------------
                                                          ------------    ------------    ------------
</TABLE>
 
                 See Notes to Condensed Financial Information.
 
                                      S-5
<PAGE>
                                                                      SCHEDULE I
 
                               RJR NABISCO, INC.
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                       CONDENSED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                       YEAR ENDED       YEAR ENDED        YEAR ENDED
                                                      DECEMBER 31,     DECEMBER 31,      DECEMBER 31,
                                                          1995             1994              1993
                                                      ------------   -----------------   ------------
<S>                                                   <C>            <C>                 <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
  Net income (loss).................................    $    622          $   517          $   (139)
                                                      ------------        -------        ------------
  Adjustments to reconcile net income (loss) to net
    cash flows from (used in) operating activities:
    Deferred income tax provision (benefit).........        (146)             (56)             (154)
    Non-cash interest and debt expense..............          13              117               264
    Extraordinary item-loss on early extinguishments
      of debt.......................................          29              377               208
    Equity in (income) loss from subsidiaries,
      net of income taxes...........................        (409)            (700)              210
    Other, net......................................        (301)            (375)             (107)
                                                      ------------        -------        ------------
        Total adjustments...........................        (814)            (637)              421
                                                      ------------        -------        ------------
    Net cash flows from (used in) operating
      activities....................................        (192)            (120)              282
                                                      ------------        -------        ------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
  Capital expenditures..............................          --               (1)               (1)
                                                      ------------        -------        ------------
    Net cash flows used in investing activities.....          --               (1)               (1)
                                                      ------------        -------        ------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES (NOTE
  A):
  Net borrowings (repayments) under the credit
     agreements....................................      (1,750)           1,561            (2,614)
  Net proceeds from the issuance (repayment) of
    commercial paper................................        (640)             (49)              342
  Proceeds from issuance of other long-term debt....         666               --             1,942
  Repayments of long-term debt......................        (800)          (4,648)           (1,376)
  Financing and advisory fees paid..................         (29)              (6)               (9)
  Dividends paid to parent..........................        (267)             (42)              (48)
  Other, net--including intercompany transfers......       2,977            3,294             1,518
                                                      ------------        -------        ------------
    Net cash flows from (used in) financing
      activities....................................         157              110              (245)
                                                      ------------        -------        ------------
 
    Net change in cash and cash equivalents.........         (35)             (11)               36
Cash and cash equivalents at beginning of period....          40               51                15
                                                      ------------        -------        ------------
Cash and cash equivalents at end of period..........    $      5          $    40          $     51
                                                      ------------        -------        ------------
                                                      ------------        -------        ------------
</TABLE>
 
                 See Notes to Condensed Financial Information.
 
                                      S-6
<PAGE>
                                                                      SCHEDULE I
 
                               RJR NABISCO, INC.
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            CONDENSED BALANCE SHEETS
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                      DECEMBER 31,    DECEMBER 31,
                                                                          1995            1994
                                                                      ------------    ------------
<S>                                                                   <C>             <C>
ASSETS
Current assets:
  Cash and cash equivalents........................................     $      5        $     40
  Accounts and notes receivable....................................           81              13
  Prepaid expenses.................................................            2               2
                                                                      ------------    ------------
        TOTAL CURRENT ASSETS.......................................           88              55
                                                                      ------------    ------------
Intercompany receivable, net.......................................       11,944          12,875
Investment in subsidiaries.........................................        5,962           8,794
Property, plant and equipment, net.................................            8              11
Other assets and deferred charges..................................           86             147
                                                                      ------------    ------------
                                                                        $ 18,088        $ 21,882
                                                                      ------------    ------------
                                                                      ------------    ------------
 
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
  Accounts payable and accrued liabilities.........................     $    264        $    346
  Current maturities of long-term debt.............................          117             600
  Income taxes accrued.............................................           36              74
                                                                      ------------    ------------
        TOTAL CURRENT LIABILITIES..................................          417           1,020
                                                                      ------------    ------------
Long-term debt (less current maturities)...........................        4,945           8,683
Other noncurrent liabilities.......................................           16              62
Deferred income taxes..............................................          557             707
Commitments and contingencies (Note B).............................
Stockholder's equity:
  Paid-in capital..................................................       11,958          11,558
  Cumulative translation adjustments...............................         (176)           (164)
  Retained earnings................................................          371              16
                                                                      ------------    ------------
        TOTAL STOCKHOLDER'S EQUITY.................................       12,153          11,410
                                                                      ------------    ------------
                                                                        $ 18,088        $ 21,882
                                                                      ------------    ------------
                                                                      ------------    ------------
</TABLE>
 
                 See Notes to Condensed Financial Information.
 
                                      S-7
<PAGE>
                                                                      SCHEDULE I
 
                               RJR NABISCO, INC.
          SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                    NOTES TO CONDENSED FINANCIAL INFORMATION
 
NOTE A--SUPPLEMENTAL CASH FLOWS
INFORMATION
 
    For information regarding certain non-cash financing activities, see Notes
11 and 13 to the Consolidated Financial Statements.
 
NOTE B--COMMITMENTS AND CONTINGENCIES
 
    For disclosure of contingent liabilities, see Note 12 to the Consolidated
Financial Statements.
 
                                      S-8
<PAGE>
                                                                     SCHEDULE II
 
                           RJR NABISCO HOLDINGS CORP.
                               RJR NABISCO, INC.
                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
                             (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
  COLUMN A                                     COLUMN B           COLUMN C           COLUMN D      COLUMN E
-------------------------------------------------------------------------------------------
                                                                 ADDITIONS
                                                            --------------------
                                                              (1)         (2)
                                                            CHARGED     CHARGED
                                              BALANCE AT    TO COSTS    TO OTHER                  BALANCE AT
                                              BEGINNING       AND       ACCOUNTS    DEDUCTIONS      END OF
                DESCRIPTION                   OF PERIOD     EXPENSES      (A)          (B)        PERIOD(C)
<S>                                           <C>           <C>         <C>         <C>           <C>
-------------------------------------------------------------------------------------------
 
Those valuation and qualifying accounts
 which are deducted in the balance sheet
 from the assets to which they apply:
 
Year ended December 31, 1995:
  For discounts and doubtful accounts......      $ 63         $  8        $ --         $(23)         $ 48
  Other assets.............................        53           33           2          (45)           43
                                                -----          ---         ---        -----         -----
                                                 $116         $ 41        $  2         $(68)         $ 91
                                                -----          ---         ---        -----         -----
                                                -----          ---         ---        -----         -----
 
Year ended December 31, 1994:
  For discounts and doubtful accounts......      $ 59         $ 16        $  1         $(13)         $ 63
  Other assets.............................        46           34           8          (35)           53
                                                -----          ---         ---        -----         -----
                                                 $105         $ 50        $  9         $(48)         $116
                                                -----          ---         ---        -----         -----
                                                -----          ---         ---        -----         -----
Year ended December 31, 1993:
  For discounts and doubtful accounts......      $ 84         $ 23        $  8         $(56)         $ 59
  Other assets.............................        38           26          --          (18)           46
                                                -----          ---         ---        -----         -----
                                                 $122         $ 49        $  8         $(74)         $105
                                                -----          ---         ---        -----         -----
                                                -----          ---         ---        -----         -----
</TABLE>
 
------------
 
 (A)  Miscellaneous adjustments.
 (B)  Principally charges against the accounts.
 (C)  Excludes valuation allowance accounts for deferred tax assets.
 
                                      S-9
<PAGE>
                                 EXHIBIT INDEX

 EXHIBIT
   NO.
---------


<TABLE>
<C>         <S>                                                                       <C>
  3.1       Amended and Restated Certificate of Incorporation of RJR Nabisco
            Holdings Corp., filed October 1, 1990 (incorporated by reference to
            Exhibit 3.1 to Amendment No. 4, filed on October 2, 1990, to the
            Registration Statement on Form S-4 of RJR Nabisco Holdings Corp.,
            Registration No. 33-36070, filed on July 25, 1990, as amended (the
            "Form S-4, Registration No. 33-36070")).

  3.1(a)    Certificate of Amendment to Amended and Restated Certificate of
            Incorporation of RJR Nabisco Holdings Corp., filed January 29, 1991
            (incorporated by reference to Exhibit 3.1(a) to Amendment No. 3, filed
            on January 31, 1991, to the Registration Statement on Form S-4 of RJR
            Nabisco Holdings Corp., Registration No. 33-38227).

  3.1(b)    Certificate of Designation of ESOP Convertible Preferred Stock, filed
            April 10, 1991 (incorporated by reference to Exhibit 3.1(b) to
            Amendment No. 2, filed on April 11, 1991, to the Registration Statement
            on Form S-1 of RJR Nabisco Holdings Corp., Registration No. 33-39532,
            filed on March 20, 1991).

  3.1(c)    Certificate of Designation of Series A Conversion Preferred Stock,
            filed November 7, 1991 (incorporated by reference to Exhibit 3.1(c) to
            Amendment No. 3, filed on November 1, 1991, to the Registration
            Statement on Form S-1 of RJR Nabisco Holdings Corp., Registration No.
            33-43137, filed October 2, 1991 (the "Form S-1, Registration No.
            33-43137")).

  3.1(d)    Certificate of Amendment to Amended and Restated Certificate of
            Incorporation of RJR Nabisco Holdings Corp., filed December 16, 1991
            (incorporated by reference to Exhibit 3.1(d) of the Annual Report on
            Form 10-K of RJR Nabisco Holdings Corp., RJR Nabisco Holdings Group,
            Inc., RJR Nabisco Capital Corp. and RJR Nabisco, Inc. for the fiscal
            year ended December 31, 1991, File Nos. 1-10215, 1-10214, 1-10248 and
            1-6388 (the "1991 Form 10-K")).

  3.1(e)    Certificate of Amendment to the Amended and Restated Certificate of
            Incorporation of RJR Nabisco Holdings Corp., filed April 6, 1993
            (incorporated by reference to Exhibit 3.3 of the Quarterly Report on
            Form 10-Q of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. for the
            fiscal quarter ended March 31, 1993, filed April 30, 1993 (the "March
            1993 Form 10-Q")).

  3.1(f)    Certificate of Designation of Series B Cumulative Preferred Stock,
            filed August 16, 1993 (incorporated by reference to Exhibit 3.1(f) o
            the Annual Report on Form 10-K of RJR Nabisco Holdings Corp. and RJR
            Nabisco, Inc. for the fiscal year ended December 31, 1993, File Nos.
            1-10215 and 1-6388, filed on February 24, 1994 (the "1993
            Form 10-K").

  3.1(g)    Certificate of Designation of Series C Conversion Preferred Stock
            (incorporated by reference to Exhibit 4.1(h) to the Registration
            Statement on Form S-3 of RJR Nabisco Holdings Corp., Registration No.
            33-52381 filed on February 2, 1994, as amended ("Form S-3 Registration
            No. 33-52381").

  3.1(h)    Certificate of Elimination of Cumulative Convertible Preferred Stock of
            RJR Nabisco Holdings Corp., filed July 7, 1994 (incorporated by
            reference to Exhibit 4.1 of the Quarterly Report on Form 10-Q of RJR
            Nabisco Holdings Corp. and RJR Nabisco, Inc. for the fiscal quarter
            ended June 30, 1994 (the "June 1994 Form 10-Q")).

  3.1(i)    Certificate of Retirement of Series A Conversion Preferred Stock of RJR
            Nabisco Holdings Corp., filed effective November 21, 1994 (incorporated
            by reference to Exhibit 3.1(j) of the Registrants' Annual Report on
            Form 10-K for the fiscal year ended December 31, 1994, File Nos. 1-10215
            and 1-6388, filed on February 23, 1995 (the "1994 Form 10-K").

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C>         <S>                                                                       <C>
  3.1(j)    A composite of the Amended and Restated Certificate of Incorporation of
            RJR Nabisco Holdings Corp., as amended to November 21, 1994
            (incorporated by reference to Exhibit 3.1(j) of the 1994 Form 10-K).

  3.1(k)    Certificate of Amendment to Amended and Restated Certificate of
            Incorporation of RJR Nabisco Holdings Corp. filed April 12, 1995
            (incorporated by reference to Exhibit 3.1 of the Registrants' report on
            Form 10-Q for the quarter ended March 31, 1995 (the "March 1995 10-Q").

  3.1(l)    Composite of the Amended and Restated Certificate of Incorporation of
            RJR Nabisco Holdings Corp. as amended to and including April 12, 1995
            (incorporated by reference to Exhibit 3.1(a) of the March 1995 10-Q).

  3.1(m)*   Certificate of Retirement of certain shares of Series B Cumulative
            Preferred Stock, filed October 11, 1995.

  3.2       Amended and Restated By-Laws of RJR Nabisco Holdings Corp., as amended,
            effective January 20, 1994 (incorporated by reference to Exhibit 3.2 to
            the 1993 Form 10-K).

  3.2(a)    Amended and Restated By-laws of RJR Nabisco Holdings Corp., as amended
            effective August 21, 1995 (incorporated by reference to Exhibit 3.1 to
            the Registrants' Quarterly Report on Form 10-Q for the fiscal quarter
            ended September 30, 1995, filed October 31, 1995 (the "September 1995
            10-Q")).

  3.2(b)    Amended and Restated By-laws of RJR Nabisco, Inc., as amended effective
            August 8, 1995 (incorporated by reference to Exhibit 3.2 of the
            September 1995 10-Q).

  3.2(c)*   RJR Nabisco Holdings Corp. By-Laws as Amended Effective October 11,
            1995.

  3.2(d)*   RJR Nabisco Holdings Corp. By-Laws as Amended Effective December 5,
            1995.

  3.3       Restated Certificate of Incorporation of RJR Nabisco, Inc.
            (incorporated by reference to Exhibit 3.9 to Amendment No. 2, filed on
            May 12, 1989, to the Registration Statement on Form S-1 of RJR Holdings
            Capital Corp., RJR Holdings Corp., RJR Holdings Group, Inc. and RJR
            Nabisco, Inc., Registration No. 33-27891, filed on April 4, 1989 (the
            "Form S-1, Registration No. 33-27891")).

  3.3(a)    Certificate of Amendment of the Certificate of Incorporation of RJR
            Nabisco, Inc., filed September 22, 1989 (incorporated by reference to
            Exhibit 3.7(b) to the Registration Statement on Form S-1 of RJR
            Holdings Capital Corp., RJR Holdings Corp., RJR Holdings Group, Inc.
            and RJR Nabisco, Inc., Registration No. 33-31937, filed on November 3,
            1989, as amended (the "Form S-1, Registration No. 33-31937")).

  3.3(b)    Certificate of Change of Location of Registered Office and of
            Registered Agent of RJR Nabisco, Inc., filed July 5, 1990 (incorporated
            by reference to Exhibit 3.7(b) of the Annual Report on Form 10-K of RJR
            Nabisco Holdings Corp., RJR Nabisco Holdings Group, Inc., RJR Nabisco
            Capital Corp. and RJR Nabisco, Inc. for the year ended December 31,
            1990, File Nos. 1-10215, 1-10214, 1-10248 and 1-6388 (the "1990 Form
            10-K")).

  3.3(c)    Certificate of Amendment of the Amended and Restated Certificate of
            Incorporation of RJR Nabisco, Inc., filed May 13, 1994 (incorporated by
            reference to the June 30, 1994 Form 10-Q).

  3.3(d)    A composite of the Certificate of Incorporation of RJR Nabisco, Inc.,
            as amended to May 13, 1994 (incorporated by reference to Exhibit 3.3(d)
            of the 1994 Form 10-K).

  3.4       Amended and Restated By-laws of RJR Nabisco, Inc., as amended,
            effective January 20, 1994 (incorporated by reference to Exhibit 3.4 of
            the 1993 Form 10-K).

  3.4(a)*   RJR Nabisco, Inc. By-Laws as Amended Effective October 11, 1995.

</TABLE>
<PAGE>

<TABLE>
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<C>         <S>                                                                       <C>
  3.4(b)*   RJR Nabisco, Inc. By-Laws as Amended Effective December 5, 1995.

  4.1       Amended and Restated Indenture, dated as of July 24, 1995, between RJR
            Nabisco, Inc. and Citibank, N.A., dated as of July 24, 1995
            (incorporated by reference to Exhibit 4.1 to the Quarterly Report on
            Form 10-Q of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. for the
            fiscal quarter ended June 30, 1995 (the "Second Quarter 1995 10-Q")).

  4.2       Indenture (the "TOPrS Indenture"), dated as of September 21, 1995,
            between RJR Nabisco Holdings Corp. and the Bank of New York
            (incorporated by reference to Exhibit 4.1 to the Registration Statement
            on Form S-4 of RJR Nabisco Holdings Corp. and RJR Nabisco Holdings
            Capital Trust I, Registration Nos. 33-60415 and 33-60415-01, filed June
            20, 1995 (the "TOPrS Registration Statement")).

  4.3       Form of First Supplemental Indenture to the TOPrS Indenture
            (incorporated by reference to Exhibit 4.2 to the TOPrS Registration
            Statement).

  4.4       Form of Amended and Restated Declaration of Trust of RJR Nabisco
            Holdings Capital Trust I (incorporated by reference to Exhibit 4.5 to
            the TOPrS Registration Statement).

  4.5       Form of Preferred Security of RJR Nabisco Holdings Capital Trust I
            (included in Exhibit 4.4 above).

  4.6       Form of Junior Subordinated Debenture (included in Exhibit 4.2 above).

  4.7       Form of Guarantee Agreement with respect to Preferred Securities
            between RJR Nabisco Holdings Corp. and the Bank of New York as the
            Guarantee Trustee (incorporated by reference to Exhibit 4.8 to the
            TOPrS Registration Statement).

  4.8       Indenture, dated as of June 5, 1995, between Nabisco, Inc. and
            Citibank, N.A., (incorporated by reference to Exhibit 4.1 to Amendment
            No. 1 to the Registration Statement on Form S-4 of Nabisco, Inc.,
            Registration No. 33-90224, filed March 29, 1995).

  4.9       The Registrants agree to furnish copies of any instrument defining the
            rights of holders of long-term debt of the Registrants and their
            consolidated subsidiaries that does not exceed 10 percent of the total
            assets of the Registrants and their consolidated subsidiaries to the
            Commission upon request.

  10.1      Credit Agreement (the "Three Year Credit Agreement"), dated as of April
            28, 1995, among RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and
            various lending institutions (incorporated by reference to Exhibit 10.1
            to the Second Quarter 1995 10-Q).

  10.2      Credit Agreement (the "364 Day Credit Agreement"), dated as of April
            28, 1995, among RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and
            various lending institutions (incorporated by reference to Exhibit 10.2
            to the Second Quarter 1995 10-Q).

  10.3      Agreement and Waiver to the Three Year Credit Agreement and the 364 Day
            Credit Agreement, dated as of July 27, 1995 (incorporated by reference
            to Exhibit 10.5 to the Second Quarter 1995 10-Q).

  10.4      First Amendment, dated as of September 12, 1995, to the Three Year
            Credit Agreement and the 364 Day Credit Agreement (incorporated by
            reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of RJR
            Nabisco Holdings Corp. and RJR Nabisco, Inc. for the fiscal quarter
            ended September 30, 1995).

  10.5      Credit Agreement (the "Nabisco Credit Agreement"), dated as of April
            28, 1995, among Nabisco Holdings Corp., Nabisco, Inc. and various
            lending institutions (incorporated by reference to Exhibit 4.3 to
            Amendment No. 1 filed June 16, 1995 to the Registration Statement on
            Form S-3 of Nabisco, Inc., Registration No. 33-93214, filed June 7,
            1995).

</TABLE>
<PAGE>

<TABLE><CAPTION>
<C>         <S>                                                                       <C>
  10.6      First Amendment to the Nabisco Credit Agreement, dated as of July 24,
            1995 (incorporated by reference to Exhibit 10.4 to the Second Quarter
            1995 10-Q).

 *10.7      Second Amendment, dated as of November 3, 1995, to the Nabisco Credit
            Agreement.

 *10.8      Credit Agreement (the "Nabisco Commercial Paper Facility"), dated as of
            November 3, 1995, among Nabisco Holdings Corp., Nabisco, Inc. and
            various lending institutions.

  10.9      Retirement Plan for Directors of RJR Nabisco, Inc. as amended and
            restated on January 1, 1989 (incorporated by reference to Exhibit 10(a)
            to the Annual Report on Form 10-K for the fiscal year ended December
            31, 1988, file number 1-6388, filed on March 9, 1989, as amended
            through April 14, 1989 (the "1988 Form 10-K")).

 10.10      Retirement Trust Agreement, made as of October 12, 1988, between RJR
            Nabisco, Inc. and Wachovia Bank and Trust Company, N.A. (incorporated
            by reference to Exhibit 10.6 to the Registration Statement on Form S-4
            of RJR Holdings Corp. and RJR Holdings Group, Inc., Registration No.
            33-27894, filed April 5, 1989, as amended (the "Form S-4, Registration
            No. 33-27894")).

 10.11      Form of Employment Agreement containing Change of Control provision
            (incorporated by reference to Exhibit 10.8 to the Form S-4,
            Registration No. 33-27894).

 10.12      Special Addendum to Form of Employment Agreement filed as Exhibit
            10.22, dated December 20, 1988 (incorporated by reference to Exhibit
            10(d)(ii) to the 1988 Form 10-K).

 10.13      Form of Agreement containing Gross-Up provisions, dated January 27,
            1989 (incorporated by reference to Exhibit 10(d)(iii) to the 1988 Form
            10-K).

  10.14     Trust Agreement between RJR Nabisco, Inc. and Wachovia Bank and Trust
            Company, N.A., Trustee, dated January 27, 1989 (incorporated by
            reference to Exhibit 10(d)(iv) to the 1988 Form 10-K).

 10.15      Form of Employment Agreement Without Change of Control provision
            (incorporated by reference to Exhibit 10.16 to the Form S-4,
            Registration No. 33-27894).

 10.16      Special Addendum, dated December 20, 1988 (incorporated by reference to
            Exhibit 10(d)(ii) to the 1988 Form 10-K).

 10.17      Master Trust Agreement, as amended and restated as of October 12, 1988,
            between RJR Nabisco, Inc. and Wachovia Bank and Trust Company, N.A.
            (incorporated by reference to Exhibit 10.18 to the Form S-4,
            Registration No. 33-27894).

 10.18(a)   Amendment No. 1 to Master Trust Agreement, dated January 27, 1989
            (incorporated by reference to Exhibit 10(g)(ii) to the 1988 Form 10-K).

 10.18(b)   Amendment No. 2 to Master Trust Agreement, dated January 27, 1989
            (incorporated by reference to Exhibit 10(g)(iii) to the 1988 Form
            10-K).

 10.19      Excess Benefit Master Trust Agreement, as amended and restated as of
            October 12, 1988, between RJR Nabisco, Inc. and Wachovia Bank and Trust
            Company, N.A. (incorporated by reference to Exhibit 10.21 to the Form
            S-4, Registration No. 33-27894).

 10.19(a)   Amendment No. 1 to Excess Benefit Master Trust Agreement, dated January
            27, 1989 (incorporated by reference to Exhibit 10(h)(ii) to the 1988
            Form 10-K).

 10.20      Supplemental Benefits Plan of RJR Nabisco, Inc. and Participating
            Companies, as amended on October 12, 1988 (incorporated by reference to
            Exhibit 10.25 to the Form S-4, Registration No. 33-27894).

 10.21(a)   Amendment to Supplemental Benefits Plan, dated November 23, 1988
            (incorporated by reference to Exhibit 10(k)(ii) to the 1988 Form 10-K).

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C>         <S>                                                                       <C>
 10.21(b)   Amendment No. 2 to Supplemental Benefits Plan, dated January 27, 1989
            (incorporated by reference to Exhibit 10(k)(iii) to the 1988 Form
            10-K).

 10.22      Additional Benefits Plan of RJR Nabisco, Inc. and Participating
            Companies, effective October 12, 1988 (incorporated by reference to
            Exhibit 10.28 to the Form S-4, Registration No. 33-27894).

 10.22(a)   Amendment to Additional Benefits Plan, dated October 28, 1988
            (incorporated by reference to Exhibit 10(l)(ii) to the 1988 Form 10-K).

 10.22(b)   Amendment to Additional Benefits Plan, dated November 23, 1988
            (incorporated by reference to Exhibit 10(1)(iii) to the 1988 Form
            10-K).

 10.22(c)   Amendment to Additional Benefits Plan No. 3, dated January 27, 1989
            (incorporated by reference to Exhibit 10(1)(iv) to the 1988 Form 10-K).

 10.23      RJR Nabisco, Inc. Supplemental Executive Retirement Plan, as amended on
            July 21, 1988 (incorporated by reference to Exhibit 10.32 to the Form
            S-4, Registration No. 33-27894).

 10.24(a)   Amendment to Supplemental Executive Retirement Plan, dated November 23,
            1988 (incorporated by reference to Exhibit 10(m)(ii) to the 1988 Form
            10-K).

 10.24(b)   Amendment No. 2 to Supplemental Executive Retirement Plan, dated
            January 27, 1989 (incorporated by reference to Exhibit 10(m)(iii) to
            the 1988 Form 10-K).

 10.24(c)   Amendment to Supplemental Executive Retirement Plan, dated April 10,
            1993 (incorporated by reference to the 1993 Form 10-K).

 10.25      Form of Common Stock Subscription Agreement between RJR Holdings Corp.
            and the purchaser named therein (incorporated by reference to Exhibit A
            to Post-Effective Amendment No. 2, filed on August 21, 1989, to the
            Form S-1, Registration No. 33-29401 (the "Post-Effective Amendment No.
            2 to the Form S-1, Registration No. 33-29401")).

 10.26      Form of Non-Qualified Stock Option Agreement between RJR Holdings Corp.
            and the optionee named therein (incorporated by reference to Exhibit B
            to Post-Effective Amendment No. 2 to the Form S-1, Registration No.
            33-29401).

 10.27      Non-Qualified Stock Option Agreement, dated December 31, 1993, between
            RJR Nabisco Holdings Corp. and Charles M. Harper (incorporated by
            reference to the 1993 Form 10-K).

 10.27(a)   Non-Qualified Stock Option Agreement, dated December 31, 1994, between
            RJR Nabisco Holdings Corp. and Charles M. Harper (incorporated by
            reference to Exhibit 10.18(a) of 1994 Form 10-K).

 10.28      Employment Agreement, dated May 27, 1993, by and among RJR Nabisco
            Holdings Corp., RJR Nabisco, Inc. and Charles M. Harper (incorporated
            by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q of
            RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. for the fiscal quarter
            ended June 30, 1993, filed August 3, 1993 (the "June 1993 Form 10-Q")).

 10.29      Amendment No. 1 dated March 8, 1994 to Employment Agreement dated May
            27, 1993 by and among RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and
            Charles M. Harper dated as of March 1, 1994 (incorporated by reference
            to Exhibit 10.2 of the Quarterly Report on Form 10-Q of RJR Nabisco
            Holdings Corp. and RJR Nabisco, Inc. for the fiscal quarter ended March
            31, 1994 filed May 12, 1994 (the "March 1994 Form 10-Q").

 10.30      Form of Non-Qualified Stock Option Agreement between RJR Nabisco
            Holdings Corp. and Charles M. Harper (incorporated by reference to
            Exhibit 10.2 of the June 1993 Form 10-Q).

 10.31*     First 1995 Amendment (dated February 15, 1995) to Employment Agreement
            dated May 27, 1993 between RJR Nabisco Holdings Corp. and Charles M.
            Harper.


</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C>         <S>                                                                       <C>
 10.32*     Second 1995 Amendment (dated April 13, 1995) to Employment Agreement
            dated May 27, 1993 between RJR Nabisco Holdings Corp. and Charles M.
            Harper.

 10.33*     Restated and Amended Employment Agreement (dated December 5, 1995) by
            and among RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and Charles M.
            Harper.

 10.34*     Amendment dated April 13, 1995 to Non-Qualified Stock Option Agreements
            dated May 31, 1993, December 31, 1993, and December 31, 1994 between
            RJR Nabisco Holdings Corp. and Charles M. Harper.

 10.35*     Non-Qualified Stock Option Agreement dated January 19, 1995 between
            Nabisco Holdings Corp. and Charles M. Harper.

 10.36*     Non-Qualified Stock Option Agreement dated June 13, 1995 between RJR
            Nabisco Holdings Corp. and Charles M. Harper.

 10.37*     Non-Qualified Stock Option Agreement dated December 31, 1995 between
            RJR Nabisco Holdings Corp. and Charles M. Harper.

 10.38*     Engagement Agreement (dated March 3, 1995) between RJR Nabisco Holdings
            Corp. and Steven F. Goldstone.

 10.39*     Employment Agreement (dated October 1, 1995) by and among RJR Nabisco
            Holdings Corp., RJR Nabisco, Inc. and Steven F. Goldstone.

 10.40*     Amended and Restated Employment Agreement (dated December 5, 1995) by
            and among RJR Nabisco Holdings Corp., and RJR Nabisco, Inc. and Steven
            F. Goldstone.

 10.41*     Non-Qualified Stock Option Agreement (dated December 5, 1995) between
            RJR Nabisco Holdings Corp. and Steven. F. Goldstone.

 10.42*     Contingent Performance Share Agreement (dated December 5, 1995) between
            RJR Nabisco Holdings Corp. and Steven F. Goldstone.

 10.43*     Secured Promissory Note (dated December 5, 1995) of Steven F. Goldstone
            in favor of RJR Nabisco Holdings Corp.

 10.44*     Amendment dated December 5, 1995 to Employment Agreement between RJR
            Nabisco Holdings Corp. and Andrew J. Schindler.

 10.45*     Participation Agreement--RJR Nabisco, Inc. Supplemental Executive
            Retirement Plan for Andrew J. Schindler dated December 28, 1995.

 10.46*     Amended and Restated Employment Agreement, dated as of September 1,
            1993, by and among R.J. Reynolds Tobacco Company, R.J. Reynolds Tobacco
            International Inc., RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and
            Mr. James W. Johnston (incorporated by reference to Exhibit 10.2 to the
            September 1993 Form 10-Q).

*10.46(a)   Letter Agreement dated July 26, 1995, regarding Amended and Restated
            Employment Agreement with James W. Johnston.

*10.46(b)   Letter Agreement dated December 21, 1995, regarding Amended and
            Restated Employment Agreement with James W. Johnston.

 10.47      Equity Securities Purchase Agreement dated as of July 15, 1990 between
            RJR Nabisco Holdings Corp. and Whitehall Associates, L.P. (incorporated
            by reference to Exhibit 4.4 to the Form S-4, Registration No.
            33-36070).

 10.48      Consulting Agreement, dated February 14, 1995, among RJR Nabisco
            Holdings Corp., Nabisco Holdings Corp. and Eugene R. Croisant
            (incorporated by reference to Exhibit 10.32 of 1994 Form 10-K).

 10.49      Registration Rights Agreement (Common Stock), dated as of July 15,
            1990, between RJR Nabisco Holdings Corp. and Whitehall Associates, L.P.
            (incorporated by reference to Exhibit 4.5 to the Form S-4, Registration
            No. 33-36070).

 10.50      Amended and Restated RJR Nabisco Holdings Corp. 1990 Long Term
            Incentive Plan (incorporated by reference to Exhibit 10.2 to the March
            1993 Form 10-Q).


</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C>         <S>                                                                       <C>
 10.51      Form of Purchase Stock Agreement between RJR Nabisco Holdings Corp. and
            purchaser named therein (1991 Grant) (incorporated by reference to
            Exhibit 4.3 to the Registration Statement on Form S-8 of RJR Nabisco
            Holdings Corp., Registration No. 33-39791, filed on April 5, 1991 (the
            "Form S-8, Registration No. 33-39791").

 10.52      Form of Non-Qualified Stock Option Agreement between RJR Nabisco
            Holdings Corp. and the senior executive optionee named therein (1991
            Grant) (incorporated by reference to Exhibit 4.4(a) to Form S-8,
            Registration No. 33-39791).

 10.53      Form of Non-Qualified Stock Option Agreement between RJR Nabisco
            Holdings Corp. and the executive or management optionee named therein
            (1991 Grant) (incorporated by reference to Exhibit 4.4(b) to Form S-8,
            Registration No. 33-39791).

 10.54      Form of Secured Promissory Note of purchaser named therein in favor of
            RJR Nabisco Holdings Corp. (1991 Grant) (incorporated by reference to
            Exhibit 4.5 to Form S-8, Registration No. 33-39791).

 10.54(a)   Form of Amendment and Exchange of Secured Promissory Note, dated July
            1, 1993 (1991 Grant) (incorporated by reference to Exhibit 10.33(a) to
            the 1993 Form 10-K).

 10.55      Form of Purchase Stock Agreement between RJR Nabisco Holdings Corp. and
            the purchaser named therein (1992 Grant) (incorporated by reference to
            Exhibit 10.34 of the 1991 Form 10-K).

 10.56      Form of Non-Qualified Stock Option Agreement between RJR Nabisco
            Holdings Corp. and the senior executive optionee named therein (1992
            Grant/cycle) (incorporated by reference to Exhibit 10.35 of the 1991
            Form 10-K).

 10.56      Form of Non-Qualified Stock Option Agreement between RJR Nabisco
            Holdings Corp. and the senior executive optionee named therein (1992
            Grant/5-year) (incorporated by reference to Exhibit 10.36 of the 1991
            Form 10-K).

 10.58      Form of Non-Qualified Stock Option Agreement between RJR Nabisco
            Holdings Corp. and the executive or management optionee named therein
            (1992 Grant) (incorporated by reference to Exhibit 10.37 of the 1991
            Form 10-K).

 10.59      Form of Restated Non-Qualified Stock Option Agreement under the 1990
            Long Term Incentive Plan, between RJR Nabisco Holdings Corp. and the
            optionee named therein (incorporated by reference to Exhibit 10.38 to
            the 1993 Form 10-K).

 10.60      Form of Non-Qualified Stock Option Agreement between RJR Nabisco
            Holdings Corp. and the optionee name therein (1993 Grant) (incorporated
            by reference to Exhibit 10.39 of the 1992 Form 10-K).

 10.61      Performance Share Program under RJR Nabisco Holdings Corp. 1990 Long
            Term Incentive Plan (incorporated by reference to Exhibit 10.40 of the
            1992 Form 10-K).

 10.62      Form of Performance Share Agreement between RJR Nabisco Holdings Corp.
            and the grantee named therein (1993 Grant) (incorporated by reference
            to Exhibit 10.41 of the 1992 Form 10-K).

 10.63      Restricted Stock Program under the 1990 Long Term Incentive Plan
            (incorporated by reference to Exhibit 10.42 to the 1993 Form 10-K).

 10.64      Form of Restricted Stock Agreement under the 1990 Long Term Incentive
            Plan between RJR Nabisco Holdings Corp. and the grantee named therein
            (1993 Grant) (incorporated by reference to Exhibit 10.1 the March 1993
            Form 10-Q).


</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C>         <S>                                                                       <C>
 10.65      Form of Executive Equity Program Agreement under the 1990 Long Term
            Incentive Plan, between RJR Nabisco Holdings Corp. and the grantee
            named therein (3 year) (incorporated by reference to Exhibit 10.44 to
            the 1993 Form 10-K).

 10.66      Form of Executive Equity Program Agreement under the 1990 Long Term
            Incentive Plan, between RJR Nabisco Holdings Corp. and the grantee
            named therein (4 year) (incorporated by reference to Exhibit 10.45 to
            the 1993 Form 10-K).

 10.67      Form of Non-Qualified Stock Option Agreement between RJR Nabisco
            Holdings Corp. and the Consultant named therein (1991 Grant)
            (incorporated by reference to Exhibit 10.42 of the 1992 Form 10-K).

 10.68      Form of Secured Promissory Note of purchaser named therein in favor of
            RJR Nabisco Holdings Corp. (1992 Grant) (incorporated by reference to
            Exhibit 10.38 of the 1991 Form 10-K).

 10.68(a)   Form of Amendment and Exchange of Secured Promissory Note, dated July
            1, 1993 (1992 Grant) (incorporated by reference to Exhibit 10.47(a) to
            the 1993 Form 10-K).

 10.69      Registration Rights Agreement (Preferred Stock), dated as of July 15,
            1990, between RJR Nabisco Holdings Corp. and Whitehall Associates, L.P.
            (incorporated by reference to Exhibit 4.6 to the Form S-4, Registration
            No. 33-36070).

 10.70      Preferred Stock Exchange Agreement dated as of October 1, 1990 between
            RJR Nabisco Holdings Corp. and Whitehall Associates, L.P. (incorporated
            by reference to Exhibit 4.8 to the Form S-4, Registration No.
            33-36070).

 10.71      Restated and Amended Stock Option Plan for Directors and Key Employees
            of RJR Nabisco Holdings Corp. dated as of October 4, 1994 (incorporated
            by reference to Exhibit 10.55 of 1994 Form 10-K).

 10.72      Performance Unit Program under RJR Nabisco Holdings Corp. 1990 Long
            Term Incentive Plan (incorporated by reference to Exhibit 10.3 to the
            March 1994 Form 10-Q).

 10.73      Form of Performance Unit Agreement between RJR Nabisco Holdings Corp.
            and the grantee named therein (1994 Grant--3 Year Period) (incorporated
            by reference to Exhibit 10.4 to the March 1994 Form 10-Q).

 10.74      Form of Performance Unit Agreement between RJR Nabisco Holdings Corp.
            and the grantee named therein (1994 Grant--3 Year Period) (incorporated
            by reference to Exhibit 10.5 to the March 1994 10-Q).

 10.75*     Amendment to Non-Qualified Stock Option Agreements dated prior to
            October 11, 1995.

 10.76*     Restated and Amended RJR Nabisco Holdings Corp. 1990 Long Term
            Incentive Plan dated as of December 5, 1995.

 10.77*     Form of Non-Qualified Stock Option Agreement dated April 27, 1995
            between RJR Nabisco Holdings Corp. and the grantee named therein
            (Reissued options).

 10.78*     Form of Non-Qualified Stock Option Agreement dated April 27, 1995
            between RJR Nabisco Holdings Corp. and the grantee named therein
            (Premium options).

 10.79*     Form of Non-Qualified Stock Option Agreement between RJR Nabisco
            Holdings Corp. and the grantee named therein.

 10.80*     Form of Performance Unit Agreement between RJR Nabisco Holdings Corp.
            and the grantee named therein (1995 Grant--3 Year Period).

 10.81*     Form of Performance Unit Agreement between RJR Nabisco Holdings Corp.
            and the grantee named therein (1995 Grant--1 Year Period).

 10.82*     Amendment dated July 10, 1995 to Executive Equity Program Agreement
            under the 1990 Long Term Incentive Plan between RJR Nabisco Holdings
            Corp. and the grantee named therein.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C>         <S>                                                                       <C>
 10.83*     Form of Employment Agreement dated October 11, 1995.

 10.84*     Form of Employment Agreement dated November 1, 1995.

 10.85*     Restated and Amended Stock Option Plan for Directors and Key
            Employees of RJR Nabisco Holdings Corp. dated as of
            December 5, 1995.

 10.86*     Form of Non-Qualified Stock Option Agreement between RJR Nabisco
            Holdings Corp., and Director named therein (Election version).

 10.87*     Form of Non-Qualified Stock Option Agreement between RJR Nabisco
            Holdings Corp., and Director named therein (Annual version).

*11.        RJR Nabisco Holdings Corp. Computation of Earnings Per Share for the
            years ended December 31, 1995, 1994, 1993.

*12.1       RJR Nabisco Holdings Corp. Computation of Ratio of Earnings to Fixed
            Charges/Deficiency in the Coverage of Fixed Charges by Earnings
            before Fixed Charges for each of the periods within the five year
            period ended December 31, 1995.

*12.2       RJR Nabisco, Inc. Computation of Ratio of Earnings to Fixed
            Charges/Deficiency in the Coverage of Fixed Charges by Earnings
            before Fixed Charges for each of the periods within the five year
            period ended December 31, 1995.


*21.        Subsdiaries of the Registrants.

*23.        Consent of Independent Auditors.

*24.        Powers of Attorney.

*27.1       Financial Data Schedule of RJR Nabisco Holdings Corp.

*27.2       Financial Data Schedule of RJR Nabisco, Inc.
</TABLE>

---------------

* Filed herewith.