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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, 1998
                            ------------------------
 
                           RJR NABISCO HOLDINGS CORP.
 
             (Exact name of registrant as specified in its charter)
 
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<S>                                   <C>                                   <C>
              DELAWARE                              1-10215                              13-3490602
  (State or other jurisdiction of           (Commission file number)                  (I.R.S. Employer
   incorporation or organization)                                                   Identification No.)
</TABLE>
 
                               RJR NABISCO, INC.
 
             (Exact name of registrant as specified in its charter)
 
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<S>                                   <C>                                   <C>
              DELAWARE                               1-6388                              56-0950247
  (State or other jurisdiction of           (Commission file number)                  (I.R.S. Employer
   incorporation or organization)                                                   Identification No.)
</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:
 
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                                            NAME OF EACH                                                 NAME OF EACH
                                          EXCHANGE ON WHICH                                            EXCHANGE ON WHICH
          TITLE OF EACH CLASS                REGISTERED                TITLE OF EACH CLASS                REGISTERED
----------------------------------------  -----------------  ----------------------------------------  -----------------
<S>                                       <C>                <C>                                       <C>
RJR NABISCO HOLDINGS CORP.                                   SUBSIDIARIES OF THE REGISTRANTS
  Common Stock, par value $.01 per share        New York     RJR NABISCO HOLDINGS CAPITAL TRUST I
RJR NABISCO, INC.                                            10% Trust Originated Preferred                  New York
                                                             Securities
  8.30% Senior Notes due April 15, 1999         New York     RJR NABISCO HOLDINGS CAPITAL TRUST II
  8% Notes due January 15, 2000                 New York     9.5% Trust Originated Preferred                 New York
                                                             Securities
  8% Notes due July 15, 2001                    New York
  8 5/8% Notes due December 1, 2002             New York
  7 5/8% Notes due September 15, 2003           New York
  8 1/4% Notes due July 1, 2004                 New York
  8.75% Senior Notes due April 15, 2004         New York
  8 3/4% Notes due August 15, 2005              New York
  8 1/2% Notes due July 1, 2007                 New York
  8 3/4% Notes due July 15, 2007                New York
  9 1/4% Debentures due August 15, 2013         New York
</TABLE>
 
          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. [X]
 
    The aggregate market value of voting stock held by non-affiliates of RJR
Nabisco Holdings Corp. on February 28, 1999 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: February 28, 1999:
RJR NABISCO HOLDINGS CORP.: 325,018,348 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 March 30, 1999 are
incorporated by reference into Part III of this Report.
 
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<PAGE>
                                     INDEX
 
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                                                                                                                PAGE
                                                                                                                -----
<S>         <C>                                                                                              <C>
PART I
Item 1.     Business.......................................................................................           3
            (a) General Development of Business............................................................           3
            (b) Financial Information about Industry Segments..............................................           4
            (c) Narrative Description of Business..........................................................           4
            Tobacco........................................................................................           4
            Food...........................................................................................          13
            Other Matters..................................................................................          17
            (d) Financial Information about Foreign and Domestic Operations................................          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..........................................................          19
 
PART II
Item 5.     Market for Registrants' Common Equity and Related Stockholder Matters..........................          22
Item 6.     Selected Financial Data........................................................................          23
Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operations..........          24
Item 7a.    Quantitative and Qualitative Disclosures about Market Risk.....................................          45
Item 8.     Financial Statements and Supplementary Data....................................................          46
Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........          46
 
PART III
Item 10.    Directors and Executive Officers of the Registrants............................................          47
Item 11.    Executive Compensation.........................................................................          47
Item 12.    Security Ownership of Certain Beneficial Owners and Management.................................          47
Item 13.    Certain Relationships and Related Transactions.................................................          47
 
PART IV
Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K...............................          47
</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"), a wholly-owned subsidiary of RJRN and the second
largest manufacturer of cigarettes, and the packaged food business is conducted
under Nabisco Holdings Corp. ("Nabisco Holdings") by its wholly-owned
subsidiary, Nabisco, Inc. ("Nabisco"), the largest manufacturer and marketer of
cookies and crackers. RJRN owns 100% of the outstanding Class B Common Stock of
Nabisco Holdings, which currently represents approximately 80.5% of the economic
interest in Nabisco Holdings and approximately 97.7% of the total voting power
of Nabisco Holdings' outstanding common stock.
 
    Outside the United States, tobacco operations are conducted by R.J. Reynolds
International ("Reynolds International"), and 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. Except for WalMart, which represents
11.5% of consolidated 1998 revenues, no customer of RJRN's subsidiaries in the
aggregate accounted for 10% or more of RJRN's consolidated 1998 revenues. For
financial information with respect to RJRN's operating segments, and operations
in various geographic locations, see Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and note 15 to the
consolidated financial statements of RJRN Holdings and RJRN as of December 31,
1998 and 1997 and for each of the years in the three-year period ended December
31, 1998 (the "Consolidated Financial Statements").
 
    RJRN was incorporated as a holding company in 1970 holding the stock of RJRT
and other companies that have since been sold. It acquired Nabisco Holdings
Corp. (formerly Nabisco Brands, Inc.) in 1985. RJRN Holdings was organized as a
Delaware corporation in 1988 to effect the acquisition of RJRN, which was
completed on April 28, 1989. As a result of this 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.
 
    In recent years subsidiaries of RJRN Holdings and RJRN have completed a
number of acquisitions and have divested certain businesses. These acquisitions
included Butterkist Ltd, a biscuit producer in Jamaica in 1998 and the stock of
Cornnuts, Inc., a manufacturer of crispy corn kernel snacks in 1997. Businesses
sold or exited include the College Inn brand of canned broths, the U.S. and
Canadian tablespreads and U.S. egg substitute businesses and the Del Monte brand
canned vegetable business in Venezuela in 1998 and certain Nabisco domestic
regional brands in 1997.
 
    On March 9, 1999, RJRN and RJRT entered into a definitive agreement to sell
the international tobacco business of Reynolds International for approximately
$8 billion, including the assumption of approximately $200 million of net debt,
to Japan Tobacco Inc. ("Japan Tobacco"). Under the terms of the sale agreement,
Japan Tobacco will acquire substantially all of the business, including
intellectual property rights, of Reynolds International, including the
international rights to the CAMEL, WINSTON and SALEM brands. Proceeds from the
sale will be used to reduce debt and for general corporate purposes which is
expected to substantially strengthen the financial position of RJRT. The sale is
subject to certain regulatory conditions and receipt of certain consents from
RJRN's bondholders.
 
    Also on March 9, 1999, RJRN Holdings announced that its Board of Directors
had approved a plan to separate the domestic tobacco business conducted by RJRT
from the food business conducted by operating
 
                                       3
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subsidiaries of Nabisco Holdings. Under the plan, the separation will be
accomplished by a tax-free spin-off to RJRN Holdings shareholders of shares of
the tobacco business (the "Spin-off").
 
    Upon completion of the Spin-off, RJRN Holdings will be renamed Nabisco Group
Holdings and will continue to exist as a holding company, owning 80.5% of
Nabisco Holdings. Nabisco Group Holdings and Nabisco Holdings will each continue
to trade as separate companies on the New York Stock Exchange and shares of
tobacco company stock also will trade separately. The separation is subject to
final Board approval and bondholder consent and is currently expected to occur
following completion of the sale of the international tobacco business.
 
    (B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS  During 1997 and 1996,
industry segments were reported as tobacco and food. In the fourth quarter of
1998 RJRN Holdings and RJRN implemented SFAS No. 131 and restated segment
disclosures for prior years to conform with the current year presentation which
includes five operating segments: R.J. Reynolds Tobacco, Reynolds International,
Nabisco Biscuit, the U.S. Foods Group and the International Food Group which are
segregated by both product and geographic location.
 
    For information relating to operating segments for the years ended December
31, 1998, 1997 and 1996, see note 15 to the Consolidated Financial Statements.
 
    (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, joint ventures or
licensees of RJRT and are sold throughout the United States and in more than 170
markets around the world. In 1998, approximately 64% of total tobacco segment
net sales (after deducting excise taxes) and approximately 78% of total tobacco
segment operating company contribution on an ongoing basis were attributable to
domestic tobacco operations. Pursuant to an agreement with Japan Tobacco,
described above, it is expected that the sale of Reynolds International will be
consummated during the second quarter of 1999.
 
DOMESTIC TOBACCO OPERATIONS
 
    The domestic tobacco business has been conducted by RJRT, the second largest
cigarette manufacturer in the United States and will continue under RJRT as a
separate, publicly traded company after the Spin-off. RJRT's largest selling
cigarette brands in the United States include DORAL, WINSTON, CAMEL, SALEM, and
VANTAGE. RJRT's other cigarette brands, including MONARCH, MORE, NOW, CENTURY,
STERLING and MAGNA, 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 1998 of 25.17%, a decrease of approximately
one-quarter of a share point from 1997. During 1998, RJRT and the largest
domestic cigarette manufacturer, Philip Morris Incorporated, together sold, on a
shipment basis, approximately 73.4% of all cigarettes sold in the United States.
 
    In May 1996, RJRT began test marketing in Chattanooga, Tennessee, ECLIPSE, a
cigarette that primarily heats rather than burns tobacco and thereby
substantially reduces second-hand smoke. Test markets were expanded in 1997 to
include Lincoln, Nebraska and Atlanta, Georgia. ECLIPSE is also available to
adult smokers by mail in many states. RJRT continues to assess the test results.
 
    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 competing brands. In 1998, RJRT continued to make progress in
strengthening its brands. The WINSTON
 
                                       4
<PAGE>
styles supported by the "No Bull" positioning gained market share for the first
time in 25 years, despite a fiercely competitive marketplace. CAMEL continued to
be a strong competitor, backed by its new "Mighty Tasty" advertising campaign
and related promotional events. After a year of successful test-marketing of a
new SALEM positioning, RJRT introduced the "It's Not What You Expect" campaign
nationally in January 1999, with special emphasis on markets where the
full-price menthol segment is strong. 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. DORAL maintained its positive performance
trend, achieving significant gains and growing to an almost 24 percent share of
the savings segment. 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 16.7% of RJRT's sales, no RJRT customers accounted for more than
10% of RJRT's sales for 1998. WalMart, which is an affiliate of McLane,
represents an additional approximately 5% of RJRT's sales. RJRT distributes its
cigarettes primarily to public warehouses located throughout the United States
that serve as local distribution centers for RJRT's customers.
 
    RJRT's products are sold to adult smokers primarily through retail outlets.
RJRT uses print media, billboards, point-of-sale displays and other methods of
advertising. As a part of a Master Settlement Agreement with state attorneys
general entered into in 1998, billboard advertising is being discontinued and
certain other forms of brand name promotion are being severely limited. Since
1971, television and radio advertising of cigarettes has been prohibited in the
United States.
 
INTERNATIONAL TOBACCO OPERATIONS
 
    Reynolds International, which is being sold to Japan Tobacco subject to the
sale agreement described above, operates in over 170 markets around the world.
Reynolds International believes that the American-blend segment, in which
Reynolds International primarily competes, is growing significantly faster than
overall foreign cigarette sales. 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-fourth 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, the
CIS and Baltics region 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 one of the world's largest selling menthol cigarettes 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 its sales in 1998.
 
                                       5
<PAGE>
    Approximately 17% of Reynolds International's 1998 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 22 locations
outside the United States, and through licensing agreements in about 16 other
countries. Reynolds International owned or joint-venture manufacturing locations
include Andorra, Canada, China, the Czech Republic, Finland, Germany, Hong Kong,
Indonesia, Kazakhstan, Malaysia, Mexico, Puerto Rico, Poland, Portugal, Romania,
Russia, Spain, Switzerland, Tanzania, Tunisia, Turkey, Ukraine and Vietnam.
 
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.
 
    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 December 1994, Congress
enacted the Uruguay Round Agreements Act to replace a 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.
 
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 and packaging recognition, brand
loyalty, retail display and promotion, 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 tobacco business is subject to a wide range of laws and regulations
regarding the advertising, sale, taxation and use of tobacco products imposed by
local, state, federal and foreign governments. In addition, in 1999 the U.S.
Congress is likely to consider legislation regarding increases in the federal
excise tax, Medicaid reimbursement to the federal government as a result of the
Master Settlement Agreement with the state attorneys general, changes to the
Medicare statutes regarding possible litigation against the industry by the
Department of Justice and regulation of tobacco products by the Food and Drug
Administration. President Clinton has indicated support for a 55 cent per pack
increase in the federal excise tax and plans for the filing of a Medicare cost
recovery lawsuit. For a discussion of the regulatory
 
                                       6
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and legislative environment applicable to the cigarette business see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Tobacco--Governmental Activity" and note 10 to the Consolidated
Financial Statements.
 
LITIGATION AFFECTING THE CIGARETTE INDUSTRY
 
    OVERVIEW.  Various legal actions, proceedings and claims are pending or may
be instituted against R.J. Reynolds Tobacco Company ("RJRT") or its affiliates
(including, with increasing frequency, RJRN and RJRN Holdings) or indemnitees,
including those claiming that lung cancer and other diseases as well as
addiction have resulted from the use of or exposure to RJRT's tobacco products.
During 1998, 334 new actions were served against RJRT and/or its affiliates or
indemnitees and 183 such actions were dismissed or otherwise resolved in favor
of RJRT and/or its affiliates or indemnitees without trial. There have been
noteworthy increases in the number of these cases pending. On December 31, 1998,
there were 664 active cases pending, as compared with 516 on December 31, 1997,
234 on December 31, 1996 and 134 on December 31, 1995. As of March 15, 1999, 658
active cases were pending against RJRT and/or its affiliates or indemnitees: 653
in the United States; two in Canada; one in each of the Marshall Islands,
Nigeria and Puerto Rico.
 
    The U.S. cases are pending in 42 U.S. states and the District of Columbia.
The breakdown is as follows: 126 in West Virginia; 122 in Florida; 109 in New
York; 53 in California; 29 in Massachusetts; 24 in Louisiana; 17 in
Pennsylvania; 16 in Tennessee; 15 in Texas; 14 in the District of Columbia; 12
in Alabama; 11 in New Jersey; nine in each of Illinois and Mississippi; six in
each of Iowa and Ohio; five in each of Indiana, Maryland and Minnesota; four in
each of Arkansas, Georgia, Missouri, Nevada, Oklahoma, Rhode Island and
Virginia; three in each of Arizona and New Mexico; two in each of Colorado,
Hawaii, Kansas, Kentucky, Michigan, North Carolina, North Dakota, South
Carolina, South Dakota, Utah and Washington; one in each of Nebraska, New
Hampshire, Oregon and Wisconsin. Of the 653 active U.S. cases, 136 are pending
in federal court, 512 in state court and five in tribal court. Most of these
cases were brought by individual plaintiffs, but an increasing number, discussed
below, seek recovery on behalf of third parties or large classes of claimants.
 
    THEORIES OF RECOVERY.  The plaintiffs in these actions seek recovery on a
variety of legal theories, including, among others, strict liability in tort,
design defect, negligence, special duty, voluntary undertaking, breach of
warranty, failure to warn, fraud, misrepresentation, unfair trade practices,
conspiracy, aiding and abetting, unjust enrichment, antitrust, Racketeer
Influenced and Corrupt Organization Act ("RICO"), indemnity, medical monitoring
and common law public nuisance. Punitive damages, often in amounts ranging into
the hundreds of millions or even billions of dollars, are specifically pleaded
in a number of cases in addition to compensatory and other damages. Fourteen of
the 653 active cases in the United States involve alleged non-smokers claiming
injuries purportedly resulting from exposure to environmental tobacco smoke.
Fifty-eight cases purport to be class actions on behalf of thousands of
individuals. Purported classes include individuals claiming to be addicted to
cigarettes, individuals and their estates claiming illness and death from
cigarette smoking, persons making claims based on alleged exposure to
environmental tobacco smoke, African-American smokers claiming their civil
rights have been violated by the sale of menthol cigarettes, purchasers of
cigarettes claiming to have been defrauded and seeking to recover their costs,
and Blue Cross/Blue Shield subscribers seeking reimbursement for premiums paid.
Approximately 111 of the active cases seek, INTER ALIA, recovery of the cost of
Medicaid payments or other health-related costs paid for treatment of
individuals suffering from diseases or conditions allegedly related to tobacco
use. Nine, brought by entities administering asbestos liability, seek
contribution for the costs of settlements and judgments.
 
    DEFENSES.  The defenses raised by RJRT and/or its affiliates, where
applicable, include preemption by the Federal Cigarette Labeling and Advertising
Act of some or all such claims arising after 1969; the lack of any defect in the
product; assumption of the risk; contributory or comparative fault; lack of
proximate
 
                                       7
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cause; and statutes of limitations or repose; and, when applicable, additional
statutory, equitable, constitutional and other defenses. RJRN and RJRN Holdings
have asserted additional defenses, including jurisdictional defenses, in many of
these cases in which they are named.
 
    INDUSTRY TRIAL RESULTS.  Juries have found for plaintiffs in five smoking
and health cases in which RJRT was not a defendant. In one such case, no damages
were awarded and the judgment was affirmed on appeal. The jury awarded
plaintiffs $400,000 in another such case, CIPOLLONE V. LIGGETT GROUP, INC., but
the award was overturned on appeal and the case was subsequently dismissed. In
the third such case, on August 9, 1996, a Florida jury awarded damages of
$750,000 to an individual plaintiff. That case, CARTER V. BROWN & WILLIAMSON,
was overturned on appeal on June 22, 1998. In another Florida case brought by
the same attorney, WIDDICK V. BROWN & WILLIAMSON, a state court jury awarded the
plaintiff approximately $1 million in compensatory and punitive damages on June
10, 1998. On January 29, 1999, the Florida Court of Appeals reversed this
verdict and ordered a new trial in a different location (Palm Beach County). On
February 9-10, 1999, in HENLEY V. PHILIP MORRIS, INC., a San Francisco state
court jury awarded an individual smoker $1.5 million in compensatory damages and
$50 million in punitive damages. Philip Morris has stated that it will file
motions with the trial judge requesting that the verdict be set aside and/or
reduced. Depending upon the outcome of those motions, Philip Morris may appeal
the judgment.
 
    On May 5, 1997, in an individual case filed against RJRT, brought by the
same attorney who represented plaintiffs in the CARTER and WIDDICK cases, a
Florida state court jury found no RJRT liability (CONNOR V. R. J. REYNOLDS
TOBACCO CO.). On October 31, 1997, in still another case (KARBIWNYK V. R.J.
REYNOLDS TOBACCO COMPANY) brought by the same attorney, another Florida state
court jury found no RJRT liability. On March 19, 1998, an Indiana state court
found for RJRT, RJRN Holdings and other defendants in an individual case, DUNN
V. RJR NABISCO HOLDINGS CORP., in which plaintiffs sought damages for the
alleged harm caused to a non-smoker by environmental tobacco smoke. Finally, on
March 18, 1999, the jury in an Ohio federal district court found for the
defendants, including RJRT, on all counts in a class-action union trust-fund
case, IRONWORKERS LOCAL 17 V. PHILIP MORRIS.
 
    CERTAIN CLASS-ACTION SUITS.  In May 1996, in an early class action case,
CASTANO V. AMERICAN TOBACCO COMPANY, the Fifth Circuit Court of Appeals
overturned the certification of a purported nationwide class of persons whose
claims related to alleged addiction to tobacco. Since this ruling by the Fifth
Circuit, most purported class-action suits have sought certification of
statewide rather than nationwide classes.
 
    Putative class-action suits based on claims similar to those asserted in
CASTANO have been brought against RJRT and in some cases RJRN in state and, in a
few instances, federal courts in Alabama, Arkansas, California, the District of
Columbia (D.C. court), Florida, Georgia, Hawaii, Illinois, Indiana, Iowa,
Kansas, Louisiana, Maryland, Michigan, Minnesota, New Mexico, Nevada, New
Jersey, New York, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota,
Tennessee, Texas, Utah, West Virginia and Wisconsin. A putative class action
filed in Tennessee seeks reimbursement of Blue Cross/Blue Shield premiums paid
by subscribers throughout the United States. On October 19, 1998, a putative
class action was filed in federal court in Philadelphia, Pennsylvania, on behalf
of "all living Black Americans who have purchased or consumed menthol tobacco
products since 1954 (including minors through their legal representatives)"
seeking redress of alleged violations of the plaintiffs' civil rights. A
purported class action suit against RJRT in Texas claims that the marketing of
"lights" and "ultralight" cigarettes is deceptive. Similar claims have been made
in other lawsuits. Other types of class-action suits have also been filed in
additional jurisdictions and there are also putative class action suits pending
in Canada, Puerto Rico and Nigeria. Most of these suits assert claims on behalf
of classes of individuals who claim to be addicted, injured, or at greater risk
of injury by the use of tobacco or exposure to environmental tobacco smoke, or
are the legal survivors of such persons.
 
    Despite the marked increase of purported class actions brought against
tobacco companies, very few purported class actions have been certified, or if
certified, have survived on appeal. Class certification was granted, however, by
a Maryland state court in RICHARDSON V. PHILIP MORRIS. That decision is being
reviewed by the Maryland Court of Appeals. In addition, on November 5, 1998 a
Louisiana state appeals court
 
                                       8
<PAGE>
affirmed the certification of a medical monitoring and/or smoking cessation
class of Louisiana residents who were smokers on or before May 24, 1996 (SCOTT
V. AMERICAN TOBACCO COMPANY). On February 26, 1999, the Louisiana Supreme Court
denied the defendants' petition for writ of certiorari and/or review. Finally,
defendants settled another class-action suit, BROIN V. PHILIP MORRIS, in
October, 1997. This settlement was challenged but was approved by the Florida
Court of Appeals on March 24, 1999.
 
    Trial is underway in a class-action suit pending in Florida, ENGLE V. R. J.
REYNOLDS TOBACCO COMPANY, in which a class consisting of Florida residents or
their survivors who claim to have diseases or medical conditions caused by their
alleged "addiction" to cigarettes has been certified. The trial is divided into
three phases. The initial phase, which includes common issues related to
liability and general causation, entitlement to punitive damages and possibly
the basis or ratio for assessment of punitive damages, is expected to last
several months, but even if potential liability is confirmed in this phase of
the trial, no actual liability would be established until the subsequent phases
which could last for some years.
 
    HEALTH-CARE COST RECOVERY CASES.  In June 1994, the Mississippi attorney
general brought an action, MOORE V. AMERICAN TOBACCO COMPANY, against various
industry members including RJRT. This case was brought on behalf of the state to
recover state funds paid for healthcare and medical and other assistance to
state citizens suffering from diseases and conditions allegedly related to
tobacco use. By making the State the plaintiff in the case and basing its claims
on economic loss rather than personal injury, the State sought to avoid the
defenses otherwise available against an individual plaintiff. Following the
filing of the MOORE case, most other states, through their attorneys general
and/or other state agencies, sued RJRT and other U.S. cigarette manufacturers
based on similar theories. The first four of these cases scheduled to come to
trial, those of Mississippi, Florida, Texas and Minnesota, were settled by
separate agreements between the state and the cigarette manufacturer defendants
in each case.
 
    On November 23, 1998, the major U.S. cigarette manufacturers, including
RJRT, entered into a Master Settlement Agreement ("MSA") with attorneys general
representing the remaining 46 states, the District of Columbia, Puerto Rico,
Guam, the Virgin Islands, American Samoa and the Northern Marianas (the
"Settling States"). The MSA settles all the health-care cost recovery actions
brought by the Settling States and contains releases of certain additional
present and future claims.
 
    The MSA calls for the tobacco companies to pay the Settling States an
initial payment of $2.4 billion (allocated among the companies on the basis of
relative market capitalization) and four subsequent additional annual initial
payments starting in 2000 (allocated among the companies on the basis of
relative market share) of up to approximately $2.47 billion, $2.5 billion, $2.6
billion and $2.7 billion, respectively. It also requires perpetual annual
payments, increasing from $4.5 billion in April 2000 to $8 billion in 2004 and
further to $9.0 billion in 2018 and thereafter. Ten additional payments of $861
million are due annually beginning in April 2008.
 
    Except for the first initial payment, all payments made under the MSA are
allocated among the participating manufacturers based on their relative market
shares. In addition, most payments to be made under the MSA after 1999 are
subject to a number of adjustments, most frequently adjustments based on
inflation (the greater of 3% or the rise in the consumer price index) and on
changes in the volume of cigarettes sold each year. Certain payments are also
subject to adjustments to account for payments to previously settling states and
for the impact, if any, on the signatory tobacco companies of competitive
disadvantages vis-a-vis non-settling manufacturers as a result of the
settlement. Furthermore, certain payments are subject to set-off against
payments that cigarette companies might be required to make to the federal
government that are paid over to the Settling States for uses related to the
MSA. Finally, if judicial approval is not obtained in any state, there would be
an adjustment deducting for the share of a payment allocable to that state.
 
    The tobacco companies have also agreed to (a) make a one-time payment of $50
million on March 31, 1999 to establish a fund for enforcement of the MSA and
laws relating to tobacco products and (b) fund
 
                                       9
<PAGE>
activities of the National Association of Attorneys General relating to the MSA
at the cost of $150,000 per year for ten years.
 
    In addition, the MSA calls for the creation of a national foundation which
would establish public education and other programs and conduct or sponsor
research to reduce youth smoking and to understand and educate the public about
diseases associated with tobacco-product use. The tobacco companies will fund
the establishment of the foundation with 10 annual payments of $25 million
commencing March 31, 1999, further payments of $250 million on March 31, 1999
and $300 million annually thereafter for four years and additional annual
payments of $300 million beginning in 2004 if, during the year preceding the
year when payment is due, participating manufacturers collectively accounted for
at least 99.05% of the cigarette market.
 
    The manufacturers also agree to pay the litigation costs, including
government attorneys fees, of the attorneys general's offices relating to the
settled cases and, subject to certain quarterly and annual payment caps, the
costs and fees of outside counsel to the settling states. Outside counsel fees
are to be determined either by arbitration or in accordance with a negotiated
fee procedure. Awards determined by arbitration will be paid subject to an
aggregate annual cap for all these (and certain other) settled cases in each
year of $500 million. Fees set by the negotiated fee procedure would be subject
to an annual cap of $250 million, and will not exceed a total of $1.25 billion.
 
    The MSA also contains provisions restricting the marketing of cigarettes.
Among these are restrictions or prohibitions on the following: use of cartoon
characters; use of brand name sponsorships and brand name non-tobacco products;
outdoor and transit brand advertising; payments for product placement; free
sampling; and lobbying. The MSA requires the dissolution of the Tobacco
Institute, the Council for Tobacco Research and the Center on Indoor Air
Research and places restrictions on the establishment of any replacement
organizations.
 
    The MSA, when judicially approved, will release RJRT (and certain of its
indemnitees), RJRN and RJRN Holdings from: (i) all claims of the Settling States
(and their respective political subdivisions and other recipients of state
health-care funds) relating to past conduct arising out of the use, sale,
distribution, manufacture, development, advertising, marketing or health effects
of, the exposure to, or research, statements or warnings about, tobacco
products; and (ii) all monetary claims relating to future conduct arising out of
the use of, or exposure to, tobacco products which have been manufactured in the
ordinary course of business.
 
    RJRT's share of the first payment of $2.4 billion is $163.2 million which
was charged to expense in the fourth quarter of 1998 and was paid from general
corporate funds. The financial effects of the MSA on RJRT, RJRN and RJRN
Holdings are difficult to predict, but the MSA may have a significant negative
impact on operating results, cash flows and financial condition in the future.
The financial effects depend, among other things, on the impact of increased
cigarette prices (needed to cover the cost of these payments), proposed
marketing restrictions, increased funding of anti-smoking educational programs,
the amount and kind of additional requirements that may be imposed on the
industry by state and national legislation and regulation, and the effect on
RJRT's payment obligations of such variables as inflation, sales volumes, the
level of operating profits and RJRT's competitive position in the industry. The
effect of the MSA, if any, on existing claims, or the number and type of
additional lawsuits filed against RJRT in the future, is also difficult to
predict at this time.
 
    The MSA becomes effective on the earlier of June 30, 2000 or the date on
which final approval of the settlement has been obtained in courts of 80% of the
Settling States (both by number and percentage share of the settlement payments
due). As of February 19, 1999, final approval had been obtained in 31 of the
necessary 42 Settling States having percentage shares equal to 41.7% of the
percentage shares of payments due.
 
                                       10
<PAGE>
    Payments for all tobacco litigation settlement agreements currently in
effect will be approximately $1.6 billion in 1999 and will be funded through
price increases. Payments in future years will approximate $2.0 billion per
year, but these payments will be subject to, among other things, the volume of
cigarettes sold by RJRT, RJRT's market share and inflation adjustments.
 
    As part of the MSA, the tobacco companies agreed to work with tobacco
growers to address the possible adverse economic impact on growers of the MSA.
RJRT, with the other major manufacturers, has agreed in principle to participate
in funding a $5.15 billion trust fund to be administered by the tobacco-growing
states. Details of these arrangements are not yet established but it is expected
that RJRT's payment obligations will be met over a number of years and will be
subject to adjustments for several factors, including inflation, U.S. aggregate
cigarette volumes and market share.
 
    UNION CASES.  Although the MSA settled some of the most potentially
burdensome healthcare cost recovery actions, many other such cases have been
brought by other types of plaintiffs. Approximately 73 lawsuits have been
brought by union trust funds against cigarette manufacturers and others in the
past two years. The funds seek recovery of payments made by them for medical
expenses of their participants-- union members and their dependents allegedly
injured by cigarettes. The claims in these cases are almost identical, and more
than 30 of the cases purport to be class actions on behalf of all union trust
funds in a particular state.
 
    The defendants in these actions argue, among other things, the settled law
that one who pays an injured person's medical expenses is legally too remote to
maintain an action against the person allegedly responsible for the injury. In
addition, they argue that the traditional subrogation remedy cannot be
supplanted by a direct right of action for the trust fund that strips defendants
of the defenses they would ordinarily have against the injured individual.
 
    The majority of courts that have decided motions in these union cases
support the tobacco defendants' position on "remoteness" and have dismissed all
or most of the claims against the industry on motions to dismiss. There are a
few notable exceptions to this trend. In two such cases that are being scheduled
together, LABORERS LOCAL 17 V. PHILIP MORRIS and UNITED FEDERATION OF TEACHERS
V. PHILIP MORRIS, a New York federal district court, on March 26, 1998, granted
defendants' motions to dismiss state and federal antitrust and unjust enrichment
claims but denied motions to dismiss claims asserted under RICO and those based
on fraud and breach of special duty. This decision was appealed to the Second
Circuit Court of Appeals which heard oral argument on February 4, 1999. Another
case, STEAMFITTERS LOCAL UNION 420 V. PHILIP MORRIS, has been appealed to the
Third Circuit Court of Appeals and was argued a week prior to the Second Circuit
hearing. Also surviving motions to dismiss, NORTHWEST LABORERS V. PHILIP MORRIS,
filed in federal court in Washington, was certified as a class action and is
currently scheduled for trial in September of 1999.
 
    The first union case to survive motions to dismiss and go to trial was IRON
WORKERS LOCAL NO. 17 V. PHILIP MORRIS. This case, in which a class of
approximately 111 union trust funds was certified by a federal district court in
Ohio, went to trial on February 22, 1999 on the counts that survived motions to
dismiss-- state and federal RICO and civil conspiracy. The federal RICO claim
was dismissed during the trial, and after the conclusion of plaintiffs' case,
the court directed a verdict dismissing RJRN and RJRN Holdings from the case. On
March 18, 1999, the jury in this case returned a unanimous verdict for the
defendants on all surviving counts.
 
    OTHER HEALTH-CARE COST RECOVERY AND AGGREGATED CLAIMS PLAINTIFFS.  Similar
cases have been filed by Native American tribes, five in tribal courts and one
putative class action in San Diego Superior Court. Four groups of health care
insurers as well as a private entity that purported to self-insure its employee
health care programs have also advanced claims similar to those found in the
union cost recovery actions. Two of these "insurer" cases, WILLIAMS & DRAKE V.
AMERICAN TOBACCO, and REGENCE BLUESHIELD V. PHILIP MORRIS, were dismissed on
"remoteness" grounds by federal district courts in Pennsylvania and Washington
respectively. Two foreign countries have also brought health-care cost recovery
suits in U.S. courts. Other
 
                                       11
<PAGE>
cost recovery suits have been brought by, among others, local governmental
jurisdictions, foreign governments, tax payers (on behalf of a governmental
jurisdiction), a university and a hospital. Finally, nine actions have been
filed against RJRT by asbestos companies and/or asbestos- related trust funds
based on the theory that the plaintiffs "overpaid" claims brought against them
to the extent that tobacco use, not asbestos exposure, was the cause of the
alleged personal injuries for which they paid compensation. There have been, to
date, no rulings on motions to dismiss these asbestos actions.
 
    RECENT AND SCHEDULED TRIALS.  As of March 19, 1999, there were 13 cases
scheduled for trial in 1999 against RJRT alleging injuries relating to tobacco.
Two of these cases, in which RJRT is a party, are currently in progress: the
ENGLE case in Florida; and NEWCOMB V. R.J. REYNOLDS TOBACCO COMPANY, which is
one of four consolidated individual cases being tried in Memphis, Tennessee.
Cases against other tobacco company defendants are also scheduled for trial in
1999 and thereafter. Although trial schedules are subject to change and many
cases are dismissed before trial, it is likely that there will be an increased
number of tobacco cases, some involving claims for possibly billions of dollars,
against RJRT and RJRN coming to trial over the next year as compared to prior
years when trials in these cases were less frequent.
 
    OTHER DEVELOPMENTS.  On May 28, 1997, a suit was filed against RJRT in the
U.S. District Court for the Northern District of Georgia, FARR V. R.J. REYNOLDS
TOBACCO COMPANY, alleging claims under Title VII and the Equal Pay Act. The suit
was brought on behalf of female RJRT employees and applicants for employment in
the "southeast sales region," seeking equitable relief, back pay and lost
benefits, as well as punitive damages, based on allegations that plaintiffs had
been denied employment, desirable job assignments, training, promotion and equal
pay. On plaintiffs' motion, all class action allegations in this case were
dismissed without prejudice in February 1999.
 
    RJRT is aware of certain grand jury investigations being conducted in New
York and Washington, D.C. which relate to the cigarette business. In addition,
RJRT received a document subpoena date September 17, 1998, from a federal grand
jury convened in the Eastern District of Pennsylvania by the Antitrust Division
of the Department of Justice. RJRT understands that the grand jury is
investigating possible violations of the antitrust laws related to tobacco leaf
buying practices. RJRT is responding to the subpoena.
 
    On December 22, 1998, a now inactive tobacco subsidiary that was part of
Reynolds International's business, Northern Brands International, Inc. ("NBI"),
entered into a plea agreement with the United States Attorney for the Northern
District of New York. NBI was charged with aiding and abetting certain customers
who brought merchandise into the United States "by means of false and fraudulent
practices. . . ." NBI agreed to pay a $10 million forfeiture and a $5.2 million
fine and special assessment. In the plea agreement, the U.S. Attorney agreed not
to bring additional criminal charges in the Northern District against NBI or its
corporate affiliates (including RJRN Holdings, RJRN, RJRT and Reynolds
International) for actions (from 1985 through 1998) that are related to those
that gave rise to the agreement. RJR-MacDonald, Reynolds International's
operating company in Canada, is cooperating with an investigation now being
conducted by the Royal Canadian Mounted Police relating to the same events that
gave rise to the NBI investigation. Management cannot predict whether any other
authorities in the United States or Canada will seek to take further actions
with regard to these events.
 
    For a further discussion of litigation affecting the tobacco business see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Tobacco--Governmental Activity."
 
    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 (including RJRN Holdings and RJRN) 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 could encourage an increase in the number of such
claims. There have been a number of political, legislative, regulatory, and
other developments relating to the tobacco industry and cigarette smoking that
have received wide media attention, including the
 
                                       12
<PAGE>
Master Settlement Agreement referred to above. These developments may negatively
affect the outcomes of tobacco-related legal actions and encourage the
commencement of additional similar litigation.
 
    Although it is impossible to predict the outcome of such events on pending
litigation and the rate at which new lawsuits are filed against RJRT, RJRN and
RJRN Holdings, a significant increase in litigation and/or in adverse outcomes
for tobacco defendants could have an adverse effect on any one or all of these
entities. RJRT, RJRN and RJRN Holdings each believe that they have a number of
valid defenses to any such actions and intend to defend such actions vigorously.
 
    RJRN Holdings and RJRN believe, that notwithstanding the quality of defenses
available to them and RJRT in litigation matters, 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 (including litigation costs). Management is unable to predict
the outcome of the litigation or 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.
 
    For more detailed information about the class action and other aggregated
claims suits pending against RJRT and its affiliates and indemnitees, see
exhibit 99 to this Form 10-K, a copy of which will be provided free of charge to
persons requesting it in writing and addressed to Worldwide Communications, RJR
Nabisco Holdings Corp., 1301 Avenue of the Americas, New York, NY 10019 or by
phone to 800-RJR-NAB3.
 
                                      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 currently represents approximately 80.5% of the economic
interest in Nabisco Holdings and approximately 97.7% of the total voting power
of Nabisco Holdings' outstanding common stock. Nabisco's businesses in the
United States are comprised of Nabisco Biscuit and the U.S. Foods Group. The
U.S. Foods Group is comprised of the Sales & Integrated Logistics Group and
Specialty Products, LifeSavers, Planters, Tablespreads (through August 14, 1998)
and Food Service. Nabisco's businesses outside the United States are conducted
by Nabisco Ltd and Nabisco International, Inc. ("Nabisco International" and
together with Nabisco Ltd, 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 1998.
 
NABISCO BISCUIT
 
    Nabisco Biscuit is the largest manufacturer and marketer in the United
States cookie and cracker industry with eight of the top ten selling brands.
Overall, in 1998, Nabisco Biscuit had a 38.6% share of the domestic cookie
category and a 52.6% share of the domestic cracker category (in the aggregate
more than two times the share of its closest competitor) compared to 39.6% and
53.7%, respectively, in 1997. Leading Nabisco Biscuit cookie brands include
OREO, CHIPS AHOY!, SNACKWELL'S and NEWTONS. Leading Nabisco Biscuit cracker
brands include RITZ, PREMIUM, NABISCO HONEY MAID GRAHAMS 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 STUFF, FUDGE COVERED OREO and
Reduced Fat OREO continue to increase the brand's
 
                                       13
<PAGE>
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!.
 
    NEWTONS, the oldest Nabisco Biscuit cookie brand, is the fourth leading
cookie brand in the United States. In recent years, fat free and reduced calorie
varieties of Newtons, as well as NEWTONS COBBLERS, have been introduced.
 
    SNACKWELL'S cookies and crackers, on a combined basis, is the seventh
leading brand in the United States. The entire SNACKWELL'S cookie and cracker
line was relaunched in the middle of the year, with improvements in taste,
texture and appearance. In addition, two new products, MINT CREME and CARAMEL
DELIGHTS were introduced during the year.
 
    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, all successful product line extensions. The RITZ product line
accounted for 13.4% of cracker sales in the United States in 1998, compared to
12.8% in 1997. PREMIUM, the oldest Nabisco cracker brand and the leader in the
saltine cracker segment, is joined by NABISCO HONEY MAID GRAHAMS, TRISCUIT, AIR
CRISPS and WHEAT THINS to comprise, along with RITZ, six of the eight largest
selling cracker brands in the United States. AIR CRISPS, launched nationally in
1996, consists of a line of light crispy baked snacks in Ritz, Cheese Nips,
Wheat Thins, Pretzel and Potato varieties. During the year, Nabisco Biscuit
introduced SWEET CRISPERS which ranked number one in sales for new
cookie/cracker products.
 
    Nabisco Biscuit's other cookie and cracker brands, which include NILLA,
NUTTER BUTTER, STELLA D'ORO, BETTER CHEDDARS, CHEESE NIPS AND BARNUM'S ANIMAL
CRACKERS, compete in consumer niche segments. Many are the first or second
largest selling brands in their respective segments.
 
    Nabisco Biscuit's products in the breakfast snack aisle include SNACKWELL'S
cereal bars, granola bars and TOASTETTES toaster pastries. The line has expanded
over the years with new varieties, and in 1998 Nabisco Biscuit introduced
SNACKWELL'S STREUSEL SQUARES.
 
    Nabisco Biscuit's products are manufactured in 13 Nabisco Biscuit owned
facilities and in 15 facilities with which Nabisco Biscuit has production
agreements with contract manufacturers. These facilities are located throughout
the United States. 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 11 major distribution warehouses
and 110 shipping branches where shipments are consolidated for delivery to
approximately 65,000 separate delivery points.
 
U.S. FOODS GROUP
 
    Nabisco manages its non-biscuit food operations in the U.S. through the U.S.
Foods Group which is comprised of the following operating units:
 
    SALES & INTEGRATED LOGISTICS GROUP.  The Sales & Integrated Logistics Group
handles sales and distribution for the LifeSavers and Planters Specialty
Companies and distribution for the Food Service Company. It sells to major
grocery chains, national drug and mass merchandisers, convenience channels and
warehouse clubs through a direct sales force. It also sells to small retail
grocery chains and regional mass merchandisers through independent brokers. The
products are distributed from twelve distribution centers located throughout the
United States.
 
    PLANTERS SPECIALTY.  Planters Specialty produces and markets a broad range
of food products. These products include nuts and salty snacks largely for sale
in the United States, primarily under the PLANTERS trademark. Planters, the only
nut brand sold nationally, is the clear leader in the packaged nut
 
                                       14
<PAGE>
category. In December 1997, the CORNNUTS line of crispy corn kernel snacks was
acquired and added to the Planters line. Planters Specialty also manufactures
and markets sauces and condiments, pet snacks, hot cereals, dry mix desserts,
and gelatins representing the largest categories. Many of Planters Specialty
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, ROYAL desserts and KNOX gelatines.
 
    Planters Specialty's primary entries in the steak sauce and mustard segments
are A.1. and A.1. BOLD steak sauces, the leading line of steak sauces, and GREY
POUPON mustards, which include the leading Dijon mustard.
 
    Planters Specialty is the second largest manufacturer of pet snacks in the
United States with MILK-BONE dog biscuits and dog snacks. MILK-BONE products
include MILK-BONE ORIGINAL BISCUITS, FLAVOR SNACKS, SUPER PREMIUM BISCUITS, DOG
TREATS and DOGGIE BAG TREATS.
 
    Planters Specialty, a leading manufacturer of hot cereals, participates 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. INSTANT CREAM OF WHEAT participates in the mix-in-bowl
segment and includes new varieties such as BANANA NUT BREAD and CINNAMON RAISIN.
Quaker Oats Company is the most significant participant in the hot cereal
category.
 
    Planters Specialty manufactures products in seven plants and sources
products from a number of contract manufacturers.
 
    LIFESAVERS.  LifeSavers 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, CARE*FREE sugarless gum, ICE
BREAKERS gum, BUBBLE YUM bubble gum, GUMMI SAVERS fruit chewy candy, NOW & LATER
fruit chewy taffy and FRUIT STRIPE gum. LIFE SAVERS is the largest selling
non-chocolate candy brand in the United States, with a 1998 share of 5.1%,
compared to 5.2% in 1997, of the non-chocolate candy category. BREATH SAVERS is
the largest selling sugar free breath mint in the United States and BUBBLE YUM
is among the largest selling bubble gum brands in the United States.
 
    LifeSavers manufactures its products in four owned plants and utilizes three
primary contract manufacturers.
 
    FOOD SERVICE.  Food Service utilizes a direct national sales force to sell a
variety of specially packaged food products of the Nabisco Biscuit and U.S.
Foods Group including cookies, crackers, confections, hot cereals, sauces and
condiments to the food service and vending machine industry.
 
INTERNATIONAL FOOD GROUP
 
    NABISCO LTD.  Nabisco Ltd conducts Nabisco's Canadian operations through its
Snack and Grocery Divisions. Excluding private label brands, the Snack Division
produced all of the top ten cookies and nine of the top ten crackers in Canada
in 1998. Nabisco Ltd's cookie and cracker brands in Canada include OREO, CHIPS
AHOY!, SNACKWELL'S, FUDGEE-O, PEEK FREANS, DAD'S, DAVID, PREMIUM PLUS, RITZ, AIR
CRISPS, TRISCUIT and STONED WHEAT THINS. These products are manufactured in five
bakeries in Canada and are sold through a direct store delivery system,
utilizing 10 sales offices and distribution centers and a combination of company
trucks and common carriers.
 
    The Snack Division also uses a separate selling and marketing organization
which offers a variety of specially packaged food products to non-grocery
outlets, wherever the consumer may have opportunity to
 
                                       15
<PAGE>
consume food products outside of the home. The products are sourced from both
the Snack and Grocery Divisions and include cookies, crackers, canned fruits,
vegetables, pasta and condiments.
 
    Nabisco Ltd's Grocery Division produces and markets canned fruits and
vegetables, fruit juices and drinks, pet snacks, pasta and other Italian food
products. The Grocery Division is the leading canned fruit producer and second
largest canned vegetable producer in Canada. Canned fruits and vegetables, as
well as 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. Dry pasta and other Italian food products are marketed under the
PRIMO trademark, which is the number two pasta brand in Canada. 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 seven
manufacturing facilities in 1998. Five produced canned products, principally
fruits and vegetables, one produced pet snacks and one produced pasta. The
Grocery Division's products are sold directly to retail chains and are
distributed through five regional warehouses.
 
    NABISCO INTERNATIONAL.  Nabisco International is a leading producer of
biscuits, powdered dessert and drink mixes, baking powder, pasta, juices, milk
products and other grocery items, as well as industrial yeast and bakery
ingredients. Nabisco International also exports a variety of Nabisco Biscuit and
U.S. Foods Group products to markets in Europe, the Middle East, Latin America,
Africa and Asia from the United States. Nabisco International operates one of
the largest multinational packaged food businesses in Latin America, with
operations in 15 countries.
 
    Nabisco International manufactures and markets biscuits and crackers under
the NABISCO, TERRABUSI, ARTIACH, MARBU and LUCKY brands, yeast and bakery
ingredients under the FLEISCHMANN'S brand, desserts, drink mixes and baking
powder under the ROYAL brand, processed milk products under the GLORIA brand and
juice under the MAGUARY brand.
 
    Nabisco International's largest market is Brazil, where it operates 15
manufacturing facilities. In the biscuit category, Nabisco International is the
market leader in Spain, Argentina, Venezuela, Puerto Rico, Nicaragua, Uruguay,
Taiwan and Beijing, China. It holds strong number two positions in Peru,
Ecuador, other Central American markets, Shanghai and Guangzhou, China. 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 and in baking powder throughout South America.
 
    Nabisco increased its Latin American biscuit operations through the
acquisitions of Companhia Produtos Pilar in Brazil, and Productos Mayco
S.A.I.C.I.F. and Productos Capri S.A.C.I.I. in Argentina during 1996, and
Galletera Tejerias, S.A. in Venezuela during 1995. Its pasta business was
strengthened in Argentina via the acquisition of Luis Vizzolini e Hijos,
S.A.I.C., and initiated in Brazil with the Pilar acquisition. In 1998, Nabisco
International acquired Butterkist Ltd., a biscuit producer in Jamaica.
 
    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. In
1996, it consolidated its market leadership position in biscuits with the
acquisition of Galletas Fontaneda, S.A.
 
    In Asia, Nabisco International operates its Chinese biscuit business through
joint ventures in Beijing and a wholly-owned subsidiary in Suzhou. In Indonesia,
a plant which is 70% owned by Nabisco and 30% owned by its partner and
distributor was started up in 1996. Biscuit leadership in Taiwan was gained in
1996 through the acquisition of the assets of Lucky Enterprises Corporation
Limited, the leading biscuit company in Taiwan.
 
    Nabisco International's grocery and biscuit products are sold to retail
outlets through its own local country sales forces and independent wholesalers
and distributors. Industrial yeast and bakery products are sold to the bakery
trade through Nabisco International's own local country sales forces and
independent distributors.
 
                                       16
<PAGE>
RAW MATERIALS
 
    Agricultural commodities constitute the principal raw materials used by
Nabisco in its food businesses. These raw materials are normally purchased
through supplier contracts, while the commodities market is utilized to hedge
prices for a large portion of anticipated future requirements. Prices of
agricultural commodities tend to fluctuate due to seasonal, climatic and
economic factors which generally also affect Nabisco's competitors. Nabisco
Holdings and Nabisco believe that the raw materials for Nabisco products are in
plentiful supply and are readily available from a variety of independent
suppliers.
 
COMPETITION
 
    Generally, the markets in which Nabisco Biscuit, U.S. Foods 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 Nabisco Biscuit, U.S. Foods 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 locations. Nabisco does not believe that such
licensing arrangements have a material effect on the conduct of its domestic or
international businesses.
 
                                 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 U.S. Environmental Protection Agency (the "EPA")
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. RJRN has also been
named in an insurance coverage suit brought by another company named as a PRP at
this site. In this lawsuit, DEL MONTE FRESH PRODUCE V. FIREMAN'S FUND INSURANCE,
filed August 13, 1997 in the First Circuit Court of the State of Hawaii, the
plaintiff seeks declaratory judgment that it is entitled to insurance coverage
for the site or, in the alternative, that RJRN is obligated to indemnify Del
Monte Fresh Produce under the terms of the agreement by which RJRN sold that
company in 1989. The Fireman's Fund Insurance Company has filed a motion for
summary judgment that has not yet been heard.
 
    Certain subsidiaries of RJRN have also been named as PRPs with third parties
or may have indemnification obligations with respect to a number of additional
sites. Liability under CERCLA is joint and several.
 
    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
business or financial condition of the Registrants and their subsidiaries taken
as a whole.
 
                                       17
<PAGE>
EMPLOYEES
 
    At December 31, 1998, RJRN Holdings together with its subsidiaries had
approximately 74,000 employees, of which approximately 1,700 were part-time
employees. None of RJRT's operations is unionized. Most of the unionized workers
at Nabisco's operations are represented under a national contract with the
Bakery, Confectionery and Tobacco Workers International Union, which was
ratified in August 1996 and which will expire in August 2001. 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
subsidiaries' relations with these employees and with their unions are good.
 
    (D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
 
    For information about foreign and domestic operations for the years 1996
through 1998, see "Segment Geographic Information" in note 15 to the
Consolidated Financial Statements.
 
ITEM 2. PROPERTIES
 
    For information pertaining to RJRN Holdings' and RJRN's assets by operating
segment and geographic areas as of December 31, 1998 and 1997, see note 15 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 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 an exchange offer and
related 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 Holdings, 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. On
February 25, 1999, the plaintiffs in this case filed a status report with the
court indicating that a stipulation of dismissal without prejudice will be
circulated shortly. As of March 17, 1999, no stipulation has been executed.
 
    For information about other litigation and legal proceedings, see
"Business--Tobacco--Litigation Affecting the Cigarette Industry" and "Other
Matters--Environmental Matters" in Item 1 and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Governmental
Activity" in Item 7.
 
    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, not withstanding the quality of
defenses available to them and RJRT in litigation matters, it is possible that
the results of operations or cash flows of RJRN Holdings
 
                                       18
<PAGE>
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 (including litigation costs). Management is
unable to predict the outcome of litigation or 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
 
    None.
 
EXECUTIVE OFFICERS OF THE REGISTRANTS
 
EXECUTIVE OFFICERS OF RJRN HOLDINGS
 
    The executive officers of RJRN Holdings are Steven F. Goldstone (Chairman of
the Board, Chief Executive Officer and President), Gerald I. Angowitz (Senior
Vice President, Human Resources and Administration), H. Colin McBride (Senior
Vice President, Associate General Counsel and Secretary), David B. Rickard
(Senior Vice President and Chief Financial Officer), William L. Rosoff (Senior
Vice President and General Counsel), Richard G. Russell (Senior Vice President
and Controller) and Francis X. Suozzi (Senior Vice President and Treasurer). The
following table sets forth certain information regarding such officers.
 
<TABLE>
<CAPTION>
                                                                    BUSINESS EXPERIENCE DURING THE PAST
NAME                                      AGE                        FIVE YEARS AND OTHER INFORMATION
------------------------------------      ---      ---------------------------------------------------------------------
<S>                                   <C>          <C>
Steven F. Goldstone.................          53   Chairman since May 1996; Chief Executive Officer since December 1995;
                                                     President since October 1995; prior thereto, General Counsel, March
                                                     1995 to December 1995; previously Senior Partner with law firm of
                                                     Davis Polk & Wardwell until October 1995 and for more than five
                                                     years prior thereto.
Gerald I. Angowitz..................          49   Senior Vice President of Human Resources and Administration since
                                                     March 1995; prior thereto, Vice President of Human Resources,
                                                     January 1994 to March 1995; Vice President of Employee Benefits,
                                                     January 1992 to December 1993.
H. Colin McBride....................          53   Senior Vice President, Associate General Counsel and Secretary since
                                                     February 1998; prior thereto, Vice President, Assistant General
                                                     Counsel and Secretary, December 1995 to February 1998; Vice
                                                     President and Assistant General Counsel for more than five years
                                                     prior thereto.
David B. Rickard....................          52   Senior Vice President and Chief Financial Officer since March 1997;
                                                     previously Executive Vice President, International Distillers and
                                                     Vintners Americas, 1996 to 1997; Finance Director, International
                                                     Distillers and Vintners, 1995 to 1996; Group Controller, Grand
                                                     Metropolitan PLC, 1994 to 1995; Senior Vice President and Chief
                                                     Financial Officer, The Pillsbury Company, 1991 to 1994.
William L. Rosoff...................          52   Senior Vice President and General Counsel since January 1998;
                                                     previously Partner with law firm of Davis Polk & Wardwell for more
                                                     than five years prior thereto.
Richard G. Russell..................          53   Senior Vice President and Controller since May 1995; previously
                                                     Partner at the accounting firm of Deloitte & Touche LLP for more
                                                     than five years prior thereto.
</TABLE>
 
                                       19
<PAGE>
<TABLE>
<CAPTION>
                                                                    BUSINESS EXPERIENCE DURING THE PAST
NAME                                      AGE                        FIVE YEARS AND OTHER INFORMATION
------------------------------------      ---      ---------------------------------------------------------------------
<S>                                   <C>          <C>
Francis X. Suozzi...................          58   Senior Vice President and Treasurer since December 1998; prior
                                                     thereto, Senior Vice President--Corporate Business Development,
                                                     Nabisco Holdings and Nabisco, July 1998 to December 1998; Senior
                                                     Vice President and Treasurer, Nabisco Holdings and Nabisco, April
                                                     1997 to July 1998; Vice President and Treasurer, Nabisco Holdings
                                                     and Nabisco, February 1995 to April 1997; Vice President and
                                                     Assistant Treasurer of RJRN from March 1994 to February 1995;
                                                     previously Managing Director, First Intercontinental Group, 1993 to
                                                     March 1994.
</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>
                                                                    BUSINESS EXPERIENCE DURING THE PAST
NAME                                      AGE                        FIVE YEARS AND OTHER INFORMATION
------------------------------------      ---      ---------------------------------------------------------------------
<S>                                   <C>          <C>
James M. Kilts......................          51   Chief Executive Officer and President of Nabisco Holdings and of
                                                     Nabisco since January 1998; previously Executive Vice President-
                                                     Worldwide Food of Philip Morris Companies, 1994 to March 1997;
                                                     President of Kraft USA, 1989 to 1994.
Pierre de Labouchere................          45   Chief Executive Officer and President of Reynolds International since
                                                     December 1995; prior thereto, President of Eastern Europe, Middle
                                                     East and Africa Region, Reynolds International, 1994 to December
                                                     1995; Regional Vice President-European and Special Markets,
                                                     Reynolds International, 1991 to 1994.
Andrew J. Schindler.................          54   Chief Executive Officer and President of RJRT since July 1995; prior
                                                     thereto, President and Chief Operating Officer-U.S.A., RJRT, May
                                                     1994 to June 1995; Executive Vice President-Operations, RJRT, 1991
                                                     to 1994.
Jeffrey A. Kuchar...................          44   Senior Vice President and General Auditor since January 1998; prior
                                                     thereto, Vice President and General Auditor, 1993 to 1997; Director
                                                     of Finance and Business Development, Specialty Products Company,
                                                     Nabisco, 1993; Director of Financial Planning, Specialty Products
                                                     Company, Nabisco, 1992 to 1993.
Lionel L. Nowell III................          44   Senior Vice President of Strategy and Business Development since
                                                     January 1998; previously Vice President-Finance, Pillsbury North
                                                     America, November 1996 to January 1998; Vice President-Finance,
                                                     Pillsbury Bakeries & Foodservice, February 1996 to November 1996;
                                                     Vice President and Chief Financial Officer, Haagen-Dazs, November
                                                     1994 to February 1996; Vice President and Controller, The Pillsbury
                                                     Company, May 1993 to November 1994; Vice President- Food and
                                                     International Retailing Audit, The Pillsbury Company, September
                                                     1992 to May 1993.
J. Thomas Pearson...................          57   Senior Vice President of Taxation since 1988.
</TABLE>
 
                                       20
<PAGE>
<TABLE>
<CAPTION>
                                                                    BUSINESS EXPERIENCE DURING THE PAST
NAME                                      AGE                        FIVE YEARS AND OTHER INFORMATION
------------------------------------      ---      ---------------------------------------------------------------------
<S>                                   <C>          <C>
Huntley R. Whitacre.................          56   Senior Vice President of Investor Relations since August 1995; prior
                                                     thereto, Vice President of Investor Relations for more than five
                                                     years.
Jason H. Wright.....................          38   Senior Vice President of Worldwide Communications since February
                                                     1994; prior thereto, Vice President of Worldwide Communications,
                                                     1993 to 1994; Vice President of Financial Communications, 1990 to
                                                     1993.
</TABLE>
 
                                       21
<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 February 28, 1999, there were approximately 55,000 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 26, 1999 was $27.3125.
 
    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:
<TABLE>
<CAPTION>
                                                                           HIGH        LOW
                                                                        ----------  ----------
<S>                                                                     <C>         <C>
1998:
  First Quarter.......................................................  $  38.0625  $  30.0
  Second Quarter......................................................     31.3125     23.5
  Third Quarter.......................................................     27.375      21.3125
  Fourth Quarter......................................................     31.9375     24.0
 
<CAPTION>
 
                                                                           HIGH        LOW
                                                                        ----------  ----------
<S>                                                                     <C>         <C>
1997:
  First Quarter.......................................................  $  38.875   $  30.625
  Second Quarter......................................................     36.5        27.0
  Third Quarter.......................................................     36.125      29.5625
  Fourth Quarter......................................................     37.9375     29.875
</TABLE>
 
    On March 5, 1996, RJRN Holdings announced a 23% increase in its annual
common dividend rate from $1.50 to $1.85 per share of Common Stock and adopted
as an objective the repurchase of approximately 10 million shares of Common
Stock over the next several years based on the achievement of performance
targets. RJRN Holdings repurchased approximately $100 million of Common Stock in
1996. On February 28, 1997, the Board of Directors authorized an 11% increase in
the annual common dividend to $2.05 per share and authorized the repurchase of
up to $200 million of Common Stock in 1997. No such repurchases were made in
1997 or 1998. Commencing with the April 1, 1999 payment, the quarterly dividend
paid by Nabisco was increased to $.1875 per share or $.75 per share on an annual
basis, from its previous level of $.70 per share. As a result, the Nabisco
Holdings dividends payable to RJRN increased from approximately $141 million
annually to $160 million annually.
 
    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, RJRN's
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 notes 6 and 9 to the Consolidated Financial Statements.
RJRN Holdings does not believe that the provisions of its credit agreements or
its adopted policies concerning distributions to stockholders will limit its
ability to pay its anticipated quarterly dividends.
 
                                       22
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
 
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 (DOLLARS IN MILLIONS, EXCEPT PER
SHARE AMOUNTS)                                               1998       1997       1996       1995       1994
---------------------------------------------------------  ---------  ---------  ---------  ---------  ---------
<S>                                                        <C>        <C>        <C>        <C>        <C>
RESULTS OF OPERATIONS
  Net sales..............................................  $  17,037  $  17,057  $  17,063  $  16,008  $  15,366
  Income (loss) before extraordinary item................       (577)       402        611        627        764
PER SHARE DATA
  Basic income (loss) per share before extraordinary
    item.................................................  $   (1.91) $    1.11  $    1.75  $    1.59  $    2.07
  Diluted income (loss) per share before extraordinary
    item.................................................  $   (1.91) $    1.09  $    1.74  $    1.58  $    2.06
  Average number of common and common equivalent shares
    outstanding (in thousands):
    Basic................................................    323,853    323,787    324,917    325,476    305,142
    Diluted..............................................    323,853    325,318    325,947    326,235    306,756
  Dividends per share of common stock....................  $    2.05  $    2.05  $    1.85  $    1.50         --
  Dividends per share of Series A convertible preferred
    stock................................................         --         --         --         --  $    2.92
  Dividends per share of Series C convertible preferred
    stock................................................         --  $    2.25  $    6.01  $    6.01  $    3.94
CASH FLOW DATA
  Dividends paid on common and preferred stock...........  $     742  $     755  $     716  $     598  $     395
  Capital expenditures...................................        576        763        741        744        670
BALANCE SHEET DATA
  (AT END OF PERIODS)
  Total assets...........................................  $  28,892  $  30,678  $  31,289  $  31,518  $  31,408
  Long-term debt.........................................      8,655      9,456      9,256      9,429      8,883
  Mandatorily redeemable preferred securities............      1,327        953        954        954         --
  Stockholders' equity...................................      8,014      9,631     10,148     10,329     10,908
OTHER DATA
  Number of employees
    Tobacco..............................................     23,000     26,400     25,400     22,800     21,200
    Food.................................................     51,000     54,000     54,300     53,200     49,400
</TABLE>
 
------------------------
 
See Subsequent Events regarding the pending sale by RJRN and RJRT of the
international tobacco business and the separation of the domestic tobacco and
food businesses.
 
See the consolidated financial statements regarding (i) the restructuring of the
food operations in 1998 and 1996; (ii) the restructuring of the international
tobacco operations during 1998 and 1997; (iii) the tobacco settlement agreements
entered into and the related expenses incurred by RJRT during 1998 and 1997 and
the restructuring of the domestic tobacco operations during 1997; (iv) the
issuance of preferred securities by a subsidiary of RJRN Holdings and the
redemption of Series B preferred stock by RJRN Holdings in 1998; and (v) the
conversion during 1997 of Series C depositary shares issued during 1994.
 
During 1995, a pre-tax restructuring charge of $154 million ($104 million
after-tax) was recorded in connection with a program to streamline the worldwide
tobacco operations; a subsidiary of RJRN Holdings issued preferred securities in
exchange for an equal amount of RJRN Holdings' Series B preferred stock
outstanding; and RJRN Holdings and Nabisco completed a debt exchange that
resulted in a pre-tax charge of approximately $103 million for fees and
expenses.
 
During 1994, the Series A depositary shares issued during 1991 converted into
42,000,000 shares of common stock and a pre-tax charge of $65 million was
recorded in connection with the realignment of corporate headquarters.
 
Net sales and costs of products sold exclude excise taxes of $3.526 billion,
$3.599 billion, $3.852 billion, $3.832 billion and $3.578 billion for the years
ended December 31, 1998, 1997, 1996, 1995 and 1994, respectively.
 
                See Notes to Consolidated Financial Statements.
 
                                       23
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS
 
    The following is a discussion and analysis of the consolidated financial
condition and results of operations of RJRN Holdings. The results of operations
discussion and analysis is presented in four sections. The first section
includes reported information for net sales and operating company contribution
as included in the historical consolidated financial statements. The second
section highlights unusual items that management believes impact the
comparability of the historical operating company contribution information
presented in section one. The third section illustrates operating company
contribution on a basis consistent with how management manages the ongoing
businesses excluding unusual items described in the second section. This section
should not be viewed as a substitute for the historical results of operations
but as a tool to better understand underlying trends in the business. The last
section includes management's discussion and analysis of the ongoing results.
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, 1998 and 1997 and for each of the years in the three-year period
ended December 31, 1998.
 
                             RESULTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                                                        % CHANGE FROM
                                                                                                          PRIOR YEAR
                                                                                                   ------------------------
YEARS ENDED DECEMBER 31 (DOLLARS IN MILLIONS)                       1998       1997       1996        1998         1997
----------------------------------------------------------------  ---------  ---------  ---------  -----------  -----------
<S>                                                               <C>        <C>        <C>        <C>          <C>
Net sales:
  R.J. Reynolds Tobacco.........................................  $   5,568  $   4,895  $   4,551          14%           8%
  Reynolds International........................................      3,069      3,428      3,623         (10)%         (5)%
                                                                  ---------  ---------  ---------
  Total Tobacco.................................................      8,637      8,323      8,174           4%           2%
                                                                  ---------  ---------  ---------
  Nabisco Biscuit...............................................      3,542      3,545      3,677          --%          (4)%
  U.S. Foods Group..............................................      2,334      2,604      2,638         (10)%         (1)%
  International Food Group......................................      2,524      2,585      2,574          (2)%         --%
                                                                  ---------  ---------  ---------
  Total Food....................................................      8,400      8,734      8,889          (4)%         (2)%
                                                                  ---------  ---------  ---------
                                                                  $  17,037  $  17,057  $  17,063          --%          --%
                                                                  ---------  ---------  ---------
                                                                  ---------  ---------  ---------
Operating company contribution (1)(2):
  R.J. Reynolds Tobacco.........................................  $     178  $   1,151  $   1,450         (85)%        (21)%
  Reynolds International........................................        468        581        803         (19)%        (28)%
                                                                  ---------  ---------  ---------
  Total Tobacco.................................................        646      1,732      2,253         (63)%        (23)%
                                                                  ---------  ---------  ---------
  Nabisco Biscuit...............................................        500        691        542         (28)%         27%
  U.S. Foods Group..............................................        335        386        346         (13)%         12%
  International Food Group......................................        210        231        242          (9)%         (5)%
                                                                  ---------  ---------  ---------
  Total Food....................................................      1,045      1,308      1,130         (20)%         16%
                                                                  ---------  ---------  ---------
  Headquarters..................................................        (79)       (70)       (67)        (13)%         (4)%
                                                                  ---------  ---------  ---------
                                                                  $   1,612  $   2,970  $   3,316         (46)%        (10)%
                                                                  ---------  ---------  ---------
                                                                  ---------  ---------  ---------
</TABLE>
 
------------------------
 
(1) Includes domestic tobacco settlement and related costs of $1.442 billion in
    1998 and $359 million in 1997, and restructuring-related expenses of $56
    million in 1998, $89 million in 1997 and $97 million in 1996.
    Restructuring-related costs by operating segment follow: Nabisco
    Biscuit--$42 million, U.S. Foods Group--$6 million and International Food
    Group--$8 million for the year ended December 31, 1998; Reynolds
    International--$89 million for the year ended December 31, 1997 and Nabisco
    Biscuit--$58 million, U.S. Foods Group--$33 million and the International
    Food Group--$6 million for the year ended December 31, 1996.
 
(2) Operating company contribution represents operating income before
    amortization of trademarks and goodwill and restructuring expenses.
 
                                       24
<PAGE>
    The following table summarizes the impact of certain unusual items on
operating company contribution ("OCC") and diluted earnings per share for each
period presented. We believe these items are unusual in nature and therefore are
not included when evaluating the ongoing operating performance of our
businesses. These items are described in notes 2, 3 and 10 to the consolidated
financial statements.
 
<TABLE>
<CAPTION>
                                                                                      1997                      1996
                                                            1998            ------------------------  ------------------------
YEARS ENDED DECEMBER 31 (DOLLARS IN MILLIONS,     ------------------------              PER DILUTED               PER DILUTED
EXCEPT PER SHARE AMOUNTS)                            OCC                       OCC         SHARE         OCC         SHARE
------------------------------------------------  ---------                 ---------  -------------  ---------  -------------
                                                              PER DILUTED
                                                                 SHARE
                                                             -------------
<S>                                               <C>        <C>            <C>        <C>            <C>        <C>
R.J. Reynolds Tobacco:
  Tobacco settlement and related expenses.......  $   1,442    $    2.87    $     359    $     .67    $      --    $      --
Reynolds International:
  Restructuring-related costs...................         --           --           89          .24           --           --
Food:
  Restructuring-related costs...................         56          .09           --           --           97          .14
  Net gain from divested businesses.............        (14)          --           --           --           --           --
                                                  ---------        -----    ---------        -----    ---------        -----
    Total.......................................  $   1,484    $    2.96    $     448    $     .91    $      97    $     .14
                                                  ---------        -----    ---------        -----    ---------        -----
                                                  ---------        -----    ---------        -----    ---------        -----
</TABLE>
 
    The following table represents operating company contribution excluding
unusual items.
 
<TABLE>
<CAPTION>
                                                                                                   % CHANGE FROM
                                                                                                     PRIOR YEAR
                                                                                              ------------------------
YEARS ENDED DECEMBER 31 (DOLLARS IN MILLIONS)                  1998       1997       1996        1998         1997
-----------------------------------------------------------  ---------  ---------  ---------  -----------  -----------
<S>                                                          <C>        <C>        <C>        <C>          <C>
R.J. Reynolds Tobacco......................................  $   1,620  $   1,510  $   1,450           7%           4%
Reynolds International.....................................        468        670        803         (30)%        (17)%
                                                             ---------  ---------  ---------
Total Tobacco..............................................      2,088      2,180      2,253          (4)%         (3)%
                                                             ---------  ---------  ---------
Nabisco Biscuit............................................        542        691        600         (22)%         15%
U.S. Foods Group...........................................        339        386        379         (12)%          2%
International Food Group...................................        206        231        248         (11)%         (7)%
                                                             ---------  ---------  ---------
Total Food.................................................      1,087      1,308      1,227         (17)%          7%
                                                             ---------  ---------  ---------
Headquarters...............................................        (79)       (70)       (67)        (13)%         (4)%
                                                             ---------  ---------  ---------
                                                             $   3,096  $   3,418  $   3,413          (9)%         --%
                                                             ---------  ---------  ---------
                                                             ---------  ---------  ---------
</TABLE>
 
    UNLESS OTHERWISE NOTED, OPERATING COMPANY CONTRIBUTION COMPARISONS WITHIN
THE FOLLOWING DISCUSSIONS ARE BASED ON ONGOING RESULTS, WHICH EXCLUDE UNUSUAL
ITEMS DISCLOSED ABOVE.
 
TOBACCO
 
    The tobacco line of business is conducted by R.J. Reynolds Tobacco ("RJRT")
and Reynolds International.
 
    1998 VS. 1997.  RJRT's net sales for 1998 were $5.6 billion, $673 million
higher than 1997. The increase is primarily attributable to higher pricing of $1
billion, partially offset by lower volume of $272 million. The pricing increase
is before competitive discounting (marketing). See the operating company
contribution discussion below. RJRT's volume for 1998 decreased 6%, while
overall industry volume decreased 5%.
 
    RJRT's overall retail share of market for 1998 decreased to 25.17% from
25.41% in the prior year. RJRT's full-price share of market declined to 16.27%
from 16.65% in 1997, while its savings share of market increased to 8.90% from
8.76%. Industry wide shipments for the full-price category were 73% of
 
                                       25
<PAGE>
the total shipments in 1998 and 72% in 1997. RJRT's full-price shipments as a
percentage of its total shipments were 63% in 1998 and 1997.
 
    Camel's retail share increased to 5.31% for the year from 5.18% in 1997,
although volume was down 3%. Two new promotions for Camel were launched in the
fourth quarter, the "Mighty Tasty Lifestyles" sweepstakes and the new Camel Cash
catalog.
 
    Winston's retail share was flat for the year, while volume declined 5%. The
second half of 1997 included strong introductory shipments of the repositioned,
"No Bull" Winston. Salem volume declined 11% compared to 1997, while market
share declined from 3.71% to 3.44%. Following a successful New York-area test
market, Salem's "It's Not What You Expect" repositioning is being expanded
nationally in early 1999, with special emphasis on markets where the full-price
menthol segment is strong.
 
    Doral's retail share increased to 6.38% in 1998 from 5.90% in the prior
year, solidifying its position as the leading savings brand. For the year, Doral
volume increased 3%. The brand introduced a new advertising campaign-"Imagine
Getting More"-in September 1998.
 
    RJRT's operating company contribution increased 7% over 1997 to $1.62
billion. The increase is due primarily to increased pricing of $1 billion,
partially offset by lower volume of $230 million, ongoing settlement costs of
$148 million, higher competitive discounting (marketing) of $336 million and
other costs (including product and merchandising costs).
 
    RJRT announced a $22.50 per thousand cigarette price increase effective
November 25, 1998. This followed other price increases in 1998 of $3.00 per
thousand cigarettes announced in the third quarter, two increases of $2.50 per
thousand cigarettes announced in the second quarter and an increase of $1.25 per
thousand cigarettes announced in the first quarter. Each $1.00 per thousand
cigarettes increase equals a $.02 increase per pack. The manufacturers list
price per pack of cigarettes increased approximately $.64 in 1998. Similar price
increases were announced by other cigarette manufacturers.
 
    Reynolds International's net sales were $3.1 billion in 1998, a decrease of
10% from 1997, due primarily to lower volume of $199 million and unfavorable
foreign currency translation of $152 million. Overall volume of 188 billion
units was down 5% versus 1997, primarily due to deteriorating economic
conditions in the CIS and Baltics region and weakness in Special Markets.
 
    Although volume was up 7% in Russia, margins softened as consumers traded
down to lower-priced popular and value brands. Overall, performance fell far
short of expectations as increased local volume did not make up for profits and
volume lost for the year through a 57% decline in the company's higher-margin
exports into Russia. In Asia, economic upheavals also had a substantial impact
on the company's performance. The regional economy, coupled with a tax increase
in Japan in the previous year, caused a downturn in Reynolds International's
premium-priced business. Overall volume in Japan declined 1% for the year,
although Salem, Reynolds International's flagship menthol brand, increased
volume by 3%. Volume performance in Western Europe stabilized in 1998 after
several years of declines, with gains registered in Spain and Germany.
 
    By brand, overall Camel volume decreased 7%, but the brand showed growth in
high-margin markets such as France, up 18%, and Spain, up 23%. The brand
continues to stabilize in Germany after a number of years of decline. Winston's
overall volume decreased 10% for the year, with volume in France decreasing 16%
due to the effect of a pricing disadvantage. However, with the pricing issue
behind it, Reynolds International expects renewed growth for Winston in 1999 in
France. The brand showed volume growth in several key markets during 1998, with
volume in Spain up 21% and Greece up 19%.
 
    Operating company contribution for Reynolds International was $468 million
for the year, a decrease of 30% versus 1997. Only the Americas region posted a
small gain. The decrease in operating company contribution is mainly
attributable to the volume decline and unfavorable foreign currency translation.
 
                                       26
<PAGE>
    1997 VS. 1996.  RJRT's net sales increased 8% over 1996 to $4.9 billion. The
increase is primarily due to pricing of $409 million, partially offset by a 2%
volume decline of $81 million. The company believes that its shipments and those
of the entire domestic tobacco industry were influenced by wholesale trading
activity in anticipation of further price increases. The industry volume
declined 1% but it is estimated that volume would have declined by approximately
2%, excluding the impact of the additional buying activity.
 
    RJRT's retail share of market declined slightly to 25.41% from 25.90%.
RJRT's full-price share of market decreased slightly to 16.65% from 16.81%. The
company's savings share of market also decreased slightly to 8.76% from 9.09%.
Industry-wide, the full-price category was 72% of total shipments in 1997 and
1996. RJRT's full-price shipments as a percentage of its total shipments
remained steady at 63% for 1997 and 1996.
 
    The company made progress on several initiatives designed to strengthen its
full-price business, as demonstrated by its stable full-price share of market in
the latter half of 1997. Camel shipments grew 5% as it continued to be one of
the fastest-growing full-price brands in the United States. During 1997, Camel
successfully introduced a new advertising campaign "What You're Looking For" to
replace "Joe Camel." The newest additions to the Camel family, Camel Menthol,
Red Kamel and Kamel Menthe, continued to show positive results. In addition,
Winston, another of the company's flagship brands, grew 9% in volume in the
second half of 1997 compared to the same period of the prior year and sustained
share after the company introduced its national "No Bull" marketing campaign.
"No Bull" repositioned the brand with a "straight-up" attitude leveraging its
image and unique product point-of-difference; a 100 percent-tobacco blend with
no additives for true tobacco taste. In November 1997, the company began the
test marketing of a new positioning strategy for the Salem brand.
 
    In the savings category, Doral, the industry's leading savings brand, grew
volume by 5% and its share of the savings segment was up 8%.
 
    Operating company contribution grew 4% over 1996 to $1.5 billion primarily
due to favorable pricing and mix, partially offset by higher marketing and
litigation expenses and the overall volume decline.
 
    Reynolds International's volume increased 1% over 1996 despite a decision to
reduce quarter-end sales incentives in order to eliminate excess trade
inventories. Unfavorable volume mix (approximately $183 million) and currency
translation (approximately $190 million) more than offset higher pricing
(approximately $167 million), resulting in a decrease in net sales of 5% to $3.4
billion.
 
    By region, volume declines in Western Europe of 15% and Special Markets of
11% were more than offset by volume increases in the CIS and Baltics of 13% and
Central Europe of 43%. In Western Europe, short-term pricing pressures in France
and Spain, a general shift from the full-flavor segments throughout Western
Europe and the decision to reduce excess trade inventories caused the 15% volume
decline. Reynolds International's new lights entries (Camel Lights and Camel
Medium) fueled growth in the low tar and nicotine category. Camel Lights grew 5%
in Western Europe while Camel Medium grew 17%. Difficult operating conditions
affected the volume performance in the European and Middle East export markets.
Regional heritage brands such as Peter I in Russia fueled the growth in the CIS
and Baltics region. Peter I was the largest-selling filter cigarette in Russia,
where capacity was expanded to meet the growing demand. In addition, other
heritage brands were introduced throughout the region and also performed well.
The volume increase in Central Europe was driven by Winston and Monte Carlo. In
Asia, volume declined approximately 3% primarily driven by the trade inventory
reduction. Salem Pianissimo, a low smoke, low smell cigarette, continued to
outperform competition in Japan.
 
    Reynolds International's operating company contribution declined 17%,
primarily due to unfavorable volume mix, higher product costs and unfavorable
foreign currency translation, partly offset by higher pricing.
 
                                       27
<PAGE>
GOVERNMENTAL ACTIVITY
 
    The advertising, sale and use of cigarettes have been under attack by
government and health officials in the United States and in other countries for
many years, principally due to health concerns about cigarette smoking and
environmental tobacco smoke. 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, these developments have 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 is currently 24 cents. On August 5, 1997, President Clinton signed
H.R. 2015 into law, which will increase the per pack federal cigarette excise
tax by 10 cents in fiscal year 2000, and an additional 5 cents in fiscal year
2002. In his State of the Union address, President Clinton specifically
indicated support for a 55 cent additional increase in the federal excise tax.
In addition, all states and the District of Columbia impose excise taxes at
levels ranging from a low of 2.5 cents in Virginia to a high of $1.00 per pack
in Alaska.
 
    In August 1996, the U.S. Food and Drug Administration (the "FDA") asserted
jurisdiction over cigarettes and certain other tobacco products by declaring
such products to be medical devices and adopting regulations, first proposed in
1995, on the advertising, promotion and sale of cigarettes. The regulations
include a phased-in schedule of effectiveness over a two-year period. The first
phase began on February 28, 1997, when regulations establishing 18 as the
national minimum age for the sale of cigarettes and requiring age identification
from purchasers who appear to be under age 26 became effective. Among other
things, the remaining 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 rules also limit advertising in print and on billboards to
black and white text and impose new labeling language.
 
    RJRT, together with the four other major domestic cigarette manufacturers
and an advertising agency, filed suit in the U.S. District Court for the Middle
District of North Carolina (COYNE BEAHM V. UNITED STATES FOOD & DRUG
ADMINISTRATION) challenging the regulations. Similar suits were filed in the
same court by manufacturers of smokeless tobacco products, by operators of
retail stores and by advertising interests. On April 26, 1997, the court ruled
on a motion for summary judgment, that based on the facts alleged by the FDA,
that agency was not barred from asserting jurisdiction over tobacco but lacked
authority to issue certain of the regulations bearing on marketing and
advertising. The court immediately certified its decision for appeal to the
Fourth Circuit Court of Appeals and stayed the effectiveness of that portion of
the regulations which had not yet been implemented pending appeal or further
court action. The Fourth Circuit overturned the District Court ruling, finding
that the FDA had exceeded its authority by regulating tobacco products. The FDA
has filed an appeal with the U.S. Supreme Court. RJRT cannot predict whether the
Court will accept the appeal or the outcome or any decision. However, the major
cigarette manufacturers have accepted restrictions similar to some of those
proposed by the FDA with respect to brand name sponsorships, distribution of
non-tobacco items carrying brand names and billboard advertising in connection
with the Master Settlement Agreement described above. See "Business--Tobacco--
Litigation Affecting the Cigarette Industry" in Item 1.
 
    On May 28, 1997, the Federal Trade Commission (the "FTC") issued an
unfairness complaint against RJRT, seeking to stop the use of Joe Camel
advertising, to require RJRT to undertake certain public education activities
and to monitor sales and share of sales of each of RJRT's brands to smokers
under the age of 18. Although RJRT had then withdrawn Joe Camel advertising,
trial before an administrative law judge began in November 1998. The case was,
however, dismissed by FTC motion on January 26, 1999.
 
                                       28
<PAGE>
    In December 1992, the U.S. Environmental Protection Agency (the "EPA")
issued a report which classified environmental tobacco smoke as a Group A (known
human) carcinogen. On June 22, 1993, RJRT and others filed suit in the U.S.
District Court for the Middle District of North Carolina (FLUE-CURED
STABILIZATION CORP. V. U.S. ENVIRONMENTAL PROTECTION AGENCY) to challenge the
validity of the EPA report. On July 17, 1998, the court's ruling on the
plaintiffs' motion for summary judgment found that the EPA's classification of
environmental tobacco smoke was invalid and vacated those portions of the report
dealing with lung cancer. The EPA has appealed and oral argument is expected
before the Court of Appeals for the Fourth Circuit in June, 1999.
 
    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 but no
regulation has been adopted to date. 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.
 
    Legislation imposing various restrictions on public smoking has also been
enacted in 48 states and many local jurisdictions, and many employers have
initiated programs restricting or eliminating smoking in the workplace. A number
of states have enacted legislation designating a portion of increased cigarette
excise taxes to fund either anti-smoking programs, health care programs or
cancer research. In addition, educational and research programs addressing
health care issues related to smoking are being funded from industry payments
made or to be made under settlements with state attorneys general. 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.
 
    In July 1996, Massachusetts enacted legislation requiring manufacturers of
tobacco products sold in Massachusetts to report yearly, beginning December 15,
1997, the ingredients of each brand sold. The statute also requires the
reporting of nicotine yield ratings in accordance with procedures established by
the State. The legislation contemplates public disclosure of all ingredients in
descending order, a trade-secret disclosure that RJRT believes could damage the
competitive position of its brands. RJRT, together with other cigarette
manufacturers, filed suit in the U.S. District Court for the District of
Massachusetts seeking to have the statute declared null and void and to restrain
Massachusetts officials from enforcing it. A similar suit was filed by
manufacturers of smokeless tobacco products. The court granted a preliminary
injunction that enjoined Massachusetts officials from enforcing the law relating
to ingredient reporting, which has been upheld by the Court of Appeals for the
First Circuit. Both the manufacturers and the State are now seeking summary
judgment from the district court. The case has been briefed and argued.
 
    In 1997, Texas enacted legislation very similar to the Massachusetts law,
except that the Texas statute authorizes confidentiality of trade secrets. After
notice and comment, the Texas Department of Health ("TDH") promulgated
regulations termed "Final" in mid-1998 that now require both ingredient and
nicotine-yield reports to be filed March 1, 1999. TDH, however, has proposed
amendments and it is uncertain when in 1999 the filing date will be for the
initial reports.
 
    In 1997, the Minnesota legislature enacted a requirement that manufacturers
of tobacco products sold in Minnesota report annually the presence of five
substances in each brand of their products in its "unburned" and "burned"
states. On February 15, 1999, RJRT and other manufacturers filed their first
reports. Based on publicly available literature, RJRT reported the presence of
lead, cadmium, arsenic, formaldehyde, and ammonia and compounds of ammonia.
 
                                       29
<PAGE>
    In August 1998, the Massachusetts Department of Health (the "DOH") issued
regulations for public comment that would require (beginning July 1, 2000)
annual reporting on a brand-by-brand basis of 43 smoke constituents in both
mainstream smoke and sidestream smoke. RJRT, together with other cigarette
manufacturers, filed comments with the DOH on October 9, 1998. RJRT and the
other manufacturers believe that the DOH lacks legal authority to promulgate
these regulations. Nevertheless, RJRT and the other manufacturers have proposed
conducting a cooperative benchmarking study to address certain DOH concerns. It
is anticipated that DOH will not amend or finalize these regulations until the
DOH has reviewed the results of the manufacturers' study.
 
    The Canadian province of British Columbia has also adopted ingredient and
constituant disclosure regulations. RJR-MacDonald is challenging these
regulations.
 
    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.
 
    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.
 
    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
 
                                       30
<PAGE>
obstructive lung disease. These reports have recommended various governmental
measures to reduce the incidence of smoking.
 
    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 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
(including RJRN Holdings and RJRN) and indemnitees, see note 10 to the
consolidated financial statements.
 
FOOD
 
    The food line of business is conducted through the operating subsidiaries of
Nabisco Holdings Corp. ("Nabisco Holdings"). Nabisco Holdings' businesses in the
United States are comprised of the Nabisco Biscuit and the U.S. Foods Group.
Nabisco Holdings' businesses outside the United States are conducted by Nabisco
Ltd and Nabisco International, Inc. (collectively, the "International Food
Group").
 
    1998 VS. 1997.  Biscuit's net sales were flat at $3.54 billion versus the
prior year reflecting price increases and volume gains in core cookies and
crackers largely offset by lower volumes in SnackWell's and breakfast snacks.
Although net sales were flat versus the prior year, momentum was reestablished
in the second half of 1998. After adjusting selling days to an equal days basis,
Biscuit's net sales rose nearly 5% in the fourth quarter of 1998 versus the same
period a year ago. These sales reflect the impact of increased marketing
spending and the efforts of Biscuit's redesigned direct store delivery sales
force, which was approximately one-third in place at December 31, 1998 and was
approximately half complete on February 28, 1999.
 
    The U.S. Foods Group's net sales decreased 10% in 1998 primarily due to
divestitures in 1998 and 1997 (1998 - College Inn broths, the tablespreads and
egg substitute businesses, Plush Pippin frozen pies and the chocolate yogurt
business; 1997 - certain regional brands). Excluding the impact from these
businesses, net sales increased 3% primarily due to the inclusion of Cornnuts
snacks acquired in December 1997 and increased volume for Planters nuts, A.1.
steak sauces and pet snacks, partially offset by lower volume for confections.
 
    The International Food Group's net sales decreased by 2% in 1998 versus
1997. Excluding the impact of foreign currency translation, International's net
sales were up 2% in 1998 versus the prior year primarily due to price increases
and increased volumes in several Latin American markets, partially offset by
volume declines in Brazil, Argentina and Asia.
 
    Biscuit's operating company contribution declined 22% to $542 million,
largely the result of increased marketing spending invested behind core brands
including the SnackWell's line. Higher costs associated with strengthening and
redesigning the Biscuit direct store delivery sales organization also
significantly contributed to the profit decline.
 
    The U.S. Foods Group operating company contribution declined 12% to $339
million. Excluding the results from divestitures in both years, the U.S. Foods
Group's operating company contribution in 1998 increased 7% to $301 million from
$281 million in 1997 primarily due to gains in Planters nuts, A.1. steak sauces,
pet snacks and the acquisition of Cornnuts in December 1997, partially offset by
declines in confections.
 
    The International Food Group's operating company contribution decreased 11%
to $206 million. The decrease in operating company contribution was principally
due to unfavorable foreign currency translation of $20 million and lower
earnings, exclusive of foreign currency translation, in Spain, Asia and Canada,
which more than offset increased earnings in Brazil and Argentina as progress
was made in lowering costs in these operating regions.
 
                                       31
<PAGE>
    In the third quarter of 1998, operating company contribution (on a reported
basis) was increased by a $14 million net gain ($1 million after tax, net of
minority interest) related to the sale of the College Inn brand of canned
broths, the U.S. and Canadian tablespreads and U.S. egg substitute businesses
(formerly included in the U.S. Foods Group operating segment), and the Del Monte
brand canned vegetable business in Venezuela (formerly included in the
International Food Group operating segment) for net proceeds of approximately
$550 million, and the costs of exiting certain non-strategic businesses.
 
    1997 VS. 1996.  Biscuit's net sales declined 4% in 1997 versus the prior
year, primarily due to volume declines in SnackWell's and breakfast snacks,
which more than offset volume increases in other core cookie and cracker brands.
The decrease reflects a decline in market share in a number of core brands, less
market acceptance of certain new products and in-store performance difficulties
experienced in Biscuit's direct store delivery system.
 
    The U.S. Foods Group's net sales decreased 1% in 1997 primarily due to lower
sales volume for tablespreads, condiments and certain other products and the
impact from the sale of certain domestic regional brands in the second quarter
of 1997, partially offset by higher volume for Planters nuts and certain
confectionery products.
 
    The International Food Group's $11 million net sales increase for 1997
reflected improved results in Asia and Mexico, partially offset by declines in
Brazil, principally volume, resulting from aggressive competitive activity in
the biscuit and milk categories, and in Argentina, due to competitive pricing
pressures. The results reflect economic and competitive problems in certain
international markets and underperformance at certain units.
 
    Biscuit's operating company contribution increased 15% in 1997. This
increase resulted largely from restructuring-driven margin improvements and
ongoing productivity initiatives.
 
    The U.S. Foods Group's operating company contribution increased 2% in 1997.
Excluding the impact of divested businesses in 1997, operating company
contribution was flat compared to 1996, as reduced sales of higher margin
products offset the benefits of restructuring efficiencies.
 
    The International Food Group's 7% decline in operating company contribution
for 1997 was primarily attributable to lower earnings in Brazil from lower
sales, and in Argentina due to lower sales and higher marketing expenses,
partially offset by profitable sales growth in Mexico and Asia and
productivity-driven earnings improvements in Canada.
 
    In the second quarter of 1997, Nabisco sold certain domestic regional brands
(formerly included in the U.S. Foods Group) which resulted in a pre-tax gain of
$32 million. In addition non-recurring pre-tax expenses of $31 million were
recorded for the write-down of certain assets of a business held for sale, the
reorganization of the U.S. Foods Group selling organization and the relocation
of the International Food Group headquarters.
 
    Net sales for 1998 and 1997 from all divestitures in both years by Nabisco
were $298 million and $632 million, respectively. Operating company contribution
for 1998 and 1997 from divested businesses was $39 million and $99 million,
respectively.
 
                                       32
<PAGE>
TOBACCO SETTLEMENT AND RELATED EXPENSES
 
    RJRT recorded pre-tax charges totaling $1.442 billion during 1998 for the
initial up front tobacco settlement and related expenses as follows:
 
<TABLE>
<S>                                                                   <C>
Multi-state settlement agreement....................................  $     620
Minnesota settlement agreement......................................        312
"Most favored nation" adjustments for previously settled states.....        145
Rationalization of manufacturing operations.........................        214
Employee severance and related benefits.............................        151
                                                                      ---------
                                                                      $   1,442
                                                                      ---------
                                                                      ---------
</TABLE>
 
    For a discussion regarding the provisions of the multi-state settlement, the
Minnesota settlement and the most favored nation adjustments, see note 10 to the
consolidated financial statements. The rationalization of manufacturing
operations primarily represents a charge to write-down the book value of one of
RJRT's production facilities and certain equipment in Winston-Salem, North
Carolina to fair value. The employee severance and related benefits expense
represents a charge for workforce reductions totaling approximately 1,300
employees. These charges were in response to the changing business conditions
which will likely result from the multi-state settlement agreement signed in
November 1998. RJRT anticipates that the November price increase, which was
necessary to satisfy its ongoing annual payment obligations under the
multi-state settlement agreement, is likely to adversely affect volume and its
results of operations.
 
    Cash expenditures related to the termination of employees is anticipated to
be approximately $100 million and will be paid from operations into the year
2000. Pre-tax savings in 1999 and 2000 relating to the employee terminations and
the rationalization of manufacturing operations is expected to be approximately
$75 million and $110 million, respectively. As of December 31, 1998, $268
million of the accrual was utilized as follows: $54 million for severance and
related benefits and $214 million for rationalization of manufacturing
operations.
 
    RJRT recorded pre-tax charges totaling $359 million during 1997 related to
settlement agreements reached with the Florida, Mississippi and Texas state
attorneys general and in certain class action cases. See note 10 to the
consolidated financial statements for further discussion.
 
RESTRUCTURING EXPENSES
 
    Restructuring expenses by business follow:
 
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 (DOLLARS IN MILLIONS)                                        1998       1997       1996
---------------------------------------------------------------------------------  ---------  ---------  ---------
<S>                                                                                <C>        <C>        <C>
R.J. Reynolds Tobacco............................................................  $      --  $      80  $      --
Reynolds International...........................................................         55        221         --
                                                                                   ---------  ---------  ---------
Total Tobacco....................................................................         55        301         --
                                                                                   ---------  ---------  ---------
Nabisco Biscuit..................................................................        314         --        238
U.S. Foods Group.................................................................         98         --        115
International Food Group.........................................................        118         --         75
                                                                                   ---------  ---------  ---------
Total Food.......................................................................        530         --        428
                                                                                   ---------  ---------  ---------
                                                                                   $     585  $     301  $     428
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
</TABLE>
 
    1998 RESTRUCTURING EXPENSES
 
    In the second and fourth quarters of 1998, Nabisco recorded restructuring
charges of $406 million ($216 million after-tax, net of minority interest) and
$124 million ($75 million after-tax, net of minority interest), respectively.
These restructuring programs were undertaken to streamline operations and
 
                                       33
<PAGE>
improve profitability. The programs include workforce reductions of
approximately 6,500 employees. The restructuring charge for the International
Food Group of $118 million primarily consisted of $17 million for Canada and $84
million for Latin American operations, including $38 million for Brazil and $22
million for Argentina. The key elements of the restructuring programs include:
 
<TABLE>
<CAPTION>
                                                        SEVERANCE       CONTRACT       ASSETS TO BE     OTHER EXIT
DOLLARS IN MILLIONS                                   AND BENEFITS    TERMINATIONS      DISPOSED OF        COSTS        TOTAL
----------------------------------------------------  -------------  ---------------  ---------------  -------------  ---------
<S>                                                   <C>            <C>              <C>              <C>            <C>
 
Sales force reorganizations.........................    $      37       $       3        $      --       $      --    $      40
 
Distribution reorganizations........................           16               8                9              --           33
 
Staff reductions....................................           83              --                3              --           86
 
Manufacturing cost reduction initiatives............           22              --                8              --           30
 
Plant closures......................................           46               3              217              15          281
 
Product line rationalizations.......................            4               4               20              32           60
                                                            -----             ---            -----             ---    ---------
 
Total restructuring charges.........................    $     208       $      18        $     257       $      47    $     530
                                                            -----             ---            -----             ---    ---------
                                                            -----             ---            -----             ---    ---------
</TABLE>
 
-  Sales force reorganizations consist of $35 million for Biscuit to reorganize
    its direct store delivery sales force to improve its effectiveness and $5
    million for the International Food Group, principally Latin America.
 
-  Distribution reorganizations consist of plans to exit a number of domestic
    and international distribution and warehouse facilities, principally $19
    million for Biscuit and $14 million for the International Food Group.
 
-  Staff reductions consist of headquarters and operating unit realignments,
    functional consolidations and eliminations of positions throughout Nabisco.
    Amounts are: $37 million for the U.S. Foods Group; $26 million for
    International headquarters, Canada and other foreign units; $15 million for
    corporate headquarters; and $8 million for Biscuit.
 
-  Manufacturing cost reduction initiatives consist of a number of domestic and
    international programs to increase productivity, principally $19 million for
    Biscuit and $7 million for Canada.
 
-  Plant closure accruals are for the closure and future sale of 18 production
    facilities in order to improve manufacturing efficiencies and reduce costs.
    Amounts by operating segment are: Biscuit $217 million; U.S. Foods Group $12
    million; and International Food Group $52 million. As of December 31, 1998,
    production had ceased in 6 facilities which are being actively marketed for
    sale. Other exit costs consist of incremental costs to be incurred prior to
    sale.
 
-  Product line rationalizations consist of exit costs to discontinue a number
    of domestic and international product lines. Other exit costs are
    principally write-offs for disposals of various discontinued products.
    Amounts by operating segment are: U.S. Foods Group $34 million; Biscuit $14
    million; and International Food Group $12 million.
 
    The 1998 restructuring programs are proceeding as scheduled. The June 1998
program is expected to be completed in 1999 and the December 1998 program is
expected to be completed by the middle of 2000. These programs will require cash
expenditures of approximately $205 million, primarily to be spent in 1999. In
addition, the programs will require additional expenditures of approximately
$134 million, of which $56 million ($27 million after-tax, net of minority
interest) was incurred in 1998. These restructuring related expenses are
principally for implementation and integration of the programs and include costs
for relocation of employees and equipment and training. The programs will also
require capital expenditures of approximately $100 million. All cash
requirements are expected to be funded from operations. Pre-tax savings in 1999
are expected to be approximately $80 million and, after completion of the
programs, are expected to be approximately $145 million annually.
 
                                       34
<PAGE>
    As of December 31, 1998, $61 million of charges were applied against
restructuring reserves as follows: $34 million for 2,000 employees severed, $3
million for contract terminations, $12 million for asset disposals and $12
million for other exit costs. Of the charges applied against the restructuring
reserves, cash expenditures amounted to $39 million.
 
    In the fourth quarter of 1998, Reynolds International recorded a net pre-tax
restructuring charge of $55 million to retool its operations in Russia and other
countries in the CIS region in response to continuing depressed economic
conditions in these countries. The pre-tax charge, which had no associated
income tax benefit, includes severance and related benefits associated with a
workforce reduction of 2,900 employees of approximately $19 million as well as
the rationalization of manufacturing facilities of approximately $54 million.
This program will require cash expenditures of approximately $25 million and is
expected to be completed in 1999. All cash requirements are expected to be
funded from operations. Pre-tax savings in 1999 are anticipated to be
approximately $20 million and, after completion of the program, are expected to
be approximately $28 million annually. In the fourth quarter of 1998, the 1997
restructuring accrual was reduced by $18 million due primarily to changes in
severance and related benefit estimates of certain international accruals.
 
    The workforce reductions relate to employees at certain manufacturing
facilities and a headquarters location (8 locations in total) in the CIS region.
The rationalization of manufacturing facilities consist primarily of: (i) the
closing of a facility in Azerbaijan, where Reynolds International will exit all
operations ($23 million); (ii) the closing of a warehouse and manufacturing
facility in St. Petersburg ($15 million); and (iii) the closing of a facility in
Lviv ($15 million). Each of the tasks began in January 1999 and are expected to
be substantially completed as follows: the Azerbaijan closing -- the fourth
quarter of 1999; the St. Petersburg closings -- the third quarter of 1999; and
the Lviv closing -- the first quarter of 1999. The types of costs that will be
expensed with respect to these exit activities primarily include the write-down
of facilities and equipment held for sale to fair value and the write-off of
equipment to be abandoned ($48 million) and contract and lease termination costs
($5 million). The facilities will continue in operation until the closing dates
to minimize losses.
 
    None of the restructuring accruals were utilized during the year ended
December 31, 1998.
 
    1997 RESTRUCTURING EXPENSES
 
    RJRN Holdings recorded a pre-tax restructuring expense of $301 million ($235
million after-tax) in the fourth quarter of 1997 to reorganize its worldwide
tobacco operations. The 1997 restructuring program was undertaken to enhance
RJRN Holdings' competitive position and improve its long-term earnings growth
prospects.
 
    The components of the $301 million charge were as follows:
 
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS                                                                 INTERNATIONAL     DOMESTIC       TOTAL
---------------------------------------------------------------------------------  ---------------  -------------  ---------
<S>                                                                                <C>              <C>            <C>
Employee severance and related benefits..........................................     $     142       $      30    $     172
Rationalization of manufacturing operations......................................            42              30           72
Disposal of non-strategic investments............................................            33          --               33
Contract termination and other costs.............................................             4              20           24
                                                                                          -----             ---    ---------
                                                                                      $     221       $      80    $     301
                                                                                          -----             ---    ---------
                                                                                          -----             ---    ---------
</TABLE>
 
    For international tobacco, the employee severance and related benefits
pertained to workforce reductions of 2,600 employees at various manufacturing
facilities, headquarters and regional support centers (21 locations worldwide in
total). These benefits are being paid over a period of more than one year under
Reynolds International's severance policy, which is based on length of service
provided by the terminated employees.
 
                                       35
<PAGE>
    The rationalization of certain manufacturing operations consisted of the
following: (i) the closing of the Berlin, Germany and Turku, Finland
manufacturing facilities in connection with the consolidation of manufacturing
operations into Trier, Germany ($16 million and $13 million, respectively); (ii)
the closing of Reynolds International's stemmery operations in Tilsonburg,
Canada ($2 million); (iii) the closing of a leased manufacturing facility in
Hong Kong ($6 million) and (iv) the downsizing of a manufacturing facility in
Montreal, Canada ($5 million). Each of these tasks began in either December 1997
or January 1998 and were or are expected to be substantially completed as
follows: Tilsonburg and Montreal, Canada and Hong Kong -- December 1997; Berlin,
Germany -- January 1999; and Turku, Finland -- the second quarter of 1999.
Reynolds International expects all outstanding tasks to be substantially
completed as originally planned. The types of costs that were expensed with
respect to these exit activities included the write-down of buildings and
surplus equipment held for sale to fair value and the write-off of equipment to
be abandoned.
 
    The contract terminations and other costs primarily represented the
write-down of office equipment and fixtures and other exit costs as a result of
office floor space reductions, the consolidation of certain offices and the
abandonment of lease obligations in Italy, Kenya, Dubai and the United Kingdom.
 
    The disposal of non-strategic investments consisted of the following: the
exits of a distribution company in Poland ($7 million) and operations in Vietnam
($8 million), India ($6 million), Armavir, Russia ($6 million) and Hungary ($6
million). The disposals were or are expected to be substantially completed as
follows: Hungary -- the fourth quarter 1998; India -- the first quarter 1999;
Armavir, Russia and Poland -- the second quarter 1999; and Vietnam -- the third
quarter 1999. Reynolds International began the process of disposing of each of
the non-strategic investments during 1998. The following is a summary of the
status of certain investments that will not be disposed of until 1999. The sale
of Armavir, Russia, which was to take place in 1998, could not be completed and
instead Armavir, Russia will now be abandoned; the transfer of ownership of the
Polish distribution company will take place on April 21, 1999 even though
Reynolds International had an agreement to sell this operation on April 7, 1998;
and the closing of the Vietnam operations was subject to a lengthy approval
process by the Vietnamese government even though Reynolds International had a
contract for sale in the third quarter of 1998. Accordingly, although the sale
of some of the non-strategic investments was not scheduled to close until late
1998 or beyond, management had the ability to close these facilities on the
commitment date. As noted above, Reynolds International had contracts to sell
most of these investments in 1998, however, many of the sales are subject to
lengthy regulatory reviews. The facilities continue in operation until the
closing dates only to minimize the losses. If any of the planned sales are not
consummated, management is prepared to abandon the investment, as was the case
with the Armavir transaction described above.
 
    For domestic tobacco, the employee severance and related benefits pertained
to workforce reductions of 192 full-time positions and 217 seasonal positions at
a manufacturing facility and staff related areas. The severed employees were
primarily employed at RJRT's Brook Cove, North Carolina Stemmery which was
closed. The rationalization of certain manufacturing operations primarily
relates to the closing of RJRT's Brook Cove, North Carolina Stemmery which took
place in February 1998, after RJRT finished processing tobacco purchased from
the 1997 burley crop. Beginning with the 1998 flue-cured crop, RJRT began
contracting with an outside third party to do its leaf processing. The type of
costs that were expensed with respect to the exit of this activity included the
write-down of the building and equipment held for sale to fair value and the
write-off of equipment to be abandoned.
 
    The contract termination and other costs for RJRT represented a loss on the
termination of a contractual obligation. During 1997, management decided and
committed to a plan of termination of a leaf supply contract at a price below
RJRT's contract price. The loss represents the shortfall between the contract
cost and the amount that was recovered upon the sale of the leaf inventory.
RJRT, acting as a broker, exercised all of its remaining obligations under a
leaf supply contract and immediately transferred title to a third party without
taking possession of the tobacco.
 
                                       36
<PAGE>
    Of the $301 million total tobacco charge, cash outlays will aggregate
approximately $180 million. The program is expected to be completed in late
1999.
 
    In addition to the above restructuring charge, approximately $89 million was
recognized in operating expenses for international tobacco for implementation
and integration expenses, principally training and relocation of employees and
equipment.
 
    For the year ended December 31, 1998, $183 million of the 1997 worldwide
tobacco restructuring accruals were utilized as follows: $90 million for
employee severance and related benefits, $59 million for rationalization of
manufacturing operations, $12 million for disposal of non-strategic investments,
and $22 million for contract terminations and other costs. Of the charges
applied against the restructuring reserve in 1998, cash expenditures amounted to
$115 million, which were provided from operations.
 
    1996 RESTRUCTURING EXPENSES
 
    Nabisco recorded a restructuring charge of $428 million ($241 million
after-tax, net of minority interest) in the second quarter of 1996. The
restructuring program was undertaken to streamline operations and improve
profitability. A summary of the key events and costs of the worldwide program
were:
 
    - $81 million of severance benefits for restructuring corporate staff and
      operating company head offices.
 
    - $116 million to eliminate low-volume product lines and sizes.
 
    - $62 million for severance benefits and contract exit costs to increase the
      efficiency and effectiveness of the U.S. sales organizations.
 
    - $118 million for streamlining production and distribution systems,
      principally for severance benefits and property disposals.
 
    - $51 million to write-down the values of several non-strategic regional
      product lines held for sale.
 
    The restructuring charge consisted of $238 million for Biscuit and $115
million for the U.S. Foods Group and corporate, including $29 million for Food
Service, $29 million for Planters and the remainder of approximately $57 million
for corporate headquarters operations, the Sales & Integrated Logistics Group
and other business units. The restructuring expense for the International Food
Group amounted to $75 million and consisted of $51 million for Latin American
operations (including $31 million for Brazil), $11 million for Canada, and $10
million for Iberia.
 
    The 1996 restructuring program events were substantially completed by the
end of 1997. The major changes in estimates and charges are summarized below.
Severance benefits increased $30 million over the original estimate due to
higher than anticipated costs associated with Biscuit's sales force
reorganization. Estimated costs of product line disposals decreased $15 million
due to the decision not to sell a small regional brand. Estimated costs of
product line rationalizations, contract terminations and facility
reorganizations were also changed due to different actual costs. The major
components of the restructuring charge and changes in estimates and charges are
summarized below.
 
<TABLE>
<CAPTION>
                                  JUNE 1996    CHANGE IN    ADJUSTED     PAYMENTS      BALANCE      PAYMENTS       BALANCE
DOLLARS IN MILLIONS               PROVISION    ESTIMATE     PROVISION    & CHARGES    12-31-97      & CHARGES     12-31-98
-------------------------------  -----------  -----------  -----------  -----------  -----------  -------------  -----------
<S>                              <C>          <C>          <C>          <C>          <C>          <C>            <C>
Severance and benefits.........   $     194    $      30    $     224    $    (197)   $      27     $     (25)    $       2
Product line rationalizations..         116            4          120         (117)           3            (3)           --
Product line disposals.........          51          (15)          36          (36)          --            --            --
Contract terminations..........          45          (15)          30          (29)           1            (1)           --
Plant closures and facility
  reorganizations..............          22           (4)          18          (12)           6            (6)           --
                                      -----        -----        -----   -----------         ---         -----         -----
      Total....................   $     428    $      --    $     428    $    (391)   $      37     $     (35)    $       2
                                      -----        -----        -----   -----------         ---         -----         -----
                                      -----        -----        -----   -----------         ---         -----         -----
</TABLE>
 
                                       37
<PAGE>
    As of December 31, 1998, cumulative cash expenditures amounted to $238
million, which were provided from operations. Cash requirements in 1999 to
extinguish the remaining obligations, principally severance benefits, are
estimated to be approximately $2 million. In addition, the program required
additional 1996 expenditures of $97 million for implementation and integration
expenses, principally for relocation of employees and equipment and training.
Annual pre-tax savings, commencing in 1998, are approximately $150 million. The
program costs are discussed further in note 2 to the consolidated financial
statements.
 
INTEREST AND DEBT EXPENSE
 
    Interest expense was $880 million in 1998, a decrease of $32 million or 4%
from the prior year. The decrease is mainly attributable to the paydown of
commercial paper with the net proceeds from divested businesses and the
replacement of fixed rate debt at lower interest rates, both at Nabisco.
 
OTHER INCOME (EXPENSE), NET
 
    Other income (expense), net was an expense of $132 million, an increase of
$25 million or 23% over the prior year. The increase is principally due to
higher foreign exchange losses and a penalty paid by Reynolds International,
(see note 10 to the consolidated financial statements for further discussion),
partially offset by higher interest income.
 
INCOME TAXES
 
    The effective income tax rate on an ongoing basis for 1998, 1997 and 1996
was 46%, 42.4% and 43.7%, respectively. The higher effective income tax rate for
1998 primarily reflects a higher tax rate for Reynolds International due to a
shift in the earnings mix and a minimal tax benefit on certain write-offs and
charges recorded in 1998.
 
    The reported effective income tax benefit rate of 3.7% in 1998 is lower than
the 52.2% effective income tax rate for 1997 due primarily to a lower effective
tax rate on restructuring charges and tobacco settlement and related expenses in
1998 and the greater impact of non-deductible goodwill amortization relative to
income (loss) before income taxes.
 
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
 
    During 1998, RJRN Holdings and RJRN adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income, SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information, SFAS
No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits
and Statement of Position No. 98-1, Accounting for Costs of Computer Software
Developed or Obtained for Internal Use. See note 1 to the consolidated financial
statements for further discussion.
 
    See note 1 to the consolidated financial statements for a discussion
regarding recently issued accounting pronouncements.
 
                                       38
<PAGE>
                       LIQUIDITY AND FINANCIAL CONDITION
 
    Net cash flows from operating activities were $1.30 billion in 1998 in
comparison to $1.57 billion in 1997. The decrease primarily reflects a decrease
in net income and increased tobacco settlement and restructuring payments;
partially offset by a reduction in inventory resulting from overall improved
inventory management, a reduction in interest payments due to debt refinancings
and repayments at Nabisco and lower income tax payments due to lower earnings.
 
    Net cash flows used in investing activities for 1998 were $26 million,
compared to a use of $686 million in 1997. The decrease is due to higher
divestiture proceeds from the sale of certain food businesses during 1998 and
lower capital expenditures in 1998 (primarily at Reynolds International),
partially offset by lower proceeds in 1998 versus 1997 resulting from the sale
and closure of certain international tobacco facilities in 1997.
 
    Net cash flows used in financing activities were $1.32 billion in 1998,
compared to $751 million in 1997. The increase was primarily due to an overall
reduction in debt, principally at Nabisco, and the redemption of the Series B
preferred stock, partially offset by the proceeds from the issuance of RJRN
Holdings' trust originated preferred securities.
 
    Free cash flow, another measure used by management to evaluate liquidity and
financial condition, represents cash available for the repayment of debt and
certain other corporate purposes such as common stock dividends, stock
repurchases and acquisitions. It is essentially net cash flow from operating
activities and investing activities per the Consolidated Statements of Cash
Flows, adjusted for acquisitions and divestitures of businesses, less preferred
stock dividends. Free cash flow resulted in an inflow of $779 million in 1998
versus $850 million in 1997. The decrease in free cash flow primarily reflects a
decline in operating company contribution, and the increase in tobacco
settlement and restructuring payments in 1998, partially offset by the reduction
in inventory and the reduction in income tax and interest payments discussed
above and a decrease in capital expenditures and preferred dividend payments.
 
    In July 1997, RJRN repaid commercial paper borrowings with proceeds from the
issuance of $150 million 8 1/4% notes due 2004 and $200 million 8 1/2% notes due
2007. In August 1997, Nabisco issued $200 million of floating rate notes (5.38%
as of December 31, 1998) due 2009, which are puttable and callable in August
1999. In December 1997, Nabisco refinanced $432 million of 8.3% notes due 1999
and $541 million of 8% notes due 2000 with short-term borrowings. These
short-term borrowings were refinanced in January 1998 with $1 billion
6.0%-6 3/8% long-term notes due 2011-2035, which are puttable and callable in
2001-2005.
 
    In August 1998, RJR Nabisco Holdings, RJR Nabisco Inc. and the RJR Nabisco
Holdings Capital Trusts filed a shelf registration with the Securities and
Exchange Commission for $1.25 billion of debt. In October 1998, Nabisco filed a
shelf registration with the Securities and Exchange Commission for $1.0 billion
of debt.
 
    In August 1998, a newly formed wholly owned subsidiary trust of RJRN
Holdings issued $374 million principal amount of preferred securities. The
proceeds from the sale of the preferred securities and the original capital
contribution were invested by the trust in approximately $385 million principal
amount of 9 1/2% junior subordinated debentures of RJRN Holdings. The junior
subordinated debentures are redeemable by RJRN Holdings on or after September
30, 2003 and are due in September 2047. Cash distributions on the preferred
securities are cumulative at an annual rate of 9 1/2% of the liquidation amount
of $25 per security and are payable quarterly in arrears. In October 1998, RJRN
Holdings used $301 million of the proceeds from the issuance of the junior
subordinated debentures to redeem its outstanding Series B preferred stock.
 
    At December 31, 1998, fixed rate debt comprised approximately 84% of total
consolidated debt. RJRN Holdings' ratio of total debt (notes payable and
long-term debt, including current maturities and
 
                                       39
<PAGE>
mandatorily redeemable preferred securities) to equity was 1.31 to 1 and 1.12 to
1 at December 31, 1998 and 1997, respectively.
 
    See the Results of Operations within this section regarding the divestiture
of certain food businesses in 1998 and 1997 and cash requirements of Food and
Tobacco restructuring programs.
 
    Total payments in 1998 for all tobacco litigation settlement agreements
currently in effect and their associated costs, including the multi-state
settlement agreement, all other attorney general agreements and related
amendments and fee payment agreements and the agreement with Blue Cross and Blue
Shield of Minnesota, were $786 million. Payments were funded primarily by cash
flows from operating and financing activities. Payments related to these
agreements will be approximately $1.6 billion in 1999 and will be funded through
price increases. Payments in future years will approximate $2.0 billion per
year, but these payments will be subject to, among other things, the volume of
cigarettes sold by RJRT, RJRT's market share and inflation adjustments. For
further discussion of the potential impact of litigation issues and various
litigation settlements, including the effects of certain attorney general
agreements, see note 10 to the consolidated financial statements.
 
    RJRN maintains a three-year $2.146 billion revolving credit facility, of
which no borrowings were outstanding at December 31, 1998, and a 364-day credit
facility primarily to support commercial paper issuances, of which $179 million
was available at December 31, 1998. In June 1998, the maturity of the revolving
credit facility was extended to June 2001 and the 364-day credit facility was
renewed to May 31, 1999. The commitment under the 364-day facility was reduced
to $212 million from $568 million. The commitments under the revolving credit
facility decline to approximately $2.1 billion in 1999, to $2.0 billion in 2000
and to $1.7 billion in 2001. The revolving credit facility provides for the
issuance of up to $800 million of letters of credit, of which $308 million was
issued at December 31, 1998. Availability under the revolving credit facility is
reduced by the amount of any borrowings outstanding and letters of credit issued
under the facility and by the amount of outstanding commercial paper in excess
of $212 million. At December 31, 1998 approximately $1.84 billion was available
under the revolving credit facility. During 1998, RJRN Holdings and RJRN also
amended certain terms of these credit agreements to accommodate the settlement
of certain litigation and a restructuring charge. RJRN anticipates that it will
negotiate the terms and amounts of a new credit facility to support the
operations of the domestic tobacco business after the completion of the
separation of the food and tobacco businesses.
 
    Nabisco maintains a four-year $1.5 billion revolving credit facility, of
which no borrowings were outstanding at December 31, 1998, and a 364-day credit
facility primarily to support commercial paper issuances, of which $174 million
was outstanding at December 31, 1998. In October 1998, the 364-day credit
facility was extended to October 1999 and amended to provide $1.11 billion of
credit. At the end of the 364-day period, any borrowings outstanding under the
364-day credit facility are convertible into a three-year term loan at Nabisco's
option. The commitments under the revolving credit facility decline to
approximately $1.46 billion in the final year. The revolving credit facility
also provides for the issuance of up to $300 million of letters of credit, of
which none was issued at December 31, 1998. Availability under the revolving
credit facility is reduced by the amount of any borrowings outstanding and
letters of credit issued under the facility and by the amount of outstanding
commercial paper in excess of $1.11 billion. At December 31, 1998, the entire
revolving credit facility was available.
 
    Distributions and the payment of dividends by RJRN Holdings are subject to
certain restrictions under certain financing agreements and debt instruments of
RJRN Holdings and RJRN and their subsidiaries. The financing agreements
generally restrict cumulative common and preferred dividends and distributions,
limit the ability 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. RJRN Holdings and RJRN believe that they are
currently in compliance with all covenants and restrictions imposed by the terms
of their indebtedness.
 
                                       40
<PAGE>
    Nabisco's credit agreements, among other things, generally restrict common
and preferred dividends and distributions, limit loans and advances by Nabisco
Holdings and its subsidiaries to RJRN, limit the ability to incur indebtedness,
engage in transactions with stockholders and affiliates, create liens, acquire,
sell or dispose of certain assets and securities and engage in certain mergers
or consolidations. Nabisco Holdings and Nabisco believe that they are currently
in compliance with all covenants and restrictions imposed by the terms of their
indebtedness.
 
    Nabisco increased its quarterly dividend to $.1875 per share or $.75 per
share on an annual basis from $.70 per share on an annual basis commencing with
the April 1, 1999 payment.
 
    Nabisco maintains an arrangement to sell for cash substantially all of its
domestic trade accounts receivable to a financial institution. In addition,
similar arrangements have been established for the sale of trade accounts
receivable by certain foreign tobacco and food subsidiaries.
 
    Capital expenditures were $576 million, $763 million and $741 million for
1998, 1997 and 1996, respectively. The decreased level of capital expenditures
in 1998 was primarily due to the reduced level of capital investment for
Reynolds International (notably in Russia). The level of expenditures currently
planned for 1999 is approximately $350 million to $400 million (approximately
56% Food and 44% Tobacco) due to a reduced level of capital expenditures for
Reynolds International and 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. There were no material long-term
commitments for capital expenditures as of December 31, 1998.
 
    RJRN Holdings' subsidiaries have operations in many countries which utilize
many different functional currencies. Significant foreign currency net
investments are located in Canada, Spain, Argentina, Puerto Rico, Germany,
Brazil, Mexico, Malaysia, Russia, Venezuela and Hong Kong. RJRN Holdings'
subsidiaries also have significant exposure to foreign exchange transactions in
currencies other than their functional currencies. Exposures primarily include
the U.S. dollar, German mark, French franc, British pound, Italian lira,
Japanese yen, Swiss franc, Hong Kong dollar, Singapore dollar, Finnish markka,
Canadian dollar, Spanish peseta, Dutch guilder, Brazilian real, Malaysian
ringgitt, Indonesian rupiah, Russian rouble, Romanian leu, and Turkish lira.
Whenever possible, RJRN Holdings' policy is to net exposures and utilize natural
offsets to minimize the effects of foreign currency transactions on cash flows;
otherwise, consideration is given to foreign currency arrangements to protect
RJRN Holdings and its subsidiaries from risk that the eventual dollar cash flows
resulting from transactions with international parties will be adversely
affected by changes in exchange rates. In addition, consideration is given to
foreign currency arrangements to hedge foreign currency exposures on existing
assets and liabilities, including certain international debt.
 
    At December 31, 1998, there was $2.05 billion of accumulated and
undistributed income of foreign subsidiaries. No applicable U.S. federal
deferred income taxes have been provided because management reinvested these
earnings abroad indefinitely to fund international acquisitions, new products
and other opportunities in foreign markets.
 
    See Subsequent Events within this section for a discussion regarding the
pending sale by RJRN and RJRT of the international tobacco business and the
separation of the domestic tobacco and food businesses.
 
FOREIGN MARKET RISK
 
    Current volatility of financial markets and political uncertainty in Russia
and the rest of the CIS region have and could continue to adversely impact
RJRN's results of operations. Reynolds International's sales, volume and profits
for the fourth quarter and year ended 1998 suffered from deteriorating economies
in Russia and the rest of the CIS region. Volume in the CIS region declined 12%
during the
 
                                       41
<PAGE>
year compared to 1997, while sales declined 19% and operating company
contribution declined to a loss of approximately $3 million from income of
approximately $73 million. The rouble's devaluation and severe limits on trade
credit froze important distributor channels for imported and domestic products.
In addition, the poor economy and uncertain conditions fostered a decline in
consumer purchasing power and weak demand for mid- and premium-priced products.
These conditions led Reynolds International to briefly suspend domestic
manufacturing and the import of higher-priced western brands into Russia toward
the end of the third quarter of 1998. Although domestic manufacturing in Russia
resumed early in the fourth quarter, business and economic conditions continue
to be unstable.
 
    Nabisco is exposed to the current volatility of financial markets in Brazil,
which could potentially adversely impact the International Food Group's
financial position. As of February 28, 1999 Brazil's currency, the real,
suffered a devaluation of approximately 68% from December 31, 1998, compared to
the U.S. dollar, which resulted in an unfavorable cumulative translation
adjustment of approximately $150 million.
 
    At this time, RJRN is unable to predict with any certainty the short or
long-term impact of these developments, but anticipates that these factors could
have an adverse effect on RJRN's results of operations in 1999 and beyond.
 
YEAR 2000 ISSUE
 
    RJRN Holdings is implementing plans to address the implications of the year
2000 on its computer systems and business operations. The year 2000 issue stems
from computer applications that were written using two digits rather than four
digits to define the applicable year. The issue is whether computer systems will
properly interpret date-sensitive information when the year changes to 2000. The
status of RJRN Holdings' year 2000 compliance effort as of December 31, 1998
follows.
 
    RJRN Holdings has inventoried and assessed its financial, information and
operational systems, and has developed detailed plans for required systems
modifications or replacements. This process has been completed for all
information technology systems ("IT systems"). Management estimates that this
process is approximately 80% complete for information systems with embedded
technology ("non-IT systems"), which include, but are not limited to, process
control, automated factory/assembly lines, environmental safety, quality control
and facilities. This phase is anticipated to be completed during the second
quarter of 1999. Management believes that the risk of critical issues arising
from the remaining items to be inventoried is minimized due to the duplication
of equipment across facilities within each operating company.
 
    Software remediation (modifying existing programs to make them year 2000
compliant) is progressing and, in the case of IT systems, is approximately 88%
complete for Nabisco Holdings, approximately 85% complete for RJRT, and
approximately 90% complete for Reynolds International. Management expects this
phase of year 2000 readiness to be complete by the end of the first quarter of
1999, with the exception of certain standalone systems at Nabisco Holdings,
which are anticipated to be completed during the second quarter of 1999. In the
case of non-IT systems, software remediation efforts are ongoing and estimated
completion dates are the third quarter of 1999 for Nabisco Holdings and the
first quarter of 1999 for both RJRT and Reynolds International.
 
    Software testing following remediation is approximately 77% complete for IT
systems at Nabisco Holdings and approximately 80% complete at RJRT and Reynolds
International. Management expects that testing at Nabisco Holdings and RJRT will
be complete during the third quarter of 1999 and at Reynolds International by
the second quarter of 1999. With respect to non-IT systems, approximately 45%
are compliant at Nabisco Holdings, with anticipated completion by the end of the
third quarter of 1999. This phase is approximately 70% complete at RJRT and
Reynolds International and is expected to be complete by the end of the third
and second quarters of 1999, respectively.
 
                                       42
<PAGE>
    Approximately 70% of IT systems at Nabisco Holdings are compliant and in
production. Management expects the remainder to be complete during the third
quarter of 1999. About 80% of IT systems at RJRT are compliant and in
production. Management anticipates the balance to be complete by the end of the
third quarter of 1999. Approximately 85% of IT systems at Reynolds International
have been tested and returned to production. This phase should be complete
during the second quarter of 1999. Both RJRT and Reynolds International
anticipate non-IT systems to be fully year 2000 compliant in the third quarter
of 1999. Nabisco Holdings anticipates that all non-IT systems will be compliant
by November of 1999.
 
    Incremental costs, which include contractor costs to modify or replace
existing systems, and costs of internal resources dedicated to achieving year
2000 compliance are charged to expense as incurred and are funded by operating
cash flows. Costs are expected to total approximately $90 million, of which $44
million has been spent as of December 31, 1998, details of which are as follows:
 
<TABLE>
<CAPTION>
                                                              TOTAL COSTS AS OF    ANTICIPATED TOTAL
                                                                  12/31/98           PROJECT COSTS
                                                             -------------------  -------------------
<S>                                                          <C>                  <C>
BY SYSTEM TYPE
  IT Systems...............................................       $      40            $      71
  Non-IT Systems...........................................               4                   19
 
BY WORK PERFORMED
  Remediation..............................................       $      41            $      83
  Replacement..............................................               3                    7
 
INTERNAL/EXTERNAL
  Internal Cost............................................       $      24            $      41
  Replacement/Contractor Costs.............................              20                   49
</TABLE>
 
    RJRN Holdings is also in contact with suppliers, vendors, service providers
and customers to assess the potential impact on operations if key third parties
are not successful in converting their systems in a timely manner. In early
1999, Nabisco Holdings initiated an effort to obtain a more accurate and up-to-
date status of third parties' year 2000 compliance. This involved re-contacting
all previously contacted third parties, as well as contacting additional
selected third parties. As of February 28, 1999, correspondence had been sent to
90% of all identified third parties, with the remainder to be sent during March
1999. As of February 28, 1999, Nabisco Holdings received responses from 11% of
identified third parties, with most respondents confirming that they are
currently compliant, and those that are not in compliance assuring that they
will be compliant by the end of 1999. RJRT has received responses from 85% of
identified third parties, as follows: 70% of identified third parties have
confirmed that they are fully compliant, 14% are not currently compliant but
expect to be by the end of 1999, and 1% will not be in compliance. Reynolds
International has received correspondence from 65% of identified third parties.
Those that are not currently compliant assure that efforts are ongoing and are
anticipated to achieve full compliance by the end of the fourth quarter of 1999.
Internationally, however, many governmental agencies and utilities have not been
proactive in addressing the year 2000 problem and have not provided sufficient
assurances regarding their state of year 2000 readiness. The status of year 2000
efforts for those third parties that have been identified as critical will
continue to be monitored and contingency plans specific to those third parties
are being, or have been, developed.
 
    Progress against year 2000 compliance plans is monitored by management at
each of the operating companies as well as the internal audit department.
Results are reported to the board of directors on a regular basis.
 
    RJRN Holdings' systems risk management program includes emergency backup and
recovery procedures to be followed in the event of failure of a
business-critical system. However, these procedures have been expanded to
include additional procedures for potential year 2000 issues. In addition,
contingency plans to protect the business from year 2000-related interruptions
are being developed, which will include
 
                                       43
<PAGE>
development of backup procedures, identification of alternate suppliers and
possible increases in safety inventory levels. These plans have already been
completed at RJRT and will be complete at Nabisco Holdings and Reynolds
International by the end of the second and third quarters of 1999, respectively.
The possible consequences of RJRN Holdings or key third parties not being fully
year 2000 compliant include temporary plant closings, delays in the delivery of
products or receipt of supplies, invoice and collection errors, and inventory
obsolescence. However, RJRN Holdings believes its year 2000 implementation plan,
including contingency measures, should be completed in all material respects by
the end of 1999, thereby reducing the possible material adverse effects of the
year 2000 issue on its business, results of operations or financial condition.
 
EURO CURRENCY CONVERSION
 
    On January 1, 1999, eleven of the fifteen member countries of the European
Union adopted the euro as their common legal currency. The euro is trading on
currency exchanges and is available for non-cash transactions. From January 1,
1999 through January 1, 2002, each of the participating countries is also
scheduled to maintain its national ("legacy") currencies as legal tender for
goods and services. Beginning January 1, 2002, new euro-denominated bills and
coins will be issued, and legacy currencies will be withdrawn from circulation
no later than July 1, 2002. RJRN Holdings' operating subsidiaries that will be
affected by the euro conversion (primarily Reynolds International and Nabisco's
operating subsidiaries in Spain and Portugal) have established plans to address
any business issues raised, including the competitive impact of cross-border
price transparency. It is not anticipated that there will be any near term
business ramifications; however, the long-term implications, including any
changes or modifications that will need to be made to business and financial
strategies are still being reviewed. From an accounting and computer system
standpoint, the impact from the euro currency conversion did not have a material
impact on the financial position or results of operations of RJRN Holdings and
its subsidiaries. From a treasury standpoint, the impact from the euro
conversion is not expected to have a material impact on the financial position
or results of operations of RJRN Holdings and its subsidiaries.
 
LITIGATION
 
    For a description of certain litigation affecting RJRT and its affiliates
(including RJRN Holdings and RJRN) and indemnitees, see note 10 to the
consolidated financial statements.
 
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. RJRN has also been
named in an insurance coverage suit brought by another company named as a PRP at
this site. In this lawsuit, DEL MONTE FRESH PRODUCE V. FIREMEN'S FUND INSURANCE,
filed August 13, 1997 in the First Circuit Court of the State of Hawaii, the
plaintiff seeks declaratory judgment that it is entitled to insurance coverage
for the site or, in the alternative, that RJRN is obligated to indemnify Del
Monte under the terms of the agreement by which RJRN sold that company in 1989.
The Fireman's Fund Insurance Company has filed a motion for summary judgment
that has not yet been heard.
 
                                       44
<PAGE>
    Certain subsidiaries of RJRN have also been named as PRPs with third parties
or may have indemnification obligations with respect to a number of additional
sites. Liability under CERCLA is joint and several.
 
    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 business or financial condition of RJRN Holdings and RJRN and
their subsidiaries taken as a whole.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
    Market risk represents the risk of loss that may impact the consolidated
financial position, results of operations or cash flows of RJRN Holdings due to
adverse changes in financial and commodity market prices and rates. RJRN
Holdings is exposed to market risk in the areas of foreign currency exchange
rates, interest rates and commodity prices. These exposures are directly related
to its international operations, its use of agricultural commodities in its food
operations and its normal investing and funding activities. RJRN Holdings has
established various policies and procedures to manage its exposure to market
risks, including the use of financial and commodity derivatives, which are
highly correlated to underlying exposures. See note 11 to the consolidated
financial statements for further information regarding interest rate
arrangements and foreign currency arrangements entered into by RJRN Holdings'
subsidiaries and further information regarding market and credit risk which may
result from the use of these financial instruments. RJRN Holdings estimates its
market risk due to changes in foreign currency rates, interest rates and
commodity prices utilizing a financial model called Value at Risk ("VaR"). VaR
is a statistical measure of the potential loss in terms of fair value, cash
flows or earnings of market-risk sensitive instruments over a one-year horizon
assuming a 95% confidence interval for changes in market rates and prices.
 
FOREIGN EXCHANGE AND INTEREST RATE EXPOSURES
 
    Upon reviewing its derivatives and other foreign currency and interest rate
instruments, based on historical foreign currency rate movements and the fair
value of market-rate sensitive instruments at year-end, RJRN Holdings does not
believe that near term changes in foreign currency or interest rates will have a
material impact on its future earnings, fair values or cash flows.
 
COMMODITY PRICE EXPOSURE
 
    Based on either Nabisco Holdings' derivative commodity instruments or its
net commodity exposure (derivatives plus physical contracts less anticipated
future consumption), a near-term change in commodity prices, based on historical
commodity price movements, would not have a material impact on future earnings,
fair values or cash flows of RJRN Holdings.
 
SUBSEQUENT EVENTS
 
    On March 9, 1999, RJRN and RJRT entered into a definitive agreement to sell
the international tobacco business for approximately $8 billion, including the
assumption of approximately $200 million of net debt, to Japan Tobacco Inc.
("Japan Tobacco"). Under the terms of the agreement, Japan Tobacco will acquire
substantially all of the business including intellectual property rights of
Reynolds International, including the international rights to the Camel, Winston
and Salem brand names. Proceeds from the sale will be used to reduce debt and
for general corporate purposes, which is expected to substantially strengthen
the financial position of RJRT. The sale is subject to certain regulatory
conditions and receipt of certain consents from RJRN's bondholders.
 
                                       45
<PAGE>
    Also on March 9, 1999, RJRN Holdings announced that its board of directors
had approved a plan to separate the domestic tobacco business conducted by RJRT,
from the food business conducted by operating subsidiaries of Nabisco Holdings.
Under the plan, the separation of the businesses will be accomplished by a
tax-free spin-off to RJRN Holdings' shareholders of shares in the domestic
tobacco business.
 
    Upon completion of the spin-off, RJRN Holdings will be renamed Nabisco Group
Holdings and will continue to exist as a holding company, owning 80.5% of
Nabisco Holdings. The re-named Nabisco Group Holdings and Nabisco Holdings will
each continue to trade as separate companies on the New York Stock Exchange and
shares of tobacco company stock will also trade separately. The separation is
subject to final board approval and bondholder consent and is expected to occur
following completion of the sale of the international tobacco business.
 
    See note 18 to the consolidated financial statements for pro forma
information as a result of the above transaction.
                            ------------------------
 
    The foregoing discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements particularly with respect to the level of restructuring-related
expenses and the amount of savings related to restructuring programs, capital
expenditures, foreign market risk, the impact of proposed litigation
settlements, including certain attorney general agreements and the MSA related
to the tobacco business, the impact of the euro currency conversion and the
impact of the year 2000 issue on computer systems and applications, 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 effect on financial
performance and future events of 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, the effects of domestic and foreign government
regulation, ratings of RJRN Holdings' or its subsidiaries' securities and, in
the case of the tobacco business, litigation and related legislative and
regulatory developments. 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 52 for the required information.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE
 
    None.
 
                                       46
<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 March 30, 1999. 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 March 30, 1999.
 
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 March 30, 1999.
 
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 March 30, 1999.
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
<TABLE>
<C>        <C>        <S>
      (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 SINCE THE THIRD QUARTER 1998
 
                      Form 8-K dated November 23, 1998, reporting on the execution by RJRT and certain
                      other U.S. tobacco companies of a Master Settlement Agreement with attorneys
                      general of 46 states and certain other U.S. jurisdictions and filing as exhibits
                      the related press release and agreement.
 
                      Form 8-K dated March 9, 1999, reporting the agreement to sell the international
                      tobacco business to Japan Tobacco and the approval by the RJRN Holdings' Board of
                      Directors of a plan to separate the domestic tobacco business and the food
                      business into two publicly traded entities and filing as an exhibit the related
                      press release.
 
      (c)             EXHIBITS
 
                      See Exhibit Index.
 
      (d)             FINANCIAL STATEMENT SCHEDULES.
 
                      See Index to Financial Statements and Financial Statement Schedules.
</TABLE>
 
                                       47
<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 March 26, 1999.
 
<TABLE>
<S>                             <C>  <C>
                                RJR NABISCO HOLDINGS CORP.
 
                                By:           /s/ STEVEN F. GOLDSTONE
                                     -----------------------------------------
                                               (Steven F. Goldstone)
                                        Chairman and Chief Executive Officer
</TABLE>
 
    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 March 26, 1999.
 
<TABLE>
<CAPTION>
         SIGNATURE                      TITLE                  DATE
---------------------------  ---------------------------  --------------
<C>                          <S>                          <C>
 
                             Chairman and Chief
  /s/ STEVEN F. GOLDSTONE      Executive Officer
---------------------------    (principal executive       March 26, 1999
   (Steven F. Goldstone)       officer)
 
                             Senior Vice President and
   /s/ DAVID B. RICKARD        Chief Financial Officer
---------------------------    (principal financial       March 26, 1999
    (David B. Rickard)         officer)
 
  /s/ RICHARD G. RUSSELL     Senior Vice President and
---------------------------    Controller (principal      March 26, 1999
   (Richard G. Russell)        accounting officer)
 
             *               Director
---------------------------                               March 26, 1999
   (John T. Chain, Jr.)
 
             *               Director
---------------------------                               March 26, 1999
   (Julius L. Chambers)
 
             *               Director
---------------------------                               March 26, 1999
    (John L. Clendenin)
 
             *               Director
---------------------------                               March 26, 1999
      (Ray J. Groves)
 
             *               Director
---------------------------                               March 26, 1999
   (Fred H. Langhammer)
 
             *               Director
---------------------------                               March 26, 1999
   (H. Eugene Lockhart)
 
             *               Director
---------------------------                               March 26, 1999
   (Theodore E. Martin)
</TABLE>
 
                                       48
<PAGE>
<TABLE>
<CAPTION>
         SIGNATURE                      TITLE                  DATE
---------------------------  ---------------------------  --------------
<C>                          <S>                          <C>
             *               Director
---------------------------                               March 26, 1999
   (Rozanne L. Ridgway)
</TABLE>
 
<TABLE>
<S>                             <C>  <C>
                                *By:           /s/ WILLIAM L. ROSOFF
                                     -----------------------------------------
                                                 William L. Rosoff
                                                  Attorney-in-Fact
</TABLE>
 
                                       49
<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 March 26, 1999.
 
<TABLE>
<S>                   <C>  <C>
                      RJR NABISCO, INC.
 
                      By:             /s/ STEVEN F. GOLDSTONE
                             -----------------------------------------
                                       (Steven F. Goldstone)
                               Chairman and Chief Executive Officer
</TABLE>
 
    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 March 26, 1999.
 
<TABLE>
<CAPTION>
        SIGNATURE                     TITLE                   DATE
-------------------------  ---------------------------  ----------------
<C>                        <S>                          <C>
 
                           Chairman and Chief
 /s/ STEVEN F. GOLDSTONE     Executive Officer
-------------------------    (principal executive        March 26, 1999
  (Steven F. Goldstone)      officer)
 
                           Senior Vice President and
  /s/ DAVID B. RICKARD       Chief Financial Officer
-------------------------    (principal financial        March 26, 1999
   (David B. Rickard)        officer)
 
                           Vice President and
 /s/ RICHARD G. RUSSELL      Controller
-------------------------    (principal accounting       March 26, 1999
  (Richard G. Russell)       officer)
 
            *              Director
-------------------------                                March 26, 1999
  (John T. Chain, Jr.)
 
            *              Director
-------------------------                                March 26, 1999
  (Julius L. Chambers)
 
            *              Director
-------------------------                                March 26, 1999
   (John L. Clendenin)
 
            *              Director
-------------------------                                March 26, 1999
     (Ray J. Groves)
 
            *              Director
-------------------------                                March 26, 1999
  (Fred H. Langhammer)
 
            *              Director
-------------------------                                March 26, 1999
  (H. Eugene Lockhart)
</TABLE>
 
                                       50
<PAGE>
<TABLE>
<CAPTION>
        SIGNATURE                     TITLE                   DATE
-------------------------  ---------------------------  ----------------
<C>                        <S>                          <C>
            *              Director
-------------------------                                March 26, 1999
  (Theodore E. Martin)
 
            *              Director
-------------------------                                March 26, 1999
  (Rozanne L. Ridgway)
</TABLE>
 
<TABLE>
<S>                             <C>  <C>
                                *By:           /s/ WILLIAM L. ROSOFF
                                     -----------------------------------------
                                                 William L. Rosoff
                                                  Attorney-in-Fact
</TABLE>
 
                                       51
<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
Report of Management's Responsibility for Financial Statements.............................................         F-1
Consolidated Statements of Income--Years Ended December 31, 1998, 1997 and 1996............................         F-2
Consolidated Statements of Cash Flows--Years Ended December 31, 1998, 1997 and 1996........................         F-3
Consolidated Balance Sheets--December 31, 1998 and 1997....................................................         F-4
Consolidated Statements of Stockholders' Equity and Comprehensive Income--Years Ended December 31, 1998,
  1997 and 1996............................................................................................         F-6
Notes to Consolidated Financial Statements.................................................................         F-7
</TABLE>
 
FINANCIAL STATEMENT SCHEDULES
 
    For the years ended December 31, 1998, 1997 and 1996:
 
<TABLE>
<S>                                                                                     <C>
Schedule 1--Condensed Financial Information of Registrants............................         S-1
</TABLE>
 
                                       52
<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, 1998 and 1997, and the related consolidated statements of income, cash flows
and stockholders' equity and comprehensive income for each of the three years in
the period ended December 31, 1998. Our audits also included the financial
statement schedules of RJRN Holdings and RJRN as of December 31, 1998 and 1997
and for each of the three years in the period ended December 31, 1998 as listed
in the accompanying index to the financial statements. 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, 1998 and 1997, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 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.
 
/S/ DELOITTE & TOUCHE
New York, New York
January 27, 1999,
(March 25, 1999 as to note 10 and note 18)
 
         REPORT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
 
    The financial statements presented in this report have been prepared by
management in accordance with generally accepted accounting principles using,
where appropriate, management's best estimates and judgment. Management
maintains a system of internal controls to provide reasonable assurance that the
Company's assets are safeguarded and transactions are executed as authorized and
properly recorded. The system includes established policies and procedures, a
program of internal audits, management reviews and careful selection and
training of qualified personnel.
 
    The audit committee is comprised solely of outside directors. It meets
periodically with management, the internal auditors, and the independent
auditors, Deloitte & Touche LLP, to discuss and address internal accounting
control, auditing and financial reporting matters. Both independent and internal
auditors have unrestricted access to the audit committee.
 
/S/ STEVEN F. GOLDSTONE
----------------------------
 
Chairman and
Chief Executive Officer
 
/S/ DAVID B. RICKARD
----------------------------
 
Senior Vice President
and Chief Financial Officer
 
                                      F-1
<PAGE>
                       CONSOLIDATED STATEMENTS OF INCOME
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                        1998                    1997              1996
                                                               ----------------------  ----------------------  ----------
                                                                  RJRN                    RJRN                    RJRN
YEARS ENDED DECEMBER 31                                         HOLDINGS      RJRN      HOLDINGS      RJRN      HOLDINGS
-------------------------------------------------------------  ----------  ----------  ----------  ----------  ----------
<S>                                                            <C>         <C>         <C>         <C>         <C>
NET SALES*...................................................  $   17,037  $   17,037  $   17,057  $   17,057  $   17,063
                                                               ----------  ----------  ----------  ----------  ----------
Costs and expenses:
  Cost of products sold*.....................................       7,530       7,530       7,847       7,847       7,973
  Selling, advertising, administrative and general
    expenses.................................................       6,453       6,455       5,881       5,888       5,774
  Tobacco settlement and related expenses (notes 3 and 10)...       1,442       1,442         359         359          --
  Amortization of trademarks and goodwill....................         629         629         634         634         636
  Restructuring expense (note 2).............................         585         585         301         301         428
                                                               ----------  ----------  ----------  ----------  ----------
      OPERATING INCOME.......................................         398         396       2,035       2,028       2,252
Interest and debt expense....................................        (880)       (775)       (912)       (817)       (927)
Other income (expense), net..................................        (132)       (132)       (107)       (107)       (126)
                                                               ----------  ----------  ----------  ----------  ----------
      INCOME (LOSS) BEFORE INCOME TAXES......................        (614)       (511)      1,016       1,104       1,199
Provision (benefit) for income taxes.........................         (23)         19         530         566         585
                                                               ----------  ----------  ----------  ----------  ----------
      INCOME (LOSS) BEFORE MINORITY INTEREST IN INCOME (LOSS)
        OF NABISCO HOLDINGS..................................        (591)       (530)        486         538         614
Less minority interest in income (loss) of Nabisco
  Holdings...................................................         (14)        (14)         84          84           3
                                                               ----------  ----------  ----------  ----------  ----------
      INCOME (LOSS) BEFORE EXTRAORDINARY
        ITEM.................................................        (577)       (516)        402         454         611
Extraordinary item--loss on early extinguishment of debt, net
  of income taxes and minority interest......................          --          --         (21)        (21)         --
                                                               ----------  ----------  ----------  ----------  ----------
      NET INCOME (LOSS)......................................  $     (577) $     (516) $      381  $      433  $      611
                                                               ----------  ----------  ----------  ----------  ----------
                                                               ----------  ----------  ----------  ----------  ----------
BASIC NET INCOME (LOSS) PER SHARE:
  Income (loss) before extraordinary item....................  $    (1.91)             $     1.11              $     1.75
  Net income (loss)..........................................  $    (1.91)             $     1.05              $     1.75
DILUTED NET INCOME (LOSS) PER SHARE:
  Income (loss) before extraordinary item....................  $    (1.91)             $     1.09              $     1.74
  Net income (loss)..........................................  $    (1.91)             $     1.03              $     1.74
DIVIDENDS PER SHARE:
  Common stock...............................................  $     2.05              $     2.05              $     1.85
  Series C preferred stock...................................  $       --              $     2.25              $     6.01
 
<CAPTION>
YEARS ENDED DECEMBER 31                                           RJRN
-------------------------------------------------------------  ----------
<S>                                                            <C>
NET SALES*...................................................  $   17,063
                                                               ----------
Costs and expenses:
  Cost of products sold*.....................................       7,973
  Selling, advertising, administrative and general
    expenses.................................................       5,779
  Tobacco settlement and related expenses (notes 3 and 10)...          --
  Amortization of trademarks and goodwill....................         636
  Restructuring expense (note 2).............................         428
                                                               ----------
      OPERATING INCOME.......................................       2,247
Interest and debt expense....................................        (832)
Other income (expense), net..................................        (127)
                                                               ----------
      INCOME (LOSS) BEFORE INCOME TAXES......................       1,288
Provision (benefit) for income taxes.........................         619
                                                               ----------
      INCOME (LOSS) BEFORE MINORITY INTEREST IN INCOME (LOSS)
        OF NABISCO HOLDINGS..................................         669
Less minority interest in income (loss) of Nabisco
  Holdings...................................................           3
                                                               ----------
      INCOME (LOSS) BEFORE EXTRAORDINARY
        ITEM.................................................         666
Extraordinary item--loss on early extinguishment of debt, net
  of income taxes and minority interest......................          --
                                                               ----------
      NET INCOME (LOSS)......................................  $      666
                                                               ----------
                                                               ----------
BASIC NET INCOME (LOSS) PER SHARE:
  Income (loss) before extraordinary item....................
  Net income (loss)..........................................
DILUTED NET INCOME (LOSS) PER SHARE:
  Income (loss) before extraordinary item....................
  Net income (loss)..........................................
DIVIDENDS PER SHARE:
  Common stock...............................................
  Series C preferred stock...................................
</TABLE>
 
------------------------
 
* Excludes excise taxes as follows: 1998--$3.526 billion, 1997--$3.599 billion
and 1996--$3.852 billion.
 
                SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
 
                                      F-2
<PAGE>
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                1998                  1997                  1996
                                                        --------------------  --------------------  --------------------
                                                          RJRN                  RJRN                  RJRN
YEARS ENDED DECEMBER 31                                 HOLDINGS     RJRN     HOLDINGS     RJRN     HOLDINGS     RJRN
------------------------------------------------------  ---------  ---------  ---------  ---------  ---------  ---------
<S>                                                     <C>        <C>        <C>        <C>        <C>        <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
  Net income (loss)...................................  $    (577) $    (516) $     381  $     433  $     611  $     666
                                                        ---------  ---------  ---------  ---------  ---------  ---------
  Adjustments to reconcile net income (loss) to net
    cash flows from operating activities:
    Depreciation and amortization.....................      1,135      1,135      1,138      1,138      1,174      1,174
    Deferred income tax benefit.......................       (558)      (558)      (183)      (184)      (120)      (114)
    Extraordinary loss................................         --         --         43         43         --         --
    Tobacco settlement and related expenses, net of
      cash payments...................................        803        803        226        226         --         --
    Restructuring and restructuring-related expenses,
      net of cash payments............................        377        377        168        168        257        257
    Other changes that provided (used) cash:
      Accounts and notes receivable...................         (1)         4        208        216        (77)       (66)
      Inventories.....................................        247        247        (40)       (40)      (135)      (135)
      Accounts payable and accrued liabilities,
        including income taxes........................       (157)      (144)      (270)      (278)      (310)      (283)
      Other, net......................................         28         39       (102)      (100)        95         87
                                                        ---------  ---------  ---------  ---------  ---------  ---------
      Total adjustments...............................      1,874      1,903      1,188      1,189        884        920
                                                        ---------  ---------  ---------  ---------  ---------  ---------
    Net cash flows from operating activities..........      1,297      1,387      1,569      1,622      1,495      1,586
                                                        ---------  ---------  ---------  ---------  ---------  ---------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
  Capital expenditures................................       (576)      (576)      (763)      (763)      (741)      (741)
  Acquisitions of businesses..........................         (9)        (9)       (46)       (46)      (189)      (189)
  Divestitures of businesses and certain assets.......        572        572        145        145        153        153
  Net proceeds from repurchases of Nabisco Holdings'
    common stock......................................        (38)       (38)       (22)       (22)        --         --
  Net proceeds from exercise of Nabisco Holdings'
    common stock options..............................         25         25         --         --         --         --
                                                        ---------  ---------  ---------  ---------  ---------  ---------
    Net cash flows used in investing activities.......        (26)       (26)      (686)      (686)      (777)      (777)
                                                        ---------  ---------  ---------  ---------  ---------  ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
  Proceeds from issuance of long-term debt............      1,274      1,274        787        787         34         34
  Repayments of long-term debt........................        (67)       (67)    (1,181)    (1,181)      (216)      (216)
  Increase (decrease) in short-term borrowings........     (1,923)    (1,923)       358        358        249        249
  Repurchase of common stock..........................         --         --         --         --       (100)        --
  Proceeds from the issuance of trust originated
    preferred securities..............................        374         --         --         --         --         --
  Redemption of Series B preferred stock..............       (301)        --         --         --         --         --
  Dividends paid on common and preferred stock........       (742)       (36)      (755)       (34)      (716)       (30)
  Other, net (including intercompany transfers and
    payments).........................................         70       (654)        40       (733)        60       (816)
                                                        ---------  ---------  ---------  ---------  ---------  ---------
    Net cash flows used in financing activities.......     (1,315)    (1,406)      (751)      (803)      (689)      (779)
                                                        ---------  ---------  ---------  ---------  ---------  ---------
Effect of exchange rate changes on cash and cash
  equivalents.........................................         (4)        (4)       (36)       (36)       (11)       (11)
                                                        ---------  ---------  ---------  ---------  ---------  ---------
    Net change in cash and cash equivalents...........        (48)       (49)        96         97         18         19
Cash and cash equivalents at beginning of period......        348        348        252        251        234        232
                                                        ---------  ---------  ---------  ---------  ---------  ---------
Cash and cash equivalents at end of period............  $     300  $     299  $     348  $     348  $     252  $     251
                                                        ---------  ---------  ---------  ---------  ---------  ---------
                                                        ---------  ---------  ---------  ---------  ---------  ---------
 
Income taxes paid, net of refunds.....................  $     566  $     566  $     652  $     690  $     693  $     727
Interest paid.........................................  $     821  $     716  $     895  $     800  $     913  $     794
Tobacco settlement payments...........................  $     786  $     786  $     133  $     133  $      --  $      --
</TABLE>
 
                SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
 
                                      F-3
<PAGE>
                          CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                                 1998                    1997
                                                                        ----------------------  ----------------------
                                                                           RJRN                    RJRN
DECEMBER 31                                                              HOLDINGS      RJRN      HOLDINGS      RJRN
----------------------------------------------------------------------  -----------  ---------  -----------  ---------
 
<S>                                                                     <C>          <C>        <C>          <C>
ASSETS
Current assets:
  Cash and cash equivalents...........................................   $     300   $     299   $     348   $     348
  Accounts and notes receivable, net..................................       1,118       1,102       1,122       1,118
  Inventories:
    Finished products.................................................         695         695         816         816
    Leaf tobacco......................................................       1,058       1,058       1,184       1,184
    Raw materials.....................................................         191         191         226         226
    Other.............................................................         349         349         391         391
                                                                        -----------  ---------  -----------  ---------
    Total inventories.................................................       2,293       2,293       2,617       2,617
                                                                        -----------  ---------  -----------  ---------
  Prepaid expenses and excise taxes...................................         733         733         538         538
                                                                        -----------  ---------  -----------  ---------
      TOTAL CURRENT ASSETS............................................       4,444       4,427       4,625       4,621
                                                                        -----------  ---------  -----------  ---------
 
Property, plant and equipment--at cost:
    Land and land improvements........................................         310         310         324         324
    Buildings and leasehold improvements..............................       1,949       1,949       2,002       2,002
    Machinery and equipment...........................................       6,023       6,023       6,299       6,299
    Construction-in-process...........................................         482         482         554         554
                                                                        -----------  ---------  -----------  ---------
    Total property, plant and equipment...............................       8,764       8,764       9,179       9,179
Less accumulated depreciation.........................................       3,466       3,466       3,240       3,240
                                                                        -----------  ---------  -----------  ---------
    Property, plant and equipment, net................................       5,298       5,298       5,939       5,939
                                                                        -----------  ---------  -----------  ---------
 
Trademarks, net of accumulated amortization (1998--$2,387,
  1997--$2,226).......................................................       7,266       7,266       7,759       7,759
Goodwill, net of accumulated amortization (1998--$3,626,
  1997--$3,277).......................................................      11,449      11,449      11,885      11,885
Other assets and deferred charges.....................................         435         423         470         453
                                                                        -----------  ---------  -----------  ---------
                                                                         $  28,892   $  28,863   $  30,678   $  30,657
                                                                        -----------  ---------  -----------  ---------
                                                                        -----------  ---------  -----------  ---------
</TABLE>
 
                                      F-4
<PAGE>
                    CONSOLIDATED BALANCE SHEETS (CONTINUED)
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                                 1998                    1997
                                                                        ----------------------  ----------------------
                                                                           RJRN                    RJRN
DECEMBER 31                                                              HOLDINGS      RJRN      HOLDINGS      RJRN
----------------------------------------------------------------------  -----------  ---------  -----------  ---------
 
<S>                                                                     <C>          <C>        <C>          <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Short-term borrowings...............................................   $     260   $     260   $     361   $     361
  Accounts payable....................................................         637         637         733         733
  Accrued liabilities.................................................       3,346       3,155       2,750       2,572
  Current maturities of long-term debt................................         225         225          33          33
  Income taxes accrued................................................         235         228         268         243
                                                                        -----------  ---------  -----------  ---------
      TOTAL CURRENT LIABILITIES.......................................       4,703       4,505       4,145       3,942
                                                                        -----------  ---------  -----------  ---------
 
Long-term debt (less current maturities)..............................       8,655       8,655       9,456       9,456
Minority interest in Nabisco Holdings.................................         752         752         812         812
Other noncurrent liabilities..........................................       2,279       1,967       2,157       1,908
Deferred income taxes.................................................       3,162       3,098       3,524       3,460
Commitments and contingencies (note 10)
RJRN Holdings' obligated mandatorily redeemable preferred securities
  of subsidiary trusts holding solely junior subordinated
  debentures*.........................................................       1,327          --         953          --
 
Stockholders' equity:
  Preferred stock.....................................................         205          --         520          --
  Common stock (1998--328,385,148 shares issued, 1997-- 327,158,090
    shares issued)....................................................           3          --           3          --
  Paid-in capital.....................................................       9,004      10,862       9,690      11,492
  Retained earnings (accumulated deficit).............................        (577)       (516)         --          --
  Accumulated other comprehensive income..............................        (460)       (460)       (413)       (413)
  Treasury stock, at cost.............................................        (100)         --        (100)         --
  Other stockholders' equity..........................................         (61)         --         (69)         --
                                                                        -----------  ---------  -----------  ---------
      TOTAL STOCKHOLDERS' EQUITY......................................       8,014       9,886       9,631      11,079
                                                                        -----------  ---------  -----------  ---------
                                                                         $  28,892   $  28,863   $  30,678   $  30,657
                                                                        -----------  ---------  -----------  ---------
                                                                        -----------  ---------  -----------  ---------
</TABLE>
 
------------------------------
 
* The sole assets of the subsidiary trusts are junior subordinated debentures of
RJRN Holdings. The outstanding junior subordinated debentures have aggregate
principal amounts of approximately $978 and $385 million, annual interest rates
of 10% and 9 1/2%, and mature in December 2044 and September 2047, respectively.
The preferred securities will be mandatorily redeemed upon redemption of the
junior subordinated debentures.
 
                SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
 
                                      F-5
<PAGE>
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                             (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
                                                                                       ACCUMULATED OTHER
                                                    CAPITAL     PAID-IN    RETAINED      COMPREHENSIVE     TREASURY
                                                    STOCK*      CAPITAL    EARNINGS         INCOME           STOCK        OTHER
                                                  -----------  ---------  -----------  -----------------  -----------  -----------
<S>                                               <C>          <C>        <C>          <C>                <C>          <C>
Balance at January 1, 1996......................   $     547   $  10,118   $  --           $    (184)      $      --    $    (152)
  Net income....................................                                 611
  Foreign currency translation, net of tax
    expense of $17 million......................                                                 (45)
  Minimum pension liability, net of tax benefit
    of $2 million...............................                                                  (4)
  Total comprehensive income....................
  Retirement of 431,757 shares of ESOP preferred
    stock.......................................          (7)
  Issuance of 775,366 shares of common stock....                      18
  Repurchase of 3,377,300 shares of common
    stock.......................................                                                                (100)
  Cancellation of 9,000 shares of common
    stock.......................................
  Dividends.....................................                     (97)       (611)
  ESOP note payments received...................                                                                               34
  Other.........................................                      11                                                        9
                                                  -----------  ---------       -----           -----           -----        -----
Balance at December 31, 1996....................         540      10,050      --                (233)           (100)        (109)
  Net income....................................                                 381
  Foreign currency translation, net of tax
    expense of $12 million......................                                                (170)
  Minimum pension liability, net of tax benefit
    of $5 million...............................                                                 (10)
  Total comprehensive income....................
  Retirement of 843,970 shares of ESOP preferred
    stock.......................................         (14)
  Conversion of 26,675,000 shares of Series C
    preferred stock into 53,350,000
    shares of common stock......................          (3)          3
  Issuance of 405,532 shares of common stock....                      10
  Cancellation of 171,750 shares of common
    stock.......................................                      (5)
  Dividends.....................................                    (361)       (381)
  ESOP note payments received...................                                                                               36
  Other.........................................                      (7)                                                       4
                                                  -----------  ---------       -----           -----           -----        -----
Balance at December 31, 1997....................         523       9,690      --                (413)           (100)         (69)
  Net loss......................................                                (577)
  Foreign currency translation, net of tax
    benefit of $6 million.......................                                                 (50)
  Minimum pension liability, net of tax expense
    of $1 million...............................                                                   3
  Total comprehensive income (loss).............
  Retirement of 895,983 shares of ESOP preferred
    stock.......................................         (14)
  Redemption of 12,043,940 shares of Series B
    preferred stock.............................        (301)
  Issuance of 1,264,058 shares of common
    stock.......................................                      41
  Cancellation of 37,000 shares of common
    stock.......................................                      (1)
  Dividends.....................................                    (704)
  ESOP note payments received...................                                                                               33
  Other.........................................                     (22)                                                     (25)
                                                  -----------  ---------       -----           -----           -----        -----
Balance at December 31, 1998....................   $     208   $   9,004   $    (577)      $    (460)      $    (100)   $     (61)
                                                  -----------  ---------       -----           -----           -----        -----
                                                  -----------  ---------       -----           -----           -----        -----
 
<CAPTION>
 
                                                               COMPREHENSIVE
                                                    TOTAL         INCOME
                                                  ---------  -----------------
<S>                                               <C>        <C>
Balance at January 1, 1996......................  $  10,329
  Net income....................................        611      $     611
  Foreign currency translation, net of tax
    expense of $17 million......................        (45)           (45)
  Minimum pension liability, net of tax benefit
    of $2 million...............................         (4)            (4)
                                                                     -----
  Total comprehensive income....................                 $     562
                                                                     -----
                                                                     -----
  Retirement of 431,757 shares of ESOP preferred
    stock.......................................         (7)
  Issuance of 775,366 shares of common stock....         18
  Repurchase of 3,377,300 shares of common
    stock.......................................       (100)
  Cancellation of 9,000 shares of common
    stock.......................................         --
  Dividends.....................................       (708)
  ESOP note payments received...................         34
  Other.........................................         20
                                                  ---------
Balance at December 31, 1996....................     10,148
  Net income....................................        381      $     381
  Foreign currency translation, net of tax
    expense of $12 million......................       (170)          (170)
  Minimum pension liability, net of tax benefit
    of $5 million...............................        (10)           (10)
                                                                     -----
  Total comprehensive income....................                 $     201
                                                                     -----
                                                                     -----
  Retirement of 843,970 shares of ESOP preferred
    stock.......................................        (14)
  Conversion of 26,675,000 shares of Series C
    preferred stock into 53,350,000
    shares of common stock......................         --
  Issuance of 405,532 shares of common stock....         10
  Cancellation of 171,750 shares of common
    stock.......................................         (5)
  Dividends.....................................       (742)
  ESOP note payments received...................         36
  Other.........................................         (3)
                                                  ---------
Balance at December 31, 1997....................      9,631
  Net loss......................................       (577)     $    (577)
  Foreign currency translation, net of tax
    benefit of $6 million.......................        (50)           (50)
  Minimum pension liability, net of tax expense
    of $1 million...............................          3              3
                                                                     -----
  Total comprehensive income (loss).............                 $    (624)
                                                                     -----
                                                                     -----
  Retirement of 895,983 shares of ESOP preferred
    stock.......................................        (14)
  Redemption of 12,043,940 shares of Series B
    preferred stock.............................       (301)
  Issuance of 1,264,058 shares of common
    stock.......................................         41
  Cancellation of 37,000 shares of common
    stock.......................................         (1)
  Dividends.....................................       (704)
  ESOP note payments received...................         33
  Other.........................................        (47)
                                                  ---------
Balance at December 31, 1998....................  $   8,014
                                                  ---------
                                                  ---------
</TABLE>
 
------------------------
* Includes $3 million of common stock for each reporting period presented. The
  number of shares of common stock, par value $.01, authorized at December 31,
  1998 was 440,000,000. Common shares outstanding: 1998- 325,007,848 and 1997-
  323,780,790.
 
                SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
 
                                      F-6
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    BASIS OF PRESENTATION
 
    The consolidated financial statements include the accounts of RJR Nabisco
Holdings Corp. ("RJRN Holdings"), its wholly-owned subsidiary RJR Nabisco, Inc.
("RJRN") and their majority-owned subsidiaries, including 80.6% of Nabisco
Holdings Corp. ("Nabisco Holdings") and its wholly-owned subsidiary, Nabisco,
Inc. ("Nabisco").
 
    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.
 
    Certain prior years' amounts have been reclassified to conform to the 1998
presentation.
 
    Unless otherwise noted, all dollar amounts presented are in millions except
per share amounts.
 
    CASH EQUIVALENTS
 
    Cash equivalents include all short-term, highly liquid investments that are
readily convertible to known amounts of cash and that have original maturities
of three months or less.
 
    INVENTORIES
 
    Inventories are stated at the lower of cost or market. The cost of U.S.
tobacco inventories is determined principally under the LIFO method. The cost of
remaining inventories is determined principally under the FIFO, specific lot and
weighted average methods. In accordance with recognized industry practice,
stocks of tobacco, which must be cured for more than one year, are classified as
current assets.
 
    DEPRECIATION AND AMORTIZATION AND VALUATION OF INTANGIBLES
 
    Property, plant and equipment are depreciated by the straight-line method
over the estimated useful lives of the assets.
 
    Goodwill and trademarks are amortized using the straight-line method,
principally over 40 years. Management periodically evaluates the recoverability
of goodwill and trademarks. 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 goodwill and trademarks from related operations,
on an undiscounted basis, will be less than the carrying value over the
remaining amortization period.
 
    OTHER INCOME (EXPENSE), NET
 
    Interest income, certain gains and losses on foreign currency transactions,
financing-related fees 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.
 
    ADVERTISING AND RESEARCH AND DEVELOPMENT
 
    Advertising and research and development costs are expensed as incurred.
 
                                      F-7
<PAGE>
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    INTEREST RATE ARRANGEMENTS
 
    For interest rate swaps, the differential to be paid or received is accrued
and recognized in interest expense and may change as market interest rates
change. For purchased interest rate caps, the premium paid is amortized to
interest expense over the term of the cap and any amounts receivable are accrued
as a reduction of interest expense. If an arrangement is terminated prior to
maturity, the gain or loss is recognized over the remaining original life of the
arrangement if the item hedged remains outstanding, or immediately, if the item
hedged does not remain outstanding. If the arrangement is not terminated prior
to maturity, but the underlying hedged item is no longer outstanding, the
interest rate arrangement is marked to market and any unrealized gain or loss is
recognized immediately.
 
    FOREIGN CURRENCY ARRANGEMENTS
 
    Forward foreign exchange contracts are carried at fair value on the
consolidated balance sheets. The corresponding gains or losses on those
contracts entered into to hedge firm commitments are deferred on the
consolidated balance sheets as well and included in the basis of the underlying
hedged transaction when settled. To the extent that the underlying hedged
foreign currency transaction does not occur, the gains and losses deferred are
recognized in earnings immediately. Gains or losses on those contracts entered
into to hedge foreign currency exposure of existing assets and liabilities are
generally recognized in income currently, along with the related translation
gains or losses recognized from the remeasurement of the assets or liabilities
hedged.
 
    Translation gains or losses resulting from foreign-denominated borrowings
that are accounted for as hedges of certain foreign currency net investments
result in charges or credits to the cumulative translation adjustments account
in stockholders' equity.
 
    COMMODITY CONTRACTS
 
    Changes in the market value of commodity contracts are recorded as an
addition to, or reduction from, the raw material inventory cost. Market value
changes are recorded in cost of products sold when the related finished products
are sold. Due to wide fluctuations in the market prices for various agricultural
commodities, futures contracts are frequently entered into to hedge the price
risk associated with anticipated purchases. The amount of hedging losses
deferred as of December 31, 1998 and 1997 were $5 million and $7 million,
respectively.
 
    RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
 
    On January 1, 1998, RJRN Holdings and RJRN adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS No. 130"),
which established standards for reporting and displaying comprehensive income
and its components. Comprehensive income is defined as the change in
stockholders' equity during a period from transactions from nonowner sources and
primarily includes net income (loss), foreign currency translation adjustments
and minimum pension liability adjustments. The components of comprehensive
income are displayed in the consolidated statements of stockholders' equity. The
adoption of SFAS No. 130 did not have a material effect on RJRN Holdings' or
RJRN's financial position or results of operations.
 
    In the fourth quarter of 1998, RJRN Holdings and RJRN adopted Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS No. 131"), which established standards
for the way in which information about operating segments is reported. SFAS No.
131 also established standards for related disclosures about products and
services, geographic areas and major customers. See note 15 for disclosures
required by SFAS No. 131. The
 
                                      F-8
<PAGE>
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
adoption of SFAS No. 131 did not have a material effect on RJRN Holdings' or
RJRN's financial position or results of operations.
 
    RJRN Holdings and RJRN also adopted Statement of Financial Accounting
Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits ("SFAS No. 132") during 1998. SFAS No. 132 standardized
the disclosure requirements for pensions and other postretirement benefits,
requires additional information on changes in the benefit obligations and fair
values of plan assets that will facilitate financial analysis and eliminates
certain requirements from other accounting standards no longer deemed useful. It
does not change the measurement or recognition of these plans. See note 14 for
disclosures required by SFAS No. 132. The adoption of SFAS No. 132 did not have
a material effect on RJRN Holdings' or RJRN's financial position or results of
operations.
 
    During 1998, RJRN Holdings and RJRN also adopted Statement of Position
("SOP") No. 98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use, which requires certain costs incurred in connection
with developing or obtaining internal-use software to be capitalized and other
costs to be expensed. The adoption of SOP No. 98-1 had no material effect on
RJRN Holdings' or RJRN's financial position or results of operations.
 
    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 
    During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS No. 133"), which must be adopted by January 1,
2000, with early adoption permitted. SFAS No. 133 requires that all derivative
financial instruments be recorded on the consolidated balance sheet at their
fair value. Changes in the fair value of derivatives will be recorded each
period in earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. RJRN Holdings and RJRN have not yet determined the timing
of adoption or the impact that adoption or subsequent application of SFAS No.
133 will have on their financial position or results of operations.
 
    In April 1998, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee ("AcSEC") issued SOP No. 98-5,
Reporting on the Costs of Start-Up Activities. SOP No. 98-5 establishes
standards on accounting for start-up and organization costs and, in general,
requires such costs to be expensed as incurred. This standard is required to be
adopted on January 1, 1999. The adoption of SOP No. 98-5 is not expected to have
a material effect on RJRN Holdings' or RJRN's financial position or results of
operations.
 
NOTE 2--RESTRUCTURING
 
    1998 CHARGES
 
    In the second and fourth quarters of 1998, Nabisco recorded restructuring
charges of $406 million ($216 million after-tax, net of minority interest) and
$124 million ($75 million after-tax, net of minority interest), respectively.
These restructuring programs were undertaken to streamline operations and
improve profitability and will include workforce reductions of approximately
6,500 employees. The restructuring programs will require cash expenditures of
approximately $205 million primarily to be spent in 1999. In addition, the
programs will require additional expenses of approximately $134 million, of
which $56 million ($27 million after-tax, net of minority interest) was incurred
in 1998. These restructuring related expenses are principally for implementation
and integration of the programs and include costs for relocation of employees
and equipment and training.
 
                                      F-9
<PAGE>
NOTE 2--RESTRUCTURING (CONTINUED)
    The key elements of the 1998 restructuring programs include:
 
<TABLE>
<CAPTION>
                                                        SEVERANCE       CONTRACT       ASSETS TO BE     OTHER EXIT
                                                      AND BENEFITS    TERMINATIONS      DISPOSED OF        COSTS        TOTAL
                                                      -------------  ---------------  ---------------  -------------  ---------
<S>                                                   <C>            <C>              <C>              <C>            <C>
 
Sales force reorganizations.........................    $      37       $       3        $      --       $      --    $      40
 
Distribution reorganizations........................           16               8                9              --           33
 
Staff reductions....................................           83              --                3              --           86
 
Manufacturing cost reduction initiatives............           22              --                8              --           30
 
Plant closures......................................           46               3              217              15          281
 
Product line rationalizations.......................            4               4               20              32           60
                                                            -----             ---            -----             ---    ---------
 
Total restructuring charges.........................    $     208       $      18        $     257       $      47    $     530
                                                            -----             ---            -----             ---    ---------
                                                            -----             ---            -----             ---    ---------
</TABLE>
 
-  Sales force reorganizations consist of $35 million for Biscuit to reorganize
    its direct store delivery sales force to improve its effectiveness and $5
    million for the International Food Group, principally Latin America.
 
-  Distribution reorganizations consist of plans to exit a number of domestic
    and international distribution and warehouse facilities, principally $19
    million for Biscuit and $14 million for the International Food Group.
 
-  Staff reductions consist of headquarters and operating unit realignments,
    functional consolidations and eliminations of positions throughout Nabisco.
    Amounts are: $37 million for the U.S. Foods Group; $26 million for
    International headquarters, Canada and other foreign units; $15 million for
    corporate headquarters; and $8 million for Biscuit.
 
-  Manufacturing cost reduction initiatives consist of a number of domestic and
    international programs to increase productivity, principally $19 million for
    Biscuit and $7 million for Canada.
 
-  Plant closure accruals are for the closure and future sale of 18 production
    facilities in order to improve manufacturing efficiencies and reduce costs.
    Amounts by operating segment are: Biscuit $217 million; U.S. Foods Group $12
    million; and International Food Group $52 million. As of December 31, 1998,
    production had ceased in 6 facilities which are being actively marketed for
    sale. Other exit costs consist of incremental costs to be incurred prior to
    sale.
 
-  Product line rationalizations consist of exit costs to discontinue a number
    of domestic and international product lines. Other exit costs are
    principally write-offs for disposals of various discontinued products.
    Amounts by operating segment are: U.S. Foods Group $34 million; Biscuit $14
    million; and International Food Group $12 million.
 
    As of December 31, 1998, $61 million of charges were applied against
restructuring reserves as follows: $34 million for 2,000 employees severed, $3
million for contract terminations, $12 million for asset disposals and $12
million for other exit costs. Of the charges applied against the restructuring
reserves, cash expenditures amounted to $39 million.
 
    In the fourth quarter of 1998, Reynolds International recorded a net pre-tax
restructuring charge of $55 million to retool its operations in Russia and other
countries in the CIS region in response to continuing depressed economic
conditions in these countries. The pre-tax charge, which had no associated
income tax benefit, includes severance and related benefits associated with a
workforce reduction of 2,900 employees of approximately $19 million as well as
the rationalization of manufacturing facilities of
 
                                      F-10
<PAGE>
NOTE 2--RESTRUCTURING (CONTINUED)
$54 million. This program will require cash expenditures of $25 million and is
expected to be completed in 1999. All cash requirements are expected to be
funded from operations. In the fourth quarter of 1998, the 1997 restructuring
accrual was reduced by $18 million due primarily to changes in severance and
related benefit estimates of certain international accruals.
 
    The workforce reductions relate to employees at certain manufacturing
facilities and a headquarters location (8 locations in total) in the CIS region.
The rationalization of manufacturing facilities consist primarily of: (i) the
closing of a facility in Azerbaijan, where Reynolds International will exit all
operations ($23 million); (ii) the closing of a warehouse and manufacturing
facility in St. Petersburg ($15 million); and (iii) the closing of a facility in
Lviv ($15 million). Each of the tasks began in January 1999 and are expected to
be substantially completed as follows: the Azerbaijan closing -- the fourth
quarter of 1999; the St. Petersburg closings -- the third quarter of 1999; and
the Lviv closing -- the first quarter of 1999. The types of costs that will be
expensed with respect to these exit activities primarily include the write-down
of facilities and equipment held for sale to fair value and the write-off of
equipment to be abandoned ($48 million) and contract and lease termination costs
($5 million). The facilities will continue in operation until the closing dates
to minimize losses.
 
    None of the 1998 Reynolds International restructuring accruals were utilized
during the year ended December 31, 1998.
 
    1997 CHARGES
 
    RJRN Holdings recorded a pre-tax restructuring expense of $301 million ($235
million after-tax) in the fourth quarter of 1997 to reorganize its worldwide
tobacco operations. The 1997 restructuring program was undertaken to enhance
RJRN Holdings' competitive position and improve its long-term earnings growth
prospects.
 
    The components of the $301 million charge were as follows:
 
<TABLE>
<CAPTION>
                                                                                    INTERNATIONAL     DOMESTIC       TOTAL
                                                                                   ---------------  -------------  ---------
<S>                                                                                <C>              <C>            <C>
Employee severance and related benefits..........................................     $     142       $      30    $     172
Rationalization of manufacturing operations......................................            42              30           72
Disposal of non-strategic investments............................................            33          --               33
Contract termination and other costs.............................................             4              20           24
                                                                                          -----             ---    ---------
                                                                                      $     221       $      80    $     301
                                                                                          -----             ---    ---------
                                                                                          -----             ---    ---------
</TABLE>
 
    For international tobacco, the employee severance and related benefits
pertained to workforce reductions of 2,600 employees at various manufacturing
facilities, headquarters and regional support centers (21 locations worldwide in
total). These benefits are being paid over a period of more than one year under
Reynolds International's severance policy, which is based on length of service
provided by the terminated employees.
 
    The rationalization of certain manufacturing operations consisted of the
following: (i) the closing of the Berlin, Germany and Turku, Finland
manufacturing facilities in connection with the consolidation of manufacturing
operations into Trier, Germany ($16 million and $13 million, respectively); (ii)
the closing of Reynolds International's stemmery operations in Tilsonburg,
Canada ($2 million); (iii) the closing of a leased manufacturing facility in
Hong Kong ($6 million); and (iv) the downsizing of a manufacturing facility in
Montreal, Canada ($5 million). Each of these tasks began in either December 1997
or January 1998 and were or are expected to be substantially completed as
follows: Tilsonburg and Montreal, Canada and Hong Kong -- December 1997; Berlin,
Germany -- January 1999; and Turku, Finland -- the second quarter of 1999.
Reynolds International expects all outstanding tasks to be substantially
completed as
 
                                      F-11
<PAGE>
NOTE 2--RESTRUCTURING (CONTINUED)
originally planned. The types of costs that were expensed with respect to these
exit activities included the write-down of buildings and surplus equipment held
for sale to fair value and the write-off of equipment to be abandoned.
 
    The contract terminations and other costs primarily represented the
write-down of office equipment and fixtures and other exit costs as a result of
office floor space reductions, the consolidation of certain offices and the
abandonment of lease obligations in Italy, Kenya, Dubai and the United Kingdom.
 
    The disposal of non-strategic investments consisted of the following: the
exits of a distribution company in Poland ($7 million) and operations in Vietnam
($8 million), India ($6 million), Armavir, Russia ($6 million) and Hungary ($6
million). The disposals were or are expected to be substantially completed as
follows: Hungary -- the fourth quarter 1998; India -- the first quarter 1999;
Armavir, Russia and Poland -- the second quarter 1999; and Vietnam -- the third
quarter 1999. Reynolds International began the process of disposing of each of
the non-strategic investments during 1998. The following is a summary of the
status of certain investments that will not be disposed of until 1999. The sale
of Armavir, Russia, which was to take place in 1998, could not be completed and
instead Armavir, Russia will now be abandoned; the transfer of ownership of the
Polish distribution company will take place on April 21, 1999 even though
Reynolds International had an agreement to sell this operation on April 7, 1998;
and the closing of the Vietnam operations was subject to a lengthy approval
process by the Vietnamese government even though Reynolds International had a
contract for sale in the third quarter of 1998. Accordingly, although the sale
of some of the non-strategic investments was not scheduled to close until late
1998 or beyond, management had the ability to close these facilities on the
commitment date. As noted above, Reynolds International had contracts to sell
most of these investments in 1998, however, many of the sales are subject to
lengthy regulatory reviews. The facilities continue in operation until the
closing dates only to minimize the losses. If any of the planned sales are not
consummated, management is prepared to abandon the investment, as was the case
with the Armavir transaction described above.
 
    For domestic tobacco, the employee severance and related benefits pertained
to workforce reductions of 192 full-time positions and 217 seasonal positions at
a manufacturing facility and staff related areas. The severed employees were
primarily employed at RJRT's Brook Cove, North Carolina Stemmery which was
closed. The rationalization of certain manufacturing operations primarily
relates to the closing of RJRT's Brook Cove, North Carolina Stemmery which took
place in February 1998, after RJRT finished processing tobacco purchased from
the 1997 burley crop. Beginning with the 1998 flue-cured crop, RJRT began
contracting with an outside third party to do its leaf processing. The type of
costs that were expensed with respect to the exit of this activity included the
write-down of the building and equipment held for sale to fair value and the
write-off of equipment to be abandoned.
 
    The contract termination and other costs for RJRT represented a loss on the
termination of a contractual obligation. During 1997, management decided and
committed to a plan of termination of a leaf supply contract at a price below
RJRT's contract price. The loss represents the shortfall between the contract
cost and the amount that was recovered upon the sale of the leaf inventory.
RJRT, acting as a broker, exercised all of its remaining obligations under a
leaf supply contract and immediately transferred title to a third party without
taking possession of the tobacco.
 
    Of the $301 million total tobacco charge, cash outlays will aggregate
approximately $180 million. The program is expected to be completed in late
1999.
 
    In addition to the above restructuring charge, approximately $89 million was
recognized in operating expenses for international tobacco for implementation
and integration expenses, principally training and relocation of employees and
equipment.
 
                                      F-12
<PAGE>
NOTE 2--RESTRUCTURING (CONTINUED)
    For the year ended December 31, 1998, $183 million of the 1997 worldwide
tobacco restructuring accruals were utilized as follows: $90 million for
employee severance and related benefits, $59 million for rationalization of
manufacturing operations, $12 million for disposal of non-strategic investments,
and $22 million for contract terminations and other costs. Of the charges
applied against the restructuring reserve in 1998, cash expenditures amounted to
$115 million, which were provided from operations.
 
    1996 CHARGES
 
    Nabisco recorded a restructuring charge of $428 million ($241 million
after-tax, net of minority interest) in the second quarter of 1996. The
restructuring program was undertaken to streamline operations and improve
profitability and was substantially completed during 1997. The $428 million
restructuring charge required cash expenditures of $238 million. In addition to
the restructuring charge, the program required additional 1996 expenditures of
$97 million for implementation and integration expenses, principally for
relocation of employees and equipment and training.
 
    The major cost components of the $428 million restructuring charge (see
table below) were for domestic and international severance and benefits related
to workforce reductions totaling approximately 5,700 employees; product line
rationalization losses resulting from disposals of equipment ($91 million) and
packaging materials ($25 million) related to the elimination of more than 300
stock keeping units of slow moving products; losses to write-down the carrying
values of several non-strategic product lines prior to sale, including $30
million for intangibles, $3 million for inventory and $2 million for property;
contract termination costs related to the termination of manufacturing supply
and distribution contracts; and losses from disposals of property related to
international plant closures and domestic and international facility
reorganizations, including $19 million for property, $2 million for plant
closure costs and $1 million for the disposal of inventory.
 
    The major cost components of the restructuring charge and changes in
estimates and charges are summarized below. Severance benefits increased $30
million over the original estimate due to higher than anticipated costs
associated with Biscuit's sales force reorganization. Estimated product line
disposals decreased $15 million due to the decision not to sell a small regional
brand. Estimated costs for product line rationalizations, contract terminations
and facility reorganizations were also changed due to different actual costs.
 
<TABLE>
<CAPTION>
                                  JUNE 1996    CHANGE IN    ADJUSTED     PAYMENTS      BALANCE      PAYMENTS       BALANCE
                                  PROVISION    ESTIMATE     PROVISION    & CHARGES    12-31-97      & CHARGES     12-31-98
                                 -----------  -----------  -----------  -----------  -----------  -------------  -----------
<S>                              <C>          <C>          <C>          <C>          <C>          <C>            <C>
Severance and benefits.........   $     194    $      30    $     224    $    (197)   $      27     $     (25)    $       2
Product line rationalizations..         116            4          120         (117)           3            (3)           --
Product line disposals.........          51          (15)          36          (36)          --            --            --
Contract terminations..........          45          (15)          30          (29)           1            (1)           --
Plant closures and facility
  reorganizations..............          22           (4)          18          (12)           6            (6)           --
                                      -----        -----        -----   -----------         ---         -----         -----
      Total....................   $     428    $      --    $     428    $    (391)   $      37     $     (35)    $       2
                                      -----        -----        -----   -----------         ---         -----         -----
                                      -----        -----        -----   -----------         ---         -----         -----
</TABLE>
 
                                      F-13
<PAGE>
NOTE 3--OPERATIONS
 
    TOBACCO SETTLEMENT AND RELATED EXPENSES
 
    RJRT recorded pre-tax charges totaling $1.442 billion during 1998 for
tobacco settlement and related expenses as follows:
 
<TABLE>
<S>                                                                   <C>
Multi-state settlement agreement....................................  $     620
Minnesota settlement agreement......................................        312
"Most favored nation" adjustments for previously settled states.....        145
Rationalization of manufacturing operations.........................        214
Employee severance and related benefits.............................        151
                                                                      ---------
                                                                      $   1,442
                                                                      ---------
                                                                      ---------
</TABLE>
 
    For a discussion regarding the provisions of the multi-state settlement, the
Minnesota settlement and the most favored nation adjustments see note 10. The
rationalization of manufacturing operations primarily represents a charge to
write-down the book value of RJRT's production facility and certain equipment in
Winston-Salem, North Carolina to fair value. The employee severance and related
benefits expense represents a charge for workforce reductions totaling
approximately 1,300 employees. These charges were in response to the changing
business conditions which could result from the multi-state settlement agreement
signed in November 1998. RJRT anticipates that the November price increase,
which was necessary to satisfy its ongoing annual payment obligations under the
multi-state settlement agreement, is likely to adversely affect volume and its
results of operations.
 
    Cash expenditures related to the termination of employees is anticipated to
be approximately $100 million and will be paid from operations into the year
2000. As of December 31, 1998, $268 million of the accrual was utilized as
follows: $54 million for severance and related benefits and $214 million for
rationalization of manufacturing operations.
 
    RJRT recorded pre-tax charges totaling $359 million during 1997 related to
settlement agreements reached with the Florida, Mississippi and Texas state
attorneys general and in certain class action cases. See note 10 for further
discussion.
 
    FOOD BUSINESSES SOLD AND EXITED
 
    Cost of products sold in 1998 was reduced by a $14 million net gain ($1
million after-tax, net of minority interest) related to businesses sold and
non-strategic businesses exited in the third quarter. Businesses sold include
the College Inn brand of canned broths, the U.S. and Canadian tablespreads and
U.S. egg substitute businesses (formerly included in the U.S. Foods Group
operating segment) and the Del Monte brand canned vegetable business in
Venezuela (formerly included in the International Food Group operating segment)
for net proceeds of approximately $550 million, and the costs of exiting certain
non-strategic businesses.
 
    In 1997, Nabisco sold certain domestic regional brands (formerly included in
the U.S. Foods Group) which resulted in a pre-tax gain of $32 million. In
addition non-recurring pre-tax expenses of $31 million were recorded for the
write-down of certain assets of a business held for sale, the reorganization of
the U.S. Foods Group selling organization and the relocation of the
International Food Group headquarters.
 
    Net sales for 1998 and 1997 from all divestitures in both years by Nabisco
were $298 million and $632 million, respectively. Operating company contribution
for 1998 and 1997 from divested businesses was $39 million and $99 million,
respectively.
 
                                      F-14
<PAGE>
NOTE 4--EARNINGS PER SHARE
 
    The components of the calculation of earnings per share for income (loss)
before extraordinary items are as follows:
 
<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31
                                          ----------------------------------------------------------------------
                                                   1998                    1997                    1996
                                          ----------------------  ----------------------  ----------------------
<S>                                       <C>         <C>         <C>         <C>         <C>         <C>
                                            BASIC      DILUTED      BASIC      DILUTED      BASIC      DILUTED
                                          ----------  ----------  ----------  ----------  ----------  ----------
Income (loss) applicable to common stock
 before extraordinary item:
  Income (loss) before extraordinary
    item................................  $     (577) $     (577) $      402  $      402  $      611  $      611
  Preferred stock dividends.............         (40)        (40)        (44)        (44)        (43)        (43)
  Adjustment for the dilutive effect of
    Nabisco Holdings' stock options.....          --          --          --          (3)         --          --
                                          ----------  ----------  ----------  ----------  ----------  ----------
                                          $     (617) $     (617) $      358  $      355  $      568  $      568
                                          ----------  ----------  ----------  ----------  ----------  ----------
                                          ----------  ----------  ----------  ----------  ----------  ----------
Weighted average number of common and
  common equivalent shares outstanding
  (in thousands):
  Common shares outstanding.............     323,853     323,853     323,787     323,787     324,917     324,917
  Assumed exercise of RJRN Holdings'
    stock options.......................          --          --          --       1,531          --       1,030
                                          ----------  ----------  ----------  ----------  ----------  ----------
                                             323,853     323,853     323,787     325,318     324,917     325,947
                                          ----------  ----------  ----------  ----------  ----------  ----------
                                          ----------  ----------  ----------  ----------  ----------  ----------
</TABLE>
 
Shares of ESOP convertible preferred stock of 12,818,967, 13,714,950 and
14,558,920 were not included in computing diluted earnings per share for 1998,
1997 and 1996, respectively, because the effect would have been antidilutive.
 
NOTE 5--INVENTORIES
 
    At December 31, 1998 and 1997, approximately $492 million and $592 million,
respectively, of domestic tobacco inventories was valued under the LIFO method.
The current cost of LIFO inventories at December 31, 1998 and 1997 was greater
than the amount at which these inventories were carried on the consolidated
balance sheets by $169 million and $151 million, respectively.
 
    For the years ended December 31, 1998, 1997 and 1996, net income was
increased by approximately $18 million, $14 million and $35 million,
respectively, as a result of LIFO inventory liquidations. The LIFO liquidations
resulted from programs to reduce domestic leaf durations consistent with
forecasts of future operating requirements.
 
                                      F-15
<PAGE>
NOTE 6--SHORT-TERM BORROWINGS AND BORROWING ARRANGEMENTS
 
<TABLE>
<CAPTION>
                                                                 1998                        1997
                                                      --------------------------  --------------------------
<S>                                                   <C>          <C>            <C>          <C>
                                                                      AVERAGE                     AVERAGE
                                                        AMOUNT       YEAR-END       AMOUNT       YEAR-END
                                                      OUTSTANDING  INTEREST RATE  OUTSTANDING  INTEREST RATE
                                                      -----------  -------------  -----------  -------------
Nabisco Holdings:
  Domestic commercial paper (see note 9)............   $     174           5.7%    $   1,991           6.2%
  International commercial paper....................           9           7.2%           26           4.1%
  Notes payable to banks............................          59           8.2%          154           8.2%
  Other (see note 9)................................          --            --            50           5.8%
                                                      -----------                 -----------
                                                             242                       2,221
  Amount reclassified as long-term debt (see note
    9)..............................................        (174)                     (2,041)
                                                      -----------                 -----------
    Total Nabisco Holdings..........................          68                         180
                                                      -----------                 -----------
 
RJRN:
  Domestic commercial paper (see note 9)............          33           6.4%           --            --
  Notes payable to banks............................         192           6.6%          181           6.4%
                                                      -----------                 -----------
                                                             225                         181
  Amount reclassified as long-term debt (see note
    9)..............................................         (33)                         --
                                                      -----------                 -----------
    Total RJRN......................................         192                         181
                                                      -----------                 -----------
    Total short-term borrowings.....................   $     260                   $     361
                                                      -----------                 -----------
                                                      -----------                 -----------
</TABLE>
 
    RJRN maintains a three-year $2.146 billion revolving credit facility and a
364-day $212 million credit facility primarily to support commercial paper
issuances. The commitments under the revolving credit facility decline to
approximately $1.7 billion in the final year. Borrowings under the revolving
credit facility bear interest at rates which vary with the prime rate or LIBOR.
Borrowings under the 364-day credit facility bear interest at rates which vary
with LIBOR.
 
    Nabisco maintains a four-year $1.5 billion revolving credit facility and a
364-day $1.11 billion credit facility primarily to support commercial paper
issuances. At the end of the 364-day period, any borrowings outstanding under
the 364-day credit facility are convertible into a three-year term loan at
Nabisco's option. The commitments under the revolving credit facility decline to
approximately $1.46 billion in the final year. Borrowings under the revolving
credit facility bear interest at rates which vary with the prime rate or LIBOR.
Borrowings outstanding under the 364-day credit facility bear interest at rates
which vary with LIBOR.
 
    Based on RJRN's and Nabisco's intention and ability to continue to refinance
for more than one year the amount of their respective domestic commercial paper
and revolving credit agreement borrowings and certain other borrowings through
their separate long-term revolving credit facilities, such borrowings were
reclassified as long-term debt.
 
    Distributions and the payment of dividends by RJRN Holdings are subject to
certain restrictions under certain financing agreements and debt instruments of
RJRN Holdings and RJRN and their subsidiaries. The financing agreements
generally restrict cumulative common and preferred dividends and distributions,
limit the ability 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.
 
                                      F-16
<PAGE>
NOTE 6--SHORT-TERM BORROWINGS AND BORROWING ARRANGEMENTS (CONTINUED)
    Nabisco's credit agreements, among other things, generally restrict common
and preferred dividends and distributions, limit loans and advances by Nabisco
Holdings and its subsidiaries to RJRN, limit the ability to incur indebtedness,
engage in transactions with stockholders and affiliates, create liens, acquire,
sell or dispose of certain assets and securities and engage in certain mergers
or consolidations.
 
NOTE 7--ACCRUED LIABILITIES
 
<TABLE>
<CAPTION>
                                                                       1998           1997
                                                                   -------------  -------------
<S>                                                                <C>            <C>
    Payroll and employee benefits................................    $     564      $     595
    Marketing and advertising....................................          535            424
    Excise taxes.................................................          220            205
    Restructuring................................................          388            368
    Dividends....................................................          183            186
    Tobacco settlement and related accruals......................          610            177
    Accrued interest.............................................          192            163
    Other........................................................          654            632
                                                                        ------         ------
                                                                     $   3,346      $   2,750
                                                                        ------         ------
                                                                        ------         ------
</TABLE>
 
NOTE 8--INCOME TAXES
 
    The provision (benefit) for income taxes consisted of the following:
 
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31                                                      1998             1997             1996
----------------------------------------------------------------------  ---------------  ---------------  ---------------
<S>                                                                     <C>              <C>              <C>
Current:
  Federal.............................................................     $     338        $     482        $     471
  Foreign and other...................................................           197              231              234
                                                                               -----            -----            -----
                                                                                 535              713              705
                                                                               -----            -----            -----
Deferred:
  Federal.............................................................          (569)            (139)            (147)
  Foreign and other...................................................            11              (44)              27
                                                                               -----            -----            -----
                                                                                (558)            (183)            (120)
                                                                               -----            -----            -----
Provision (benefit) for income taxes..................................     $     (23)       $     530        $     585
                                                                               -----            -----            -----
                                                                               -----            -----            -----
</TABLE>
 
                                      F-17
<PAGE>
NOTE 8--INCOME TAXES (CONTINUED)
    The components of the deferred income tax liability disclosed on the
consolidated balance sheets included the following:
 
<TABLE>
<CAPTION>
                                                                                         1998       1997
                                                                                       ---------  ---------
<S>                                                                                    <C>        <C>
Deferred tax assets:
  Pension and other postretirement liabilities.......................................  $    (419) $    (418)
  Restructuring and other accrued liabilities........................................       (393)      (247)
                                                                                       ---------  ---------
        Total deferred tax assets before valuation allowance.........................       (812)      (665)
  Valuation allowance................................................................         85         79
                                                                                       ---------  ---------
        Net deferred tax assets......................................................       (727)      (586)
                                                                                       ---------  ---------
 
Deferred tax liabilities:
  Property and equipment.............................................................        828        921
  Trademarks.........................................................................      2,518      2,624
  Other..............................................................................        543        565
                                                                                       ---------  ---------
        Total deferred tax liabilities...............................................      3,889      4,110
                                                                                       ---------  ---------
        Net deferred income taxes....................................................  $   3,162  $   3,524
                                                                                       ---------  ---------
                                                                                       ---------  ---------
</TABLE>
 
    Pre-tax income (loss) for domestic and foreign operations consisted of the
following:
 
<TABLE>
<CAPTION>
                                                                            1998           1997           1996
                                                                        -------------  -------------  -------------
<S>                                                                     <C>            <C>            <C>
Domestic (includes U.S. exports)......................................    $    (887)     $     651      $     554
Foreign...............................................................          273            365            645
                                                                             ------         ------         ------
Pre-tax income (loss).................................................    $    (614)     $   1,016      $   1,199
                                                                             ------         ------         ------
                                                                             ------         ------         ------
</TABLE>
 
    The differences between the provision (benefit) for income taxes and income
taxes computed at statutory U.S. federal income tax rates are explained as
follows:
 
<TABLE>
<CAPTION>
                                                                    1998            1997             1996
                                                                -------------  ---------------  ---------------
<S>                                                             <C>            <C>              <C>
Income taxes computed at statutory U.S. federal income tax
  rates.......................................................    $    (215)      $     356        $     420
State and local income taxes, net of federal tax benefits.....           25              44               55
Goodwill amortization.........................................          126             126              132
Taxes on foreign operations at rates different than statutory
  U.S. federal rate...........................................           83              14               (9)
Exempt foreign sales corporation earnings.....................          (25)             (5)              (7)
Other items, net..............................................          (17)             (5)              (6)
                                                                      -----           -----            -----
Provision (benefit) for income taxes..........................    $     (23)      $     530        $     585
                                                                      -----           -----            -----
                                                                      -----           -----            -----
Effective tax rate............................................          3.7%           52.2%            48.8%
                                                                      -----           -----            -----
                                                                      -----           -----            -----
</TABLE>
 
    At December 31, 1998, there was $2.05 billion of accumulated and
undistributed income of foreign subsidiaries. These earnings were reinvested by
management abroad indefinitely. Accordingly, no applicable U.S. federal deferred
income taxes have been provided nor is a determination of the amount of
unrecognized U.S. federal deferred income taxes practicable.
 
                                      F-18
<PAGE>
NOTE 9--LONG-TERM DEBT
 
<TABLE>
<CAPTION>
                                                                                                   1998       1997
                                                                                                 ---------  ---------
<S>                                                                                              <C>        <C>
Nabisco Holdings:
  Short-term borrowings, reclassified..........................................................  $     174  $   2,041
  5.38-8.3% notes, due 1999 through 2015.......................................................      2,142      2,146
  6.0-6.375% puttable/callable notes, due 2011 through 2035....................................        998         --
  6.24% pound sterling notes due 2001..........................................................        163         --
  Other indebtedness...........................................................................        260        168
  Current maturities of long-term debt.........................................................       (118)       (21)
                                                                                                 ---------  ---------
      Total Nabisco Holdings long-term debt....................................................      3,619      4,334
                                                                                                 ---------  ---------
RJRN:
  Short-term borrowings, reclassified..........................................................         33         --
  6.80-9.25% notes, due 1999 through 2013......................................................      4,444      4,443
  5.375-10% foreign currency debt, due 2000 to 2001............................................        414        469
  Other indebtedness...........................................................................        252        222
  Current maturities of long-term debt.........................................................       (107)       (12)
                                                                                                 ---------  ---------
      Total RJRN long-term debt................................................................      5,036      5,122
                                                                                                 ---------  ---------
      Total long-term debt.....................................................................  $   8,655  $   9,456
                                                                                                 ---------  ---------
                                                                                                 ---------  ---------
</TABLE>
 
------------------------
 
The payment of long-term debt through December 31, 2003 is as follows:
2000--$797; 2001--$761; 2002-- $1,523 and 2003--$816.
 
    In July 1997, RJRN repaid commercial paper borrowings with proceeds from the
issuance of $150 million 8 1/4% notes due 2004 and $200 million 8 1/2% notes due
2007. In August 1997, Nabisco issued $200 million of floating rate notes (5.38%
as of December 31, 1998) due 2009, which are puttable and callable in August
1999.
 
    In December 1997, Nabisco refinanced $432 million of 8.3% notes due 1999 and
$541 million of 8% notes due 2000 with short-term borrowings. An extraordinary
loss of approximately $43 million ($21 million after-tax, net of minority
interest, or $.06 per basic and diluted common share of RJRN Holdings) was
recorded related to this transaction. These short-term borrowings were
refinanced in January 1998 with $1 billion long-term notes. The terms of these
notes are as follows: $400 million of 6% notes due 2011 which are puttable and
callable in 2001; $300 million of 6 1/8% notes due 2033 which are puttable and
callable in 2003; and $300 million of 6 3/8% notes due 2035 which are puttable
and callable in 2005. Unless the notes are put, the interest rates are reset on
the respective put or call date to achieve a yield to maturity of 5.75% to
6.07%, plus in each case, Nabisco's future credit spread on treasury notes of
comparable maturities. The $1,039 million in proceeds from these notes, which
includes $41 million as compensation for the sale of call options, were used to
repay commercial paper borrowings.
 
    In August 1998, a newly formed wholly-owned subsidiary trust of RJRN
Holdings issued $374 million principal amount of preferred securities. The
proceeds from the sale of the preferred securities and the original capital
contribution were invested by the trust in approximately $385 million principal
amount of 9 1/2% junior subordinated debentures of RJRN Holdings. The junior
subordinated debentures are redeemable by RJRN Holdings at $25 per debenture on
or after September 30, 2003 and are due in September 2047. Cash distributions on
the preferred securities are cumulative at an annual rate of 9 1/2% of the
liquidation amount of $25 per security and are payable quarterly in arrears. In
October 1998, RJRN Holdings used $301 million of the proceeds from the issuance
of the junior subordinated debentures to redeem its outstanding Series B
preferred stock.
 
                                      F-19
<PAGE>
NOTE 9--LONG-TERM DEBT (CONTINUED)
 
    Junior subordinated debentures of $978 million issued by a subsidiary trust
of RJRN Holdings in 1995 may be redeemed at RJRN Holdings' election at $25 per
debenture on or after August 19, 1998 and are due in December 2044. Cash
distributions on the preferred securities, which were issued by the subsidiary
in exchange for an equal amount of RJRN Holdings Series B preferred stock, are
cumulative at an annual rate of 10% of the liquidation amount of $25 per
security and are payable quarterly in arrears.
 
    At December 31, 1998, approximately $4.9 billion of total debt (short-term
borrowings and long-term debt, including current maturities) was owed by RJRN
and approximately $4.2 billion was owed by its subsidiaries.
 
    The estimated fair value of RJRN Holdings' consolidated long-term debt as of
December 31, 1998 and 1997 was approximately $9.0 billion and $9.8 billion,
respectively, based on available market quotes, discounted cash flows and book
values, as appropriate.
 
    RJRN Holdings manages overall interest rate exposure by adjusting the mix of
floating rate debt and fixed rate debt for both RJRN and Nabisco. As part of
managing such interest rate exposures, RJRN and Nabisco may enter into various
interest rate arrangements from time to time. See note 11 for further
information regarding interest rate arrangements.
 
NOTE 10--COMMITMENTS AND CONTINGENCIES
 
TOBACCO LITIGATION
 
    OVERVIEW.  Various legal actions, proceedings and claims are pending or may
be instituted against R.J. Reynolds Tobacco Company ("RJRT") or its affiliates
(including, with increasing frequency, RJRN and RJRN Holdings) or indemnitees,
including those claiming that lung cancer and other diseases as well as
addiction have resulted from the use of or exposure to RJRT's tobacco products.
During 1998, 334 new actions were served against RJRT and/or its affiliates or
indemnitees and 183 such actions were dismissed or otherwise resolved in favor
of RJRT and/or its affiliates or indemnitees without trial. There have been
noteworthy increases in the number of these cases pending. On December 31, 1998,
there were 664 active cases pending, as compared with 516 on December 31, 1997,
234 on December 31, 1996 and 134 on December 31, 1995. As of March 15, 1999, 658
active cases were pending against RJRT and/or its affiliates or indemnitees: 653
in the United States; two in Canada; one in each of the Marshall Islands,
Nigeria and Puerto Rico.
 
    The U.S. cases are pending in 42 U.S. states and the District of Columbia.
The breakdown is as follows: 126 in West Virginia; 122 in Florida; 109 in New
York; 53 in California; 29 in Massachusetts; 24 in Louisiana; 17 in
Pennsylvania; 16 in Tennessee; 15 in Texas; 14 in the District of Columbia; 12
in Alabama; 11 in New Jersey; nine in each of Illinois and Mississippi; six in
each of Iowa and Ohio; five in each of Indiana, Maryland and Minnesota; four in
each of Arkansas, Georgia, Missouri, Nevada, Oklahoma, Rhode Island and
Virginia; three in each of Arizona and New Mexico; two in each of Colorado,
Hawaii, Kansas, Kentucky, Michigan, North Carolina, North Dakota, South
Carolina, South Dakota, Utah and Washington; one in each of Nebraska, New
Hampshire, Oregon and Wisconsin. Of the 653 active U.S. cases, 136 are pending
in federal court, 512 in state court and, five in tribal court. Most of these
cases were brought by individual plaintiffs, but an increasing number, discussed
below, seek recovery on behalf of third parties or large classes of claimants.
 
    THEORIES OF RECOVERY.  The plaintiffs in these actions seek recovery on a
variety of legal theories, including, among others, strict liability in tort,
design defect, negligence, special duty, voluntary undertaking, breach of
warranty, failure to warn, fraud, misrepresentation, unfair trade practices,
conspiracy, aiding and abetting, unjust enrichment, antitrust, Racketeer
Influenced and Corrupt Organization Act ("RICO"),
 
                                      F-20
<PAGE>
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
indemnity, medical monitoring and common law public nuisance. Punitive damages,
often in amounts ranging into the hundreds of millions or even billions of
dollars, are specifically pleaded in a number of cases in addition to
compensatory and other damages. Fourteen of the 653 active cases in the United
States involve alleged non-smokers claiming injuries purportedly resulting from
exposure to environmental tobacco smoke. Fifty-eight cases purport to be class
actions on behalf of thousands of individuals. Purported classes include
individuals claiming to be addicted to cigarettes, individuals and their estates
claiming illness and death from cigarette smoking, persons making claims based
on alleged exposure to environmental tobacco smoke, African-American smokers
claiming their civil rights have been violated by the sale of menthol
cigarettes, purchasers of cigarettes claiming to have been defrauded and seeking
to recover their costs, and Blue Cross/Blue Shield subscribers seeking
reimbursement for premiums paid. Approximately 111 of the active cases seek,
INTER ALIA, recovery of the cost of Medicaid payments or other health-related
costs paid for treatment of individuals suffering from diseases or conditions
allegedly related to tobacco use. Nine, brought by entities administering
asbestos liability, seek contribution for the costs of settlements and
judgments.
 
    DEFENSES.  The defenses raised by RJRT and/or its affiliates, where
applicable, include preemption by the Federal Cigarette Labeling and Advertising
Act of some or all such claims arising after 1969; the lack of any defect in the
product; assumption of the risk; contributory or comparative fault; lack of
proximate cause; and statutes of limitations or repose; and, in the health care
cost recovery cases (discussed below), additional statutory, equitable and other
defenses. RJRN and RJRN Holdings have asserted additional defenses, including
jurisdictional defenses, in many of these cases in which they are named.
 
    INDUSTRY TRIAL RESULTS.  Juries have found for plaintiffs in five smoking
and health cases in which RJRT was not a defendant. In one such case, no damages
were awarded and the judgment was affirmed on appeal. The jury awarded
plaintiffs $400,000 in another such case, CIPOLLONE V. LIGGETT GROUP, INC., but
the award was overturned on appeal and the case was subsequently dismissed. In
the third such case, on August 9, 1996, a Florida jury awarded damages of
$750,000 to an individual plaintiff. That case, CARTER V. BROWN & WILLIAMSON,
was overturned on appeal on June 22, 1998. In another Florida case brought by
the same attorney, WIDDICK V. BROWN & WILLIAMSON, a state court jury awarded the
plaintiff approximately $1 million in compensatory and punitive damages on June
10, 1998. On January 29, 1999, the Florida Court of Appeals reversed this
verdict and ordered a new trial in a different location (Palm Beach County). On
February 9-10, 1999, in HENLEY V. PHILIP MORRIS, INC., a San Francisco state
court jury awarded an individual smoker $1.5 million in compensatory damages and
$50 million in punitive damages. Philip Morris will file motions with the trial
judge requesting that the verdict be set aside and/or reduced. Depending upon
the outcome of those motions, Philip Morris may appeal the judgment.
 
    On May 5, 1997, in an individual case filed against RJRT, brought by the
same attorney who represented plaintiffs in the CARTER and WIDDICK cases, a
Florida state court jury found no RJRT liability (CONNOR V. R. J. REYNOLDS
TOBACCO CO.). On October 31, 1997, in still another case (KARBIWNYK V. R.J.
REYNOLDS TOBACCO COMPANY) brought by the same attorney, another Florida state
court jury found no RJRT liability. On March 19, 1998, an Indiana state court
found for RJRT, RJRN Holdings and other defendants in an individual case, DUNN
V. RJR NABISCO HOLDINGS CORP., in which plaintiffs sought damages for the
alleged harm caused to a non-smoker by environmental tobacco smoke. Finally, on
March 18, 1999, the jury in an Ohio federal district court found for the
defendants, including RJRT, on all counts in a class-action union trust-fund
case, IRONWORKERS LOCAL 17 V. PHILIP MORRIS.
 
    CERTAIN CLASS-ACTION SUITS.  In May 1996, in an early class action case,
CASTANO V. AMERICAN TOBACCO COMPANY, the Fifth Circuit Court of Appeals
overturned the certification of a purported nationwide class of persons whose
claims related to alleged addiction to tobacco. Since this ruling by the Fifth
Circuit, most purported class-action suits have sought certification of
statewide rather than nationwide classes.
 
                                      F-21
<PAGE>
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
    Putative class-action suits based on claims similar to those asserted in
CASTANO have been brought in state and, in a few instances, federal courts in
Alabama, Arkansas, California, the District of Columbia (D.C. court), Florida,
Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Michigan,
Minnesota, New Mexico, Nevada, New Jersey, New York, Ohio, Oklahoma,
Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, West
Virginia and Wisconsin. A putative class action filed in Tennessee seeks
reimbursement of Blue Cross/Blue Shield premiums paid by subscribers throughout
the United States. On October 19, 1998, a putative class action was filed in
federal court in Philadelphia, Pennsylvania, on behalf of "all living Black
Americans who have purchased or consumed menthol tobacco products since 1954
(including minors through their legal representatives)" seeking redress of
alleged violations of the plaintiffs' civil rights. A purported class action
suit against RJRT in Texas claims that the marketing of "lights" and
"ultralight" cigarettes is deceptive. Similar claims have been made in other
lawsuits. Other types of class-action suits have also been filed in additional
jurisdictions and there are also putative class action suits pending in Canada,
Puerto Rico and Nigeria. Most of these suits assert claims on behalf of classes
of individuals who claim to be addicted, injured, or at greater risk of injury
by the use of tobacco or exposure to environmental tobacco smoke, or are the
legal survivors of such persons.
 
    Despite the marked increase of purported class actions brought against
tobacco companies, very few purported class actions have been certified, or if
certified, have survived on appeal. Class certification was granted, however, by
a Maryland state court in RICHARDSON V. PHILIP MORRIS. That decision is being
reviewed by the Maryland Court of Appeals. In addition, on November 5, 1998 a
Louisiana state appeals court affirmed the certification of a medical monitoring
and/or smoking cessation class of Louisiana residents who were smokers on or
before May 24, 1996 (SCOTT V. AMERICAN TOBACCO COMPANY). On February 26, 1999,
the Louisiana Supreme Court denied the defendants' petition for writ of
certiorari and/or review. Finally, defendants settled another class-action suit,
BROIN V. PHILIP MORRIS, in October, 1997. This settlement was challenged but was
approved by the Florida Court of Appeals on March 24, 1999.
 
    Trial is underway in a class-action suit pending in Florida, ENGLE V. R. J.
REYNOLDS TOBACCO COMPANY, in which a class consisting of Florida residents or
their survivors who claim to have diseases or medical conditions caused by their
alleged "addiction" to cigarettes has been certified. The trial is divided into
three phases. The initial phase, which includes common issues related to
liability and general causation, entitlement to punitive damages and possibly
the basis or ratio for assessment of punitive damages, is expected to last
several months, but even if potential liability is confirmed in this phase of
the trial, no actual liability would be established until the subsequent phases
which could last for some years.
 
    HEALTH-CARE COST RECOVERY CASES.  In June 1994, the Mississippi attorney
general brought an action, MOORE V. AMERICAN TOBACCO COMPANY, against various
industry members including RJRT. This case was brought on behalf of the state to
recover state funds paid for healthcare and medical and other assistance to
state citizens suffering from diseases and conditions allegedly related to
tobacco use. By making the State the plaintiff in the case and basing its claims
on economic loss rather than personal injury, the State sought to avoid the
defenses otherwise available against an individual plaintiff. Following the
filing of the MOORE case, most other states, through their attorneys general
and/or other state agencies, sued RJRT and other U.S. cigarette manufacturers
based on similar theories. The first four of these cases scheduled to come to
trial, those of Mississippi, Florida, Texas and Minnesota, were settled by
separate agreements between the state and the cigarette manufacturer defendants
in each case.
 
    On November 23, 1998, the major U.S. cigarette manufacturers, including
RJRT, entered into a Master Settlement Agreement ("MSA") with attorneys general
representing the remaining 46 states, the District of Columbia, Puerto Rico,
Guam, the Virgin Islands, American Samoa and the Northern Marianas (the
"Settling States"). The MSA settles all the health-care cost recovery actions
brought by the Settling States and contains releases of certain additional
present and future claims.
 
                                      F-22
<PAGE>
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
    The MSA calls for the tobacco companies to pay the settling states an
initial payment of $2.4 billion (allocated among the companies on the basis of
relative market capitalization) and four subsequent additional annual initial
payments starting in 2000 (allocated among the companies on the basis of
relative market share) of up to approximately $2.5 billion, $2.5 billion, $2.6
billion and $2.7 billion, respectively. It also requires perpetual annual
payments, increasing from $4.5 billion in April 2000 to $8 billion in 2004 and
further to $9.0 billion in 2018 and thereafter. Ten additional payments of $861
million are due annually beginning in April 2008.
 
    Except for the first initial payment, all payments made under the MSA are
allocated among the participating manufacturers based on their relative market
shares. In addition, most payments to be made under the MSA after 1999 are
subject to a number of adjustments, most frequently adjustments based on
inflation (the greater of 3% or the rise in the consumer price index) and on
changes in the volume of cigarettes sold each year. Certain payments are also
subject to adjustments to account for payments to previously settling states and
for the impact, if any, on the signatory tobacco companies of competitive
disadvantages vis-a-vis non-settling manufacturers as a result of the
settlement. Furthermore, certain payments are subject to set-off against
payments that cigarette companies might be required to make to the federal
government that are paid over to the settling states for uses related to this
MSA. Finally, if judicial approval is not obtained in any state, there would be
an adjustment deducting for the share of a payment allocable to that state.
 
    The tobacco companies have also agreed to (a) make a one-time payment of $50
million on March 31, 1999 to establish a fund for enforcement of the MSA and
laws relating to tobacco products and (b) fund activities of the National
Association of Attorneys General relating to the MSA at the cost of $150,000 per
year for ten years.
 
    In addition, the MSA calls for the creation of a national foundation which
would establish public education and other programs and conduct or sponsor
research to reduce youth smoking and to understand and educate the public about
diseases associated with tobacco-product use. The tobacco companies would fund
the establishment of the foundation with 10 annual payments of $25 million
commencing March 31, 1999, further payments of $250 million on March 31, 1999
and $300 million annually thereafter for four years and additional annual
payments of $300 million beginning in 2004 if, during the year preceding the
year when payment is due, participating manufacturers collectively accounted for
at least 99.05% of the cigarette market.
 
    The manufacturers also agree to pay the litigation costs, including
government attorneys fees, of the attorneys general's offices relating to the
settled cases and, subject to certain quarterly and annual payment caps, the
costs and fees of outside counsel to the settling states. Outside counsel fees
are to be determined either by arbitration or in accordance with a negotiated
fee procedure. Awards determined by arbitration will be paid subject to an
aggregate annual cap for all these (and certain other) settled cases in each
year of $500 million. Fees set by the negotiated fee procedure would be subject
to an annual cap of $250 million, and will not exceed a total of $1.25 billion.
 
    The MSA also contains provisions restricting the marketing of cigarettes.
Among these are restrictions or prohibitions on the following: use of cartoon
characters; use of brand name sponsorships and brand name non-tobacco products;
outdoor and transit brand advertising; payments for product placement; free
sampling; and lobbying. The MSA would require the dissolution of The Tobacco
Institute, the Council for Tobacco Research and the Center for Indoor Air
Research and place restrictions on the establishment of any replacement
organizations.
 
    The MSA, when judicially approved, will release RJRT (and certain of its
indemnitees), RJRN and RJRN Holdings from: (i) all claims of the settling states
(and their respective political subdivisions and
 
                                      F-23
<PAGE>
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
other recipients of state health-care funds) relating to past conduct arising
out of the use, sale, distribution, manufacture, development, advertising,
marketing or health effects of, the exposure to, or research, statements or
warnings about, tobacco products; and (ii) all monetary claims relating to
future conduct arising out of the use of, or exposure to, tobacco products which
have been manufactured in the ordinary course of business.
 
    RJRT's share of the first payment of $2.4 billion is $163.2 million which
was charged to expense in the fourth quarter of 1998 and was paid from general
corporate funds. The financial effects of the MSA on RJRT, RJRN and RJRN
Holdings are difficult to predict, but the MSA may have a significant negative
impact on operating results, cash flows and financial condition in the future.
The financial effects depend, among other things, on the impact of increased
cigarette prices (needed to cover the cost of these payments), proposed
marketing restrictions, increased funding of anti-smoking educational programs,
the amount and kind of additional requirements that may be imposed on the
industry by state and national legislation and regulation, and the effect on
RJRT's payment obligations of such variables as inflation, sales volumes, the
level of operating profits and RJRT's competitive position in the industry. The
effect of the MSA, if any, on existing claims, or the number and type of
additional lawsuits filed against RJRT in the future, is also difficult to
predict at this time.
 
    The MSA becomes effective on the earlier of June 30, 2000 or the date on
which final approval of the settlement has been obtained in courts of 80% of the
Settling States (both by number and percentage share of the settlement payments
due). As of February 19, 1999, final approval had been obtained in 31 of the
necessary 42 Settling States having percentage shares equal to 41.7% of the
percentage shares of payments due.
 
    Payments for all tobacco litigation settlement agreements currently in
effect will be approximately $1.6 billion in 1999 and will be funded through
price increases. Payments in future years will approximate $2.0 billion per
year, but these payments will be subject to, among other things, the volume of
cigarettes sold by RJRT, RJRT's market share and inflation adjustments.
 
    As part of the MSA, the tobacco companies agreed to work with tobacco
growers to address the possible adverse economic impact on growers of the MSA.
RJRT, with the other major manufacturers, has agreed in principle to participate
in funding a $5.15 billion trust fund to be administered by the tobacco-growing
states. Details of these arrangements are not yet established but it is expected
that RJRT's payment obligations will be met over a number of years and will be
subject to adjustments for several factors, including inflation, U.S. aggregate
cigarette volumes and market share.
 
    UNION CASES.  Although the MSA settled some of the most potentially
burdensome healthcare cost recovery actions, many other such cases have been
brought by other types of plaintiffs. Approximately 73 lawsuits have been
brought by union trust funds against cigarette manufacturers and others in the
past two years. The funds seek recovery of payments made by them for medical
expenses of their participants-- union members and their dependents allegedly
injured by cigarettes. The claims in these cases are almost identical, and more
than 30 of the cases purport to be class actions on behalf of all union trust
funds in a particular state.
 
    The defendants in these actions argue, among other things, the settled law
that one who pays an injured person's medical expenses is legally too remote to
maintain an action against the person allegedly responsible for the injury. In
addition, they argue that the traditional subrogation remedy cannot be
supplanted by a direct right of action for the trust fund that strips defendants
of the defenses they would ordinarily have against the injured individual.
 
    The majority of courts that have decided motions in these union cases
support the tobacco defendants position on "remoteness" and have dismissed all
or most of the claims against the industry on motions to
 
                                      F-24
<PAGE>
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
dismiss. There are a few notable exceptions to this trend. In two such cases
that are being scheduled together, LABORERS LOCAL 17 V. PHILIP MORRIS and UNITED
FEDERATION OF TEACHERS V. PHILIP MORRIS, a New York federal district court, on
March 26, 1998, granted defendants' motions to dismiss state and federal
antitrust and unjust enrichment claims but denied motions to dismiss claims
asserted under RICO and those based on fraud and breach of special duty. This
decision was appealed to the Second Circuit Court of Appeals which heard oral
argument on February 4, 1999. Another case, STEAMFITTERS LOCAL UNION 420 V.
PHILIP MORRIS, has been appealed to the Third Circuit Court of Appeals and was
argued a week prior to the Second Circuit hearing. Also surviving motions to
dismiss, NORTHWEST LABORERS V. PHILIP MORRIS, filed in federal court in
Washington, was certified as a class action and is currently scheduled for trial
in September of 1999.
 
    The first union case to survive motions to dismiss and go to trial was IRON
WORKERS LOCAL NO. 17 V. PHILIP MORRIS. This case, in which a class of
approximately 111 union trust funds was certified by a federal district court in
Ohio, went to trial on February 22, 1999 on the counts that survived motions to
dismiss-- state and federal RICO and civil conspiracy. The federal RICO claim
was dismissed during the trial, and after the conclusion of plaintiffs' case,
the court directed a verdict dismissing RJRN and RJRN Holdings from the case. On
March 18, 1999, the jury in this case returned a unanimous verdict for the
defendants on all surviving counts.
 
    OTHER HEALTH-CARE COST RECOVERY AND AGGREGATED CLAIMS PLAINTIFFS.  Similar
cases have been filed by Native American tribes, five in tribal courts and one
putative class action in San Diego Superior Court. Four groups of health care
insurers as well as a private entity that purported to self-insure its employee
health care programs have also advanced claims similar to those found in the
union cost recovery actions. Two of these "insurer" cases, WILLIAMS & DRAKE V.
AMERICAN TOBACCO, and REGENCE BLUESHIELD V. PHILIP MORRIS, were dismissed on
"remoteness" grounds by federal district courts in Pennsylvania and Washington
respectively. Two foreign countries have also brought health-care cost recovery
suits in U.S. courts. Other cost recovery suits have been brought by, among
others, local governmental jurisdictions, foreign governments, tax payers (on
behalf of a governmental jurisdiction), a university and a hospital. Finally,
nine actions have been filed against RJRT by asbestos companies and/or
asbestos-related trust funds based on the theory that the plaintiffs "overpaid"
claims brought against them to the extent that tobacco use, not asbestos
exposure, was the cause of the alleged personal injuries for which they paid
compensation. There have been, to date, no rulings on motions to dismiss these
asbestos actions.
 
    RECENT AND SCHEDULED TRIALS.  As of March 19, 1999, there were 13 cases
scheduled for trial in 1999 against RJRT alleging injuries relating to tobacco.
Two of these cases, in which RJRT is a party, are currently in progress: the
ENGLE case in Florida; and NEWCOMB V. R.J. REYNOLDS TOBACCO COMPANY, which is
one of four consolidated individual cases being tried together in Memphis,
Tennessee. Cases against other tobacco company defendants are also scheduled for
trial in 1999 and thereafter. Although trial schedules are subject to change and
many cases are dismissed before trial, it is likely that there will be an
increased number of tobacco cases, some involving claims for possibly billions
of dollars, against RJRT and RJRN coming to trial over the next year as compared
to prior years when trials in these cases were less frequent.
 
    OTHER DEVELOPMENTS.  On May 28, 1997, a suit was filed against RJRT in the
U.S. District Court for the Northern District of Georgia, FARR V. R.J. REYNOLDS
TOBACCO COMPANY, alleging claims under Title VII and the Equal Pay Act. The suit
was brought on behalf of female RJRT employees and applicants for employment in
the "southeast sales region," seeking equitable relief, back pay and lost
benefits, as well as punitive damages, based on allegations that plaintiffs had
been denied employment, desirable job assignments, training, promotion and equal
pay. On plaintiffs' motion, all class action allegations in this case were
dismissed without prejudice in February 1999.
 
                                      F-25
<PAGE>
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
    RJRT is aware of certain grand jury investigations being conducted in New
York and Washington, D.C. which relate to the cigarette business. In addition,
RJRT received a document subpoena date September 17, 1998, from a federal grand
jury convened in the Eastern District of Pennsylvania by the Antitrust Division
of the Department of Justice. RJRT understands that the grand jury is
investigating possible violations of the antitrust laws related to tobacco leaf
buying practices. RJRT is responding to the subpoena.
 
    On December 22, 1998, a now inactive tobacco subsidiary that was part of
Reynolds International's business, Northern Brands International, Inc. ("NBI"),
entered into a plea agreement with the United States Attorney for the Northern
District of New York. NBI was charged with aiding and abetting certain customers
who brought merchandise into the United States "by means of false and fraudulent
practices. .. ." NBI agreed to pay a $10 million forfeiture and a $5.2 million
fine and special assessment. In the plea agreement, the U.S. Attorney agreed not
to bring additional criminal charges in the Northern District against NBI or its
corporate affiliates (including RJRN, RJRT and Reynolds International) for
actions (from 1985 through 1998) that are related to those that gave rise to the
agreement. RJR-MacDonald, Reynolds International's operating company in Canada,
is cooperating with an investigation now being conducted by the Royal Canadian
Mounted Police relating to the same events that gave rise to the NBI
investigation. Management cannot predict whether any other authorities in the
United States or Canada will seek to take further actions with regard to these
events.
 
    For a further discussion of litigation affecting the tobacco business see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Tobacco--Governmental Activity."
 
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. RJRN has also been
named in an insurance coverage suit brought by another company named as a PRP at
this site. In this lawsuit, DEL MONTE FRESH PRODUCE V. FIREMEN'S FUND INSURANCE,
filed August 13, 1997 in the First Circuit Court of the State of Hawaii, the
plaintiff seeks declaratory judgment that it is entitled to insurance coverage
for the site or, in the alternative, that RJRN is obligated to indemnify Del
Monte under the terms of the agreement by which RJRN sold that company in 1989.
The Fireman's Fund Insurance Company has filed a motion for summary judgment
that has not yet been heard.
 
    Certain subsidiaries of RJRN Holdings and RJRN have also been named as PRPs
with third parties or may have indemnification obligations with respect to a
number of additional sites. Liability under CERCLA is joint and several.
 
    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
 
                                      F-26
<PAGE>
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
expenditures or other costs to have a material adverse effect on the business or
financial condition of RJRN Holdings and RJRN and their subsidiaries taken as a
whole.
 
                            ------------------------
 
    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 (including RJRN Holdings and RJRN) 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 could encourage an increase in the number of such
claims. There have been a number of political, legislative, regulatory, and
other developments relating to the tobacco industry and cigarette smoking that
have received wide media attention, including the Master Settlement Agreement
referred to above. These developments may negatively affect the outcomes of
tobacco-related legal actions and encourage the commencement of additional
similar litigation.
 
    Although it is impossible to predict the outcome of such events on pending
litigation and the rate at which new lawsuits are filed against RJRT, RJRN and
RJRN Holdings, a significant increase in litigation and/or in adverse outcomes
for tobacco defendants could have an adverse effect on any one or all of these
entities. RJRT, RJRN and RJRN Holdings each believe that they have a number of
valid defenses to any such actions and intend to defend such actions vigorously.
 
    RJRN Holdings and RJRN believe, that notwithstanding the quality of defenses
available to them and RJRT in litigation matters, 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 (including litigation costs). Management is unable to predict
the outcome of the litigation or 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.
 
    For more detailed information about the class action and health care cost
recovery suits pending against RJRT and its affiliates and indemnitees, see
exhibit 99 to this Form 10-K, a copy of which will be provided free of charge to
persons requesting it in writing and addressed to Worldwide Communications, RJR
Nabisco Holdings Corp., 1301 Avenue of the Americas, New York, NY 10019 or by
phone to 800-RJR-NAB3.
 
COMMITMENTS
 
    At December 31, 1998, commitments totalled approximately $800 million,
principally for minimum operating leases, the purchase of leaf tobacco
inventories and other contractual arrangements.
 
NOTE 11--FINANCIAL INSTRUMENTS
 
INTEREST RATE ARRANGEMENTS
 
    At December 31, 1998, Nabisco had outstanding interest rate caps at an
aggregate notional principal amount of $700 million expiring in June 1999 and
outstanding interest rate swaps at a notional principal amount of $565 million.
These swaps expire as follows: $463 million in 1999; $29 million in 2003; and
$73 million in 2004. At December 31, 1997, similar arrangements for $300 million
were outstanding.
 
    In November 1997, Nabisco locked in the value of the anticipated call
premium associated with the call option feature included in the $1.0 billion of
puttable/callable notes issued in January 1998. This was accomplished by selling
$900 million of notional principal call options on the yield to maturity for the
applicable U.S. Treasury securities on the applicable puttable/callable date.
Nabisco also sold $600 million
 
                                      F-27
<PAGE>
NOTE 11--FINANCIAL INSTRUMENTS (CONTINUED)
notional principal amount of U. S. Treasury securities to lock in the
anticipated initial interest rates on these notes. These arrangements were
settled in January 1998 when the notes were issued.
 
    The carrying amounts and estimated fair values of interest rate arrangements
entered into as of December 31, 1998 and 1997 were as follows:
 
<TABLE>
<CAPTION>
                                                                          1998                              1997
                                                            --------------------------------  --------------------------------
                                                                  ASSETS/(LIABILITIES)              ASSETS/(LIABILITIES)
                                                            --------------------------------  --------------------------------
                                                             CARRYING VALUE     FAIR VALUE     CARRYING VALUE     FAIR VALUE
                                                            -----------------  -------------  -----------------  -------------
<S>                                                         <C>                <C>            <C>                <C>
Variable interest rate pay swaps..........................      $      --        $      11        $      --        $      (1)
Interest rate caps........................................      $      --        $      --        $       1        $      --
U.S. Treasury locks.......................................      $      --        $      --        $      --        $      (3)
Written call options......................................      $      --        $      --        $      --        $     (13)
</TABLE>
 
FOREIGN CURRENCY ARRANGEMENTS
 
    RJRN Holdings' subsidiaries have significant exposure to foreign exchange
transactions in currencies other than their functional currencies. Exposures
primarily include the U.S. dollar, German mark, French franc, British pound,
Italian lira, Japanese yen, Swiss franc, Hong Kong dollar, Singapore dollar,
Finnish markka, Canadian dollar, Spanish peseta, Dutch guilder, Brazilian real,
Malaysian ringgit, Indonesian rupiah, Russian rouble, Romanian leu, and Turkish
lira. Whenever possible, RJRN Holdings' policy is to net exposures and utilize
natural offsets to minimize the effects of foreign currency transactions on cash
flows; otherwise, consideration is given to foreign currency arrangements to
protect RJRN Holdings and its subsidiaries from risk that the eventual dollar
cash flows resulting from transactions with international parties will be
adversely affected by changes in exchange rates. In addition, consideration is
given to foreign currency arrangements to hedge foreign currency exposures on
existing assets and liabilities, including certain international debt.
 
    At December 31, 1998 and 1997, RJRN Holdings and its subsidiaries had
approximately $279 million and $472 million, respectively, of outstanding
foreign exchange contracts with banks in which foreign currencies (primarily the
Swiss franc, Spanish peseta, British pound, Finnish markka, Canadian dollar,
Italian lira and the German mark) were purchased, and approximately $161 million
and $267 million, respectively, of outstanding foreign exchange contracts in
which foreign currencies (primarily the Japanese yen, Spanish peseta, Hong Kong
dollar, Brazilian real and Indonesian rupiah) were sold. The weighted average
maturity of the arrangements outstanding at December 31, 1998 approximated four
and one-half months.
 
    At December 31, 1998 and 1997, the net carrying values and estimated fair
values of foreign currency arrangements entered into were as follows:
 
<TABLE>
<CAPTION>
                                                                      1998
                                                            -------------------------                1997
                                                                                       --------------------------------
                                                              ASSETS/(LIABILITIES)
                                                            -------------------------        ASSETS/(LIABILITIES)
                                                                              FAIR     --------------------------------
                                                            CARRYING VALUE    VALUE     CARRYING VALUE     FAIR VALUE
                                                            --------------  ---------  -----------------  -------------
<S>                                                         <C>             <C>        <C>                <C>
Forward foreign exchange contracts to purchase foreign
 currencies...............................................       $(3)         $(2)         $       3        $       1
Forward foreign exchange contracts to sell foreign
 currencies...............................................       $(7)         $(10)        $      14        $      15
</TABLE>
 
                                      F-28
<PAGE>
NOTE 11--FINANCIAL INSTRUMENTS (CONTINUED)
MARKET AND CREDIT RISK
 
    The above interest rate and foreign currency arrangements entered into
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
such potential changes in future interest rates and foreign currency exchange
rates on the financial instruments entered into would offset the related impact
on the items being hedged. Also, RJRN Holdings and its subsidiaries may be
exposed to credit losses in the event of non-performance by the counterparties
to these financial instruments. However, RJRN Holdings and its subsidiaries
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.
 
NOTE 12--CAPITAL STOCK AND PAID-IN CAPITAL
 
    The outstanding capital stock of RJRN Holdings at December 31, 1998
consisted of common stock and ESOP convertible preferred stock (stated value of
$16 per share). All classes of preferred stock of RJRN Holdings (150,000,000
shares authorized at December 31, 1998) rank senior to common stock as to
dividends and liquidation preferences.
 
    RJRN Holdings redeemed its Series B preferred stock (12,044 shares issued
and outstanding at December 31, 1997) on October 13, 1998, resulting in the
redemption of its Series B depositary shares (12,043,940 outstanding at December
31, 1997) at $25 per Series B depositary share plus accrued and unpaid
dividends. Each share of Series B preferred stock paid cash dividends of
$2,312.50 per share per annum until the shares were redeemed.
 
    RJRN Holdings and its subsidiaries sponsor a defined contribution plan in
which matching contributions to eligible employees are made in the form of ESOP
preferred stock. Every five shares of ESOP preferred stock (12,818,967 and
13,714,950 shares issued and outstanding at December 31, 1998 and 1997,
respectively) is generally convertible into one share of common stock of RJRN
Holdings, and bears cumulative dividends at 7.8125% of stated value per annum at
least until April 10, 1999, payable semi-annually in arrears. The ESOP preferred
stock is redeemable at the option of RJRN Holdings on or after April 10, 1999 at
an initial redemption price of $16.25 per share. The redemption price declines
thereafter to $16 per share on April 10, 2001, plus accrued and unpaid
dividends. RJRN Holdings matches $.50 for every pre-tax dollar contributed by
each eligible employee, up to a maximum of 6% of the employee's pay. The shares
of ESOP preferred stock are allocated to employees at either a floor value of
$16 per share or the fair market value of one-fifth of a share of common stock,
whichever is higher. Unallocated shares totalled 2,142,175 and 4,182,985 at
December 31, 1998 and 1997, respectively. During 1998, 1997 and 1996,
approximately $28 million, $32 million and $28 million, respectively, was
contributed to the ESOP by RJRN Holdings and approximately $17 million, $18
million and $18 million, respectively, of ESOP dividends were used to service
the ESOP's debt to RJRN Holdings that was incurred in connection with the
initial formation of the ESOP.
 
NOTE 13--STOCK PLANS
 
    RJRN Holdings' 1989 stock plan provides for grants of options to purchase
common stock of RJRN Holdings to non-employee directors, directors and key
employees. A maximum of 6,000,000 shares may be issued under this plan. The
options granted under the plan generally vest over three years, are separately
 
                                      F-29
<PAGE>
NOTE 13--STOCK PLANS (CONTINUED)
exercisable for primarily ten years from the date of grant and are exercisable
at a price that is generally the fair market value of the stock at the grant
date.
 
    RJRN Holdings' 1990 long-term incentive plan ("LTIP") provides for grants of
incentive stock options, other stock options, stock appreciation rights,
restricted stock, purchase stock, dividend equivalent rights, performance units,
performance shares and other stock-based grants to key employees. A maximum of
33,000,000 shares of common stock of RJRN Holdings may be issued under the LTIP.
The options granted under the plan generally vest over three years, are
exercisable for 10-15 years from date of grant, and are exercisable at a price
that is generally the fair market value of the stock at the grant date. As of
December 31, 1998, purchase stock, stock options other than incentive stock
options, restricted stock and other stock-based grants have been granted under
the LTIP.
 
    Nabisco Holdings' 1994 long-term incentive plan is similar to the LTIP
except that stock-based awards are denominated in shares of Class A common stock
of Nabisco Holdings.
 
    The changes in stock options under RJRN Holdings' stock plans are as
follows:
 
<TABLE>
<CAPTION>
                                                 1998                       1997                       1996
                                       -------------------------  -------------------------  -------------------------
                                                      WEIGHTED-                  WEIGHTED-                  WEIGHTED-
                                                       AVERAGE                    AVERAGE                    AVERAGE
                                                      EXERCISE                   EXERCISE                   EXERCISE
                                         OPTIONS        PRICE       OPTIONS        PRICE       OPTIONS        PRICE
                                       ------------  -----------  ------------  -----------  ------------  -----------
<S>                                    <C>           <C>          <C>           <C>          <C>           <C>
Balance at beginning of year.........    17,378,041   $   29.54     17,783,323   $   29.54     14,855,935   $   28.40
Options granted......................       657,536       35.78        589,600       32.37      3,792,447       34.57
Options exercised....................      (271,458)      26.37       (396,363)      25.81       (595,112)      25.68
Options cancelled....................      (274,008)      35.87       (598,519)      34.68       (269,947)      31.41
                                       ------------               ------------               ------------
Balance at end of year...............    17,490,111       29.72     17,378,041       29.54     17,783,323       29.54
                                       ------------               ------------               ------------
                                       ------------               ------------               ------------
Exercisable at end of year...........    15,393,538       29.05      5,683,937       31.09      4,618,935       30.46
                                       ------------               ------------               ------------
                                       ------------               ------------               ------------
</TABLE>
 
    The changes in stock options under Nabisco Holdings' stock plan are as
follows:
 
<TABLE>
<CAPTION>
                                                 1998                       1997                       1996
                                       -------------------------  -------------------------  -------------------------
                                                      WEIGHTED-                  WEIGHTED-                  WEIGHTED-
                                                       AVERAGE                    AVERAGE                    AVERAGE
                                                      EXERCISE                   EXERCISE                   EXERCISE
                                         OPTIONS        PRICE       OPTIONS        PRICE       OPTIONS        PRICE
                                       ------------  -----------  ------------  -----------  ------------  -----------
<S>                                    <C>           <C>          <C>           <C>          <C>           <C>
Balance at beginning of year.........    14,159,527   $   30.15     11,727,881   $   28.57      8,909,663   $   26.77
Options granted......................     2,830,983       45.51      2,758,500       37.22      3,114,200       33.83
Options exercised....................      (832,534)      27.50             --          --             --          --
Options cancelled....................      (643,735)      38.59       (326,854)      33.13       (295,982)      29.73
                                       ------------               ------------               ------------
Balance at end of year...............    15,514,241       32.75     14,159,527       30.15     11,727,881       28.57
                                       ------------               ------------               ------------
                                       ------------               ------------               ------------
Exercisable at end of year...........     7,805,633       26.67             --          --             --          --
                                       ------------               ------------               ------------
                                       ------------               ------------               ------------
</TABLE>
 
                                      F-30
<PAGE>
NOTE 13--STOCK PLANS (CONTINUED)
    Additional information at December 31, 1998 with respect to options under
RJRN Holdings' and Nabisco Holdings' stock plans is as follows:
 
<TABLE>
<CAPTION>
                                                                              RJRN           NABISCO
                                                                            HOLDINGS         HOLDINGS
                                                                         ---------------  --------------
<S>                                                                      <C>              <C>
Option price range at end of year......................................  $   22.82-52.50  $  24.50-52.88
Shares of common stock available for future grant......................       14,512,688      12,183,572
Weighted-average remaining contractual life of outstanding options at
  end of year..........................................................        9.8 years       9.6 years
</TABLE>
 
    RJRN Holdings and its subsidiaries recognize and measure compensation costs
related to employee stock plans utilizing the intrinsic value based method. Had
compensation expense been determined based upon the fair value of awards granted
during 1998, 1997 and 1996, RJRN Holdings' net income (loss) and earnings (loss)
per share would have been as follows:
 
<TABLE>
<CAPTION>
                                                   1998                       1997                        1996
                                         ------------------------  --------------------------  --------------------------
                                         AS REPORTED   PRO FORMA    AS REPORTED    PRO FORMA    AS REPORTED    PRO FORMA
                                         -----------  -----------  -------------  -----------  -------------  -----------
<S>                                      <C>          <C>          <C>            <C>          <C>            <C>
Net income (loss)......................   $    (577)   $    (602)    $     381     $     354     $     611     $     591
Basic earnings (loss) per share........   $   (1.91)   $   (1.98)    $    1.05     $    0.96     $    1.75     $    1.69
Diluted earnings (loss) per share......   $   (1.91)   $   (1.98)    $    1.03     $    0.94     $    1.74     $    1.68
Weighted-average grant date fair value
  of RJRN Holdings' options granted
  during the year......................          --    $    7.33            --     $    6.79            --     $    7.06
Weighted-average grant date fair value
  of Nabisco Holdings' options granted
  during the year......................          --    $   14.27            --     $   12.55            --     $   11.00
</TABLE>
 
    For options granted, fair value was determined using the Black-Scholes
option pricing model with the following weighted-average assumptions:
 
<TABLE>
<CAPTION>
                                                              1998                      1997                      1996
                                                    ------------------------  ------------------------  ------------------------
                                                       RJRN        NABISCO       RJRN        NABISCO       RJRN        NABISCO
                                                     HOLDINGS     HOLDINGS     HOLDINGS     HOLDINGS     HOLDINGS     HOLDINGS
                                                    -----------  -----------  -----------  -----------  -----------  -----------
<S>                                                 <C>          <C>          <C>          <C>          <C>          <C>
Dividend yield....................................         5.8%         1.7%         5.8%         1.7%         5.3%         1.9%
Expected volatility...............................          31%          23%          31%          23%          29%          24%
Risk-free interest rate...........................         5.8%         5.7%         6.4%         6.6%         6.2%         6.4%
Expected option life (years)......................           5            7            5            7            5            7
</TABLE>
 
    In 1998, RJRN Holdings granted 992,600 shares of restricted stock to
eligible employees. These shares may not be disposed of or otherwise transferred
during the restricted period, generally three to five years. Restrictions on the
stock, net of forfeitures, lapse as follows: 2001--57,123 shares, 2002--57,123
shares, 2003--640,354 shares and thereafter--200,000 shares. The market price of
the stock at the grant date was charged to stockholders' equity as unearned
compensation and will be subsequently amortized over the periods during which
the restrictions lapse. Compensation expense of approximately $6 million was
recorded in 1998. The unamortized portion remaining in stockholders' equity at
December 31, 1998 was $26 million.
 
NOTE 14--RETIREMENT BENEFITS
 
    RJRN and its subsidiaries sponsor a number of non-contributory defined
benefit pension plans covering most U.S. and certain foreign employees.
Additionally, RJRN and its subsidiaries participate in
 
                                      F-31
<PAGE>
NOTE 14--RETIREMENT BENEFITS (CONTINUED)
several multi-employer plans, which provide benefits to certain union employees,
and defined contribution plans, which provide benefits to certain employees in
foreign countries. RJRN also provides certain health and life insurance benefits
for retired employees and their dependents. In 1998, RJRN adopted SFAS No. 132.
All the information is presented accordingly.
 
<TABLE>
<CAPTION>
                                                                                                    POSTRETIREMENT
                                                                             PENSION BENEFITS          BENEFITS
                                                                           --------------------  --------------------
AS OF DECEMBER 31                                                            1998       1997       1998       1997
-------------------------------------------------------------------------  ---------  ---------  ---------  ---------
<S>                                                                        <C>        <C>        <C>        <C>
CHANGE IN BENEFIT OBLIGATION
Obligation at beginning of year..........................................  $   4,406  $   3,986  $   1,155  $   1,054
Service cost.............................................................         98         86         14         14
Interest cost............................................................        300        291         76         76
Actuarial loss...........................................................        177        411          3         81
Plan amendments..........................................................         (5)        11         --         --
Currency exchange........................................................        (16)       (34)        (4)        (3)
Benefits paid............................................................       (383)      (345)       (83)       (67)
                                                                           ---------  ---------  ---------  ---------
Obligation at end of year................................................  $   4,577  $   4,406  $   1,161  $   1,155
                                                                           ---------  ---------  ---------  ---------
                                                                           ---------  ---------  ---------  ---------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year...........................  $   3,787  $   3,523  $      --  $      --
Actual return on plan assets.............................................        362        493         --         --
Employer contributions...................................................        113        110         83         67
Participants' contributions..............................................          2          2         --         --
Currency exchange........................................................        (28)       (18)        --         --
Benefits paid............................................................       (370)      (323)       (83)       (67)
                                                                           ---------  ---------  ---------  ---------
Fair value of plan assets at end of year.................................  $   3,866  $   3,787  $      --  $      --
                                                                           ---------  ---------  ---------  ---------
                                                                           ---------  ---------  ---------  ---------
FUNDED STATUS
Funded status............................................................  $    (711) $    (619) $  (1,161) $  (1,155)
Unrecognized transition (asset) obligation...............................          5          4        (26)       (32)
Unrecognized prior service cost..........................................          2          8         --         --
Unrecognized loss........................................................        308        168        175        174
                                                                           ---------  ---------  ---------  ---------
Net amount recognized....................................................  $    (396) $    (439) $  (1,012) $  (1,013)
                                                                           ---------  ---------  ---------  ---------
                                                                           ---------  ---------  ---------  ---------
Amounts recognized in the consolidated balance sheets consist of:
  Prepaid benefit cost...................................................  $      69  $      57  $      --  $      --
  Accrued benefit liability..............................................       (502)      (542)    (1,012)    (1,013)
  Intangible asset.......................................................          6         10         --         --
  Accumulated other comprehensive income.................................         31         36         --         --
                                                                           ---------  ---------  ---------  ---------
Net amount recognized....................................................  $    (396) $    (439) $  (1,012) $  (1,013)
                                                                           ---------  ---------  ---------  ---------
                                                                           ---------  ---------  ---------  ---------
</TABLE>
 
                                      F-32
<PAGE>
NOTE 14--RETIREMENT BENEFITS (CONTINUED)
    The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $3.97 billion, $3.57 billion and $3.16 billion,
respectively, as of December 31, 1998 and $3.78 billion, $3.43 billion and $3.13
billion, respectively, as of December 31, 1997.
 
    The components of net periodic benefit cost are as follows:
 
<TABLE>
<CAPTION>
                                                                      PENSION BENEFITS              POSTRETIREMENT BENEFITS
                                                               -------------------------------  -------------------------------
YEARS ENDED DECEMBER 31                                          1998       1997       1996       1998       1997       1996
-------------------------------------------------------------  ---------  ---------  ---------  ---------  ---------  ---------
<S>                                                            <C>        <C>        <C>        <C>        <C>        <C>
Service cost.................................................  $      98  $      86  $      96  $      14  $      14  $      16
Interest cost................................................        300        291        281         76         76         72
Expected return on plan assets...............................       (330)      (307)      (290)        --         --         --
Amortization of transition asset.............................         --         --         --         (8)        (8)        (8)
Amortization of net loss.....................................         --         --          4          3         --         --
                                                               ---------  ---------  ---------  ---------  ---------  ---------
Net periodic benefit cost....................................  $      68  $      70  $      91  $      85  $      82  $      80
                                                               ---------  ---------  ---------  ---------  ---------  ---------
                                                               ---------  ---------  ---------  ---------  ---------  ---------
</TABLE>
 
    The total expense for all multi-employer and other defined contribution
plans was $37 million, $39 million and $42 million for the years ended December
31, 1998, 1997 and 1996, respectively.
 
    The principal pension and postretirement benefit plans used the following
weighted average actuarial assumptions as of December 31:
 
<TABLE>
<CAPTION>
                                                                                    1998       1997
                                                                                  ---------  ---------
<S>                                                                               <C>        <C>
Discount rate...................................................................       6.78%      7.04%
Expected return on plan assets..................................................       9.35%      9.37%
Rate of compensation increase...................................................       4.72%      4.75%
</TABLE>
 
    The assumed health care cost rate is 6.0% in 1998 and 5.5% in 1999,
declining to 5% by the year 2000 and remaining at that level thereafter. Assumed
health care cost trend rates have a significant effect on the amounts reported
for the health care plan. A one-percentage-point change in assumed health care
cost trend rates would have the following effects:
 
<TABLE>
<CAPTION>
                                                                   1-PERCENTAGE-      1-PERCENTAGE-
                                                                  POINT INCREASE     POINT DECREASE
                                                                 -----------------  -----------------
<S>                                                              <C>                <C>
Effect on postretirement benefit cost..........................      $       9          $      (4)
Effect on postretirement benefit obligation....................             67                (61)
</TABLE>
 
                                      F-33
<PAGE>
NOTE 15--SEGMENT INFORMATION
 
    The following information is presented in accordance with SFAS No. 131,
which was adopted by RJRN Holdings and RJRN in the fourth quarter of 1998.
 
    RJRN Holdings is a holding company whose subsidiaries are engaged
principally in the manufacture, distribution and sale of tobacco products,
cookies, crackers, and other food products. RJRN Holdings is organized and
reports its results of operations in five operating segments: R.J. Reynolds
Tobacco, Reynolds International, Nabisco Biscuit, the U.S. Foods Group and the
International Food Group which are segregated by both product and geographic
location.
 
    R.J. Reynolds Tobacco manufactures, markets and sells cigarettes in the
United States. Its largest brands include Doral, Winston, Camel and Salem.
Reynolds International operates in over 170 markets around the world. It markets
nearly 100 brands of cigarettes of which Winston, Camel and Salem are its
international leaders. A portion of Reynolds International's product is made in
the United States, with the remainder manufactured in owned or joint venture
facilities or through licensing agreements outside the United States. See note
10 for information regarding legislation and other matters affecting the
domestic and international cigarette industry.
 
    RJRN's 80.6%-owned subsidiary, Nabisco Holdings, manufactures and markets
cookies, crackers, non-chocolate candy and gum products, nuts and snacks and
other specialty products under several brand names in the United States, Canada,
Europe, Asia, and Latin America. Nabisco Biscuit manufactures and markets
cookies and crackers in the United States. Nabisco Biscuit's leading cookie
brands include Oreo, Chips Ahoy!, SnackWell's and Newtons. Its leading cracker
brands include Ritz, Premium, Triscuit, Air Crisps and Wheat Thins. The U.S.
Foods Group represents Nabisco Holdings' non-biscuit food operations in the
United States and manufactures and markets sauces and condiments, pet snacks,
hot cereals, dry mix desserts, gelatins, non-chocolate candy, gum, nuts and
salty snacks. It sells to major grocery chains, national drug and mass
merchandisers, convenience channels and warehouse clubs through a direct sales
force. It also sells to retail grocery chains and regional mass merchandisers
through independent brokers. The International Food Group conducts Nabisco
Holdings' operations outside the United States, primarily in markets in Canada
and Latin America and certain markets in Europe, the Middle East, Africa and
Asia. Nabisco International primarily produces and markets biscuits, powdered
desserts and dry mixes, baking powder, pasta, juices, and milk products in these
regions. See note 3 for details of businesses divested and exited.
 
    The accounting policies of the reportable operating segments are the same as
those described in note 1. RJRN Holdings management evaluates the performance of
its operating segments based upon ongoing Operating Company Contribution
("OCC"). OCC for each reportable segment is operating income before amortization
of trademarks and goodwill, restructuring expenses and other items deemed
unusual by management. These items include initial, upfront tobacco settlement
and related costs in 1998 and 1997, the net gain on Food businesses divested and
exited during 1998 and restructuring related costs in 1998, 1997 and 1996, and
are described further in notes 2, 3 and 10.
 
    See notes 2 and 3 regarding significant non-cash expenses recorded relating
to restructurings affecting all operating segments and tobacco settlement and
related charges affecting the R.J. Reynolds Tobacco operating segment.
 
    Net sales from one customer of both the R.J. Reynolds Tobacco and the
Nabisco foods operating segments were approximately 11.5% of consolidated net
sales for the year ended December 31, 1998.
 
                                      F-34
<PAGE>
NOTE 15--SEGMENT INFORMATION (CONTINUED)
    SEGMENT PROFIT/(LOSS) AND ASSET INFORMATION:
 
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31                                                              1998       1997       1996
---------------------------------------------------------------------------------  ---------  ---------  ---------
<S>                                                                                <C>        <C>        <C>
Net sales from external customers:
  R.J. Reynolds Tobacco..........................................................  $   5,568  $   4,895  $   4,551
  Reynolds International.........................................................      3,069      3,428      3,623
  Nabisco Biscuit................................................................      3,542      3,545      3,677
  U.S. Foods Group...............................................................      2,334      2,604      2,638
  International Food Group.......................................................      2,524      2,585      2,574
                                                                                   ---------  ---------  ---------
    Consolidated net sales from external customers...............................  $  17,037  $  17,057  $  17,063
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
Ongoing OCC:
  R.J. Reynolds Tobacco..........................................................  $   1,620  $   1,510  $   1,450
  Reynolds International.........................................................        468        670        803
  Nabisco Biscuit................................................................        542        691        600
  U.S. Foods Group...............................................................        339        386        379
  International Food Group.......................................................        206        231        248
  Corporate......................................................................        (79)       (70)       (67)
                                                                                   ---------  ---------  ---------
    Consolidated OCC.............................................................  $   3,096  $   3,418  $   3,413
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
 
Depreciation:
  R.J. Reynolds Tobacco..........................................................  $     130  $     140  $     166
  Reynolds International.........................................................        101         85        100
  Nabisco Biscuit................................................................        146        148        149
  U.S. Foods Group...............................................................         46         49         49
  International Food Group.......................................................         81         80         72
  Corporate......................................................................          2          2          2
                                                                                   ---------  ---------  ---------
    Consolidated depreciation....................................................  $     506  $     504  $     538
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
</TABLE>
 
                                      F-35
<PAGE>
NOTE 15--SEGMENT INFORMATION (CONTINUED)
 
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31                                                              1998       1997       1996
---------------------------------------------------------------------------------  ---------  ---------  ---------
Additions to long-lived assets:
<S>                                                                                <C>        <C>        <C>
  R.J. Reynolds Tobacco..........................................................  $      46  $      57  $      62
  Reynolds International.........................................................        189        314        241
  Nabisco Biscuit................................................................        188        206        190
  U.S. Foods Group...............................................................         49         64         89
  International Food Group.......................................................        103        122        158
  Corporate......................................................................          1         --          1
                                                                                   ---------  ---------  ---------
    Consolidated additions to long-lived assets..................................  $     576  $     763  $     741
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
</TABLE>
 
<TABLE>
<CAPTION>
AS OF DECEMBER 31                                                                    1998       1997
---------------------------------------------------------------------------------  ---------  ---------
<S>                                                                                <C>        <C>        <C>
Segment assets:
  R.J. Reynolds Tobacco..........................................................  $   1,808  $   2,231
  Reynolds International.........................................................      3,422      3,502
  Nabisco Biscuit................................................................      2,079      2,273
  U.S. Foods Group...............................................................        816      1,116
  International Food Group.......................................................      2,550      2,737
  Unallocated intangibles, net(1)................................................     17,684     18,483
  Corporate......................................................................        533        336
                                                                                   ---------  ---------
    Total segment assets.........................................................  $  28,892  $  30,678
                                                                                   ---------  ---------
                                                                                   ---------  ---------
</TABLE>
 
------------------------
 
(1) Represents unallocated goodwill, trademarks and tradename resulting from the
    1989 leveraged buyout of RJRN.
 
    A reconciliation of consolidated OCC to consolidated income (loss) before
income taxes is as follows:
 
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31                                                              1998       1997       1996
---------------------------------------------------------------------------------  ---------  ---------  ---------
<S>                                                                                <C>        <C>        <C>
Ongoing OCC......................................................................  $   3,096  $   3,418  $   3,413
Items excluded from OCC:
  Goodwill and trademark amortization............................................       (629)      (634)      (636)
  Interest and debt expense......................................................       (880)      (912)      (927)
  Other income (expense), net....................................................       (132)      (107)      (126)
  Tobacco settlement and related expenses........................................     (1,442)      (359)        --
  Restructuring expenses and related costs.......................................       (641)      (390)      (525)
  Net gain on divested food businesses...........................................         14         --         --
                                                                                   ---------  ---------  ---------
    Income (loss) before income taxes............................................  $    (614) $   1,016  $   1,199
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
</TABLE>
 
                                      F-36
<PAGE>
NOTE 15--SEGMENT INFORMATION (CONTINUED)
    SEGMENT GEOGRAPHIC INFORMATION:
 
<TABLE>
<CAPTION>
                                                                                                   NET
                                                                     REVENUES               LONG-LIVED ASSETS
                                                          -------------------------------  --------------------
                                                            1998       1997       1996       1998       1997
                                                          ---------  ---------  ---------  ---------  ---------
<S>                                                       <C>        <C>        <C>        <C>        <C>
United States...........................................  $  11,435  $  11,038  $  10,860  $   3,135  $   3,746
Canada..................................................        629        662        675        236        250
Brazil..................................................        543        567        610        179        218
Spain...................................................        454        414        483        116        109
Russia..................................................        310        300        152        266        188
Argentina...............................................        284        308        319        202        199
Japan...................................................        279        311        330          4          4
Germany.................................................        209        204        263        282        265
France..................................................        188        186        246          3          2
Mexico..................................................        122        109         94         33         39
Other foreign countries.................................      2,584      2,958      3,031        842        919
                                                          ---------  ---------  ---------  ---------  ---------
    Total...............................................  $  17,037  $  17,057  $  17,063  $   5,298  $   5,939
                                                          ---------  ---------  ---------  ---------  ---------
                                                          ---------  ---------  ---------  ---------  ---------
</TABLE>
 
NOTE 16--ADDITIONAL INFORMATION
 
<TABLE>
<CAPTION>
  YEARS ENDED DECEMBER 31                                                                     1998       1997       1996
------------------------------------------------------------------------------------------  ---------  ---------  ---------
<S>                                                                                         <C>        <C>        <C>
  Advertising expense.....................................................................  $     617  $     603  $     544
  Research and development expense........................................................        188        178        191
  Rent expense............................................................................        173        182        167
</TABLE>
 
<TABLE>
<CAPTION>
  AS OF DECEMBER 31                                                                         1998       1997
----------------------------------------------------------------------------------------  ---------  ---------
<S>                                                                                       <C>        <C>        <C>
  Accumulated other comprehensive income (loss):
      Cumulative translation adjustment.................................................  $    (441) $    (391)
      Minimum pension liability.........................................................        (19)       (22)
                                                                                          ---------  ---------
        Total accumulated other comprehensive income (loss).............................  $    (460) $    (413)
                                                                                          ---------  ---------
                                                                                          ---------  ---------
</TABLE>
 
    Total comprehensive income (loss) for RJRN for the years ended December 31,
1998, 1997 and 1996 was $(563) million, $253 million and $617 million,
respectively. Other comprehensive income includes cumulative translation and
minimum pension liability adjustments for all periods.
 
NOTE 17--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                                 FIRST     SECOND      THIRD     FOURTH
                                                                               ---------  ---------  ---------  ---------
<S>                                                                            <C>        <C>        <C>        <C>
1998(1)
  Net sales..................................................................  $   3,947  $   4,292  $   4,328  $   4,470
  Operating income (loss)....................................................        262         73        582       (519)
  Income (loss) before extraordinary item....................................        (20)      (130)       158       (585)
  Net income (loss)..........................................................        (20)      (130)       158       (585)
  Per share data:(3)
    Basic income (loss) per share before extraordinary item..................  $    (.10) $    (.44) $     .45  $   (1.83)
    Diluted income (loss) per share before extraordinary item................       (.10)      (.44)       .45      (1.83)
    Common stock dividends declared..........................................      .5125      .5125      .5125      .5125
    Market price of common stock
      --high.................................................................  $ 38 1/16  $ 31 5/16  $  27 3/8  $31 15/16
      --low..................................................................         30     23 1/2    21 5/16         24
      --close................................................................    31 5/16     23 3/4    25 3/16   29 11/16
</TABLE>
 
                                      F-37
<PAGE>
NOTE 17--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
                                                                                 FIRST     SECOND      THIRD     FOURTH
                                                                               ---------  ---------  ---------  ---------
1997(2)
<S>                                                                            <C>        <C>        <C>        <C>
  Net sales..................................................................  $   3,779  $   4,286  $   4,409  $   4,583
  Operating income...........................................................        653        716        484        182
  Income (loss) before extraordinary item....................................        213        243        122       (176)
  Net income (loss)..........................................................        213        243        122       (197)
  Per share data:(3)
    Basic income (loss) per share before extraordinary item..................  $     .62  $     .72  $     .34  $    (.58)
    Diluted income (loss) per share before extraordinary item................        .62        .71        .34       (.58)
    Common stock dividends declared..........................................      .5125      .5125      .5125      .5125
    Market price of common stock
      --high.................................................................  $  38 7/8  $  36 1/2  $  36 1/8  $37 15/16
      --low..................................................................     30 5/8         27    29 9/16     29 7/8
      --close................................................................     32 1/4         33     34 3/8     37 1/2
</TABLE>
 
--------------------------
 
(1) The first quarter of 1998 includes $312 million ($199 million after-tax)
    related to the agreements reached by RJRT with the state of Minnesota and
    Blue Cross and Blue Shield of Minnesota, as well as other settlement related
    costs.
 
   The second quarter of 1998 includes restructuring and related expenses of
    $412 million ($219 million after-tax, net of minority interest) related to
    the food business and $145 million ($97 million after-tax) of additional
    tobacco settlement charges relating to certain prior state settlement
    agreements.
 
   The fourth quarter of 1998 includes $159 million ($93 million after-tax, net
    of minority interest) of restructuring and related expenses related to the
    food business, $55 million (no income tax benefit) of net restructuring
    expenses related to the international tobacco business and $985 million
    ($632 million after-tax) of tobacco settlement and related charges relating
    to the domestic tobacco business.
 
(2) The third quarter of 1997 includes $219 million ($133 million after-tax)
    related to the settlement agreements reached by RJRT with the Florida and
    Mississippi state attorneys general and in certain class action cases.
 
   The fourth quarter of 1997 includes $301 million ($235 million after-tax) of
    restructuring expense and approximately $89 million ($78 million after-tax)
    of restructuring-related expenses at the tobacco operations and $140 million
    ($85 million after-tax) related to the settlement agreement reached by RJRT
    with the Texas state attorney general.
 
(3) 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-38
<PAGE>
NOTE 18--SUBSEQUENT EVENTS
 
    On March 9, 1999, RJRN and RJRT entered into a definitive agreement to sell
the international tobacco business for approximately $8 billion, including the
assumption of approximately $200 million of net debt, to Japan Tobacco Inc.
("Japan Tobacco"). Under the terms of the agreement, Japan Tobacco will acquire
substantially all of the business including intellectual property rights of
Reynolds International, including the international rights to the Camel, Winston
and Salem brand names. Proceeds from the sale will be used to reduce debt and
for general corporate purposes, which is expected to substantially strengthen
the financial position of RJRT. The sale is subject to certain regulatory
conditions and receipt of certain consents from RJRN's bondholders.
 
    Also on March 9, 1999, RJRN Holdings announced that its board of directors
had approved a plan to separate the domestic tobacco business conducted by RJRT,
from the food business conducted by operating subsidiaries of Nabisco Holdings.
Under the plan, the separation of the businesses will be accomplished by a
tax-free spin-off to RJRN Holdings shareholders of shares in the domestic
tobacco business.
 
    Upon completion of the spin-off, RJRN Holdings will be renamed Nabisco Group
Holdings and continue to exist as a holding company, owning 80.5% of Nabisco
Holdings. The re-named Nabisco Group Holdings and Nabisco Holdings will each
continue to trade as separate companies on the New York Stock Exchange and
shares of tobacco company stock will also trade separately. The separation is
subject to final board approval and bondholder consent and is expected to occur
following completion of the sale of the international tobacco business.
 
    The unaudited pro forma information below reflects adjustments to the
historical results of operations and financial condition of RJRN Holdings and
RJRN. The unaudited pro forma balance sheet gives effect to the following
transactions as if they occurred on December 31, 1998, as applicable: (i) the
sale of Reynolds International and application of the net proceeds to reduce
debt and for general corporate purposes; (ii) the issuance of new debt by RJRN;
(iii) the dividend of Nabisco Holdings from RJRN to RJRN Holdings; and (iv) the
spin-off of RJRN to RJRN Holdings' shareholders. The unaudited pro forma income
statement gives effect to the above transactions and the adjustment to selling,
advertising, administrative and general expenses to reflect the estimated level
of RJRN's administrative expenses after the completion of the RJRN spin-off, as
if the transactions occurred on January 1, 1998. No adjustment has been made for
one-time or non-recurring items in the unaudited pro forma income statement.
 
    Management believes that the assumptions used provide a reasonable basis on
which to present the pro forma consolidated financial data based on transactions
and events that are currently probable to occur. THE UNAUDITED PRO FORMA
FINANCIAL STATEMENTS OF RJRN HOLDINGS AND RJRN ARE PROVIDED FOR INFORMATIONAL
PURPOSES ONLY AND SHOULD NOT BE CONSTRUED TO BE INDICATIVE OF THE RESULTS OF
OPERATIONS OR FINANCIAL POSITION HAD THE TRANSACTIONS AND EVENTS DESCRIBED ABOVE
BEEN CONSUMMATED ON THE DATES ASSUMED AND DO NOT PROJECT THE RESULTS OF
OPERATIONS OR FINANCIAL POSITION FOR ANY FUTURE DATE OR PERIOD.
 
                                      F-39
<PAGE>
NOTE 18--SUBSEQUENT EVENTS (CONTINUED)
<TABLE>
<CAPTION>
                                                                                             DECEMBER 31, 1998
                                                                                         -------------------------
                                                                                         RJRN HOLDINGS     RJRN
                                                                                         --------------  ---------
                                                                                                (UNAUDITED)
<S>                                                                                      <C>             <C>
ASSETS
Cash and cash equivalents..............................................................    $      173    $     298
Accounts and other receivables, net....................................................           522          163
Inventories............................................................................           753          529
Prepaid expenses and excise taxes......................................................            70          411
                                                                                              -------    ---------
      Total current assets.............................................................         1,518        1,401
                                                                                              -------    ---------
Property, plant and equipment, net.....................................................         2,947        1,115
Trademarks, net........................................................................         3,368        3,176
Goodwill, net..........................................................................         3,182        7,844
Other assets and deferred charges......................................................            82          125
                                                                                              -------    ---------
      Total assets.....................................................................    $   11,097    $  13,661
                                                                                              -------    ---------
                                                                                              -------    ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings..................................................................    $       68    $      28
Accounts payable and accrued liabilities...............................................         1,638        1,527
Current maturities of long-term debt...................................................           118           --
Income taxes accrued...................................................................            20          165
                                                                                              -------    ---------
      Total current liabilities........................................................         1,844        1,720
                                                                                              -------    ---------
Long-term debt (less current maturities)...............................................         3,619        1,435
Minority interest in Nabisco Holdings..................................................           752           --
Other noncurrent liabilities...........................................................           704        1,349
Deferred income taxes..................................................................         1,271        1,457
Total stockholders' equity.............................................................         2,907        7,700
                                                                                              -------    ---------
      Total liabilities and stockholders' equity.......................................    $   11,097    $  13,661
                                                                                              -------    ---------
                                                                                              -------    ---------
 
<CAPTION>
 
                                                                                          YEAR ENDED DECEMBER 31,
                                                                                                   1998
                                                                                         -------------------------
                                                                                         RJRN HOLDINGS     RJRN
                                                                                         --------------  ---------
                                                                                                (UNAUDITED)
<S>                                                                                      <C>             <C>
Net sales..........................................................................     $   8,400     $   5,716
Costs and expenses.................................................................         7,366         5,514
Amortization of trademarks and goodwill............................................           221           366
Restructuring expense..............................................................           530            --
                                                                                           ------     ---------
      Operating income (loss)......................................................           283          (164)
Interest expense and other income (expense), net...................................          (325)         (124)
Income tax provision (benefit).....................................................            36           (23)
Minority interest..................................................................            14            --
                                                                                           ------     ---------
      Loss from continuing operations..............................................     $     (64)    $    (265)
                                                                                           ------     ---------
                                                                                           ------     ---------
</TABLE>
 
    Costs and expenses for RJRN include $1.442 billion of tobacco settlement and
related costs. See notes 3 and 10 for further discussion.
 
                          ----------------------------
 
                                      F-40
<PAGE>
                                                                      SCHEDULE I
 
                           RJR NABISCO HOLDINGS CORP.
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
            CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31                                                   1998           1997           1996
--------------------------------------------------------------------  -------------  -------------  -------------
<S>                                                                   <C>            <C>            <C>
Interest and debt expense...........................................    $    (108)     $     (98)     $     (98)
Other income (expense), net.........................................            2              7              6
                                                                      -------------  -------------  -------------
      Loss before income taxes......................................         (106)           (91)           (92)
Benefit for income taxes............................................          (42)           (36)           (34)
                                                                      -------------  -------------  -------------
      Loss before equity in income (loss) from subsidiaries.........          (64)           (55)           (58)
Equity in income (loss) from subsidiaries, net of income taxes......         (513)           457            669
                                                                      -------------  -------------  -------------
      Income (loss) before extraordinary item.......................         (577)           402            611
Extraordinary item--loss on early extinguishment of debt of
  subsidiary, net of income taxes...................................           --            (21)            --
                                                                      -------------  -------------  -------------
Net income (loss)...................................................         (577)           381            611
                                                                      -------------  -------------  -------------
Equity in other comprehensive income (loss) of subsidiaries:
      Foreign currency translation adjustments......................          (50)          (170)           (45)
      Minimum pension liability adjustments.........................            3            (10)            (4)
                                                                      -------------  -------------  -------------
Equity in other comprehensive income (loss) of subsidiaries.........          (47)          (180)           (49)
                                                                      -------------  -------------  -------------
Comprehensive income (loss).........................................    $    (624)     $     201      $     562
                                                                      -------------  -------------  -------------
                                                                      -------------  -------------  -------------
</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>
YEARS ENDED DECEMBER 31                                                   1998           1997           1996
--------------------------------------------------------------------  -------------  -------------  -------------
<S>                                                                   <C>            <C>            <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
  Net income (loss).................................................    $    (577)     $     381      $     611
                                                                      -------------  -------------  -------------
  Adjustments to reconcile net income (loss) to net cash flows from
    operating activities:
    Deferred income tax provision (benefit).........................           --              1             (6)
    Extraordinary item..............................................           --             43             --
    Equity in income (loss) from subsidiaries,
      net of income taxes...........................................          513           (457)          (669)
    Dividends received from subsidiary..............................          607            834          1,108
    Other, net......................................................          (20)            16             (2)
                                                                      -------------  -------------  -------------
        Total adjustments...........................................        1,100            437            431
                                                                      -------------  -------------  -------------
    Net cash flows from operating activities........................          523            818          1,042
                                                                      -------------  -------------  -------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
  Proceeds from issuance of junior subordinated debentures..........          385             --             --
  Redemption of Series B preferred stock............................         (301)            --             --
  Repurchase of common stock........................................           --             --           (100)
  Dividends paid on common and preferred stock......................         (706)          (721)          (686)
  Other, net--primarily intercompany transfers and payments.........          100            (98)          (257)
                                                                      -------------  -------------  -------------
    Net cash flows used in financing activities.....................         (522)          (819)        (1,043)
                                                                      -------------  -------------  -------------
    Net change in cash and cash equivalents.........................            1             (1)            (1)
Cash and cash equivalents at beginning of period....................           --              1              2
                                                                      -------------  -------------  -------------
Cash and cash equivalents at end of period..........................    $       1      $      --      $       1
                                                                      -------------  -------------  -------------
                                                                      -------------  -------------  -------------
</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                                                                              1998           1997
-----------------------------------------------------------------------------------  -------------  -------------
<S>                                                                                  <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents........................................................    $       1      $      --
  Accounts and notes receivable, net...............................................           16              4
                                                                                     -------------  -------------
        TOTAL CURRENT ASSETS.......................................................           17              4
                                                                                     -------------  -------------
Investment in subsidiaries.........................................................        9,937         11,115
Other assets.......................................................................           12             17
                                                                                     -------------  -------------
                                                                                       $   9,966      $  11,136
                                                                                     -------------  -------------
                                                                                     -------------  -------------
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued liabilities.........................................    $     191      $     178
  Income taxes accrued.............................................................            7             33
                                                                                     -------------  -------------
        TOTAL CURRENT LIABILITIES..................................................          198            211
                                                                                     -------------  -------------
Intercompany payable, net..........................................................          322            229
Other noncurrent liabilities.......................................................           --             18
Deferred income taxes..............................................................           64             64
Junior subordinated debentures.....................................................        1,368            983
Commitments and contingencies (note D)
 
Stockholders' equity:
  Preferred stock..................................................................          205            520
  Common stock--(1998--328,385,148 shares issued, 1997--327,158,090 shares
    issued)........................................................................            3              3
  Paid-in capital..................................................................        9,004          9,690
  Retained earnings (accumulated deficit)..........................................         (577)            --
 
  Accumulated other comprehensive income:
    Cumulative translation adjustments.............................................         (441)          (391)
    Minimum pension liability......................................................          (19)           (22)
                                                                                     -------------  -------------
    Accumulated other comprehensive income.........................................         (460)          (413)
                                                                                     -------------  -------------
  Treasury stock, at cost..........................................................         (100)          (100)
  Other stockholders' equity.......................................................          (61)           (69)
                                                                                     -------------  -------------
        TOTAL STOCKHOLDERS' EQUITY.................................................        8,014          9,631
                                                                                     -------------  -------------
                                                                                       $   9,966      $  11,136
                                                                                     -------------  -------------
                                                                                     -------------  -------------
</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--BASIS OF PRESENTATION
 
    Certain prior years' amounts have been reclassified to conform to the 1998
presentation.
 
    See note 18 to the consolidated financial statements regarding the pending
sale by RJRN and RJRT of the international tobacco business and the separation
of the domestic tobacco and food businesses.
 
NOTE B--SUPPLEMENTAL CASH FLOWS INFORMATION
 
    For information regarding certain non-cash financing activities, see note 9
to the consolidated financial statements.
 
NOTE C--JUNIOR SUBORDINATED DEBENTURES
 
    See note 9 to the consolidated financial statements for information
regarding the issuance of the junior subordinated debentures.
 
    RJRN Holdings' obligations under the junior subordinated debentures are
unsecured and subordinate to all senior indebtedness of RJRN Holdings, but
junior to all future stock issuances and stock guarantees. As of December 31,
1998, RJRN Holdings had no senior indebtedness other than its guarantee of
RJRN's obligations under RJRN's credit agreements. RJRN Holdings guarantees all
distributions made by its subsidiary trusts, subordinate to any distributions to
any senior debenture holders and junior subordinated debenture holders.
 
    Interest on the junior subordinated debentures is payable quarterly in
arrears. The junior subordinated debentures may be redeemed by RJRN Holdings on
or after August 19, 1998 and September 30, 2003 and mature in December 2044 and
September 2047. Covenants applicable to the junior subordinated debentures limit
RJRN Holdings' ability to enter into certain capital stock transactions, among
other things, if RJRN Holdings is in default of any payments or guarantees with
respect to the junior subordinated debentures.
 
NOTE D--COMMITMENTS AND CONTINGENCIES
 
    RJRN Holdings has guaranteed the indebtedness of RJRN under RJRN's credit
facilities.
 
    For disclosure of additional contingent liabilities and commitments, see
note 10 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 COMPREHENSIVE INCOME
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31                                                               1998       1997       1996
----------------------------------------------------------------------------------  ---------  ---------  ---------
<S>                                                                                 <C>        <C>        <C>
Administrative expenses...........................................................  $     (11) $      (5) $      (5)
Interest and debt expense.........................................................       (426)      (433)      (454)
Other income, net.................................................................        923        942        956
                                                                                    ---------  ---------  ---------
      Income before income taxes..................................................        486        504        497
Provision for income taxes........................................................        130        173        169
                                                                                    ---------  ---------  ---------
Income before equity in income from subsidiaries..................................        356        331        328
Equity in income (loss) from subsidiaries, net of income taxes....................       (872)       123        338
                                                                                    ---------  ---------  ---------
      Income (loss) before extraordinary item.....................................       (516)       454        666
Extraordinary item-loss on early extinguishment of debt of a subsidiary, net of
  income taxes and minority interest..............................................         --        (21)        --
                                                                                    ---------  ---------  ---------
Net income (loss).................................................................       (516)       433        666
                                                                                    ---------  ---------  ---------
Other comprehensive income (loss):
      Equity in other comprehensive income of
        subsidiaries..............................................................        (37)      (202)       (71)
      Foreign currency translation adjustments....................................        (11)        22         23
      Minimum pension liability adjustments.......................................          1         --         (1)
                                                                                    ---------  ---------  ---------
Other comprehensive income (loss).................................................        (47)      (180)       (49)
                                                                                    ---------  ---------  ---------
Comprehensive income (loss).......................................................  $    (563) $     253  $     617
                                                                                    ---------  ---------  ---------
                                                                                    ---------  ---------  ---------
</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>
YEARS ENDED DECEMBER 31                                                                 1998       1997       1996
------------------------------------------------------------------------------------  ---------  ---------  ---------
<S>                                                                                   <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss).................................................................  $    (516) $     433  $     666
                                                                                      ---------  ---------  ---------
  Adjustments to reconcile net income (loss) to net cash flows from operating
    activities:
    Deferred income tax provision (benefit).........................................        (31)         7         (8)
    Extraordinary item..............................................................         --         43         --
    Equity in income (loss) from subsidiaries,
      net of income taxes...........................................................        872       (123)      (338)
    Dividends received from subsidiary..............................................        149        141        125
    Other, net......................................................................       (101)         1         20
                                                                                      ---------  ---------  ---------
        Total adjustments...........................................................        889         69       (201)
                                                                                      ---------  ---------  ---------
    Net cash flows from operating activities........................................        373        502        465
                                                                                      ---------  ---------  ---------
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:
  Proceeds from issuance of long-term debt..........................................         --        345         --
  Repayments of long-term debt......................................................        (68)       (28)      (118)
  Increase (decrease) in short-term borrowings......................................         33       (295)        53
  Dividends paid to parent..........................................................       (607)      (834)    (1,108)
  Other, net--primarily intercompany transfers and payments.........................        170        437        717
                                                                                      ---------  ---------  ---------
    Net cash flows used in financing activities.....................................       (472)      (375)      (456)
                                                                                      ---------  ---------  ---------
    Net change in cash and cash equivalents.........................................       (100)       127          8
Cash and cash equivalents at beginning of period....................................        140         13          5
                                                                                      ---------  ---------  ---------
Cash and cash equivalents at end of period..........................................  $      40  $     140  $      13
                                                                                      ---------  ---------  ---------
                                                                                      ---------  ---------  ---------
</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                                                                                     1998       1997
--------------------------------------------------------------------------------------------  ---------  ---------
<S>                                                                                           <C>        <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................................................  $      40  $     140
  Accounts and notes receivable.............................................................         37         40
  Prepaid expenses..........................................................................          8          6
                                                                                              ---------  ---------
        TOTAL CURRENT ASSETS................................................................         85        186
                                                                                              ---------  ---------
Intercompany receivable, net................................................................     10,637     10,802
Investment in subsidiaries..................................................................      4,736      5,815
Property, plant and equipment, net..........................................................          3          5
Other assets................................................................................         84         56
                                                                                              ---------  ---------
                                                                                              $  15,545  $  16,864
                                                                                              ---------  ---------
                                                                                              ---------  ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
  Accounts payable and accrued liabilities..................................................  $     160  $     171
  Current maturities of long-term debt......................................................         62         --
  Income taxes accrued......................................................................          5         42
                                                                                              ---------  ---------
        TOTAL CURRENT LIABILITIES...........................................................        227        213
                                                                                              ---------  ---------
Long-term debt (less current maturities)....................................................      4,861      4,944
Other noncurrent liabilities................................................................         44         54
Deferred income taxes.......................................................................        527        574
Commitments and contingencies (note C)
Stockholder's equity:
  Paid-in capital...........................................................................     10,862     11,492
  Retained earnings (accumulated deficit)...................................................       (516)        --
  Accumulated other comprehensive income:
    Cumulative translation adjustments......................................................       (441)      (391)
    Minimum pension liability...............................................................        (19)       (22)
                                                                                              ---------  ---------
    Accumulated other comprehensive income..................................................       (460)      (413)
                                                                                              ---------  ---------
        TOTAL STOCKHOLDER'S EQUITY..........................................................      9,886     11,079
                                                                                              ---------  ---------
                                                                                              $  15,545  $  16,864
                                                                                              ---------  ---------
                                                                                              ---------  ---------
</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--BASIS OF PRESENTATION
 
    Certain prior years' amounts have been reclassified to conform to the 1998
presentation.
 
    See note 18 to the consolidated financial statements regarding the pending
sale by RJRN and RJRT of the international tobacco business and the separation
of the domestic tobacco and food businesses.
 
NOTE B--SUPPLEMENTAL CASH FLOWS INFORMATION
 
    For information regarding certain non-cash financing activities, see note 9
to the consolidated financial statements.
 
NOTE C--COMMITMENTS AND CONTINGENCIES
 
    RJRN has guaranteed most of the indebtedness of its international tobacco
subsidiaries. Japan Tobacco has covenanted to use commercially reasonable
efforts to effect the release of these guarantees. For disclosure of contingent
liabilities and commitments, see note 10 to the consolidated financial
statements.
 
                            ------------------------
 
                                      S-8
<PAGE>
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<S>          <C>
 
   *3.1(a)   Composite of the Amended and Restated Certificate of Incorporation of RJR Nabisco Holdings Corp. as
             amended to and including December 16, 1998.
 
    3.1(b)   Certificate of Retirement of certain shares of Series B Cumulative Preferred Stock, filed October 11,
             1995 (incorporated by reference to Exhibit 3.1(m) of the Registrants' Annual Report on Form 10-K for
             the fiscal year ended December 31, 1995, File No.'s I-10215 and I-6388, filed on February 22, 1996
             (the "1995 Form 10-K")).
 
   *3.1(c)   Certificate of Retirement of Remaining Shares of Series B Cumulative Preferred Stock of RJR Nabisco
             Holdings, dated December 16, 1998.
 
   *3.1(d)   Certificate of Retirement of Series C Conversion Preferred Stock of RJR Nabisco Holdings, dated
             December 16, 1998.
 
   *3.2      By-Laws of RJR Nabisco Holdings Corp. as Amended Effective November 11, 1998.
 
    3.3      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 Registrants' Annual Report on Form 10-K for the
             fiscal year ended December 31, 1994, File No.'s I- 10215 and I-6388 filed on February 23, 1995 (the
             "1994 Form 10- K")).
 
    3.4      By-Laws of RJR Nabisco, Inc. as Amended Effective December 15, 1997 (incorporated by reference to
             Exhibit 3.4 of the Registrants' Annual Report on Form 10-K for the fiscal year ended December 31,
             1997, File No.'s I-10215 and I-6388, filed on March 27, 1997 (the "1997 Form 10-K")).
 
    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      Form of Second Supplemental Indenture to the TOPrS Indenture (incorporated by reference to Exhibit
             4.3 to the Registration Statement on Form S-3 of RJR Nabisco Holdings Corp. and RJR Nabisco Holdings
             Capital Trusts II-IV, File No. 333-60811, filed on August 6, 1998 (the "TOPrS II-VI Registration
             Statement")).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<S>          <C>
    4.9      Form of Amended and Restated Declaration of Trust of RJR Nabisco Holdings Capital Trust II
             (incorporated by reference to Exhibit 4.5 to the TOPrS II-VI Registration Statement).
 
    4.10     Form of Preferred Security of RJR Nabisco Holdings Capital Trust II (included in Exhibit 4.9 above).
 
    4.11     Form of Junior Subordinated Debenture (included in Exhibit 4.8 above).
 
    4.12     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 4.15 to the
             TOPrS II-VI Registration Statement).
 
    4.13     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).
 
    4.14     Agreement of Resignation, Appointment and Acceptance, dated as of July 27, 1998, by and among RJR
             Nabisco, Inc., Citibank, N.A. and The Bank of New York in connection with the Amended and Restated
             Indenture, dated as of July 24, 1995, between RJR Nabisco, Inc. and Citibank, N.A. (incorporated by
             reference to Exhibit 4.1 to the Registrants' Quarterly Report on Form 10-Q for the fiscal quarter
             ended June 30, 1998, filed August 14, 1998 (the "Second Quarter 1998 Form 10-Q")).
 
    4.15     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,
             Inc., as Borrower, RJR Nabisco Holdings Corp., as Guarantor, Bankers Trust Company, The Chase
             Manhattan Bank, N.A., Chemical Bank, Citibank, N.A. and The Fuji Bank, Limited, as Senior Managing
             Agents, and various lending institutions (incorporated by reference to Exhibit 10.1 to the Second
             Quarter 1995 Form 10-Q).
 
   10.2      Credit Agreement (the "364 Day Credit Agreement"), dated as of April 28, 1995, among RJR Nabisco,
             Inc., as Borrower, RJR Nabisco Holdings Corp., as Guarantor, Bankers Trust Company, The Chase
             Manhattan Bank, N.A., Chemical Bank, Citibank, N.A. and The Fuji Bank, Limited, as Senior Managing
             Agents, and various lending institutions (incorporated by reference to Exhibit 10.2 to the Second
             Quarter 1995 Form 10-Q).
 
   10.3      Agreement and Waiver to the Three Year Credit Agreement and the 364 Day Credit Agreement
             (collectively, the "RJRN Credit Agreements"), dated as of July 27, 1995 (incorporated by reference to
             Exhibit 10.5 to the Second Quarter 1995 Form 10-Q).
 
   10.4      First Amendment, dated as of September 12, 1995, to the RJRN Credit Agreements (incorporated by
             reference to Exhibit 10.1 to the Registrants' Quarterly Report on Form 10-Q for the fiscal quarter
             ended September 30, 1995 filed October 31, 1995 (the "Third Quarter 1995 Form 10-Q")).
 
   10.5      Second Amendment, dated as of June 3, 1996, to the 364 Day Credit Agreement (incorporated by
             reference to Exhibit 10.1 to the Registrants' Quarterly Report on Form 10-Q for the fiscal quarter
             ended June 30, 1996 filed July 31, 1996 (the "Second Quarter 1996 Form 10-Q")).
 
   10.6      Second Amendment to the Three Year Credit Agreement and Third Amendment to the 364 Day Credit
             Agreement, dated as of January 31, 1997 (incorporated by reference to Exhibit 10.6 to the
             Registrants' Annual Report on Form 10-K for the fiscal year ended December 31, 1996, filed March 14,
             1997 (the "1996 Form 10-K")).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<S>          <C>
   10.7      Fourth Amendment to the 364 Day Credit Agreement, dated as of April 4, 1997 (incorporated by
             reference to Exhibit 10.6 to the Registrants' Quarterly Report on Form 10-Q for the fiscal quarter
             ended June 30, 1997, filed August 8, 1997 (the "Second Quarter 1997 Form 10-Q")).
 
   10.8      Third Amendment to the Three Year Credit Agreement and Fifth Amendment to the 364 Day Credit
             Agreement, dated as of September 29, 1997 (incorporated by reference to Exhibit 10.1 to the
             Registrants' Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1997, filed
             November 5, 1997 (the "Third Quarter 1997 Form 10-Q")).
 
   10.9      Fourth Amendment to the Three Year Credit Agreement and Sixth Amendment to the 364 Day Credit
             Agreement, dated as of December 5, 1997 (incorporated by reference to Exhibit 10.9 to the 1997 Form
             10-K).
 
   10.10     Fifth Amendment to the Three Year Credit Agreement and Seventh Amendment to the 364 Day Credit
             Agreement, dated as of February 13, 1998 (incorporated by reference to Exhibit 10.10 to the 1997 Form
             10-K).
 
   10.11     Eighth Amendment to the 364 Day Credit Agreement, dated as of April 2, 1998 (incorporated by
             reference to Exhibit 10.1 to the Second Quarter 1998 Form 10-Q).
 
   10.12     Sixth Amendment to the Three Year Credit Agreement and Ninth Amendment to the 364 Day Credit
             Agreement, dated as of June 8, 1998 (incorporated by reference to Exhibit 10.2 to the Second Quarter
             1998 Form 10-Q).
 
   10.13     Seventh Amendment to the Three Year Credit Agreement and Tenth Amendment to the 364 Day Credit
             Agreement, dated as of August 14, 1998 (incorporated by reference to Exhibit 10.1 to the Registrants'
             Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1998, filed November 12,
             1998 (the "Third Quarter 1998 Form 10-Q")).
 
  *10.14     Eighth Amendment to the Three Year Credit Agreement and Eleventh Amendment to the 364 Day Credit
             Agreement, dated as of December 18, 1998.
 
   10.15     Credit Agreement (the "Five Year Nabisco Credit Agreement"), dated as of October 31, 1996, among
             Nabisco, Inc., as Borrower, Nabisco Holdings Corp., as Guarantor, Bankers Trust Company, The Chase
             Manhattan Bank, Citibank, N.A. and The Fuji Bank, Limited, as Senior Managing Agents, and various
             lending institutions (incorporated by reference to Exhibit 10.7 to the 1996 Form 10-K).
 
   10.16     Credit Agreement (the "364 Day Nabisco Credit Agreement"), dated as of October 31, 1996, among
             Nabisco, Inc., as Borrower, Nabisco Holdings Corp., as Guarantor, Bankers Trust Company, The Chase
             Manhattan Bank, Citibank, N.A. and The Fuji Bank, Limited, as Senior Managing Agents, and various
             lending institutions (incorporated by reference to Exhibit 10.8 to the 1996 Form 10-K).
 
   10.17     First Amendment to the 364 Day Nabisco Credit Agreement, dated as of September 18, 1997 (incorporated
             by reference to Exhibit 10.13 to the 1997 Form 10-K).
 
   10.18     First Amendment to the Five Year Nabisco Credit Agreement and Second Amendment to the 364 Day Nabisco
             Credit Agreement, dated as of May 19, 1998 (incorporated by reference to Exhibit 10.3 to the Second
             Quarter 1998 Form 10-Q).
 
   10.19     Third Amendment to the 364 Day Credit Agreement, dated as of September 25, 1998 (incorporated by
             reference to Exhibit 10.1 to the Nabisco Holdings Corp. and Nabisco, Inc. Quarterly Report on Form
             10-Q for the fiscal quarter ended September 30, 1998, filed November 12, 1998).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<S>          <C>
  *10.20     Purchase Agreement dated March 9, 1999 among R.J. Reynolds Tobacco Company, RJR Nabisco, Inc. and
             Japan Tobacco Inc.
 
   10.21     RJR Nabisco, Inc. Annual Incentive Award Plan, as amended and restated effective January 1, 1997
             (incorporated by reference to Exhibit 10.2 of the Third Quarter 1997 Form 10-Q).
 
   10.21     RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan as amended and restated effective April 16,
             1997 (incorporated by reference to Exhibit 10.1 of the Second Quarter 1997 Form 10-Q).
 
   10.22     Form of Deferred Stock Unit Agreement between RJR Nabisco Holdings Corp. and the Director named
             therein dated as of April 16, 1997 (incorporated by reference to Exhibit 10.2 of the Second Quarter
             1997 Form 10-Q).
 
   10.23     Form of Deferred Stock Unit Agreement, dated May 13, 1998, between various unnamed grantees and RJR
             Nabisco Holdings Corp. in connection with the Equity Incentive Award Plan for Directors and Key
             Employees of RJR Nabisco Holdings Corp. and Subsidiaries (incorporated by reference to Exhibit 10.4
             to the Second Quarter 1998 Form 10-Q).
 
   10.24     Form of Stock Option Agreement, dated May 13, 1998, between various unnamed optionees and RJR Nabisco
             Holdings Corp. in connection with the Equity Incentive Award Plan for Directors and Key Employees of
             RJR Nabisco Holdings Corp. and Subsidiaries (incorporated by reference to Exhibit 10.5 to the Second
             Quarter 1998 Form 10-Q).
 
   10.25     Retention Trust Agreement, dated May 13, 1998 by and between RJR Nabisco, Inc. and Wachovia Bank,
             N.A. (incorporated by reference to Exhibit 10.6 to the Second Quarter 1998 Form 10-Q).
 
   10.26     Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the Director
             named therein dated as of April 16, 1997 (incorporated by reference to Exhibit 10.3 of the Second
             Quarter 1997 Form 10-Q).
 
   10.27     Form of Performance Unit Agreement between RJR Nabisco Holdings Corp. and the grantee named therein
             (1997 grant-1 year period) dated as of February 28, 1997 (incorporated by reference to Exhibit 10.4
             of the Second Quarter 1997 Form 10-Q).
 
   10.28     Form of Performance Unit Agreement between RJR Nabisco Holdings Corp. and the grantee named therein
             (1998 grant--1 year period) dated as of February 6, 1998 (incorporated by reference to Exhibit 10.3
             to the Registrants' Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1998, filed
             May 15, 1998 (the "First Quarter 1998 Form 10-Q")).
 
   10.29     Form of Restricted Stock Unit Agreement between RJR Nabisco Holdings Corp. and the grantee named
             therein dated as of June 16, 1997 (incorporated by reference to Exhibit 10.5 of the Second Quarter
             1997 Form 10-Q).
 
   10.30     Intentionally left blank
 
   10.31     Form of Performance Appreciation Right Agreement between RJR Nabisco Holdings Corp. and the grantee
             named therein (incorporated by reference to Exhibit 10.2 of the First Quarter 1997 Form 10-Q).
 
   10.32     Form of Performance Appreciation Right Agreement between RJR Nabisco Holdings Corp. and the grantee
             named therein (1998 Grant) (incorporated by reference to Exhibit 10.8 to the First Quarter 1998 Form
             10-Q).
 
   10.33     Restricted Stock Unit Agreement dated March 24, 1997 between RJR Nabisco Holdings Corp. and David B.
             Rickard (incorporated by reference to Exhibit 10.3 of the First Quarter 1997 Form 10-Q).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<S>          <C>
   10.34     Form of Performance Unit Agreement between RJR Nabisco Holdings Corp. and the grantee named therein
             (1996; three-year period) (incorporated by reference to Exhibit 10.2 of the Registrants' Quarterly
             Report on Form 10-Q for the fiscal quarter ended March 31, 1996, filed on May 1, 1996 (the "First
             Quarter 1996 Form 10-Q")).
 
   10.35     Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the grantee named
             therein (1996 grant-regular) incorporated by reference to Exhibit 10.3 of the First Quarter 1996 Form
             10-Q.
 
   10.36     Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the grantee named
             therein (1996 grant-insider) (incorporated by reference to Exhibit 10.4 of the First Quarter 1996
             Form 10-Q).
 
   10.37     Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the grantee named
             therein (1996 grant-executive) (incorporated by reference to Exhibit 10.5 of the First Quarter 1996
             Form 10-Q).
 
   10.38     Amendment to Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the
             grantee named therein (1996 grant-insider) (incorporated by reference to Exhibit 10.5 to the Second
             Quarter 1996 Form 10-Q).
 
   10.39     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")).
 
   10.40     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 Registrants' Annual Report on
             Form 10-K for the fiscal year ended December 31, 1988, filed March 9, 1989 (the "1988 Form 10-K")).
 
   10.41     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).
 
   10.42(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).
 
   10.42(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).
 
   10.43     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).
 
   10.44     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).
 
   10.45     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).
 
   10.46(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).
 
   10.46(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).
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   10.46(c)  Amendment to Supplemental Executive Retirement Plan, dated April 10, 1993 (incorporated by reference
             to the Registrants' Annual Report on Form 10-K for the fiscal year ended December 31, 1993, File
             No.'s I- 10215 and I-6388 filed on February 24, 1994 (the "1993 Form 10-K")).
 
   10.47     Amended and Restated Employment Agreement (dated June 1, 1996) by and between R.J. Reynolds
             International B.V. and Pierre de Labouchere (incorporated by reference to Exhibit 10.1 to the
             Registrants' Quarterly Report on Form 10-Q for the Third Quarter ended September 30, 1996, filed
             November 1, 1996 (the "Third Quarter 1996 Form 10-Q")).
 
             Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and James M. Kilts, dated as
             of January 2, 1998 (incorporated by reference to Exhibit 10.6 to the First Quarter 1998 Form 10-Q).
 
   10.48     Engagement Agreement (dated March 3, 1995) between RJR Nabisco Holdings Corp. and Steven F. Goldstone
             (incorporated by reference to Exhibit 10.38 of the 1995 Form 10-K).
 
   10.49     Amended and Restated Employment Agreement (dated December 5,1995) by and among RJR Nabisco Holdings
             Corp., and RJR Nabisco, Inc. and Steven F. Goldstone (incorporated by reference to Exhibit 10.40 of
             the 1995 Form 10-K).
 
   10.50     Contingent Performance Share Agreement (dated December 5, 1995) between RJR Nabisco Holdings Corp.
             and Steven F. Goldstone (incorporated by reference to Exhibit 10.42 of the 1995 Form 10-K).
 
   10.51     Secured Promissory Note (dated December 5, 1995) of Steven F. Goldstone in favor of RJR Nabisco
             Holdings Corp. (incorporated by reference to Exhibit 10.43 of the 1995 Form 10-K).
 
   10.52     Secured Promissory Note (dated May 15, 1996) of Steven F. Goldstone in favor of Nabisco Holdings
             Corp. (incorporated by reference to Exhibit 10.6 to the Third Quarter 1996 Form 10-Q).
 
   10.53     Non-Qualified Stock Option Agreement dated January 10, 1997 between RJR Nabisco Holdings Corp. and
             Steven F. Goldstone (incorporated by reference to Exhibit 10.1 of the Registrants' Quarterly Report
             on Form 10-Q for the fiscal quarter ended March 31, 1997, filed May 13, 1997 (the "First Quarter 1997
             Form 10-Q"))
 
   10.54     Restricted Stock Agreement between RJR Nabisco Holdings Corp. and Steven F. Goldstone, dated as of
             January 15, 1998 (incorporated by reference to Exhibit 10.1 to the First Quarter 1998 Form 10-Q).
 
   10.55     Non-Qualified Stock Option Agreement between Nabisco Holdings Corp. and Steven F. Goldstone, dated as
             of January 15, 1998 (incorporated by reference to Exhibit 10.2 to the First Quarter 1998 Form 10-Q).
 
  *10.56     Amendment to Contingent Performance Share Agreement (dated October 14, 1998) between RJR Nabisco
             Holdings Corp. and Steven F. Goldstone.
 
   10.57     Letter Agreement by and among Nabisco Holdings Corp., Nabisco, Inc., RJR Nabisco Holdings Corp., RJR
             Nabisco, Inc. and H. John Greeniaus, dated as of January 21, 1998 (incorporated by reference to
             Exhibit 10.4 to the First Quarter 1998 Form 10-Q).
 
   10.58     Amended and Restated Employment Agreement (dated January 1, 1997) among RJR Nabisco Holdings Corp.,
             RJR Nabisco, Inc. and Steven F. Goldstone (incorporated by reference to Exhibit 10.7 to the First
             Quarter 1998 Form 10-Q).
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   10.59     Restricted Stock Agreement between RJR Nabisco Holdings Corp. and David B. Rickard, dated as of
             January 15, 1998 (incorporated by reference to Exhibit 10.9 to the First Quarter 1998 Form 10-Q).
 
   10.60     Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and David B. Rickard, dated
             as of January 15, 1998 (incorporated by reference to Exhibit 10.10 to the First Quarter 1998 Form
             10-Q).
 
   10.61     Employment Agreement (dated January 15, 1998) among RJR Nabisco Holdings Corp., RJR Nabisco, Inc. and
             William L. Rosoff (incorporated by reference to Exhibit 10.5 to the First Quarter 1998 Form 10-Q).
 
   10.62     Restricted Stock Agreement between RJR Nabisco Holdings Corp. and William L. Rosoff, dated as of
             January 15, 1998 (incorporated by reference to Exhibit 10.11 to the First Quarter 1998 Form 10-Q).
 
   10.63     Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and William L. Rosoff, dated
             as of January 15, 1998 (incorporated by reference to Exhibit 10.12 to the First Quarter 1998 Form
             10-Q).
 
   10.64     Amendment dated December 5, 1995 to Employment Agreement between RJR Nabisco Holdings Corp. and
             Andrew J. Schindler (incorporated by reference to Exhibit 10.44 of the Registrants' 1995 Form 10-K).
 
   10.65     Participation Agreement RJR Nabisco, Inc. Supplemental Executive Retirement Plan for Andrew J.
             Schindler dated December 28, 1995 (incorporated by reference to Exhibit 10.45 of the Registrants'
             1995 Form 10- K).
 
   10.66     Amended and Restated Deferred Compensation Plan for RJR Directors (dated as of September 1, 1996)
             (incorporated by reference to Exhibit 10.2 of the Third Quarter 1996 Form 10-Q).
 
   10.67     Amended and Restated Equity Incentive Award Plan for Directors and Key Employees of RJR Nabisco
             Holdings Corp. and Subsidiaries (dated as of September 1, 1996) (incorporated by reference to Exhibit
             10.3 to the Third Quarter 1996 Form 10-Q).
 
   10.68     Performance Unit Program under RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan (incorporated
             by reference to Exhibit 10.3 to the First Quarter 1994 Form 10-Q).
 
   10.69     Amendment to Non-Qualified Stock Option Agreements dated prior to October 11, 1995 (incorporated by
             reference to Exhibit 10.75 of the 1995 Form 10-K).
 
   10.70     Form of Non-Qualified Stock Option Agreement dated April 27, 1995 between RJR Nabisco Holdings Corp.
             and the grantee named therein (Reissued options) (incorporated by reference to Exhibit 10.77 of the
             1995 Form 10-K).
 
   10.71     Form of Non-Qualified Stock Option Agreement dated April 27, 1995 between RJR Nabisco Holdings Corp.
             and the grantee named therein (Premium options) (incorporated by reference to Exhibit 10.78 of the
             1995 Form 10-K).
 
   10.72     Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the grantee named
             therein (incorporated by reference to Exhibit 10.79 of the 1995 Form 10-K).
 
   10.73     Form of Deferred Stock Unit Agreement between RJR Nabisco Holdings Corp. and the grantee named
             therein dated as of May 31, 1996 (incorporated by reference to Exhibit 10.5 to the Third Quarter 1996
             Form 10-Q).
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   10.74     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 (incorporated by
             reference to Exhibit 10.82 of the 1995 Form 10-K).
 
   10.75     Form of Employment Agreement dated October 11, 1995 (incorporated by reference to Exhibit 10.83 of
             the 1995 Form 10-K).
 
   10.76     Form of Employment Agreement dated November 1, 1995 (incorporated by reference to Exhibit 10.84 of
             the 1995 Form 10-K).
 
   10.77     Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp., and Director named
             therein (Election version) (incorporated by reference to Exhibit 10.86 of the 1995 Form 10-K).
 
   10.78     Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp., and Director named
             therein (Annual version) (incorporated by reference to Exhibit 10.87 of the 1995 Form 10-K).
 
  *12.1      RJR Nabisco Holdings Corp. Computation of Ratio of Earnings to Combined Fixed Charges and Preferred
             Stock Dividends/Deficiency in the Coverage of Combined Fixed Charges and Preferred Stock Dividends By
             Earnings Before Fixed Charges for each of the periods within the five year period ended December 31,
             1998.
 
  *12.2      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, 1998.
 
  *12.3      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, 1998.
 
  *21.       Subsidiaries 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.
 
  *99        Expanded Litigation Disclosure.
 
   99.1      Settlement Agreement dated August 25, 1997, between the State of Florida and settling defendants in
             The State of Florida v. American Tobacco Company (incorporated by reference to Exhibit 2 to the
             Registrants' Current Report on Form 8-K dated August 25, 1997).
 
   99.2      Settlement Agreement dated January 16, 1998, between the State of Texas and settling defendants in
             The State of Texas v. American Tobacco Company (incorporated by reference to Exhibit 2 to the
             Registrants' Current Report on Form 8-K dated January 16, 1998).
 
   99.3      Settlement Agreement and Release in re: The State of Minnesota, et al., v. Philip Morris, et al., by
             and among the State of Minnesota, Blue Cross and Blue Shield of Minnesota and the various
             tobacco-company defendants named therein, dated as of May 8, 1998 (incorporated by reference to
             Exhibit 99.1 to the First Quarter 1998 Form 10-Q).
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   99.4      Settlement Agreement and Stipulation for Entry of Consent Judgement in re: The State of Minnesota, et
             al., v. Philip Morris, et al., by and among the State of Minnesota, Blue Cross and Blue Shield of
             Minnesota and the various tobacco-company defendants named therein, dated as of May 8, 1998
             (incorporated by reference to Exhibit 99.2 to the First Quarter 1998 Form 10-Q).
 
   99.5      Form of Consent Judgement by Judge Kenneth J. Fitzpatrick, Judge of District Court in re: The State
             of Minnesota, et al., v. Philip Morris, et al.(incorporated by reference to Exhibit 99.3 to the First
             Quarter 1998 Form 10-Q).
 
   99.6      Agreement to Pay State of Minnesota Attorneys' Fees and Costs by and among the State of Minnesota and
             various tobacco companies, dated as of May 8, 1998 (incorporated by reference to Exhibit 99.4 to the
             First Quarter 1998 Form 10-Q).
 
   99.7      Agreement to Pay Blue Cross and Blue Shield of Minnesota Attorneys' Fees and Costs by and among Blue
             Cross and Blue Shield of Minnesota and various tobacco companies, dated as of May 8, 1998
             (incorporated by reference to Exhibit 99.5 to the First Quarter 1998 Form 10-Q).
 
   99.8      Mississippi Fee Payment Agreement, dated as of July 2, 1998, by and among Philip Morris Incorporated,
             R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation and (collectively, the
             "Mississippi Defendants"), the State of Mississippi ("Mississippi") and Mississippi's private counsel
             named therein (the "Mississippi Counsel") in connection with Moore v. The American Tobacco Company,
             et al., Mississippi Litigation No. 94-1429 (the "Mississippi Action") (incorporated by reference to
             Exhibit 99.1 to the Second Quarter 1998 Form 10-Q).
 
   99.9      Stipulation of Amendment to Settlement Agreement and for Entry of Agreed Order, dated July 2, 1998,
             by and among the Mississippi Defendants, Mississippi and the Mississippi Counsel in connection with
             the Mississippi Action (incorporated by reference to Exhibit 99.2 to the Second Quarter 1998 Form
             10-Q).
 
   99.10     Texas Fee Payment Agreement, dated as of July 24, 1998, by and among Philip Morris Incorporated, R.J.
             Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, Lorillard Tobacco Company and
             United States Tobacco Company (collectively, the "Texas Defendants"), the State of Texas ("Texas")
             and Texas' private counsel named therein (the "Texas Counsel") in connection with Texas v. The
             American Tobacco Company, et al., Texas Litigation No. 5-96CV-91 (the "Texas Action") (incorporated
             by reference to Exhibit 99.3 to the Second Quarter 1998 Form 10-Q).
 
   99.11     Stipulation of Amendment to Settlement Agreement and for Entry of Consent Decree, dated July 24,
             1998, by and among the Texas Defendants, Texas and the Texas private counsel in connection with the
             Texas Action (incorporated by reference to Exhibit 99.4 to the Second Quarter 1998 Form 10-Q).
 
   99.12     Stipulation of Amendment to Settlement Agreement and for Entry of Consent Decree, dated September 11,
             1998 by and among the State of Florida and the tobacco companies named therein (incorporated by
             reference to Exhibit 99.1 to the Third Quarter 1998 Form 10-Q).
 
   99.13     Florida Fee Payment Agreement, dated September 11, 1998, by and among the State of Florida, various
             Florida counsel and the tobacco companies named therein (incorporated by reference to Exhibit 99.2 to
             the Third Quarter 1998 Form 10-Q).
 
   99.14     Form of MFN Escrow Agreement by and among, the State of Florida, the tobacco companies named therein
             and a bank acting as escrow agent (incorporated by reference to Exhibit 99.31 to the Third Quarter
             1998 Form 10-Q).
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   99.15     Master Settlement Agreement (the "MSA") dated November 23, 1998, between the Settling States named in
             the MSA and the Participating Manufacturers also named therein (incorporated by reference to Exhibit
             4 to the Registrants' Current Report on Form 8-K dated November 23, 1998).
</TABLE>
 
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*   Filed herewith.