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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, 1996
                              -------------------
                           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       (Commission file         (I.R.S. Employer
   jurisdiction of            number)           Identification No.)
   incorporation or
    organization)
</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       (Commission file         (I.R.S. Employer
   jurisdiction of            number)           Identification No.)
   incorporation or
    organization)
</TABLE>
 
                          1301 AVENUE OF THE AMERICAS
                            NEW YORK, NEW YORK 10019
                                 (212) 258-5600
    (Address, including zip code, and telephone number, including area code,
    of the principal executive offices of RJR Nabisco Holdings Corp. and RJR
                                 Nabisco, Inc.)
                            ------------------------
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
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                                                 NAME OF EACH
                                                  EXCHANGE ON
                                                     WHICH
             TITLE OF EACH CLASS                  REGISTERED
----------------------------------------------  ---------------
<S>                                             <C>
                                                 NAME OF EACH
                                                  EXCHANGE ON
                                                     WHICH
             TITLE OF EACH CLASS                  REGISTERED
----------------------------------------------  ---------------
</TABLE>
 
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<S>                                             <C>
RJR NABISCO HOLDINGS CORP.
 Common Stock, par value $.01 per share                   NewYork
 Series B Depositary Shares                               NewYork
 Series C Depositary Shares                               NewYork
RJR NABISCO, INC.
 8.30% Senior Notes due April 15, 1999                    NewYork
 8% Notes due January 15, 2000                            NewYork
 8% Notes due 2001                                        NewYork
 8 5/8% Notes due 2002                                    NewYork
 7 5/8% Notes due September 15, 2003                      NewYork
 8.75% Senior Notes due April 15, 2004                    NewYork
 8 3/4% Notes due 2005                                    NewYork
 8 3/4% Notes due 2007                                    NewYork
 9 1/4% Debentures due 2013                               NewYork
 
SUBSIDIARIES OF THE REGISTRANTS
RJR NABISCO HOLDINGS CAPITAL TRUST I
  10% Trust Originated Preferred Securities               NewYork
</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 JANUARY 31, 1997 WAS APPROXIMATELY $8.8 BILLION.
CERTAIN DIRECTORS OF RJR NABISCO HOLDINGS CORP. ARE CONSIDERED AFFILIATES FOR
PURPOSES OF THIS CALCULATION BUT SHOULD NOT NECESSARILY BE DEEMED AFFILIATES FOR
ANY OTHER PURPOSE. NONE OF THE VOTING STOCK OF RJR NABISCO, INC. IS HELD BY ANY
NON-AFFILIATE.
 
    INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANTS'
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: JANUARY 31, 1997:
 
RJR NABISCO HOLDINGS CORP.: 270,376,804 SHARES OF COMMON STOCK, PAR VALUE, $.01
                                   PER SHARE
  RJR NABISCO, INC.: 3,021.86513 SHARES OF COMMON STOCK, PAR VALUE $1,000 PER
                                     SHARE
                              -------------------
 
RJR NABISCO, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(A)
AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
                              -------------------
 
                      DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE DEFINITIVE PROXY STATEMENT OF RJR NABISCO HOLDINGS CORP. TO BE
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO REGULATION 14A OF
THE SECURITIES EXCHANGE ACT OF 1934 ON OR PRIOR TO APRIL 30, 1997 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........................................................................................           1
                  (a) General Development of Business.........................................................           1
                  (b) Financial Information about Industry Segments...........................................           2
                  (c) Narrative Description of Business.......................................................           2
                        Tobacco...............................................................................           2
                        Food..................................................................................          12
                        Other Matters.........................................................................          17
                  (d) Financial Information about Foreign and Domestic Operations
                        and Export Sales......................................................................          17
Item 2.       Properties......................................................................................          17
Item 3.       Legal Proceedings...............................................................................          17
Item 4.       Submission of Matters to a Vote of Security Holders.............................................          18
              Executive Officers of the Registrants...........................................................          19
 
PART II
Item 5.       Market for Registrants' Common Equity and Related Stockholder Matters...........................          21
Item 6.       Selected Financial Data.........................................................................          22
Item 7.       Management's Discussion and Analysis of Financial Condition and
                Results of Operations.........................................................................          24
Item 8.       Financial Statements and Supplementary Data.....................................................          38
Item 9.       Changes in and Disagreements with Accountants on Accounting and
                Financial Disclosure..........................................................................          38
 
PART III
Item 10.      Directors and Executive Officers of the Registrants.............................................          39
Item 11.      Executive Compensation..........................................................................          39
Item 12.      Security Ownership of Certain Beneficial Owners and Management..................................          39
Item 13.      Certain Relationships and Related Transactions..................................................          39
 
PART IV
Item 14.      Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................          40
</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 by Nabisco Holdings Corp. ("Nabisco Holdings") through 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 represents approximately 80.5% of the
economic interest in Nabisco Holdings and approximately 97.6% of the total
voting power of Nabisco Holdings' outstanding common stock.
 
    Outside the United States, the tobacco operations are conducted by R.J.
Reynolds International ("Reynolds International"), and the food operations are
conducted by Nabisco International, Inc. ("Nabisco International") and Nabisco
Ltd (formerly Nabisco Brands Ltd). RJRT's and Reynolds International's tobacco
products are sold around the world under a variety of brand names. Nabisco's
food products are sold in the United States, Canada, Latin America, certain
European countries and certain other international markets. For financial
information with respect to RJRN's industry segments, lines of business and
operations in various geographic locations, see Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 14 to
the consolidated financial statements, and the related notes thereto, of RJRN
Holdings and RJRN as of December 31, 1996 and 1995 and for each of the years in
the three-year period ended December 31, 1996 (the "Consolidated Financial
Statements").
 
    RJRN Holdings was organized as a Delaware corporation in 1988 at the
direction of Kohlberg Kravis Roberts & Co., L.P. ("KKR"), a Delaware limited
partnership, to effect the acquisition of RJRN, which was completed on April 28,
1989 (the "Acquisition"). As a result of the Acquisition, RJRN became an
indirect, wholly-owned subsidiary of RJRN Holdings. After a series of holding
company mergers completed on December 17, 1992, RJRN became a direct,
wholly-owned subsidiary of RJRN Holdings. The business of RJRN Holdings is
conducted through RJRN. KKR no longer holds an interest in RJRN Holdings.
 
    RJRN was incorporated as a holding company in 1970. RJRT can trace its
origins back to its formation in 1875. Activities were confined to the tobacco
industry until the 1960's, when diversification led to investments in
transportation, energy and food. With the acquisition of Del Monte Corporation
("Del Monte") in 1979 (which was sold in 1989), RJRN began to concentrate its
focus on consumer products. This strategy led to the acquisition of Nabisco
Holdings Corp. (formerly Nabisco Brands, Inc.) in 1985.
 
    In recent years subsidiaries of RJRN Holdings and RJRN have completed a
number of acquisitions and have divested certain businesses. In 1996, these
acquisitions included the Mayco and Capri biscuit businesses and the Vizzolini
pasta business in Argentina, the Pilar biscuit business in Brazil and the
Fontanda biscuit business in Spain as well as the biscuit, confectionery and
snack food assets of a Taiwan-based manufacturer and a 50% interest plus
management control of Azerbaijan Tobacco Company.
 
    In 1995, these acquisitions included (i) certain trademark and other assets
of Kraft Foods' U.S. and Canadian margarine and tablespreads business; (ii)
certain trademarks and other assets of Primo Foods Limited, a Canadian
manufacturer of dry pasta, canned tomatoes and pasta and pizza sauces; (iii) a
50% interest in Royal Beech-Nut (pty) Ltd., a South African subsidiary of Del
Monte Royal Foods, Ltd; (iv) the assets of Avare and Gumz, two Brazilian milk
product companies; (v) O.y. P.c. Rettig Ab, Finland's second
 
                                       1
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largest tobacco company and (vi) a significant interest and management control
of the Tanzania Tobacco Company. The 1995 divestitures included (i) the sale of
the Ortega Mexican Food business and (ii) the sale of the New York Style Bagel
Chip business.
 
    RJRN will continue to assess its businesses to evaluate their consistency
with strategic objectives. Although RJRN may acquire and/or divest additional
businesses in the future, no other decisions have been made with respect to any
such acquisitions or divestitures. RJRN Holdings' and RJRN's credit agreements,
each dated as of April 28, 1995, as amended, prohibit the sale of all or any
substantial portion of certain assets of RJRN Holdings or its subsidiaries.
 
    (B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
 
    During 1996, 1995 and 1994, RJRN's industry segments were tobacco and food.
 
    For information relating to industry segments for the years ended December
31, 1996, 1995 and 1994, see Note 14 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 or licensees of RJRT and
are sold throughout the United States and in more than 170 markets around the
world. In 1996, approximately 56% of total tobacco segment net sales (after
deducting excise taxes) and approximately 64% of total tobacco segment operating
income (before amortization of trademarks and goodwill) were attributable to
domestic tobacco operations.
 
DOMESTIC TOBACCO OPERATIONS
 
    The domestic tobacco business is conducted by RJRT which is the second
largest cigarette manufacturer in the United States. RJRT's largest selling
cigarette brands in the United States include WINSTON, DORAL, CAMEL, SALEM,
MONARCH and VANTAGE. RJRT's other cigarette brands, including MORE, NOW, BEST
VALUE, STERLING, MAGNA and CENTURY, are marketed to meet a variety of smoker
preferences. All RJRT brands are marketed in a variety of styles. Based on data
collected for RJRT by an independent market research firm, RJRT had an overall
share of retail consumer cigarette sales during 1996 of 26%, a decrease of
approximately 1 share point from 1995. During 1996, RJRT and the largest
domestic cigarette manufacturer, Philip Morris Incorporated, together sold, on a
shipment basis, approximately 72% of all cigarettes sold in the United States.
 
    In 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. RJRT continues to assess the test
results and a possible full market introduction of an ECLIPSE cigarette.
 
    A primary long-term objective of RJRT is to increase earnings and cash flow
through selective marketing investments in its key brands and continual
improvements in its cost structure and operating efficiency. Marketing programs
for full-price brands are designed to build brand awareness and add value to the
brands by building brand loyalty among current adult smokers and attracting
adult smokers of competing brands. In 1996, these efforts included the
continuation and refinement of conversion, continuity and relationship-building
and test marketing of a variety of new cigarette products and marketing programs
for existing RJRT brands. 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
 
                                       2
<PAGE>
and BEST VALUE, intended to appeal to more cost-conscious adult smokers. For a
discussion on competition in the tobacco business, see
"Business--Tobacco--Competition" in this Item 1.
 
    RJRT's domestic manufacturing facilities, consisting principally of
factories and leaf storage facilities, are located in or near Winston-Salem,
North Carolina and are owned by RJRT. Cigarette production is conducted at the
Tobaccoville cigarette manufacturing plant (approximately two million square
feet) and the Whitaker Park cigarette manufacturing complex (approximately one
and one-half million square feet). RJRT believes that its cigarette
manufacturing facilities are among the most technologically advanced in the
United States. RJRT also has significant research and development facilities in
Winston-Salem, North Carolina.
 
    RJRT's cigarettes are sold in the United States primarily to chain stores,
other large retail outlets and through distributors to other retail and
wholesale outlets. Except for McLane Company, Inc., which represented
approximately 15% of RJRT's sales, no RJRT customers accounted for more than 10%
of sales for 1996. 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 employs a decentralized marketing strategy that permits its sales force to
be flexible in responding to local market dynamics by designing individual
in-store programs to fit varying consumption patterns. RJRT uses print media,
billboards, point-of-sale displays and other methods of advertising. Since 1971,
television and radio advertising of cigarettes has been prohibited in the United
States.
 
INTERNATIONAL TOBACCO OPERATIONS
 
    Reynolds International operates in over 170 markets around the world.
Although overall foreign cigarette sales (excluding China, in which production
data indicates an approximate 2% per annum growth rate) have increased at a rate
of only 1% per annum in recent years, Reynolds International believes that the
American-blend segment, in which Reynolds International primarily competes, is
growing significantly faster. Although Reynolds International is the second
largest of two international cigarette producers that have significant positions
in the American-blend segment, its share of sales in this segment is
approximately one-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
former Soviet Union and Canada. Reynolds International is aggressively pursuing
development opportunities throughout the world.
 
    Reynolds International markets nearly 100 brands of which WINSTON, CAMEL and
SALEM, all American-blend cigarettes, are its international leaders. WINSTON,
Reynolds International's largest selling international brand, has a significant
presence in Puerto Rico and has particular strength in the Western Europe and
Middle East/Africa regions. CAMEL is sold in approximately 140 markets worldwide
and is Reynolds International's second largest selling international brand.
SALEM is the world's largest selling menthol cigarette and is particularly
strong in Far East markets. Reynolds International also markets a number of
local brands in various foreign markets. None of Reynolds International's
customers accounted for more than 10% of sales in 1996.
 
    Approximately 23% of Reynolds International's 1996 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 20 locations
outside the United States, and through licensing agreements in about 20 other
countries. Reynolds International owned or joint-venture manufacturing locations
include Azerbaijan, Canada, the Canary Islands, China, the Czech Republic,
Finland, Germany, Hong Kong, Hungary, Indonesia, Kazakhstan, Malaysia, Poland,
Portugal, Romania, Russia, Switzerland, Tanzania, Turkey, Ukraine and Vietnam.
 
                                       3
<PAGE>
    Certain of Reynolds International's foreign operations are subject to local
regulations that set import quotas, restrict financing flexibility, affect
repatriation of earnings or assets and/or limit advertising. In recent years,
certain trade barriers for cigarettes, particularly in Asia and Eastern Europe,
have been liberalized. This may provide opportunities for all international
cigarette manufacturers, including Reynolds International, to expand operations
in such markets; however, there can be no assurance that the liberalizing trends
will be maintained or extended or that Reynolds International will be successful
in pursuing such opportunities.
 
RAW MATERIALS
 
    In its domestic production of cigarettes, RJRT primarily uses domestic
burley and flue cured leaf tobaccos purchased at domestic auction. RJRT also
purchases oriental tobaccos, grown primarily in Turkey and Greece, and certain
other non-domestic tobaccos. Reynolds International uses a variety of tobacco
leaf from both United States and international sources. RJRT and Reynolds
International believe there is a sufficient supply of tobacco in the worldwide
tobacco market to satisfy their current production requirements. Reynolds
International is actively involved in tobacco cultivation activities with fully
owned agronomy operations in Viet Nam and Turkey and a joint venture in China.
 
    Tobacco leaf is an agricultural commodity subject in the United States to
government production controls and price supports that can affect market prices
substantially. The tobacco leaf price support program is subject to
Congressional review and may be changed at any time. In addition, Congress
enacted the Omnibus Budget Reconciliation Act of 1993, which assesses financial
penalties against manufacturers if cigarettes produced in the United States do
not contain at least 75% (by weight) domestically grown flue cured and burley
tobaccos. In December 1994, Congress enacted the Uruguay Round Agreements Act to
replace this domestic content requirement with a tariff rate quota system that
keys tariffs to import volumes. The tariff rate quotas have been established by
the United States with overseas tobacco producers and became effective on
September 13, 1995.
 
COMPETITION
 
    Generally, the markets in which RJRT and Reynolds International conduct
their businesses are highly competitive, with a number of large participants.
Competition is conducted on the basis of brand recognition, brand loyalty,
quality and price. For most of RJRT's and Reynolds International's brands,
substantial advertising and promotional expenditures are required to maintain or
improve a brand's market position or to introduce a new brand. Anti-smoking
groups have undertaken activities designed to inhibit cigarette sales, the form
and content of cigarette advertising and the testing and introduction of new
cigarette products.
 
    Because television and radio advertising for cigarettes is prohibited in the
United States and brand loyalty has tended to be higher in the cigarette
industry than in other consumer product industries, established cigarette brands
in the United States have a competitive advantage. RJRT has repositioned or
introduced brands designed to appeal to adult smokers of the largest selling
cigarette brand in the United States, but there can be no assurance that such
efforts will be successful.
 
    In addition, increased selling prices and taxes on cigarettes have resulted
in additional price sensitivity of cigarettes at the consumer level and in a
proliferation of discounted brands in the savings segment of the market.
Generally, sales of cigarettes in the savings segment are not as profitable as
those in other segments.
 
LEGISLATION AND OTHER MATTERS AFFECTING THE CIGARETTE INDUSTRY
 
    The advertising, sale and use of cigarettes has been under attack by
government and health officials in the United States and in other countries for
many years, principally due to claims that cigarette smoking is harmful to
health. This attack has resulted in: a number of substantial restrictions on the
marketing,
 
                                       4
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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. These developments, together with manufacturers' price
increases in recent years and substantial increases in state and federal excise
taxes on cigarettes, 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 was last increased in January 1993 to its current rate of 24 cents
per pack. In addition, all states and the District of Columbia impose excise
taxes at levels ranging from a low of 2.5 cents to a high of 82.5 cents per pack
of cigarettes. Increases in these state excise taxes could also have an adverse
effect on cigarette sales. In 1995, the cigarette excise tax in four states was
increased by amounts which ranged from 5 cents to 24 cents per pack. In one
state, a temporary 10 cent tax, scheduled to expire in 1995, was extended
through 1997. In 1996, the cigarette excise tax was increased in two states by
amounts of 25 cents and 30 cents per pack.
 
    In January 1993, the U.S. Environmental Protection Agency (the "EPA")
released a report on the respiratory effects of environmental tobacco smoke
("ETS") which concluded that ETS is a known human lung carcinogen in adults and
in children causes increased respiratory tract disease and middle ear disorders
and increases the severity and frequency of asthma. RJRT has joined other
parties from the tobacco and distribution industries in a lawsuit against the
EPA seeking a determination that the EPA did not have the statutory authority to
regulate ETS, and that, given the current body of scientific evidence and the
EPA's failure to follow its own guidelines in making the determination, the
EPA's classification of ETS was arbitrary and capricious.
 
    In August 1995, the Commissioner of the Food and Drug Administration (the
"FDA"), with the support of the Clinton administration, announced that he was
asserting jurisdiction over cigarettes and certain other tobacco products and
issued a notice and request for comments on proposed regulations. In August
1996, the Commissioner announced the adoption of these rules with certain
modifications, and with a phased in schedule of effectiveness over a two year
period. The first phase began February 28, 1997, when regulations relating to
the sale of cigarettes to minors became effective. Among other things the
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.
 
    The purported purpose of the FDA's assertion of jurisdiction was to curb the
use of tobacco products by underage youth. RJRT believes, however, that the
assertion of jurisdiction and the scope of the proposed rules would materially
restrict the availability of cigarettes and RJRT's ability to market its
cigarette products to ADULT smokers. RJRT, together with the four major domestic
cigarette manufacturers and an advertising agency, filed suit on the day of the
Commissioner's 1995 announcement in the U.S. District Court for the Middle
District of North Carolina seeking to enjoin the FDA's assertion of jurisdiction
(COYNE BEAHM V. UNITED STATES FOOD & DRUG ADMINISTRATION). On the day of the
announced regulations, the plaintiffs filed an amended complaint challenging the
final regulations. Similar suits have been filed in the same court by
manufacturers of smokeless tobacco products, by operators of retail stores and
by advertising interests. RJRT is unable to predict the outcome of the
litigation seeking to find the FDA's regulations to be unlawful. If the full
regulations do go into effect, they could be expected to have an adverse effect
on cigarette sales and RJRT.
 
    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
 
                                       5
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comments on the proposed regulations during the comment period which closed in
February 1996. Because many employers currently do not permit smoking in the
workplace, RJRT cannot predict the effect of any regulations that may be
adopted, but incremental restrictions on smokers could have an adverse effect on
cigarette sales and RJRT.
 
    In July 1994, an amendment to a Florida statute became effective which
allows the state of Florida to bring an action in its own name against the
tobacco industry to recover amounts paid by the state under its Medicaid program
to treat illnesses statistically associated with cigarette smoking. The amended
statute does not require the state to identify the individual who received
medical care, permits a lawsuit to be filed as a class action, and eliminates
the comparative negligence and assumption of risk defenses. The Florida statute
was challenged on state and federal constitutional grounds in a lawsuit brought
by Philip Morris Companies Inc., Associated Industries of Florida, Publix
Supermarkets, and National Association of Convenience Stores in June 1994. On
June 26, 1995, the trial court judge granted in part the plaintiffs' motion for
summary judgment finding portions of the statute unconstitutional. Both
plaintiffs and defendants appealed this decision to the Florida Supreme Court
which, on June 27, 1996, issued its opinion limiting the amendment in several
respects. Among other things, the court ruled: that provisions abrogating
affirmative defenses available to tobacco companies if sued by individuals could
only be applied to claims brought by the state arising out of payments made
after July 1, 1994, the effective date of the amendment; that the state must
identify individual recipients of Medicaid payments; and that claims previously
barred by the statute of repose could not be revived. The Florida Supreme Court,
in a 4-3 decision, expressly stated that although it found provisions of the
statute to be "facially" constitutional, it was specifically leaving open the
right to challenge those provisions as applied in any specific lawsuit. The
plaintiffs in that lawsuit have sought United States Supreme Court review of the
Florida Supreme Court's decision, to determine whether the Florida statute, by
which the State of Florida conferred on itself a unique cause of action and
which directs courts to abrogate common law and equitable principles, including
affirmative defenses, is unconstitutional under the Fourteenth Amendment to the
United States Constitution.
 
    The following year, the Florida Legislature passed a bill that would repeal
the Florida statute retroactively which was subsequently vetoed by the Governor.
Efforts made in 1996 to override the Governor's veto were unsuccessful. Another
attempt to repeal the 1994 statute is expected during the 1997 legislative
session, but RJRT cannot predict whether the effort will succeed. Similar
legislation, without Florida's elimination of defenses, was introduced in twelve
states during 1996. None of these proposals was enacted. RJRT is unable to
predict whether other states will enact similar legislation and whether lawsuits
will be filed under these statutes or their outcome, if filed. A suit against
the tobacco industry was filed under the Florida statute on February 21, 1995.
See "Business--Tobacco--Litigation Affecting the Cigarette Industry" below in
this Item 1.
 
    Legislation imposing various restrictions on public smoking has also been
enacted in 48 states and many local jurisdictions, and many employers have
initiated programs restricting or eliminating smoking in the workplace.
Seventeen states have enacted legislation designating a portion of increased
cigarette excise taxes to fund either anti-smoking programs, health care
programs or cancer research. Federal law prohibits smoking on all domestic
airline flights of six hours duration or less and the U.S. Interstate Commerce
Commission has banned smoking on buses transporting passengers inter-state.
Certain common carriers have imposed additional restrictions on passenger
smoking.
 
    In July 1996, Massachusetts enacted legislation that would require
manufacturers of tobacco products sold in Massachusetts to report yearly
beginning in 1997, the ingredients of each brand sold. RJRT believes that the
disclosure of trade secrets required by this law could damage the competitive
position of its brands. The statute requires the reporting of nicotine yield
ratings in accordance with procedures to be established. Together with other
cigarette manufacturers, RJRT has 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 has been
filed by manufacturers of smokeless tobacco products. RJRT is unable to predict
the outcome of this litigation.
 
                                       6
<PAGE>
    A number of foreign countries have also taken steps to discourage cigarette
smoking, to restrict or prohibit cigarette advertising and promotion and to
increase taxes on cigarettes. Such restrictions are, in some cases, more onerous
than restrictions imposed in the United States. In June 1988, Canada enacted a
ban on cigarette advertising, which was struck down on grounds of
constitutionality by the Supreme Court of Canada in 1995.
 
    In 1990, RJRT and other U.S. cigarette manufacturers, through The Tobacco
Institute, announced a tobacco industry initiative to assist retailers in
enforcing minimum age laws on the sale of cigarettes, to support the enactment
of state laws requiring the adult supervision of cigarette vending machines in
places frequented by minors, to seek the uniform establishment of 18 as the
minimum age for the purchase of cigarettes in all states, to distribute
informational materials to assist parents in combatting peer pressure on their
children to smoke and to limit voluntarily certain cigarette advertising and
promotional practices. In 1995, wholesalers, retailers and the tobacco industry
including RJRT formed the Coalition for Responsible Tobacco Retailing and
launched a new program, called "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. In 1984 and 1990, Congress enacted legislation
directing the Consumer Product Safety Commission to conduct and oversee research
on the ignition propensity of cigarettes. Although RJRT cannot predict whether
further legislation on this subject may be enacted, some form of regulation of
cigarettes based on their propensity to ignite soft furnishings may result.
 
    Since the initial report in 1964, the Secretary of Health, Education and
Welfare (now the Secretary of Health and Human Services) and the Surgeon General
have issued a number of other reports which purport to find the nicotine in
cigarettes addictive and to link cigarette smoking and exposure to cigarette
smoke with certain health hazards, including various types of cancer, coronary
heart disease and chronic obstructive lung disease. These reports have
recommended various governmental measures to reduce the incidence of smoking.
 
                                       7
<PAGE>
    In addition to the foregoing, legislation and regulations potentially
detrimental to the cigarette industry, generally relating to the taxation of
cigarettes and regulation of advertising, labeling, promotion, sale and smoking
of cigarettes, have been proposed from time to time at various levels of the
federal government. During the last Congress, the Clinton administration and
federal legislators introduced bills that would have significantly increased the
federal excise tax on cigarettes, eliminated the deductibility of the cost of
tobacco advertising, banned smoking in federally funded buildings and on any
scheduled airline flight, restricted tobacco product sampling and vending
machines to areas or establishments that deny access to minors, provided
financial incentives for states to sue tobacco manufacturers for recovery of
Medicaid costs, and given the Food and Drug Administration authority to regulate
the manufacture, sale and distribution of tobacco products. None of this
legislation was enacted.
 
    It is not possible to determine what additional federal, state, local or
foreign legislation or regulations relating to smoking or cigarettes will be
enacted or to predict any resulting effect thereof on RJRT, Reynolds
International or the cigarette industry generally, but such legislation or
regulations could have an adverse effect on RJRT, Reynolds International or the
cigarette industry generally.
 
LITIGATION AFFECTING THE CIGARETTE INDUSTRY
 
    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) 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 1996, 203 new
actions were filed or served against RJRT and/or its affiliates or indemnitees
and 103 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, 1996 there were
234 active cases pending, as compared with 132 on December 31, 1995 and only 54
on December 31, 1994. As of February 28, 1997, 270 active cases were pending
against RJRT and/or its affiliates or indemnitees, 268 in the United States, one
in Canada and one in Puerto Rico.
 
    The United States cases are in 33 states and are distributed as follows: 117
in Florida, 26 in New York, 36 in Texas, 15 in Louisiana, eight in Alabama,
seven in California, six in each of Kansas, Mississippi and Indiana, five in New
Jersey, three in each of Minnesota, Ohio, Pennsylvania and Tennessee, two in
each of Colorado, Connecticut, Maryland, Massachusetts and Michigan, and one
each in Arizona, Arkansas, District of Columbia, Illinois, Iowa, Nevada, New
Mexico, New Hampshire, Oklahoma, Rhode Island, Utah, Washington, West Virginia
and Wisconsin. Of the 268 active cases in the United States, 170 are pending in
state court and 98 in federal court. Most of these cases are brought by
individual plaintiffs, but an increasing number, discussed below, seek recovery
on behalf of states 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, anti-trust, Racketeer
Influenced and Corrupt Organizations Act ("RICO"), indemnity 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. Seven of the 268 active
cases in the United States involve alleged non-smokers claiming injuries
resulting from exposure to environmental tobacco smoke. Nineteen 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, flight attendants
alleging personal injury from exposure to environmental tobacco smoke in their
workplace and Blue Cross/Blue Shield subscribers claiming reimbursement for
premiums paid. Twenty seven of the active cases seek, INTER ALIA, recovery of
the cost of Medicaid funds paid for treatment of individuals suffering from
diseases or conditions allegedly related to tobacco.
 
                                       8
<PAGE>
    DEFENSES.  The defenses raised by RJRT and/or its affiliates, where
applicable, include preemption by the Federal Cigarette Labeling and Advertising
Act ("the Cigarette Act") of some or all such claims arising after 1969; the
lack of any defect in the product; assumption of the risk; comparative fault;
lack of proximate cause; and statutes of limitations or repose; and, in the
attorneys general cases (discussed below), additional constitutional defenses.
RJRN has asserted additional defenses, including jurisdictional defenses, in
many of the cases in which it is named. Juries have found for plaintiffs in
three smoking and health cases in which RJRT was not a defendant, but 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. The defendants in
that case, CARTER V. BROWN & WILLIAMSON, are seeking to reverse the judgment on
appeal.
 
    On June 24, 1992, the United States Supreme Court in CIPOLLONE held that
claims that tobacco companies failed adequately to warn of the risks of smoking
after 1969 and claims that their advertising and promotional practices
undermined the effect of warnings after that date were preempted by the
Cigarette Act. The Supreme Court also held that certain claims sounding in
breach of express warranty, fraud, misrepresentation and conspiracy were not
preempted.
 
    CERTAIN CLASS ACTION SUITS.  In May 1996, there was an important ruling in
one of the purported class action cases, CASTANO V. THE AMERICAN TOBACCO
COMPANY, originally filed in March 1994 in the United States District Court for
the Eastern District of Louisiana against tobacco industry defendants, including
RJRT and RJRN. Plaintiffs sought to obtain certification of a class action on
behalf of all United States residents who allegedly are or claim to be addicted,
or are the legal survivors of persons who allegedly were addicted, to tobacco
products manufactured by defendants. The complaint alleged that cigarette
manufacturers manipulated the levels of nicotine in their tobacco products to
induce addiction in smokers. Plaintiffs' motion for certification of the class
was granted in part on February 17, 1995 but, on May 23, 1996, the Fifth Circuit
Court of Appeals overturned the certification and ordered the case remanded to
the district court for decertification of the class on the grounds that a class
consisting of all "addicted" smokers failed to meet the standards and
requirements of Federal Rule 23 governing class actions. The class has been
decertified.
 
    Since the federal appeals court decision in CASTANO, class action suits
based on similar claims have been brought in state courts in Alabama, Arkansas,
the District of Columbia (D.C. court), Louisiana, Maryland, Minnesota, New
Mexico, Ohio, Pennsylvania and New York. A similar suit had previously been
filed in Indiana. Similar suits are also expected to be filed in additional
jurisdictions. Each such suit asserts claims on behalf of residents of the
particular state who allegedly are or claim to be addicted, or are the legal
survivors of such persons. In addition, two earlier class action suits are still
pending in Florida. In one case, ENGLE V. R.J. REYNOLDS TOBACCO COMPANY, a class
consisting of Florida residents or their survivors who claim to have diseases or
medical conditions caused by their "addiction" to cigarettes has been certified,
and a petition to review the certification has been denied. Notice to the class
is in progress and the case is scheduled for trial in September 1997. In a
second case, BROIN V. PHILIP MORRIS COMPANY, a class consisting of all
non-smoking flight attendants who work or have worked for U.S. airlines has been
certified, and a mandamus petition to reverse this certification was denied.
Notice to the class is now in progress and the case is scheduled for trial in
June 1997. Pre-Castano class action suits are also pending in Alabama and
Louisiana. A class action filed in Tennessee seeks reimbursement of Blue
Cross/Blue Shield premiums paid by subscribers throughout the United States.
 
    THE ATTORNEYS GENERAL AND RELATED CASES.  In June 1994, the Mississippi
attorney general brought an action, MOORE V. THE AMERICAN TOBACCO COMPANY,
against various industry members including RJRT. The case was brought on behalf
of the state to recover state funds paid for health care and medical and other
assistance to state citizens suffering from diseases and conditions allegedly
related to tobacco use. This suit, which was brought in Chancery (non-jury)
Court, Jackson County, Mississippi, also seeks an
 
                                       9
<PAGE>
injunction against "promoting" or "aiding and abetting" the sale of cigarettes
to minors. Both actual and punitive damages are sought in unspecified amounts.
Motions by the defendants to dismiss the case or to transfer it to circuit
(jury) court were denied on February 21, 1995 and the case is scheduled for
trial June 2, 1997. RJRN and other industry holding companies have been
voluntarily dismissed from the case.
 
    Following the filing of the MOORE case referred to above, other states,
through their attorneys general and/or other state agencies, have sued RJRT and
other U.S. cigarette manufacturers as well as, in some instances, their parent
companies, in actions to recover the costs of medical expenses incurred by the
state or its agencies in the treatment of diseases allegedly caused by cigarette
smoking. Some of these cases also seek injunctive relief and treble damages for
state and/or federal antitrust law and RICO violations. On February 28, 1997,
there were 20 such cases pending in the following states: Arizona, Connecticut,
Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Massachusetts,
Michigan, Minnesota, Mississippi, New Jersey, Oklahoma, Texas, Utah, Washington,
West Virginia and Wisconsin. The Mississippi case is the first such case
currently scheduled for trial, with a trial date set for June 2, 1997. The
Florida attorney general's case is scheduled for trial on August 4, 1997 and the
Texas case is scheduled for September 22, 1997.
 
    The suit by the State of Florida raises special issues because it was
brought under a July 1994 amendment to a Florida statute which allows the state
to bring an action in its own name against the tobacco industry to recover the
state's Medicaid payments for the treatment of illnesses statistically
associated with cigarette smoking. The amendment did not require the state to
identify the individuals who received medical care, permitted claims to be filed
in the aggregate and eliminated the comparative negligence and assumption of
risk defenses. The amendment was challenged on state and federal constitutional
grounds in a lawsuit brought by Philip Morris Companies Inc., Associated
Industries of Florida and others in June 1994. The case was appealed to the
Florida Supreme Court which, on June 27, 1996, issued its opinion limiting the
amendment in several respects. Among other things, the court ruled: that
provisions abrogating affirmative defenses available to tobacco companies if
sued by individuals could only be applied to claims brought by the state arising
out of payments made after July 1, 1994, the effective date of the amendment;
that the state must identify individual recipients of Medicaid payments; and
that claims previously barred by the statute of repose could not be revived. The
Florida Supreme Court, in a 4-3 decision, expressly stated that although it
found provisions of the statute to be "facially" constitutional, it was
specifically leaving open the right to challenge those provisions as applied in
any specific lawsuit. The plaintiffs in that lawsuit have sought United States
Supreme Court review of the Florida Supreme Court's decision, to determine
whether the Florida statute, by which the State of Florida conferred on itself a
unique cause of action and which directs courts to abrogate common law and
equitable principles, including affirmative defenses, is unconstitutional under
the Fourteenth Amendment to the United States Constitution.
 
    In an order, dated September 16, 1996, the Florida trial court hearing the
attorney general's case applied the Florida Supreme Court decision to that case.
The order dismissed fifteen of plaintiff's eighteen causes of action, but left
standing the claims of negligence and/or products liability and one count of the
complaint which seeks to enjoin certain acts including the sale of cigarettes to
minors. It also required the attorney general to identify the individual
Medicaid recipients for whom the state is seeking recovery within 30 days and
precluded recovery by the state on payments made prior to July, 1994, except by
subrogation and assignment. Following this ruling, the State of Florida filed an
amended complaint that restated the counts of the prior complaint left standing
by the September order and added five additional counts. One of these counts
alleged various statutory and criminal violations arising under the Florida Drug
and Cosmetic Act, based on alleged wrongful and illegal targeting of minors,
fraudulent practices, public nuisance and deceptive and unfair trade practices.
The other four new counts alleged violations of various sections of the Florida
RICO Act. Defendants' motion to dismiss the RICO counts was denied.
 
    In addition to the 20 actions brought by the various state attorneys
general, seven actions advancing similar theories have been brought by private
attorneys and/or local officials purportedly on behalf of the citizens of
certain states, counties and/or cities.
 
                                       10
<PAGE>
    RJRT and most other cigarette manufacturers are defending these attorneys
general and related cases vigorously (as is RJRN in the cases where it is a
named defendant). In addition, these defendants have filed petitions for
declaratory judgment in several of the states in which the attorneys general
cases are pending or threatened, including Massachusetts (federal court), Texas
(state court), Maryland (state court), Connecticut (federal court), Utah (state
court), New Jersey (state court), Alaska (federal court) and Hawaii (federal
court). Motions to dismiss on behalf of the defendants in two of the declaratory
judgment actions (Maryland and Connecticut) have been granted. RJRT and the
other cigarette manufacturers involved in those two cases have noticed appeals
seeking to overturn these rulings.
 
    RECENT AND SCHEDULED TRIALS.  As of February 28, 1997, there were 17 cases
scheduled for trial in 1997, against RJRT and/or RJRN alleging injuries relating
to tobacco. Cases against other tobacco company defendants are also scheduled
for trial in 1997 and thereafter. Among these are three class action suits and
four attorneys general suits. 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, involving claims for possibly billions of
dollars, coming to trial over the next year as compared to prior years when
trials in these cases were infrequent.
 
    OTHER DEVELOPMENTS.  On March 12, 1996, defendants Brooke Group and Liggett
Group, Inc. stated they had reached agreement with the Castano plaintiffs to
settle that case. On April 4, 1996, Liggett Group, Liggett & Myers and Brooke
Group filed settlement statements in the Massachusetts, West Virginia,
Mississippi, Louisiana and Florida attorneys general cases. The settlements
would be available to any other defendant whose share of the U.S. cigarette
market is less than 30% if it acquires or is acquired by Liggett, and Liggett
can terminate each settlement upon the occurrence of certain events including
the decertification of the Castano case, an event that has now occurred.
According to press reports, negotiations to extend these settlements to other
attorneys general cases are ongoing. All other cigarette manufacturers,
including RJRT, announced their intent to continue to defend the cases.
 
    Legislation similar to the Florida legislation described above (facilitating
Medicaid recovery suits and stripping defendants of certain defenses) was
introduced in the legislatures of 12 states in 1996. None was enacted. RJRT is
unable to predict whether legislation will be enacted in these states, whether
other states will introduce and enact similar legislation, whether lawsuits will
be filed under such statutes, if enacted, or the outcome of any such lawsuits,
if filed.
 
    In recent months the press has reported rumors regarding potential
legislation to limit regulatory or litigation uncertainty associated with
smoking and health issues. RJRT and RJRN believe that they have valid defenses
in the smoking and health cases and continue their commitment to defend these
cases vigorously. Nonetheless, Management or their representatives may hold
discussions with various persons, including elected officials, government
officials and private parties to learn their views about and to explore ideas on
this subject. The enactment of legislation in this area by its nature is highly
speculative and may well face insurmountable hurdles. Accordingly, there can be
no assurance that any legislation will be enacted.
 
    RJRT understands that a grand jury investigation being conducted in the
Eastern District of New York is examining possible violations of criminal law in
connection with activities relating to the Council for Tobacco Research--USA,
Inc., of which RJRT is a sponsor. RJRT has responded, and will continue to
respond to document subpoenas issued by this grand jury. On March 20, 1996, RJRT
and RJRN each received a subpoena from a Federal grand jury sitting in the
Southern District of New York. RJRT and RJRN understand that this investigation
is no longer active in the Southern District of New York and has been
transferred to the District of Columbia. In addition, subpoenas dated May 24,
1996, November 8, 1996 and December 5, 1996, were served on RJRT by a grand jury
sitting in the District of Columbia. RJRT is in the process of responding to
those subpoenas. RJRN and RJRT are unable to predict the outcome of these
investigations.
 
    RJRT has received civil investigative demands from the United States
Department of Justice requiring RJRT to produce documents and respond to
interrogatories relating to the possibility of joint activity to
 
                                       11
<PAGE>
restrain competition in the manufacture and sale of cigarettes, including
possible joint activity to restrict research and development or product
innovations. RJRT was informed, by letter dated November 13, 1996, that the
United States Department of Justice had closed its investigation.
 
                            ------------------------
 
    Litigation is subject to many uncertainties, and it is possible that some of
the tobacco-related legal actions, proceedings or claims could be decided
against RJRT or its affiliates or indemnitees. Determinations of liability or
adverse rulings against other cigarette manufacturers that are defendants in
similar actions, even if such rulings are not final, could adversely affect the
litigation against RJRT or its affiliates or indemnitees and could encourage an
increase in the number of such claims. There have also been a number of
political, legislative, regulatory and other developments relating to the
tobacco industry and cigarette smoking that have received wide media attention.
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 and RJRN, 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 all such actions vigorously. RJRN
Holdings and RJRN also believe they have valid defenses for such actions and
intend to defend vigorously all such actions in which they are named defendants.
 
    RJRN Holdings and RJRN believe that the ultimate outcome of all pending
litigation matters (including litigation costs) should not have a material
adverse effect on the financial position of either RJRN Holdings or RJRN;
however, it is possible that the results of operations or cash flows of RJRN
Holdings or RJRN in particular quarterly or annual periods or the financial
condition of RJRN Holdings and RJRN could be materially affected by the ultimate
outcome of certain pending litigation matters (including litigation costs).
Management is unable to derive a meaningful estimate of the amount or range of
any possible loss in any particular quarterly or annual period or in the
aggregate.
 
    For more detailed information about the class action and attorneys general
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 represents approximately 80.5% of the economic interest in
Nabisco Holdings and approximately 97.6% of the total voting power of Nabisco
Holdings' outstanding common stock. Nabisco's businesses in the United States
are comprised of the Nabisco Biscuit, Specialty Products, LifeSavers, Planters,
Food Service and Nabisco Tablespreads companies (collectively, the "Domestic
Food Group"). Nabisco's businesses outside the United States are conducted by
Nabisco Ltd and Nabisco International (collectively, the "International Food
Group").
 
    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 1996.
 
DOMESTIC FOOD GROUP OPERATIONS
 
    NABISCO BISCUIT COMPANY.  Nabisco Biscuit Company is the largest
manufacturer and marketer in the United States cookie and cracker industry with
nine of the ten top selling brands, each of which had annual net sales of over
$100 million in 1996. Overall, in 1996, Nabisco Biscuit had a 41.0% share of the
domestic cookie category and a 55.8% share of the domestic cracker category, in
the aggregate more than two times
 
                                       12
<PAGE>
the share of its closest competitor. 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, TRISCUIT,
WHEAT THINS and AIR CRISPS.
 
    OREO and CHIPS AHOY! are the two largest selling cookies in the United
States. OREO, the leading sandwich cookie, is Nabisco Biscuit's largest selling
cookie brand. Line extensions such as OREO DOUBLE STUF, FUDGE COVERED OREO and
Reduced Fat OREO continue to increase the brand's appeal to targeted consumer
groups. CHIPS AHOY! is the leader in the chocolate chip cookie segment with line
extensions such as CHUNKY CHIPS AHOY! and CHEWY CHIPS AHOY! broadening its
appeal and adding incremental sales.
 
    NEWTONS, the oldest Nabisco Biscuit cookie brand, is the fourth leading
cookie brand in the United States. In recent years, the introduction of fat free
and reduced calorie varieties of NEWTONS, as well as NEWTONS COBBLERS, have
expanded the appeal of NEWTONS.
 
    Nabisco Biscuit's cracker business is led by RITZ, the largest selling
cracker in the United States, as well as RITZ BITS, RITZ BITS SANDWICHES, and
REDUCED FAT RITZ successful product line extensions which, together with RITZ,
accounted for 13.9% of cracker sales in the United States in 1996. In addition,
PREMIUM, the oldest Nabisco cracker brand and the leader in the saltine cracker
segment, is joined by NABISCO HONEY MAID GRAHAMS, WHEAT THINS and TRISKET to
comprise, along with RITZ, five of the six largest selling cracker brands in the
United States. AIR CRISPS, a line of light, crispy baked snacks in Ritz, Cheese
Nips, Wheat Thins and Pretzel varieties was launched nationally in 1996 and had
sales in excess of $100 million.
 
    In 1992, Nabisco Biscuit became the leading manufacturer and marketer of no
fat/reduced fat cookies and crackers with the introduction of the SNACKWELL'S
line, which is now the third largest cookie brand in the U.S.
 
    Nabisco Biscuit'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.
 
    In 1994, Nabisco entered the breakfast snack aisle with the launch of
SNACKWELL'S cereal bars and granola bars and the repositioning of TOASTETTES
toaster pastries. Nabisco introduced SNACKWELL'S fat free toaster pastries in
1996.
 
    Nabisco Biscuit's products are manufactured in 14 Nabisco owned bakeries and
in 13 facilities with which Nabisco has production agreements. 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 10 major distribution warehouses
and 126 shipping branches where shipments are consolidated for delivery to
approximately 119,000 separate delivery points. Nabisco believes this
sophisticated distribution and delivery system provides it with a significant
service advantage over its competitors.
 
    SPECIALTY PRODUCTS COMPANY.  The Specialty Products Company manufactures and
markets a broad range of food products, with sauces and condiments, pet snacks,
hot cereals, healthy packaged egg products, dry mix desserts and non-fat
chocolate yogurt representing the largest categories. Many of Specialty Products
Company 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, EGGBEATERS healthy packaged egg products and
ROYAL desserts.
 
    Specialty Products' primary entries in the sauce and condiment segments are
A.1. and A.1. BOLD steak sauces, the leading lines of steak sauces, and GREY
POUPON mustards, which include the leading Dijon mustard.
 
                                       13
<PAGE>
    Specialty Products is the second largest manufacturer of pet snacks in the
United States with MILK-BONE dog biscuits. MILK-BONE products include MILK-BONE
ORIGINAL BISCUITS, FLAVOR SNACKS, DOG TREATS, BUTCHER'S CHOICE and DOGGIE BAG
TREATS.
 
    The Specialty Products Company, 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 and nine varieties of INSTANT CREAM OF
WHEAT participate in the mix-in-bowl segment. Quaker Oats Company is the most
significant participant in the hot cereal category.
 
    Specialty Products manufactures in five plants and sources products from a
number of contract manufacturers. Specialty Products utilizes Nabisco's Sales &
Integrated Logistics Group to manage the sales and distribution of its products.
Its products are primarily sold to retail grocery chains, drug stores, mass
merchandisers and other major retail outlets through a direct sales force.
Independent brokers are used to sell its refrigerated and frozen products.
 
    LIFESAVERS COMPANY.  The LifeSavers Company manufactures and markets
non-chocolate candy and gum primarily for sale in the United States. LifeSavers'
well-known brands include LIFESAVERS candy, BREATH SAVERS sugar free mints,
BUBBLE YUM bubble gum, FRUIT STRIPE gum, CARE*FREE sugarless gum, NOW & LATER
fruit chewy taffy, ICE BREAKERS gum and GUMMI SAVERS fruit chewy candy.
LIFESAVERS is the largest selling non-chocolate candy brand in the United
States, with a 1996 share of 5.4% of the non-chocolate candy category. BREATH
SAVERS is the largest selling sugar free breath mint in the United States and
BUBBLE YUM is the largest selling chunk bubble gum in the United States.
LifeSavers' products are seasonally strongest in the fourth quarter.
 
    LifeSavers manufactures its products in four plants and utilizes Nabisco's
Sales & Integrated Logistics Group to manage the sales and distribution of its
products. Its products are primarily sold to grocery stores, drug stores, mass
merchandisers, convenience stores and membership club stores.
 
    PLANTERS COMPANY.  The Planters Company produces and markets nuts and snacks
largely for sale in the United States, primarily under the PLANTERS trademark.
Planters, the only packaged nut brand sold nationally, is the clear leader in
the category. Planters' products are seasonally strongest in the fourth quarter.
 
    Planters manufactures its products in two plants and utilizes Nabisco's
Sales & Integrated Logistics Group to manage the sales and distribution of its
products. Its products are primarily sold to grocery stores, drug stores, mass
merchandisers, convenience stores and membership club stores.
 
    FOOD SERVICE COMPANY.  The Food Service Company sells through non-grocery
channels, a variety of specially packaged food products of the Domestic Food
Group including cookies, crackers, confections, hot cereals, sauces and
condiments for the food service and vending machine industry. Food Service also
sells pies through its Plush Pippin business. Food Service Company's products
are distributed by Nabisco's Sales & Integrated Logistics Group.
 
    NABISCO TABLESPREADS COMPANY.  The Nabisco Tablespreads Company manufactures
and markets various margarines and spreads and is the second largest margarine
producer in the United States. Nabisco Tablespreads participates in all segments
of the margarine category, with the FLEISCHMANN'S, BLUE BONNET and MOVE OVER
BUTTER brands. Nabisco Tablespreads strengthened its position in the margarine
category in 1995, with the purchase of the Kraft Foods, Inc. margarine business
which includes the PARKAY, TOUCH OF BUTTER and CHIFFON brands. Nabisco
Tablespreads currently manufactures in two facilities and sources products from
two contract manufacturers. Nabisco Tablespreads utilizes Nabisco's Sales and
Integrated Logistics Group to manage the sales and distribution of its products
which are sold primarily to grocery stores.
 
    SALES & INTEGRATED LOGISTICS GROUP.  The Sales & Integrated Logistics Group
handles sales and distribution for the Specialty Products, LifeSavers, Planters
and Nabisco Tablespreads Companies and
 
                                       14
<PAGE>
distribution for the Food Service Company. It sells to retail grocery chains
through independent brokers and a direct sales force, and to drug stores, mass
merchandisers and other major retail outlets through its direct sales force. The
products are distributed from twenty distribution centers located throughout the
United States.
 
INTERNATIONAL FOOD GROUP OPERATIONS
 
    NABISCO LTD.  Nabisco Ltd conducts Nabisco's Canadian operations through its
Biscuit Division, Grocery Division and Food Service Division. Excluding private
label brands, the Biscuit Division produced nine of the top ten cookies and nine
of the top ten crackers in Canada in 1996. 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, TRISCUIT and STONED WHEAT THINS. These
products are manufactured in five bakeries in Canada and are sold through a
direct store delivery system, utilizing 11 sales offices and distribution
centers and a combination of public and private carriers. Nabisco Ltd also
markets a variety of single-serve cookies, crackers and salty snacks under such
brand names as MINI OREO, RITZ BITS SANDWICHES and CRISPERS.
 
    Nabisco Ltd's Grocery Division produces and markets canned fruits and
vegetables, fruit juices and drinks and pet snacks. The Grocery Division is the
leading canned fruit producer in Canada and is the second largest canned
vegetable producer in Canada. Canned fruits, vegetables, soups and fruit juices
and drinks are marketed under the DEL MONTE trademark, pursuant to a license
from the Del Monte Corporation, and under the AYLMER trademark. The Grocery
Division also markets MILK-BONE pet snacks and MAGIC baking powder, each a
leading brand in Canada. Nabisco Ltd's Grocery Division operated seven
manufacturing facilities in 1996, of which five were devoted to 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. In 1995, Nabisco Ltd acquired
the PRIMO brand of dry pasta, canned tomatoes and other Italian food products
which are manufactured in two facilities and distributed in certain geographic
areas by a direct store delivery system.
 
    In 1995, Nabisco Ltd re-entered the margarine and tablespread business with
its acquisition of the PARKAY, TOUCH OF BUTTER and CHIFFON brands from Kraft
Canada Inc. These products are currently manufactured and distributed under
agreements with Ault Foods, Ltd., to which Nabisco Ltd licensed the Parkay brand
in November 1996.
 
    Nabisco Ltd's Food Service Division sells a variety of specially packaged
food products including cookies, crackers, canned fruits, vegetables and
condiments to non-grocery outlets. The Food Service Division has its own sales
and marketing organization and sources product from Nabisco Ltd's other
divisions.
 
    NABISCO INTERNATIONAL.  Nabisco International is a leading producer of
biscuits, powdered dessert and drink mixes, baking powder, pasta, juices, milk
products and other grocery items as well as industrial yeast and bakery
ingredients. Nabisco International also exports a variety of Domestic Food Group
products to markets in Europe, the Middle East, Latin America, Africa and Asia
from the United States. It is one of the largest multinational packaged food
businesses in Latin America, with operations in 17 countries.
 
    Nabisco International manufactures and markets biscuits and crackers under
the NABISCO brand, yeast, baking powder and bakery ingredients under the
FLEISCHMANN'S and ROYAL brands, desserts and drink mixes under the ROYAL brand,
processed milk products under the GLORIA, AVARE, and GUMZ brands, juice under
the MAGUARY brand and canned fruits and vegetables under the DEL MONTE brand,
pursuant to a license from the Del Monte Corporation.
 
    Nabisco International's largest market is Brazil, where it operates 15
plants. In biscuits, Nabisco International is the market leader in Spain,
Venezuela, Puerto Rico, Nicaragua, Uruguay and Taiwan, and holds strong number
two positions in Argentina, Peru, Ecuador and other Central American markets.
Nabisco International is the market leader in powdered desserts in Spain and
most of Latin America, in
 
                                       15
<PAGE>
the yeast category in Brazil and certain other Latin American countries, in
baking powder throughout South America, and in canned vegetables in Venezuela.
 
    Nabisco International also maintains a strong position in the processed milk
category in Brazil and expanded its market share through the 1995 acquisitions
of Avare (I.C.P.A. Cerqueirense Ltda.) and Gumz Alimentos S.A. Industria e
Comercio.
 
    In Argentina, Nabisco International acquired 71% of Establecimiento Modelo
Terrabusi S.A.I.C. in April 1994, and increased its interest in the Argentine
biscuit and pasta company to approximately 99% in October and November 1994.
 
    Nabisco further strengthened its Latin American biscuit operations through
the acquisitions during 1996 of Companhia Produtos Pilar in Brazil, Productos
Mayco S.A.I.C.I.F. and Productos Capri S.A.C.I.I. in Argentina, and during 1995,
Galletera Tejerias, S.A. in Venezuela. Its pasta business was strengthened in
Argentina via the acquisitions of Luis Vizzolini e Hijos, S.A.I.C., and
initiated in Brazil with the Pilar acquisition.
 
    Nabisco International significantly increased its presence in Europe through
its 1993 and 1994 100% acquisition of Royal Brands S.A. in Spain and Royal
Brands Portugal. Nabisco International's products in Spain include biscuits
marketed under the ARTIACH and MARBU trademarks, powdered dessert mixes marketed
under the ROYAL trademark, and various other foods, including canned meats and
juices. In 1996, it consolidated its market leadership position in biscuits with
the acquisition of Galletas Fontaneda, S.A.
 
    In 1995, Nabisco International re-entered the South African market through
the acquisition of 50% of Royal Beech-Nut (Pty) Ltd., which it previously owned.
Royal Beech-Nut markets baking powder and powdered dessert mixes under the ROYAL
brand, chewing gum under the BEECHIES and CARE*FREE brands and candy under the
LIFESAVERS and BEECH-NUT brands.
 
    In Asia, Nabisco International expanded its Chinese biscuit business through
a joint venture in Beijing and a wholly-owned subsidiary in Shanghai. The bakery
was trebled in size and a greenfield plant outside Shanghai started up in 1996.
In addition, a greenfield plant, 70% owned by Nabisco and 30% by its partner and
distributor, P.T. Rodamas-Indonesia, started up in 1996. Biscuit leadership in
Taiwan was achieved in 1996 through the acquisition of the assets of Lucky
Enterprises Corporation Limited, the leading biscuit company in Taiwan.
 
    Nabisco International's grocery 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 force and independent
distributors.
 
RAW MATERIALS
 
    Various agricultural commodities constitute the principal raw materials used
by Nabisco in its food businesses. These raw materials are purchased on the
commodities market and through supplier contracts. Prices of agricultural
commodities tend to fluctuate due to various seasonal, climatic and economic
factors which generally also affect Nabisco's competitors. Nabisco believes that
all of the raw materials for its products are in plentiful supply and are
readily available from a variety of independent suppliers.
 
COMPETITION
 
    Generally, the markets in which the Domestic Food Group and the
International Food Group conduct their business are highly competitive.
Competition consists of large domestic and international companies, local and
regional firms and generic and private label products of food retailers.
Competition is conducted on the basis of brand recognition, brand loyalty,
quality and price. Substantial advertising and promotional expenditures are
required to maintain or improve a brand's market position or to introduce a new
product.
 
    The trademarks under which the Domestic Food Group and the International
Food Group market their products are generally registered in the United States
and other countries in which such products are
 
                                       16
<PAGE>
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 business.
 
                                 OTHER MATTERS
 
ENVIRONMENTAL MATTERS
 
    The U.S. Government and various state and local governments have enacted or
adopted laws and regulations concerning protection of the environment. The
regulations promulgated by the 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. Certain subsidiaries
of the Registrants 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.
 
EMPLOYEES
 
    At December 31, 1996, RJRN Holdings together with its subsidiaries had
approximately 79,700 full time employees. None of RJRT's operations are
unionized. Most of the unionized workers at Nabisco's operations are represented
under a national contract with the Bakery, 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 AND EXPORT
     SALES
 
    For information about foreign and domestic operations and export sales for
the years 1994 through 1996, see "Geographic Data" in Note 14 to the
Consolidated Financial Statements.
 
ITEM 2. PROPERTIES
 
    For information pertaining to the RJRN Holdings' and RJRN's assets by lines
of business and geographic areas as of December 31, 1996 and 1995, see Note 14
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
 
                                       17
<PAGE>
June 1995 and by amending, in August 1995, RJRN Holdings By-Law provisions
concerning the calling of shareholder meetings and procedures for shareholder
action by written consent. The plaintiffs allege that management took these and
other actions to wrongfully obstruct a spin-off of Nabisco, to enrich the
defendants at the expense of RJRN Holdings, its shareholders and Nabisco
Holdings and to entrench the defendants in the management and control of RJRN
Holdings. By agreement of the parties, the defendants' time to respond to the
complaint in these consolidated actions has been extended, most recently, to May
9, 1997. RJRN Holdings believes that these allegations are without merit and, if
necessary, will defend these actions vigorously.
 
    For information about other litigation and legal proceedings, see
"Business--Tobacco--Litigation Affecting the Cigarette Industry" and "Other
Matters--Environmental Matters" in Item 1.
 
                            ------------------------
 
    Litigation is subject to many uncertainties, and it is possible that some of
the tobacco-related legal actions, proceedings or claims could be decided
against RJRT or its affiliates or indemnitees. Determinations of liability or
adverse rulings against other cigarette manufacturers that are defendants in
similar actions, even if such rulings are not final, could adversely affect the
litigation against RJRT or its affiliates or indemnitees and increase the number
of such claims. Although it is impossible to predict the outcome of such events
or their effect on RJRT, a significant increase in litigation activities could
have an adverse effect on RJRT. RJRT believes that it has a number of valid
defenses to any such actions, including but not limited to those defenses based
on preemption under the CIPOLLONE decision, and RJRT intends to defend
vigorously all such actions.
 
    RJRN Holdings and RJRN believe that the ultimate outcome of all pending
litigation matters (including litigation costs) should not have a material
adverse effect on the financial position of either RJRN Holdings or RJRN;
however, it is possible that the results of operations or cash flows of RJRN
Holdings or RJRN in particular quarterly or annual periods or the financial
condition of RJRN Holdings and RJRN could be materially affected by the ultimate
outcome of certain pending litigation matters (including litigation costs).
Management is unable to derive a meaningful estimate of the amount or range of
any possible loss in any particular quarterly or annual period or in the
aggregate.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    None.
 
                                       18
<PAGE>
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), John J. Delucca (Senior
Vice President and Treasurer), Robert S. Roath (Senior Vice President and Chief
Financial Officer), Richard G. Russell (Senior Vice President and Controller),
Robert F. Sharpe, Jr. (Senior Vice President and General Counsel), and H. Colin
McBride (Vice President, Assistant General Counsel and Secretary). Commencing in
mid-March 1997, David B. Rickard will become Senior Vice President and Chief
Financial Officer, replacing Robert S. Roath who is retiring. 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                  51   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                   47   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;
                                            Senior Director of Benefits Planning and Analysis, June 1991 to December
                                            1991; previously Principal of the consulting firm of Kwasha Lipton, 1989 to
                                            1991.
John J. Delucca                      53   Senior Vice President and Treasurer since September 1993; Treasurer of
                                            Nabisco Holdings, October 1994 to February 1995; previously, Managing
                                            Director and Chief Financial Officer, Hascoe Associates, 1991 to 1993;
                                            President and Chief Financial Officer, Lexington Group, 1990 to 1991.
David B. Rickard                     50   Senior Vice President and Chief Financial Officer beginning mid-March 1997;
                                            previously, Executive Vice President and Chief Administrative Officer,
                                            International Distillers and Vintners, 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.
Robert S. Roath                      54   Senior Vice President and Chief Financial Officer since May 1995; prior
                                            thereto, Senior Vice President and Controller, 1991 to May 1995; Vice
                                            President and Controller, 1990 to 1991.
Richard G. Russell                   51   Senior Vice President and Controller since May 1995; previously Partner at
                                            the accounting firm of Deloitte & Touche LLP for more than five years.
Robert F. Sharpe Jr.                 44   Senior Vice President and General Counsel since January 1996; previously Vice
                                            President, Tyco International Ltd., July 1994 to January 1996; Vice
                                            President, Assistant General Counsel and Secretary, RJRN Holdings and RJRN,
                                            1989 to July 1994.
H. Colin McBride                     51   Vice President, Assistant General Counsel and Secretary since December 1995;
                                            prior thereto, Vice President and Assistant General Counsel for more than
                                            five years.
</TABLE>
 
                                       19
<PAGE>
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>
H. John Greeniaus                    52   Vice Chairman and Director, June 1995 to May 1996; President and Chief
                                            Executive Officer of Nabisco Holdings and of Nabisco since October 1994;
                                            prior thereto, Chairman and Chief Executive Officer of Nabisco, 1993 to
                                            1994; President and Chief Executive Officer of Nabisco, 1987 to 1993.
                                            Member of the Board of Directors of Nabisco Holdings and Nabisco.
Pierre de Labouchere                 42   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; Vice President-- Scandinavia and Tax-Free Europe, Reynolds
                                            International, 1987 to 1991.
Andrew J. Schindler                  52   President and Chief Executive Officer of RJRT since July 1995; prior thereto,
                                            President and Chief Operating Officer--U.S.A. of RJRT, May 1994 to June
                                            1995; Executive Vice President--Operations, RJRT, 1991 to 1994; Senior Vice
                                            President--Operations, RJRT, 1989 to 1991.
J. Thomas Pearson                    55   Senior Vice President, Taxation since 1988.
Huntley R. Whitacre                  54   Senior Vice President of Investor Relations since August 1995; prior thereto,
                                            Vice President of Investor Relations for more than five years.
Jason H. Wright                      36   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.
Jeffrey A. Kuchar                    42   Vice President and General Auditor since 1993; prior thereto, Director of
                                            Finance and Business Development, Specialty Products Company, Nabisco,
                                            1993; Director of Financial Planning, Specialty Products Company, Nabisco,
                                            1992 to 1993; Assistant Corporate Controller, 1987 to 1991.
</TABLE>
 
                                       20
<PAGE>
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
    The common stock of RJRN Holdings, par value $.01 per share (the "Common
Stock"), is listed and traded on the New York Stock Exchange (the "NYSE"). Since
completion of the Acquisition there has been no public trading market for the
common stock of RJRN.
 
    As of January 31, 1997, there were approximately 59,000 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 25, 1997 was $38 3/8.
 
    The following table sets forth, for the calendar periods indicated, the high
and low sales prices per share for the Common Stock on the NYSE Composite Tape,
as reported in the Wall Street Journal:
<TABLE>
<CAPTION>
                                                                     HIGH        LOW
                                                                   ---------  ---------
<S>                                                                <C>        <C>        <C>
1996:
  First Quarter..................................................  $  35 1/4  $      29
  Second Quarter.................................................     34 1/2         29
  Third Quarter..................................................     32 3/8         25  1/8
  Fourth Quarter.................................................     34 5/8         25  3/4
 
<CAPTION>
 
                                                                     HIGH             LOW
                                                                   ---------  --------------------
<S>                                                                <C>        <C>        <C>
1995:
  First Quarter*.................................................  $  32 1/2  $      25
  Second Quarter*................................................     31 1/4         25  1/4
  Third Quarter..................................................     33 1/4         26  3/8
  Fourth Quarter.................................................     33 3/8         27  7/8
</TABLE>
 
*   Adjusted to reflect a one-for-five reverse stock split
 
------------------------
 
    The Board of Directors of RJRN Holdings declared an initial quarterly cash
dividend of $.375 per share payable on April 1, 1995. During 1995, RJRN Holdings
continued to pay such a quarterly cash dividend on the Common Stock, adjusted to
take into account a one-for-five reverse split of the Common Stock. Cash
dividends paid by RJRN to RJRN Holdings are set forth in the Consolidated
Statements of Cash Flows in the Consolidated Financial Statements.
 
    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.
 
    On June 5, 1996, Nabisco Holdings announced a 13% increase in its annual
common stock dividend from $.55 to $.62 per share. As a result, the Nabisco
Holdings dividends payable to RJRN increased from approximately $117 million to
approximately $132 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 Note 8 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.
 
                                       21
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
 
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31                                        1996       1995       1994       1993       1992
-----------------------------------------------------------  ---------  ---------  ---------  ---------  ---------
<S>                                                          <C>        <C>        <C>        <C>        <C>
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
RESULTS OF OPERATIONS
  Net sales................................................  $  17,063  $  16,008  $  15,366  $  15,104  $  15,734
                                                             ---------  ---------  ---------  ---------  ---------
  Cost of products sold....................................      7,973      7,468      6,977      6,640      6,326
  Selling, advertising, administrative and
    general expenses.......................................      5,774      5,412      5,210      5,731      5,788
  Amortization of trademarks and goodwill..................        636        636        629        625        616
  Restructuring expense....................................        428        154         --        730        106
                                                             ---------  ---------  ---------  ---------  ---------
    Operating income.......................................      2,252      2,338      2,550      1,378      2,898
  Interest and debt expense................................       (927)      (899)    (1,065)    (1,209)    (1,449)
  Other income (expense), net..............................       (126)      (173)      (110)       (58)         7
                                                             ---------  ---------  ---------  ---------  ---------
    Income before income taxes.............................      1,199      1,266      1,375        111      1,456
  Provision for income taxes...............................        585        580        611        114        680
                                                             ---------  ---------  ---------  ---------  ---------
    Income (loss) before minority interest in income of
      Nabisco Holdings.....................................        614        686        764         (3)       776
  Less minority interest in income of Nabisco Holdings.....          3         59         --         --         --
                                                             ---------  ---------  ---------  ---------  ---------
    Income (loss) before extraordinary item................        611        627        764         (3)       776
  Extraordinary item--loss on early extinguishments of
    debt, net of income taxes and minority interest........         --        (16)      (245)      (142)      (477)
                                                             ---------  ---------  ---------  ---------  ---------
  Net income (loss)........................................  $     611  $     611  $     519  $    (145) $     299
                                                             ---------  ---------  ---------  ---------  ---------
                                                             ---------  ---------  ---------  ---------  ---------
PER SHARE DATA
Net income (loss) per common and common equivalent share:
  Income before extraordinary item.........................  $    1.74  $    1.58  $    2.06  $   (0.26) $    2.73
  Extraordinary item.......................................         --      (0.05)     (0.79)     (0.53)     (1.75)
                                                             ---------  ---------  ---------  ---------  ---------
    Net income (loss)......................................  $    1.74  $    1.53  $    1.27  $   (0.79) $    0.98
                                                             ---------  ---------  ---------  ---------  ---------
                                                             ---------  ---------  ---------  ---------  ---------
  Dividends per share of common stock......................  $    1.85  $    1.50         --         --         --
  Dividends per share of Series A convertible preferred
    stock..................................................         --         --  $    2.92  $    3.34  $    3.34
  Dividends per share of Series C convertible preferred
    stock..................................................  $    6.01  $    6.01  $    3.94         --         --
BALANCE SHEET DATA
  (AT END OF PERIODS)
  Working capital..........................................  $     445  $     436  $  (1,231) $     202  $     730
  Total assets.............................................     31,289     31,518     31,408     31,295     32,041
  Total debt...............................................      9,928      9,847     11,149     12,448     14,218
  Mandatorily redeemable preferred securities..............        954        954         --         --         --
  Stockholders' equity.....................................     10,148     10,329     10,908      9,070      8,376
</TABLE>
 
------------------------
 
(1) See the consolidated financial statements regarding (i) the restructuring of
    the food operations during 1996; (ii) the restructuring of the worldwide
    tobacco operations, the exchange of preferred securities by RJRN Holdings
    and a subsidiary, and certain debt exchanges and refinancings by RJRN and
    Nabisco during 1995; (iii) the realignment of corporate headquarters and the
    issuance of depositary shares during 1994; and (iv) the conversion during
    1994 of depositary shares issued during 1991.
 
(2) The deficit in working capital at December 31, 1994 included $1.35 billion
    of borrowings by Nabisco under its 364-day credit facility, a substantial
    portion of which was used in connection with the refinancing of certain
    long-term debt. During January 1995, such borrowings were substantially
 
                                       22
<PAGE>
    reduced through the application of approximately $1.2 billion of net
    proceeds received from the initial public offering of 51,750,000 shares of
    Nabisco Holdings' Class A common stock.
 
(3) During 1993, a pre-tax restructuring charge of $730 million ($467 million
    after-tax) was recorded in connection with a program to streamline both the
    tobacco and food operations and to improve profitability.
 
(4) The 1993 per share loss before extraordinary item would have amounted to
    $1.08 per share if the weighted average number of shares of RJRN Holdings'
    Series A depositary shares outstanding during the period had been excluded
    from the earnings per share calculation.
 
(5) Net sales and costs of products sold exclude excise taxes of $3.852 billion,
    $3.832 billion, $3.578 billion, $3.757 billion and $3.560 billion for the
    years ended December 31, 1996, 1995, 1994, 1993 and 1992, 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 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, 1996 and 1995
and for each of the years in the three-year period ended December 31, 1996.
 
                             RESULTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                                                      % CHANGE FROM
                                                                                                        PRIOR YEAR
                                                                                                 ------------------------
YEARS ENDED DECEMBER 31                                           1996       1995       1994        1996         1995
--------------------------------------------------------------  ---------  ---------  ---------     -----        -----
<S>                                                             <C>        <C>        <C>        <C>          <C>
                                                                     (DOLLARS IN MILLIONS)
Net sales:
  R.J. Reynolds Tobacco.......................................  $   4,551  $   4,480  $   4,570           2%          (2)%
  Reynolds International......................................      3,623      3,234      3,097          12%           4%
                                                                ---------  ---------  ---------
  Total Tobacco...............................................      8,174      7,714      7,667           6%           1%
                                                                ---------  ---------  ---------
  Domestic Food Group.........................................      6,315      6,020      5,729           5%           5%
  International Food Group....................................      2,574      2,274      1,970          13%          15%
                                                                ---------  ---------  ---------
  Total Nabisco...............................................      8,889      8,294      7,699           7%           8%
                                                                ---------  ---------  ---------
                                                                $  17,063  $  16,008  $  15,366           7%           4%
                                                                ---------  ---------  ---------
                                                                ---------  ---------  ---------
Operating company contribution(1):
  R.J. Reynolds Tobacco.......................................  $   1,450  $   1,420  $   1,450           2%          (2)%
  Reynolds International......................................        803        643        755          25%         (15)%
                                                                ---------  ---------  ---------
  Total Tobacco...............................................      2,253      2,063      2,205           9%          (6)%
                                                                ---------  ---------  ---------
  Domestic Food Group.........................................        888        890        935      --               (5)%
  International Food Group....................................        242        239        177           1%          35%
                                                                ---------  ---------  ---------
  Total Nabisco...............................................      1,130      1,129      1,112      --                2%
                                                                ---------  ---------  ---------
  Headquarters................................................        (67)       (64)      (138)         (5)%         54%
                                                                ---------  ---------  ---------
                                                                $   3,316  $   3,128  $   3,179           6%          (2)%
                                                                ---------  ---------  ---------
                                                                ---------  ---------  ---------
Operating income:
  R.J. Reynolds Tobacco.......................................  $   1,084  $     954  $   1,085          14%         (12)%
  Reynolds International......................................        761        546        716          39%         (24)%
                                                                ---------  ---------  ---------
  Total Tobacco...............................................      1,845      1,500      1,801          23%         (17)%
                                                                ---------  ---------  ---------
  Domestic Food Group.........................................        333        687        730         (52)%         (6)%
  International Food Group....................................        141        215        157         (34)%         37%
                                                                ---------  ---------  ---------
  Total Nabisco...............................................        474        902        887         (47)%          2%
                                                                ---------  ---------  ---------
  Headquarters................................................        (67)       (64)      (138)         (5)%         54%
                                                                ---------  ---------  ---------
                                                                $   2,252  $   2,338  $   2,550          (4)%         (8)%
                                                                ---------  ---------  ---------
                                                                ---------  ---------  ---------
</TABLE>
 
                                       24
<PAGE>
INDUSTRY SEGMENTS
 
    The percentage contributions of each industry segment to net sales and
operating company contribution during the last five years were as follows:
 
<TABLE>
<CAPTION>
                                                               1996         1995         1994         1993         1992
                                                               -----        -----        -----        -----        -----
<S>                                                         <C>          <C>          <C>          <C>          <C>
Net sales:
  Total Tobacco...........................................          48%          48%          50%          53%          57%
  Total Food..............................................          52           52           50           47           43
                                                                   ---          ---          ---          ---          ---
                                                                   100%         100%         100%         100%         100%
                                                                   ---          ---          ---          ---          ---
                                                                   ---          ---          ---          ---          ---
Operating company contribution(1)(2):
  Total Tobacco...........................................          67%          65%          66%          66%          74%
  Total Food..............................................          33           35           34           34           26
                                                                   ---          ---          ---          ---          ---
                                                                   100%         100%         100%         100%         100%
                                                                   ---          ---          ---          ---          ---
                                                                   ---          ---          ---          ---          ---
</TABLE>
 
------------------------
 
(1) Operating company contribution represents operating income before
    amortization of trademarks and goodwill and restructuring expenses.
    Restructuring expenses amounted to $428 million for 1996 (Domestic Food
    Group-$353 million, International Food Group-$75 million), $154 million for
    1995 (RJRT-$100 million, Reynolds International-$54 million) and $730
    million for 1993 (RJRT-$355 million, Reynolds International-$189 million,
    Domestic Food Group-$132 million, International Food Group-$21 million and
    Headquarters-$33 million).
 
(2) Contributions by industry segments were computed without effects of
    Headquarters' expenses.
 
TOBACCO
 
    The tobacco business is conducted by R.J. Reynolds Tobacco and Reynolds
International.
 
    1996 VS. 1995.  RJRT's net sales in 1996 increased 2% over 1995 to $4.6
billion primarily due to pricing ($164 million), partially offset by an overall
volume decline of 4% ($127 million). RJRT's full-price volume decreased 3% for
the full year. Given extra business days in 1996 versus 1995, total industry
shipments were up slightly versus 1995 while consumption was essentially flat.
The dynamics of the market continued to shift toward full-price brands in 1996
which comprised 72% of the total industry volume in 1996 versus 28% for savings
brands. This compares to a 70% to 30% split in 1995 and a 67% to 33% split in
1994. RJRT's full-price volume as a percentage of total volume was 63% in 1996
and 1995, and 60% in 1994.
 
    RJRT's full-price share of market decreased 0.4 share points to 17.0% with
1996 shipments of 75 billion units. Camel performed exceedingly well, generating
a 5% growth in shipments and a 0.3 share point gain for the full year versus
1995. However, Winston and Salem volume declined 8% and 3%, respectively. The
Winston family declined 8% primarily due to the decision to reduce support of
Winston Select.
 
    RJRT's savings brands shipments declined 4% to 44.1 billion units in 1996
due to planned sales reductions of lower priority brands. Offsetting the decline
on these brands was continued growth of the industry's largest savings brand,
Doral. Doral experienced a 4% volume increase over 1995, and a 2.3 share of
segment gain despite an industry savings category decline of two percentage
points from 30% to 28%. RJRT's overall volume performance reflects the decision
to focus on growth among its key full-price and savings brands.
 
    To stabilize full-price market share, RJRT has several initiatives in test.
Building on the Camel momentum, RJRT introduced Camel Menthol during the third
quarter of 1996 and began a national launch in the first quarter of 1997. Red
Kamel and Kamel Menthe are also being test marketed in several cities. RJRT is
conducting a Florida test market of Winston that emphasizes the "No Bull"
positioning of Winston and a no-additives blend. Another initiative being tested
is Eclipse, a cigarette featuring 90% reduced second-hand smoke that leaves no
ashes, stain or lingering smoke. RJRT is also continuing to test
 
                                       25
<PAGE>
Moonlight Tobacco Company brands that feature innovative packaging and product
concepts. Test markets are New York City, Seattle/Portland, Chicago, Cleveland
and North Carolina.
 
    RJRT's operating company contribution was $1.45 billion, $30 million higher
than 1995 primarily due to favorable pricing and lower manufacturing costs,
partially offset by lower volume and higher marketing and merchandising
spending. RJRT's operating income increased $130 million to $1.1 billion
primarily due to the higher operating company contribution and the absence in
1996 of a $100 million restructuring charge reported in 1995.
 
    On March 6, 1997, RJRT announced a 4% average price increase across most of
its brands, which may have an impact on volume in future periods.
 
    Reynolds International delivered 10% volume growth in 1996. The growth is
essentially across all regions and can be attributed to Reynolds International's
overall focus on the right brands in the right markets. Revenues increased 12%
over 1995 to $3.6 billion, primarily due to the 10% volume increase ($255
million), pricing ($200 million) and acquisitions ($58 million), partially
offset by the impact of unfavorable foreign currency translation ($150 million).
 
    The 10% volume gain was driven by Reynolds International's three flagship
brands: Camel, Winston and Salem. The three combined to account for 8% of the
10% increase. Individually, Camel, fueled by the introduction of new Camel
Lights, grew 2%. Winston, Reynolds International's largest brand, grew 12% and
Salem, aided by the introduction of Salem Pianissimo, grew 10%. Regionally, the
major contributions to volume growth were in the former Soviet Union, Central
Europe, Africa, Japan, and to a lesser extent, Western Europe.
 
    In Western Europe, volume was up 2% over 1995 driven by the rollout of Camel
Lights, which helped abate the decline in the full-flavor segment. Camel Lights
is now available throughout Western Europe. In the former Soviet Union, core
brands--Camel, Winston, Salem, Magna, North Star and Peter I--grew volume by
more than 60%, with each brand recording double-digit volume growth. Total
market share grew two share points to almost 15%.
 
    In Central Europe, volume grew 55%, mainly in Turkey and Romania. Reynolds
International is now the number one international cigarette company in Romania,
having almost doubled its market share to 15%. In Turkey, market share also
almost doubled. In Asia, fueled by the successful introduction of Salem
Pianissimo and Premier Pianissimo, Reynolds International is now the
fastest-growing cigarette company in Japan. Salem Pianissimo is a menthol brand
featuring less smoke and less smell and Premier is the non-menthol version. In
Africa, volume almost doubled, driven by the successful integration of the
Tanzanian business acquired in 1995.
 
    Reynolds International's operating company contribution increased 25% or
$160 million to $803 million reflecting the volume growth, pricing and the
absence in 1996 of $49 million of costs reported in 1995 related to the
consolidation and relocation of its headquarters operations and sales offices,
partially offset by higher marketing spending, product costs and unfavorable
foreign currency translation. The higher operating income is attributable to the
higher operating company contribution and the absence in 1996 of a $54 million
restructuring charge reported in 1995.
 
    1995 VS. 1994.  Net sales for RJRT amounted to $4.5 billion in 1995, a
decline of 2% from the 1994 level of $4.6 billion. The decline in net sales in
1995 resulted primarily from an overall volume loss of 5% (approximately $320
million), partially offset by a higher proportion of full-price sales
(approximately $140 million) and higher selling prices in both the full-price
and savings segments (approximately $67 million). RJRT's volume declined
slightly in the full-price segment during 1995 despite an industry average
increase of approximately 2% due to the pattern of wholesale purchases and the
erosion of market share of certain brands during the first six months of 1995.
However, RJRT's share of full-price segment stabilized during the third and
fourth quarters of 1995. RJRT's volume in the savings segment declined by 13%
during 1995 which exceeded the industry average, reflecting an erosion of market
share of certain brands in the segment due to RJRT's decision to be more
selective in its participation in that segment.
 
                                       26
<PAGE>
RJRT's full-price volume as a percentage of total volume in 1995 and 1994
amounted to 63% and 60%, respectively. Comparable figures for the domestic
cigarette market in 1995 and 1994 amounted to 70% and 67%, respectively.
 
    RJRT's operating company contribution was $1.42 billion in 1995, a 2%
decline from the 1994 level of $1.5 billion, as lower manufacturing costs
(approximately $67 million), the higher proportion of full-price sales
(approximately $118 million), reduced merchandising costs (approximately $13
million), lower administrative expenses (approximately $14 million) and higher
selling prices (approximately $67 million) were more than offset by the decline
in overall volume (approximately $196 million) and an increase in marketing
expenses (approximately $97 million). RJRT's operating income was $954 million
in 1995, a decline of 12% from the 1994 level of $1.1 billion. The decline in
operating income for 1995 reflected the lower operating company contribution and
a restructuring expense in 1995 of $100 million.
 
    Reynolds International recorded net sales of $3.2 billion in 1995, an
increase of 4% from the 1994 level of $3.1 billion. The increase in net sales
for 1995 primarily resulted from favorable foreign currency developments
(approximately $113 million) and higher pricing (approximately $42 million),
offset in part by unfavorable mix (approximately $17 million). Overall volume
increased by 1%. Reynolds International's operating company contribution of $643
million in 1995 decreased 15% from the 1994 level of $755 million primarily due
to costs and expenses incurred in connection with the consolidation and
relocation of its headquarters' operations and certain sales facilities
(approximately $49 million), trade stock realignment (approximately $22
million), write-off of certain export receivables (approximately $16 million),
higher administrative costs (approximately $19 million), higher promotional and
selling expenses (approximately $25 million), higher manufacturing costs
(approximately $13 million) and unfavorable mix (approximately $10 million),
which were partially offset by higher pricing (approximately $42 million). The
decline in operating income for 1995 reflected the lower operating company
contribution and a restructuring expense in 1995 of $54 million.
 
GOVERNMENTAL ACTIVITY
 
    The advertising, sale and use of cigarettes has been under attack by
government and health officials in the United States and in other countries for
many years, principally due to claims that cigarette smoking is harmful to
health. This attack has resulted in: a number of substantial restrictions on the
marketing, advertising and use of cigarettes; diminishing social acceptability
of smoking; and activities by anti-smoking groups designed to inhibit cigarette
sales, the form and content of cigarette advertising and the testing and
introduction of new cigarette products. Together with manufacturers' price
increases in recent years and substantial increases in state and federal excise
taxes on cigarettes, 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 was last increased in January 1993 to its current rate of 24 cents
per pack. In addition, all states and the District of Columbia impose excise
taxes at levels ranging from a low of 2.5 cents to a high of 82.5 cents per pack
of cigarettes. Increases in these state excise taxes could also have an adverse
effect on cigarette sales. In 1995, the cigarette excise tax in four states was
increased by amounts which ranged from 5 cents to 24 cents per pack. In one
state, a temporary 10 cent tax, scheduled to expire in 1995, was extended
through 1997. In 1996, the cigarette excise tax was increased in two states by
amounts of 25 cents and 30 cents per pack.
 
    In August 1995, the Commissioner of the FDA, with the support of the Clinton
administration, announced that he was asserting jurisdiction over cigarettes and
certain other tobacco products and issued a notice and request for comments on
proposed regulations. In August 1996, the Commissioner announced the adoption of
these rules with certain modifications, and with a phased in schedule of
effectiveness over a two year period. The first phase began February 28, 1997,
when regulations relating to the sale of cigarettes to minors became effective.
Among other things, the 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.
 
                                       27
<PAGE>
    The purported purpose of the FDA's assertion of jurisdiction was to curb the
use of tobacco products by underage youth. RJRT believes, however, that the
assertion of jurisdiction and the scope of the proposed rules would materially
restrict the availability of cigarettes and RJRT's ability to market its
cigarette products to ADULT smokers. RJRT, together with the four other major
domestic cigarette manufacturers and an advertising agency, filed suit on the
day of the Commissioner's 1995 announcement in the U.S. District Court for the
Middle District of North Carolina seeking to enjoin the FDA's assertion of
jurisdiction (COYNE BEAHM V. UNITED STATES FOOD & DRUG ADMINISTRATION). On the
day of the announced regulations, the plaintiffs filed an amended complaint
challenging the final regulations. Similar suits have been filed in the same
court by manufacturers of smokeless tobacco products, by operators of retail
stores and by advertising interests. RJRT is unable to predict the outcome of
the litigation seeking to find the FDA's regulations to be unlawful. If the full
regulations do go into effect, they could be expected to have an adverse effect
on cigarette sales and RJRT.
 
    In March 1994, the U.S. Occupational Safety and Health Administration
("OSHA") announced proposed regulations that would restrict smoking in the
workplace to designated smoking rooms that are separately exhausted to the
outside. Although RJRT cannot predict the form or timing of any regulations that
may be finally adopted by OSHA, if the proposed regulations are adopted, RJRT
expects that many employers who have not already done so would prohibit smoking
in the workplace rather than make expenditures necessary to establish designated
smoking areas to accommodate smokers. RJRT submitted comments on the proposed
regulations during the comment period which closed in February 1996. Because
many employers currently do not permit smoking in the workplace, RJRT cannot
predict the effect of any regulations that may be adopted, but incremental
restrictions on smokers could have an adverse effect on cigarette sales and
RJRT.
 
    In July 1994, an amendment to a Florida statute became effective which
allows the State of Florida to bring an action in its own name against the
tobacco industry to recover amounts paid by the state under its Medicaid program
to treat illnesses statistically associated with cigarette smoking. The amended
statute does not require the state to identify the individuals who received
medical care, permits a lawsuit to be filed as a class action and eliminates the
comparative negligence and assumption of risk defenses. The Florida statute was
challenged on state and federal constitutional grounds in a lawsuit brought by
Philip Morris Companies Inc., Associated Industries of Florida, Publix
Supermarkets, and National Association of Convenience Stores in June 1994. On
June 26, 1995, the trial court judge granted in part the plaintiffs' motion for
summary judgment finding portions of the statute unconstitutional. Both
plaintiffs and defendants appealed this decision to the Florida Supreme Court
which, on June 27, 1996, issued its opinion limiting the amendment in several
respects. Among other things, the court ruled: that provisions abrogating
affirmative defenses available to tobacco companies if sued by individuals could
only be applied to claims brought by the state arising out of payments made
after July 1, 1994, the effective date of the amendment; that the state must
identify individual recipients of Medicaid payments; and that claims previously
barred by the statute of repose could not be revived. The Florida Supreme Court,
in a 4-3 decision, expressly stated that although it found provisions of the
statute to be "facially" constitutional, it was specifically leaving open the
right to challenge those provisions as applied in any specific lawsuit. The
plaintiffs in that lawsuit have sought United States Supreme Court review of the
Florida Supreme Court's decision, to determine whether the Florida statute, by
which the State of Florida conferred on itself a unique cause of action and
which directs courts to abrogate common law and equitable principles, including
affirmative defenses, is unconstitutional under the Fourteenth Amendment to the
Unites States Constitution.
 
    The following year, the Florida legislature passed a bill that would repeal
the Florida statute retroactively, which was subsequently vetoed by the
Governor. Efforts made in 1996 to override the Governor's veto were
unsuccessful. Another attempt to repeal the 1994 statute is expected during the
1997 legislative session, but RJRT cannot predict whether the effort will
succeed. Similar legislation, without Florida's elimination of defenses, was
introduced in twelve states during 1996. None of these proposals was enacted.
RJRT is unable to predict whether other states will enact similar legislation
and whether lawsuits
 
                                       28
<PAGE>
will be filed under these statutes, or their outcome, if filed. A suit against
the tobacco industry was filed under the Florida statute on February 21, 1995.
 
    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.
Seventeen states have enacted legislation designating a portion of increased
cigarette excise taxes to fund either anti-smoking programs, health care
programs or cancer research. Federal law prohibits smoking on all domestic
airline flights of six hours duration or less and the U.S. Interstate Commerce
Commission has banned smoking on buses transporting passengers inter-state.
Certain common carriers have imposed additional restrictions on passenger
smoking.
 
    In July 1996, Massachusetts enacted legislation that would require
manufacturers of tobacco products sold in Massachusetts to report yearly,
beginning in 1997, the ingredients of each brand sold. RJRT believes that the
disclosure of trade secrets required by this law could damage the competitive
position of its brands. The statute requires the reporting of nicotine yield
ratings in accordance with procedures to be established. Together with other
cigarette manufacturers, RJRT has 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 has been
filed by manufacturers of smokeless tobacco products. RJRT is unable to predict
the outcome of this litigation.
 
    A number of foreign countries have also taken steps to discourage cigarette
smoking, to restrict or prohibit cigarette advertising and promotion and to
increase taxes on cigarettes. Such restrictions are, in some cases, more onerous
than restrictions imposed in the United States. In June 1988, Canada enacted a
ban on cigarette advertising, which was struck down on grounds of
constitutionality by the Supreme Court of Canada in 1995.
 
    In 1990, RJRT and other U.S. cigarette manufacturers, through The Tobacco
Institute, announced a tobacco industry initiative to assist retailers in
enforcing minimum age laws on the sale of cigarettes, to support the enactment
of state laws requiring the adult supervision of cigarette vending machines in
places frequented by minors, to seek the uniform establishment of 18 as the
minimum age for the purchase of cigarettes in all states, to distribute
informational materials to assist parents in combatting peer pressure on their
children to smoke and to limit voluntarily certain cigarette advertising and
promotional practices. In 1995, wholesalers, retailers and the tobacco industry
including RJRT formed the Coalition for Responsible Tobacco Retailing and
launched a new program ("We Card") focused on stopping underage access to
cigarettes. In 1992, the Alcohol, Drug Abuse and Mental Health Act was signed
into law. This act requires states to adopt a minimum age of 18 for purchases of
tobacco products and to establish a system to monitor, report and reduce the
illegal sale of tobacco products to minors in order to continue receiving
federal funding for mental health and drug abuse programs. In January 1996,
regulations implementing this legislation were announced by the Department of
Health and Human Services.
 
    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
 
                                       29
<PAGE>
basis, a list of ingredients used in the manufacture of cigarettes to the
Secretary of Health and Human Services. The warnings currently required on
cigarette packages and advertisements (other than billboards) are as follows:
(i) "Surgeon General's Warning: Smoking Causes Lung Cancer, Heart Disease,
Emphysema, And May Complicate Pregnancy"; (ii) "Surgeon General's Warning:
Quitting Smoking Now Greatly Reduces Serious Risks To Your Health"; (iii)
"Surgeon General's Warning: Smoking By Pregnant Women May Result in Fetal
Injury, Premature Birth, and Low Birth Weight"; and (iv) "Surgeon General's
Warning: Cigarette Smoke Contains Carbon Monoxide." Similar warnings are
required on outdoor billboards. In 1984 and 1990, Congress enacted legislation
directing the Consumer Product Safety Commission to conduct and oversee research
on the ignition propensity of cigarettes. Although RJRT cannot predict whether
further legislation on this subject may be enacted, some form of regulation of
cigarettes based on their propensity to ignite soft furnishings may result.
 
    Since the initial report in 1964, the Secretary of Health, Education and
Welfare (now the Secretary of Health and Human Services) and the Surgeon General
have issued a number of other reports which purport to find the nicotine in
cigarettes addictive and to link cigarette smoking and exposure to cigarette
smoke with certain health hazards, including various types of cancer, coronary
heart disease and chronic obstructive lung disease. These reports have
recommended various governmental measures to reduce the incidence of smoking.
 
    In addition to the foregoing, legislation and regulations potentially
detrimental to the cigarette industry, generally relating to the taxation of
cigarettes and regulation of advertising, labeling, promotion, sale and smoking
of cigarettes, have been proposed from time to time at various levels of the
federal government. During the last Congress, the Clinton administration and
federal legislators introduced bills that would have significantly increased the
federal excise tax on cigarettes, eliminated the deductibility of the cost of
tobacco advertising, banned smoking in federally funded buildings and on any
scheduled airline flight, restricted tobacco product sampling and vending
machines to areas or establishments that deny access to minors, provided
financial incentives for states to sue tobacco manufacturers for recovery of
Medicaid costs, and given the Food and Drug Administration authority to regulate
the manufacture, sale and distribution of tobacco products. None of this
legislation was enacted.
 
    It is not possible to determine what additional federal, state, local or
foreign legislation or regulations relating to smoking or cigarettes will be
enacted or to predict any resulting effect thereof on 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 9 to the
consolidated financial statements.
 
FOOD
 
    The food business is conducted by the Domestic Food Group and the
International Food Group. The Domestic Food Group is comprised of the Nabisco
Biscuit, Specialty Products, LifeSavers, Planters, Nabisco Tablespreads
(formerly Fleischmann's) and Food Service companies.
 
    1996 VS. 1995.  Nabisco Holdings reported net sales of $8.9 billion in 1996,
an increase of 7% from the 1995 level of $8.3 billion, with the Domestic Food
Group up 5% and the International Food Group up 13%. The Domestic Food Group's
sales increase was attributable to volume increases, principally at Planters and
in key core products at Nabisco Biscuit, accounting for one percentage point of
the increase, increased selling prices, principally at Nabisco Biscuit,
accounting for three percentage points of the increase, and the net impact of
the Parkay acquisition and the 1995 product line disposals accounting for the
remaining percentage increase. Nabisco Biscuit's increase in net sales was
primarily attributable to volume increases in the Oreo, Ritz, Air Crisps and
Chips Ahoy! brands, partially offset by lower volume for Snackwell's and
Newtons. Planters' volume increase resulted from gains in the warehouse club and
mass merchandising channels and a more stable competitive environment in the nut
market. The International
 
                                       30
<PAGE>
Food Group's net sales increase for 1996 was primarily driven by 1995 business
acquisitions, principally Primo in Canada and Royal Beech-Nut in South Africa,
and the 1996 business acquisitions in Latin America.
 
    Nabisco Holdings' operating company contribution of $1.1 billion in 1996 was
approximately equal to last year's level, with the International Food Group up
1% and the Domestic Food Group flat. Operating company contribution for 1996
includes $91 million of restructuring-related expenses in the Domestic Food
Group associated with the implementation of the June 1996 restructuring program
and the International Food Group includes similar expenses of $6 million. The
1995 period includes a net gain of $11 million from the sale of the Ortega
Mexican food ($18 million gain in the Domestic Food Group) and New York Style
Bagel Chip ($7 million loss in the International Food Group) businesses.
 
    Excluding the 1996 restructuring-related expenses, Nabisco Holdings'
operating company contribution was $1.2 billion, an increase of 9% from the $1.1
billion reported in 1995. On the same basis, operating company contribution for
the Domestic Food Group increased $89 million, or 10%, in 1996 primarily as a
result of the profit impact from higher net sales and lower advertising
expenses, partially offset by higher trade promotion expenses and higher fixed
manufacturing and distribution expenses. On the same basis, the International
Food Group's operating company contribution increased $9 million, or 4%, in 1996
which was primarily due to the profit impact from business acquisitions.
 
    Nabisco Holdings' operating income in 1996 includes $525 million of
restructuring and restructuring-related expenses. Excluding these expenses,
operating income was $999 million for 1996, an increase of 11% over the
comparable 1995 period, reflecting higher operating company contribution.
 
    1995 VS. 1994.  Nabisco Holdings reported net sales of $8.3 billion in 1995,
an increase of 8% from the 1994 level of $7.7 billion, with the Domestic Food
Group up 5% and the International Food Group up 15%. The Domestic Food Group's
increase was primarily attributable to volume gains at Nabisco Biscuit
(approximately $228 million), reflecting new product introductions and product
line extensions, volume gains at Food Service (approximately $37 million),
volume gains at Fleischmann's (approximately $18 million) and the impact of the
October 1995 acquisition of the Parkay margarine brand (approximately $64
million), which were offset in part by volume declines at Planters
(approximately $40 million) and the impact of the September 1995 sale of the
Ortega brand (approximately $39 million). The International Food Group's net
sales increase for 1995 was primarily due to improved results in Brazil
(approximately $120 million), reflecting a continuation of the country's
economic recovery, the favorable impact of recent business acquisitions
(approximately $112 million) and the favorable performance from businesses in
Iberia, Canada and Venezuela (approximately $65 million), partially offset by
lower net sales in Mexico (approximately $30 million) due to the devaluation of
the peso.
 
    Nabisco Holdings' operating company contribution was $1.13 billion in 1995,
an increase of 2% from the 1994 level of $1.11 billion, with the International
Food Group higher by 35% and the Domestic Food Group lower by 5%. The 1995
period includes a net pre-tax gain of $11 million from the sale of the Ortega
Mexican food ($18 million gain) and New York Style Bagel Chip ($7 million loss)
businesses, and the favorable impact of recent business acquisitions
(approximately $18 million). Excluding these items and the results of operations
from the business disposals in both years, Nabisco Holdings' operating company
contribution was $14 million lower than the 1994 level, with the International
Food Group higher by 32% and the Domestic Food Group lower by 8%. The Domestic
Food Group's adjusted operating company contribution decrease for 1995
(approximately $70 million) reflects investment spending behind new product
initiatives and intense competitive conditions in biscuits and nuts. The
International Food Group's adjusted operating company contribution increase for
1995 (approximately $56 million) was primarily due to the profit impact of
increased sales in Brazil, Iberia, Canada and Venezuela (approximately $34
million).
 
    Nabisco Holdings' operating income was $902 million in 1995, an increase of
2% from the 1994 level of $887 million, as a result of the changes in operating
company contribution discussed above.
 
                                       31
<PAGE>
RESTRUCTURING EXPENSE
 
    Restructuring charges of $428 million were incurred in 1996 to streamline
operations and improve profitability of the food operations, and $154 million of
restructuring charges were incurred in 1995 to reorganize the worldwide tobacco
operations and also to streamline operations and improve profitability. Both
programs included workforce reductions and facility rationalizations. These
charges are discussed further in note 2 to the consolidated financial
statements.
 
    Substantially all of the worldwide tobacco restructuring charge is
cash-related and approximately $230 million of the food restructuring charge is
cash-related. After completion, the food restructuring is expected to generate
approximately $200 million in annual savings beginning in 1998 and the tobacco
restructuring is expected to generate approximately $100 million in annual
savings beginning in 1997.
 
INTEREST AND DEBT EXPENSE
 
    Interest and debt expense for 1996 increased 3% to $927 million compared to
$899 million in 1995, principally as a result of the issuance of preferred
securities by a subsidiary of RJRN Holdings in September 1995, the payments on
which are reported as interest expense, partially offset by lower market
interest rates.
 
    Interest and debt expense amounted to $899 million in 1995, a decrease of
16% from 1994. The decline is primarily due to refinancings completed during
1994 and repayments of debt with the proceeds from the issuances of preferred
stock during 1994 and Nabisco Holdings' Class A common stock during the first
quarter of 1995. These factors more than offset the impact of higher market
interest rates.
 
    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, none of which, by policy, may
include any written optionality.
 
    RJRN did not enter into any financial interest rate arrangements during 1996
and 1995. During 1994, RJRN either cancelled or neutralized all of its
outstanding financial interest rate arrangements. Any unrealized gains and
losses have been substantially amortized as additional interest expense as
follows: 1996-$28 million and 1995-$39 million. Interest rate activities during
1994 increased interest expense by $22 million, which includes $45 million
associated with written interest rate arrangements. For further details
regarding RJRN's interest rate activities during 1994, see note 10 to the
consolidated financial statements.
 
    Nabisco, in coordination with RJRN Holdings, began managing its own interest
rate exposure during 1995 by entering into interest rate arrangements to
effectively fix a portion of its interest rate exposure on its floating rate
debt. The impact of these arrangements has not been significant. At December 31,
1996, Nabisco had outstanding interest rate caps with an aggregate notional
principal amount of $1.5 billion, $500 million of which became effective during
1997. These arrangements expire during 1997.
 
OTHER INCOME (EXPENSE), NET
 
    Consolidated other income (expense), net for 1995 includes a pre-tax charge
of approximately $103 million ($67 million after-tax) for fees and expenses
incurred in connection with the exchange of debt between RJRN and Nabisco.
 
NET INCOME APPLICABLE TO COMMON STOCK
 
    1996 VS. 1995.  Net income applicable to common stock of $568 million in
1996 increased 13% over 1995. Excluding after-tax restructuring and
restructuring-related expenses recorded in 1996 and 1995, the $67 million
after-tax effect of the 1995 debt exchange between RJRN and Nabisco and a $16
million after-
 
                                       32
<PAGE>
tax extraordinary loss on the early extinguishment of debt by Nabisco during
1995, net income applicable to common stock for 1996 would have been $855
million, a 19% increase over the comparable 1995 amount of $721 million.
 
    For the years ended December 31, 1996, 1995 and 1994, net income applicable
to common stock was increased by approximately $35 million, $29 million and $10
million, respectively, as a result of LIFO inventory liquidations. The LIFO
liquidations resulted from programs to reduce RJRT leaf durations consistent
with forecasts of future operating requirements.
 
    Comparisons to prior year were also affected by the exchange in September
1995 of preferred securities issued by a subsidiary of RJRN Holdings (the
payments on which are reported as interest expense and are tax-deductible) for a
like amount of RJRN Holdings' Series B preferred stock (the payments on which
are reported below net income and are not tax-deductible). The tax benefit from
the deductibility feature of the new securities issued in the September 1995
exchange resulted in a net increase to net income applicable to common stock for
1996 of approximately $24 million compared to 1995.
 
    1995 VS. 1994.   RJRN Holdings reported net income applicable to common
stock of $501 million in 1995, $113 million higher than $388 million reported in
1994. The increase primarily reflects the impact in 1995 of lower interest and
debt expense and a lower amount of loss from early extinguishment of debt which
more than offset the impact in 1995 of lower operating company contribution, the
domestic and international tobacco restructuring expenses, the fees and expenses
incurred in connection with the debt exchange between RJRN and Nabisco and the
minority interest in income of Nabisco Holdings.
 
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
 
    In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities ("SFAS No. 125"), which
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996. The adoption of SFAS No. 125 is not expected to have any impact on the
financial position or results of operations of RJRN Holdings and its
subsidiaries.
 
    In October 1996, the AICPA's Accounting Standards Executive Committee issued
Statement of Position No. 96-1, Environmental Remediation Liabilities ("SOP No.
96-1"). SOP No. 96-1 is required to be adopted for years beginning January 1,
1997. The adoption of SOP No. 96-1 is not expected to have a material effect on
the financial position or results of operations of RJRN Holdings and its
subsidiaries.
 
                                       33
<PAGE>
                       LIQUIDITY AND FINANCIAL CONDITION
 
DECEMBER 31, 1996
 
    Net cash flows from operating activities for 1996 were $1.50 billion, a
decrease of $170 million from the 1995 level of $1.67 billion. The decrease in
net cash flows from operating activities primarily reflects higher interest and
tax payments and higher inventory levels which more than offset lower receivable
requirements.
 
    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. Free cash flow is essentially net cash flow from
operating activities and investing activities per the Consolidated Statement of
Cash Flows, adjusted for acquisitions and divestitures of businesses, preferred
dividends and the net proceeds from Nabisco Holdings' initial public offering.
Free cash flow resulted in inflows of $748 million and $670 million for 1996 and
1995, respectively. The higher level of free cash flow in 1996 compared with
1995 primarily reflects higher operating company contribution and lower
financing fees, which more than offset the impact from higher working capital
requirements, higher income tax payments and higher combined interest and
preferred stock dividend payments.
 
    The components of free cash flow are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31                                                                        1996       1995
-------------------------------------------------------------------------------------------  ---------  ---------
<S>                                                                                          <C>        <C>
                                                                                                 (DOLLARS IN
                                                                                                  MILLIONS)
 
<CAPTION>
<S>                                                                                          <C>        <C>
OPERATING INCOME...........................................................................  $   2,252  $   2,338
  Amortization of trademarks and goodwill..................................................        636        636
  Restructuring expense....................................................................        428        154
                                                                                             ---------  ---------
OPERATING COMPANY CONTRIBUTION.............................................................      3,316      3,128
  Depreciation and other amortization......................................................        538        535
  Increase in operating working capital....................................................       (389)      (307)
  Capital expenditures.....................................................................       (741)      (744)
  Change in other assets and liabilities...................................................        190        125
  Restructuring and restructuring-related cash payments....................................       (268)      (256)
  Income tax payments, excluding income tax benefits from
    cash interest paid.....................................................................     (1,044)      (906)
                                                                                             ---------  ---------
OPERATING CASH FLOW*.......................................................................      1,602      1,575
  Cash interest paid, net of income tax benefit............................................       (562)      (465)
  Preferred dividends paid.................................................................       (207)      (276)
  Other, net...............................................................................        (85)      (164)
                                                                                             ---------  ---------
FREE CASH FLOW.............................................................................  $     748  $     670
                                                                                             ---------  ---------
                                                                                             ---------  ---------
</TABLE>
 
------------------------
 
* Operating cash flow, which is used internally to evaluate business
performance, includes, in addition to net cash flows from (used in) operating
activities as recorded in the Consolidated Statement of Cash Flows, proceeds
from the sale of capital assets less capital expenditures, and is adjusted to
exclude items of a financial nature such as interest paid (net of tax), interest
income and other miscellaneous financial income or expense items.
 
                                  ------------
 
    During 1995 and 1994, RJRN Holdings, RJRN, Nabisco Holdings and Nabisco
entered into a series of transactions designed to refinance long-term debt,
lower debt levels, manage interest rate exposure and refinance certain preferred
securities. One of the transactions was the initial public offering of
51,750,000 shares of Nabisco Holdings' Class A common stock at an initial
offering price of $24.50 per share in January 1995, which reduced RJRN's
proportionate economic interest in Nabisco Holdings from 100% to
 
                                       34
<PAGE>
approximately 80.5%. Nabisco Holdings used all of the approximately $1.2 billion
of net proceeds from the initial public offering to repay a portion of its
borrowings under a bank credit agreement.
 
    Also during 1995, RJRN and Nabisco completed a debt exchange, that was
designed, among other things, to enable Nabisco to obtain long-term debt
financing independent of RJRN and to repay its intercompany debt to RJRN. At the
same time, Nabisco borrowed approximately $2.4 billion under a new credit
agreement to repay or repurchase the remaining approximately $2.3 billion of
intercompany debt and repay approximately $125 million of outstanding borrowings
under an earlier bank credit agreement. RJRN applied the payments received from
Nabisco to repay a portion of its borrowings under its bank credit agreement.
 
    RJRN maintains a $2.75 billion revolving credit facility, of which no
borrowings were outstanding at December 31, 1996, and a 364-day $650 million
credit facility primarily to support commercial paper issuances, of which
approximately $353 million was available at December 31, 1996. On June 3, 1996,
the maturity of the revolving credit facility was extended to June 6, 1999 and
the 364-day credit facility was renewed through June 2, 1997. The commitments
under the revolving credit facility decline to approximately $2.4 billion in the
final year. The revolving credit facility also provides for the issuance of up
to $800 million of letters of credit, $429 million of which was issued at
December 31, 1996. 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 $650
million.
 
    In October 1996, Nabisco Holdings and Nabisco entered into a new five-year
$1.5 billion revolving credit facility and a 364-day $1.5 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 revolving
credit facility provides for the issuance of up to $300 million of letters of
credit, none of which was issued at December 31, 1996. At December 31, 1996, no
borrowings were outstanding under the revolving credit facility and $325 million
was available under the 364-day credit facility. 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 any commercial paper
borrowings outstanding in excess of $1.5 billion.
 
    In September 1995, a newly formed subsidiary of RJRN Holdings issued $949
million principal amount of its preferred securities in exchange for an equal
amount of RJRN Holdings' Series B preferred stock. RJRN Holdings retired the
exchanged Series B preferred stock, leaving $301 million outstanding.
 
    In March 1996, RJRN Holdings announced a 23% increase in its annual common
stock dividend rate from $1.50 to $1.85 per share and adopted a share repurchase
objective of approximately 10 million shares of common stock over the next
several years based on the achievement of performance targets. During 1996, RJRN
Holdings repurchased 3,377,300 shares of common stock for approximately $100
million. In June 1996, Nabisco Holdings announced a 13% increase in its annual
common stock dividend rate from $.55 to $.62 per share. In February 1997, RJRN
Holdings announced an 11% increase in its annual common stock dividend rate from
$1.85 to $2.05 per share and a 1997 share repurchase objective of up to $200
million.
 
    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.
 
    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
 
                                       35
<PAGE>
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.
 
    Management of RJRN Holdings and its subsidiaries are continuing to review
various strategic transactions, including but not limited to, acquisitions,
divestitures, mergers and joint ventures. No assurance may be given that any
such transactions will be announced or completed.
 
    Capital expenditures were $741 million, $744 million and $670 million for
1996, 1995 and 1994, respectively. The current level of expenditures planned for
1997 is expected to be in the range of approximately $850 million to $900
million (approximately 52% Food and 48% Tobacco), which will be funded primarily
by cash flows from operating activities. The increased level of capital
expenditures planned for 1997 is primarily due to the growth of Reynolds
International. Management expects that its capital expenditure program will
continue at a level sufficient to support the strategic and operating needs of
RJRN Holdings' operating subsidiaries.
 
    RJRN Holdings' subsidiaries have operations in many countries, which utilize
many different functional currencies. Significant foreign currency net
investments are located in Canada, Spain, Argentina, Puerto Rico, Germany,
Brazil, Mexico, Malaysia, Venezuela and Hong Kong. RJRN Holdings' subsidiaries
also have significant exposure to foreign exchange sale and purchase
transactions in currencies other than their functional currencies. Their
exposures 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 and Spanish peseta. 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, foreign
currency hedging activities are entered into 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. Such contracts are primarily entered into to hedge future firm
commitments. For further details regarding foreign currency hedging activities,
see note 10 to the consolidated financial statements.
 
    At December 31, 1996, there was $1.899 billion of accumulated and
undistributed income of foreign subsidiaries. No applicable taxes have been
provided because management intends to reinvest these earnings abroad
indefinitely to fund international acquisitions, new products and other
opportunities in foreign markets.
 
LITIGATION
 
    For a description of certain litigation affecting RJRT and its affiliates
(including RJRN Holdings and RJRN) and indemnitees, see note 9 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. 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.
 
                                       36
<PAGE>
    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.
 
                                  ------------
 
    The foregoing discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements which reflect management's current views with respect to future
events and financial performance. These forward-looking statements are subject
to certain risks and uncertainties, including, but not limited to, the 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. For additional information
concerning factors affecting future events and policies and RJRN Holdings'
performance, see Part I, Items 1 through 3 and Part II, Item 5 of this report.
Due to such uncertainties and risks, readers are cautioned not to place undue
reliance on such forward-looking statements, which speak only as of the date
hereof.
 
                                       37
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
    Refer to the Index to Financial Statements and Financial Statement Schedules
on page 43 for the required information.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE
 
    None.
 
                                       38
<PAGE>
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
 
    Item 10 is hereby incorporated by reference to RJRN Holdings' Definitive
Proxy Statement to be filed with the Securities and Exchange Commission on or
prior to April 30, 1997. Reference is also made regarding the executive officers
of the Registrants to "Executive Officers of the Registrants" following Item 4
of Part I of this Report.
 
ITEM 11. EXECUTIVE COMPENSATION
 
    Item 11 is hereby incorporated by reference to RJRN Holdings' Definitive
Proxy Statement to be filed with the Securities and Exchange Commission on or
prior to April 30, 1997.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    Item 12 is hereby incorporated by reference to RJRN Holdings' Definitive
Proxy Statement to be filed with the Securities and Exchange Commission on or
prior to April 30, 1997.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    Item 13 is hereby incorporated by reference to RJRN Holdings' Definitive
Proxy Statement to be filed with the Securities and Exchange Commission on or
prior to April 30, 1997.
 
                                       39
<PAGE>
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
<TABLE>
<S>        <C>        <C>
(A)               1.  The financial statements listed in the accompanying Index to Financial
                      Statements and Financial Statement Schedules are filed as part of this report.
                  2.  The financial statement schedules listed in the accompanying Index to Financial
                      Statements and Financial Statement Schedules are filed as part of this report.
                  3.  The exhibits listed in the accompanying Index to Exhibits are filed as part of
                      this report.
(B)                   REPORTS ON FORM 8-K FILED IN FOURTH QUARTER 1996
                      None.
(C)                   EXHIBITS
                      See Exhibit Index.
(D)                   FINANCIAL STATEMENT SCHEDULES.
                      See Index to Financial Statements and Financial Statement Schedules.
</TABLE>
 
                                       40
<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 14, 1997.
 
<TABLE>
<C>                                               <S>        <C>
                                                  RJR NABISCO HOLDINGS CORP.
                                                  BY:                    /S/ STEVEN F. GOLDSTONE
                                                             -----------------------------------------------
                                                                          (Steven F. Goldstone)
                                                                        Chairman of the Board 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 14, 1997.
 
<TABLE>
<CAPTION>
                    SIGNATURE                                             TITLE
--------------------------------------------------  --------------------------------------------------
 
<C>                                                 <S>                                                 <C>
                /s/ STEVEN F. GOLDSTONE             Chairman of the Board and Chief Executive Officer
     ---------------------------------------          (principal executive officer)
              (Steven F. Goldstone)
 
               /s/ ROBERT S. ROATH                  Senior Vice President and Chief Financial Officer
     ---------------------------------------          (principal financial officer)
                (Robert S. Roath)
 
              /s/ RICHARD G. RUSSELL                Senior Vice President and Controller (principal
     ---------------------------------------          accounting officer)
               (Richard G. Russell)
 
                        *                           Director
     ---------------------------------------
               (John T. Chain, Jr.)
 
                        *                           Director
     ---------------------------------------
               (Julius L. Chambers)
 
                        *                           Director
     ---------------------------------------
               (John L. Clendenin)
 
                        *                           Director
     ---------------------------------------
              (L. Dennis Kozlowski)
 
                        *                           Director
     ---------------------------------------
                 (Ray J. Groves)
 
                        *                           Director
     ---------------------------------------
               (H. Eugene Lockhart)
 
                        *                           Director
     ---------------------------------------
              (John G. Medlin, Jr.)
 
                        *                           Director
     ---------------------------------------
               (Rozanne L. Ridgway)
</TABLE>
 
<TABLE>
<C>                                              <S>        <C>
                                                 *By:                  /s/ ROBERT F. SHARPE, JR.
                                                            ----------------------------------------------
                                                                        (Robert F. Sharpe, Jr.)
                                                                           Attorney-in-Fact
</TABLE>
 
                                       41
<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 14, 1997.
 
<TABLE>
<C>                                               <S>        <C>
                                                  RJR NABISCO, INC.
                                                  BY:                    /S/ STEVEN F. GOLDSTONE
                                                             -----------------------------------------------
                                                                          (Steven F. Goldstone)
                                                                     Chairman of the Board 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 14, 1997.
 
<TABLE>
<CAPTION>
                    SIGNATURE                                             TITLE
--------------------------------------------------  --------------------------------------------------
 
<C>                                                 <S>                                                 <C>
                /s/ STEVEN F. GOLDSTONE             Chairman of the Board and Chief Executive Officer
     ---------------------------------------          (principal executive officer)
              (Steven F. Goldstone)
 
               /s/ ROBERT S. ROATH                  Senior Vice President and Chief Financial Officer
     ---------------------------------------          (principal financial officer)
                (Robert S. Roath)
 
              /s/ RICHARD G. RUSSELL                Senior Vice President and Controller (principal
     ---------------------------------------          accounting officer)
               (Richard G. Russell)
 
                        *                           Director
     ---------------------------------------
               (John T. Chain, Jr.)
 
                        *                           Director
     ---------------------------------------
               (Julius L. Chambers)
 
                        *                           Director
     ---------------------------------------
               (John L. Clendenin)
 
                        *                           Director
     ---------------------------------------
                 (Ray J. Groves)
 
                        *                           Director
     ---------------------------------------
              (L. Dennis Kozlowski)
 
                        *                           Director
     ---------------------------------------
               (H. Eugene Lockhart)
 
                        *                           Director
     ---------------------------------------
              (John G. Medlin, Jr.)
 
                        *                           Director
     ---------------------------------------
               (Rozanne L. Ridgway)
</TABLE>
 
<TABLE>
<C>                                              <S>        <C>
                                                 *By:                  /s/ ROBERT F. SHARPE, JR.
                                                            ----------------------------------------------
                                                                        (Robert F. Sharpe, Jr.)
                                                                           Attorney-in-Fact
</TABLE>
 
                                       42
<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, 1996, 1995 and 1994...................          F-2
  Consolidated Statements of Cash Flows--Years Ended December 31, 1996,
    1995 and 1994...................................................................................          F-3
  Consolidated Balance Sheets--December 31, 1996 and 1995...........................................      F-4-F-5
  Consolidated Statements of Stockholders' Equity--Years Ended December 31, 1996, 1995 and 1994.....          F-6
  Notes to Consolidated Financial Statements........................................................     F-7-F-31
</TABLE>
 
FINANCIAL STATEMENT SCHEDULES
 
    For the years ended December 31, 1996, 1995 and 1994:
 
<TABLE>
<S>            <C>                                                                  <C>
  Schedule I   --Condensed Financial Information of Registrants...................      S-1-S-8
</TABLE>
 
                                       43
<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, 1996 and 1995, and the related consolidated statements of income, cash flows
and stockholders' equity for each of the three years in the period ended
December 31, 1996. Our audits also included the financial statement schedules of
RJRN Holdings and RJRN as of December 31, 1996 and 1995, and for each of the
three years in the period ended December 31, 1996 as listed in the accompanying
index to financial statements and financial statement schedules. These financial
statements and financial statement schedules are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of RJRN Holdings and
RJRN at December 31, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
 
DELOITTE & TOUCHE LLP
New York, New York
January 28, 1997
(March 13, 1997 as to note 9)
 
         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 of the Board and
Chief Executive Officer
 
/S/ ROBERT S. ROATH
----------------------------
 
Senior Vice President
and Chief Financial Officer
(Retiring April 1997)
 
                                      F-1
<PAGE>
                       CONSOLIDATED STATEMENTS OF INCOME
                 (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31                            1996                        1995                        1994
--------------------------------------  --------------------------  --------------------------  --------------------------
<S>                                     <C>           <C>           <C>           <C>           <C>           <C>
                                            RJRN                        RJRN                        RJRN
                                          HOLDINGS        RJRN        HOLDINGS        RJRN        HOLDINGS        RJRN
                                        ------------  ------------  ------------  ------------  ------------  ------------
NET SALES*............................   $   17,063    $   17,063    $   16,008    $   16,008    $   15,366    $   15,366
                                        ------------  ------------  ------------  ------------  ------------  ------------
Costs and expenses:
  Cost of products sold*..............        7,973         7,973         7,468         7,468         6,977         6,977
  Selling, advertising, administra-
    tive and general expenses.........        5,774         5,779         5,412         5,412         5,210         5,198
  Amortization of trademarks and
    goodwill..........................          636           636           636           636           629           629
  Restructuring expense...............          428           428           154           154            --            --
                                        ------------  ------------  ------------  ------------  ------------  ------------
      OPERATING INCOME................        2,252         2,247         2,338         2,338         2,550         2,562
Interest and debt expense.............         (927)         (832)         (899)         (872)       (1,065)       (1,065)
Other income (expense), net...........         (126)         (127)         (173)         (175)         (110)         (121)
                                        ------------  ------------  ------------  ------------  ------------  ------------
      Income before income taxes......        1,199         1,288         1,266         1,291         1,375         1,376
Provision for income taxes............          585           619           580           594           611           614
                                        ------------  ------------  ------------  ------------  ------------  ------------
      INCOME BEFORE MINORITY INTEREST
        IN INCOME OF NABISCO
        HOLDINGS......................          614           669           686           697           764           762
Less minority interest in income of
  Nabisco Holdings....................            3             3            59            59            --            --
                                        ------------  ------------  ------------  ------------  ------------  ------------
      INCOME BEFORE EXTRAORDINARY
        ITEM..........................          611           666           627           638           764           762
Extraordinary item--loss on early
  extinguishments of debt, net of
  income taxes and minority
  interest............................           --            --           (16)          (16)         (245)         (245)
                                        ------------  ------------  ------------  ------------  ------------  ------------
      NET INCOME......................          611           666           611           622           519           517
Less preferred stock dividends........           43            --           110            --           131            --
                                        ------------  ------------  ------------  ------------  ------------  ------------
      NET INCOME APPLICABLE TO COMMON
        STOCK.........................   $      568    $      666    $      501    $      622    $      388    $      517
                                        ------------  ------------  ------------  ------------  ------------  ------------
                                        ------------  ------------  ------------  ------------  ------------  ------------
NET INCOME (LOSS) PER COMMON AND
  COMMON EQUIVALENT SHARE:
  Income before extraordinary item....   $     1.74                  $     1.58                  $     2.06
  Extraordinary item..................           --                       (0.05)                      (0.79)
                                        ------------                ------------                ------------
      Net income......................   $     1.74                  $     1.53                  $     1.27
                                        ------------                ------------                ------------
                                        ------------                ------------                ------------
Dividends per share of common stock...   $     1.85                  $     1.50                  $       --
Dividends per share of Series A
  preferred stock.....................           --                          --                        2.92
Dividends per share of Series C
  preferred stock.....................         6.01                        6.01                        3.94
Weighted average number of common and
  common equivalent shares outstanding
  (in thousands)......................      326,502                     326,643                     307,625
                                        ------------                ------------                ------------
                                        ------------                ------------                ------------
</TABLE>
 
------------------------
 
* Excludes excise taxes as follows: 1996--$3.852 billion, 1995--$3.832 billion
and 1994--$3.578 billion.
 
                SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
 
                                      F-2
<PAGE>
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31                                                  1996                    1995              1994
--------------------------------------------------------------  ----------------------  ----------------------  -----------
<S>                                                             <C>          <C>        <C>          <C>        <C>
                                                                   RJRN                    RJRN                    RJRN
                                                                 HOLDINGS      RJRN      HOLDINGS      RJRN      HOLDINGS
                                                                -----------  ---------  -----------  ---------  -----------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
  Net income..................................................   $     611   $     666   $     611   $     622   $     519
                                                                -----------  ---------  -----------  ---------  -----------
  Adjustments to reconcile net income to net cash flows from
    operating activities:
    Depreciation and amortization.............................       1,174       1,174       1,171       1,171       1,152
    Deferred income tax benefit...............................        (120)       (114)       (172)       (173)        (11)
    Extraordinary item........................................          --          --          29          29         377
    Restructuring and restructuring-related expenses, net of
      cash payments...........................................         257         257         (53)        (53)       (432)
    Other changes that provided (used) cash:..................
        Accounts and notes receivable.........................         (77)        (66)       (351)       (344)        (69)
        Inventories...........................................        (135)       (135)        159         159         111
        Accounts payable and accrued liabilities, including
          income taxes........................................        (310)       (283)        145         125          95
        Other, net............................................          95          87         126         163          12
                                                                -----------  ---------  -----------  ---------  -----------
        Total adjustments.....................................         884         920       1,054       1,077       1,235
                                                                -----------  ---------  -----------  ---------  -----------
    Net cash flows from operating activities..................       1,495       1,586       1,665       1,699       1,754
                                                                -----------  ---------  -----------  ---------  -----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
  Capital expenditures........................................        (741)       (741)       (744)       (744)       (670)
  Acquisitions of businesses..................................        (189)       (189)       (429)       (429)       (510)
  Divestitures of businesses and certain assets...............         153         153         237         237          39
  Net proceeds from issuance of Nabisco Holdings' common
    stock.....................................................          --          --       1,201       1,201          --
                                                                -----------  ---------  -----------  ---------  -----------
    Net cash flows from (used in) investing activities........        (777)       (777)        265         265      (1,141)
                                                                -----------  ---------  -----------  ---------  -----------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
  Proceeds from issuance of long-term debt....................          34          34       2,324       2,324          16
  Repayments of long-term debt................................        (216)       (216)     (1,285)     (1,285)     (4,666)
  Increase (decrease) in short-term borrowings................         249         249      (2,500)     (2,500)      2,880
  Repurchase of common stock..................................        (100)         --          --          --          --
  Proceeds from issuance of Series C preferred stock..........          --          --          --          --       1,734
  Dividends paid on common and preferred stock, including
    dividends paid to Nabisco Holdings' minority common
    shareholders..............................................        (716)        (30)       (598)        (15)       (395)
  Financing and advisory fees paid............................          --          --        (114)       (114)        (60)
  Other, net, including intercompany transfers and payments...          60        (816)         50        (555)         92
                                                                -----------  ---------  -----------  ---------  -----------
    Net cash flows used in financing activities...............        (689)       (779)     (2,123)     (2,145)       (399)
                                                                -----------  ---------  -----------  ---------  -----------
 
Effect of exchange rate changes on cash and cash equivalents..         (11)        (11)          4           4          (6)
                                                                -----------  ---------  -----------  ---------  -----------
    Net change in cash and cash equivalents...................          18          19        (189)       (177)        208
Cash and cash equivalents at beginning of period..............         234         232         423         409         215
                                                                -----------  ---------  -----------  ---------  -----------
Cash and cash equivalents at end of period....................   $     252   $     251   $     234   $     232   $     423
                                                                -----------  ---------  -----------  ---------  -----------
                                                                -----------  ---------  -----------  ---------  -----------
 
Income taxes paid, net of refunds.............................   $     693   $     727   $     583   $     583   $     496
Interest paid.................................................   $     913   $     794   $     788   $     784   $     986
 
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------------------------
<S>                                                             <C>
 
                                                                  RJRN
                                                                ---------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
  Net income..................................................  $     517
                                                                ---------
  Adjustments to reconcile net income to net cash flows from
    operating activities:
    Depreciation and amortization.............................      1,152
    Deferred income tax benefit...............................        (73)
    Extraordinary item........................................        377
    Restructuring and restructuring-related expenses, net of
      cash payments...........................................       (432)
    Other changes that provided (used) cash:..................
        Accounts and notes receivable.........................        (61)
        Inventories...........................................        111
        Accounts payable and accrued liabilities, including
          income taxes........................................        120
        Other, net............................................          8
                                                                ---------
        Total adjustments.....................................      1,202
                                                                ---------
    Net cash flows from operating activities..................      1,719
                                                                ---------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
  Capital expenditures........................................       (670)
  Acquisitions of businesses..................................       (510)
  Divestitures of businesses and certain assets...............         39
  Net proceeds from issuance of Nabisco Holdings' common
    stock.....................................................         --
                                                                ---------
    Net cash flows from (used in) investing activities........     (1,141)
                                                                ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
  Proceeds from issuance of long-term debt....................         16
  Repayments of long-term debt................................     (4,666)
  Increase (decrease) in short-term borrowings................      2,880
  Repurchase of common stock..................................         --
  Proceeds from issuance of Series C preferred stock..........         --
  Dividends paid on common and preferred stock, including
    dividends paid to Nabisco Holdings' minority common
    shareholders..............................................         --
  Financing and advisory fees paid............................         (6)
  Other, net, including intercompany transfers and payments...      1,408
                                                                ---------
    Net cash flows used in financing activities...............       (368)
                                                                ---------
Effect of exchange rate changes on cash and cash equivalents..         (6)
                                                                ---------
    Net change in cash and cash equivalents...................        204
Cash and cash equivalents at beginning of period..............        205
                                                                ---------
Cash and cash equivalents at end of period....................  $     409
                                                                ---------
                                                                ---------
Income taxes paid, net of refunds.............................  $     496
Interest paid.................................................  $     986
</TABLE>
 
                SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
 
                                      F-3
<PAGE>
                          CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
DECEMBER 31                                                                      1996                    1995
----------------------------------------------------------------------  ----------------------  ----------------------
<S>                                                                     <C>          <C>        <C>          <C>
                                                                           RJRN                    RJRN
                                                                         HOLDINGS      RJRN      HOLDINGS      RJRN
                                                                        -----------  ---------  -----------  ---------
ASSETS
Current assets:
  Cash and cash equivalents...........................................   $     252   $     251   $     234   $     232
  Accounts and notes receivable, net..................................       1,418       1,413       1,334       1,327
  Inventories:
    Finished products.................................................         830         830         755         755
    Leaf tobacco......................................................       1,161       1,161       1,152       1,152
    Raw materials.....................................................         234         234         231         231
    Other.............................................................         411         411         351         351
                                                                        -----------  ---------  -----------  ---------
    Total inventories.................................................       2,636       2,636       2,489       2,489
                                                                        -----------  ---------  -----------  ---------
  Prepaid expenses and excise taxes...................................         445         445         503         503
                                                                        -----------  ---------  -----------  ---------
      TOTAL CURRENT ASSETS............................................       4,751       4,745       4,560       4,551
                                                                        -----------  ---------  -----------  ---------
Property, plant and equipment--at cost:
    Land and land improvements........................................         323         323         319         319
    Buildings and leasehold improvements..............................       1,974       1,974       1,899       1,899
    Machinery and equipment...........................................       5,936       5,936       5,615       5,615
    Construction-in-process...........................................         604         604         553         553
                                                                        -----------  ---------  -----------  ---------
    Total property, plant and equipment...............................       8,837       8,837       8,386       8,386
Less accumulated depreciation.........................................       3,002       3,002       2,696       2,696
                                                                        -----------  ---------  -----------  ---------
    Property, plant and equipment, net................................       5,835       5,835       5,690       5,690
                                                                        -----------  ---------  -----------  ---------
Trademarks, net of accumulated amortization (1996--$1,996,
  1995--$1,745).......................................................       8,030       8,030       8,265       8,265
Goodwill, net of accumulated amortization (1996--$2,901,
  1995--$2,502).......................................................      12,268      12,268      12,536      12,536
Other assets and deferred charges.....................................         405         382         467         466
                                                                        -----------  ---------  -----------  ---------
                                                                         $  31,289   $  31,260   $  31,518   $  31,508
                                                                        -----------  ---------  -----------  ---------
                                                                        -----------  ---------  -----------  ---------
</TABLE>
 
                                      F-4
<PAGE>
                    CONSOLIDATED BALANCE SHEETS (CONTINUED)
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
DECEMBER 31                                                                      1996                    1995
----------------------------------------------------------------------  ----------------------  ----------------------
<S>                                                                     <C>          <C>        <C>          <C>
                                                                           RJRN                    RJRN
                                                                         HOLDINGS      RJRN      HOLDINGS      RJRN
                                                                        -----------  ---------  -----------  ---------
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Short-term borrowings...............................................   $     609   $     609   $     268   $     268
  Accounts payable....................................................         691         690         755         755
  Accrued liabilities.................................................       2,684       2,527       2,649       2,490
  Current maturities of long-term debt................................          63          63         150         150
  Income taxes accrued................................................         259         235         302         302
                                                                        -----------  ---------  -----------  ---------
      TOTAL CURRENT LIABILITIES.......................................       4,306       4,124       4,124       3,965
                                                                        -----------  ---------  -----------  ---------
 
Long-term debt (less current maturities)..............................       9,256       9,256       9,429       9,429
Other noncurrent liabilities..........................................       3,020       2,669       3,016       2,365
Deferred income taxes.................................................       3,605       3,542       3,666       3,596
Commitments and contingencies (note 9)
RJRN Holdings' obligated mandatorily redeemable preferred securities
  of subsidiary trust holding solely junior subordinated
  debentures*.........................................................         954          --         954          --
 
Stockholders' equity:
  Series C convertible preferred stock (26,675,000 shares issued and
    outstanding)......................................................           3          --           3          --
  Other preferred stock...............................................         534          --         541          --
  Common stock (1996--273,574,308 shares issued, 1995-- 272,807,942
    shares issued)....................................................           3          --           3          --
  Paid-in capital.....................................................      10,038      11,890      10,110      11,958
  Retained earnings...................................................          --          --          --         371
  Cumulative translation adjustments..................................        (221)       (221)       (176)       (176)
  Treasury stock, at cost.............................................        (100)         --          --          --
  Other stockholders' equity..........................................        (109)         --        (152)         --
                                                                        -----------  ---------  -----------  ---------
      TOTAL STOCKHOLDERS' EQUITY......................................      10,148      11,669      10,329      12,153
                                                                        -----------  ---------  -----------  ---------
                                                                         $  31,289   $  31,260   $  31,518   $  31,508
                                                                        -----------  ---------  -----------  ---------
                                                                        -----------  ---------  -----------  ---------
</TABLE>
 
------------------------------
 
* The sole asset of the subsidiary trust is the junior subordinated debentures
of RJRN Holdings. Upon redemption of the junior subordinated debentures, which
have a final maturity of December 31, 2044, the preferred securities will be
mandatorily redeemed. The outstanding junior subordinated debentures have an
aggregate principal amount of approximately $978 million and an annual interest
rate of 10%.
 
                SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
 
                                      F-5
<PAGE>
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                             (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
                                                           OTHER                               CUMULATIVE
                                            COMMON        CAPITAL     PAID-IN    RETAINED      TRANSLATION     TREASURY
                                            STOCK*         STOCK      CAPITAL    EARNINGS      ADJUSTMENTS       STOCK
                                         -------------  -----------  ---------  -----------  ---------------  -----------
<S>                                      <C>            <C>          <C>        <C>          <C>              <C>
Balance at January 1, 1994.............    $       2     $   1,501   $   8,787   $    (883)     $    (102)     $      --
  Net income...........................                                                519
  Retirement of 258,843 shares of ESOP
    preferred stock....................                         (4)
  Conversion of Series A preferred
    stock into 42,000,000 shares of
    common stock.......................            1            (2)          1
  Issuance of 26,675,000 shares of
    Series C preferred stock...........                          3       1,731
  Issuance of 2,781,575 shares of
    common stock.......................                                     80
  Repurchase and cancellation of 52,456
    shares of common stock.............                                     (1)
  Foreign currency translation, net....                                                               (62)
  Dividends............................                                   (393)
  ESOP note payments received..........
  Other................................                                    (48)
                                                 ---    -----------  ---------       -----          -----          -----
Balance at December 31, 1994...........            3         1,498      10,157        (364)          (164)            --
  Net income...........................                                                611
  Retirement of 324,453 shares of ESOP
    preferred stock....................                         (5)
  Exchange of preferred securities of a
    subsidiary for 37,956 shares of
    Series B preferred stock...........                       (949)         (5)
  Issuance of 543,787 shares of common
    stock..............................                                     13
  Repurchase and cancellation of 67,222
    shares of common stock.............                                     (2)
  Gain on sale of Nabisco Holdings'
    common stock.......................                                    401
  Foreign currency translation, net....                                                               (12)
  Dividends............................                                   (432)       (247)
  ESOP note payments received..........
  Other................................                                    (22)
                                                 ---    -----------  ---------       -----          -----          -----
Balance at December 31, 1995...........            3           544      10,110      --               (176)            --
  Net income...........................                                                611
  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.......................
  Foreign currency translation, net....                                                               (45)
  Dividends............................                                    (97)       (611)
  ESOP note payments received..........
  Other................................                                      7
                                                 ---    -----------  ---------       -----          -----          -----
Balance at December 31, 1996...........    $       3     $     537   $  10,038   $  --          $    (221)     $    (100)
                                                 ---    -----------  ---------       -----          -----          -----
                                                 ---    -----------  ---------       -----          -----          -----
 
<CAPTION>
                                                          TOTAL
                                                      STOCKHOLDERS'
                                            OTHER        EQUITY
                                         -----------  -------------
<S>                                      <C>          <C>
Balance at January 1, 1994.............   $    (235)    $   9,070
  Net income...........................                       519
  Retirement of 258,843 shares of ESOP
    preferred stock....................                        (4)
  Conversion of Series A preferred
    stock into 42,000,000 shares of
    common stock.......................                        --
  Issuance of 26,675,000 shares of
    Series C preferred stock...........                     1,734
  Issuance of 2,781,575 shares of
    common stock.......................                        80
  Repurchase and cancellation of 52,456
    shares of common stock.............                        (1)
  Foreign currency translation, net....                       (62)
  Dividends............................                      (393)
  ESOP note payments received..........          25            25
  Other................................         (12)          (60)
                                              -----   -------------
Balance at December 31, 1994...........        (222)       10,908
  Net income...........................                       611
  Retirement of 324,453 shares of ESOP
    preferred stock....................                        (5)
  Exchange of preferred securities of a
    subsidiary for 37,956 shares of
    Series B preferred stock...........                      (954)
  Issuance of 543,787 shares of common
    stock..............................                        13
  Repurchase and cancellation of 67,222
    shares of common stock.............                        (2)
  Gain on sale of Nabisco Holdings'
    common stock.......................                       401
  Foreign currency translation, net....                       (12)
  Dividends............................                      (679)
  ESOP note payments received..........          27            27
  Other................................          43            21
                                              -----   -------------
Balance at December 31, 1995...........        (152)       10,329
  Net income...........................                       611
  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.......................                        --
  Foreign currency translation, net....                       (45)
  Dividends............................                      (708)
  ESOP note payments received..........          34            34
  Other................................           9            16
                                              -----   -------------
Balance at December 31, 1996...........   $    (109)    $  10,148
                                              -----   -------------
                                              -----   -------------
</TABLE>
 
------------------------
* The number of shares of common stock, par value $.01, authorized at December
31, 1996 was 440,000,000.
 Common shares outstanding: 1996 - 270,197,008 and 1995 - 272,807,942.
 
                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 80.5% 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 1996
presentation.
 
    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 principally 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, 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
 
    Advertising costs are generally expensed as incurred.
 
                                      F-7
<PAGE>
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    EARNINGS PER SHARE
 
    Earnings per share is based upon the weighted average number of shares of
common stock and convertible depositary shares outstanding during the period and
common stock assumed to be outstanding to reflect the effect of dilutive options
of both RJRN Holdings and Nabisco Holdings. Other potentially dilutive
securities are not included in the earnings per share calculation because the
effect of including such securities would be anti-dilutive.
 
    FOREIGN CURRENCY ARRANGEMENTS
 
    Forward foreign exchange contracts and other hedging arrangements entered
into generally mature at the time the hedged foreign currency transactions are
settled. Gains or losses on forward foreign exchange contracts are determined by
changes in market rates and are generally included at settlement in the basis of
the underlying hedged transaction. To the extent that the underlying hedged
foreign currency transaction does not occur, gains and losses are recognized
immediately.
 
    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.
 
    NEW ACCOUNTING PRONOUNCEMENTS
 
    On January 1, 1996, RJRN Holdings and its subsidiaries adopted Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of ("SFAS No. 121").
The adoption of SFAS No. 121 did not have a material impact on the financial
position or results of operations of RJRN Holdings and its subsidiaries.
 
    On January 1, 1996, RJRN Holdings and its subsidiaries adopted Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
("SFAS No. 123"). SFAS No. 123 granted companies the option to recognize and
measure compensation costs related to employee stock plans based on either the
fair value of the award at date of grant or the difference between the quoted
market price of the stock at the date the award is granted over the amount the
employee must pay to acquire the stock (the "intrinsic value based method").
RJRN Holdings and its subsidiaries elected to continue to apply the intrinsic
value based method, which generally does not result in compensation expense for
fixed stock option plans.
 
    In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities ("SFAS No. 125"), which
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996. The adoption of SFAS No. 125 is not expected to have any impact on the
financial position or results of operations of RJRN Holdings and its
subsidiaries.
 
    In October 1996, the AICPA's Accounting Standards Executive Committee issued
Statement of Position No. 96-1, Environmental Remediation Liabilities ("SOP No.
96-1"). SOP No. 96-1 is required to be adopted for years beginning January 1,
1997. The adoption of SOP No. 96-1 is not expected to have a material effect on
the financial position or results of operations of RJRN Holdings and its
subsidiaries.
 
NOTE 2--RESTRUCTURING
 
    Nabisco Holdings recorded a pre-tax restructuring expense of $428 million
($241 million after-tax, net of minority interest) in the second quarter of 1996
in order to streamline operations and improve
 
                                      F-8
<PAGE>
NOTE 2--RESTRUCTURING (CONTINUED)
profitability. The $428 million restructuring expense will require cash
expenditures of approximately $230 million. In addition to the restructuring
expense, approximately $97 million was recognized during 1996 for implementation
and integration expenses, principally for the relocation of employees and
equipment and for training. After completion of the 1996 restructuring program,
pre-tax savings are expected to be approximately $200 million annually,
beginning in 1998. The major components of the $428 million restructuring
expense are domestic and international severance and related benefits associated
with workforce reductions totaling approximately 6,000 employees (approximately
$194 million), estimated losses from disposals of equipment and packaging
materials related to product line rationalizations, which will eliminate
production of more than 300 SKU's (stock keeping units) of slow-moving products
(approximately $116 million), estimated losses to write-down the carrying value
of several non-strategic product lines prior to sale (approximately $51
million), estimated costs to terminate manufacturing supply and distribution
contracts (approximately $45 million) and estimated losses from disposals of
property related to international plant closures and domestic and international
facility reorganizations (approximately $22 million). As of December 31, 1996,
approximately $156 million of the 1996 restructuring program accruals were
utilized as follows: $69 million for severance and related benefits; $63 million
for product line rationalizations; $18 million for contract terminations and $6
million for plant closures. The specific operations and geographic locations of
the restructured businesses within each of the domestic and international food
businesses is as follows: The restructuring expense for the domestic food
business amounted to $353 million and consisted of approximately $238 million
for Nabisco Biscuit, $29 million for Food Service and $20 million for Specialty
Products, with the remainder of approximately $66 million for Nabisco corporate
headquarters operations, the Sales & Integrated Logistics Group and other
business units. The restructuring expense for the international food business
amounted to $75 million and primarily consisted of approximately $51 million for
Latin American operations, (including $31 million for Brazil), $11 million for
Canada and $10 million for Iberia.
 
    RJRN Holdings recorded a pre-tax restructuring expense of $154 million ($104
million after-tax) in the fourth quarter of 1995 to reorganize its worldwide
tobacco operations. The 1995 restructuring program, which was primarily
undertaken in order to streamline operations and improve profitability, was
substantially completed during 1996. A significant portion of the 1995
restructuring program was a cash expense. In addition to the $154 million
restructuring expense, approximately $49 million was recorded in the fourth
quarter of 1995 for the consolidation and relocation of the international
tobacco operations' headquarters facilities and certain of its sales offices.
The major components of the $154 million restructuring expense were workforce
reductions totaling 1,260 employees (approximately $132 million), the
rationalization and closing of facilities relating to the international tobacco
operations (approximately $8 million) and equipment and lease abandonments at
the domestic tobacco operations (approximately $14 million). Annual savings are
expected to be approximately $100 million.
 
    During the fourth quarter of 1994, RJRN Holdings recorded a $65 million
pre-tax charge related to a plan to realign its corporate headquarters'
functions, transferring certain responsibilities to the operating companies and
significantly streamlining the holding company. The majority of the charge was
related to accrued employee termination benefits (approximately $40 million).
The remainder of the charge (approximately $25 million) was related to the
abandonment of leases of certain corporate office facilities. The plan was
implemented in the first quarter of 1995 and was substantially completed during
1995.
 
NOTE 3--ACCOUNTS RECEIVABLE
 
    In 1996, certain domestic and foreign trade accounts receivable generated by
Nabisco and, prior to 1996, substantially all trade accounts receivable
generated by the domestic food and tobacco subsidiaries had been sold with
limited recourse. During 1996, 1995 and 1994, total proceeds of approximately
$6.4 billion, $8.0 billion and $7.9 billion, respectively, were received in
connection with this program. At
 
                                      F-9
<PAGE>
NOTE 3--ACCOUNTS RECEIVABLE (CONTINUED)
December 31, 1996 and 1995, the accounts receivable balance was reduced by
approximately $397 million and $418 million, respectively, due to the
receivables sold.
 
NOTE 4--INVENTORIES
 
    At December 31, 1996 and 1995, approximately $694 million and $1.0 billion,
respectively, of domestic tobacco inventories was valued under the LIFO method.
The current cost of LIFO inventories at December 31, 1996 and 1995 was greater
than the amount at which these inventories were carried on the consolidated
balance sheets by $166 million and $146 million, respectively.
 
    For the years ended December 31, 1996, 1995 and 1994, net income was
increased by approximately $35 million, $29 million and $10 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.
 
NOTE 5--SHORT-TERM BORROWINGS AND BORROWING ARRANGEMENTS
 
    Short-term borrowings at December 31, 1996 and 1995 consisted of the
following (Dollars in millions):
 
<TABLE>
<CAPTION>
                                                           1996                        1995
                                                --------------------------  --------------------------
<S>                                             <C>          <C>            <C>          <C>
                                                                AVERAGE                     AVERAGE
                                                  AMOUNT       YEAR-END       AMOUNT       YEAR-END
                                                OUTSTANDING  INTEREST RATE  OUTSTANDING  INTEREST RATE
                                                -----------  -------------  -----------  -------------
Nabisco Holdings:
  Revolving credit facility...................   $      --            --     $      --            --
  Domestic commercial paper...................       1,175           5.8%        1,289           6.0%
  International commercial paper..............          45           3.2%           34           6.2%
  Notes payable to banks......................         206          14.8%           42          12.6%
  Amount reclassified as long-term debt.......      (1,175)                     (1,289)
                                                -----------                 -----------
    Total Nabisco Holdings....................         251                          76
                                                -----------                 -----------
 
RJRN:
  Revolving credit facility...................          --            --            --            --
  Domestic commercial paper...................         297           6.2%          224           6.3%
  Notes payable to banks......................         358           6.4%          192           3.2%
  Amount reclassified as long-term debt.......        (297)                       (224)
                                                -----------                 -----------
    Total RJRN................................         358                         192
                                                -----------                 -----------
    Total short-term
      borrowings..............................   $     609                   $     268
                                                -----------                 -----------
                                                -----------                 -----------
</TABLE>
 
    RJRN maintains a $2.75 billion revolving credit facility, of which no
borrowings were outstanding at December 31, 1996, and a 364-day $650 million
credit facility primarily to support commercial paper issuances, of which
approximately $353 million was available at December 31, 1996. On June 3, 1996,
the maturity of the revolving credit facility was extended to June 6, 1999 and
the 364-day credit facility was renewed through June 2, 1997. The commitments
under the revolving credit facility decline to approximately $2.4 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.
 
                                      F-10
<PAGE>
NOTE 5--SHORT-TERM BORROWINGS AND BORROWING ARRANGEMENTS (CONTINUED)
    In October 1996, Nabisco Holdings and Nabisco entered into a new five-year
$1.5 billion revolving credit facility and a 364-day $1.5 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. At December 31,
1996, no borrowings were outstanding under the revolving credit facility and
$325 million was available under the 364-day credit facility. 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 through their separate long-term
revolving credit facilities, domestic commercial paper and revolving credit
agreement borrowings were reclassified as long-term debt.
 
NOTE 6--ACCRUED LIABILITIES
 
    Accrued liabilities at December 31, 1996 and 1995 consisted of the following
(Dollars in millions):
 
<TABLE>
<CAPTION>
                                                                       1996           1995
                                                                   -------------  -------------
<S>                                                                <C>            <C>
    Payroll and employee benefits................................    $     552      $     484
    Marketing and advertising....................................          461            532
    Excise taxes.................................................          255            277
    Restructuring................................................          210            152
    Accrued interest.............................................          202            254
    Other........................................................        1,004            950
                                                                        ------         ------
                                                                     $   2,684      $   2,649
                                                                        ------         ------
                                                                        ------         ------
</TABLE>
 
NOTE 7--INCOME TAXES
 
    The provision for income taxes consisted of the following (Dollars in
millions):
 
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31                                                      1996             1995             1994
----------------------------------------------------------------------  ---------------  ---------------  ---------------
<S>                                                                     <C>              <C>              <C>
Current:
  Federal.............................................................     $     471        $     525        $     401
  Foreign and other...................................................           234              227              221
                                                                               -----            -----            -----
                                                                                 705              752              622
                                                                               -----            -----            -----
Deferred:
  Federal.............................................................          (147)            (190)             (40)
  Foreign and other...................................................            27               18               29
                                                                               -----            -----            -----
                                                                                (120)            (172)             (11)
                                                                               -----            -----            -----
Provision for income taxes............................................     $     585        $     580        $     611
                                                                               -----            -----            -----
                                                                               -----            -----            -----
</TABLE>
 
                                      F-11
<PAGE>
NOTE 7--INCOME TAXES (CONTINUED)
    The components of the deferred income tax liability disclosed on the
consolidated balance sheet at December 31, 1996 and 1995 included the following
(Dollars in millions):
 
<TABLE>
<CAPTION>
                                                                                         1996       1995
                                                                                       ---------  ---------
<S>                                                                                    <C>        <C>
Deferred tax assets:
  Pension and other postretirement liabilities.......................................  $    (403) $    (439)
  Restructuring and other accrued liabilities........................................       (242)      (142)
                                                                                       ---------  ---------
        Total deferred tax assets....................................................       (645)      (581)
                                                                                       ---------  ---------
 
Deferred tax liabilities:
  Property and equipment.............................................................        963      1,008
  Trademarks.........................................................................      2,755      2,765
  Other..............................................................................        446        427
                                                                                       ---------  ---------
        Total deferred tax liabilities...............................................      4,164      4,200
                                                                                       ---------  ---------
          Net deferred tax liabilities before valuation allowance....................      3,519      3,619
  Valuation allowance................................................................         86         47
                                                                                       ---------  ---------
  Net deferred income taxes..........................................................  $   3,605  $   3,666
                                                                                       ---------  ---------
                                                                                       ---------  ---------
</TABLE>
 
    Pre-tax income for domestic and foreign operations is shown in the following
table (Dollars in millions):
 
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31                                                     1996           1995           1994
----------------------------------------------------------------------  -------------  -------------  -------------
<S>                                                                     <C>            <C>            <C>
Domestic (includes U.S. exports)......................................    $     554      $     782      $     867
Foreign...............................................................          645            484            508
                                                                             ------         ------         ------
Pre-tax income........................................................    $   1,199      $   1,266      $   1,375
                                                                             ------         ------         ------
                                                                             ------         ------         ------
</TABLE>
 
                                      F-12
<PAGE>
NOTE 7--INCOME TAXES (CONTINUED)
    The differences between the provision for income taxes and income taxes
computed at statutory U.S. federal income tax rates are explained as follows
(Dollars in millions):
 
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31                                              1996             1995             1994
--------------------------------------------------------------  ---------------  ---------------  ---------------
<S>                                                             <C>              <C>              <C>
Income taxes computed at statutory U.S. federal income tax
  rates.......................................................     $     420        $     443        $     481
State and local income taxes, net of federal tax benefits.....            55               52               54
Goodwill amortization.........................................           132              125              124
Taxes on foreign operations at rates different than statutory
  U.S. federal rate...........................................            (9)              (4)              (6)
Exempt foreign sales corporation earnings.....................            (7)             (15)             (14)
Other items, net..............................................            (6)             (21)             (28)
                                                                       -----            -----            -----
Provision for income taxes....................................     $     585        $     580        $     611
                                                                       -----            -----            -----
                                                                       -----            -----            -----
Effective tax rate............................................          48.8%            45.8%            44.5%
                                                                       -----            -----            -----
                                                                       -----            -----            -----
</TABLE>
 
    At December 31, 1996, there was $1.899 billion of accumulated and
undistributed income of foreign subsidiaries. These earnings are intended by
management to be reinvested abroad indefinitely. Accordingly, no applicable U.S.
federal deferred income taxes have been provided nor is a determination of the
amount of unrecognized U.S. federal deferred income taxes practicable.
 
NOTE 8--LONG-TERM DEBT
 
    Long-term debt at December 31, 1996 and 1995 consisted of the following
(Dollars in millions):
 
<TABLE>
<CAPTION>
                                                                                                   1996       1995
                                                                                                 ---------  ---------
<S>                                                                                              <C>        <C>
Nabisco Holdings:
  Short-term borrowings, reclassified..........................................................  $   1,175  $   1,289
  6.7-8.3% Notes, due 1997 through 2015........................................................      2,938      2,942
  Other indebtedness...........................................................................        124        148
  Current maturities of long-term debt.........................................................        (24)       (24)
                                                                                                 ---------  ---------
      Total Nabisco Holdings long-term debt....................................................      4,213      4,355
                                                                                                 ---------  ---------
RJRN:
  Short-term borrowings, reclassified..........................................................        297        224
  6.25-9.25% Notes, due 1997 through 2013......................................................      4,122      4,238
  5.375-10% foreign currency debt, due 2000 to 2001............................................        501        548
  Other indebtedness...........................................................................        162        190
  Current maturities of long-term debt.........................................................        (39)      (126)
                                                                                                 ---------  ---------
      Total RJRN long-term debt................................................................      5,043      5,074
                                                                                                 ---------  ---------
      Total long-term debt.....................................................................  $   9,256  $   9,429
                                                                                                 ---------  ---------
                                                                                                 ---------  ---------
</TABLE>
 
------------------------
 
The payment of long-term debt through December 31, 2001 is as follows (in
    millions): 1998--$40; 1999-- $952; 2000--$2,423 and 2001--$647.
 
                                      F-13
<PAGE>
NOTE 8--LONG-TERM DEBT (CONTINUED)
 
    During 1995 and 1994, RJRN Holdings, RJRN, Nabisco Holdings and Nabisco
entered into a series of transactions designed to refinance long-term debt,
lower debt levels, manage interest rate exposure and refinance certain preferred
securities.
 
    In connection with the refinancing of certain long-term debt during 1995 and
1994, extraordinary losses of approximately $29 million ($16 million after-tax,
net of minority interest) and $377 million ($245 million after-tax),
respectively, were recorded.
 
    Also during 1995, RJRN and Nabisco completed a debt exchange, that was
designed, among other things, to enable Nabisco to obtain long-term debt
financing independent of RJRN and to repay its intercompany debt to RJRN. At the
same time, Nabisco borrowed approximately $2.4 billion under a new credit
agreement to repay or repurchase the remaining approximately $2.3 billion of
intercompany debt and repay approximately $125 million of outstanding borrowings
under an earlier bank credit agreement. RJRN applied the payments received from
Nabisco to repay a portion of its borrowings under its bank credit agreement.
Consolidated other income (expense), net for 1995 includes a pre-tax charge of
approximately $103 million for fees and expenses incurred in connection with
this debt exchange and related solicitation of consents by RJRN to certain
indenture modifications from holders of certain RJRN debt.
 
    In September 1995, RJRN Holdings issued approximately $978 million principal
amount of 10% junior subordinated debentures to a newly formed subsidiary trust.
The subsidiary, in turn, issued $949 million principal amount of its preferred
securities in exchange for an equal amount of RJRN Holdings' Series B preferred
stock outstanding. RJRN Holdings retired the exchanged Series B preferred stock,
leaving $301 million outstanding. The junior subordinated debentures may be
redeemed at $25 per debenture by RJRN Holdings on or after August 19, 1998 and
are due in December 2044. Cash distributions on the preferred securities issued
by the subsidiary 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, 1996, approximately $4.9 billion of total debt (notes
payable and long-term debt, including current maturities) was owed by RJRN and
approximately $5.0 billion was owed by its subsidiaries.
 
    The estimated fair value of RJRN Holdings' consolidated long-term debt as of
December 31, 1996 and 1995 was approximately $9.4 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, none of which, by policy, may
include any written optionality. See note 10 to the consolidated financial
statements for further information regarding interest rate arrangements.
 
    Distributions and the payment of dividends by RJRN Holdings are subject to
certain restrictions under certain financing agreements and debt instruments.
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.
 
    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.
 
                                      F-14
<PAGE>
NOTE 8--LONG-TERM DEBT (CONTINUED)
    RJRN Holdings adopted a policy setting forth its intention not to make a
distribution to shareholders prior to December 31, 1998 of shares of capital
stock of a subsidiary if that distribution would cause the ratings of the senior
indebtedness of RJRN to be reduced from investment grade to non-investment grade
or if, after giving effect to such distribution, any publicly held senior
indebtedness of the distributed company would not be rated investment grade. The
board of directors of RJRN Holdings is committed to effecting a spin-off of
Nabisco Holdings at the appropriate time. There is no assurance that any such
distribution will take place. Additional policies provide that an amount equal
to the net cash proceeds from any issuance and sale of equity by RJRN Holdings
or from any sale outside the ordinary course of business of material assets
owned or used by subsidiaries in the tobacco business, in each case before
December 31, 1998, will be used either to repay, purchase or redeem consolidated
indebtedness or to acquire properties, assets or businesses to be used in
existing or new lines of business and that an amount equal to the net cash
proceeds of any secondary sale of shares of Nabisco Holdings before December 31,
1998 will be used to repay, purchase or redeem consolidated debt. No assurance
can be given that RJRN Holdings will issue or sell any equity or sell any
material assets outside the ordinary course of business.
 
NOTE 9--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) 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 1996, 203 new
actions were filed or served against RJRT and/or its affiliates or indemnitees
and 103 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, 1996 there were
234 active cases pending, as compared with 132 on December 31, 1995 and only 54
on December 31, 1994. As of February 28, 1997, 270 active cases were pending
against RJRT and/or its affiliates or indemnitees, 268 in the United States, one
in Canada and one in Puerto Rico.
 
    The United States cases are in 33 states and are distributed as follows: 117
in Florida, 26 in New York, 36 in Texas, 15 in Louisiana, eight in Alabama,
seven in California, six in each of Kansas, Mississippi and Indiana, five in New
Jersey, three in each of Minnesota, Ohio, Pennsylvania and Tennessee, two in
each of Colorado, Connecticut, Maryland, Massachusetts and Michigan, and one
each in Arizona, Arkansas, District of Columbia, Illinois, Iowa, Nevada, New
Mexico, New Hampshire, Oklahoma, Rhode Island, Utah, Washington, West Virginia
and Wisconsin. Of the 268 active cases in the United States, 170 are pending in
state court and 98 in federal court. Most of these cases are brought by
individual plaintiffs, but an increasing number, discussed below, seek recovery
on behalf of states 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, anti-trust, Racketeer
Influenced and Corrupt Organization Act ("RICO"), indemnity 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. Seven of the 268 active
cases in the United States involve alleged non-smokers claiming injuries
resulting from exposure to environmental tobacco smoke. Nineteen 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, flight attendants
alleging personal injury from exposure to environmental tobacco
 
                                      F-15
<PAGE>
NOTE 9--COMMITMENTS AND CONTINGENCIES (CONTINUED)
smoke in their workplace and Blue Cross/Blue Shield subscribers claiming
reimbursement for premiums paid. Twenty seven of the active cases seek, INTER
ALIA, recovery of the cost of Medicaid funds paid for treatment of individuals
suffering from diseases or conditions allegedly related to tobacco.
 
    DEFENSES.  The defenses raised by RJRT and/or its affiliates, where
applicable, include preemption by the Federal Cigarette Labeling and Advertising
Act ("the Cigarette Act") of some or all such claims arising after 1969; the
lack of any defect in the product; assumption of the risk; comparative fault;
lack of proximate cause; and statutes of limitations or repose; and, in the
attorneys general cases (discussed below), additional constitutional defenses.
RJRN has asserted additional defenses, including jurisdictional defenses, in
many of the cases in which it is named. Juries have found for plaintiffs in
three smoking and health cases in which RJRT was not a defendant, but 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. The defendants in
that case, CARTER V. BROWN & WILLIAMSON, are seeking to reverse the judgment on
appeal.
 
    On June 24, 1992, the United States Supreme Court in CIPOLLONE held that
claims that tobacco companies failed adequately to warn of the risks of smoking
after 1969 and claims that their advertising and promotional practices
undermined the effect of warnings after that date were preempted by the
Cigarette Act. The Supreme Court also held that certain claims sounding in
breach of express warranty, fraud, misrepresentation and conspiracy were not
preempted.
 
    CERTAIN CLASS ACTION SUITS.  In May 1996, there was an important ruling in
one of the purported class action cases, CASTANO V. THE AMERICAN TOBACCO
COMPANY, originally filed in March 1994 in the United States District Court for
the Eastern District of Louisiana against tobacco industry defendants, including
RJRT and RJRN. Plaintiffs sought to obtain certification of a class action on
behalf of all United States residents who allegedly are or claim to be addicted,
or are the legal survivors of persons who allegedly were addicted, to tobacco
products manufactured by defendants. The complaint alleged that cigarette
manufacturers manipulated the levels of nicotine in their tobacco products to
induce addiction in smokers. Plaintiffs' motion for certification of the class
was granted in part on February 17, 1995 but, on May 23, 1996, the Fifth Circuit
Court of Appeals overturned the certification and ordered the case remanded to
the district court for decertification of the class on the grounds that a class
consisting of all "addicted" smokers failed to meet the standards and
requirements of Federal Rule 23 governing class actions. The class has been
decertified.
 
    Since the federal appeals court decision in CASTANO, class action suits
based on similar claims have been brought in state courts in Alabama, Arkansas,
the District of Columbia (D.C. court), Louisiana, Maryland, Minnesota, New
Mexico, Ohio, Pennsylvania and New York. A similar suit had previously been
filed in Indiana. Similar suits are also expected to be filed in additional
jurisdictions. Each such suit asserts claims on behalf of residents of the
particular state who allegedly are or claim to be addicted, or are the legal
survivors of such persons. In addition, two earlier class action suits are still
pending in Florida. In one case, ENGLE V. R.J. REYNOLDS TOBACCO COMPANY, a class
consisting of Florida residents or their survivors who claim to have diseases or
medical conditions caused by their "addiction" to cigarettes has been certified,
and a petition to review the certification has been denied. Notice to the class
is in progress and the case is scheduled for trial in September 1997. In a
second case, BROIN V. PHILIP MORRIS COMPANY, a class consisting of all
non-smoking flight attendants who work or have worked for U.S. airlines has been
certified, and a mandamus petition to reverse this certification was denied.
Notice to the class is now in progress and the case is scheduled for trial in
June 1997. Pre-CASTANO class action suits are also pending in Alabama and
 
                                      F-16
<PAGE>
NOTE 9--COMMITMENTS AND CONTINGENCIES (CONTINUED)
Louisiana. A class action filed in Tennessee seeks reimbursement of Blue
Cross/Blue Shield premiums paid by subscribers throughout the United States.
 
    THE ATTORNEYS GENERAL AND RELATED CASES.  In June 1994, the Mississippi
attorney general brought an action, MOORE V. THE AMERICAN TOBACCO COMPANY,
against various industry members including RJRT. The case was brought on behalf
of the state to recover state funds paid for health care and medical and other
assistance to state citizens suffering from diseases and conditions allegedly
related to tobacco use. This suit, which was brought in Chancery (non-jury)
Court, Jackson County, Mississippi, also seeks an injunction against "promoting"
or "aiding and abetting" the sale of cigarettes to minors. Both actual and
punitive damages are sought in unspecified amounts. Motions by the defendants to
dismiss the case or to transfer it to circuit (jury) court were denied on
February 21, 1995 and the case is scheduled for trial on June 2, 1997. RJRN and
other industry holding companies have been voluntarily dismissed from the case.
 
    Following the filing of the MOORE case referred to above, other states,
through their attorneys general and/or other state agencies, have sued RJRT and
other U.S. cigarette manufacturers as well as, in some instances, their parent
companies, in actions to recover the costs of medical expenses incurred by the
state or its agencies in the treatment of diseases allegedly caused by cigarette
smoking. Some of these cases also seek injunctive relief and treble damages for
state and/or federal antitrust law and RICO violations. On February 28, 1997,
there were 20 such cases pending in the following states: Arizona, Connecticut,
Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Massachusetts,
Michigan, Minnesota, Mississippi, New Jersey, Oklahoma, Texas, Utah, Washington,
West Virginia and Wisconsin. The Mississippi case is the first such case
currently scheduled for trial, with a trial date set for June 2, 1997. The
Florida attorney general's case is scheduled for trial on August 4, 1997 and the
Texas case is scheduled for September 22, 1997.
 
    The suit by the State of Florida raises special issues because it was
brought under a July 1994 amendment to a Florida statute which allows the state
to bring an action in its own name against the tobacco industry to recover the
state's Medicaid payments for the treatment of illnesses statistically
associated with cigarette smoking. The amendment did not require the state to
identify the individuals who received medical care, permitted claims to be filed
in the aggregate and eliminated the comparative negligence and assumption of
risk defenses. The amendment was challenged on state and federal constitutional
grounds in a lawsuit brought by Philip Morris Companies Inc., Associated
Industries of Florida and others in June 1994. The case was appealed to the
Florida Supreme Court which, on June 27, 1996, issued its opinion limiting the
amendment in several respects. Among other things, the court ruled: that
provisions abrogating affirmative defenses available to tobacco companies if
sued by individuals could only be applied to claims brought by the state arising
out of payments made after July 1, 1994, the effective date of the amendment;
that the state must identify individual recipients of Medicaid payments; and
that claims previously barred by the statute of repose could not be revived. The
Florida Supreme Court, in a 4-3 decision, expressly stated that although it
found provisions of the statute to be "facially" constitutional, it was
specifically leaving open the right to challenge those provisions as applied in
any specific lawsuit. The plaintiffs in that lawsuit have sought United States
Supreme Court review of the Florida Supreme Court's decision, to determine
whether the Florida statute, by which the State of Florida conferred on itself a
unique cause of action and which directs courts to abrogate common law and
equitable principles, including affirmative defenses, is unconstitutional under
the Fourteenth Amendment to the United States Constitution.
 
    In an order dated September 16, 1996, the Florida trial court hearing the
attorney general's case applied the Florida Supreme Court decision to that case.
The order dismissed fifteen of plaintiff's eighteen causes of action, but left
standing the claims of negligence and/or products liability and one count of the
complaint which seeks to enjoin certain acts including the sale of cigarettes to
minors. It also required the
 
                                      F-17
<PAGE>
NOTE 9--COMMITMENTS AND CONTINGENCIES (CONTINUED)
attorney general to identify the individual Medicaid recipients for whom the
state is seeking recovery within 30 days and precluded recovery by the state on
payments made prior to July 1994, except by subrogation and assignment.
Following this ruling, the State of Florida filed an amended complaint that
restated the counts of the prior complaint left standing by the September order
and added five additional counts. One of these counts alleged various statutory
and criminal violations arising under the Florida Drug and Cosmetic Act, based
on alleged wrongful and illegal targeting of minors, fraudulent practices,
public nuisance and deceptive and unfair trade practices. The other four new
counts alleged violations of various sections of the Florida RICO Act.
Defendants' motion to dismiss the RICO counts was denied.
 
    In addition to the 20 actions brought by the various state attorneys
general, seven actions advancing similar theories have been brought by private
attorneys and/or local officials purportedly on behalf of the citizens of
certain states, counties and/or cities.
 
    RJRT and most other cigarette manufacturers are defending these attorneys
general and related cases vigorously (as is RJRN in the cases where it is a
named defendant). In addition, these defendants have filed for declaratory
judgment in several of the states in which the attorneys general cases are
pending or threatened, including Massachusetts (federal court), Texas (state
court), Maryland (state court), Connecticut (federal court), Utah (state court),
New Jersey (state court), Alaska (federal court) and Hawaii (federal court).
Motions to dismiss on behalf of the defendants in two of the declaratory
judgment actions (Maryland and Connecticut) have been granted. RJRT and the
other cigarette manufacturers involved in those two cases have noticed appeals
seeking to overturn these rulings.
 
    RECENT AND SCHEDULED TRIALS.  As of February 28, 1997, there were 17 cases
scheduled for trial in 1997 against RJRT and/or RJRN alleging injuries relating
to tobacco. Among these are three class action suits and four attorneys general
suits. Cases against other tobacco company defendants are also scheduled for
trial in 1997 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 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 infrequent.
 
    OTHER DEVELOPMENTS.  On March 12, 1996, defendants Brooke Group and Liggett
Group, Inc. stated they had reached agreement with the CASTANO plaintiffs to
settle that case. On April 4, 1996, Liggett Group, Liggett & Myers and Brooke
Group filed settlement statements in the Massachusetts, West Virginia,
Mississippi, Louisiana and Florida attorneys general cases. The settlements
would be available to any other defendant whose share of the U.S. cigarette
market is less than 30% if it acquires or is acquired by Liggett, and Liggett
can terminate each settlement upon the occurrence of certain events including
the decertification of the CASTANO case, an event that has now occurred.
According to press reports, negotiations to extend these settlements to other
attorneys general cases are ongoing. All other cigarette manufacturers,
including RJRT, announced their intent to continue to defend the cases.
 
    Legislation similar to the Florida legislation described above (facilitating
Medicaid recovery suits and stripping defendants of certain defenses) was
introduced in the legislatures of 12 states in 1996. None was enacted. RJRT is
unable to predict whether legislation will be enacted in these states, whether
other states will introduce and enact similar legislation, whether lawsuits will
be filed under such statutes, if enacted, or the outcome of any such lawsuits,
if filed.
 
    RJRT understands that a grand jury investigation being conducted in the
Eastern District of New York is examining possible violations of criminal law in
connection with activities relating to the Council for Tobacco Research--USA,
Inc., of which RJRT is a sponsor. RJRT has responded, and will continue to
respond to document subpoenas issued by this grand jury. On March 20, 1996, RJRT
and RJRN each received a subpoena from a Federal grand jury sitting in the
Southern District of New York. RJRT and
 
                                      F-18
<PAGE>
NOTE 9--COMMITMENTS AND CONTINGENCIES (CONTINUED)
RJRN understand that this investigation is no longer active in the Southern
District of New York and has been transferred to the District of Columbia. In
addition, subpoenas dated May 24, 1996, November 8, 1996 and December 5, 1996
were served on RJRT by a grand jury sitting in the District of Columbia. RJRT is
in the process of responding to those subpoenas. RJRN and RJRT are unable to
predict the outcome of these investigations.
 
    RJRT has received civil investigative demands from the United States
Department of Justice requiring RJRT to produce documents and respond to
interrogatories relating to the possibility of joint activity to restrain
competition in the manufacture and sale of cigarettes, including possible joint
activity to restrict research and development or product innovations. RJRT was
informed, by letter dated November 13, 1996, that the United States Department
of Justice had closed its investigation.
 
                            ------------------------
 
    Litigation is subject to many uncertainties, and it is possible that some of
the tobacco-related legal actions, proceedings or claims could be decided
against RJRT or its affiliates (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 also been a number of political, legislative, regulatory and
other developments relating to the tobacco industry and cigarette smoking that
have received wide media attention. 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 and RJRN, 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 all
such actions vigorously. RJRN Holdings and RJRN also believe they have valid
defenses for such actions and intend to defend vigorously all such actions in
which they are named defendants.
 
    RJRN Holdings and RJRN believe that the ultimate outcome of all pending
litigation matters (including litigation costs) should not have a material
adverse effect on the financial position of either RJRN Holdings or RJRN;
however, it is possible that the results of operations or cash flows of RJRN
Holdings or RJRN in particular quarterly or annual periods or the financial
condition of RJRN Holdings and RJRN could be materially affected by the ultimate
outcome of certain pending litigation matters (including litigation costs).
Management is unable to derive a meaningful estimate of the amount or range of
any possible loss in any particular quarterly or annual period or in the
aggregate.
 
                            ------------------------
 
ENVIRONMENTAL MATTERS
 
    The U.S. Government and various state and local governments have enacted or
adopted laws and regulations concerning protection of the environment. The
regulations promulgated by the Environmental Protection Agency and other
governmental agencies under various statutes have resulted in, and will likely
continue to result in, substantial expenditures for pollution control, waste
treatment, plant modification and similar activities.
 
    In April 1995, RJRN Holdings was named a potentially responsible party (a
"PRP") with certain third parties under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") with respect to a superfund
site at which a former subsidiary of RJRN had operations. Certain subsidiaries
of RJRN Holdings and RJRN have also been named as PRPs with third parties or may
have indemnification obligations with respect to a number of additional sites.
Liability under CERCLA is joint and several.
 
                                      F-19
<PAGE>
NOTE 9--COMMITMENTS AND CONTINGENCIES (CONTINUED)
 
    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.
 
COMMITMENTS
 
    At December 31, 1996, commitments totalled approximately $720 million,
principally for minimum operating leases, the purchase of leaf tobacco
inventories and other contractual arrangements.
 
NOTE 10--FINANCIAL INSTRUMENTS
 
INTEREST RATE ARRANGEMENTS
 
    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, none of which, by policy, may
include any written optionality.
 
    RJRN did not enter into any financial interest rate arrangements during 1996
and 1995. During 1994, RJRN cancelled all of its financial interest rate
arrangements with optionality following adoption of a policy change and also
effectively neutralized the future impact of any changes in market interest
rates on the remainder of its outstanding interest rate arrangements through the
purchase of offsetting positions. As a result of these offsetting positions, the
net notional principal amount of outstanding interest rate arrangements has been
$0. Any unrealized gains and losses on the interest rate arrangements remaining
at the time of offset have been substantially amortized as additional interest
expense as follows: 1996--$28 million and 1995--$39 million. Interest rate
activities during 1994 increased interest expense $22 million, which includes
$45 million associated with written interest rate arrangements. At December 31,
1996, the aggregate notional principal amount of outstanding interest rate
arrangements, including the offsetting positions, was $1.6 billion. These
arrangements substantially mature in 1997.
 
    Nabisco, in coordination with RJRN Holdings, began managing its own interest
rate exposure during 1995 by entering into interest rate arrangements to
effectively fix a portion of its interest rate exposure on its floating rate
debt. The impact of these arrangements has not been significant. At December 31,
1996, Nabisco has outstanding interest rate caps with an aggregate notional
principal amount of $1.5 billion, $500 million of which became effective during
1997. These arrangements expire during 1997.
 
    The carrying amounts and estimated fair values of interest rate arrangements
entered into as of December 31, 1996 and 1995 were as follows (Dollars in
millions):
 
<TABLE>
<CAPTION>
                                                                          1996                              1995
                                                            --------------------------------  --------------------------------
                                                                  ASSETS/(LIABILITIES)              ASSETS/(LIABILITIES)
                                                            --------------------------------  --------------------------------
                                                             CARRYING VALUE     FAIR VALUE     CARRYING VALUE     FAIR VALUE
                                                            -----------------  -------------  -----------------  -------------
<S>                                                         <C>                <C>            <C>                <C>
Interest rate swaps:
  Variable rate pay swaps.................................      $      (1)       $      (2)       $      (1)       $      --
  Fixed rate pay swaps....................................      $      (6)       $     (10)       $     (11)       $     (46)
Interest rate caps........................................      $       2        $       1        $       3        $       1
</TABLE>
 
                                      F-20
<PAGE>
NOTE 10--FINANCIAL INSTRUMENTS (CONTINUED)
FOREIGN CURRENCY ARRANGEMENTS
 
    RJRN Holdings and its subsidiaries have significant exposure to foreign
exchange sale and purchase transactions in currencies other than their
functional currencies. Their exposures 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 and Spanish peseta.
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, foreign currency hedging activities are entered into 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. Such contracts are primarily entered into
to hedge future firm commitments.
 
    At December 31, 1996 and 1995, RJRN Holdings and its subsidiaries had
approximately $608 million and $526 million, respectively, of outstanding
foreign exchange contracts with banks in which foreign currencies (primarily the
Swiss franc, Spanish peseta, Canadian dollar and the German mark) were
purchased, and approximately $245 million and $575 million, respectively, of
outstanding foreign exchange contracts in which foreign currencies (primarily
the Japanese yen, British pound, French franc and Finnish markka) were sold. The
weighted average maturity of the arrangements outstanding at December 31, 1996
approximated two months.
 
    At December 31, 1996 and 1995, the carrying amounts and estimated fair
values of foreign currency arrangements entered into were as follows (Dollars in
millions):
 
<TABLE>
<CAPTION>
                                                                        1996                          1995
                                                            ----------------------------  ----------------------------
                                                                ASSETS/(LIABILITIES)          ASSETS/(LIABILITIES)
                                                            ----------------------------  ----------------------------
                                                            CARRYING VALUE   FAIR VALUE   CARRYING VALUE   FAIR VALUE
                                                            ---------------  -----------  ---------------  -----------
<S>                                                         <C>              <C>          <C>              <C>
Forward foreign exchange contracts to purchase foreign
 currencies...............................................     $  (7)         $  (7)         $  --          $   1
Forward foreign exchange contracts to sell foreign
 currencies...............................................     $  12          $  13          $   2          $   8
</TABLE>
 
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 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 11--CAPITAL STOCK AND PAID-IN CAPITAL
 
    The outstanding capital stock of RJRN Holdings at December 31, 1996
consisted of common stock, Series B preferred stock (stated value of $25,000 per
share), Series C convertible preferred stock (par value
 
                                      F-21
<PAGE>
NOTE 11--CAPITAL STOCK AND PAID-IN CAPITAL (CONTINUED)
$.01 per share) 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, 1996) rank senior to common stock as to dividends and
liquidation preferences. In addition, Series B depositary shares and Series C
depositary shares were issued in connection with the issuance of the Series B
preferred stock and the Series C preferred stock. Each Series B depositary share
(12,043,940 outstanding at December 31, 1996 and 1995) represents a .001
ownership interest in a share of Series B preferred stock. Each Series C
depositary share (266,750,000 outstanding at December 31, 1996 and 1995)
represents a one-tenth ownership interest in a share of Series C preferred
stock.
 
    Each share of Series B preferred stock (12,044 shares issued and outstanding
at December 31, 1996 and 1995) bears cumulative cash dividends of $2,312.50 or
$2.3125 per Series B depositary share per annum, payable quarterly in arrears.
RJRN Holdings may redeem Series B preferred stock on or after August 19, 1998
resulting in the redemption of the Series B depositary shares at $25 per Series
B depositary share plus accrued and unpaid dividends.
 
    Each share of Series C preferred stock bears cumulative cash dividends of
$6.012 or $.6012 per Series C depositary share per annum, payable quarterly in
arrears. Each share of Series C preferred stock will mandatorily convert into
two shares of common stock on May 15, 1997, subject to adjustment, plus accrued
and unpaid dividends. In addition, RJRN Holdings may redeem Series C preferred
stock resulting in the redemption of the Series C depositary shares at a
redemption price to be paid in shares of common stock, plus accrued and unpaid
dividends.
 
    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 (14,558,920 and
14,990,677 shares issued and outstanding at December 31, 1996 and 1995,
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 6,423,948 and 8,585,461 at
December 31, 1996 and 1995, respectively. During 1996, 1995 and 1994,
approximately $28 million, $23 million and $22 million, respectively, was
contributed to the ESOP by RJRN Holdings and approximately $18 million, $19
million and $19 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.
 
    The completion in January 1995 of Nabisco Holdings' initial public offering
of 51,750,000 shares of its Class A common stock (par value $.01 per share at an
initial offering price of $24.50 per share) reduced RJRN's proportionate
economic interest in Nabisco Holdings from 100% to approximately 80.5%. An
adjustment to paid-in capital of $401 million was recorded to reflect an
increase in the carrying amount of RJRN's investment in Nabisco Holdings for the
difference between the initial public offering price and the book value of
Nabisco Holdings at the time of the offering.
 
    In March 1996, RJRN Holdings adopted a share repurchase objective of
approximately 10 million shares of common stock over the next several years
based upon the achievement of performance targets. During 1996, RJRN Holdings
repurchased 3,377,300 shares of common stock for approximately $100 million.
 
                                      F-22
<PAGE>
NOTE 12--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
exercisable for primarily ten years from the date of grant, and the exercise
price 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
21,000,000 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 the exercise price is
generally the fair market value of the stock at the grant date. As of December
31, 1996, purchase stock, stock options other than incentive stock options,
restricted stock and other stock-based grants have been granted under the LTIP.
 
    In 1995, employees of RJRN Holdings and its non-Nabisco subsidiaries
surrendered 8,378,449 options in exchange for a new grant of options under the
LTIP. These options are fully vested but are not exercisable for three years
thereafter. Also in 1995, certain key employees were granted premium options to
purchase shares of RJRN Holdings' common stock. These options had an exercise
price that was 10% above the fair market value on the date of the grant. In
connection with purchase stock grants awarded under the LTIP, 16,529 shares of
common stock of RJRN Holdings were purchased during 1995 and options to purchase
a specific number of shares were granted upon the optionee purchasing such
shares of common stock. During 1996, 1995 and 1994, 35,000 shares, 30,000 shares
and 884,100 shares, respectively, of RJRN Holdings' common stock were awarded in
connection with restricted stock grants. These shares are subject to
restrictions that generally lapse three years from the date of grant. Other
stock-based awards were made in 1996, 1995 and 1994 under the LTIP to
individuals who previously acquired certain purchase stock. Under this program,
such individuals received grants of common stock or cash at RJRN Holdings'
election on either three or four annual grant dates beginning July 1994 and
ending either July 1, 1996 or July 1, 1997 at market prices calculated based
upon a formula developed by RJRN Holdings.
 
    The changes in stock options under RJRN Holdings' stock plans are as
follows:
 
<TABLE>
<CAPTION>
                                                               1996                       1995                     1994
                                                     -------------------------  ------------------------  ----------------------
                                                                   WEIGHTED-
                                                                    AVERAGE
                                                                   EXERCISE                   EXERCISE                EXERCISE
                                                      OPTIONS        PRICE        OPTIONS       PRICE      OPTIONS      PRICE
                                                     ----------  -------------  -----------  -----------  ---------  -----------
Balance at beginning of year:
<S>                                                  <C>         <C>            <C>          <C>          <C>        <C>
  Stock Option Plan................................   1,274,621    $   26.55      3,754,672  $25.00-52.25 4,648,022  $25.00-52.25
  Long Term Incentive Plan.........................  13,581,314        28.57     12,411,651  22.60-57.80  12,926,527 22.60-57.80
Options granted:
  Stock Option Plan................................      74,456        31.10         14,400        30.00     32,160        34.40
  Long Term Incentive Plan.........................   3,717,991        34.64     12,823,060  26.88-32.25    355,400  27.50-37.20
Options exercised:
  Stock Option Plan................................    (458,728)       25.04       (153,960)       25.00   (918,947) 25.00-28.75
  Long Term Incentive Plan.........................    (136,384)       27.85        (14,137) 22.82-29.69     (7,171)       27.80
Options cancelled:
  Stock Option Plan................................      (2,280)       25.74     (2,340,491) 25.00-34.38     (6,563) 25.00-56.25
  Long Term Incentive Plan.........................    (267,667)       31.46    (11,639,260) 22.82-54.69   (863,105) 27.80-50.65
                                                     ----------                 -----------               ---------
Balance at end of year:
  Stock Option Plan................................     888,069        25.66      1,274,621  25.00-52.25  3,754,672  25.00-52.25
  Long Term Incentive Plan.........................  16,895,254        29.74     13,581,314  22.60-57.80  12,411,651 22.60-57.80
                                                     ----------                 -----------               ---------
                                                     17,783,323        29.54     14,855,935  22.60-57.80  16,166,323 22.60-57.80
                                                     ----------                 -----------               ---------
                                                     ----------                 -----------               ---------
</TABLE>
 
                                      F-23
<PAGE>
NOTE 12--STOCK PLANS (CONTINUED)
 
    In 1994, Nabisco Holdings adopted a long-term incentive plan which is
substantially similar to the LTIP except that stock-based awards are denominated
in shares of Class A common stock of Nabisco Holdings. In 1995, employees of
Nabisco Holdings with outstanding stock options granted under RJRN Holdings'
stock plans exchanged 4,968,214 (including Mr. Harper's exchange discussed
below) of these options for options in the Nabisco Holdings' stock plan. Charles
M. Harper, then chairman of the board of directors of Nabisco Holdings, was
permitted to surrender 50% of his outstanding LTIP options in exchange for
options in the Nabisco Holdings' stock plan. Also in 1995, employees of RJRN
Holdings with outstanding stock options under RJRN Holdings' stock plans
exchanged 264,989 of these options for options under the Nabisco Holdings' stock
plan. The Nabisco Holdings' stock options granted (5,971,858) in exchange for
the cancellation of RJRN Holdings' stock options are fully vested; however, such
Nabisco Holdings' stock options may not be exercised for three years thereafter.
During 1995, RJRN Holdings also purchased one-half of Mr. Harper's restricted
LTIP purchase shares (62,222 shares) at the then fair market value ($28.125 per
share). Such proceeds were used to acquire similarly restricted shares of
Nabisco Holdings' Class A common stock. In 1996, 14,672 shares of Nabisco
Holdings' Class A common stock were awarded under Nabisco Holdings' stock plan
as restricted stock.
 
    The changes in stock options under Nabisco Holdings' stock plan are as
follows:
 
<TABLE>
<CAPTION>
                                                                        1996
                                                              -------------------------
                                                                             WEIGHTED-              1995
                                                                              AVERAGE    --------------------------
                                                                             EXERCISE                   EXERCISE
                                                                OPTIONS        PRICE      OPTIONS        PRICE
                                                              ------------  -----------  ----------  --------------
<S>                                                           <C>           <C>          <C>         <C>
Balance at beginning of year................................     8,909,663   $   26.77       --            --
Options granted.............................................     3,114,200       33.83    9,043,263  $  24.50-29.38
Options cancelled...........................................      (295,982)      29.73     (133,600)    27.38-29.00
                                                              ------------               ----------
Balance at end of year......................................    11,727,881       28.57    8,909,663     24.50-29.38
                                                              ------------               ----------
                                                              ------------               ----------
</TABLE>
 
    Additional information for 1996 with respect to options under RJRN Holdings'
and Nabisco Holdings' stock plans are as follows:
 
<TABLE>
<CAPTION>
                                                                                     RJRN            NABISCO
                                                                                   HOLDINGS          HOLDINGS
                                                                                ---------------  ----------------
<S>                                                                             <C>              <C>
  Option price range at end of year...........................................    $22.815-52.50     $24.50-39.125
  Options exercisable at end of year..........................................        4,618,935              None
  Shares of common stock available for future grant...........................        3,680,316         4,872,119
  Weighted-average grant date fair value of options granted during year under
    the Black-Scholes option pricing model....................................            $7.06            $11.00
  Weighted-average exercise price of options exercisable at end of year.......           $30.46    Not applicable
  Weighted-average remaining contractual life of outstanding options at end of
    year......................................................................       11.5 years        12.1 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
 
                                      F-24
<PAGE>
NOTE 12--STOCK PLANS (CONTINUED)
upon the fair value of awards granted during 1996 and 1995, RJRN Holdings' net
income and earnings per share would have been as follows:
 
<TABLE>
<CAPTION>
                                                                             1996                       1995
                                                                  --------------------------  ------------------------
<S>                                                               <C>            <C>          <C>          <C>
                                                                   AS REPORTED    PRO FORMA   AS REPORTED   PRO FORMA
                                                                  -------------  -----------  -----------  -----------
Net income (in millions)........................................    $     611          $591         $611         $542
Earnings per share..............................................  $       1.74        $1.68        $1.53        $1.32
</TABLE>
 
    The 1995 pro forma disclosures reflect the surrender and exchange of RJRN
Holdings' options for options under the LTIP or under Nabisco Holdings' stock
option plan.
 
    For options granted, fair value was determined using the Black-Scholes
option pricing model with the following weighted-average assumptions:
 
<TABLE>
<CAPTION>
                                                                                   1996                      1995
                                                                         ------------------------  ------------------------
<S>                                                                      <C>          <C>          <C>          <C>
                                                                            RJRN        NABISCO       RJRN        NABISCO
                                                                          HOLDINGS     HOLDINGS     HOLDINGS     HOLDINGS
                                                                         -----------  -----------  -----------  -----------
Dividend yield.........................................................         5.3%         1.9%         5.5%         1.9%
Expected volatility....................................................          29%          24%          29%          27%
Risk-free interest rate................................................         6.2%         6.4%         5.3%         6.8%
Expected option lives (years)..........................................           5            7            5           11
</TABLE>
 
    For restricted stock awards granted, the market price of the stock at the
date the award is granted is used to measure the fair value of the award. The
weighted-average grant date fair value of restricted stock granted during 1996
for RJRN Holdings and Nabisco Holdings was $30.36 and $32.41, respectively.
 
    Total compensation costs recognized for stock-based compensation plans
during 1996 amounted to approximately $1 million.
 
NOTE 13--RETIREMENT BENEFITS
 
    RJRN and its subsidiaries sponsor a number of non-contributory defined
benefit pension plans covering most U.S. and certain foreign employees. Plans
covering regular full-time employees in the tobacco operations as well as the
majority of salaried employees in the corporate groups and food operations
provide pension benefits that are based on credits, determined by age, earned
throughout an employee's service and final average compensation before
retirement. Plan benefits are offered as lump sum or annuity options. Plans
covering hourly as well as certain salaried employees in the corporate groups
and food operations provide pension benefits that are based on the employee's
length of service and final average compensation before retirement. RJRN's
policy is to fund the cost of current service benefits and past service cost
over periods not exceeding 30 years to the extent that such costs are currently
tax deductible. Additionally, RJRN and its subsidiaries participate in several
(i) multi-employer plans, which provide benefits to certain union employees, and
(ii) defined contribution plans, which provide benefits to certain employees in
foreign countries. Employees in foreign countries who are not U.S. citizens are
covered by various post-employment benefit arrangements, some of which are
considered to be defined benefit plans for accounting purposes.
 
                                      F-25
<PAGE>
NOTE 13--RETIREMENT BENEFITS (CONTINUED)
    A summary of the components of pension expense is as follows (Dollars in
millions):
 
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31                                                          1996           1995           1994
---------------------------------------------------------------------------  -------------  -------------  -------------
<S>                                                                          <C>            <C>            <C>
Defined benefit pension plans:
  Service cost--benefits earned during the period..........................    $      96      $      69      $      97
  Interest cost on projected benefit obligation............................          281            265            256
  Less actual return on plan assets........................................         (445)          (555)           (17)
  Net amortization and deferral............................................          159            308           (245)
                                                                                   -----          -----          -----
      Total................................................................           91             87             91
Multi-employer and other defined contribution plans........................           42             39             36
                                                                                   -----          -----          -----
      Total pension expense................................................    $     133      $     126      $     127
                                                                                   -----          -----          -----
                                                                                   -----          -----          -----
</TABLE>
 
    The principal plans used the following actuarial assumptions for accounting
purposes:
 
<TABLE>
<CAPTION>
                                                                   U.S. PLANS                FOREIGN PLANS
                                                              --------------------  --------------------------------
DECEMBER 31                                                     1996       1995          1996             1995
------------------------------------------------------------  ---------  ---------  ---------------  ---------------
<S>                                                           <C>        <C>        <C>              <C>
Weighted-average discount rate..............................       7.5%         7%       4%-9%           4.5%-9%
Rate of increase in compensation levels.....................         5%         5%       3%-5%           3%-5.5%
Expected long-term rate of return on assets.................       9.5%       9.5%    4.75%-8.5%          5%-9%
</TABLE>
 
    The following table sets forth the funded status and amounts recognized in
the consolidated balance sheets at December 31, 1996 and 1995 for U.S. defined
benefit pension plans (Dollars in millions):
<TABLE>
<CAPTION>
                                                                                   U.S. PLANS
                                                    ------------------------------------------------------------------------
<S>                                                 <C>              <C>                <C>                <C>
                                                                   1996                                 1995
                                                    ----------------------------------  ------------------------------------
 
<CAPTION>
                                                      PLANS WHOSE       PLANS WHOSE        PLANS WHOSE        PLANS WHOSE
                                                    ASSETS EXCEEDED     ACCUMULATED      ASSETS EXCEEDED      ACCUMULATED
                                                      ACCUMULATED    BENEFITS EXCEEDED     ACCUMULATED     BENEFITS EXCEEDED
                                                       BENEFITS           ASSETS            BENEFITS            ASSETS
                                                    ---------------  -----------------  -----------------  -----------------
<S>                                                 <C>              <C>                <C>                <C>
Actuarial present value of:
  Vested benefits.................................     $   3,032         $     120          $     216          $   2,823
  Non-vested benefits.............................            32                 3                 16                 23
                                                          ------            ------              -----             ------
  Accumulated benefit obligation..................         3,064               123                232              2,846
  Effect of future salary increases...............           301                14                 29                355
                                                          ------            ------              -----             ------
  Projected benefit obligation....................         3,365               137                261              3,201
Plan assets at fair market value..................         3,172                17                254              2,704
                                                          ------            ------              -----             ------
Plan assets in excess of (less than) projected
  benefit obligation..............................          (193)             (120)                (7)              (497)
Unrecognized net (gain) loss......................           (65)               41                  6                157
Unrecognized prior service cost...................            (5)               (6)                 1                (15)
Adjustment required to recognize minimum pension
  liability.......................................            --               (21)                --                (20)
                                                          ------            ------              -----             ------
Net pension assets (liabilities) recognized in the
  consolidated balance sheets.....................     $    (263)        $    (106)         $      --          $    (375)
                                                          ------            ------              -----             ------
                                                          ------            ------              -----             ------
</TABLE>
 
                                      F-26
<PAGE>
NOTE 13--RETIREMENT BENEFITS (CONTINUED)
 
    The following table sets forth the funded status and amounts recognized in
the consolidated balance sheets at December 31, 1996 and 1995 for foreign
defined benefit pension plans (Dollars in millions):
<TABLE>
<CAPTION>
                                                                                 FOREIGN PLANS
                                                    ------------------------------------------------------------------------
<S>                                                 <C>              <C>                <C>                <C>
                                                                   1996                                 1995
                                                    ----------------------------------  ------------------------------------
 
<CAPTION>
                                                      PLANS WHOSE       PLANS WHOSE        PLANS WHOSE        PLANS WHOSE
                                                    ASSETS EXCEEDED     ACCUMULATED      ASSETS EXCEEDED      ACCUMULATED
                                                      ACCUMULATED    BENEFITS EXCEEDED     ACCUMULATED     BENEFITS EXCEEDED
                                                       BENEFITS           ASSETS            BENEFITS            ASSETS
                                                    ---------------  -----------------  -----------------  -----------------
<S>                                                 <C>              <C>                <C>                <C>
Actuarial present value of:
  Vested benefits.................................     $     283         $     105          $     154          $     231
  Non-vested benefits.............................             2                29                  6                 30
                                                          ------            ------              -----             ------
  Accumulated benefit obligation..................           285               134                160                261
  Effect of future salary increases...............            27                38                 46                 51
                                                          ------            ------              -----             ------
  Projected benefit obligation....................           312               172                206                312
Plan assets at fair market value..................           331                 3                178                127
                                                          ------            ------              -----             ------
Plan assets in excess of (less than) projected
  benefit obligation..............................            19              (169)               (28)              (185)
Unrecognized net (gain) loss......................           (21)               11                 13                 31
Unrecognized prior service cost...................            10                --                 --                  8
Transition amount.................................            (6)               11                 (6)                13
Adjustment required to recognize minimum pension
  liability.......................................            --                (2)                --                 (2)
                                                          ------            ------              -----             ------
Net pension assets (liabilities) recognized in the
  consolidated balance sheets.....................     $       2         $    (149)         $     (21)         $    (135)
                                                          ------            ------              -----             ------
                                                          ------            ------              -----             ------
</TABLE>
 
    At December 31, 1996, approximately 95% of the plans' assets were invested
in listed stocks and bonds and other highly liquid investments. The balance
consisted of various income producing investments.
 
    In addition to providing pension benefits, RJRN provides certain health care
and life insurance benefits for retired employees and their dependents.
Substantially all of its regular full-time employees, including certain
employees in foreign countries, may become eligible for those benefits if they
reach retirement age while working for RJRN and its subsidiaries.
 
    Net postretirement health and life insurance benefit costs consisted of the
following (Dollars in millions):
 
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31                                                       1996               1995               1994
----------------------------------------------------------------------  -----------------  -----------------  -----------------
<S>                                                                     <C>                <C>                <C>
Service cost--benefits earned during the period.......................      $      16          $      18          $      17
Interest cost on accumulated postretirement benefit obligation........             64                 62                 62
                                                                                  ---                ---                ---
  Net postretirement health care and life insurance costs.............      $      80          $      80          $      79
                                                                                  ---                ---                ---
                                                                                  ---                ---                ---
</TABLE>
 
                                      F-27
<PAGE>
NOTE 13--RETIREMENT BENEFITS (CONTINUED)
 
    Postretirement health and life insurance benefit plans currently are not
funded. The status of the plans at December 31, 1996 and 1995 was as follows
(Dollars in millions):
 
<TABLE>
<CAPTION>
                                                                                                   1996       1995
                                                                                                 ---------  ---------
<S>                                                                                              <C>        <C>
Actuarial present value of accumulated postretirement benefit obligation:
  Retirees.....................................................................................  $     697  $     696
  Fully eligible active plan participants......................................................        131        124
  Other active plan participants...............................................................        265        255
 
Unrecognized actuarial amounts.................................................................        (95)       (62)
                                                                                                 ---------  ---------
Accrued postretirement health care and life insurance costs....................................  $     998  $   1,013
                                                                                                 ---------  ---------
                                                                                                 ---------  ---------
</TABLE>
 
    The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 7% in 1996 and 6.5% in 1997 gradually
declining to 5% by the year 2000 and remaining at that level thereafter. A one
percentage point increase in the assumed health care cost trend rate for each
year would increase the accumulated postretirement benefit obligation as of
December 31, 1996 and the aggregate of the service and interest cost components
of the net postretirement benefit cost for the year then ended by approximately
$59 million and $5 million, respectively.
 
    The assumed discount rate used in determining the accumulated postretirement
benefit obligation was 7.5% and 7% as of December 31, 1996 and 1995,
respectively.
 
NOTE 14--SEGMENT INFORMATION
 
    INDUSTRY SEGMENT DATA
 
    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. Cigarettes are manufactured in the
United States by RJRT and in over 40 foreign countries and territories by
Reynolds International and subsidiaries or licensees of RJRT and are sold
throughout the United States and in more than 170 markets around the world
including Europe, the Middle East, Africa, Asia, the former Soviet Union and
Canada. RJRN's 80.5% owned subsidiary, Nabisco Holdings, manufactures and
markets cookies, crackers, non-chocolate candy and gum products, nuts and
snacks, various margarines and spreads and other specialty products under
several brand names in the United States, Canada, Europe, Asia and Latin
America. See Management's Discussion and Analysis of Financial Condition and
Results of Operations for further discussion of RJRN Holdings' operations.
 
                                      F-28
<PAGE>
NOTE 14--SEGMENT INFORMATION (CONTINUED)
    Summarized financial information for these operations is shown in the
following tables (Dollars in millions):
 
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31                                                              1996       1995       1994
---------------------------------------------------------------------------------  ---------  ---------  ---------
<S>                                                                                <C>        <C>        <C>
Net sales:
  Tobacco........................................................................  $   8,174  $   7,714  $   7,667
  Food...........................................................................      8,889      8,294      7,699
                                                                                   ---------  ---------  ---------
    Consolidated net sales.......................................................  $  17,063  $  16,008  $  15,366
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
Operating income:
  Tobacco........................................................................  $   1,845  $   1,500  $   1,801
  Food...........................................................................        474        902        887
  Headquarters...................................................................        (67)       (64)      (138)
                                                                                   ---------  ---------  ---------
    Consolidated operating income................................................  $   2,252  $   2,338  $   2,550
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
Capital expenditures:
  Tobacco........................................................................  $     304  $     231  $     215
  Food...........................................................................        437        513        455
                                                                                   ---------  ---------  ---------
    Consolidated capital expenditures............................................  $     741  $     744  $     670
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
Depreciation expense:
  Tobacco........................................................................  $     217  $     236  $     228
  Food...........................................................................        270        244        218
  Headquarters...................................................................          2          2          8
                                                                                   ---------  ---------  ---------
    Consolidated depreciation expense............................................  $     489  $     482  $     454
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
</TABLE>
 
<TABLE>
<CAPTION>
DECEMBER 31                                                                               1996       1995
--------------------------------------------------------------------------------------  ---------  ---------
<S>                                                                                     <C>        <C>
Assets:
  Tobacco.............................................................................  $  18,952  $  19,226
  Food................................................................................     12,235     12,239
  Headquarters(1).....................................................................        102         53
                                                                                        ---------  ---------
    Consolidated assets...............................................................  $  31,289  $  31,518
                                                                                        ---------  ---------
                                                                                        ---------  ---------
</TABLE>
 
------------------------
 
(1) Cash and cash equivalents for the domestic tobacco operations are included
    in Headquarters' assets.
 
                                      F-29
<PAGE>
NOTE 14--SEGMENT INFORMATION (CONTINUED)
    GEOGRAPHIC DATA
 
    The following tables show certain financial information relating to
continuing operations in various geographic areas (Dollars in millions):
 
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31                                                              1996       1995       1994
---------------------------------------------------------------------------------  ---------  ---------  ---------
<S>                                                                                <C>        <C>        <C>
Net sales:
  United States (including U.S. export sales)....................................  $  11,140  $  11,295  $  11,144
  Europe.........................................................................      2,379      2,184      1,934
  Other geographic areas.........................................................      3,927      3,261      3,039
  Less transfers between geographic areas(1).....................................       (383)      (732)      (751)
                                                                                   ---------  ---------  ---------
    Consolidated net sales.......................................................  $  17,063  $  16,008  $  15,366
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
Operating income:
  United States..................................................................  $   1,606  $   1,749  $   2,090
  Europe.........................................................................        274        299        272
  Other geographic areas.........................................................        439        354        326
  Headquarters...................................................................        (67)       (64)      (138)
                                                                                   ---------  ---------  ---------
    Consolidated operating income................................................  $   2,252  $   2,338  $   2,550
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
</TABLE>
 
<TABLE>
<CAPTION>
DECEMBER 31                                                                                  1996       1995
-----------------------------------------------------------------------------------------  ---------  ---------
<S>                                                                                        <C>        <C>
Assets:
  United States..........................................................................  $  24,860  $  25,631
  Europe.................................................................................      2,607      2,663
  Other geographic areas.................................................................      3,720      3,171
  Headquarters(2)........................................................................        102         53
                                                                                           ---------  ---------
    Consolidated assets..................................................................  $  31,289  $  31,518
                                                                                           ---------  ---------
                                                                                           ---------  ---------
</TABLE>
 
------------------------
 
(1) Transfers between geographic areas are generally made at fair market value.
 
(2) Cash and cash equivalents for the domestic tobacco operations are included
    in Headquarters' assets.
 
                                      F-30
<PAGE>
NOTE 15--ADDITIONAL INFORMATION
 
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
YEARS ENDED DECEMBER 31                                                                  1996       1995       1994
-------------------------------------------------------------------------------------  ---------  ---------  ---------
<S>                                                                                    <C>        <C>        <C>
  Advertising expense................................................................       $544       $496       $477
  Research and development expense...................................................        191        229        211
  Rent expense.......................................................................        167        163        153
</TABLE>
 
NOTE 16--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
 
    The following is a summary of the quarterly results of operations and per
share data for 1996 and 1995:
 
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                                                FIRST     SECOND      THIRD     FOURTH
                                                                              ---------  ---------  ---------  ---------
<S>                                                                           <C>        <C>        <C>        <C>
1996(1)
  Net sales.................................................................  $   3,886  $   4,203  $   4,349  $   4,625
  Operating income..........................................................        640        237        683        692
  Income (loss) before extraordinary item...................................        198        (27)       225        215
  Net income (loss).........................................................        198        (27)       225        215
  Per share data:(2)
    Net income (loss).......................................................  $     .57  $    (.11) $     .66  $     .63
    Common stock dividends declared.........................................      .4625      .4625      .4625      .4625
    Market price of common stock
      --high................................................................  $  35 1/4  $  34 1/2  $  32 3/8  $  34 5/8
      --low.................................................................         29         29     25 1/8     25 3/4
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                FIRST     SECOND      THIRD     FOURTH
                                                                              ---------  ---------  ---------  ---------
<S>                                                                           <C>        <C>        <C>        <C>
1995(1)
  Net sales.................................................................  $   3,540  $   4,081  $   4,063  $   4,324
  Operating income..........................................................        620        644        641        433
  Income before extraordinary item..........................................        198        153        232         44
  Net income................................................................        198        153        216         44
  Per share data:(2)
    Income before extraordinary item........................................  $     .51  $     .37  $     .61  $     .10
    Net income..............................................................        .51        .37        .56        .10
    Common stock dividends declared.........................................       .375       .375       .375       .375
    Market price of common stock
      --high................................................................  $  32 1/2  $  31 1/4  $  33 1/4  $  33 3/8
      --low.................................................................         25     25 1/4     26 3/8     27 7/8
</TABLE>
 
------------------------
 
(1) The second quarter of 1996 includes $428 million ($241 million after-tax,
    net of minority interest) of restructuring expense at the food operations.
    The second quarter of 1995 includes $103 million ($67 million after-tax) of
    expenses relating to certain debt exchanges by RJRN and Nabisco. The fourth
    quarter of 1995 includes $154 million ($104 million after-tax) of
    restructuring expenses at the tobacco operations.
 
(2) 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-31
<PAGE>
                                                                      SCHEDULE I
 
                           RJR NABISCO HOLDINGS CORP.
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                         CONDENSED STATEMENTS OF INCOME
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                       YEAR ENDED     YEAR ENDED     YEAR ENDED
                                                                      DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                                          1996           1995           1994
                                                                      -------------  -------------  -------------
<S>                                                                   <C>            <C>            <C>
Administrative expenses.............................................    $      --      $      --      $     (12)
Interest and debt expense...........................................          (98)           (29)            --
Other income (expense), net.........................................            6              2             11
                                                                      -------------  -------------  -------------
      Loss before income taxes......................................          (92)           (27)            (1)
Benefit for income taxes............................................          (34)           (15)            (3)
                                                                      -------------  -------------  -------------
      Income (loss) before equity in income from subsidiaries.......          (58)           (12)             2
Equity in income from subsidiaries, net of income taxes.............          669            639            762
                                                                      -------------  -------------  -------------
      Income before extraordinary item..............................          611            627            764
Extraordinary item--loss on early extinguishments of subsidiaries'
  debt, net of income taxes.........................................           --            (16)          (245)
                                                                      -------------  -------------  -------------
      Net income....................................................    $     611      $     611      $     519
                                                                      -------------  -------------  -------------
                                                                      -------------  -------------  -------------
</TABLE>
 
                 SEE NOTES TO CONDENSED FINANCIAL INFORMATION.
 
                                      S-1
<PAGE>
                                                                      SCHEDULE I
 
                           RJR NABISCO HOLDINGS CORP.
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                       CONDENSED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                       YEAR ENDED     YEAR ENDED     YEAR ENDED
                                                                      DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                                          1996           1995           1994
                                                                      -------------  -------------  -------------
<S>                                                                   <C>            <C>            <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
  Net income........................................................    $     611      $     611      $     519
                                                                      -------------  -------------  -------------
  Adjustments to reconcile net income to net cash flows from (used
    in) operating activities:
    Deferred income tax provision (benefit).........................           (6)             1             62
    Extraordinary item..............................................           --             29            377
    Equity in income from subsidiaries,
      net of income taxes...........................................         (669)          (639)          (762)
    Other, net......................................................           (2)           (36)          (161)
                                                                      -------------  -------------  -------------
        Total adjustments...........................................         (677)          (645)          (484)
                                                                      -------------  -------------  -------------
    Net cash flows from (used in) operating activities..............          (66)           (34)            35
                                                                      -------------  -------------  -------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
  Dividends received from subsidiary................................        1,108            267             42
  Investment in subsidiary..........................................           --             --         (1,680)
                                                                      -------------  -------------  -------------
    Net cash flows from (used in) investing activities..............        1,108            267         (1,638)
                                                                      -------------  -------------  -------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
  Repurchase of common stock........................................         (100)            --             --
  Proceeds from issuance of Series C preferred stock................           --             --          1,734
  Dividends paid on common and preferred stock......................         (686)          (583)          (395)
  Financing and advisory fees paid..................................           --             --            (54)
  Other, net--including intercompany transfers......................         (257)           338            322
                                                                      -------------  -------------  -------------
    Net cash flows from (used in) financing activities..............       (1,043)          (245)         1,607
                                                                      -------------  -------------  -------------
    Net change in cash and cash equivalents.........................           (1)           (12)             4
Cash and cash equivalents at beginning of period....................            2             14             10
                                                                      -------------  -------------  -------------
Cash and cash equivalents at end of period..........................    $       1      $       2      $      14
                                                                      -------------  -------------  -------------
                                                                      -------------  -------------  -------------
</TABLE>
 
                 SEE NOTES TO CONDENSED FINANCIAL INFORMATION.
 
                                      S-2
<PAGE>
                                                                      SCHEDULE I
 
                           RJR NABISCO HOLDINGS CORP.
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            CONDENSED BALANCE SHEETS
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,   DECEMBER 31,
                                                                                         1996           1995
                                                                                     -------------  -------------
<S>                                                                                  <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents........................................................    $       1      $       2
  Accounts and notes receivable, net...............................................            5              7
                                                                                     -------------  -------------
        TOTAL CURRENT ASSETS.......................................................            6              9
                                                                                     -------------  -------------
Investment in subsidiaries.........................................................       11,702         12,182
Other assets.......................................................................           23              1
                                                                                     -------------  -------------
                                                                                       $  11,731      $  12,192
                                                                                     -------------  -------------
                                                                                     -------------  -------------
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued liabilities.........................................    $     158      $     159
  Income taxes accrued.............................................................           24             --
                                                                                     -------------  -------------
        TOTAL CURRENT LIABILITIES..................................................          182            159
                                                                                     -------------  -------------
Intercompany payable, net..........................................................          355            651
Deferred income taxes..............................................................           63             70
Junior subordinated debentures.....................................................          983            983
Commitments and contingencies (note C)
 
Stockholders' equity:
  Series C convertible preferred stock.............................................            3              3
  Other preferred stock............................................................          534            541
  Common stock--(1996--273,574,308 shares issued, 1995--272,807,942 shares
    issued)........................................................................            3              3
  Paid-in capital..................................................................       10,038         10,110
  Retained earnings................................................................           --             --
  Cumulative translation adjustments...............................................         (221)          (176)
  Treasury stock, at cost..........................................................         (100)            --
  Other stockholders' equity.......................................................         (109)          (152)
                                                                                     -------------  -------------
        TOTAL STOCKHOLDERS' EQUITY.................................................       10,148         10,329
                                                                                     -------------  -------------
                                                                                       $  11,731      $  12,192
                                                                                     -------------  -------------
                                                                                     -------------  -------------
</TABLE>
 
                 SEE NOTES TO CONDENSED FINANCIAL INFORMATION.
 
                                      S-3
<PAGE>
                                                                      SCHEDULE I
 
                           RJR NABISCO HOLDINGS CORP.
          SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                    NOTES TO CONDENSED FINANCIAL INFORMATION
 
NOTE A--SUPPLEMENTAL CASH FLOWS INFORMATION
 
    For information regarding certain non-cash financing activities, see note 8
to the consolidated financial statements.
 
NOTE B--JUNIOR SUBORDINATED DEBENTURES
 
    See note 8 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,
1996, 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 trust, 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 mature in December, 2044. 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 C--COMMITMENTS AND CONTINGENCIES
 
    RJRN Holdings has guaranteed the indebtedness of RJRN under RJRN's credit
facilities.
 
    For disclosure of additional contingent liabilities, see note 9 to the
consolidated financial statements.
 
                                      S-4
<PAGE>
                                                                      SCHEDULE I
 
                               RJR NABISCO, INC.
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                         CONDENSED STATEMENTS OF INCOME
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                       YEAR ENDED     YEAR ENDED     YEAR ENDED
                                                                      DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                                          1996           1995           1994
                                                                      -------------  -------------  -------------
<S>                                                                   <C>            <C>            <C>
Administrative expenses.............................................    $      (5)     $      --      $     (99)
Interest and debt expense...........................................         (454)          (614)        (1,009)
Other income (expense), net.........................................          956            923          1,153
                                                                      -------------  -------------  -------------
      Income before income taxes....................................          497            309             45
Provision (benefit) for income taxes................................          169             80            (17)
                                                                      -------------  -------------  -------------
Income before equity in income from subsidiaries....................          328            229             62
Equity in income from subsidiaries, net of income taxes.............          338            409            700
                                                                      -------------  -------------  -------------
      Income before extraordinary item..............................          666            638            762
Extraordinary item-loss on early extinguishments of debt, net of
  income taxes (including equity in extraordinary loss from
  subsidiary of $16 million for 1995)...............................           --            (16)          (245)
                                                                      -------------  -------------  -------------
Net income..........................................................    $     666      $     622      $     517
                                                                      -------------  -------------  -------------
                                                                      -------------  -------------  -------------
</TABLE>
 
                 SEE NOTES TO CONDENSED FINANCIAL INFORMATION.
 
                                      S-5
<PAGE>
                                                                      SCHEDULE I
 
                               RJR NABISCO, INC.
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                       CONDENSED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                    YEAR ENDED        YEAR ENDED       YEAR ENDED
                                                                   DECEMBER 31,      DECEMBER 31,     DECEMBER 31,
                                                                       1996              1995             1994
                                                                   -------------  ------------------  -------------
<S>                                                                <C>            <C>                 <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
  Net income.....................................................    $     666        $      622        $     517
                                                                   -------------         -------      -------------
  Adjustments to reconcile net income to net cash flows from
    (used in) operating activities:
    Deferred income tax (benefit)................................           (8)             (146)             (56)
    Extraordinary item...........................................           --                29              377
    Equity in income from subsidiaries,
      net of income taxes........................................         (338)             (409)            (700)
    Other, net...................................................           20              (288)            (258)
                                                                   -------------         -------      -------------
        Total adjustments........................................         (326)             (814)            (637)
                                                                   -------------         -------      -------------
    Net cash flows from (used in) operating activities...........          340              (192)            (120)
                                                                   -------------         -------      -------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
  Dividends received from subsidiary.............................          125                58           --
  Capital expenditures...........................................           (1)               --               (1)
                                                                   -------------         -------      -------------
    Net cash flows from (used in) investing activities...........          124                58               (1)
                                                                   -------------         -------      -------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
  Proceeds from issuance of other long-term debt.................           --               666               --
  Repayments of other long-term debt.............................         (118)             (800)          (4,648)
  Increase (decrease) in short-term borrowings...................           53            (2,390)           1,512
  Financing and advisory fees paid...............................           --               (29)              (6)
  Dividends paid to parent.......................................       (1,108)             (267)             (42)
  Other, net--including intercompany transfers...................          717             2,919            3,294
                                                                   -------------         -------      -------------
    Net cash flows from (used in) financing activities...........         (456)               99              110
                                                                   -------------         -------      -------------
    Net change in cash and cash equivalents......................            8               (35)             (11)
Cash and cash equivalents at beginning of period.................            5                40               51
                                                                   -------------         -------      -------------
Cash and cash equivalents at end of period.......................    $      13        $        5        $      40
                                                                   -------------         -------      -------------
                                                                   -------------         -------      -------------
</TABLE>
 
                 SEE NOTES TO CONDENSED FINANCIAL INFORMATION.
 
                                      S-6
<PAGE>
                                                                      SCHEDULE I
 
                               RJR NABISCO, INC.
           SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            CONDENSED BALANCE SHEETS
                             (DOLLARS IN MILLIONS)
 
<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,   DECEMBER 31,
                                                                                         1996           1995
                                                                                     -------------  -------------
<S>                                                                                  <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents........................................................    $      13      $       5
  Accounts and notes receivable....................................................           63             81
  Prepaid expenses.................................................................            1              2
                                                                                     -------------  -------------
        TOTAL CURRENT ASSETS.......................................................           77             88
                                                                                     -------------  -------------
Intercompany receivable, net.......................................................       11,248         11,944
Investment in subsidiaries.........................................................        6,067          5,962
Property, plant and equipment, net.................................................            6              8
Other assets.......................................................................           72             86
                                                                                     -------------  -------------
                                                                                       $  17,470      $  18,088
                                                                                     -------------  -------------
                                                                                     -------------  -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
  Accounts payable and accrued liabilities.........................................    $     184      $     264
  Current maturities of long-term debt.............................................           24            117
  Income taxes accrued.............................................................           43             36
                                                                                     -------------  -------------
        TOTAL CURRENT LIABILITIES..................................................          251            417
                                                                                     -------------  -------------
Long-term debt (less current maturities)...........................................        4,928          4,945
Other noncurrent liabilities.......................................................           71             16
Deferred income taxes..............................................................          551            557
Commitments and contingencies (note B)
Stockholder's equity:
  Paid-in capital..................................................................       11,890         11,958
  Retained earnings................................................................           --            371
  Cumulative translation adjustments...............................................         (221)          (176)
                                                                                     -------------  -------------
        TOTAL STOCKHOLDER'S EQUITY.................................................       11,669         12,153
                                                                                     -------------  -------------
                                                                                       $  17,470      $  18,088
                                                                                     -------------  -------------
                                                                                     -------------  -------------
</TABLE>
 
                 SEE NOTES TO CONDENSED FINANCIAL INFORMATION.
 
                                      S-7
<PAGE>
                                                                      SCHEDULE I
 
                               RJR NABISCO, INC.
          SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                    NOTES TO CONDENSED FINANCIAL INFORMATION
 
NOTE A--SUPPLEMENTAL CASH FLOWS INFORMATION
 
    For information regarding certain non-cash financing activities, see note 8
to the consolidated financial statements.
 
NOTE B--COMMITMENTS AND CONTINGENCIES
 
    For disclosure of contingent liabilities, see note 9 to the consolidated
financial statements.
 
                                      S-8
<PAGE>
                                 EXHIBIT INDEX
 
    (a) Exhibits
 
<TABLE>
<CAPTION>
  EXHIBIT
    NO.
-----------
 
<C>          <S>
    3.1(a)   Composite of the Amended and Restated Certificate of Incorporation of RJR Nabisco Holdings Corp. as
             amended to and including April 12, 1995 (incorporated by reference to Exhibit 3.1(a) of the Quarterly
             Report on Form 10-Q of RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. for the fiscal quarter ended
             March 31, 1993, filed April 30, 1993 (the "First Quarter 1993 Form 10-Q")).
 
    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")).
 
    3.2      RJR Nabisco Holdings Corp. By-Laws as Amended Effective December 5, 1995 (incorporated by reference
             to Exhibit 3.2(d) of the 1995 Form 10-K).
 
    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      RJR Nabisco, Inc. By-Laws as Amended Effective December 5, 1995 (incorporated by reference to the
             Exhibit 3.4(b) of the 1995 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      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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
  EXHIBIT
    NO.
-----------
    4.9      The Registrants agree to furnish copies of any instrument defining the rights of holders of long-term
             debt of the Registrants and their consolidated subsidiaries that does not exceed 10 percent of the
             total assets of the Registrants and their consolidated subsidiaries to the Commission upon request.
<C>          <S>
 
   10.1      Credit Agreement (the "Three Year Credit Agreement"), dated as of April 28, 1995, among RJR Nabisco
             Holdings Corp., RJR Nabisco, Inc. and various lending institutions (incorporated by reference to
             Exhibit 10.1 to the Second Quarter 1995 Form 10-Q).
 
   10.2      Credit Agreement (the "364 Day Credit Agreement"), dated as of April 28, 1995, among RJR Nabisco
             Holdings Corp., RJR Nabisco, Inc. and various lending institutions (incorporated by reference to
             Exhibit 10.2 to the Second Quarter 1995 Form 10-Q).
 
   10.3      Agreement and Waiver to the Three Year Credit Agreement and the 364 Day Credit Agreement, dated as of
             July 27, 1995 (incorporated by reference to Exhibit 10.5 to the Second Quarter 1995 Form 10-Q).
 
   10.4      First Amendment, dated as of September 12, 1995, to the Three Year Credit Agreement and the 364 Day
             Credit Agreement (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of
             RJR Nabisco Holdings Corp. and RJR Nabisco, Inc. for the fiscal quarter ended September 30, 1995 (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 Second 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.
 
  *10.7      Credit Agreement (the "Five Year Nabisco Credit Agreement"), dated as of October 31, 1996, among
             Nabisco Holdings Corp., Nabisco, Inc., and Bankers Trust Company, The Chase Manhattan Bank, Citibank,
             N.A. and The Fuji Bank, Limited, as Senior Managing Agents and various lending institutions.
 
  *10.8      Credit Agreement (the "364 Day Nabisco Credit Agreement"), dated as of October 31, 1996, among
             Nabisco Holdings Corp., Nabisco, Inc., and Bankers Trust Company, The Chase Manhattan Bank, Citibank,
             N.A. and The Fuji Bank, Limited, as Senior Managing Agents and various lending institutions.
 
   10.9      Credit Agreement (the "Nabisco Credit Agreement"), dated as of April 28, 1995, among Nabisco Holdings
             Corp., Nabisco, Inc. and various lending institutions (incorporated by reference to Exhibit 4.3 to
             Amendment No. 1 filed June 16, 1995 to the Registration Statement on Form S-3 of Nabisco, Inc.,
             Registration No. 33-93214, filed June 7, 1995).
 
   10.10     First Amendment to the Nabisco Credit Agreement, dated as of July 24, 1995 (incorporated by reference
             to Exhibit 10.4 to the Second Quarter 1995 10-Q).
 
   10.11     Second Amendment, dated as of November 3, 1995, to the Nabisco Credit Agreement (incorporated by
             reference to Exhibit 10.7 to the 1995 Form 10-K).
 
   10.12     Credit Agreement (the "Nabisco Commercial Paper Facility"), dated as of November 3, 1995, among
             Nabisco Holdings Corp., Nabisco, Inc. and various lending institutions (incorporated by reference to
             Exhibit 10.8 of the 1995 Form 10-K).
 
   10.13     Amendments dated as of June 20, 1996 to the Nabisco Credit Agreement and the Nabisco Commercial Paper
             Facility, dated as of April 28, 1995 (incorporated by reference to Exhibit 10.2 to the Second Quarter
             1996 Form 10-Q).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
  EXHIBIT
    NO.
-----------
   10.14     Form of Performance Unit Agreement between RJR Nabisco Holdings Corp. and the grantee named therein
             (1996; one-year period) (incorporated by reference to Exhibit 10.1 to 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")).
<C>          <S>
 
   10.15     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 First Quarter 1996 Form
             10- Q).
 
   10.16     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).
 
   10.17     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).
 
   10.18     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).
 
   10.19     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).
 
   10.20     Retirement Plan for Directors of RJR Nabisco, Inc. as amended and restated on January 1, 1989
             (incorporated by reference to Exhibit 10(a) to the Annual Report on Form 10-K for the fiscal year
             ended December 31, 1988, file number 1-6388, filed on March 9, 1989, as amended through April 14,
             1989 (the "1988 Form 10-K")).
 
   10.21     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")).
 
   10.22     Form of Employment Agreement containing Change of Control provision (incorporated by reference to
             Exhibit 10.8 to the Form S-4, Registration No. 33- 27894).
 
   10.23     Special Addendum to Form of Employment Agreement filed as Exhibit 10.22, dated December 20, 1988
             (incorporated by reference to Exhibit 10(d)(ii) to the 1988 Form 10-K).
 
   10.24     Form of Agreement containing Gross-Up provisions, dated January 27, 1989 (incorporated by reference
             to Exhibit 10(d)(iii) to the 1988 Form 10-K).
 
   10.25     Trust Agreement between RJR Nabisco, Inc. and Wachovia Bank and Trust Company, N.A., Trustee, dated
             January 27, 1989 (incorporated by reference to Exhibit 10(d)(iv) to the 1988 Form 10-K).
 
   10.26     Form of Employment Agreement Without Change of Control provision (incorporated by reference to
             Exhibit 10.16 to the Form S-4, Registration No. 33- 27894).
 
   10.27     Special Addendum, dated December 20, 1988 (incorporated by reference to Exhibit 10(d)(ii) to the 1988
             Form 10-K).
 
   10.28     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).
 
   10.29(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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
  EXHIBIT
    NO.
-----------
   10.29(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).
<C>          <S>
 
   10.30     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).
 
   10.31     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).
 
   10.32     Supplemental Benefits Plan of RJR Nabisco, Inc. and Participating Companies, as amended on October
             12, 1988 (incorporated by reference to Exhibit 10.25 to the Form S-4, Registration No. 33-27894).
 
   10.33(a)  Amendment to Supplemental Benefits Plan, dated November 23, 1988 (incorporated by reference to
             Exhibit 10(k)(ii) to the 1988 Form 10-K).
 
   10.33(b)  Amendment No. 2 to Supplemental Benefits Plan, dated January 27, 1989 (incorporated by reference to
             Exhibit 10(k)(iii) to the 1988 Form 10-K).
 
   10.34     Additional Benefits Plan of RJR Nabisco, Inc. and Participating Companies, effective October 12, 1988
             (incorporated by reference to Exhibit 10.28 to the Form S-4, Registration No. 33-27894).
 
   10.35(a)  Amendment to Additional Benefits Plan, dated October 28, 1988 (incorporated by reference to Exhibit
             10(l)(ii) to the 1988 Form 10-K).
 
   10.35(b)  Amendment to Additional Benefits Plan, dated November 23, 1988 (incorporated by reference to Exhibit
             10(1)(iii) to the 1988 Form 10-K).
 
   10.35(c)  Amendment to Additional Benefits Plan No. 3, dated January 27, 1989 (incorporated by reference to
             Exhibit 10(1)(iv) to the 1988 Form 10-K).
 
   10.36     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).
 
   10.37(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).
 
   10.37(b)  Amendment No. 2 to Supplemental Executive Retirement Plan, dated January 27, 1989 (incorporated by
             reference to Exhibit 10(m)(iii) to the 1988 Form 10-K).
 
   10.37(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")).
 
   10.38     Form of Common Stock Subscription Agreement between RJR Holdings Corp. and the purchaser named
             therein (incorporated by reference to Exhibit A to Post- Effective Amendment No. 2, filed on August
             21, 1989, to the Form S-1, Registration No. 33-29401 (the "Post-Effective Amendment No. 2 to the Form
             S-1, Registration No. 33-29401")).
 
   10.39     Form of Non-Qualified Stock Option Agreement between RJR Holdings Corp. and the optionee named
             therein (incorporated by reference to Exhibit B to Post- Effective Amendment No. 2 to the Form S-1,
             Registration No. 33-29401).
 
   10.40     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 of 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")).
 
   10.41     Non-Qualified Stock Option Agreement, dated December 31, 1993, between RJR Nabisco Holdings Corp. and
             Charles M. Harper (incorporated by reference to 1993 Form 10-K).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
  EXHIBIT
    NO.
-----------
   10.42     Non-Qualified Stock Option Agreement, dated December 31, 1994, between RJR Nabisco Holdings Corp. and
             Charles M. Harper (incorporated by reference to Exhibit 10.18(a) of 1994 Form 10-K).
<C>          <S>
 
   10.43     Employment Agreement, dated May 27, 1993, by and among RJR Nabisco Holdings Corp., RJR Nabisco, Inc.
             and Charles M. Harper (incorporated by reference to Exhibit 10.1 of the Registrants' Quarterly Report
             on Form 10-Q for the fiscal quarter ended June 30, 1993, filed August 3, 1993 (the "Second Quarter
             1993 Form 10-Q")).
 
   10.44     Amendment No. 1 dated March 8, 1994 to Employment Agreement dated May 27, 1993 by and among RJR
             Nabisco Holdings Corp., RJR Nabisco, Inc. and Charles M. Harper dated as of March 1, 1994
             (incorporated by reference to Exhibit 10.2 of the Registrants' Quarterly Report on Form 10-Q for the
             fiscal quarter ended March 31, 1994, filed May 12, 1994 (the "First Quarter 1994 Form 10-Q")).
 
   10.45     Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and Charles M. Harper
             (incorporated by reference to Exhibit 10.2 of the Second Quarter 1993 Form 10-Q).
 
   10.46     First 1995 Amendment (dated February 15, 1995) to Employment Agreement dated May 27, 1993 between RJR
             Nabisco Holdings Corp. and Charles M. Harper (incorporated by reference to Exhibit 10.31 of the 1995
             Form 10-K).
 
   10.47     Second 1995 Amendment (dated April 13, 1995) to Employment Agreement dated May 27, 1993 between RJR
             Nabisco Holdings Corp. and Charles M. Harper (incorporated by reference to Exhibit 10.32 of the 1995
             Form 10-K).
 
   10.48     Restated and Amended Employment Agreement (dated December 5, 1995) by and among RJR Nabisco Holdings
             Corp., RJR Nabisco, Inc. and Charles M. Harper (incorporated by reference to Exhibit 10.33 of the
             1995 Form 10-K).
 
   10.49     Amendment dated April 13, 1995 to Non-Qualified Stock Option Agreements dated May 31, 1993, December
             31, 1993, and December 31, 1994 between RJR Nabisco Holdings Corp. and Charles M. Harper
             (incorporated by reference to Exhibit 10.34 of the 1995 Form 10- K).
 
   10.50     Non-Qualified Stock Option Agreement dated January 19, 1995 between Nabisco Holdings Corp. and
             Charles M. Harper (incorporated by reference to Exhibit 10.35 of the 1995 Form 10-K).
 
   10.51     Non-Qualified Stock Option Agreement dated June 13, 1995 between RJR Nabisco Holdings Corp. and
             Charles M. Harper (incorporated by reference to Exhibit 10.36 of the 1995 Form 10-K).
 
   10.52     Non-Qualified Stock Option Agreement dated December 31, 1995 between RJR Nabisco Holdings Corp. and
             Charles M. Harper (incorporated by reference to Exhibit 10.37 of the 1995 Form 10-K).
 
   10.53     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).
 
   10.54     Employment Agreement (dated October 1, 1995) by and among RJR Nabisco Holdings Corp., RJR Nabisco,
             Inc. and Steven F. Goldstone (incorporated by reference to Exhibit 10.39 of the 1995 Form 10-K).
 
   10.55     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).
 
   10.56     Non-Qualified Stock Option Agreement (dated December 5, 1995) between RJR Nabisco Holdings Corp. and
             Steven. F. Goldstone (incorporated by reference to Exhibit 10.41of the 1995 Form 10-K).
</TABLE>
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   10.57     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).
<C>          <S>
 
   10.58     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).
 
   10.59     1996 Amendment to Employment Agreement dated December 5, 1995 by and among RJR Nabisco Holdings
             Corp., RJR Nabisco, Inc. and Steven F. Goldstone (incorporated by reference to Exhibit 10.6 of the
             First Quarter 1996 Form 10-Q).
 
   10.60     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).
 
   10.61     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).
 
   10.62     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).
 
   10.63     Amended and Restated Employment Agreement, dated as of September 1, 1993, by and among R.J. Reynolds
             Tobacco Company, R.J. Reynolds Tobacco International Inc., RJR Nabisco Holdings Corp., RJR Nabisco,
             Inc. and Mr. James W. Johnston (incorporated by reference to Exhibit 10.2 to the Registrants'
             Quarterly Report on Form 10-Q for the fiscal year ended September 30, 1993, filed October 29, 1993
             (the "Third Quarter 1993 Form 10-Q")).
 
   10.64     Letter Agreement dated July 26, 1995, regarding Amended and Restated Employment Agreement with James
             W. Johnston (incorporated by reference to Exhibit 10.46(a) of the 1995 Form 10-K).
 
   10.65     Letter Agreement dated December 21, 1995, regarding Amended and Restated Employment Agreement with
             James W. Johnston (incorporated by reference to Exhibit 10.46(b) of the 1995 Form 10-K).
 
   10.66     Letter Agreement dated May 10, 1996, regarding Amended and Restated Employment Agreement with James
             W. Johnston (incorporated by reference to Exhibit 10.3 to the Second Quarter 1996 Form 10-Q).
 
   10.67     Letter Agreement dated May 31, 1996, regarding Amended and Restated Employment Agreement with James
             W. Johnston (incorporated by reference to Exhibit 10.4 to the Second Quarter 1996 Form 10-Q.)
 
   10.68     Equity Securities Purchase Agreement dated as of July 15, 1990 between RJR Nabisco Holdings Corp. and
             Whitehall Associates, L.P. (incorporated by reference to Exhibit 4.4 to the Form S-4, Registration
             No. 33-36070).
 
   10.69     Consulting Agreement, dated February 14, 1995, among RJR Nabisco Holdings Corp., Nabisco Holdings
             Corp. and Eugene R. Croisant (incorporated by reference to Exhibit 10.32 of 1994 Form 10-K).
 
   10.70     Registration Rights Agreement (Common Stock), dated as of July 15, 1990, between RJR Nabisco Holdings
             Corp. and Whitehall Associates, L.P. (incorporated by reference to Exhibit 4.5 to the Form S-4,
             Registration No. 33-36070).
 
   10.71     Amended and Restated RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan (incorporated by
             reference to Exhibit 10.2 to the First Quarter 1993 Form 10-Q).
</TABLE>
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   10.72     Form of Purchase Stock Agreement between RJR Nabisco Holdings Corp. and purchaser named therein (1991
             Grant) (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-8 of RJR
             Nabisco Holdings Corp., Registration No. 33-39791, filed on April 5, 1991 (the "Form S-8,
             Registration No. 33-39791")).
<C>          <S>
 
   10.73     Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the senior
             executive optionee named therein (1991 Grant) (incorporated by reference to Exhibit 4.4(a) to Form
             S-8, Registration No. 33-39791).
 
   10.74     Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the executive or
             management optionee named therein (1991 Grant) (incorporated by reference to Exhibit 4.4(b) to Form
             S-8, Registration No. 33-39791).
 
   10.75     Form of Secured Promissory Note of purchaser named therein in favor of RJR Nabisco Holdings Corp.
             (1991 Grant) (incorporated by reference to Exhibit 4.5 to Form S-8, Registration No. 33-39791).
 
   10.76     Form of Amendment and Exchange of Secured Promissory Note, dated July 1, 1993 (1991 Grant)
             (incorporated by reference to Exhibit 10.33(a) to the 1993 Form 10- K).
 
   10.77     Form of Purchase Stock Agreement between RJR Nabisco Holdings Corp. and the purchaser named therein
             (1992 Grant) (incorporated by reference to Exhibit 10.34 of the 1991 Form 10-K).
 
   10.78     Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the senior
             executive optionee named therein (1992 Grant/cycle) (incorporated by reference to Exhibit 10.35 of
             the Registrants' Annual Report on Form 10-K for the fiscal year ended December 31, 1991, File No.'s
             I- 10215 and I-6388, filed on February 25, 1992 (the "1991 Form 10-K")).
 
   10.79     Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the senior
             executive optionee named therein (1992 Grant/5-year) (incorporated by reference to Exhibit 10.36 of
             the 1991 Form 10-K).
 
   10.80     Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the executive or
             management optionee named therein (1992 Grant) (incorporated by reference to Exhibit 10.37 of the
             1991 Form 10-K).
 
   10.81     Form of Restated Non-Qualified Stock Option Agreement under the 1990 Long Term Incentive Plan,
             between RJR Nabisco Holdings Corp. and the optionee named therein (incorporated by reference to
             Exhibit 10.38 to the 1993 Form 10-K).
 
   10.82     Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the optionee name
             therein (1993 Grant) (incorporated by reference to Exhibit 10.39 of the Registrants' Annual Report on
             Form 10-K for the fiscal year ended December 31, 1992, File No.'s I-10215 and I-6388, filed on March
             1, 1993 (the "1992 Form 10-K")).
 
   10.83     Form of Restricted Stock Agreement under the 1990 Long Term Incentive Plan between RJR Nabisco
             Holdings Corp. and the grantee named therein (1993 Grant) (incorporated by reference to Exhibit 10.1
             the March 1993 Form 10-Q).
 
   10.84     Form of Executive Equity Program Agreement under the 1990 Long Term Incentive Plan, between RJR
             Nabisco Holdings Corp. and the grantee named therein (3 year) (incorporated by reference to Exhibit
             10.44 to the 1993 Form 10-K).
 
   10.85     Form of Executive Equity Program Agreement under the 1990 Long Term Incentive Plan, between RJR
             Nabisco Holdings Corp. and the grantee named therein (4 year) (incorporated by reference to Exhibit
             10.45 to the 1993 Form 10-K).
 
   10.86     Form of Non-Qualified Stock Option Agreement between RJR Nabisco Holdings Corp. and the Consultant
             named therein (1991 Grant) (incorporated by reference to Exhibit 10.42 of the 1992 Form 10-K).
</TABLE>
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   10.87     Form of Secured Promissory Note of purchaser named therein in favor of RJR Nabisco Holdings Corp.
             (1992 Grant) (incorporated by reference to Exhibit 10.38 of the 1991 Form 10-K).
<C>          <S>
 
   10.88     Form of Amendment and Exchange of Secured Promissory Note, dated July 1, 1993 (1992 Grant)
             (incorporated by reference to Exhibit 10.47(a) to the 1993 Form 10- K).
 
   10.89     Registration Rights Agreement (Preferred Stock), dated as of July 15, 1990, between RJR Nabisco
             Holdings Corp. and Whitehall Associates, L.P. (incorporated by reference to Exhibit 4.6 to the Form
             S-4, Registration No. 33-36070).
 
   10.90     Preferred Stock Exchange Agreement dated as of October 1, 1990 between RJR Nabisco Holdings Corp. and
             Whitehall Associates, L.P. (incorporated by reference to Exhibit 4.8 to the Form S-4, Registration
             No. 33-36070).
 
   10.91     Restated and Amended Stock Option Plan for Directors and Key Employees of RJR Nabisco Holdings Corp.
             dated as of October 4, 1994 (incorporated by reference to Exhibit 10.55 of 1994 Form 10-K).
 
   10.92     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)
 
   10.93     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).
 
   10.94     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).
 
   10.95     Amended and Restated RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan (as amended and
             restated effective September 1, 1996) (incorporated by reference to Exhibit 10.4 to the Third Quarter
             1996 Form 10-Q).
 
   10.96     Form of Performance Unit Agreement between RJR Nabisco Holdings Corp. and the grantee named therein
             (1994 Grant--3 Year Period) (incorporated by reference to Exhibit 10.4 to the March 1994 Form 10-Q).
 
   10.97     Form of Performance Unit Agreement between RJR Nabisco Holdings Corp. and the grantee named therein
             (1994 Grant--3 Year Period) (incorporated by reference to Exhibit 10.5 to the First Quarter 1994
             10-Q).
 
   10.98     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).
 
   10.99     Restated and Amended RJR Nabisco Holdings Corp. 1990 Long Term Incentive Plan dated as of December 5,
             1995 (incorporated by reference to Exhibit 10.76 of the 1995 Form 10-K).
 
   10.100    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).
 
   10.101    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).
 
   10.102    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).
 
   10.103    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
</TABLE>
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             to the Third Quarter 1996 Form 10-Q).
 
   10.104    Form of Performance Unit Agreement between RJR Nabisco Holdings Corp. and the grantee named therein
             (1995 Grant--3 Year Period) (incorporated by reference to Exhibit 10.80 of the 1995 Form 10-K).
<C>          <S>
 
   10.105    Form of Performance Unit Agreement between RJR Nabisco Holdings Corp. and the grantee named therein
             (1995 Grant--1 Year Period) (incorporated by reference to Exhibit 10.81 of the 1995 Form 10-K).
 
   10.106    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).
 
   10.107    Form of Employment Agreement dated October 11, 1995 (incorporated by reference to Exhibit 10.83 of
             the 1995 Form 10-K).
 
   10.108    Form of Employment Agreement dated November 1, 1995 (incorporated by reference to Exhibit 10.84 of
             the 1995 Form 10-K).
 
   10.109    Restated and Amended Stock Option Plan for Directors and Key Employees of RJR Nabisco Holdings Corp.
             dated as of December 5, 1995 (incorporated by reference to Exhibit 10.85 of the 1995 Form 10-K).
 
   10.110    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).
 
   10.111    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).
 
  *11.1      RJR Nabisco Holdings Corp. Computation of Earnings Per Share for the years ended December 31, 1996,
             1995 and 1994.
 
  *12.1      RJR Nabisco, Inc. Computation of Ratio of Earnings to Fixed Charges for each of the periods within
             the five year period ended December 31, 1996.
 
  *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
</TABLE>
 
------------------------
 
*   Filed herewith.
 
    (b) Reports on Form 8-K
      None