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Biographies of our Class II directors (terms expiring in 2004)

Mr. Frazier ishas been President and Chief Operating Officer of Caremark Rx, Inc., a publicly traded pharmacy benefit management company, since August 2002. He served as Chief Executive Officer of the Chicago Stock Exchange from March 2001 until August 2001, and as Chairman of the Board and Chief Executive Officer of the Chicago Stock Exchange having joined the Exchange in March 2001.from September 2001 to August 2002. Prior to joining the Chicago Stock Exchange, Mr. Frazier was a Global Partner and member of the Board of Directors of AMVESCAP PLC, a quoted worldwide fund manager and the parent company of INVESCO, Inc., from November 1996 to March 2001. He served as President and Chief Executive Officer of INVESCO, Inc., an investment manager, from April 1997 to December 2000. From March 1991 until November 1996, Mr. Frazier was Chief Operating Officer of the Atlanta Committee for the Olympic Games. Mr. Frazier is a member of the boards of directors of Magellan Health Services,Caremark Rx, Inc. and Apache Corporation.

Mr. Goings has been Chairman and Chief Executive Officer of Tupperware Corporation, a worldwide direct-selling consumer products company, since October 1997, and served as its President and Chief Operating Officer from November 1992 until October 1997. Prior to joining Tupperware, Mr. Goings served at Avon Products Inc., a leading direct seller of beauty and related products, from 1985 to November 1992, where he held a number of senior management positions: in Europe as President of Avon Germany, in the Pacific Rim as Group Vice President and Senior Operating Officer, and ultimately in the United States as President of Avon USA. Mr. Goings is a member of the boards of directors of Tupperware Corporation, Rollins College and Sun Trust Bank, Central Florida, N.A., and is the former National Chairman, and current Vice Chairman, of the Board of Governors for the Boys and Girls Clubs of America.

Mr. Medlin is Chairman Emeritus of Wachovia Corporation, a bank holding company, and served as its Chairman from 1988 to April 1998, its Chief Executive Officer from 1977 until December 1993, and a director from 1974 until April 2000. Mr. Medlin is a member of the boards of directors of BellSouth Corporation, Burlington Industries, Inc., Media General, Inc. and USAirwaysUS Airways Group, Inc. Mr. Medlin was a member of the board of directors of RJR Nabisco, Inc. (now known as RJR) from 1983 until 1989, and he was a member of the board of directors of Nabisco Group Holdings Corp., the former parent of RJR, from 1989 to 1998.

Mr. Mensah has been President, U.S. Tax Services of H&R Block Inc., a tax mortgage and financial services company, since January 2003. He was the Chairman and Chief Executive Officer of ’XPORTS, Inc., a privately held company that exports agricultural products, pharmaceuticals and construction materials to foreign markets, sincefrom October 2000 until December 2002, and was a management consultant from October 1999 to September 2000. Previously, heMr. Mensah served as President and Chief Operating Officer of Long John Silver’s Restaurants, Inc., the world’s largest chain of

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Biographies of our Class III directors (terms expiring in 2005)

Ms. Ilitch has been the President of Ilitch Holdings, Inc., a privately held company that oversees the management and operations of Little Caesar Enterprises, Inc., Olympia Entertainment, Olympia Development, the Detroit Red Wings hockey team and the Detroit Tigers baseball team, since June 2000, and served as Executive Vice President of Ilitch Holdings, Inc. from March 1999 to May 2000. Since 1997, Ms. Ilitch also has been the Vice Chairwoman of Little Caesar Enterprises, Inc., one of the top three international pizza chains, which operates restaurants on five continents, where she has been part of the senior management team for more than 20 years, and the President of Olympia Development, where she directs development efforts in downtown Detroit. Ms. Ilitch serves on the board of directors for the Detroit Branch of the NAACP, is a Detroit Red Wings Alternate Governor for the National Hockey League and is a representative of ownership of the Detroit Tigers and member of Major League Baseball. She also has been President and owner of her own marketing firm, Bright Lites, Inc.

Mr. Schindler has served as Chief Executive Officer of R. J. Reynolds Tobacco Company (which we refer to in this proxy statement as “RJR Tobacco”) since 1995 and as President and Chief Executive Officer of RJR since June 1999. He has served as a director of RJR Tobacco since 1989, and as Chairman of the Board of RJR and RJR Tobacco since July 1999. Mr. Schindler joined RJR in 1974. He became Senior Vice President — Operations of RJR Tobacco in 1989 and was elected Executive Vice President — Operations of RJR Tobacco in 1991. Mr. Schindler served as Chief Operating Officer of RJR Tobacco from 1994 until 1995 and as its President from 1994 until January 2002. He is a member of the boards of visitors of the Wake Forest University Baptist Medical Center and the Babcock Graduate School of Management, and the boards of directors of the R. J. Reynolds Foundation, Winston-Salem Business, Inc. and !dealliance (formerly the North Carolina Emerging Technology Alliance). Mr. Schindler also is Chairman of the Winston-Salem Alliance.

Mr. Viviano served as the Vice Chairman of Hershey Foods Corporation, a chocolate and confectionery manufacturer, from January 1999 until his retirement in April 2000. Previously, Mr. Viviano had been President and Chief Operating Officer of Hershey Foods Corporation from 1994 through 1998. He is a member of the boards of directors of Chesapeake Corporation, Huffy Corporation, Harsco Corporation and RPM, Incorporated.

Meetings and Committees of the Board of Directors

      The business and affairs of RJR are managed under the direction of our Board of Directors. The standing committees of the Board are the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee. All of the standing committees of the Board are comprised of non-management directors, who are independent as defined by the SEC and the NYSE listing standards. Copies of the charters of the Audit Committee, the Compensation Committee and the

8

      RJR’s Current Board of Directors Practices on Certain Corporate Governance Issues provides that each Board meeting agenda shall include time for an executive session with only non-employee directors present. When only non-employee directors are meeting, the director whose committee chairmanship makes him or her most appropriate to lead a discussion of the subject matter at hand presides. Otherwise, the Chair of the Corporate Governance and Nominating Committee presides. Stockholders may communicate directly with the non-management directors as a group by writing to the Chair of the Corporate Governance and Nominating Committee, R.J. Reynolds Tobacco Holdings, Inc., P.O. Box 2866, Winston-Salem, North Carolina 27102-2866.

      RJR regularly monitors developments in the area of corporate governance. In July 2002, Congress passed the Sarbanes-Oxley Act which, among other things, sets forth a number of new corporate governance standards and disclosure requirements. In addition, the NYSE has recently proposed changes to its corporate governance and listing requirements. Several of the requirements of the Sarbanes-Oxley Act and the proposed NYSE rules are subject to final SEC rulemaking and, therefore, have not yet become effective. When effective, many of the requirements may be subject to lengthy transitional provisions. We have, where practicable, included disclosure and taken actions to comply with certain of the proposed rules and rules that have been adopted but are not yet effective, even though compliance is not yet required. We will continue to monitor the progress of pending corporate governance legislation and related rule-making initiatives in order to achieve and maintain full compliance.

During 2001,2002, there were nineseven meetings of the Board of Directors of RJR. Each director attended at least 75 percent of the meetings of the Board and committees of which he or she was a member.

      The standing committees of the Board are the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee.

     Audit Committee

      The Audit Committee (1) reviews the adequacy of RJR’s internal system of accounting controls, (2) confers with the independent auditors and the internal auditors concerning their examinations of the books and records of RJR and its subsidiaries, (3) reviews actions taken to ensure compliance with RJR’s

8

     Compensation Committee

      The Compensation Committee (1) makes recommendations to the Board with respect to compensation and grants of restricted stock, stock options and other long-term incentives to management employees, (2) administers plans and programs relating to employee benefits, incentives and compensation, (3) initiates and oversees annually the evaluation of the performance of the Chief Executive Officer and (4) reviews and reports to the Board of Directors on succession planning for RJR’s Chief Executive Officer and other top executive management positions. The Compensation Committee met fourfive times in 2001.2002. The current members of the Compensation Committee are General John T. Chain, Jr. (Chair), John G. Medlin, Jr., Nana Mensah and Joseph P. Viviano.

     Corporate Governance and Nominating Committee

      The Corporate Governance and Nominating Committee (1) reviews the qualifications of candidates for nomination to the Board of Directors, (2) recommends to the Board nominees for election as directors,

9

      The Corporate Governance and Nominating Committee considers suggestions for Board nominees made by stockholders. A stockholder may recommend a person for nomination to the Board at the 20032004 annual meeting of stockholders by providing notice and the other required information described in RJR’s By-Laws, in writing, to the Office of the Secretary, R.J. Reynolds Tobacco Holdings, Inc., 401 North Main Street, P. O. Box 2866, Winston-Salem, North Carolina 27102-2866, for receipt between October 16, 2002,23, 2003, and November 15, 2002.22, 2003. A copy of RJR’s By-Laws may be obtained free of charge from the Office of the Secretary.

Compensation Committee interlocks and insider participation

      The Compensation Committee consists of General Chain and Messrs. Medlin, Mensah and Viviano. During 2001,2002, there were no Compensation Committee interlocks or insider participation.

Director compensation

      We provide the following compensation to our outside directors for their service as directors:

     Annual retainers and fees

	•	Each outside director receives an annual retainer of $50,000. In addition, each outside director who is a committee chair receives an annual retainer of $5,000.

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	•	Outside directors receive an attendance fee of $1,250 for each Board or committee meeting attended, including designated days during which the Board or a committee of the Board conducts RJR’s business. In addition, the members of the Audit Committee receive an attendance fee of $1,250 for each conference call they participate in to review RJR’s quarterly earnings releases. Four such conference calls were held in 2002.
	•	We also reimburse directors for actual expenses incurred in connection with attendance at Board and committee meetings, including transportation and lodging expenses.

     Deferred Compensation Plan

      Under our Deferred Compensation Plan for Directors of RJR, outside directors may defer payment of their compensation for services as Board or committee members until termination of service as a director or until a selected year in the future. Participating directors may elect to direct RJR to credit deferred amounts in 25 percent increments to a cash account, a stock account or a combination of both. The Plan provides that amounts deferred to the cash account earn interest at the prime rate as set by Morgan Guaranty Trust Company of New York, and amounts deferred to the stock account mirror the performance of, and receive dividend equivalents based on, RJR common stock. Participating directors are entitled to receive cash distribution of the balance in their accounts in full on the deferral date or in up to 10 annual installments commencing on the deferral date.

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     Equity awards

      Upon becoming a director, each outside director receives under the Equity Incentive Award Plan for Directors of RJR and Subsidiaries (which we refer to in this proxy statement as the “EIAP”) an option to purchase 10,000 shares of RJR common stock. The options have an exercise price equal to the fair market value of RJR common stock on the date of grant. The options are not exercisable for six months following the date of grant, but thereafter are exercisable for 10 years from the date of grant. Under this provision of the EIAP, Mr. Goings received a stock option to purchase 10,000 shares of RJR common stock at an exercise price of $69.79 upon his election to the Board on June 5, 2002.

      On the date of his or her election to the Board of Directors and on the date of each annual meeting of stockholders thereafter, under the EIAP, each outside director also receives a grant of 1,000 deferred common stock units, unless the director elects to receive instead 1,000 shares of RJR common stock. In addition, under the EIAP, each eligible director receives a quarterly grant of deferred common stock units on the last day of each calendar quarter, determined by the following formula: $10,000 divided by the average closing price of a share of RJR common stock for each business day during the last month of such calendar quarter. If a director has served for less than the entire quarter, the number of units are pro-rated.

      The deferred common stock units bear dividends at the same rate as RJR common stock, but the dividends are paid in the form of additional deferred common stock units. The deferred common stock units have no voting rights. A director will receive payment of his or her deferred common stock units as soon as practicable following his or her last year of service on the Board of Directors. At the election of the director, the payment of annual grants may be made in cash or in RJR common stock. Distribution of the deferred common stock units received in connection with a quarterly award will be made only in cash. Distributions may be made in one lump sum or in up to 10 annual installments. Cash payments generally are based on the average closing price of RJR common stock during December of the year preceding payment.

      RJR does not compensate any director who is an employee of RJR or any of its subsidiaries in his or her capacity as a director.

     Other benefits

      RJR offers outside directors life insurance having a death benefit up to $100,000, a matching grants program and supplemental insurance programs.

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Stock Ownership

Stock ownership of management

      The following table indicates the number of shares of RJR common stock beneficially owned as of March 1, 2002,3, 2003, by each director, each executive officer named in the Summary Compensation Table appearing on page 1617 of this proxy statement, and all directors and executive officers as a group, based on information provided by these individuals. In general, “beneficial ownership” includes those shares a director or executive officer has the power to vote, or the power to transfer, and stock options that are exercisable currently or become exercisable within 60 days. Except as described in the footnotes to the table, each person has sole investment and voting power over the shares for which he or she is shown as beneficial owner.

	*	Less than one percent.

(1)	For purposes of computing the percentage of outstanding shares held by each person named in the table, any security that such person has the right to acquire within 60 days is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.
(2)	IncludesThe number of shares beneficially owned includes shares of RJR common stock not currently owned, but issuable upon exercise of stock options that are exercisable as of March 1, 2002,3, 2003, or become exercisable within 60 days thereafter, in the following amounts: (a) 10,92412,675 shares for Ms. Beasley; (b) 86,766 shares for Mr. Blixt; (c) 3,600 shares for Ms. Bush; (d) 1,400 shares for each of General Chain and Mr. Mensah; (e) 11,400 shares for each of Ms. Ilitch General Chain, and Messrs. Frazier, Medlin Viviano and Wajnert; (b) 11,122 shares for Ms. Bush; (c) 924(f) 10,000 shares for Mr. Mensah; (d) 32,855 shares for Ms. Beasley; (e) 16,766 shares for Mr. Blixt; (f)Goings; (g) 15,521 shares for Mr. Lapiejko; (g) 30,526(h) 8,279 shares for Mr. Maguire; (h) 210,997(i) 380,997 shares for Mr. Schindler; (j) 6,400 shares for Mr. Viviano; and (i) 396,437(k) 618,364 shares for all directors and executive officers as a group.
(3)	The number of shares beneficially owned includes shares of RJR common stock granted under the R.J. Reynolds Tobacco Holdings, Inc. 1999 Long-Term Incentive Plan (which we refer to in this proxy statement as the “1999 LTIP”) whichthat remain subject to certain restrictions as to continued employment and transfer as provided in the 1999 LTIP, in the following amounts: (a) 83,81046,693 shares for Ms. Beasley; (b) 82,14342,995 shares for Mr. Blixt; (c) 81,47711,558 shares for Mr. Lapiejko;Bogan; (d) 62,67231,664 shares for Mr. Maguire; (e) 197,237106,991 shares for Mr. Schindler; and (f) 643,296319,698 shares for all directors and executive officers as a group.
(4)	The number of shares of RJR common stock beneficially owned does not include the following deferred common stock units, which are RJR common stock equivalents received as equity incentives by the directors under the EIAP or credited to the directors under the Deferred Compensation Plan for Directors of RJR: (a) 5,0937,327 units for each of Ms. Bush, Ms. Ilitch, General Chain and Messrs. Medlin Mensah and Wajnert; (b) 3,9626,107 units for Mr. Frazier; (c) 2,359 units for Mr. Goings; (d) 6,262 units for Mr. Mensah; and (c) 9,013(e) 12,835 units for Mr. Viviano.

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Stock ownership of principal stockholders

      We have been notified by the persons in the following table that they are beneficial owners (as defined by the rules of the SEC) of more than five percent of our common stock. According to the Schedule 13G or 13G/A filed by each owner with the SEC, these shares were acquired in the ordinary course of business, were not acquired for the purpose of, and do not have the effect of, change or influence of control over us and were not acquired in connection with, or as a party to, any transaction having such purpose or effect.

(1)	FMR Corp., a parent holding company, and/or its subsidiaries and affiliates, held sole voting power over 1,285,786 of these shares and sole dispositive power over all of these shares, as of December 31, 2002, based on its Schedule 13G/A filed with the SEC on February 14, 2003.
(2)	Capital Research and Management Company, acting as investment advisor to various investment companies, held no voting power and sole dispositive power over all of these shares, as of December 31, 2002, based on a Schedule 13G/A filed jointly by Capital Research and Management Company and The Income FundInvestment Company of America Inc.,with the SEC on February 10, 2003.
(3)	INVESCO Asset Management Limited held shared voting power and shared dispositive power over all of these shares, as of March 5, 2003, based on its Schedule 13G filed with the SEC on March 7, 2003.
(4)	The Investment Company of America, an investment company advised by Capital Research and Management Company, and beneficial owner of 5,200,000 of these shares, held sole voting power over 5,200,000 of these shares, as of December 31, 2001, based on their joint Schedule 13G/A filed with the SEC on February 11, 2002.
(2)	FMR Corp., a parent holding company, and/or its subsidiaries, held sole voting power over 333 of these shares and soleno dispositive power over all of these shares, as of December 31, 2001,2002, based on itsa Schedule 13G/A filed jointly by The Investment Company of America and Capital Research and Management Company with the SEC on February 14, 2002.
(3)	Ross Financial Corporation held sole voting power and sole dispositive power over all of these shares, as of March 1, 2002, based on its Schedule 13G/A filed with the SEC on March 4, 2002.
(4)	Wellington Management Company, LLP, in its capacity as investment advisor, held shared voting power over 4,553,591 of these shares, and shared dispositive power over all of these shares, as of December 31, 2001, based on its Schedule 13G filed with the SEC on February 12, 2002.10, 2003.
(5)	Based on 92,769,17584,835,183 shares of RJR common stock outstanding (exclusive of 21,468,84430,594,372 shares held in RJR’s treasury) on March 1 2002,3, 2003, the record date for our 20022003 annual meeting.

Section 16(a) beneficial ownership reporting compliance

      Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who own more than 10 percent of our common stock (“reporting persons”) to file initial statements of beneficial ownership (Form 3) and statements of changes in beneficial ownership (Forms 4 or 5) of RJR common stock with the SEC and the NYSE. These reporting persons are required by SEC regulation to furnish us with copies of all Forms 3, 4 and 5 they file with the SEC and the NYSE.

      Based solely on our review of the copies of the forms that we have received, and on written representations from certain reporting persons that no additional forms were required, we believe that all of

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13

Executive Compensation and Transactions with Management

Summary

      The following pages describe the components of the total compensation of the Chief Executive Officer and the four other most highly compensated executive officers (as defined by the rules of the SEC) of RJR at the end of the last completed fiscal year. In addition, pursuant to the proxy rules adopted by the SEC concerning the disclosure of executive compensation, information regarding the compensation paid to Kenneth J. Lapiejko, RJR’s former Executive Vice President and Chief Financial Officer whose active employment with RJR terminated on July 19, 2002, also is provided.

The long-term compensation shown in the Summary Compensation Table appearing on page 1617 and discussed elsewhere in this proxy statement was granted under the R.J. Reynolds Tobacco Holdings, Inc. 1999 Long-Term Incentive Plan. The 1999 LTIP provides for various types of awards, such as restricted stock, stock options and performance units. This proxy statement also describes the future compensation that the named executive officers may receive under RJR’s retirement plans and, following termination of employment under various circumstances, under individual agreements.

Compensation Committee report on executive compensation

     Pursuant to the proxy rules adopted by the SEC designed to enhance disclosure of public companies’ policies toward executive compensation, the Compensation Committee of RJR’s Board of Directors submits the following report:

      This report is submitted to the stockholders by the Compensation Committee (the “Committee”) of the Board of Directors and reflects the executive compensation policies and practices of RJR and its subsidiaries during 2001.2002. The Committee is responsible for executive compensation and oversees the administration of RJR’s executive compensation programs and plans. The Committee reports regularly to the Board of Directors, and the Board is periodically asked to approve or ratify Committee actions. During 2001,2002, the Committee consisted of directors who were not employees of the Company or any of its subsidiaries, and who, therefore, were not eligible to participate in any of the Company’s executive compensation programs or plans.

     Executive Compensation Principles and Policies

      In determining the amounts, composition and terms and conditions of the compensation for executive officers of RJR in 2001,2002, the Committee was guided by two principles: (1) compensation opportunities must enable RJR to attract and retain individuals with the high caliber of talent and skills critical to RJR’s success and (2) a substantial portion of each executive officer’s compensation must be tied to quantifiable measures of RJR’s financial performance and/or stock price performance. These principles are reflected in the actions discussed below relating to salaries, annual incentives and long-term incentives.

      As noted in Compensation Committee reports in prior years, the federal tax code limits the ability of publicly traded companies to secure an income tax deduction for compensation paid to highly compensated individuals. Although the Committee has taken, and intends to continue taking, actions to limit the impact of this law, the Committee believes that the tax deduction is only one of several considerations in setting compensation and that the tax deduction limitations should not be permitted to compromise RJR’s ability to design and maintain executive compensation arrangements that will attract and retain the executive talent required to compete successfully. Accordingly, achieving the desired flexibility in the design and delivery of compensation may occasionally result in some compensation that is not deductible for federal income tax purposes.

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     Major Compensation Components

      The compensation program for executive officers is composed of base salary, annual and long-term performance-based incentive compensation, and benefits. In determining appropriate compensation plans and levels, the Committee relies on outside consultants who report directly to the Committee and who provide survey and other data regarding compensation practices of companies that are representative of the size and type of company with which RJR competes in the marketplace for executive talent. This is generally a broader and more diverse group of companies than used for the peer company index in the performance graph mandated by the Securities and Exchange Commission, which appears on page 2426 of this proxy statement. The base salary and targeted incentive compensation levels of comparator companies are among several factors the Committee considers in determining appropriate base salary and targeted incentive compensation levels of executive officers of RJR, as described below.

     Annual Compensation

      The annual compensation for each of the named executive officers is composed of salary and an annual targeted bonus opportunity. In general, executive officers’ salaries are targeted to reflect the median of competitive practices, as reflected in survey data used by the Committee for comparison purposes. Annual compensation levels (salaries plus an annual target bonus opportunity) are generally set between the 50th and 75th percentile of the compensation practices of comparator companies. A senior executive will receive an increase in salary and/or annual target bonus opportunity only when performance warrants, or the Committee determines that either a change in the individual’s responsibilities or in competitive or market conditions warrant such an action. Each of the named executive officersMs. Beasley and Messrs. Schindler, Blixt and Maguire each received base salary increases during 20012002 based on performance, job responsibilities and comparisons of survey data. Neither Mr. Bogan nor Mr. Lapiejko received base salary increases in 2002.

      The annual bonus amounts shown in the Summary Compensation Table for the five highest paid executivesnamed executive officers were based entirely on ratings of RJR’s financial and market share performance during 2001.2002. The measure of financial performance was net income. For 2001,2002, the Company’s performance under the annual bonus program provided a maximum bonus opportunity of 150 percent of the target bonus opportunity.

     Long-term Compensation

      The Committee utilizes a mix of various forms of stock-based and multi-year incentive opportunities to motivate executives to maintain a longer-term perspective.

      In 2001,2002, long-term grants were made in the form of restricted stock and performance units. The initial dollar value of each recipient’s total grant, which was competitively determined, was split into two parts. Fifty percent of the initial grant value was converted into restricted shares of the Company’s common stock after the value of dividends projected to be paid over three years was considered. The other 50 percent of the total initial grant value was converted into performance units, with each performance unit having a stated value of $1.00. The restriction period for the shares of restricted stock is three years, and the performance period for the performance units is three years. Both awards vest after three years if the Company pays to its stockholders a dividend of at least $0.775$0.95 per share per quarter for each of the 12 quarters of the restriction/performance period (the “threshold performance requirement”), unless the Board of Directors approves vesting of all or part of the grant when a lower dividend is paid for one or more quarters during the restriction/performance period. Otherwise, the grants do not vest and are forfeited. At the end of the restriction/performance period, if the threshold performance requirement is met, the original number of shares of restricted stock and performance units will be multiplied by the average of the total weighted annual bonus program scores for the financial and market share components of the annual bonus opportunity for each year of the three-year restriction/performance period to determine the final award levels. (See footnote 35 to the Summary Compensation Table on pages 1617 to 1718 of this proxy statement and the Long-Term Incentive Plans — Awards in Last Fiscal Year Table on

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     Chief Executive Officer’s Compensation

      Mr. Schindler’s compensation for 20012002 was based on his performance, competitive market data and the Company’s financial and market share performance.

      Effective March 1, 2001,2002, the Committee approved an increase in Mr. Schindler’s annual base salary from $900,000$1,000,000 to $1,000,000,$1,050,000, based on the above-mentioned factors and survey data of comparison companies. The Committee approved a bonus of $1,148,000$250,000 for Mr. Schindler for 2001,2002, based on ratings for the Company’s financial and market share performance under the annual bonus plan.

      Under the long-term compensation structure described above, Mr. Schindler was awarded a 20012002 grant that had an initial grant value of $4,000,000.$4,200,000. This initial grant value was converted to 32,12932,362 shares of restricted stock (based on a $52.95$53.49 per share closing market price on the January 31, 2001July 26, 2002 grant date and projected dividends based on $0.775$0.95 per share per quarter for each of 2001, 2002, 2003 and 2003)2004) and 2,000,0002,100,000 performance units.

      In connection with the spinoff of RJR by Nabisco Group Holdings Corp. on June 14, 1999, and as an incentive to retain Mr. Schindler’s services as an employee of RJR after the spinoff, Mr. Schindler was granted a special retention bonus of $3,600,000 under a cash retention program established in 1998. This special retention grant will vestvested 50 percent at the end of three years, and will vest an additional 25 percent after four years and 25 percent after five years. The first 50 percent payment to be paid after three years was funded on June 15, 1999, in a special trust established for the purpose of holding retention bonus funds until they become payable.payable, and was paid on June 15, 2002. The 25 percent payment to be paid at the end of the fourth year was funded through the trust on June 15, 2000. The2000, and the 25 percent payment to be paid at the end of the fifth year was funded through the trust on June 15, 2001. According to the provisions of the program and the trust, unpaid payments may partially vest if Mr. Schindler is involuntarily terminated under certain circumstances.

     Summary

      The Committee believes that the executive compensation program must continually provide compensation potential of such significance that individuals of exceptional talent and skills are motivated to join and remain with RJR and to perform in an exceptional manner. By ensuring that such persons are managing RJR’s operations, the long-term interests of stockholders will be best served. The actions taken by the Committee during 20012002 were consistent with this focus and the principles outlined above.

	Respectfully submitted,
	John T. Chain, Jr. (Chair)
	John G. Medlin, Jr.
	Nana Mensah
	Joseph P. Viviano

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Summary Compensation Table

      The following table shows the annual and long-term compensation paid or accrued by RJR and its subsidiaries to our Chief Executive Officer and our other four most highly compensated executive officers for the years ending December 31, 2002, 2001 2000 and 1999.2000. In addition, pursuant to the proxy rules adopted by the SEC concerning the disclosure of executive compensation, information regarding the compensation paid to Kenneth J. Lapiejko, RJR’s former Executive Vice President and Chief Financial Officer whose active employment with RJR terminated on July 19, 2002, also is provided. Our Chief Executive Officer, our four other most highly compensated executive officers and Mr. Lapiejko are referred to collectively in this proxy statement as the “named executive officers.”

Summary Compensation Table

[Additional columns below]

[Continued from above table, first column(s) repeated]

			All
			Other
			Compensation
Name and Principal Position			($)(8)
Andrew J. Schindler				1,865,690
	Chairman of the Board,			2,588,000
	President and Chief			63,971
	Executive Officer
Lynn J. Beasley				97,097
	President and Chief			1,206,725
	Operating Officer,			28,384
	RJR Tobacco
Charles A. Blixt				28,305
	Executive Vice President,			1,244,725
	General Counsel and			26,609
	Assistant Secretary
Richard H. Bogan(1)				6,685
	Executive Vice President
	and Chief Financial Officer
James V. Maguire				91,922
	Executive Vice President —			1,066,465
	Sales, RJR Tobacco			54,519
Kenneth J. Lapiejko				27,900
	Former Executive			1,072,910
	Vice President and			21,733
	Chief Financial Officer

(1)	Mr. Bogan’s employment with RJR commenced on July 22, 2002.
(2)	This amount includes a $250,000 “sign-on” bonus.
(3)	The amounts shown in the table include amounts attributed to the named executive officers’ participation in the executive perquisite program of RJR and its subsidiaries, which provided them with supplemental insurance, a leased automobile and an annual allowance in the following amounts during 2001:2002: Mr. Schindler — $54,750; Ms. Beasley — $47,500; Mr. Blixt — $47,500; Mr. LapiejkoBogan — $47,500 and$23,750; Mr. Maguire — $40,000.$40,000 and Mr. Lapiejko — $47,500.
(2)(4)	The December 31, 20012002 values of restricted shares of RJR common stock held by each of the named executive officers are as follows: Mr. Schindler (197,237(187,099 shares with a value of $11,104,443)$7,878,739), Ms. Beasley (83,810(82,491 shares with a value of $4,718,503)$3,473,696), Mr. Blixt (82,143(77,126 shares with a value of $4,624,651)$3,247,776), Mr. Lapiejko (81,477Bogan (11,558 shares with a value of $4,587,155)$486,707) and Mr. Maguire (62,672(52,107 shares with a value of $3,528,434)$2,194,226). Dividends are paid on the restricted shares of RJR common stock to the same extent as for unrestricted shares.
(3)(5)	These restricted shares of RJR common stock were awarded under the 1999 LTIP, and are scheduled to vest on the later of January 31, 2004,July 26, 2005, or the date the RJR Annual Incentive Award Plan (which we

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refer to in this proxy statement as the “AIAP”) score for 20032004 is determined. For these restricted shares to vest, RJR must pay to its stockholders a dividend per share of RJR common stock of at least $0.775 per$0.95 in each fiscal quarter for each ofduring the 12 quartersperiod from January 1, 2001July 26, 2002 through December 31, 2003,2004, unless the Board of Directors specifically approves the vesting of the grant when a lower dividend is paid to stockholders for one or more quarters during the performance period (referred to in the restricted stock agreement as the “threshold performance requirement”). On the vesting date, if the threshold performance requirement has been met, the original number of restricted shares will be multiplied by the average of the total weighted AIAP percentage scores for the financial and market share components of the AIAP for each of 2001, 2002, 2003 and 2003, resulting in a revised number of shares. If the revised number is greater than the original number of restricted shares, all of the restricted shares will vest, and RJR will issue an additional number of unrestricted shares of RJR common stock to the named executive officer equal to the difference between the revised number and

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	the original number. If the revised number is less than the original number, the named executive officer will forfeit the number of shares equal to the difference between the original number of restricted shares and the revised number, and the remaining restricted shares will vest.

These restricted shares will vestpro rataupon the named executive officer’s termination of employment without cause (as such term is defined in the restricted stock agreement) or retirement, and all of these restricted shares will be fully vested upon the named executive officer’s death or permanent disability or a change of control of RJR (as such term is defined in the restricted stock agreement). Upon the named executive officer’s voluntary termination of employment or termination of employment for cause, the named executive officer will forfeit all of his or her awarded shares of RJR common stock still subject to the restrictions.

(4)

These restricted shares of RJR common stock were awarded under the 1999 LTIP, and are scheduled to vest on the later of February 2, 2003, or the date the AIAP score for 2002 is determined. For these restricted shares to vest, RJR must pay to its stockholders a dividend per share of RJR common stock of at least $0.775 per quarter for each of the 12 quarters from January 1, 2000 through December 31, 2002, unless the Board of Directors specifically approves the vesting of the grant when a lower dividend is paid to stockholders for one or more quarters during the performance period (referred to in the restricted stock agreement as the “threshold performance requirement”). On the vesting date, if the threshold performance requirement has been met, the original number of restricted shares will be multiplied by the average of the total weighted AIAP percentage scores for the financial and market share components of the AIAP for each of 2000, 2001 and 2002,2004, resulting in a revised number of shares. If the revised number is greater than the original number of restricted shares, all of the restricted shares will vest, and RJR will issue an additional number of unrestricted shares of RJR common stock to the named executive officer equal to the difference between the revised number and the original number. If the revised number is less than the original number, the named executive officer will forfeit the number of shares equal to the difference between the original number of restricted shares and the revised number, and the remaining restricted shares will vest.

These restricted shares will vestpro rataupon the named executive officer’s termination of employment without cause (as such term is defined in the restricted stock agreement) or retirement, and all of these restricted shares will be fully vested upon the named executive officer’s death or permanent disability, or a change of control of RJR (as such term is defined in the restricted stock agreement). Upon the named executive officer’s voluntary termination of employment or termination of employment for cause, the named executive officer will forfeit all of his or her awarded shares of RJR common stock still subject to the restrictions.

(5)(6)

These grants are part of the grants of restricted shares of RJR common stock made in tandem with grantswere awarded under the 1999 LTIP, and are scheduled to vest on the later of January 31, 2004, or the date the AIAP score for 2003 is determined. For these restricted shares to vest, RJR must pay to its stockholders a dividend per share of RJR common stock options approved byof at least $0.775 per quarter for each of the RJR12 quarters from January 1, 2001 through December 31, 2003, unless the Board of Directors effective June 15, 1999,specifically approves the first dayvesting of regular way trading after the spin-off distributiongrant when a lower dividend is paid to stockholders for one or more quarters during the performance period (referred to in the restricted stock agreement as the “threshold performance requirement”). On the vesting date, if the threshold performance requirement has been met, the original number of restricted shares will be multiplied by Nabisco Group Holdings Corp. (“NGH”)the average of the total weighted AIAP percentage scores for the financial and market share components of the AIAP for each of 2001, 2002 and 2003, resulting in a revised number of shares. If the revised number is greater than the original number of restricted shares, all of the outstandingrestricted shares will vest, and RJR will issue an additional number of unrestricted shares of RJR common stock to the stockholders of NGH on June 14, 1999 (which we refernamed executive officer equal to in this proxy statement as the “Spinoff”). Each share of restricted stock has four tandem stock options with an exercise price of $32.4375 (the stock price ondifference between the date of grant)revised number and an expiration date of June 15, 2009. These tandem awards vest 50 percent at the end of three years, 25 percent after four years and 25 percent after five years. On each vesting date, each oforiginal number. If the revised number is less than the original number, the named executive officersofficer will receiveforfeit the portionnumber of shares equal to the tandem award withdifference between the highest value,original number of restricted shares and the vestingrevised number, and the remaining restricted shares of RJR common stock or tandem stock options, unless he or she has previously made an affirmative election otherwise. The named executive officer forfeits the award not received upon vesting.will vest.

	The awards made to the named executive officers are as follows:

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If Mr. Schindler’s employment is involuntarily terminated without cause, his tandem grants will vest 50 percent if the termination is within the first three years and 100 percent upon a later termination. The grants made to the other named executive officersThese restricted shares will vestpro rataupon athe named executive officer’s termination of their employment without cause (as such term is defined in the restricted stock agreement) or retirement. All grantsretirement, and all of these restricted shares will be fully vested upon athe named executive officer’s death or permanent disability, or a change of control of RJR (as such term is defined in the restricted stock agreement). Upon the named executive officer’s voluntary termination of employment or termination of employment withoutfor cause, following a changethe named executive officer will forfeit all of control.his or her awarded shares of RJR common stock still subject to the restrictions.

(6)(7)

These restricted shares of RJR common stock were awarded under the 1999 LTIP, and vested on February 2, 2003. For these restricted shares to vest, RJR was required to pay to its stockholders a dividend per share of RJR common stock of at least $0.775 per quarter for each of the 12 quarters from January 1, 2000 through December 31, 2002 (referred to in the restricted stock agreement as the “threshold performance requirement”). On February 2, 2003, since the threshold performance requirement had been met, the original number of restricted shares was multiplied by 92.5 percent, the average of the total weighted AIAP percentage scores for the financial and market share components of the AIAP for each of 2000, 2001 and 2002, resulting in a revised number of shares. Since the revised number was less than the original number, on the vesting date, the named executive officers, other than, Mr. Lapiejko, forfeited 7.5 percent of the original number of restricted shares awarded to them, and the remaining shares vested. Pursuant to the terms of his restricted stock

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	agreement, Mr. Lapiejko’s restricted shares vestedpro rata upon the termination of his active employment with RJR on July 19, 2002.
(8)	The amounts shown in the table reflect the following retention bonuses paid to the named executive officers under a Retention Incentive Program established by RJR on May 13, 1998, for certain executive officers of RJR and its subsidiaries, and the following RJR contributions made on behalf of the named executive officers under RJR’s qualified and non-qualified defined contribution plans during 2001:2002:

In addition, in 2002, (1) Mr. Schindler received 50 percent of his special retention award of $3,600,000 ($1,800,000) under the Retention Incentive Program, as described in the Compensation Committee report on page 16, and in “Executive Compensation and Transactions with Management — Agreements with executive officers” on page 24, of this proxy statement, and (2) Ms. Beasley and Mr. Maguire also receivedwere reimbursed $63,167 and $73,844, respectively, by RJR for fees incurred by them in connection with their exercises of certain tandem stock options and the sale of a retention bonusportion of $36,000 under the Special Incentive Plan (Retention) established for certainshares of RJR Tobacco sales department employees.common stock acquired upon such exercises.

Long-term incentive compensation

      RJR maintains the 1999 LTIP to provide executives with long-term performance-based incentive compensation. RJR has issued stock options, restricted stock and other performance-based awards under the 1999 LTIP to the named executive officers and to other key employees. The following table provides information relating to the exercise of employee stock options by the named executive officers during fiscal year 20012002 and the number and value of shares of RJR common stock subject to stock options held by the named executive officers as of December 31, 2001.2002.

Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option Values

(1)	The unexercisable RJR stock options are the grants of RJR stock options made in tandem with the grants of restricted shares of RJR common stock made effectiveon June 15, 1999, and described in footnote (5) to the Summary Compensation Table.1999.
(2)	The dollar values of the RJR stock options are calculated by determining the difference between the fair market value of the shares of RJR common stock underlying the options and the exercise price of such options at December 31, 2001.2002.
(3)	Named executive officerMr. Schindler did not exercise any RJR stock options during 2001.2002.
(4)	Mr. Bogan has not been granted any RJR stock options.

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      The regular annual 20012002 long-term incentive grants for all of the named executive officers were made in the form of restricted shares of RJR common stock, as described in footnote (3)(5) to the Summary Compensation Table, and performance units, the value of which is based on the financial and market share performance of RJR and its subsidiaries over a three-year period. The following table identifies the performance units that were granted to the named executive officers on January 31, 2001,July 26, 2002, and the threshold, target and maximum values of the performance units upon their maturation.

Long-Term Incentive Plans — Awards in Last Fiscal Year

(1)	The performance units have a three-year performance period, consisting of RJR’s fiscal years 2001, 2002, 2003 and 2003.2004. At the end of the performance period, the performance units will be valued and paid, if they vest, or cancelled, if they do not vest. For the performance units to vest, RJR must pay to its stockholders a dividend per share of RJR common stock of at least $0.775 per$0.95 in each fiscal quarter for each ofduring the 12 quartersperiod from January 1, 2001July 26, 2002 through December 31, 2003,2004, unless the Board of Directors specifically approves the vesting of the performance units when a lower dividend is paid to stockholders for one or more quarters during the performance period (referred to in the performance units agreement as the “threshold performance requirement”). At the end of the vesting period, if the threshold performance requirement has been met, the value of each performance unit will be multiplied by the average of the total weighted RJR Annual Incentive Award Plan percentage scores for the financial and market share components of the AIAP for each of 2001, 2002, 2003 and 2003.2004. Payment of performance units will be made only in cash.

In the event of a named executive officer’s death, permanent disability, retirement or termination of employment without cause (as such term is defined in the performance units agreement) or a change of control of RJR (as such term is defined in the performance units agreement) prior to December 31, 2003, the number of performance units which will vest, if not previously cancelled due to RJR’s failure to meet the threshold performance requirement, will be equal to the product of (a) the original number of performance units granted to the named executive officer, and (b) a fraction, the numerator of which will be the number of whole or partial months between January 1, 2001 and the date of the named executive officer’s termination of employment, and the denominator of which will be 36. Except in the event of a change of control of RJR, the value of a performance unit will equal $1. In the event of a change of control of RJR, the value of each performance unit will be equal to the greater of (i) $1, or (ii) $1 multiplied by the average of the total weighted AIAP percentage scores for the financial and market share components of the AIAP for each of the years 2001, 2002 and 2003 completed prior to the change of control. Upon a named executive officer’s voluntary termination of employment or termination of employment for cause prior to December 31, 2004, the number of performance units which will vest, if not previously cancelled due to RJR’s failure to meet the threshold performance requirement, will be equal to the product of (a) the original number of performance units granted to the named executive officer, and (b) a fraction, the numerator of which will be the number of whole or partial months between January 1, 2002 and the date of the named executive officer’s termination of employment, and the denominator of which will be 36. Except in the event of a change of control of RJR, the value of a performance unit will equal $1. In the event of a change of control of RJR, the value of each performance unit will be equal to the greater of (i) $1, or (ii) $1 multiplied by the average of the total weighted AIAP percentage scores for the financial and market share components of the AIAP for each of the years 2002, 2003 and 2004 completed prior to the change of control. Upon a named executive officer’s voluntary termination of employment or termination of employment for cause prior to December 31, 2004, all of his or her performance units will be cancelled.

Retirement plans

      The named executive officers participate in noncontributory defined benefit retirement plans maintained by RJR. Mr.Messrs. Schindler and Bogan also participatesparticipate in a Supplemental Executive Retirement Plan, which we refer to in this proxy statement as the “SERP.” Benefits under the SERP are payable only after a

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      The following table shows the estimated annual benefits payable to Mr.Messrs. Schindler and Bogan upon retirement under the SERP, as described in the preceding paragraph. The retirement benefits shown are computed before being offset for Social Security and are based upon retirement at age 60 and the payment of a single-life annuity to Mr. Schindler.annuity.

Estimated Annual Retirement Benefits

(1)

For purposes of determining retirement benefits under this table, “Average Final Compensation” consists of the annualized sum of base salary, bonus in the year earned and pre-tax contributions to plans maintained under Sections 401(k) and 125 of the Internal Revenue Code, and is determined by considering the 36 consecutive months that yield the highest average compensation during the participant’s last 60 months of service. Mr. Schindler’s Average Final Compensation as of December 31, 20012002 was $2,123,842, and he is expected to have more than 20 years of credited service at age 60. Mr. Bogan’s Average Final Compensation as of December 31, 2002 was $535,652, and he is expected to have more than 20 years of credited service at age 60, which includes an additional 12 years of credited service granted to Mr. Bogan effective upon the commencement of his employment with RJR.

      We have determined the retirement benefits for Ms. Beasley and Mr. Blixt by the formula under a noncontributory defined benefit plan maintained by RJR that has no Social Security offset. The following table shows the estimated annual single life annuity payable at age 65 under the plan.

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Estimated Annual Retirement Benefits

(1)

For purposes of determining retirement benefits under this table, “Average Final Compensation” consists of the annualized sum of base salary, bonus in the year earned and pre-tax contributions to plans maintained under Sections 401(k) and 125 of the Internal Revenue Code, and is determined by considering the 36 consecutive months that yield the highest average compensation during the participant’s last 60 months of service. Average Final Compensation as of December 31, 20012002 was $936,310$943,099 for Ms. Beasley and $940,319 for Mr. Blixt. Estimated years of credited service, rounded to the nearest year, at age 65 is 40 years for Ms. Beasley and 32 years for Mr. Blixt.

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      We have determined the retirement benefits for Messrs. LapiejkoMaguire and MaguireLapiejko by the formula under a noncontributory defined benefit plan maintained by RJR that is subject to a Social Security offset. The following table shows the estimated annual single life annuity payable at age 65 under the plan.

Estimated Annual Retirement Benefits