<PAGE>

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  As filed with the Securities and Exchange Commission on March 16, 2001
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                            UNITED STATES

                 SECURITIES AND EXCHANGE COMMISSION
                       Washington, D.C. 20549

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

                              FORM 20-F
[_]   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
  SECURITIES EXCHANGE ACT OF 1934

                                 OR
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

     SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
                                 OR

[_]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

For the transition period from       to
                  Commission file number 001-16143

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

                     SCHERING AKTIENGESELLSCHAFT

       (Exact name of Registrant as specified in its charter)


           Not Applicable               Federal Republic of Germany
 (Translation of Registrant's name   (Jurisdiction of incorporation or
           into English)                       organization)


                          Muellerstrasse 178
                            13353 Berlin

                     Federal Republic of Germany
                    (Telephone: (49-30) 468-1111)
    (Address and telephone number of principal executive offices)

 Securities registered or to be registered pursuant to Section 12(b)
                             of the Act.


        Title of each class            Name of each exchange on which
    American Depositary Shares,                  registered
  evidenced by American Depositary        New York Stock Exchange
    Receipts, each representing
         one Ordinary Share

        Ordinary Shares, no par value*

 Securities registered or to be registered pursuant to Section 12(g)

                             of the Act.
                                None

  Securities for which there is a reporting obligation pursuant to
                      Section 15(d) of the Act.
                                None

  Indicate the number of outstanding shares of each of the issuers
              classes of capital or common stock as of

                         December 31, 2000:
                     198,000,000 Ordinary Shares

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

   Indicate by check mark whether the registrant (1) has 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 registrant was required
   to file such reports), and (2) has been subject to such filing
                 requirements for the past 90 days.

                          YES [X]    NO [_]
Indicate by check mark which financial statements item the registrant

                       has elected to follow.
                       ITEM 17 [_] ITEM 18 [X]
*  Not for trading but only in connection with the registration of
   the American Depositary Shares, pursuant to the requirements of the
   Securities and Exchange Commission.

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<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S>                                                                                         <C>
    Our Use of Terms and Conventions......................................................   (ii)
    Accounting Periods and Principles.....................................................   (ii)
    Currency of Presentation and Exchange Rates...........................................  (iii)
    The Schering Name.....................................................................  (iii)
    Forward-Looking Statements............................................................  (iii)

                                          PART I

Item 1.  Identity of Directors, Senior Management and Advisers............................      1
Item 2.  Offer Statistics and Expected Timetable..........................................      1
Item 3.  Key Information..................................................................      1
Item 4.  Information on the Company.......................................................     10
Item 5.  Operating and Financial Review and Prospects.....................................     67
Item 6.  Directors, Senior Management and Employees.......................................    107
Item 7.  Major Shareholders and Related Party Transactions................................    117
Item 8.  Financial Information............................................................    119
Item 9.  The Listing......................................................................    122
Item 10.  Additional Information..........................................................    124
Item 11.  Quantitative and Qualitative Disclosures about Market Risk......................    131
Item 12.  Description of Securities Other than Equity Securities..........................    135

                                         PART II

Item 13.  Defaults, Dividend Arrearages and Delinquencies.................................    136
Item 14.  Material Modifications to the Rights of Security Holders and Use of Proceeds....    136
Item 15..................[Reserved].......................................................    136
Item 16..................[Reserved].......................................................    136

                                         PART III

Item 17.  Financial Statements............................................................    137
Item 18.  Financial Statements............................................................    137
Item 19.  Exhibits........................................................................    137

</TABLE>

                                  i

<PAGE>



OUR USE OF TERMS AND CONVENTIONS

   Schering Aktiengesellschaft is incorporated as a stock
corporation under the laws of the Federal Republic of Germany. Unless
otherwise specified or the context requires otherwise:

  .  references to "Schering AG" are to Schering Aktiengesellschaft,
     the ultimate parent company of the Schering AG Group;

  .  references to the "Schering AG Group", "the Group", "we", "us" and
     "our" are to Schering Aktiengesellschaft together with its
     consolidated subsidiaries;

  .  references to "Deutsche Mark", "DM" and "Pfennig" are to German
     Deutsche Mark and Pfennig,

  .  references to "euro", "E" and "cents" are to the currency
     introduced at the start of the third stage of the European
     Economic and Monetary Union pursuant to the Treaty establishing
     the European Economic Community, as amended by the Treaty on

     the European Union; and

  .  references to "US dollars", "USD", "$" and "US cents" are to the
    United States dollar and cents, the legal currency of the United
    States of America.


ACCOUNTING PERIODS AND PRINCIPLES


   Unless otherwise specified, all references in this annual report
to a "fiscal year" or "year" of Schering AG refer to a twelve month
financial period ended December 31.

   We prepared our Consolidated Financial Statements in accordance
with the International Accounting Standards (IAS) of the
International Accounting Standards Committee. For periods ending on
or prior to December 31, 1998, the Consolidated Financial Statements
also were in accordance with the German Commercial Code
(Handelsgesetzbuch). Differences between IAS and the German
Commercial Code were not material for periods ending on or prior to
December 31, 1998. Following a revision to the German Commercial Code
in 1998 to facilitate capital raising by German companies in the
international capital markets (Kapitalaufnahme-Erleichterungsgesetz),
we were permitted to prepare our Consolidated Financial Statements
solely in accordance with IAS, and no longer required to follow the
German Commercial Code. We elected to do so commencing in fiscal
1999. IAS differ in certain material respects from United States
Generally Accepted Accounting Principles. You can read about some of
the principal differences in note 36 to our Consolidated Financial
Statements. Note 36 to our Consolidated Financial Statements also
provides a reconciliation of our Consolidated Financial Statements to
United States Generally Accepted Accounting Principles.

   Unless otherwise specified, all shares and share related
information (such as per share information and share price
information) have been adjusted to give effect, retroactively, to:

  .  the conversion during 1998 of Schering AGs ordinary shares
     with par values of DM 1,000, DM 100 and DM 50 into ordinary
     shares with no par value. As a result of this conversion,
     Schering AGs share capital was divided from 21,825,981 shares
     into 68,342,023 shares.

  .  Schering AGs three-for-one share split effective on June 1,
     2000.


                                 ii

<PAGE>



CURRENCY OF PRESENTATION AND EXCHANGE RATES

   Effective January 1, 1999, Germany and 10 other member states of
the European Union (participating member states) introduced the euro
as their common currency. The euro replaced the currencies of the
participating member states. The national currencies are only
denominations of the euro with fixed exchange rates to the euro. The
euro-as its national denominations such as the Deutsche Mark-is a
fully convertible currency.

   Our Consolidated Financial Statements for periods ending on or
prior to December 31, 1998 have been prepared in Deutsche Mark and
were restated from Deutsche Mark to euro using the official fixed
conversion rate at January 1, 1999 of DM 1.95583 per E 1.00. We do
not represent that these restated euro amounts for periods ending
prior to January 1, 1999, actually represent the Deutsche Mark
amounts in our Consolidated Financial Statements as prepared or could
be converted into Deutsche Mark at the rate indicated. For periods
ending after December 31, 1998, our Consolidated Financial Statements
have been prepared in euro directly instead of being restated from
Deutsche Mark into euro. US dollar amounts are unaudited and have
been translated solely for your convenience at and for the year ended
December 31, 2000, from euro into US dollars at an exchange rate of $
0.9388 per E 1.00, the noon buying rate in The City of New York for
cable transfers as certified by the Federal Reserve Bank of New York
on December 29, 2000. For information regarding recent rates of
exchange between euro and US dollars, see "Item 3-Key Information-
Exchange Rate Information". We do not represent that the US dollar
amounts presented in the US dollar convenience translation or any
amounts translated from euro into other currencies could have been
converted from euro at the rates indicated.

   On March 8, 2001, the noon buying rate for the euro was $ 0.9281
per E 1.00.

THE SCHERING NAME

   Schering AG and Schering-Plough Corporation are unaffiliated
companies that have been totally independent of each other for many
years. For a brief description of the historical relationship between
the two companies, see "Item 4-Information on the Company-The
Schering AG Group- History". Schering AG and Schering-Plough
Corporation have entered into an agreement relating to their
respective use of the word "Schering". Subject to certain limited
exceptions, Schering AG may not use the Schering name for commercial
purposes relating to its healthcare business in the United States and
Canada. Schering AG operates its pharmaceutical business in the
United States and Canada under the Berlex trade name. See "Item 4-
Information on the Company-Patents and Other Intellectual Property"
for a description of this agreement between Schering AG and Schering-
Plough Corporation.

FORWARD-LOOKING STATEMENTS

   Except for historical information, statements contained in this
annual report may constitute forward-looking statements. The words
"believe", "anticipate", "expect", "intend", "estimate", "plan",
"assume", "will", "may", "should", "risk" and other similar
expressions which are predictions of or indicate future events and
future trends which do not relate to historical matters identify
forward- looking statements. In addition, this annual report includes
forward-looking statements relating to our potential exposure to
various types of market risks, such as foreign exchange rate risk,
interest rate and other risks related to financial assets and
liabilities and equity price risk. You should not rely on forward-
looking statements because they involve known and unknown risks,
uncertainties and other factors which are, in many cases, beyond our
control and may cause our actual results, performance or achievements
to differ materially from anticipated future results, performance or

                                 iii
<PAGE>

    achievements expressed or implied by the forward-looking
statements and from past results, performance or achievements.
Certain factors that may cause such differences include but are not
limited to the following:

  .  governmental factors, including legislative and regulatory
     changes;

  .  difficulties and uncertainties related to new product development;

  .  delays and uncertainties in the product approval process;

  .  factors affecting our ability to obtain or maintain patent or
     trademark protection for our key products and processes;

  .  factors adversely affecting the sale of our key products,
     including safety or efficacy concerns, increased competition from
     other products or manufacturing or supply disruptions;

  .  competitive factors, including pricing and product initiatives of
     our competitors;

  .  legal factors, including product liability or other liability
     claims;

  .  factors adversely affecting the value of our minority investment
     in Aventis CropScience S.A., including the failure of Aventis
     CropScience to obtain regulatory approval or market acceptance for
     its products or disagreements between us and its majority
     shareholder;

  .  human resources factors, including our ability to attract and
     retain qualified personnel;

  .  economic factors over which we have no control, including changes
     in inflation, interest rates and foreign currency exchange rates,
     and overall economic conditions in areas such as Asia, Eastern
     Europe and Latin America;

  .  adverse developments in our relationships with our development,
     manufacturing and marketing partners;

  .  the impact of future investments, acquisitions and dispositions,
     and any delays, unexpected costs or other problems experienced in
     connection with such transactions;

  .  changes in environmental laws and regulations, which could cause
     us to incur significant costs in connection with ongoing
     compliance or liability for remediation; and

  .  other risks, uncertainties and factors inherent in our business.

   For further discussion of these factors, see "Item 3-Key
Information-Selected Financial Data" and "-Risk Factors", "Item 4-
Information on the Company", "Item 5-Operating and Financial Review
and Prospects", and "Item 11-Quantitative and Qualitative Disclosures
about Market Risk".

   You are cautioned not to place undue reliance on these forward-
looking statements. These forward-looking statements are made as of
the date of this registration statement and are not intended to give
any assurance as to future results.

                                 iv
<PAGE>

                               PART I

Item 1.  Identity of Directors, Senior Management and Advisers
   Not applicable.

Item 2.  Offer Statistics and Expected Timetable
   Not applicable.

Item 3.  Key Information

RISK FACTORS

   You should carefully consider the risks described below before
deciding whether to invest in the American Depositary Receipts
(ADRs). Additional risks not currently known to us or that we now
consider immaterial may also harm our business, financial condition
or results of operations and the value of your investment.

   If any of these risks actually occur, our business, financial
condition or results of operations could be negatively affected. In
that case, the trading price of our ADRs could decline and you may
lose all or a part of your investment in the ADRs.

   Our Business Is Subject To Extensive Governmental Regulation
Including Price Controls
   The research, development, testing, manufacturing and marketing
of our products are subject to extensive governmental regulation.
Governmental regulation includes inspection of and controls over
testing, manufacturing, safety and environmental controls, efficacy,
labeling, record keeping, sale and distribution of pharmaceutical
products. Governmental regulation substantially increases the cost of
developing, manufacturing and selling our products.

   The approval process for new products is generally lengthy,
expensive and subject to unanticipated delays. Currently, we are
actively pursuing marketing approval for a number of our products
from regulatory authorities in a number of countries, including the
European Union, the United States and Japan. Continued growth in our
revenues and profits will depend, in part, on the timely and
successful introduction and marketing of some or all of such
products. We cannot give you any assurance as to when or whether such
approvals from regulatory authorities will be received. Failure to
obtain, or delays in obtaining, regulatory clearance to market new
products or existing products for new indications, as well as other
regulatory actions, could adversely affect our results of operations.
Even after a product is approved, it may be subject to regulatory
action based on newly discovered facts about the safety or
effectiveness of the product, on any activities which regulatory
authorities consider to be improper or on changes in regulatory
policy. Regulatory action may adversely affect the marketing of the
product, require changes in the products labeling or even lead to
withdrawal of regulatory approval.

   In addition, price controls for pharmaceutical products may arise
both from formal government interventions or because governments or
major health care providers in a particular market are able to exert
substantial pressure on prices. Some governments in Europe, for
instance, are exerting strong downward pressure on prices through
incentives and sanctions to encourage doctors to prescribe cost-
effectively. Efforts by the European Commission to harmonize the
disparate national systems have met with little immediate success,
leaving the industry exposed to ad hoc national cost containment
measures on prices and the consequent parallel trading of products
from markets with prices artificially depressed by government into
those operating on a competitive basis. There also is formal central
government control of prices in Japan. Price controls can limit the
financial benefits of growth in these markets and the introduction of
new products.

                                  1
<PAGE>

   Exchange Rate Fluctuations Could Affect Our Operating Result And
Our Ability To Price Our Products Competitively
   Our operations are conducted by entities in many countries, and
accordingly, a substantial portion of our sales and production costs
are denominated in currencies other than the euro. As a result,
fluctuations between the value of the euro and other major
currencies, in particular the US dollar, the Japanese yen and the
Brazilian real, may affect our operating results. For example, the
depreciation of the US dollar against the euro would have a negative
impact on the reported sales of our US subsidiaries for inclusion in
the Schering AG Groups Consolidated Financial Statements, whereas a
strengthening of the US dollar against the euro would favorably
affect the reported sales of these subsidiaries. Moreover, certain of
our subsidiaries import and export goods and services in currencies
other than their own functional currencies. The results of such
subsidiaries could therefore be affected by currency fluctuations
arising between the transaction dates and the settlement dates for
these transactions. We currently hedge these exposures through
financial instruments in the form of forward contracts and currency
swaps. We cannot assure you that exchange rate fluctuations will not
adversely affect our business, financial condition or results of
operations in the future.

   In addition, many of our competitors are based in Japan, the
United States and other countries whose currencies fluctuate against
the euro. Our business will suffer if we are unable to compensate for
any competitive advantage others may derive from having a substantial
portion of their costs based in a weaker currency. If our competitors
benefit from weaker currencies by offering their products at prices
that are lower than ours, we may need to reduce our prices to make
our products competitive, lowering our profit margins.

   A Decline In The Value Of The Euro Could Reduce The Value Of Your
Investment And Any Dividends You Receive
   Fluctuations in the exchange rate between the US dollar and the
euro will affect the US dollar equivalent of the euro price per ADR
and the US dollar value of any cash dividends. If the value of the
euro relative to the US dollar declines, the market price of the ADRs
is likely to be adversely affected. Any decline in the value of the
euro would also adversely affect the US dollar amounts received by
shareholders on the conversion of any cash dividends paid in euro on
the ADRs. Since the beginning of January 1998 through January 2,
2001, the value of the euro relative to the US dollar declined by
12.9%.

   Resources Devoted To Research And Development May Not Yield New
Products That Achieve Commercial Success
   Like other pharmaceutical companies, we devote substantial
resources to research and development. In the pharmaceutical
industry, research and development is both expensive and time
consuming and entails considerable uncertainty. The process of
developing a new pharmaceutical product from discovery through
testing and registration to initial product launch typically takes
between eight and twelve years, but this period varies considerably
from product to product and country to country. Because of the
complexities and uncertainties associated with pharmaceutical
research, we cannot ensure that products currently under development
by us will survive the development process and ultimately obtain the
regulatory approvals needed to market such products successfully.
There can be no assurances regarding the development of and
commercial success of any of the products in our current pipeline.
Moreover, even after a product has received regulatory approval and
has been launched, the profile of the product may exhibit
unanticipated side effects which could lead to its withdrawal from
the market or a significant decrease in the products sales.

                                  2
<PAGE>

   We Depend On Our Patents And Proprietary Rights; Several Of Our
Patents Will Expire
   Our success depends, in large part, on our ability to protect our
current and future products and to defend our intellectual property
rights. We have been issued numerous patents covering our active
ingredients, pharmaceutical formulations and combinations,
manufacturing processes, technologies and products, and have filed,
and expect to continue to file, patent applications seeking to
protect such newly developed technologies and products. Since many of
the products that we sell are licensed to us by third parties, we
also rely on the patents held by such third parties. We cannot be
sure that patents will be issued with respect to any of our patent
applications or that any existing or future patents issued to or
licensed by us will provide us with competitive advantages or will
not be challenged, invalidated or circumvented by competitors.

   We also rely on trade secrets, unpatented proprietary know-how
and continuing technological innovation that we seek to protect, in
part by confidentiality agreements with licensees, suppliers,
employees and consultants. We cannot assure that these agreements
will not be breached. We also cannot be certain that we will have
adequate remedies for any breach. Furthermore, we cannot be sure that
our trade secrets and proprietary technology will not otherwise
become known or be independently developed by our competitors or, if
patents are not issued with respect to products arising from
research, that we will be able to maintain the confidentiality of
information relating to such products.

   We may be required to defend against charges of infringement of
patent or proprietary rights of third parties. Such defense could
require us to incur substantial expense and to divert significant
effort of our technical and management personnel, and could result in
our loss of rights to develop or make certain products or require us
to pay monetary damages or royalties to license proprietary rights
from third parties. Although patent and intellectual property
disputes in the pharmaceutical product area have often been settled
through licensing or similar arrangements, costs associated with such
arrangements may be substantial and could include ongoing royalties.
Furthermore, we cannot be certain that the necessary licenses would
be available to us on terms we believe to be acceptable. We cannot
assure you that an adverse outcome of any dispute with respect to
patents or other proprietary rights will not adversely affect our
competitive position, financial condition or results of operations.

   During the period of patent protection, a product is normally
only subject to competition from alternative products. Following
patent expiration, the manufacturer of the patented product is likely
to face increased competition through the entry into the market of
generic products and a subsequent decline in market share and sales
revenues. Certain of our key products are no longer protected by
patents (or other regulatory exclusivity measures) in our major
markets, or protection for these products will expire in the near
future. Many of our fertility control products have no patent
protection remaining. In addition, the X-ray contrast medium
Iopamiron(R), which we sell under license from Bracco S.p.A., has no
patent protection remaining. The expiration of certain patents could
adversely affect the pricing and sales with respect to these products
and, consequently, could adversely affect our business, financial
condition or results of operations.

   Our Industry Is Competitive And Experiences Rapid Technological
Change
   We compete in the pharmaceutical industry, which is characterized
by intense competition and rapid technological change. We compete
with companies around the world, including large, well-established
pharmaceutical and chemical companies, research and development
firms, universities and other research institutions. Many of our
competitors have significant financial, marketing, sales, development
and technical resources. Our competitors may succeed in developing
technologies and products that are more effective or cheaper than any
which we may develop. In addition, the continuing consolidation of
companies in the pharmaceutical industry will increase

                                  3
<PAGE>

competitive pressures as larger suppliers are able to offer a
broader product line. We cannot assure you that these developments
will not render our technologies and products obsolete and
uncompetitive. Delays or unanticipated increases in the costs of
development or our failure to obtain regulatory approval or market
acceptance for new products and technologies could further adversely
affect our competitive position and results of operations.

   We Depend On Sales Of Key Products
   While we believe that we are less dependent on sales of key
products than many other pharmaceutical companies, we derived
approximately 33% of our net sales in 2000 from sales of four key
products: Betaferon(R) (which is sold in the United States and Canada
under the Betaseron(R) trademark) (13% of net sales), Iopamiron(R) (8%),
Magnevist(R) (7%) and Ultravist(R) (5%). We believe that the sales of
these key products will constitute a significant portion of net sales
for the foreseeable future. Accordingly, any factor adversely
affecting the sale of these key products individually or collectively
could have a material adverse effect on our results of operations.
The sale of these key products could be adversely affected by a
number of factors, including manufacturing or supply interruptions,
the development of new competitive pharmaceuticals to treat the
conditions addressed by the key products, technological advances,
factors affecting the cost of production, marketing or pricing
actions by one or more of our competitors, changes in prescribing
practices, changes in the reimbursement policies of third-party
payors, product liability claims or other factors.

   We Have Only Limited Influence Over Aventis CropScience And The
Value Of Our Stake In Aventis CropScience Could Decrease
   We hold a 24% stake in the crop protection and crop production
company Aventis CropScience S.A. Although we have entered into an
agreement with our partner, Aventis S.A., and we exercise significant
influence with respect to certain of the affairs of Aventis
CropScience, our minority voting position has and may continue to
have several important consequences for us, including precluding us
from controlling Aventis CropScience, limiting our ability to
implement strategies we favor and allowing Aventis CropScience to
adopt strategies and take actions which may in some cases be contrary
to our preferred strategies and actions. As with any minority
investment, differences in views among the principal shareholders may
result in delayed decisions or in failures to agree on major matters,
potentially adversely affecting the business and operations of the
joint venture and in turn our business and operations.

   Aventis CropScience recorded significant restructuring charges in
connection with its formation and has since then recorded other
significant charges. Further significant charges by Aventis
CropScience could adversely affect our results of operations.

   The market for crop science products is cyclical and is
influenced by seasonal and weather factors and fluctuations in global
farm commodity prices. In addition, Aventis CropScience is subject to
various laws and regulations concerning product safety in many of the
countries in which it manufactures and sells its products. Public
concerns about genetically modified agricultural products have
delayed and may continue to delay or prevent regulatory approval of
certain of Aventis CropSciences current and future products and may
also have a negative impact on the market acceptance of such
products. In the past, import restrictions on genetically modified
products in parts of Europe delayed the launch of certain products.
One-off effects such as expenditures for a call back program
connected with the StarLink(R) seeds technology in the United States
contributed to the loss of E 59 million in 2000 included in the
Schering AG Group accounts. The value of our stake in Aventis
CropScience could decrease significantly and our results of
operations could be adversely affected if Aventis CropScience fails
to obtain regulatory approval or market acceptance for new products
and technologies, or if the demand for crop science products
decreases.

                                  4
<PAGE>

   Our Industry Is Susceptible To Product Related Liabilities
   Like all pharmaceutical companies, we face the risk of loss
related to the use of products
we market from such actions as lawsuits. We cannot assure you that we
can avoid such claims.
We cannot be sure that our product liability insurance will be
adequate to cover such claims or that we will be able to get adequate
insurance coverage in the future at acceptable costs. A successful
product liability claim in excess of our coverage could require us to
pay substantial sums. Even unsuccessful product liability claims
could result in the expenditure of funds in litigation and the
diversion of management time and resources and could damage our
reputation and impair the marketability of our products. We are
currently involved in a number of product liability cases claiming
damages as a result of the use of our products. We do not believe,
however, that the potential costs and liabilities associated with
such matters are likely to have a material adverse effect on our
results of operations or liquidity.

   We Depend On The Services Of Our Key Managerial And Scientific
Personnel
   Our success depends upon the continued contributions of our key
managerial and scientific personnel, many of whom have many years of
experience at the Schering AG Group and would be difficult to
replace. Competition for qualified personnel is intense in our
industry, and we may not be successful in hiring and retaining
people. If we lose the services of any key managerial or scientific
personnel or cannot attract and retain other qualified personnel, our
business could suffer.

   ADR Holders May Not Be Able To Vote Or To Participate In
Offerings Of New Shares
   If you hold our ordinary shares in the form of ADRs, you
generally can exercise your voting rights for the shares which
underlie your ADRs only by instructing the depositary how to exercise
these voting rights. You may not receive voting materials in time to
instruct the depositary how to vote your ADRs, and as a result you
may not have the opportunity to exercise a right to vote.

   U.S. holders of ADRs also may not be able to participate in any
offer of new shares to existing shareholders on the basis of their
subscription rights because of restrictions on the offer and sale of
securities in the United States under U.S. securities laws and
regulations.

                                  5
<PAGE>

SELECTED FINANCIAL DATA

   The selected consolidated financial data for each of the years in
the three-year period ended December 31, 2000, has been derived from
our Consolidated Financial Statements and the related notes,
appearing elsewhere in this annual report. The selected consolidated
financial data at year end and for each of the years in the two-year
period ended December 31, 1997 has been derived from our Consolidated
Financial Statements not included in this annual report  .

   We prepared our Consolidated Financial Statements in accordance
with the International Accounting Standards (IAS) of the
International Accounting Standards Committee. For periods ending on
or prior to December 31, 1998, the Consolidated Financial Statements
also were in accordance with the German Commercial Code
(Handelsgesetzbuch). Differences between IAS and the German
Commercial Code were not material for periods ending on or prior to
December 31, 1998. Following a revision to the German Commercial Code
in 1998 to facilitate capital raising by German companies in the
international capital markets (Kapitalaufnahme-Erleichterungsgesetz),
we were permitted to prepare our Consolidated Financial Statements
solely in accordance with IAS, and no longer required to follow the
German Commercial Code. We elected to do so commencing in fiscal
1999. IAS differ in certain material respects from United States
Generally Accepted Accounting Principles. You can read about some of
the principal differences in note 36 to our Consolidated Financial
Statements. Note 36 to our Consolidated Financial Statements also
provides a reconciliation of our Consolidated Financial Statements to
United States Generally Accepted Accounting Principles.

   We prepared our Consolidated Financial Statements for periods
ending on or prior to December 31, 1998, in Deutsche Mark. We
restated these Consolidated Financial Statements from Deutsche Mark
to euro using the official fixed conversion rate for January 1, 1999,
of DM 1.95583 per E 1.00. See note 1 to our Consolidated Financial
Statements. For periods ending after December 31, 1998, our
Consolidated Financial Statements have been prepared in euro directly
instead of being restated from Deutsche Mark to euro. Amounts shown
in US dollars have been translated from euro amounts to US dollars at
the rate of $0.9388 per E 1.00, the noon buying rate on December 29,
2000.

   You should read this selected consolidated financial data
together with "Item 5-Operating and Financial Review and Prospects"
and our Consolidated Financial Statements appearing elsewhere in this
registration statement.

                                  6
<PAGE>

<TABLE>
<CAPTION>

                                                       Year Ended December 31,

                                             2000    2000   1999      1998       1997      1996
  Consolidated Income Statement Data:      $ {(3)}    E      E     E {(4)}   E {(4)}   E {(4)}
                                                   (in millions, except per share data)
<S>                                        <C>       <C>    <C>     <C>        <C>       <C>
  IAS:
  Net sales..............................  4,218     4,493   3,674    3,285      3,193      2,696
  Operating profit.......................    601       640     536      410        422      301
  Financial result.......................     (5)       (5)    (77)      14        (18)      13
  Profit on ordinary activities..........     96       635     459      424        404      314
  Taxes on profit........................   (272)     (290)   (181)    (175)      (168)    (126)
  Income before minority interests.......    324       345     278      249        236      188
  Minority interests.....................     (9)       (9)     (6)      (4)        (8)      (3)
  Net income.............................    315       336     272      245        228      185
  Average number of shares in issue{(1)}           198.00  201.06   204.81     205.02   205.02
  Basic net income per share/ADS{(1)}...   1.59      1.70    1.35     1.19       1.11     0.90
  Diluted net income per share/ADS{(1)}    1.58      1.68    1.35     1.19       1.11     0.90
  Dividends per share/ADS{(1)(2)}.......   0.94      1.00    0.83     0.45       0.43     0.34
  United States GAAP:
  Net income.............................    287       306     248     254
  Basic net income per share/ADS{(1)}...   1.46      1.55    1.23    1.24
  Diluted net income per share/ADS{(1)}.   1.44      1.53    1.23    1.24
</TABLE>

<TABLE>
<CAPTION>

                                                              As of December 31,
                                             2000    2000   1999      1998       1997      1996
  Consolidated Balance Sheet Data          $ {(3)}    E      E     E {(4)}   E {(4)}   E {(4)}
  (at period end date):                              (in millions, except per share data)
<S>                                        <C>       <C>    <C>     <C>        <C>       <C>
  IAS:
  Total assets...........................  4,887     5,206  4,629   4,569      4,393     4,098
  Cash, cash equivalents and marketable
securities...............................    612       652    583     999      1,004       901
  Total long term bank debt..............     40        43     58      57         56        56
  Pension provisions.....................  1,200     1,278  1,201   1,134      1,071       988
  Minority interests.....................     86        92     55      48         45        37
  Total shareholders equity..............  2,156     2,297  2,098   2,010      1,955     1,787
  United States GAAP:
  Total shareholders equity..............  2,163     2,304  2,061   1,979
</TABLE>
--------
(1)  All share and per share data have been adjusted to give effect,
     retroactively, to (i) the conversion during 1998 of Schering AGs ordinary
     shares with par values of DM 1,000, DM 100 and DM 50 into ordinary shares
     with no par value and (ii) Schering AGs three-for-one share split
     effective on June 1, 2000.
(2)  Includes a bonus dividend of E 0.33 per share declared with respect
     to 1999. The dividend with respect to 2000 also includes a bonus dividend
     of  E 0.33 per share/ADS and is subject to approval at the Annual
     General Meeting to be held on April 26, 2001.
(3)  The 2000 figures have been translated solely for the convenience of
     the reader at an exchange rate of $ 0.9388 to E 1.00, the noon buying
     rate on December 29, 2000.
(4)  The 1998, 1997 and 1996 figures have been restated from the prior
     reporting currency (DM) into E at an exchange rate of
     DM 1.95583 to E 1.00, the official legal rate on January 1, 1999.


                                  7
<PAGE>

EXCHANGE RATES

   On January 1, 1999, Germany and 10 other member states of the
European Union (participating member states) introduced the euro as
their common currency. The euro replaced the currencies of the
participating member states. The national currencies are only
denominations of the euro with fixed exchange rates to the euro. The
euro-as its national denominations such as the Deutsche Mark-is a
fully convertible currency. Currency exchanges traded the euro beginning
on January 4, 1999. The affected national currencies are scheduled to
remain legal tender until January 1, 2002, when they will be
withdrawn. Beginning January 1, 2002, new euro denominated bills and
coins will be issued.

   Schering AG began using the euro as its reporting currency on
January 1, 1999, and pays
any dividends on its shares in euro. Furthermore, prices for Schering
AGs shares on the Frankfurt Stock Exchange are quoted in euro.
Fluctuations in the exchange rate between the euro and the
US dollar will affect:

  .  the US dollar equivalent of the euro price of our shares listed on
     the Frankfurt Stock Exchange and, as a result, the market price of
     the ADRs in the United States;

  .  the US dollar equivalent of cash dividends on the shares paid in euro; and

  .  our earnings.

   The noon buying rate for the euro in The City of New York for
cable transfers as certified for customs purposes by the Federal
Reserve Bank of New York on March 8, 2001, was $ 0.9281 per E 1.00.

   The following tables set forth the noon buying rates for the
Deutsche Mark, restated in euro for all periods prior to January 1,
1999, and, for all subsequent periods, set forth the noon buying
rates for the euro. For the calculation of the euro amounts for all
periods prior to December 31, 1998, we have restated the applicable
noon buying rate for the Deutsche Mark into euro at the official
fixed conversion rate of DM 1.95583 per E 1.00. This restatement
matches the restatement into euro of our Consolidated Financial
Statements, which, for all periods prior to January 1, 1999, were
prepared in Deutsche Mark and the Deutsche Mark amounts were restated
into euro amounts.

   The following table sets forth the average noon buying rate for
the euro for each of the previous five years:

<TABLE>
<CAPTION>
  Year                                                                  Average{(1)}
                                                                   (Dollar per E 1.00)
<S>                                                                              <C>
  1996 ....................................................................    1.2978
  1997 ....................................................................    1.1244
  1998 ....................................................................    1.1115
  1999 ....................................................................    1.0587
  2000 ....................................................................    0.9207
</TABLE>
-----
(1)  AVERAGE OF THE NOON BUYING RATES ON THE LAST DAY OF EACH MONTH
     DURING THE YEAR.


                                  8

<PAGE>

   The following table sets forth the high and low noon buying rate
for the euro for each of the previous six months and the current month:

<TABLE>
<CAPTION>


                                          High      Low


  2000                                 (Dollar per E 1.00)
<S>                                        <C>      <C>

  September...........                   0.8993   0.8462
  October.............                   0.8785   0.8270
  November............                   0.8694   0.8382
  December............                   0.9388   0.8694

  2001

  January.............                   0.9535   0.9181
  February............                   0.9395   0.9069
  March (through March 8)............    0.9340   0.9274
</TABLE>

   For a more complete discussion of exchange rate fluctuations and
the hedging techniques we use to manage our exposure to these fluctuations,
please see "-Risk Factors", "Item 5-Operating and Financial Review and
Prospects" and "Item 11-Quantitative and Qualitative Disclosures about
Market Risk".


DIVIDENDS


   Schering AG has paid the following cash dividends in respect of
its ordinary shares during the periods indicated. Dollar amounts in respect
of dividends are translated at the noon buying rate for the Deutsche Mark
(restated into euro) or the euro, as the case may be, on the date of payment
(May 2, 1997 ($1.133 per E 1.00); April 30, 1998 ($1.090 per E 1.00);
April 28, 1999 ($1.0616 per E 1.00); and April 28, 2000 ($0.9089 per E 1.00).
The translation of the proposed 2000 dividend amount into dollar was performed
using the noon buying rate for the E at December 29, 2000 ($ 0.9388 per E 1.00).

<TABLE>
<CAPTION>


                                                           Year Ended December 31,

                                   2000{(3)}      1999{(2)}        1998            1997            1996
                                   E       $       E       $       E       $       E       $       E       $

<S>                               <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>
  Total dividend{(1)}            1.00    0.94    0.83    0.75    0.45    0.48    0.43    0.47    0.34    0.39
                                 ------  ------  ------  ------  ------  ------  ------  ------  ------  ------
</TABLE>
-----
(1) Adjusted to give effect, retroactively, to (i) the conversion during 1998
    of Schering AGs ordinary shares with par values of DM 1,000, DM 100
    and DM 50 into ordinary shares with no par value and (ii) Schering AGs
    three-for-one share split effective on June 1, 2000.
(2) The dividend in respect of 1999 consisted of a regular dividend of E 0.50
    per share and a bonus dividend of E 0.33 per share.
(3) The dividend with respect to 2000 is subject to approval at
    the Annual General Meeting to be held on April 26, 2001. It will include
    a dividend of E 0.67 per share with an additional bonus dividend of E 0.33
    per share (E 198 million or E 1.00 per share in total).


   Holders of ADRs on the relevant record date will be entitled to
receive any dividends payable in respect of the ordinary shares
underlying the ADRs, subject to the terms of the deposit agreement
under which the ADRs are issued. Subject to exceptions provided in
the deposit agreement, cash dividends paid in euro will be converted
by the depositary to US dollars and paid by the depositary to holders
of ADRs, net of conversion expenses of the depositary, and in
accordance with the deposit agreement. The rights of holders of ADRs
with respect to any dividends or other distributions on the ordinary
shares underlying the ADRs will be governed by the deposit agreement
and may be different from the rights of holders of ordinary shares.


   For a discussion of the material German and U.S. Federal income
tax provisions regarding the taxation of dividends on the ordinary
shares and the ADRs, see "Item 10-Additional Information- Taxation".


                                  9

<PAGE>

Item 4.  Information on the Company
THE SCHERING AG GROUP

Introduction

   We are a global research-based company engaged in the discovery,
development, manufacture, marketing and sale of pharmaceutical products.
We presently operate nine research and development centers in Europe,
the United States and Japan, produce products in over 20 facilities located
in Europe, the United States, Latin America and Asia, and market and sell our
products in over 100 countries worldwide. Our focused product portfolio is
comprised of products from our four core business areas:


  .  Fertility Control and Hormone Therapy, including hormonal
     contraception, hormone replacement therapy and gynecological therapy.

  .  Therapeutics for selected disabling and life-threatening conditions,
     including multiple sclerosis and other diseases of the central nervous
     system and the cardiovascular system, and in the field of oncology.

  .  Diagnostic and Radiopharmaceuticals including contrast media for X-ray,
     magnetic resonance imaging (MRI) and ultrasound, innovative application
     technologies for contrast media, and radiopharmaceuticals for use in
     nuclear medicine.

  .  Dermatology for the treatment of severe skin disorders such as eczema,
     mycoses, hemorrhoids, acne and psoriasis.


   Our research and development efforts are primarily concentrated
on the exploitation of novel technologies for unmet medical needs in
our four core business areas. During 2000 and 1999, our research and
development expenditures totaled E 811 million (18% of our total net
sales) and E 684 million (19%), respectively.


   Through our 24% ownership interest in Aventis CropScience S.A. (a
subsidiary of Aventis S.A., itself created through the December 1999
merger of Hoechst AG and Rhone-Poulenc S.A.), we participate in the
crop protection and crop production business. Aventis CropScience is
one of the worlds leading crop science businesses, with pro forma
net sales for 1999 of E 4,060 million and net sales of E 4,034
million for 2000.


   As a global pharmaceutical company with extensive worldwide
operations, we manage our businesses on a geographic basis. Our
pharmaceutical business consists of five geographic reporting
segments: Europe, the United States, Latin America/Canada, Japan and
Asia. Other Activities (mainly our Pharmaceutical Chemicals business)
are managed on a worldwide basis and are therefore presented as a
separate segment.

   For the year ended December 31, 2000, we had net sales of E 4,493
million, operating profit of E 640 million, and net income of E 336 million.


   The Group is comprised of over 130 subsidiaries worldwide and had
a workforce of over 24,000 employees at the end of December 2000.


   Schering Aktiengesellschaft is incorporated as a stock
corporation under the laws of the Federal Republic of Germany.
Schering AG was incorporated in 1871. Schering AGs principal
executive office is at Muellerstrasse 178, 13353 Berlin, Federal
Republic of Germany, and its telephone number is (4930) 468-1111.


                                  10
<PAGE>

Strategy

   Commitment to Profitable Growth and Enhancing Shareholder Value
   We are committed to growing our pharmaceuticals business by
seeking market leadership with innovative products in specialized
areas. Our core mission is to make a recognized contribution to
medical progress and to improve the quality of life of those who use
or benefit from our products. We have established a leading market
position in fertility control, multiple sclerosis, and in vivo
diagnostics and aim at leadership in hormone replacement therapy
(HRT) and hematological oncology. Our top-selling products in the
areas of therapeutics (Betaferon(R)/Betaseron(R), Betapace(R), Fludara(R) and
Androcur(R)), fertility control and gynecology (Diane(R)-35, Microgynon(R),
Femovan(R), Meliane(R), Triquilar(R) and Mirena(R)), hormone therapy
(Climara(R)) and diagnostics (Iopamiron(R), Magnevist(R) and Ultravist(R))
enjoy high brand recognition and loyalty. We have achieved global
scale for many products in our core business areas with strong
franchises in Europe, the United States and Japan. Sales growth over
the next several years will largely be driven by our successful
existing products, life cycle management and recently launched
products, such as the oral contraceptive Yasmin(R) as well as new
indications for Betaseron(R)/Betaferon(R) and Fludara(R). We are also
active in the rapidly developing field of radiopharmaceuticals, where
we strive to be leaders in building a bridge between diagnostics and
therapeutics in the field of oncology, and we currently market
products such as Quadramet(R), NeoTect(R) and AcuTect(R). In the longer
term, we intend to defend and build upon our market position in our
core business areas by commercializing and marketing novel products
that benefit from advances in biotechnology and molecular science
discovered and developed through our internal efforts and our network
of collaboration partners or obtained through in-licensing or
acquisitions.

   We are committed to the creation of shareholder value. We believe
that the keys to building shareholder value are demonstrable
profitable growth over the next several years and the longer term,
measures such as share repurchases and dividend growth, and, where
appropriate, value creation through strategic acquisitions and spin-offs
and equity carve-outs of non-core businesses. Through 2005, we
expect to achieve the growth targets outlined in our accelerated
growth strategy we first announced in May 1999 and revised upwards in
September 2000. We have capitalized on our cash position with a E 253
million share repurchase program in 1998 and 1999. We were the first
DAX-quoted company to establish such a program. Dividend growth,
managements focus on constant earnings growth, and the expanding use
of stock-based compensation programs to align the interests of our
employees and shareholders underscore our commitment. Our listing on
the New York Stock Exchange was a key milestone in our efforts to
broaden our shareholder base in the United States, the worlds
largest individual pharmaceutical market, and to enhance the quality
and frequency of our dialog with the international investment
community. The NYSE listing permits us to broaden our stock-based
compensation programs in the United States, enabling us to attract
and retain high caliber talent, and provides us with acquisition
currency for external growth.

   Near Term Growth through Accelerated Growth Strategy
   In May 1999, we announced our accelerated growth strategy, which
is our roadmap to accelerated profitable growth over the next five
years. The goal of this strategy was to achieve
net sales of E 5.5 billion and operating profit of E 800 million by
2005. In recognition of our recent successes and the speed with which
we have been able to push ahead with implementing our strategy of
accelerated growth, in September 2000 we raised our net sales target
to over E 6.0 billion for 2005, and we plan to reach net sales of E
7.0 billion in 2007. Our accelerated growth strategy is based on
achieving the following objectives:


                                  11
<PAGE>

   Achieve substantial growth in the Fertility Control and Hormone Therapy area
   Fertility Control and Hormone Therapy has historically been the
largest of our four core business areas, accounting for E 1,353
million of net sales in 2000 (30% of total net sales) and E 1,173
million of net sales in 1999 (32% of total net sales). Currently, we
are generating 72% of net sales in this business area from fertility
control products and 28% from hormone therapy and gynecology
products. Four of our top ten selling products are from this business
area. We are the world market leader in oral contraceptives in volume
terms and number two in value terms. Growth within this business area
should come from existing products, many of which have been recently
launched, plus those in the pipeline. We expect significant growth
momentum from broader penetration of the Japanese market with our
product range, new product launches in both fertility control as well
as hormone therapy and further penetration of the existing portfolio
in the United States as well as Europe. We believe that we have the
broadest pipeline in fertility control and hormone therapy with a
number of exciting late-stage development products and recently
launched products. The most prominent of these are the oral
contraceptives Yasmin(R) and Valette(R), the intrauterine hormone
delivery system Mirena(R), and the HRT products Climodien(R), Avaden(R) and
the continuous combined once weekly Climara Pro(TM) transdermal patch.

   Achieve substantial growth in Therapeutics
   Therapeutics has increased in importance to us in recent years,
and has been the largest of our four core business areas in terms of
net sales in 2000. In therapeutics we are a world market leader in
the field of multiple sclerosis (MS) with our product
Betaseron(R)/Betaferon(R) and we are aiming to further develop this
indication area via new ways of treatment. In 1993, Betaseron(R) was
approved in the United States for the treatment of relapsing-remitting multiple
sclerosis. Betaseron(R)/Betaferon(R) was the first, not only symptomatic
therapy, which suppresses disease activity in patients with
relapsing-remitting MS. We treat 29,000 patients in the United States
and 29,500 patients in Europe. It reduces the relapse rate by one
third, and severe and moderate relapses are reduced by 50%. In 1999
it was the first therapy to have shown delay of disability
progression in patients with secondary progressive MS. With the
introduction of Betaferon(R) in Japan in November 2000, it is now
available in the worlds largest pharmaceutical markets. In 2000, net
sales amounted to E 593 million compared to E 454 million in 1999.

   We also aim to achieve growth with our products in specialized
fields for cardiovascular diseases and in the field of oncology. We
recently received approval for Betapace(R) AF, an indication for atrial
fibrillation, which we believe should support continued sales of
Betapace(R), which recently lost its market exclusivity as an orphan
drug in the United States. In addition to line extensions for
Fludara(R), we have two promising biotechnology products in the field
of hematological oncology, Campath(TM) and Zevalin(TM), in late stage
development. The FDAs Oncologic Drugs Advisory Committee (ODAC)
recommended to give Campath(TM) accelerated approval in December 2000.
In the European Union, Campath(TM) was submitted for registration via
the centralized procedure. For Zevalin(TM) a NDA was submitted in the
United States in November 2000. In Europe, Zevalin(TM) was submitted for
registration in January 2001.

   Develop our radiopharmaceuticals business
   In our Diagnostics and Radiopharmaceuticals business, we are a
global leader in the X-ray contrast media and MRI contrast media
fields. Products from the Diagnostics and Radiopharmaceuticals
business area accounted for E 1,360 million of net sales in 2000 (30%
of total net sales) and E 1,040 million of net sales in 1999 (28%),
and the X-ray contrast medium products Iopamiron(R) and Ultravist(R) and
the MRI contrast medium product Magnevist(R) were three of the Groups
four top-selling products. In the X-ray contrast media market we
believe that we are the leading company worldwide in terms of
distributor sales with a market share of approximately 30%. Despite
the decline in X-ray contrast media prices over the past several
years, we have maintained a


                                 12
<PAGE>

positive sales growth in this business, and we have improved
profitability through cost-cutting measures. In the MRI contrast
media market, we have a global market share of approximately 60%,
and we aim to sustain this leadership and continue growth through
pipeline products for new applications of MRI contrast media.

   In the medium to long term, we believe that a high growth
opportunity exists in the area of innovative radiopharmaceuticals for
nuclear medicine. In 1999, we entered this business by acquiring the
U.S. research and development-oriented company Diatide. In April
2000, we acquired a majority share of the French company CIS bio
international, which has a global distribution network and a leading
position in the European radiopharmaceutical market. We plan to
continue to develop this business through in-house research and
development and in-licensing, and we intend to become a substantial
player in the global radiopharmaceutical market. The area of
oncological radiopharmaceuticals presents a particularly attractive
opportunity given our existing expertise in oncology and the
potential for synergies between our diagnostics and therapeutics
businesses.

   Expand sales in the United States
   The United States is the worlds largest individual pharmaceutical
market, and this market constituted E 992 million of our net sales
in 2000 and E 775 million of our net sales in 1999. We have targeted the
United States market to account for 30% of our net sales by 2005, up from
21% in 1999. We expect that this growth will be achieved through increasing
our presence in the areas of fertility control, hormone therapy, contrast
media, radiopharmaceuticals, oncology, and dermatology. The recently launched
hormonal contraception intrauterine delivery system Mirena(R) and the expected
launch of the oral contraceptive Yasmin(R), the continuous combined
once weekly Climara Pro(TM) transdermal patch as well as Campath(R), a
treatment for chronic lymphocytic leukemia (CLL), should drive sales
growth in the United States. We are expanding our sales force in the
United States in anticipation of the broadening of our product lines.

   Broaden our product lines sold in Japan
   Our future business expansion plans in Japan, the second largest
individual pharmaceutical market in the world, primarily center on
therapeutics. Our net sales in Japan in 2000 were E 670 million
(15% of total net sales) and in 1999 were E 454 million (12% of total net
sales). Up through 2000, we have generated close to 71% of our Japanese net
sales with diagnostic products. The remaining 29% relate to therapeutics,
dermatology and some other smaller products. We have gained an additional
marketing platform and research and development capacities through the
acquisition of Mitsui Pharmaceuticals, Inc. in March 2000. Following the
approval of oral contraceptives by the Japanese Ministry of Health and Welfare
in June 1999, we entered the highly promising Japanese oral contraceptive
market in September 1999 by launching Triquilar(R). Our therapeutic
product Betaferon(R), for the treatment of multiple sclerosis (MS), was
launched in Japan in November 2000. We are currently assessing how to
further expand our therapeutics business with additional in-licenses
and the globalization of selected products developed by Mitsui
Pharmaceuticals.

   Build a global dermatology business
   We are committed to building a global dermatology business by
entering the United States market and by strengthening our position
in Europe. During 1999, net sales of dermatology products amounted to
E 199 million (5% of total net sales). During 2000, net sales were E
221 million. We intend to achieve a substantial improvement in our
share of the world market, with products both from our internal
research and development efforts and from the innovative technologies
we acquire. We made our first step to globalize this business and
establish ourselves in the United States dermatology market by
entering into a licensing agreement with DUSA Pharmaceuticals, Inc.to


                                 13
<PAGE>

obtain exclusive development and marketing rights to Levulan(R), an
innovative preparation used in photodynamic therapy to treat actinic
keratosis, a precancerous skin condition caused by chronic exposure
to the sun. Levulan(R) was launched in the United States in September 2000.

   Long Term Growth through Internal Discovery and Collaboration Efforts
   The foundation of our long term growth is to continue our strong
emphasis on research and development, with a special emphasis on
reducing the time from discovery to product launch. We intend to
defend and build upon our market position in our core business areas
by commercializing and marketing novel products that benefit from
advances in biotechnology and molecular science discovered and
developed through our internal efforts and our network of
collaboration partners or obtained though in-licensing or
acquisitions. A number of the key drugs in our existing product
portfolio and product pipeline are biotechnology-based, including
Betaferon(R) (Betaseron(R)), Campath(TM), Zevalin(TM) and a number of other
earlier anti-cancer products. We plan to invest approximately 19% of
our net sales in research and development activities. We complement
our internal research and development efforts presently being carried
out by over 4,000 employees at nine research and development centers
with a network of collaboration arrangements.

   One of our strategic objectives in research and development is to
build a strong and competitive global position in oncology, where we
are focusing both on hematological oncology and on novel technologies
for the treatment of solid tumors. Our research and development and
collaboration efforts in this field are concentrated in the area of
biotechnology, including anti- angiogenesis, gene discovery and new
tumor markers.

   There can be no assurance that we will be successful in implementing our
   strategy or achieving some or all of our strategic objectives.


Competitive Strengths

   We believe that our competitive strengths include the following:

  .  Focused Product Portfolio and Research and Development
     Efforts. Our product portfolio and research and development
     efforts are focused on specialized areas. We have established a
     leading market position in fertility control, multiple
     sclerosis, and in vivo diagnostics and aim at leadership in
     hormone replacement therapy and hematological oncology. We
     believe that this specialization results in a more efficient
     utilization of our resources dedicated to research and
     development. Our technological expertise and reputation for
     high quality products and customer service in these areas
     assist us in our efforts to establish and defend leading market
     positions around the world.

  .  Strong Franchise in Female Healthcare. A commitment to female
     healthcare is one of our traditional strengths. Our female
     healthcare business, which is concentrated in the areas of
     hormonal contraception, hormone replacement therapy and
     gynecological therapy, is designed to meet the lifetime needs
     of women. We are presently one of the remaining major global
     participants in this area. We introduced the first oral
     contraceptive outside of the United States in Europe in 1961 and
     have been at the forefront in advances in female healthcare products,
     including the estrogen only Climara(R) patch, the Mirena(R) intrauterine
     hormone delivery system and expect to introduce the continuous combined
     once weekly Climara Pro(TM) transdermal patch for HRT.

  .  Competence in Commercializing and Marketing New Technologies
     and Products. We have a demonstrated competence in identifying,
     commercializing and marketing new technologies and products
     first developed by niche companies in the pharmaceutical and
     biotechnology industries. This ability will become increasingly
     important as the cost of developing new drugs continues to
     increase and a premium is placed on the speed of


                                 12
<PAGE>

     bringing new products to market. A number of our top-selling
     products, including Betaferon(R)/Betaseron(R), Iopamiron(R), Fludara(R)
     and Betapace(R), and some of the most promising drugs in our pipeline,
     such as Campath(TM) and Zevalin(TM), have been obtained through
     acquisitions as well as in-licensing arrangements.

  .  Leadership in Diagnostics. We continue to be a global leader
     in the discovery, development and marketing of in vivo
     diagnostic products. We believe that we are the leading company
     worldwide in terms of distributor sales and market share in X-
     ray and MRI contrast media products. Our discovery efforts in
     diagnostics also distinguish us from our competitors. Our entry
     into radiopharmaceuticals will both benefit from and contribute
     to our competence in diagnostics.

  .  High Quality Sales Force and Proprietary Distribution Network.
     We have a worldwide sales force of over 7,300 representatives.
     We appreciate that a commitment to the initial and continuing
     training and retention of our sales force is an important
     competitive factor. Our representatives are dedicated
     exclusively to the marketing of our products and we believe
     enjoy an excellent reputation for their specialized knowledge
     of our products and therapies and their dedication to customer
     service. We believe this contributes to our objective of
     providing a superior level of customer service.

History

   We have been engaged in the pharmaceuticals business for 130
years. Our founder, Ernst Schering, established a pharmacy in Berlin,
Germany, in 1851, and on October 23, 1871, formed our predecessor
company under the name "Chemische Fabrik auf Actien (vorm. E.Schering)"
During the course of, and in the aftermath of, World War II, all of
Schering AGs subsidiaries, patents, trademarks and other properties
located outside of Germany were liquidated, confiscated or expropriated.
Following the entry of the United States in the World War II, the United
States government confiscated the assets of German companies in the
United States, including Schering AGs subsidiary Schering Corporation.
This subsidiary was operated by a guardian appointed by the United States
government for the next decade and, in 1952, was divested by the United States
government to an investment group. Following a merger, the company became
known as Schering-Plough Corporation in 1971. Schering AG and Schering-Plough
Corporation have been totally independent of each other for many years, and
have an agreement relating to the use of the word "Schering". See "-Patents
and Other Intellectual Property" for a description of this agreement.
Schering AG operates its pharmaceutical business in the United States and
Canada under the Berlex trade name.

   The Schering AG Group significantly restructured its operations
over the past decade to concentrate on its pharmaceutical business.
During the last five years, we have expanded our pharmaceutical
product portfolio and obtained promising new technologies through a
number of small-sized to mid-sized acquisitions and licensing and
research and development collaboration relationships. Significant
acquisitions during this period include:

  .  in the area of Fertility Control and Hormone Therapy,
     our 1996 acquisitions of Leiras Oy and a majority share of
     Jenapharm GmbH & Co. KG.

  .  in the area of Therapeutics, our acquisition in March 2000 of
     the Japanese company Mitsui Pharmaceuticals, Inc.

  .  in the area of Diagnostics and Radiopharmaceuticals, our
     acquisition in 1995 of Medrad, Inc., our acquisitions in
     November 1999 of Diatide, Inc. and in April 2000 of a majority
     share of CIS bio international S.A.


   For a description of certain of our more significant licensing
and collaboration relationships, see "-Products" and "-Research and
Development-Collaboration Efforts".


                                 15
<PAGE>

PRODUCTS

   Our product portfolio is comprised of products from our core
business areas of Fertility Control and Hormone Therapy,
Therapeutics, Diagnostics and Radiopharmaceuticals and Dermatology.
For a discussion of certain of the products and processes which we
are currently developing, see "-Research and Development".

   In addition to net sales of products from our four core business
areas, we derive net sales from certain other sources comprised of
third party businesses [sales cooperations and toll manufacturing
(principally pharmaceutical chemicals) for third parties] and
curtailments of sales (granted bonuses, sales discounts and cash
discounts). These net sales are referred to as net sales from "Other
Sources" in this annual report.

   The following table sets forth the net sales, net sales expressed
as a percentage of total net sales, and percentage change in net
sales from the prior period for the Groups business areas  in the
three years ended December 31, 2000. During the first half of 2000,
due to our recent significant acquisitions in the field of
radiopharmaceuticals, including Diatide and CIS bio international, we
formed a new business area, Diagnostics and Radiopharmaceuticals
(formerly the Diagnostics business area). This business area has
responsibility for the development of diagnostic and
radiopharmaceutical products. In the table below and elsewhere in
this annual report, we have not restated net sales for periods prior
to 2000 to give effect to the formation of this new business area
because there have not been any material net sales of
radiopharmaceuticals prior to 2000.

<TABLE>
<CAPTION>

                                                              Year ended December 31,
                                             2000                            1999                               1998
                                                        Percentage                       Percentage
                                         Percentage     Change            Percentage     Change             Percentage
                                   E     of Net Sales   from1999     E    of Net Sales   from 1998     E    of Net Sales
                                                               (in millions, except percentages)
  Net Sales by Business
  Area:
<S>                               <C>       <C>            <C>      <C>      <C>            <C>       <C>      <C>
  Fertility Control
  and Hormone Therapy..........   1,353     30             15       1,173    32              6        1,109    34
  Therapeutics.................   1,402     31             24       1,128    31             14          991    30
  Diagnostics and
  Radiopharma-
  ceuticals{(1)}...............   1,360     30             31       1,040    28             18          882    27
  Dermatology..................     221      5             11         199     5              5          189     6
  Other Sources................     157      4             17         134     4             18          114     3
                                 -------  -----           ----     ------- -----           ----      ------- ------
  Total........................   4,493    100             22       3,674   100             12        3,285   100
                                 -------  -----           ----     ------- -----           ----      ------- ------
                                 -------  -----           ----     ------- -----           ----      ------- ------
-----
(1)  Net sales of our radiopharmaceutical products have been included in the recently formed Diagnostics
     and Radiopharmaceuticals business area with effect from January 1, 2000.
</TABLE>


                                 16
<PAGE>

   The following table sets forth our top-selling products during 2000
and during 1999. These products represented 61% and 63% of the total
net sales for the Group in 2000 and in 1999, respectively.

<TABLE>

<CAPTION>

                                                              Year ended December 31,
                                                          2000                       1999

                                                              Percentage                 Percentage
                                                              change                     change
                                                   Net sales  from 1999       Net sales  from 1998
                                                  (E millions)               (E millions)
<S>                                                   <C>        <C>             <C>        <C>

  1. Betaferon(R)/Betaseron(R) (Therapeutics)......   593        31              454        23
  2. Iopamiron(R) (Diagnostics)....................   372        21              307        31
  3. Magnevist(R) (Diagnostics)....................   286        23              233        18
  4. Ultravist(R) (Diagnostics)....................   238         9              219         5
  5. Diane(R) (Gynecology).........................   200        17              171        10
  6. Betapace(R) (Therapeutics)....................   168         7              157        23
  7. Microgynon(R)/Levlen(R) (Fertility Control)...   130        21              108         7
  8. Fludara(R) (Therapeutics).....................   111        30               86        14
  9. Femovan(R) (Fertility Control)................   109         5              103        (5)
  10. Climara(R) (HRT).............................   106        14               93         8
  11. Androcur(R) (Therapeutics, Gynecology).......   103         5               99        (2)
  12. Meliane(R) (Fertility Control)...............   102        26               81        63
  13. Triquilar(R)/Tri-Levlen(R) (Fertility Control)   92        (4)              95       (16)
  14. Mirena(R) (Fertility Control)................    70        17               60        45
  15. Noctamid(R) (Therapeutics)...................    42         8               39         7
                                                     -------                   --------
  Total............................................   2,722                     2,305
                                                     -------                   --------
                                                     -------                   --------
</TABLE>


                                 17

<PAGE>


Fertility Control and Hormone Therapy
   The following table sets forth selected fertility control and
hormone therapy products presently marketed by the Group.

<TABLE>
<CAPTION>

                                                                                 Net Sales
Product             Active Ingredient(s)          Indication                     2000  1999
                                                                                (E millions)
<S>                 <C>                           <C>                             <C>   <C>

Diane(R)            Cyproterone acetate/ethinyl   Androgen dependent disorders    200   171
                    estradiol                     in women (including acne,
                                                  seborrhea, hirsutism)

Microgynon(R) 30/   Levonorgestrel/               Combined oral contraceptive     130   108
Levlen(R)           ethinyl estradiol

Femovan(R)          Gestodene/ethinyl estradiol   Combined oral contraceptive     109   103

Climara(R)          Estradiol                     Hormone replacement             106    93
                                                  therapy (patch)

Meliane(R)          Gestodene/Low dose ethinyl    Combined oral contraceptive     102    81
                    estradiol

Triquilar(R)/       Low dose levonorgestrel/      Combined oral contraceptive      92    95
Tri-Levlen(R)       ethinyl estradiol             (triphasic)

Mirena(R)           Levonorgestrel                Intrauterine hormonal            70    60
                                                  contraceptive

Miranova(R)/        Low dose levonorgestrel/      Combined oral contraceptive      39    19
Levlite(R)          Low dose ethinyl estradiol

Valette(R)          Dienogest/ethinyl estradiol   Combined oral contraceptive      32    30

Yasmin(R)           Drospirenone/                 Combined oral contraceptive      (*)   (*)
                    ethinyl estradiol
Androcur(R)         Cyproterone acetate           Androgen dependent              (**)  (**)
                                                  disorders in women
                                                  (including hirsutism)
Climodien(R)        Estradiol valerate combined   Continuous combined hormone     (**)  (**)
                    with dienogest                replacement therapy
</TABLE>
-----
(*)  Launched in 2000
(**) Less than E 5 million


   The Groups long tradition in the field of hormone research began

in the 1920s. We played a key role in the establishment of a
completely new field of endocrinology, the study of sex hormones.
Since that time, we have maintained and expanded our scientific
competence in this area and have employed our knowledge by developing
innovative products.

   Our comprehensive female healthcare program develops preparations
in the areas of hormonal contraception, hormonal replacement therapy
and gynecological therapy. In our male healthcare program, we are
engaging in the research and development of products for male
contraception, age-related diseases and sexual disorders.

   We have further built upon the Groups long tradition and
expertise in the field of hormone research through our 1996
acquisitions of a majority share of Jenapharm GmbH & Co. KG and the
Finnish company Leiras Oy and our collaboration with the Institut fur
Hormon- und Fortpflanzungsforschung (Institute for Hormone and
Reproduction Research) at the University of Hamburg.


                                 18
<PAGE>


   Fertility Control
   We introduced Anovlar(R), the first oral contraceptive outside of
the United States, in Europe in 1961. Over the past four decades, we
have continually improved the tolerability and safety of oral
contraceptives by reducing the hormone dosage and developing new
progestogens and treatment regimens. Today, we are marketing a
variety of hormonal contraceptives in order to meet the diverse needs
of women. The Groups fertility control products are comprised of
oral contraceptives and a number of alternatives to oral
contraception, including intrauterine hormone delivery systems,
hormonal injections and contraceptive implants.


   Oral Contraceptives
   Combined oral contraceptives contain an estrogen component,
usually ethinyl estradiol, and a progestogen component. Over the
years, the estrogen content has been reduced to levels in the range
of, or even below, 0.02 mg ethinyl estradiol per unit in modern
contraceptives. The so-called mini-pill is a progestin-only pill to
be taken continuously as an alternative to combined oral
contraceptives for some women.

   The dose of individual progestins in oral contraceptives, which
may be the reason for some minor side effects, such as nausea, has
also been reduced over time. More importantly, new progestins with
higher potency and more favorable pharmacological properties have
been discovered and developed. In the 1970s, we introduced the oral
contraceptives Neogynon(R) and Microgynon(R) using levonorgestrel as the
progestin. In 1987, we launched Femovan(R), which uses gestodene as the
progestin. During 1995, we launched Valette(R) with dienogest as the
progestogen component. In November 2000, we launched Yasmin(R), which
contains the new progestin drospirenone, in Germany. Drospirenone has

anti-mineralcorticoid and anti-androgenic properties similar to the
natural progestin.

   Combined oral contraceptives generally can be subdivided into
monophasic, biphasic and triphasic preparations. Monophasic
preparations contain a constant dosage of an estrogen and a
progestogen. In biphasic preparations, the daily dose of progestogen
is increased in the second half of the cycle of use, while the
estrogen dose remains constant over the entire cycle of use.
Triphasics contain graduated daily dose levels of hormones in order
to mimic the variable hormone production of the physiological cycle
while keeping the total dosage of exogenous steroids as low as
possible.


   Our product portfolio of oral contraceptives includes the following:

  .  Yasmin(R). Yasmin(R) is a new oral contraceptive with the
     innovative progestogen drospirenone. High contraceptive
     reliability and excellent cycle control are basic clinical
     features of this new preparation. The anti-mineralocorticoid
     activity of drospirenone counterbalances potential estrogen-
     induced fluid retention. Yasmin(R) could be particularly suitable
     for women susceptible to estrogen-related water retention
     causing weight gain. Clinical studies have shown that Yasmin(R)
     can improve the general well- being of women. In addition,
     positive effects on mild to moderate acne and seborrhea were
     also observed. Yasmin(R) has been shown to be well-tolerated,
     with a low incidence of adverse events. Regulatory approval for
     Yasmin(R) was granted by the Netherlands in March 2000. In
     addition, all European Union member states as well as Iceland
     and Norway have in a mutual recognition process recently agreed
     to approve Yasmin(R). Yasmin(R) was launched in November 2000 in
     Germany and in February 2001 in Sweden. Currently registration
     has been granted in 20 countries and is pending in another 15.
     An application for regulatory approval for Yasmin(R) has been
     submitted in the United States and a regulatory approvable
     letter has been issued by the FDA. In the regulatory approvable
     letter, the FDA requested additional information, which was
     submitted to the FDA in November 2000. We expect Yasmin(R) to be
     approved by the FDA within the first half year of 2001.


                                 19
<PAGE>


  .  Microgynon(R) 30 (marketed in the United States as Levlen(R)).
     Microgynon(R) 30 is a monophasic oral contraceptive containing
     levonorgestrel and is available in the United States, Europe, Latin
     America and Asia.

  .  Femovan(R). Femovan(R) is a monophasic oral contraceptive
     containing gestogene. The product shows an excellent
     tolerability, reliability and cycle control. Femovan(R) was first
     launched in 1987 and is available in Europe, Latin America and
     Asia.

  .  Triquilar(R) (marketed in the United States as Tri-Levlen(R)).
     Triquilar(R) is an oral contraceptive containing levonorgestrel
     in a triphasic dosage regime, thus mimicking the variable
     hormone production of the menstrual cycle while keeping the
     total dose of exogenous steroids as low as possible. Triquilar(R)
     was first launched in 1979 and is available in Europe, Latin
     America, Asia, the United States and, since 1999, in Japan.

  .  Meliane(R). Meliane(R) is a low-dose monophasic oral contraceptive
     containing gestodene. The product exhibits high reliability,
     cycle control and tolerability. Meliane(R) was launched in France
     in 1995.

  .  Valette(R). Valette(R) is a low-dose monophasic oral contraceptive
     with additional therapeutic benefits containing dienogest.
     Valette(R) demonstrates high contraceptive reliability, excellent
     tolerability and a stabilizing effect on irregular menstrual
     periods. The antiandrogenic activity of dienogest has shown in
     clinical studies in Europe beneficial effects on acne. Valette(R)
     was launched in Germany in 1995 and an application for
     regulatory approval has been submitted in Europe and certain
     markets in Latin America.

  .  Miranova(R) (marketed in the United States as Levlite(R)).
     Miranova(R) is a low-dose monophasic oral contraceptive
     containing levonorgestrel. In addition to high contraceptive
     reliability, Miranova(R) provides good cycle control with a low
     frequency of inter-menstrual bleedings and a low incidence of
     side effects. Miranova(R) was launched in Germany in 1996 while
     Levlite(R) was launched in the United States during 1998.


   Non-Oral Contraceptives
   Mirena(R), an intrauterine progestogen-containing delivery system,
is an alternative in family planning, and one of our fastest growing
products as measured by net sales. Mirena(R) combines the advantages of
local hormonal and intrauterine contraception, particularly in the
areas of reliability and ease of use. Mirena(R) is inserted into the
uterus, where it releases low doses of a progestogen (currently
levonorgestrel) for a period of five years. Mirena(R) was first
launched in Europe in 1990 and is also available in Asia and Colombia
and in a number of other markets in Latin America. Mirena(R) was
approved in the United States in December 2000.

   Hormonal contraception can also be achieved as intra-muscular
injections, which ensure a long-lasting effect. Our injectable
contraceptive Norigynon(R) (Mesigyna(R)) contains an estrogen and
progestin derivative and is injected once a month, while Noristerate(R)
relies on a progestin-only effect and is administered once every
three months.

   We also offer levonorgestrel-containing contraceptive implants.
These implants are placed under the skin where they release low doses
of hormone over several years.


   Hormone Replacement Therapy
   Approximately 50% of climacteric (menopausal) women suffer from
menopausal symptoms which require treatment and can be attributed to
the cessation of sex hormone production by the ovaries during
perimenopause. This deficiency syndrome includes not only climacteric
complaints such as hot flushes, but also a higher risk of
cardiovascular disease and osteoporosis (loss of bone mass). These
disorders can be prevented by replacing the hormones that the body
has ceased to produce in sufficient amounts.


                                 20

<PAGE>


   Hormone replacement therapy (HRT) can be achieved by supporting
an estrogen or an estrogen/progestin combination. The hormone
combination can be used as a sequential or a continuous method. In
sequential HRT, which is the method mainly used during menopause, the
progestogen is added to the estrogen only in the second half of the
cycle. The advantage of the sequential method is that the progestogen
counteracts excessive growth of the uterine lining that may result
from estrogen use and stabilizes the unwanted irregular cycles in
pre-menopause and post-menopause. The cyclical use of a progestogen
leads to withdrawal bleeding.

   In continuous combined HRT, which is used for postmenopausal
women, both the estrogen component and the progestogen are
administered simultaneously over the entire period of use. The
advantage of this regimen is that no cyclical bleeding is induced and
amenorrhea can be achieved. The goal of continuous HRT for
postmenopausal women shifts from relieving climacteric symptoms, such
as hot flushes, to addressing other age- and hormone-related
disorders, such as osteoporosis, incontinence, decrease of sexual
function, loss of memory and prevention of cardiovascular diseases.

   Our portfolio of hormone replacement therapy products includes
Climara(R), which releases estradiol via a transdermal patch that is
replaced once a week, as well as Climodien(R). Climara(R) was first
launched in the United States in 1995. In 1999, Climara(R) received FDA
approval for the prevention of osteoporosis. Authorization of this
indication is expected soon in Europe and Latin America. Climodien(R)
contains either a regular or lower dose of estradiol valerate
combined with dienogest in a continuous combined regimen for
treatment of climacteric symptoms. No cyclical bleeding is induced in
the majority of users. Treatment with Climodien(R) results in a high
incidence of amenorrhea, thus providing a therapeutic option for
women not wishing to return to regular menstrual bleeding. The two
preparations provide the prescribers with an option to titrate
estrogen doses according to the womens needs without changing the
progestogen component. The regular- dose Climodien(R) has shown an
excellent clinical profile with regard to relief of menopausal
symptoms and bleeding control and the antiandrogenic properties of
dienogest are an additional benefit for women at this age. Regulatory
approval for Climodien(R) was granted by the Netherlands in December
2000. Regulatory approval in all member states of the European Union
is expected in the first half of 2001. The lower-dose Climodien(R) is
in clinical phase III.

   Our hormone replacement therapy product range is complemented by
an injectable, Gynodian Depot(R).


   Gynecological Therapy
   We offer a range of products for the treatment of certain
hormone-related gynecological disorders, including Diane(R)-35,
Androcur(R) and Progynon(R) C. Diane(R)-35 is used for the treatment of
acne but exerts the same contraceptive reliability as combined oral
contraceptives. Androcur(R) is an antiandrogen used, in certain cases
in combination with Diane(R)-35, for the treatment of hirsutism
(symptoms of masculine hair growth in women), acne and seborrhea
caused by increased androgen levels. Progynon(R) C is an estrogen for
the treatment of primary and secondary amenorrhea.


                                 21

<PAGE>


Therapeutics



   The following table sets forth selected therapeutic products
presently marketed by the Group.

<TABLE>
<CAPTION>
                                                                                         Net Sales
Product        Active Ingredient(s)    Indication                                        2000 1999
                                                                                       (E millions)

<S>              <C>                     <C>                                               <C>  <C>
Betaferon(R)/    Interferon beta-1b      Multiple sclerosis                                593  454
Betaseron(R)                             (for relapsing remitting form and, in Europe,
                                         Australia and Canada only, secondary
                                         progressive form)

Betapace(R)/     Sotalol HCl             Arrhythmias; atrial fibrillation                  168  157
Betapace(R) AF

Fludara(R)       Fludarabine phosphate   Chronic lymphocytic leukemia                      111   86

Androcur(R)      Cyproterone acetate     Prostate cancer                                   103   99

Noctamid(R)      Lormetazepam            Sleep disturbances                                 42   39

Ilomedin(R)      Iloprost                Peripheral Arterial Occlusive                      32   21
                                         Disease (PAOD) stages III/IV

Bonefos(R)       Clodronate              Hypercalcaemia and osteolysis                      29   28
</TABLE>

   We develop novel therapeutics and offer innovative products for
the treatment of selected disabling and life threatening conditions,
including multiple sclerosis and other diseases of the central
nervous system and cardiovascular system, and in the field of
oncology.


   Central Nervous System
   Our portfolio of therapeutic products for the treatment of
diseases of the central nervous system includes Betaferon(R) and
Noctamid(R).

  .  Betaferon(R) (interferon beta-1b). Betaferon(R) (which is marketed in
     the United States and Canada under the trademark Betaseron(R))
     has been the Groups leading product in terms of net sales for
     the past four years. Betaferon(R) was the first beta interferon
     developed for the treatment of multiple sclerosis (MS). The
     product was approved for relapsing remitting MS in the United
     States in 1993, in Europe in 1996 and was approved in Japan in
     September 2000. Betaferon(R) is also marketed in all major Latin
     American markets. Betaferon(R) was approved for the treatment of
     secondary progressive MS in Europe, Australia and Canada in
     1999 and we have filed an NDA for secondary progressive MS in
     the United States. Betaferon(R) is manufactured for the United
     States and Japan markets by Chiron Corporation. Chiron also
     receives royalties from our sales in Europe of Betaferon(R)
     manufactured by Boehringer Ingelheim.

  .  Noctamid(R) (lormetazepam). Noctamid(R) is a short acting
     benzodiazepine which has been developed and marketed for the
     treatment of sleep disorders.


                                 22

<PAGE>


   Cardiovascular System
   Our portfolio of therapeutic products for the treatment of
diseases of the cardiovascular system includes: Betapace(R) and
Ilomedin(R)

  .  Betapace(R)/Betapace(R) AF (sotalol). Betapace(R) is used in the
     treatment of ventricular arrhythmias (abnormal heart rhythm),
     such as sustained ventricular tachycardia. Betapace(R) is an
     anti-arrhythmic drug with Class II (beta adrenoceptor)
     properties and Class III (cardiac action potential duration
     prolongation) properties. Betapace(R) has been marketed since the
     1970s for the treatment of hypertension, angina and
     arrhythmias. We market Betapace(R) only in the United States
     under a license granted by Bristol-Myers Squibb Company in
     1991. We received regulatory approval for Betapace(R) AF, an
     indication for treatment of atrial fibrillation, in early 2000
     and have three years exclusivity in the United States.

  .  Ilomedin(R) (iloprost). Ilomedin(R) is a stable prostacyclin
     analogue used for the intravenous treatment of severe forms of
     peripheral arterial disease (Peripheral Arterial Occlusive
     Disease (PAOD) stages III and IV) and thrombo-angiitis
     obliterans. The product increases the microcirculatory
     perfusion and has been shown to reduce rest pain, improve ulcer
     healing and reduce the need for amputation. Ilomedin(R), which
     was first launched in 1992, is marketed in Europe and New
     Zealand.


   Oncology
   We presently market three therapeutic products in the area of
oncology: Androcur(R), Fludara(R) and Bonefos(R). In addition, we have
recently obtained rights to a number of promising products and
processes in the area of oncology, as discussed under "-Research and
Development-Therapeutics".

  .  Androcur(R) (cyproterone acetate). Androcur(R) is an anti-androgen
     used for the palliative treatment of advanced prostate cancer.
     Androcur(R) reduces testosterone serum levels and blocks androgen
     receptors mediating cancer growth. Androcur(R) was introduced to
     the market in the 1970s in Europe but is not available in the
     United States. The active ingredient of Androcur(R), cyproterone
     acetate, is also used in gynecology. The drug combines
     progestogenic and antiandrogenic activities.

  .  Fludara(R) (fludarabine phosphate). Fludara(R) is the only product
     that we currently market in the field of hematological
     oncology. Fludara(R), which was launched in the United States in
     1991 and in Europe in 1994, is also marketed in all major Latin
     American markets. It is a purine analogue acting as an
     antimetabolite and has been approved for the treatment of
     patients with relapsed or refractory chronic lymphocytic
     leukemia (CLL). Due to high response rates and a significant
     proportion of complete remissions, Fludara(R) has been
     established as a standard treatment for this group of patients.
     The drug is approved as second and third line monotherapy for
     CLL and has shown to be effective in clinical trials for the
     first line therapy. An oral formulation of Fludara(R) has been
     approved in Great Britain. As a line extension, clinical phase
     II studies are under way for the second and third line therapy
     for low-grade non-Hodgkins lymphoma (NHL).

  .  Bonefos(R) (clodronate). Bonefos(R) is a second generation
     bisphosphonate for the treatment of hypercalcaemia and
     osteolysis due to malignancies. Bonefos(R) was developed by
     Leiras and was launched in Europe in 1990 and 1991. The product
     is available as an intravenous or an oral formulation. We
     market Bonefos(R) in several countries in Europe, the Middle East
     and Asia.


                                 23

<PAGE>


Diagnostics and Radiopharmaceuticals
   The following table sets forth selected diagnostic and
radiopharmaceutical products presently marketed by the Group.

   <TABLE>
   <CAPTION>
                                                                            Net Sales
Product      Active Ingredient(s)        Indication                         2000  1999
                                                                          (E millions)
<S>          <C>                         <C>                                 <C>   <C>

Iopamiron(R)   Iopamidol                   X-ray contrast medium               372   307

Magnevist(R)   Gadopentate dimeglumine     MRI contrast medium                 286   233

Ultravist(R)   Iopromide                   X-ray contrast medium               238   219


Gadovist(R)    Gadobutrol                  MRI contrast medium                (**)   (*)

Levovist(R)    D-Galactose/palmitic acid   Ultrasound contrast medium           10  (**)

Quadramet(R)   Samarium-153                Metastatic bone lesions              10   (*)

AcuTect(R)     Peptide/technetium          Imaging of acute venous thrombosis (**)  (**)

NeoTect(R)     Peptide/technetium          Imaging of lung tumors             (**)   (*)
</TABLE>

-----
(*)  Launched in 1999.
(**) Less than E 5 million.


   We are focused on the research, development and commercialization
of imaging agents for the diagnosis of diseases and disorders. The
Groups principal products in the Diagnostics and
Radiopharmaceuticals business area include contrast media for use in
X-ray, magnetic resonance imaging (MRI) and ultrasound procedures,
radiopharmaceuticals for use in nuclear medicine and contrast medium
application technologies.

   We have engaged in the research and development of contrast
agents for over 70 years. Contrast media are used by radiologists,
cardiologists and other physicians to improve the outcomes of
diagnostic imaging procedures. The contrast agent is generally
administered to the patient by injection.

   In the field of nuclear medicine, we recently expanded our
activities beyond research. In order to strengthen the Groups basis
for radiopharmaceuticals, in November 1999 we acquired Diatide, Inc.,
which is specialized in the research and development of
radiopharmaceuticals. During April 2000, we also acquired a 60%
interest in the French company, CIS bio international, which has a
global distribution network and a leading position in the European
radiopharmaceutical market.

   In addition to imaging agents, we develop, manufacture and market
injection systems and disposable products through our wholly owned
subsidiary Medrad. We acquired Medrad in 1995 to enhance and
strengthen the Groups expertise and capabilities with regard to
contrast media application and other imaging related technologies. We
believe that Medrad is a worldwide market leader in vascular
injection systems for the application of contrast media in computed
axial tomography (CT), angiography and MRI.

   X-Ray Contrast Media

  .  Iopamiron(R) (iopamidol). Iopamiron(R) is an extracellular non-
     ionic monomeric X-ray contrast agent primarily for
     intravascular use. The product was among the Groups top five
     products in terms of net sales in 2000 and one of the top two
     selling X-ray contrast agents in Japan. We distribute
     Iopamiron(R) in Japan, France and Latin America under a license
     from Bracco S.p.A. We first launched Iopamiron(R) in Europe in
     1984 and in Japan in 1986.


                                 24
<PAGE>


  .  Ultravist(R) (iopromide). Ultravist(R) is an extracellular non-ionic
monomeric X-ray contrast agent for intravascular use. The product was
among the Groups top five products in terms of net sales in 2000,
and we believe Ultravist(R) is the leading X-ray contrast agent in
Europe in terms of market share. Ultravist(R), which was developed by
us, was launched in Europe in 1985 and is currently marketed in 71
countries worldwide.


   MRI Contrast Media

  .  Magnevist(R) (gadopentetate dimeglumine). Magnevist(R) is an
     extracellular MRI contrast agent for cranial, spinal and whole
     body applications for patients of all age groups. The product
     was the first MRI contrast agent developed and was among the
     Groups top five products in terms of net sales in 2000. We
     believe Magnevist(R) is the leading MRI contrast agent in the
     world in terms of market share. Magnevist(R), which was developed
     by us, was launched in Europe, the United States and Japan in
     1988 and is currently marketed in 75 countries worldwide.

  .  Gadovist(R) 1.0 (gadobutrol). Gadovist(R) 1.0 is an extracellular
     MRI contrast medium. The product was first launched in
     Switzerland in 1999 for central nervous system indications. In
     addition, all member states of the European Union have in a
     mutual recognition process approved Gadovist(R) 1.0, and it was
     launched in Germany in 2000. Gadovist(R) 1.0 is being further
     developed for body indications including magnetic resonance
     angiography and is currently in phase III clinical studies.
     Gadovist(R) 1.0 is particularly suited for such applications as
     perfusion imaging and high-dose studies.


   Ultrasound Contrast Media

  .  Levovist(R) (palmitic acid-stabilized galactose-based air
     microbubbles). Levovist(R) is an ultrasound contrast agent for
     blood pool imaging. Levovist(R) was first launched in Germany and
     Sweden in 1996 and is currently marketed in over 40 countries
     in Europe, Asia, Canada and Latin America. In September 1999,
     Levovist(R) was launched in Japan, where it is co-promoted with
     Tanabe Seiyaku Co., Ltd.


   Radiopharmaceuticals for Nuclear Medicine

  .  Quadramet(R). Quadramet(R) is a therapeutic agent for the relief
     of pain in patients with metastatic bone lesions that image on
     conventional bone scan. Quadramet(R) consists of a radioactive
     isotope, Samarium-153, which emits beta radiation, and a
     chelating agent, EBTMP, which targets the drug to sites of new
     bone formation. We market the product in the United States
     under an exclusive license from Cytogen Corporation. As a
     result of the acquisition of a majority share of CIS bio
     international in April 2000, we obtained European and Japanese
     rights to Quadramet(R).

   As a result of our acquisition of Diatide, Inc. in 1999, we
obtained two radiopharmaceutical products for use in nuclear medicine
imaging, AcuTect(R) and NeoTect(R). Under an agreement between Diatide
and Nycomed Amersham plc, Nycomed Amersham has exclusive co-promotion
rights to NeoTect(R) and AcuTect(R) in the United States until October
2004 and October 2003, respectively, and exclusive distribution and
license rights to the products in Europe, South Africa
and certain countries in the Middle East.

  .  AcuTect(R). AcuTect(R) is a radiopharmaceutical for imaging of
     deep vein thrombosis in the lower extremities. The product was
     launched in the United States in 1998.

  .  NeoTect(R). NeoTect(R) is a radiopharmaceutical for imaging of
     lung cancer. The product was launched in the United States in
     1999. During July 2000, the Committee for Proprietary Medical
     Products (CPMP) adopted a positive opinion to recommend the
     granting of a


                                 25
<PAGE>


     marketing authorization for the product in Europe. The product was
     authorized for use in all member states of the European Union in
     November 2000. It will be marketed as NeoSpect(R) in Europe.


   We strengthened our portfolio of radiopharmaceutical products
with the April 2000 acquisition of a majority share of CIS bio
international, which specializes in the development, production and
distribution of radiopharmaceuticals and capsulated radioactive
sources.


   Dermatology

   The following table sets forth selected dermatology products
presently marketed by the Group.

<TABLE>
<CAPTION>
                                                                                          Net Sales

Product                 Active Ingredient(s)                     Indication               2000  1999
                                                                                         (E millions)
<S>                     <C>                                      <C>                      <C>   <C>

Nerisona(R)/
Nerisona(R) C/          Diflucortolone valerate/Diflucortolone   Corticoid responsive      40    35
Tri-Nerisona(R)         valerate, Chlorquinaldol/Diflucortolone  dermatoses
                        valerate, Isoconazole nitrate, Neomycin
                        sulfate

Travogen(R)/            Isoconazole nitrate                      Superficial               32    29
Travocort(R)                                                     dermatomycoses

Advantan(R)             Methylprednisolone aceponate             Eczema                    26    21
Neriproct(R)            Diflucortolone valerate, Lidocain        Hemorrhoids               22    17
Psorcutan(R)            Calcipotriol                             Psoriasis                 17    16

Skinoren(R)/Azelex(R)   Azelaic acid                             Acne (mild to             12    15
                                                                 moderate)

Levulan(R)/             Aminolevulimic acid                      Actinic keratosis         (*)   (*)
Kerastick(R)
</TABLE>

-----
(*) Launched in 2000


   The Group has been engaged in the area of Dermatology since we
pioneered modern dermatological therapies with topical corticoids in
the early 1950s. We are currently active in several of the most
important dermatological indication fields, including eczema,
mycoses, acne, psoriasis, pre-cancerous skin conditions and
hemorrhoids.

   Our principal products in the Dermatology area are:

  .  Nerisona(R) (diflucortolone valerate). Nerisona(R) is a
     corticosteroid of medium potency used for the treatment of
     eczema and psoriasis. The product is available as cream,
     ointment, fatty ointment and solution. Principal sales from the
     product, which was first launched in 1975, are from Japan and Europe.
     Nerisona(R) is also distributed in Latin America and Asia.

  .  Travogen(R) (isoconazole nitrate), Travocort(R) (isoconazole
     nitrate, difluocortolone valerate). Travogen(R) and Travocort(R)
     are our prime anti-fungal products for the treatment of
     dermatomycoses. Travocort(R) is also indicated in super-infected
     dermatomycoses. The products were introduced in 1979. Most of
     the sales of the products occur in Europe and Latin America.

  .  Advantan(R) (methylprednisolone aceponate). Advantan(R) is a
     topical corticosteroid for the treatment of eczema. Advantan(R)
     was first launched in 1992. We presently distribute Advantan(R)
     in Europe, Latin America and Asia. In Australia and New
     Zealand, Advantan(R) is co-marketed with Commonwealth Serum
     Laboratories Ltd. The arrangement terminates in 2004.

  .  Neriproct(R) (diflucortolone valerate, lidocain). Neriproct(R) is used
     to treat hemorrhoids and is distributed in Japan.


                                 26

<PAGE>


  .  Psorcutan(R) (calcipotriol). Psorcutan(R) is a vitamin D3 based topical
     product for the treatment of mild to moderate psoriasis. The product
     is available as ointment, cream or solution. Psorcutan(R) was developed
     by Leo Pharmaceuticals and first launched in Germany in 1992. We have
     semi-exclusive rights to distribute Psorcutan(R) in Germany, Italy,
     Austria, Turkey and Eastern Europe under a licensing agreement which
     terminates in 2006.

  .  Skinoren(R) (marketed in the United States as Azelex(R)) (azelaic
     acid). Skinoren(R) is used to treat mild to moderate inflammatory
     acne vulgaris both as a stand-alone therapy and in combination
     with other topical agents such as benzoyl peroxide. Skinoren(R)
     was launched in Europe in 1989 and in the United States in
     1995. We distribute the product in Europe and Latin America. In
     the United States, Azelex(R) is distributed by Allergan Inc.
     under a co- marketing arrangement. We intend to co-market this
     product in the United States as Finevin(TM) Cream in 2001. A gel
     preparation is under regulatory review in Europe. An IND for
     the gel preparation was submitted in November 2000 in the
     United States and a NDA is expected to be submitted in the
     United States in 2002.

  .  Levulan(R)/Kerastick(TM) (aminolevulinic acid or "5 Ala"). Levulan(R)
     is a photosensitization agent for the treatment of actinic
     keratosis, an increasingly prevalent pre-cancerous condition
     resulting from excessive exposure to sunlight. The product is a
     liquid formulation that also is available in an easy to use
     application system known as Kerastick(TM). Levulan(R) was licensed
     in 1999 from DUSA Pharmaceuticals, Inc. and was launched in the
     United States in September 2000. The product is in the pre-
     registration phase in Europe and Latin America.


RESEARCH AND DEVELOPMENT


Overview
   Our research and development activities are focused primarily on
four selected fields with a high degree of unmet medical needs. We
are concentrating on the exploitation of novel technologies resulting
in the development of:

  .  causal therapy of selected disabling and life threatening
     diseases.

  .  sensitive and highly specific diagnostics.

  .  gender specific health care products.

  .  treatments of severe skin disorders.

   In our drug and target discovery and profiling efforts, we are
committed to the application of cutting edge technologies, including
gene therapy, gene discovery, functional genetics and
pharmacogenomics, proteomics, state-of-the-art combinatorial
chemistry and high throughput screening methods. We have instituted
several programs designed to optimize the research and development
process in order to shorten the period of time from the start of
early compound finding until the time that the product reaches the
market.


Collaboration Efforts
   Besides our internal research and development efforts, we have
made a strategic decision to engage in efficient collaboration. Thus,
we continuously monitor drug and target discovery and new therapeutic
principles in our four core business areas and beyond for
opportunities to enrich our product portfolio and to broaden our
technology platform. We enter into licensing arrangements or
otherwise acquire synergistic or value-added drugs and technologies.
We have established a number of research and development cooperation
networks with leading international academic and industrial partners,
including biotechnology companies and major pharmaceutical companies.


                                 27
<PAGE>


   The following table describes certain of our principal
collaboration partners and collaboration objectives:

<TABLE>
<CAPTION>
<S>                                         <C>
Partner                                     Objective

Pfizer Inc...............................   Anti-thrombotics, R&D in factors of the clotting cascade

Novartis International AG................   Joint development of angiogenesis inhibitors
                                            (therapy of solid tumors)

IDEC Pharmaceuticals Corp................   Radioimmunotherapy in hematological oncology (radiolabeled mAB)

ILEX Oncology, Inc./ LeukoSite, Inc.
(Millennium Pharmaceuticals, Inc.).......   Immunotherapy in hematological oncology (mAB)

Peregrine Pharmaceuticals, Inc.
(formerly Techniclone Corporation).......   Radioimmunotherapy in hematological
                                            oncology (radiolabeled mAB)
Alliance Pharmaceuticals Corp............   Ultrasound contrast medium

Collateral Therapeutics, Inc.............   Angiogenic gene therapy

DUSA Pharmaceuticals, Inc................   Photodynamic therapy in dermatological indications

INCYTE Pharmaceuticals, Inc..............   Genomics-access to EST/gene database

Ribozyme Pharmaceuticals, Inc............   Genomics-antisense technology for target validation

MediGene AG..............................   Vaccination for treatment of precancerous lesions of
                                            the cervix
Phoenix Pharmacologics Inc...............   Enzymatic technology in cancer therapy

Pharmacopeia, Inc........................   Drug discovery-access to large compound
                                            libraries

Myriad Genetics, Inc.....................   Access to genomic database for proteins

The Population Council...................   Synthetic androgen for treatment of
                                            hypogonadism
Titan Pharmaceuticals Inc...................Development of infectable cells producing dopamine for
                                            treatment of Parkinsons

Philogen S.r.l...........................   Diagnosis, photodynamic-, and radiotherapy of tumors and other
                                            pathologies

EPIX Medical Inc.........................   MRI contrast media
</TABLE>


   We have ownership interest institutions that perform basic
research of special interest to the Group. These basic research
institutions maintain a close relationship with our research and
development organization. The following table sets forth these
institutions, our ownership interest, and their field of research:


<TABLE>
<CAPTION>

<S>                                                 <C>            <C>
                                                    Ownership

Institution                                          Interest
     Research Field

Institute for Hormone and Reproduction Research...      70%     .  Basic research in reproduction
 ..............                                                     physiology and endocrinology.
metaGen GmbH (Genome Research Corp.)..............     100%     .
 Identification of genes
                                                                   responsible for certain diseases. Current focus is
                                                                   breast and prostate cancer genes.
</TABLE>


                                 28

<PAGE>

Research and Development Efforts

   Expenditures on research and development increased 19% to E 811
million in 2000 from E 684 million in 1999.

   During 2000, 30% of our research and development expenditure
could not be allocated to specific projects as it accrued. These
unallocated expenditures primarily relate to basic research costs,
management costs, infrastructure costs, international project
management costs and regulatory compliance overhead costs. The
following table sets forth, by business area, the research and
development expense allocable to projects for the year ended December
31, 2000:

<TABLE>
<CAPTION>
                                                                                               2000  1999
                                                                                              (E millions)
<S>                                                                                             <C>   <C>
Research and Development Expense Allocable to Projects by Business Area:
Therapeutics................................................................................    229   219

Fertility Control and Hormone Therapy.......................................................    164   127
Diagnostics and Radiopharmaceuticals{(1)}...................................................    105    67

Dermatology.................................................................................     20     9
Other research projects.....................................................................     51    44
                                                                                               ----- -----
Total.......................................................................................    569   466
                                                                                               ----- -----
</TABLE>

-----
(1)  Expenditures in the field of radiopharmaceuticals have been included
     in the recently formed Diagnostics and Radiopharmaceuticals business area
     with effect from January 1, 2000.


   Fertility Control and Hormone Therapy
   We are a pioneer in the area of female healthcare and our
fertility control, hormone replacement therapy and gynecological
therapy products seek to meet the highest standards of efficacy,
reliability and safety. In fertility control, our research and
development efforts are aimed to identify new modes of contraception

(hormonal and nonhormonal), to reduce hormone dosages further, to
improve tolerability, to develop new methods for application and to
offer additional therapeutic benefits. In hormone replacement
therapy, we are developing products for the treatment of climacteric
complaints and for the prevention and treatment of osteoporosis with
a panel of treatment regimes and a variety of choices regarding the
active ingredients and the form of application (such as oral form,
intrauterine systems and patches). In gynecological therapy (hormone
therapy), we are developing a new treatment for endometriosis. We are
also pursuing an andrological research program to identify approaches
for male fertility control and to address age- related hormonal
imbalances and corresponding disease processes in males.


                                 29
<PAGE>


   The following table lists the principal products from the
Fertility Control and Hormone Therapy business area currently under
development by the Group, their composition and current development
status:

<TABLE>
<CAPTION>
<S>                                  <C>                                    <C>
Product/Project                      Composition                            Status
Oral Contraceptives:

Oral Contraceptive                   Estradiol valerate/Dienogest           Phase III
      containing estradiol
Yasmin(R) 20                         Ethinyl estradiol/Drospirenone         Phase III

Hormone Replacement Therapy:
Avaden(R)                            Gestodene/Estradiol (Oral)             France: Submitted
      (Sequential Combined)
Climara Pro(TM)                      Levonorgestrel/Estradiol Transdermal   US: Submitted
      (Continuous Combined)          System (Patch)
Climarelle(TM)                       Patch                                  Phase III
Angeliq(R)                           Drospirenone/Estradiol (Oral)          Phase III
      (Continuous Combined HRT)

Hormone Therapy:
Endometrial protection under
        Levonorgestrel Intrauterine System     Phase III
      estrogen replacement therapy   (IUS)
Endometrion(R) therapy of            Dienogest (Oral)                       Phase III
      endometriosis
</TABLE>


   Oral Contraceptives

  .  Oral Contraceptive containing estradiol. The aim of this
     project is to broaden the contraceptive choice for women in
     their later reproductive life and to introduce natural estrogen
     (estradiol) in oral contraception. Premenopausal women are
     still at risk of pregnancy, so that they need a reliable
     contraceptive. At the same time, pre- and perimenopause is
     characterized by the development of symptoms of hormone
     deficiency due to declining ovarian function. Such symptoms
     include irregular bleeding, hot flushes, night sweats, mood
     swings, vaginal dryness and fatigue. The process leading to
     osteoporosis in postmenopausal women starts by age 35-40, when
     bone resorption gradually exceeds bone formation. Thus, the
     premenopausal years are an important period during which to
     optimize bone mass preservation to reduce the risk of hip
     fractures during the postmenopause. With a pill containing
     estradiol and dienogest, we aim to provide an effective and
     safe contraceptive for the 35-50 year age group, with
     additional benefits regarding bone protection and alleviation
     of vasomotor symptoms. This product is currently undergoing
     phase III studies.

  .  Yasmin(R) 20. Yasmin(R) 20, a lower dose variation of Yasmin(R)
     containing the same dose of drospirenone but only 0.02 mg of
     ethinyl estradiol, is currently undergoing phase III clinical
     studies.


   Hormone Replacement Therapy

  .  Avaden(R). Avaden(R) 1 and Avaden(R) 2 are new gestodene-containing
     HRT products with the option of dose selection. Avaden(R) 1 and
     Avaden(R) 2 are sequential combined products. Both products are
     highly effective in the control of climacteric symptoms.
     Moreover, bone mineral density was shown to increase during
     treatment, so that both preparations effectively prevent
     postmenopausal bone loss. Avaden(R) 1 and Avaden(R) 2 induce a
     favorable bleeding pattern with predictable and regular
     cyclical withdrawal bleeding and


                                 30

<PAGE>


     a low incidence of intermenstrual bleeding. Clinical studies
     reported excellent tolerance and a low incidence of adverse events.
     Avaden(R) 1 and Avaden(R) 2 have been submitted for registration in
     Europe.

  .  Climara Pro(TM). As an alternative to oral hormone replacement
     therapy, a combination patch with estradiol and levonorgestrel
     is being developed. This patch will only need to be applied
     once a week and is intended for use in osteoporosis prevention
     and the treatment of climacteric complaints. The product has
     been submitted for registration in the United States and is

     expected to be submitted for registration in Latin America and
     Europe in 2001.

  .  Angeliq(R). A low-dose preparation for continuous combined oral
     hormone replacement in postmenopausal women is in clinical
     development. The advantage of this regimen is that no cyclical
     bleeding is induced and amenorrhea can be achieved. The product is
     developed for the treatment of climacteric symptoms and prevention
     of osteoporosis. The preparations contain estradiol and
     drospirenone (in different dosages) as the progestogen component
     to provide endometrial protection. These combination preparations
     are expected to offer clinical advantages due to drospirenones
     complete lack of androgenic effects and its mild anti-
     mineralcorticoid activity. This may reduce common side effects of
     conventional estrogen therapy, such as fluid retention and
     subsequent breast tension and weight increase in susceptible
     women. The project is currently in the pre-registration phase.


   Hormone Therapy (Gynecological Therapy)

  .  Endometrial protection under estrogen replacement therapy. We are
     developing an intrauterine system (IUS) for women in the
     menopause. The technology of the IUS has been used successfully
     for contraception for some years with the product Mirena(R) and also
     to protect the endometrium of women in the perimenopause who are
     receiving estrogen replacement therapy. Women in the postmenopause
     no longer require contraception. For these women, a smaller
     version of the IUS is being developed as the uterus shrinks
     considerably after menopause. The smaller IUS also releases
     levonorgestrel. If a woman in the postmenopause is on estrogen
     replacement therapy, this IUS prevents excessive growth of the
     uterine lining. Since this IUS is a local application, it also
     avoids the possible side effects of a progestin. The project is
     currently in clinical phase III.

  .  Endometrion(R). Endometrion(R) is a product specifically targeted
     for convenient oral treatment of endometriosis. Each tablet
     contains 2 mg dienogest, a progestogen with no estrogenic
     activity and a track record of excellent tolerance and
     acceptability. This new preparation is expected to be as
     efficacious as GnRH-agonists but with a lower incidence of
     progestogenic and estrogen deficiency-related side effects.
     Treatment is recommended for 24 weeks, but long-term use will
     be possible. Cost-effectiveness of long-term treatment is an
     additional benefit. The project is in clinical phase III.


Therapeutics

   Our current research and development efforts in Therapeutics are
focused on cardiovascular and central nervous system diseases and in
the field of oncology.

   Central Nervous System

  .  Mesopram(TM). In order to offer a more convenient mode of
     administration, we are performing a phase II study to investigate
     whether the oral administration of the PDE IV inhibitor Mesopram(TM)
     could be an effective and safe method of administration in
     patients with multiple sclerosis.


                                 31

<PAGE>


   In addition, we have licensed a product from Nippon Shinyaku for
the therapy of stroke- related brain damage which is currently in
phase I clinical development. The drugs pharmacology is new for this
indication. Furthermore, an immune modulator developed from our own
research, has entered Phase I (for oral treatment of multiple
sclerosis).


   Cardiovascular System

  .  Iloprost Inhaler. Iloprost, a stable analogue of prostacyclin, is
     being investigated in phase III studies for the therapy of
     pulmonary hypertension, a disease with an extremely high need for
     an acute and effective treatment. Inhalation should provide a
     rapid response and a high tolerability. Iloprost is being marketed
     as Ilomedin(R) for PAOD.

   In cooperation with Collateral Therapeutics, Inc., we have
initiated a program using the FGF-4 gene for Angiogenic Gene Therapy (AGT).
The program is currently in phase I/II clinical development for stable angina
pectoris. Another early product development has been commenced in
cooperation with Pfizer Inc. The drug is a Factor Xa inhibitor for
the prevention of thrombosis in acute coronary syndromes.


   Oncology
   In addition to our Fludara(R) line extensions within the field of
hematological oncology, our primary development efforts in the field
of oncology are Campath(TM) and Zevalin(TM):

  .  Campath(TM) (alemtuzumab). Campath(TM) is a humanized monoclonal
     anti-CD52-antibody used for treatment of chronic lymphocytic
     leukemia (CLL). It represents the first specific therapy
     indicated for CLL patients refractory (not responding) to
     Fludara(R) treatment. The mechanism of action of this biologic is
     the binding to the CD52 antigen of the surface of
     B-cells. By binding and the activation of the complement
     system, the B-cells are killed. Clinical development has been
     completed in patients who previously received alkylating agents
     and failed Fludara(R) therapy. A BLA was filed with the FDA in
     December 1999. The FDA has given Campath(TM) a fast-track
     designation and also has granted orphan drug status. In
     December 2000, the FDAs Oncologic Drugs Advisory Committee
     (ODAC) recommended to give Campath(TM) accelerated approval. In
     the European Union, Campath(TM) was submitted for registration via
     the centralized procedure. We have worldwide marketing rights
     to Campath(TM), excluding Japan and Asia, under a distribution and
     development agreement with LeukoSite, Inc. (which has been
     acquired by Millennium Pharmaceuticals, Inc.) and ILEX
     Oncology, Inc.

  .  Zevalin(TM). Zevalin(TM) is an Yttrium-labeled monoclonal antibody
     targeting the CD20 antigen and is being developed as
     radioimmunotherapy of relapsed, refractory low-grade non-
     Hodgkins lymphoma (NHL). The mechanism of action is beta-
     radiation by Yttrium-90, which is complexed to the antibody.
     The antibody carries the radioactivity to the tumor sites by
     binding to the CD20 antigen of B-cells. Prior to Zevalin(TM)
     therapy, peripheral
     B-cells need to be cleared by a low dose of rituximab (produced
     by Genentech/La Roche). Zevalin(TM) shows significantly higher
     clinical efficacy compared to non-radioactive
     anti-CD20 monoclonal antibodies and also for patients
     refractory to rituximab. Clinical development is in its late
     stage. A NDA was submitted in the United States in November
     2000. In Europe, Zevalin(TM) was submitted for registration in
     January 2001. The Group has worldwide rights to Zevalin(TM),
     excluding the United States.


                                 32

<PAGE>


   We also currently have two products for the treatment of solid
tumors under phase I development:

<TABLE>
<CAPTION>
<S>                              <C>
Indication                       Mechanism

Various solid tumors..........   Anti-angiogenesis
Hepatoma, melanoma............   Induction of arginine deficiency in tumor cells
</TABLE>


Diagnostics and Radiopharmaceuticals
   We believe that we are a world leader in the field of in vivo
diagnostic imaging, providing innovative X-ray, magnetic resonance
imaging and ultrasound contrast media products. Our current research
and development projects are directed towards disease specific and
functional imaging products that provide an even more accurate and
earlier detection of tumors, central nervous system and
cardiovascular diseases (sensitive perfusion imaging) and molecular
imaging of inflammatory and proliferative processes. With our recent
acquisitions of the research and development-based companies Diatide,
Inc. and CIS bio international, which specialize in the field of
radiopharmaceuticals, we broadened our technology platform in
molecular and functional diagnostics.

   The following table lists the principal diagnostic and
radiopharmaceutical products currently under development, their
indications and current status:

<TABLE>
<CAPTION>
<S>           <C>                                          <C>

Product       Indication/Description                       Status
Resovist(R)   MRI contrast agent/liver imaging             US:    Submitted
                                                           Japan: Submitted
                                                           EU:    Submitted

Eovist        MRI contrast agent/liver imaging             US:    Phase III
                                                           EU:    Phase III
                                                           Japan: Phase III

MS-325        MRI contrast agent/cardiovascular            US:    Phase III

Imavist       Ultrasound contrast agent/echocardiography   US:    Submitted

CISNOET(TM)   Radiopharmaceutical/cardiac imaging          US:    Phase III
                                                           EU:    Phase III
</TABLE>


   The following description provides further information regarding
each of the pharmaceutical product development candidates listed in
the preceding table:

  .  Resovist(R) (ferucarbotran). Resovist(R) is an MRI contrast agent
     for liver-specific imaging being developed for the improved
     detection and characterization of hepatic tumors.
     A regulatory approvable letter for Resovist(R) was issued by the
     FDA in October 2000.

  .  Eovist (gadoxetic acid). Eovist is an MRI contrast agent for
     liver-specific imaging being developed for the detection and
     characterization of hepatic tumors in T1-weighted images.

  .  MS-325. MS-325 is an MRI contrast agent being developed for
     diagnosing diseases of the vasculature. The product is being
     developed in cooperation with EPIX Medical Inc. By obtaining

     the exclusive sales and marketing rights in Japan in January
     2001, we now own these rights for MS-325 worldwide.

  .  Imavist. Imavist is a contrast agent for ultrasound being
     developed to aid in the assessment of cardiac function and
     myocardial blood flow. The product is being developed in
     cooperation with Alliance Pharmaceutical Corp. A regulatory
     approvable letter for Imavist was issued by the FDA in August
     2000.

  .  CISNOET(TM). CISNOET(TM) is a scintigraphic imaging agent being
     developed for the diagnosis of coronary artery disease.


                                 33
<PAGE>


Dermatology
   Our current research and development efforts in the Dermatology
business area are focused on eczema, acne, psoriasis and photodynamic
therapy.
   The following table lists the principal products from the
Dermatology business area currently under development by the Group,
their indications and current status:

<TABLE>
<CAPTION>
<S>                    <C>                            <C>
Product                Indication                     Status

Azelaic Acid           Acne (mild to moderate),       US: Phase III
   (gel formulation)   Rosacea                        US: Phase III

Aminolevulinic acid    Acne (moderate to severe)      Phase I/II

Calcitriol analogue    Psoriasis (mild to moderate)   Phase I
</TABLE>

   The following description provides further information regarding
each of the pharmaceutical product development candidates listed in
the preceding table:

  .  Azelaic Acid (gel formulation). Azelaic acid gel is an
     improved formulation for the treatment of mild to moderate acne
     and rosacea. The gel formulation is under regulatory review in
     Europe.

  .  Aminolevulinic Acid. "5Ala" is currently being investigated to
     evaluate safety and efficacy of drug dose ranging and red light
     in Photodynamic Therapy of facial acne. The aim of the study is
     to find an efficaceous, well tolerated and cosmetically
     acceptable dose range for PDT of moderate to severe acne.
     Photodynamic therapy of further dermatological indications is
     being explored in cooperation with DUSA Pharmaceuticals, Inc.

  .  Calcitriol Analogue. The calcitriol (vitamin D) analogue is a
     proprietary Group compound which is being developed as a
     topical treatment of mild to moderate psoriasis.


   Our research and development projects may not survive the
development process and may not obtain required regulatory approvals.
Even if a development project is approved, it may not be profitable.
See "Regulation".


                                 34

<PAGE>


Research and Development Centers

   The Group operates nine research and development centers in
Europe, the United States and Japan that employ approximately 4,000
persons. The following table sets forth the location and principal
areas of research for the Groups research and development centers:


<TABLE>
<CAPTION>
<S>                                <C>
Location                           Research Areas
Berlin, Germany.................   .  Diagnostics (X-ray, MRI and ultrasound contrast media and molecular
                                      imaging)

                                   .  Fertility Control and Hormone Therapy
                                   .  Therapeutics (oncology and neuro-degenerative diseases)

                                   .  Dermatology (inflammatory skin disorders, including
                                      eczema and psoriasis)

Jena, Germany...................   .  Fertility Control and Hormone Therapy

Turku, Finland..................   .  Fertility Control and Hormone Therapy (new modes of
                                      application)

Saclay, France..................   .  Radiopharmaceuticals
Richmond, California............   .  Oncology, CNS/immunology (including MS), and selected
                                      cardiovascular diseases

Indianola, Pennsylvania.........   .  Medical devices for diagnostic applications
                                      (including vascular injection systems)

Londonderry, New Hampshire......   .  Radiopharmaceuticals
Osaka, Japan....................   .  Diagnostics (MRI)
Mobara and Tokyo City, Japan....   .  Therapeutics (oncology, cardiovascular and central
                                      nervous system diseases)
</TABLE>



GROUP ORGANIZATION

Business Areas

   Our business areas for Fertility Control and Hormone Therapy,
Diagnostics and Radiopharmaceuticals, Therapeutics and Dermatology
coordinate the development of our product portfolio. The business
areas generally have the following objectives:

  .  establish targets and direction of in-house research.

  .  sponsor and guide pre-clinical drug development activities.

  .  actively develop products through clinical phases I, II and III.

  .  monitor the product approval process in Europe, the United
     States and Japan.

  .  outline the strategy for the introduction of the product in the
     market.

  .  stay abreast of new trends in medical research, molecular
     biology and biopharmacy in order to identify potential new areas
     for development or potential products for acquisition.

  .  develop an international network of opinion leaders in the
     medical field to assist in the development of new products.



                                 35
<PAGE>


Group Segments
   The Groups businesses are comprised of five geographic segments
and an other activities (primarily pharmaceutical chemicals) segment,
as set forth in the following chart:


           [Chart depicting Schering AG and six segments:]
<TABLE>
<CAPTION>

                      Schering AG Group

<S>      <C>       <C>       <C>              <C>      <C>
Europe   United    Japan     Latin America/   Asia     Other
Region   States    Region    Canada           Region   Activities
         Region              Region

</TABLE>

   In addition, through our 24% ownership interest in Aventis
CropScience S.A., we participate in the crop protection and crop
production business. See note 32 to our Consolidated Financial
Statements included elsewhere in this annual report setting forth the
net sales, segment performance and segment results, assets and other
information for the Groups segments for 2000, 1999 and 1998. See
"Item 5-Operating and Financial Review and Prospects" for a
discussion of the net sales, segment performance and segment results
for the Groups segments for 2000, 1999 and 1998.
   The following table sets forth the net sales for each of the
Groups five geographic segments and the Other Activities segment for
the three years ended December 31, 2000:


<TABLE>
<CAPTION>

                           Year ended December 31,

                              2000     1999    1998

                                  (E millions)
Net Sales by Segment:

<S>                             <C>     <C>     <C>
Europe Region.............    2,008   1,766   1,649
United States Region......      992     775     678

Japan Region..............      670     454     343
Latin America/Canada Region     474     372     359

Asia Region...............      198     164     128
Other Activities..........      151     143     128
                             ------- ------- -------
Total .....................   4,493   3,674   3,285
                             ------- ------- -------
</TABLE>


Europe Region

   Overview
   The geographic segment Europe, referred to in this annual report
as the Europe Region, consists of the members of the European Union,
all other countries of continental Europe, Turkey, the members of the
Commonwealth of Independent States, South Africa, Australia, New
Zealand and African export markets (excluding Egypt, Libya and
Sudan). The headquarters of the Europe Region are located in Berlin,
Germany. The Groups operations in Europe have been enhanced by a
number of key acquisitions in recent years, including Leiras Oy,
Jenapharm and CIS bio international. See
"-CIS bio international Acquisition".

   The Europe Region accounted for approximately 45% of the Groups
net sales in 2000. As of December 31, 2000, the Europe Region
employed 7,213 persons.


                                 36

<PAGE>


The following table sets forth net sales by business area of the
Europe Region for the years ended December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                                       Year ended December 31


                                                        2000    1999    1998
                                                           (E millions)

Net Sales Europe Region by Business Area:
<S>                                                     <C>     <C>     <C>
Fertility Control and Hormone Therapy.............      765     702     657

Therapeutics......................................      690     613     562
Diagnostics and Radiopharmaceuticals{(1)}........      408     319     310

Dermatology.......................................      131     122     120
Other Sources.....................................       14      10      --
                                                     ------- ------- -------
Total .............................................   2,008   1,766   1,649
                                                     ------- ------- -------
                                                     ------- ------- -------
</TABLE>
(1)  Net sales of our radiopharmaceutical products have been included in
     the recently formed Diagnostics and Radiopharmaceuticals business area with
     effect from January 1, 2000.


   The following table sets forth net sales by country for the
Europe Region for years ended December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                          Year ended December 31,

                            2000   1999   1998
                                (E millions)
Net Sales by Country:

<S>                                                     <C>     <C>     <C>
Germany...........................................      504     487     476

France ...........................................      253     184     172
Great Britain.....................................      137     118     106
Italy ............................................      231     201     184

Spain ............................................      154     134     117
Finland...........................................      111     113     127

Other ............................................      618     529     467
                                                     ------- ------- -------
Total ............................................    2,008   1,766   1,649
                                                     ------- ------- -------
                                                     ------- ------- -------
</TABLE>

   Among the factors that have affected, or may affect, the business
of the Europe Region are:

  .  Healthcare cost containment measures effected by governments,
      institutions and managed care organizations.

  .  Intense price competition for diagnostic products.

  .  Market entry of generic products, particularly in diagnostics
     and the fertility control and hormone therapy products.

  .  exchange-rate effects in countries outside the euro territory.

   We believe that the key competitive strengths of the European
business are our subsidiaries and their sales forces, strong presence
and market leadership in strategic product fields, the excellent
reputation of the Schering AG brand, and good synergies among the
countries in the Europe Region through regional business processes
and the exchange of country-specific know-how.


                                 37

<PAGE>

   Products

   The following table sets forth our top-selling products in 2000
and in 1999 in the Europe Region. These products represented 51% of
the total net sales for the Europe Region in 2000 (52% in 1999).

<TABLE>
<CAPTION>
                                                Percentage               Percentage
                             Net Sales            Change   Net Sales         Change
                               2000             from 1999    1999         from 1998
                           (E millions)                  (E millions)
<S>                              <C>               <C>        <C>              <C>
1.  Betaferon(R)........         295               30         227               23
2.  Ultravist(R)........         147               (2)        150               (2)
3.  Diane(R)-35.........         145                9         134                9
4.  Androcur(R).........          79                2          77                2
5.  Magnevist(R)........          79                7          74               11
6.  Mirena(R)...........          67               15          59               45
7.  Meliane(R)..........          66               38          48               68
8.  Femovan(R)..........          60                1          60                1
9.  Microgynon(R).......          52               10          47               10
10. Fludara(R).........           35               (3)         36               10
                              -------                        -----
Total                          1,025                          912
                              -------                        -----
                              -------                        -----
</TABLE>

   Marketing and Distribution

   Marketing functions for the Europe Region are centralized at
regional headquarters in Berlin, Germany.

   The following table sets forth the main target groups for the
marketing of our products in the Europe Region:


<TABLE>
<CAPTION>
<S>                                          <C>
Fertility Control and Hormone Therapy.....   gynecologists, general practitioners
Therapeutics..............................   neurologists, oncologists, hospitals

Diagnostics and Radiopharmaceuticals......   radiologists, nuclear physicans, urologists,
                                             cardiologists, hospitals

Dermatology...............................   dermatologists, general practitioners
</TABLE>


   Our products are marketed by 2,140 sales representatives located
in each of the countries in the Europe Region. Each country has its
own sales force and marketing organization. Promotion of our products
is supplemented by scientific seminars, advertising in medical and
other journals and innovative marketing tools such as the Internet.

   We generally distribute our products through wholesalers,
pharmacies or directly to the target groups.

   We actively seek, where appropriate, to supplement the efforts of
our sales force through
copromotion arrangements and co-marketing arrangements. We have a co-

marketing agreement with the Wyeth Ayerst International division of
American Home Products, Inc. for the oral contraceptive substance
gestodene for the Europe Region (other than South Africa, Australia
and New Zealand). We also have several co-promotion agreements for
specific countries, including iloprost in Italy and contrast media
products in Spain.


                                 38

<PAGE>


   Production
   In Europe, we produce active pharmaceutical ingredients and
intermediate products at our primary facility in Bergkamen, Germany
and three smaller facilities in Germany, Finland and Spain. The
Bergkamen facility is presently operating at high capacity. These
European production facilities produce much of the requirements for
all of the Groups regions.

   In addition to our active pharmaceutical ingredient production
operations, we operate production facilities for the formulation and
packaging of pharmaceutical products. The following table sets forth,
as of December 31, 2000, the location of, and dosage form produced
at, our production facilities in the Europe Region.

<TABLE>
<CAPTION>
<S>                            <C>
Dosage Form                    Location
Solids ........................Weimar, Berlin, Hamburg, Germany;

                               Lys-Lez-Lannoy, France;
                               Turku, Finland

Semisolids.................... Vienna, Austria; Milan, Italy; Tammisaari, Finland
Liquids/Parenterals........... Berlin, Jena, Germany; Alcala de Henares, Spain; Tammisaari, Finland; Milan,
                               Italy

Others{(1)}................... Turku, Finland
</TABLE>

-----
(1) IMPLANTS, INTRAUTERINE SYSTEMS


   For a discussion of certain rationalization measures involving
our European production and packaging facilities, see "Item 5-
Operating and Financial Review and Prospects-Liquidity and Capital
Resources-Restructuring Program".


   Capital Expenditures
   Capital expenditures for the Europe Region were E 133 million in
1998, E 108 million in 1999 and E 115 million in 2000. We made these
expenditures mainly in the areas of production facilities (including
the European Production Initiative) and distribution facilities and
to modernize information technology. Capital expenditures are
expected to total E 164 million in 2001 and are being used to upgrade
and modernize manufacturing facilities as well as research and
development and administrative functions in order to meet regulatory,
health, safety and environmental requirements and to improve
processes.


   CIS bio international Acquisition
   We acquired a 60% ownership interest in the French company ORIS
Industrie S.A. and its wholly-owned subsidiary CIS bio international
S.A. in April 2000. As of June 30, 2000, ORIS Industrie S.A. was
merged in CIS bio international S.A. As part of the acquisition, we
obtained a call option for the remaining 40% of CIS bio international
S.A. (which is owned by CEA-Industrie, a holding company of the
French Atomic Energy Commission) that can be exercised after December
31, 2001. CIS specializes in the development, production and
distribution of radiopharmaceuticals and capsulated radioactive
sources, which are implanted in tumors for short periods of special
treatment. CISs Health Care business also produces medical devices
containing capsulated radioactive sources.

   CIS products are marketed primarily in Europe through a sales
force of 196 representatives. CIS products are also marketed in the
United States and Japan (see "-Japan Region").

   CISs production facilities are located in Saclay and Marcoule,
France.


                                 39

<PAGE>


United States Region

   Overview
   The geographic segment United States, referred to in this annual
report as the United States Region, consists of the United States and
Puerto Rico. We market pharmaceutical products in the United States
under the trade name Berlex Laboratories Inc. As discussed under "-
Patents and Other Intellectual Property", we generally are not
permitted to market healthcare products in the United States Region
under the Schering name.

   Schering Berlin Inc. is the management holding company for the
United States interests of Schering AG. Through its operating
subsidiaries, Schering Berlin supports Schering AGs strategic global
interests in pharmaceuticals, medical devices and agrochemicals.
Located in Montville, New Jersey, Schering Berlin provides

specialized management expertise and develops long range plans for
its United States subsidiaries. Schering Berlin has three principal
subsidiaries:

   Berlex Laboratories, Inc. Located in Wayne and Montville, New
Jersey, and Richmond, California, Berlex Laboratories is committed to
bringing products from the areas of Diagnostics and
Radiopharmaceuticals, Fertility Control and Hormone Therapy and
Therapeutics to the United States, and has recently entered the area
Dermatology.

   Schering Berlin Venture Corporation. This company makes equity
investments in emerging companies with cutting-edge technologies.

   Medrad, Inc. Medrad focuses on innovative products for diagnostic
imaging and specializes in vascular injection systems for contrast
media. Medrad is a market leader in the development, manufacturing
and sale of injectors, syringes and disposable products in this area.
Medrad, with headquarters in Indianola, Pennsylvania, has developed
an international market presence. We acquired Medrad in 1995.

   Schering Berlin also holds a portion of the Groups investment in
Aventis CropScience.

   The United States Region accounted for approximately 22% of the
Groups net sales in 2000. As of December 31, 2000, the United States
Region employed 2,872 persons (including 710 sales representatives).

   The following table sets forth net sales by business area of the
United States Region for the years ended December 31, 2000, 1999 and
1998:


<TABLE>
<CAPTION>
                                                                    Year ended December 31,


                                                                     2000    1999    1998
                                                                         (E millions)

Net Sales United States Region by Business Area:
<S>                                                                   <C>     <C>     <C>

Fertility Control and Hormone Therapy.......................          152     129     143
Therapeutics................................................          482     403     331
Diagnostics and Radiopharmaceuticals{(1)}...................          357     243     204

Dermatology.................................................            1      --      --
                                                                     -----   -----   -----
Total .......................................................         992     775     678
                                                                     -----   -----   -----
                                                                     -----   -----   -----
</TABLE>

-----
(1)  Net sales of our radiopharmaceutical products have been included
     in the recently formed diagnostics and radiopharmaceuticals business area
     with effect from January 1, 2000.


                                 40
<PAGE>


   Among the factors that have affected, or may affect, the business
of the United States Region are:

  .  Competition from large pharmaceutical companies in the United
      States market with substantial resources for research, product
      development and promotion.

  .  Increasingly competitive price pressures as managed care
      groups, institutions, government agencies and other purchaser
      groups seek price discounts and rebates for pharmaceutical
      products

  .  Intense price competition for diagnostic products.

  .  Impact of market entry of competing generic products,
      particularly in the Fertility Control and Hormone Therapy
      business area (including oral contraceptives and Climara(R)) and
      in the Therapeutics business area (including Betapace(R)).

   We believe that the key competitive strengths of the United
States business are our know- how in building new markets and high-
quality customer service.


   Products
   During 2000, approximately 85% of our net sales in the United
States Region were generated from sales of products from the
Therapeutics and Diagnostics and Radiopharmaceuticals business areas.
One of the Groups key strategic objectives is to broaden the product
lines in the United States in the areas of fertility control, hormone
therapy, contrast media, oncology and dermatology.

   The following table sets forth our top-selling pharmaceutical
products in 2000 and in 1999 in the United States Region. These
products represented 68% of the total net sales for this segment in
2000 (70% in 1999).


<TABLE>
<CAPTION>
                                          Percentage
            Percentage
                                Net Sales   Change   Net Sales     Change
                                  2000    from 1999     1999      from 1998

                              (E millions)          (E millions)
<S>                                <C>       <C>
        <C>         <C>
1. Betaseron(R).................   247        31         189         21
2. Betapace(R)..................   168         7         157         23

3. Magnevist(R).................   111        41          79         14
4. Climara(R)...................    81        16          70          5

5. Fludara(R)...................    64        32          48         19
Total...........................   671                   543
</TABLE>


   Medrads principal product line is vascular injection systems
(equipment, related disposables, and equipment service) for
angiography, computed axial tomography (CT), magnetic resonance
imaging and ultrasound. Medrad had net sales of E 202 million in
2000.

   Marketing and Distribution

   The following table sets forth the main target groups for the
marketing of our products in the United States Region:


<TABLE>
<CAPTION>
<S>                                   <C>
Therapeutics..........................  neurologists, oncologists, hospitals
Diagnostics and Radiopharmaceuticals..  radiologists, urologists, cardiologists, hospitals

Fertility Control and HormoneTherapy..  gynecologists
Medrad ...............................  radiologists, hospitals
</TABLE>


                                 41

<PAGE>


Our pharmaceutical products are marketed by our 710 trained sales
representatives as well as additional contract sales representatives.
Promotion of our products is supplemented by physician training,
scientific seminars, advertising in medical and other journals,
samples and direct-to-the- consumer campaigns to increase awareness
in the market. Due to the broadening of our product line in the
United States Region, including the launch of the oral contraceptive
Yasmin(R),  we significantly expand the size of our sales force.

   We generally distribute pharmaceutical products through
wholesalers and pharmacies or directly to end-customer groups. We
have contract arrangements with hospital groups and managed care
groups that in turn receive our products at contract prices through
wholesalers.

   Medrad markets its products to target groups through its own
sales force located in its major markets. Products are also marketed
to end-customer groups indirectly through original equipment
manufacturers (OEMs), government purchasing offices (GPOs) and
managed care groups. Third- party distributors serve Medrads smaller
markets.


   Production
   The pharmaceutical products we market in the United States Region
are generally manufactured by the Groups European facilities or
under various manufacturing agreements with third parties. We operate
one pharmaceutical production plant in the United States Region. The
plant, located in Wayne, New Jersey, produces and packages solid and
special dosage forms.

   Medrad develops and manufactures its products at its facility in
Indianola, Pennsylvania.


   Capital Expenditures
   Capital expenditures for the United States Region were E 23
million in 1998, E 24 million in 1999 and E 33 million in 2000.
Capital expenditures are expected to total E 31 million in 2001.

   In addition to information technology and research equipment
purchases, capital projects currently in progress include the
expansion of the clinical production area in Richmond, California, to
support upcoming clinical trials. Expenditures for Medrad include an
expansion of its manufacturing facility in Indianola, Pennsylvania.


Japan Region
   Overview
   The geographic segment Japan, referred to in this annual report
as the Japan Region, corresponds to the geographical area of Japan
and comprises the business of Nihon Schering K.K. in Japan and direct
sales by Schering AG to Tanabe Seiyaku Co., Ltd. of an X-ray contrast
medium as well as to Yamanouchi Pharmaceutical Co., Ltd. of an oral
contraceptive. The Japan Region accounted for approximately 15% of
the Groups net sales in 2000. As of December 31, 2000, the Japan
Region employed 1,792 persons (including 887 sales representatives).

   Until recently, our Japanese business was primarily concentrated
in diagnostics. During March 2000 we acquired the Japanese
pharmaceutical company Mitsui Pharmaceuticals, Inc. which was merged
into Nihon Schering K.K. as of January 1, 2001. Mitsui

Pharmaceuticals is focused on therapeutic products in the areas of
oncology and diseases of the cardiovascular system and the central
nervous system. The acquisition will enable us to grow our
therapeutics business faster than through building a competent
research and development and sales capacity in the therapeutics field
over time. See "-Mitsui Pharmaceuticals Acquisition". We established
our presence in the Japanese radiopharmaceutical market through our
acquisition of CIS Diagnostic K.K. as part of the Groups acquisition
of a majority share of CIS bio international in April 2000.


                                 42

<PAGE>

The following table sets forth the net sales by business area of the
Japan Region for the years ended December 31, 2000, 1999 and 1998:


<TABLE>
<CAPTION>
                                                                            Year ended December 31,
                                                                        2000          1999          1998
                                                                                  (E millions)
<S>                                                                      <C>           <C>           <C>
Net Sales Japan Region by Business Area:
Fertility Control and Hormone Therapy.................................    26            16             9
Therapeutics..........................................................   126            25            24
Diagnostics and Radiopharmaceuticals{(1)}.............................   475           380           282
Dermatology...........................................................    43            33            28
                                                                        -----         -----         -----
Total ................................................................   670           454           343
                                                                        -----         -----         -----
                                                                        -----         -----         -----
</TABLE>

-----
(1)  Net sales of our radiopharmaceutical products have been included
     in the recently formed Diagnostics and Radiopharmaceuticals business area
     with effect from January 1, 2000.


   Among the factors that have affected, or may affect, the business
of the Japan Region are:

  .  The regulation of pharmaceutical prices and mandatory price
      reductions by the Japanese Ministry of Health and Welfare.

  .  Extensive periods of time historically required for the
      development and the approval of new drug applications by the
      Japanese Ministry of Health and Welfare.

   We believe that the key competitive strengths of the Japan
Regions business are the flexibility of our sales force to market
products from any of our four business areas, our strong market
presence and reputation in diagnostics, and our proven ability to
develop our pipeline of diagnostics and radiopharmaceuticals,
therapeutics and fertility control and hormone therapy products.


   Products
   The following table sets forth our top selling products in 2000
and in 1999 in the Japan Region. These products represented 71% of
the total net sales for this segment in 2000 (80% in 1999).


<TABLE>
<CAPTION>
                                                                      Percentage
             Percentage
                                                        Net Sales       Change     Net Sales    Change
                                                          2000        from 1999       1999     from 1998
                                                      (E millions)                (E millions)
<S>                                                       <C>            <C>           <C>           <C>

1.  Iopamiron(R).......................................   325            22            266           36
2.  Magnevist(R).......................................    76            21             63           35
3.  Aspenon(R).........................................    26            --             --           --
4.  Ultravist(R) (Proscope(R)).........................    24            33             18           24
5.  Neriproct(R).......................................    22            28             17           16
                                                         -----                        -----
Total..................................................   473                          364
                                                         -----                        -----
                                                         -----                        -----
</TABLE>


                                 43

<PAGE>


   Marketing and Distribution

   The following table sets forth the main target groups for the
marketing of our products in the Japan Region:


<TABLE>
<CAPTION>
<S>                                                  <C>
Diagnostics and radiopharmaceuticals..............   hospital and general practitioner radiologists,
                                                     urologists, neurosurgeons, cardiologists

Therapeutics......................................   hospital internists, surgeons, neurosurgeons,
                                                     urologists, gynecologists; general practitioner
                                                     internists and surgeons

Dermatology.......................................   hospital and general practitioner
                                                     dermatologists, surgeons

Fertility control and hormone therapy.............   hospital gynecologists; general practitioner
                                                     gynecologists and internists
</TABLE>


   Our products are marketed to their customers by our 887 medical
representatives. Our sales and marketing efforts in the Japan Region
are directed by our head office in Osaka. Promotion of our products
is supplemented by scientific seminars, trade congresses and
advertising in medical journals. We distribute our products through
wholesalers.

   We have co-marketing agreements with Tanabe Seiyaku Co., Ltd. for
the cardiovascular therapeutic product Novarok(R) and with Yamanouchi
Pharmaceutical Co., Ltd. for the low-dose oral contraceptive Libiane(R)
(the trademark under which Triquilar(R) is marketed). Additionally, we
have a co-promotion agreement with Tanabe for our ultrasound contrast
agent Levovist(R). We are also selling Proscope(R), the Japanese brand
name for the X-ray contrast medium Ultravist(R), to Tanabe.


   Production
   We mostly distribute products in Japan that are manufactured by
the Groups European facilities. The packaging of these products
takes place at our site in Osaka. We furthermore operate a production
plant in Mobara, which is engaged in manufacturing and packaging of
the products from the former Mitsui Pharmaceuticals portfolio. The
packaging and distribution of radiopharma- ceuticals is carried out
at a smaller site in Sakura.

   We produce and distribute Iopamiron(R), our top selling product
in the Japan Region, under
a license from Bracco S.p.A. Changes in the contractually-
determined price of iopamidol, the active ingredient of
Iopamiron(R), have significantly affected the results of
operations of the Japan Region in prior periods. See "Item 5-
Operating and Financial Review and Prospects-Results
of Operations-2000 Compared to 1999-Results of
Operations by Segment-Japan Region" and "-1999 Compared to
1998-Results of Operations by Segment-Japan Region".


   Capital Expenditures
   Capital expenditures for the Japan Region were E 8 million in
1998, E 9 million in 1999 and E 16 million in 2000. Capital
expenditures are expected to total E 12 million in 2001.

   Expenditures were made mainly in the areas of production
facilities and the modernization of information technology.


   Mitsui Pharmaceuticals Acquisition
   We acquired the Japanese pharmaceutical company Mitsui
Pharmaceuticals, Inc. in March 2000. Mitsui Pharmaceuticals is
focused on therapeutic products in the areas of oncology and diseases
of the cardiovascular system and the central nervous system. Mitsui
Pharmaceuticals had net sales of pharmaceutical products of E 102
million for the nine month period ended December 31,


                                 44

<PAGE>

2000 (excluding sales of its medical and chemical businesses, which
we did not acquire) and employed 607 persons at fiscal year end.
Mitsui Pharmaceuticals, Inc. was merged in Nihon
Schering K.K. as of January 1, 2001.
   Mitsui Pharmaceuticals top selling pharmaceutical products in
2000 were Aspenon(R), Mifurol(R), Barnetil(R), Tasuomin(R) and Miradol(R).
These products represented 72% of the total net sales of Mitsui
Pharmaceuticals (excluding sales of its medical and chemical
businesses) in 2000.

  .  Aspenon(R) (aprindine hydrochloride). Aspenon(R) is an anti-
     arrhythmic drug for the treatment of tachycardiac arrhythmia.
     The product was launched in Japan in 1987.

  .  Mifurol(R) (carmofur). Mifurol(R) is an anti-metabolite indicated
     for remission of cancer of the digestive system (stomach, colon
     and rectum) and breast cancer. The product was first sold in
     Japan in 1981.

  .  Barnetil(R) (sultopride hydrochloride). Barnetil(R) is an anti-
     psychotic drug for the treatment of excitement, hallucinations,
     delusion in mania or schizophrenia. The product was launched in
     Japan in 1989.

  .  Tasuomin(R) (tamoxifen citrate). Tasuomin(R) is a cytostatic
     hormonal anti-agonist indicated for breast cancer. The product
     was first sold in Japan in 1990.

  .  Miradol(R) (sulpride). Miradol(R) is an anti-ulcer drug used for
     the treatment of gastric and duodenal ulcers. Miradol(R) is also
     indicated for the treatment of schizophrenia and depression.
     The product was launched in Japan in 1978.

   Mitsui Pharmaceuticals launched several products in 1999,
including Lowmorin(R) (low molecular heparin), a drug with an
indication for disseminated intravascular coagulation.

   Mitsui Pharmaceuticals research and development efforts included
projects in the areas of the central nervous system, oncology and the
cardiovascular system. The projects are in the preclinical stage as
well as in phase I, phase II and phase III.

   During fiscal 1997, 1998 and 1999, Mitsui Pharmaceuticals
invested E 20 million, E 21 million, and E 30 million, respectively,
in research and development.

   Mitsui Pharmaceuticals marketed its products through
approximately 250 medical representatives.

   Mitsui Pharmaceuticals manufactured its products at one facility
located in Mobara City, Japan.

Latin America/Canada Region

   Overview
   The Groups geographic segment for Latin America and Canada,
referred to in this annual report as the Latin America/Canada Region,
consists of the countries of Central America, South America, the
Caribbean and Canada. Schering AG has had a presence in this region
since the 1920s. The headquarters of the Latin America/Canada Region
(known as CECLA-Centro Estrategico Canada Latinoamerica) are located
in Mexico City, Mexico, and manage the activities of 13 subsidiaries
in the major countries of the region. The Latin America/Canada Region
accounted for approximately 11% of the Groups net sales in 2000. As
of December 31, 2000, the Latin America/Canada Region employed 2,466
persons (including 925 sales representatives).


                                 45

<PAGE>

   The following table sets forth the net sales by business area of the
Latin America/Canada Region for the years ended December 31, 2000,
1999 and 1998.

<TABLE>
<CAPTION>
                                                      Year ended December 31,
                                                       2000    1999    1998
                                                           (E millions)
Net Sales Latin America/Canada Region
by Business Area:
<S>                                                    <C>     <C>     <C>
Fertility Control and Hormone Therapy...........       303     233     226
Therapeutics....................................        83      63      59
Diagnostics and Radiopharmaceuticals{(1)}......        49      42      40
Dermatology.....................................        29      25      26
Other Sources...................................        10       9       8
                                                      -----   -----   -----
Total...........................................       474     372     359
                                                      -----   -----   -----
                                                      -----   -----   -----
</TABLE>
-----
(1)  Net sales of our radiopharmaceutical products have been included
     in the recently formed Diagnostics and Radiopharmaceuticals business area
     with effect from January 1, 2000.


   The following table sets forth net sales by country for the Latin
America/Canada Region for the years ended December 31, 2000, 1999 and 1998.

<TABLE>
<CAPTION>

                                                      Year ended December 31,
                                                       2000    1999    1998
                                                        (in millions of E)
Net Sales by Country:
<S>                                                    <C>     <C>     <C>
Brazil..........................................       143     112     139
Argentina.......................................        69      64      56
Mexico .........................................        79      57      43
Canada .........................................        61      44      35
Colombia........................................        32      26      26
Venezuela.......................................        23      16      14
Others{(1)}....................................        67      53      46
                                                      -----   -----   -----
Total ..........................................       474     372     359
                                                      -----   -----   -----
                                                      -----   -----   -----
</TABLE>
-----
(1) Others includes Uruguay, Peru, Chile, Ecuador, Caribbean countries,
Bolivia, Guatemala and Central America.


   Among the factors that have affected, or may affect, the business
of the Latin America/ Canada Region are:

  .  Adverse exchange-rate effects.
  .  Impact of market entry of competing generic products, which
     entry is encouraged by the governments of the region.
  .  Direct and indirect price controls imposed by regulatory
     authorities.
  .  Factors generally associated with operating in developing
     countries, including the risk of political and economic instability.


                                 46

<PAGE>

   We believe that the key competitive strengths of our business in
the Latin America/Canada Region are:

  .  In the area of fertility control, our specialized sales force,
     franchise and expertise.

  .  In Latin America, our leadership position in fertility control
     and diagnostics, and our strong market position in hormone
     replacement therapy and dermatology.

  .  In Canada, our strong market position in therapeutics,
     particularly the treatment of multiple sclerosis and oncology,
     and our strong inroads in fertility control and hormone
     replacement therapy.

   Products
   The following table sets forth our top-selling products in 2000
and in 1999 in the Latin America/Canada Region. These products
represented 44% of the total net sales for this segment in 2000 (41% in 1999).

<TABLE>
<CAPTION>

                                                        Percentage                                Percentage
                                       Net Sales        Change                   Net Sales        Change
                                       2000             from 1999                1999             from 1998
                                      (E millions)                              (E millions)

<S>                                       <C>              <C>                      <C>              <C>
1. Microgynon(R)....................       49               27                       39               15
2. Betaferon(R).....................       46               46                       31               31
3. Diane(R)-35......................       43               57                       27                9
4. Femovan(R).......................       38                9                       34              (16)
5. Meliane(R).......................       33               57                       21               60
                                         -----                                     -----
Total...............................      209                                       153
                                         -----                                     -----
                                         -----                                     -----
</TABLE>

   Marketing and Distribution
   The following table sets forth the main target groups for the
marketing of our products in the Latin America/Canada Region:

<TABLE>
<CAPTION>
   <S>                                      <C>
   Fertility Control and Hormone Therapy....gynecologists, obstetricians, general
                                            practitioners, endocrinologists, hospitals.

   Therapeutics.............................oncologists, hematologists, urologists,
                                            neurologists, hospitals.

   Diagnostics and Radiopharmaceuticals.....radiologists, cardiologists, selected hospitals.

   Dermatology..............................dermatologists.
</TABLE>

   Our products are marketed by 925 sales representatives in almost
all of the countries of the Latin America/Canada Region. Each of our
13 subsidiaries has its own marketing organization, which is
supported by regional headquarters in the areas of strategy
development and the coordination of new product introductions.
Promotion of our products is supplemented by scientific seminars,
advertising in medical and other journals and innovative marketing
tools such as the internet and a direct-to-the-consumer campaign in Canada.

   We generally distribute our products through wholesalers,
pharmacies, hospitals, clinics and, in some cases, directly to the
target groups. We maintain a distribution center in Colon, Panama, to
serve as a regional hub for the distribution of products among our
companies in Latin America.


                                 47
<PAGE>

   Production
   Certain of the pharmaceutical products we market in the Latin
America/Canada Region are manufactured by the Groups European
facilities. At our facility in Orizaba, Veracruz, Mexico, we produce
active pharmaceutical ingredients and intermediate products for the
requirements of all of the Groups regions.

   The following table sets forth, as of December 31, 2000, the
location of, and dosage forms produced by, our four production
facilities in the Latin America/Canada Region.

<TABLE>
<CAPTION>

   <S>                  <C>
   Dosage Form          Location

   Solids.............. Sao Paulo, Brazil
                        Santafe de Bogota, Colombia
                        Orizaba, Mexico

   Semisolids.......... Buenos Aires, Argentina
                        Santafe de Bogota, Colombia
                        Orizaba, Mexico

   Liquids............. Buenos Aires, Argentina
                        Orizaba, Mexico
</TABLE>

   Capital Expenditures
   Capital expenditures for the Latin America/Canada Region were
E 11 million in 1998, E 19 million in 1999 and E 16 million in 2000.
Capital expenditures are expected to total E 18 million in 2001.

   Expenditures were made mainly in the areas of production
facilities and distribution facilities and modernization of
information technology. We are currently renovating our production
facility in Sao Paulo, Brazil, in order to modernize our production
operations. The estimated cost of the project, which is expected to
be completed in 2002, is E 10 million. In addition, we are currently
constructing a modern warehouse and laboratory at our Colombian plant.

Asia Region

   Overview
   The Groups geographic segment for Asia, referred to in this
annual report as the Asia Region, is comprised of the countries of
the Pacific Rim of Asia (but excluding Japan, Australia and New
Zealand), the Middle East, and Egypt, Libya and Sudan. Turkey and the
countries of Central Asia (including the Commonwealth of Independent
States  members) are not included in the Asia Region. The
headquarters of the Asia Region are located in Berlin, Germany, and
manage the operations of our subsidiaries in South Korea, China,
Taiwan, Thailand, Indonesia and the Philippines and our branch
offices and distributors in all the other major countries of the
region. The Asia Region also operates production facilities in South
Korea, China and Indonesia. The Asia Region accounted for
approximately 4% of the Groups net sales in 2000. As of December 31,
2000, the Asia Region  employed 1,325 persons (including 598 sales
representatives).


                                 48
<PAGE>

The following table sets forth the net sales by business area of the
Asia Region for years ended December 31, 2000, 1999 and 1998.

<TABLE>
<CAPTION>

                                                      Year ended December 31,
                                                       2000    1999    1998
                                                           (E millions)
Net Sales Asia Region by Business Area:
<S>                                                    <C>     <C>     <C>
Fertility Control and Hormone Therapy............       81      63      52
Therapeutics.....................................       20      21      13
Diagnostics and Radiopharmaceuticals{(1)}.......       71      56      46
Dermatology......................................       15      16      13
Other Sources....................................       11       8       4
                                                      -----   -----   -----
Total ...........................................      198     164     128
                                                      -----   -----   -----
                                                      -----   -----   -----
</TABLE>
-----
(1)  Net sales of our radiopharmaceutical products have been included in the
     recently formed Diagnostics and Radiopharmaceuticals business area with
     effect from January 1, 2000.


   The following table sets forth net sales by country for the Asia
Region for the years ended December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>

                                                      Year ended December 31,
                                                       2000    1999    1998
                                                           (E millions)
Net Sales by Country:
<S>                                                    <C>     <C>     <C>
South Korea......................................       48      35      26
China ...........................................       20      17      14
Taiwan ..........................................       18      15      12
Israel ..........................................        9      14       9
Indonesia........................................       22      14       7
Thailand.........................................       15      12       8
Other ...........................................       66      57      52
                                                      -----   -----   -----
Total ...........................................      198     164     128
                                                      -----   -----   -----
                                                      -----   -----   -----
</TABLE>

   Among the factors that have affected, or may affect, the business
of the Asia Region are:

  .  exchange-rate effects.

  .  Factors generally associated with operating in developing
     countries, including the risk of political and economic instability.

  .  Certain of our fertility control products are purchased by
     institutional clients (including governments and non-government
     organizations) with unpredictable purchasing patterns, which
     can result in fluctuations in net sales and profitability from
     period to period.


   We believe that the key competitive strengths of our
business in the Asia Region are:

  .  Our specialized product portfolio, particularly in diagnostics
     and radiopharmaceuticals and fertility control and hormone therapy.

  .  Our strong market presence and high market share in
     diagnostics and radiopharmaceuticals and fertility control and
     hormone therapy.


                                 49
<PAGE>

   Products
   The following table sets forth our top selling products in 2000
and in 1999 in the Asia Region. These products represented 47% of the
total net sales for this segment in 2000 (45% in 1999).

<TABLE>
<CAPTION>

                                                        Percentage                                Percentage
                                       Net Sales        Change                   Net Sales        Change
                                       2000             from 1999                1999             from 1998
                                      (E millions)                              (E millions)

<S>                                       <C>              <C>                      <C>              <C>
1. Ultravist(R).....................       47               30                       36               27
2. Magnevist(R).....................       12               21                       10               23
3. Microgynon(R)....................       12               56                        8               14
4. Diane(R)-35......................       12               13                       10               42
5. Femovan(R).......................       11               18                        9               20
                                          ----                                      ----
Total...............................       94                                        73
                                          ----                                      ----
                                          ----                                      ----
</TABLE>

   In Indonesia, we also manufacture and sell a variety of
Boehringer Ingelheim products under license.

   Marketing and Distribution
   The following table sets forth the main target groups for the
marketing of our products in the Asia Region:

<TABLE>
<CAPTION>
<S>                                              <C>
Fertility Control and Hormone Therapy........... gynecologists, general practitioners, hospitals

Diagnostics and Radiopharmaceuticals............ radiologists, cardiologists, hospitals

Therapeutics.................................... general practitioners, oncologists, hospitals
</TABLE>

   Our products are marketed by 598 exclusive sales representatives
located in all of the major markets of the Asia Region. Our local
sales and marketing organizations receive support from Asia Region
headquarters in Berlin. Promotion of our products is supplemented by
scientific seminars, workshops and advertising in medical journals.

   In Taiwan, Thailand, Indonesia, the Philippines, Hong Kong,
Malaysia and Singapore, we distribute our products through an
exclusive distributor. In South Korea and China, we generally
distribute our products through various wholesalers and pharmacies
and, in some cases, directly to hospitals. In the Middle Eastern
countries, we are for the most part represented by agents that import
and distribute our products through their organizations.

   Production
   Certain of the pharmaceutical products we market in the Asia
Region are manufactured by the Groups European facilities.


                                 50
<PAGE>

The following table sets forth, as of December 31, 2000, the location
of, and dosage forms produced by, our three production facilities in
the Asia Region.

<TABLE>
<CAPTION>
<S>                     <C>
Dosage Form             Location

Solids................. Jakarta, Indonesia

Semisolids............. Jakarta, Indonesia
                        Ansung, South Korea

Liquids................ Guangzhou, China
                        Jakarta, Indonesia
                        Ansung, South Korea
</TABLE>

   We also license the production of certain of our products in
Pakistan, India and Egypt for sale in the local markets.

   Capital Expenditures
   Capital expenditures for the Asia Region were  E 7 million in
1998, E 4 million in 1999 and E 4 million in 2000. Capital expenditures are
expected to total E 4 million in 2001.

   Expenditures were mainly made for upgrading of production
facilities and the modernization of information technology.


Other Activities

   The Other Activities segment is comprised of activities that are
not of sufficient significance to require independent segment
reporting. The Other Activities segment primarily consists of
Pharmaceutical Chemicals. The Other Activities segment accounted for
approximately 3% of the Groups net sales in 2000.


   The following table sets forth the net sales by business of the
Other Activities segment for the years ended December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>

                                                      Year ended December 31,
                                                       2000    1999    1998
                                                           (E millions)
Net Sales by Sub-Segment:
<S>                                                    <C>     <C>     <C>
Pharmaceutical Chemicals.........................      116      97      84
Other ...........................................       35      46      44
                                                      -----   -----   -----
Total ...........................................      151     143     128
                                                      -----   -----   -----
                                                      -----   -----   -----
</TABLE>

   Pharmaceutical Chemicals is a small sales- and profit-oriented
business unit with headquarters in Berlin, Germany. Pharmaceutical
Chemicals engages in the sale to third parties of intermediates and
active pharmaceutical ingredients produced by the Group worldwide,
particularly the Groups manufacturing facilities in Bergkamen,
Germany, and Orizaba, Mexico. Pharmaceutical Chemicals also is active
in tailor-made chemistry. The pharmaceutical chemicals marketed
include estrogens, progestogens, androgens, corticosteroids,
intermediates and tailor- made chemistry compounds. Sales to
customers in Europe and the United States accounted for approximately
59% and 23%, respectively, of Pharmaceutical Chemicals net sales
during 2000.


                                 51
<PAGE>

COMPETITION


   We operate in a competitive global market. We encounter
competition in all of our geographical markets from large national
and international competitors. Important competitive factors include:

  .  product characteristics and dependability (including safety,
     efficacy, range of indications, dosage form and convenience).

  .  product price and demonstrated cost-effectiveness.

  .  customer training and support.

  .  sales force size and expertise.

  .  advertising and promotion.

  .  production and manufacturing costs.

  .  research and development of new products and processes.

Fertility Control and Hormone Therapy
   We primarily compete in special markets in the areas of hormonal
contraception and hormone replacement therapy for menopausal women.
Our principal competitors in these markets are the Wyeth Ayerst
division of American Home Products, Inc., Johnson & Johnsons Ortho
division, Novartis International AG and the Organon division of Akzo
Nobel N.V. The hormonal contraception market is generally
concentrated among the top manufacturers while the hormone
replacement market is generally more diversified, particularly in
Europe.

   The key competitive factors include price, product safety and
product characteristics including, for advanced oral contraceptives,
additional therapeutic benefits such as acne control, lack of weight
gain and general well being. In the hormone replacement therapy area,
the availability of a comprehensive product portfolio for the various
therapeutic methods (sequential and continuous) and alternative
routes of application (oral, transdermal and IUS) is also a key
competitive factor.

   We expect that the hormonal contraception market may experience
an extension into later age groups as the market acceptance of
hormonal/intrauterine systems increases in the future. The potential
market for hormone replacement therapy products will grow as the
demographic shift to a higher proportion of older age groups
continues. Demand for hormone replacement therapy products should
increase as older age groups suffer not only from menopausal symptoms
but also from an accelerated loss of bone mass, which can be
prevented with sex hormones such as estradiol, which is used to treat
menopausal symptoms.

Therapeutics
   The global markets for our therapeutics products are highly
competitive and include large as well as smaller niche competitors.
Our major competitors include Biogen, Inc., Serono International S.A.
and Aventis S.A./Teva Pharmaceutical Industries Limited in the field
of multiple sclerosis therapeutics; American Home Products, Inc. and
Pfizer Inc. in the area of cardiovascular products; and F. Hoffmann-
La Roche Ltd. and its subsidiary Genentech, Inc., Bristol-Myers
Squibb Company, AstraZeneca PLC and Schering-Plough Corporation in oncology.

   The key competitive factors include product efficacy and safety,
research and development- driven product and process innovations,
price and cost effectiveness, sales force size and expertise, and
product advertising and promotion. Price has become an increasingly
important factor, particularly in Latin America, Asia and, more
recently, Europe.


                                 52
<PAGE>

   Our therapeutic product, Betaferon(R), continues to face strong
competition from Biogen, Inc. and Aventis S.A./Teva Pharmaceutical
Industries Limited in the United States and Biogen, Inc., Aventis
S.A./Teva Pharmaceutical Industries Limited and Serono International
S.A. in Europe. The competitive position of Betaferon(R) is enhanced
because Betaferon(R) is currently the only product approved for the
treatment of relapsing remitting MS as well as secondary progressive
MS in Europe, Australia and Canada.

   Our anti-arrhythmic drug Betapace(R) has encountered increased
competition in the United States from generic substitutes in 2000
due to loss of orphan drug exclusivity.


Diagnostics and Radiopharmaceuticals

   We compete globally in the highly competitive markets for X-ray,
MRI and ultrasound contrast media products, radiopharmaceuticals and
contrast medium application technologies.

   The key competitive factors include product price, product
efficacy and safety, ease of use, distribution and marketing,
customer service and the availability of patent protection.
Additional competitive factors relating to the development of new
contrast media include technological innovation and the ability to
introduce new products to the market before competitors. We believe
that our distribution of our contrast media products through our own
global distribution network distinguishes us from our competitors.

   As in the broader health care industry, the contrast media market
continues to be strongly impacted by cost containment measures.
Pricing pressures have led to decreasing prices in the mature X-ray
contrast media market and, to a lesser extent, in the extracellular
MRI contrast media market. Pricing pressure has been the most severe
in the United States, where manufacturers compete on price in order
to obtain contracts with large customer buying groups. We expect this
trend of price reductions to continue in the United States and Europe
and, to a lesser extent, in Japan.

   Our principal competitors in the X-ray and MRI contrast media
field include Nycomed- Amersham plc, Bracco S.p.A., Mallinckrodt Inc.
and, in Japan, Daiichi Pharmaceutical Co., Ltd. Other significant
competitors include Guerbet S.A. in Europe, Latin America and Asia
(other than Japan), Byk Gulden in Europe and Eisai Co. Ltd. and
Yamanouchi Pharmaceutical Co., Ltd. in Japan. Generic X-ray and MRI
contrast agents have not had a significant impact on our contrast
media sales. However, we consider generic X-ray and MRI extracellular
agents a potential risk to sales and market share in the future.

   The market for ultrasound contrast media products is in the early
stages of development. We were the first to market with an ultrasound
contrast agent for whole-body use in Europe, Japan, the rest of Asia,
Latin America and Canada. In Europe, we compete with Mallinckrodt
Inc. in the ultrasound contrast agent market.

   The radiopharmaceuticals market is dominated by a small number of
companies. As we expand our business in this field, our main
competitors are expected to include Nycomed- Amersham plc, the DuPont
Pharmaceuticals Company and Mallinckrodt Inc. in the United States
and Europe and Nihon Medi-Physics Co., Ltd. and Daiichi Radioisotope
Lab., Ltd. in Japan.

   In the market for contrast media application technologies,
Medrads main competitors are the Liebel-Flarsheim unit of
Mallinckrodt Inc., particularly in the United States and Europe, and
Nemoto Kyorindo Co., Ltd., particularly in Japan.



                                 53

<PAGE>


Dermatology

   We primarily compete with marketers of products for the treatment
of eczema, acne, psoriasis, mycoses and hemorrhoids in Europe, Japan
and Latin America. We have only recently entered the United States
dermatology market. Our principal competitors include Johnson &
Johnson, F. Hoffmann-La Roche Ltd., Novartis International AG,
GlaxoSmithKline plc, Schering- Plough Corporation and American Home
Products, Inc.


AVENTIS CROPSCIENCE


Overview
   Aventis CropScience S.A. is one of the worlds leading crop
protection and crop production businesses. Aventis CropScience was
formed in connection with the December 1999 acquisition of Hoechst AG
by Rhone-Poulenc S.A. Rhone-Poulenc subsequently changed its name to
Aventis S.A. In connection with this transaction, the operations of
Hoechst Schering AgrEvo GmbH were consolidated with the crop
protection and crop production operations of Rhone-Poulenc to form
Aventis CropScience S.A., which is presently a 76%-owned consolidated
subsidiary of Aventis. Schering AG holds the remaining 24% ownership
interest in Aventis CropScience. AgrEvo, which was initially formed
in 1994, was a joint venture between Hoechst and Schering in which
Hoechst held a 60% ownership interest and Schering held a 40%
ownership interest. During 1999, Aventis CropScience had pro forma
net sales of E 4,060 million and net sales of E 4,034 million in
2000. For a discussion of Aventis CropSciences results of operations
and Schering AGs funding of the Aventis CropScience joint venture,
see "Item 5-Operating and Financial Review and Prospects-Aventis
CropScience".

   Aventis CropScience has its executive offices in Lyon, France,
and research, production and formulation facilities primarily in
Germany, the United States, Canada, France, the Netherlands and the
Great Britain. As of December 31, 1999, Aventis CropScience had
approximately 15,000 employees worldwide. In June 2000, Aventis
CropScience reorganized its commercial operations to focus on seven
lead countries (Brazil, China, France, Germany, Japan, Great Britain
and the United States). The organizations in these lead countries
have also taken responsibility for the direction of sales in certain
neighboring countries. The United States was Aventis CropSciences
single largest market during 2000. France, Brazil, Germany, Japan,
Great Britain and China followed in terms of significance as measured
by sales.


Products and Research and Development
   Aventis CropSciences business principally involves the
production and sale of crop protection agents, including herbicides,
insecticides and fungicides, genetically improved seeds (including
herbicide-tolerant and insect-resistant), and products for domestic,
public and commercial pest control. Aventis CropSciences primary
customers include major crop science product wholesalers, smaller
commercial distributors, and large corporate farms.

   Aventis CropScience expects to focus its research and development
efforts on projects in the chemical products and biotechnology
products areas. Aventis CropSciences research and development
projects may not survive the development process and may not obtain
required regulatory approvals. Even if a development project is
approved, it may not be profitable.
See "-Regulation of CropScience Products".


                                 54

<PAGE>


Competition
   The principal competitors of Aventis CropScience include Syngenta
AG, BASF AG, Monsanto Company, Inc., E.I. du Pont de Nemours and
Company, Bayer AG and Dow AgroSciences LLC.

   The crop science industry has consolidated substantially in
recent years as competitors seek to strengthen their market position
and respond to evolving market conditions. For example, Novartis S.A.
and AstraZeneca PLC combined their agro businesses to form Syngenta
and BASF AG acquired the American Cynamid Co. division of American
Home Products, Inc. Competitive pricing and alternative products
offered by Aventis CropSciences competitors can limit or reduce the
market penetration and profitability of existing or commercially
viable new products.


Regulation of Crop Science Products

   Aventis CropScience is subject to various laws and regulations
concerning product safety in many of the countries in which it
manufactures and sells its products. In most countries, crop science
products (including genetically-modified plants) must obtain
government regulatory approval prior to marketing. It generally takes
five to seven years from discovery of a new crop science product
until the dossier is submitted to the appropriate regulatory agency
for product approval.

   Public concerns and debate in Europe, particularly in Germany,
France and Great Britain, about genetically modified agricultural
products have delayed and may continue to delay or prevent regulatory
approval of certain of Aventis CropSciences current and future
products and may also have a negative impact on market acceptance of
such products. In the past, Aventis CropScience (or its predecessors)
has delayed the launch of certain products due to import restrictions
on genetically modified products in parts of Europe.


Description of Aventis CropScience Partners Arrangements

   We entered into a Partners Agreement with Hoechst AG and Aventis
S.A. on December 29, 1999, pursuant to which Aventis agreed to
contribute all of its shares in Rhone-Poulenc Agro S.A., Hoechst
agreed to contribute all of its shares in AgrEvo GmbH, and we agreed
to contribute all of our shares in AgrEvo GmbH to Aventis CropScience
S.A. We hold a 24% ownership interest in Aventis CropScience and will
be able to participate in any capital increases of Aventis
CropScience to maintain our level of ownership. We also have a right
entitling us to put all of our shares in Aventis CropScience to
Aventis if our shareholdings fall below 15% as a result of dilution.
We are at all times entitled to at least one seat on the Supervisory
Board of Aventis CropScience. We have no right to any representation
on the Management Board of Aventis CropScience, however, a change in
the articles of association of Aventis CropScience or a change of
corporate form requires our consent which we cannot withhold
unreasonably.

   The Partners Agreement provides for the establishment of a
research cooperation between us and Aventis CropScience which is to
provide for a mutual exchange of compounds, libraries and screening
possibilities (collectively defined as Compounds). We grant Aventis
CropScience the right to test our Compounds for a period of fifteen
months. After this period expires, Aventis CropScience can exercise
its rights for an exclusive license for our Compounds in the fields
of business of Aventis CropScience. Aventis has the right to test the
Compounds of Aventis CropScience for nine months. After this period
expires, Aventis can exercise its rights for an exclusive license for
the Aventis CropScience Compounds. With regard to Aventis CropScience
Compounds for which Aventis does not exercise this right, Aventis
CropScience has to grant us the right to test these Compounds for
fifteen months. After this period expires, we can exercise our rights
for an exclusive license for Aventis CropScience Compounds.


                                 55

<PAGE>


Until December 31, 2003, no party is entitled to transfer its shares
in Aventis CropScience to a third party or pledge its shares. After
December 31, 2003, when a party to the agreement wants to transfer
its shares in Aventis CropScience to a third party, the other party
has a preemptive right for all such shares at the same price and on
terms and conditions identical to those offered to the third party.
Indirect transfers of shares of Aventis CropScience, other than
transfers to a wholly owned affiliate of a party, require prior
written consent of the other party. If, absent an agreement by us,
shares in Aventis CropScience become held by an entity which is not a
wholly owned affiliate of Aventis, we have the right to put all of
our shares in Aventis CropScience to Aventis at a price equal to the
fair market value. In case of a change of control of Aventis that
adversely affects our interests or the interests of Aventis
CropScience, we have a right entitling us to put all of our shares in
Aventis CropScience to Aventis at a price equal to the fair market
value. In case of a change of control of the Schering AG Group that
adversely affects the interests of Aventis or Aventis CropScience,
Aventis has a call right entitling it to acquire from us all of our
shares in Aventis CropScience at a price equal to the fair market
value.

   After December 31, 2003, each party to the Partners Agreement is
entitled to sell all of its shares in Aventis CropScience in a public
offering. The other parties have a call right to buy all of the
shares held by the party proposing the offering at a price equal to
the fair market value. After January 1, 2007, we have a right

entitling us to put all of our shares in Aventis CropScience to
Aventis and Aventis has a call right entitling it to acquire from us
all of our shares in Aventis CropScience at a price equal to the fair
market value.

   Aventis has publicly stated that it is considering selling part
or all of its shares in Aventis CropScience by way of an initial
public offering or otherwise. In connection with this, we are
presently discussing with Aventis certain possible amendments to the
Partners Agreement.


PATENTS AND OTHER INTELLECTUAL PROPERTY

   We strive to protect our investment in research, development,
manufacturing and marketing through the use of patents, trademarks
and copyrights.

   We believe that our patents are important to our business, but no
one patent (or group of related patents) currently is of material
importance in relation to our business as a whole. Patent protection
for new active ingredients of pharmaceuticals, pharmaceutical
formulations and combinations, manufacturing processes, intermediates
useful in the manufacture of products and new uses of products is
available in our major markets. Patents for individual products
extend for varying periods according to the date a patent application
is filed or a patent is granted and the legal term of patents in the
jurisdiction where the patent is obtained. The actual protection
provided by a patent, which can vary significantly from country to
country, depends upon:

  .  the type of granted claim.

  .  the scope of coverage of the claim.

  .  the availability of legal remedies in the country for
     enforcing a patent.

   Our policy is to develop patent portfolios for our research and
development projects in order to obtain market exclusivity for our
products in our major markets. We also attempt to obtain patents on
drug targets such as specific DNA-sequences encoding for proteins and
various uses of such subject matter in drug research.


                                 56

<PAGE>


   Although the expiration of a patent for an active ingredient
normally results in the loss of market exclusivity, we may continue
to derive commercial benefits from:

  .  later-granted patents on processes and intermediates related
     to the most economical method of manufacture of the active
     ingredient of such product.

  .  patents relating to the use of such active ingredient.

  .  patents relating to novel compositions and formulations.


  .  in certain markets (including the United States), market
     exclusivity that may be available under applicable law.

   Such commercial benefits strongly depend on the actual scope of
protection.

   In addition, the effect that the expiration of a patent has on
the market position of a product can depend on many other factors,
including:

  .  the nature of the market and the position of the product
     covered by the patent in the market.

  .  the growth of the market.

  .  the complexities and economics of the manufacture of the
     product covered by the patent.

  .  the requirements of new drug laws and regulations relating to
     the introduction of generic drugs.

   The European Union, the United States, Japan and certain other
countries provide for the extension or restoration of patent terms or
supplementary protection certificates to compensate for patent term
loss due to the regulatory review process and the substantial
investment made for product research and development and regulatory
approval. Our policy is to obtain these extensions where possible.

   In the United States, new chemical entities approved by the FDA
receive a period of five years exclusivity from the date of approval
of the New Drug Application (NDA), during which time an "abbreviated
NDA" or "paper NDA" may not be submitted to the FDA. Similarly, in
the case of non- new chemical entities, no abbreviated NDA or paper
NDA may become effective before three years from the time of NDA
approval if the application included new data of clinical
investigations conducted or sponsored by the applicant. In addition,
a pediatric exclusivity provision that provides for an additional six
months of market exclusivity in the United States for indications of
new or currently marketed drugs may be available if certain agreed
upon pediatric studies are completed by the applicant.

   The Orphan Drug Act in the United States is intended to provide
incentives to manufacturers to develop and market drugs for rare

diseases or conditions affecting fewer than 200,000 persons in the
United States at the time of application for orphan drug designation.
The first applicant who has obtained designation of a drug for a
particular use as an orphan drug and then obtains approval of a
marketing application for such drug for a particular use is entitled
to marketing exclusivity for a period of seven years, subject to
certain limitations. However, a drug that is considered by the FDA to
be different from a particular orphan drug is not barred from sale in
the United States during such seven-year exclusive marketing period
even if it receives marketing approval for the same product claim.


                                 57

<PAGE>


The European Union also implemented an incentive program for the
development of drugs for rare diseases which became effective in
January 2000. Under the rules, a drug will be designated as an orphan
medicinal product if its sponsor establishes at the time of
application that the drug is intended for the diagnosis, prevention
or treatment of a life-threatening or chronically debilitating
condition affecting not more than five in 10,000 persons in the
European Community, or that without incentives, it is unlikely that
the marketing of the drug would generate sufficient return to
generate the necessary investment. The sponsor must also establish
that there is no existing satisfactory method for the diagnosis,
prevention or treatment of the condition in the European Community. A
sponsor who receives designation of a drug as an orphan drug is
generally entitled to marketing exclusivity for a period of ten years
(which period may be reduced to six years if the criteria for orphan
drug status are no longer met). A marketing authorization may be
granted for the same therapeutic indication to a similar drug within
the exclusivity period if the holder of the authorization for the
original orphan drug is unable to supply sufficient quantities of the
drug or if an applicant can establish that its drug is safer, more
effective or otherwise clinically superior to the original orphan
drug.

   Certain of our key products are no longer protected by patents
(or other regulatory exclusivity measures) in our major markets, or
protection for these products will expire in the near future. Many of
our fertility control products have no patent protection remaining.
In addition, the X-ray contrast medium Iopamiron(R), which we sell
under license from Bracco S.p.A., has no patent protection remaining.

   The following table sets forth the patent expiration dates of
certain of our top selling products in certain of our major markets:


                                 58
<PAGE>


<TABLE>
<CAPTION>
                                                              Expiration Date
                                                                      Great   United
Product                                    Germany  France   Italy    Britain States     Japan
<S>                                         <C>      <C>      <C>      <C>      <C>       <C>
   Betaferon(R) (Betaseron(R))

Product..................................   2008*    2008*    2008*    2008*    2007*     2003****
   Magnevist(R)
Product..................................   2003*    2005*    2010*    2003*    2011      2002
Formulation..............................   2007     2007     2007     2007     2009      2007
Method of Use............................     --       --       --       --     2013        --
   Ultravist(R)
Product..................................     --     2005*    2012*      --     2005*     2005*
   Diane(R)-35
Process..................................   2004     2004     2004     2004     2004***   2004
   Femovan(R)
Product..................................     --     2003     2007*    2001*      --        --
Process..................................   2006     2006     2006     2006     2006***   2006
   Androcur(R)
Process..................................   2004     2004     2004     2004     2004***   2004
   Fludara(R)
Product..................................     --       --       --       --     2003        --
Process..................................   2017**   2017**  2017**    2017**   2018      2017**
   Meliane(R)
Product..................................     --       --       --     2001       --        --
Process..................................   2006     2006     2006     2006     2006***   2006
   Mirena(R)
Device ..................................     --       --       --       --     2004        --
Process..................................   2001     2001     2001     2001       --        --
   Climen(R)
Process..................................   2004     2004     2004     2004     2004***   2004
   Milvane(R)
Product..................................   2004     2004     2004     2004     2004***   2004
Process..................................   2006     2006     2006     2006     2006***   2006
</TABLE>

-----
*    Patent term extension
**   Patent pending
***  Product not sold in the United States
**** Request for patent term extension until 2008 pending


   We monitor the patent applications and related activities of our
competitors and other third parties. In cases where we believe that
patents granted do not meet the standards of patentability and such
patents may potentially have an adverse impact on our current or
future business, we oppose the grant of such patents in countries
where such opposition is feasible, particularly through oppositions
in the European Patent Office, and nullity proceedings in front of
various national courts. Similarly, third parties may commence
proceedings to oppose or nullify the grant of patents to the Group.
These proceedings may result in the revocation of any of our existing
or future patents.

   We routinely monitor the activities of our competitors and other
third parties with respect to their use of intellectual property. In
cases where we believe our patents have been infringed, we generally
file patent infringement suits with the appropriate courts. We may
not be successful in these patent infringement suits. Likewise, we
may be exposed to litigation by competitors or other third parties
that consider their patents to be infringed by our activities. Patent
litigation is often


                                 59

<PAGE>

time-consuming and expensive. If we do not prevail in patent
litigation, we may have to pay substantial damages or royalties to a
competitor or other third party. We may also be enjoined from selling
a product in one or more markets or from conducting research and
development activities in a specific area. For a discussion of
certain patent-related litigation in which we are involved, see "Item
8-Financial Information-Legal Proceedings".

   Worldwide, all of our major products are sold under trademarks
that we consider in the aggregate to be important to the Group.
Trademark protection varies widely throughout the world. In some
countries, trademark protection continues as long as the trademark is
used. Other countries require registration of trademarks.
Registrations are generally for fixed but renewable terms.

   Like other major pharmaceutical companies, we grant licenses
under patents and know-how developed by us and we manufacture and
sell products and use technology and know-how under licenses from
others.

   Schering AG and Schering-Plough Corporation have entered into an
agreement relating to their respective use of the word "Schering".
Under this agreement, subject to certain limited exceptions, Schering
AG may not use the Schering name for commercial purposes relating to
its healthcare business (including pharmaceutical products) in the
United States and Canada where it operates its pharmaceutical
business under the Berlex trade name, while in the rest of the world
our use of the Schering name is unrestricted.


SUPPLIES AND RAW MATERIALS

   We purchase raw materials and supplies on a worldwide basis from
numerous suppliers. In those cases where only a single supplier is
available, we seek to accumulate and maintain a strategic reserve
inventory of raw materials and supplies, qualify new suppliers, and
develop production processes in our own facilities. We undertake to
secure strategic materials through medium-term and long-term
contracts. We have not experienced difficulties in obtaining
sufficient amounts of raw materials and supplies in recent years and
we anticipate that we will be able to do so in the future. The price
of raw materials and supplies may vary substantially in the future.

   The Groups European facilities produce a substantial portion of
the active ingredients used for the production of our products in the
Europe, United States, Latin America/Canada, Japan and Asia Regions.
In addition, a number of the active pharmaceutical ingredients of our
top-selling products, including Betaferon(R) (Betaseron(R)), Iopamiron(R)
and Betapace(R), are manufactured by third parties.


REGULATION

   Like other pharmaceutical companies, we are subject to
comprehensive government controls on the research, clinical and non-
clinical development, manufacture, labeling, advertising, safety
reporting, distribution and marketing of our products in all
countries of the world. These controls include various and detailed
government inspections. We are required to obtain regulatory approval
for pharmaceutical products and medical devices before we can market
the products in a particular country, according to the applicable
national regulations. These approvals must be maintained in order to
continue marketing the product. We are in material compliance with
applicable governmental regulations in the jurisdictions in which we
operate.

   For the registration of a pharmaceutical product, evidence
establishing the quality, safety and efficacy of the product must be
submitted together with information about its identification and the
texts for physician and patient information. The evidence of quality
is included in the


                                 60

<PAGE>


chemical-pharmaceutical documentation and the evidence of safety
and efficacy in the pharmacological-toxicological and clinical
documentation, all of which is gathered into a registration dossier.
A pharmaceutical product generally must be registered in each country
in which it will be sold.

   The submission of an application to a regulatory authority does
not guarantee that approval to market the product will be granted.
Although the above-mentioned criteria for the registration of
therapeutic and diagnostic products are similar in all countries, the
formal structure of the necessary documentation for registration and
the attitude of the regulatory authorities to the review of such
documents vary significantly from country to country. It is possible
that a pharmaceutical product can be registered and marketed in one
country and that the registration authority in a neighboring country
prior to registration will request additional documents from the
pharmaceutical company or even reject the product. The registration
process takes between six months and several years depending on the
nature of the product, the quality of the data produced, the country-
specific legislation and the registration authority. Innovative
products of particular therapeutic interest (e.g., treatment of life
threatening or disabling diseases) may be processed on an accelerated
basis in many countries. During the past years, intensive efforts
have been made between the European Union, the United States and
Japan to harmonize registration requirements in order to achieve
shorter development and registration times for pharmaceutical
products. The FDA, the Japanese Ministry of Health and Welfare
(Koseisho) and the EU authorities have successfully shortened review
times and adhere to preset timelines thereby approaching approval
times in the range of
12 months. In the countries of the European Union, product
registrations are being obtained through mutual recognition or
central approval processes.

   The pharmaceutical development and registration process is
typically intensive, lengthy and rigorous. Once a new compound has
been identified in the laboratory as a potential candidate drug
through a screening process, it undergoes broad pre-clinical testing.
During pre-clinical testing, test tube and animal studies are
conducted to show biological activity of the compound against the
targeted disease, and on (other) body systems to evaluate the whole
efficacy and safety range. To begin clinical trials (i.e., tests of
the drug in humans), in the United States an investigational new drug
application (IND) is filed with the FDA; the IND becomes effective if
the FDA does not disapprove it within 30 days. In other countries
there are varying but similar requirements before beginning clinical
trials. Clinical testing is usually done in three phases which can be
followed by phase IV after approval. The size and the duration of
clinical trials depend very much on the targeted disease. For rare
diseases, exposure of a few hundred or less patients can be
sufficient. The duration of single clinical trials can take up to
three or more years. In Phase I of clinical trials, the drug is
tested in a small group of normal, healthy volunteers. The tests
study the drugs safety profile, including the safe dosage range.
Sometimes the studies also determine how a drug is absorbed,
distributed, metabolized and excreted, and the duration of its
action. In Phase II of clinical trials, the drug is tested in
controlled studies of approximately 30 to 300 volunteer patients
(i.e., persons with the targeted disease) to assess the drugs
effectiveness and safety, and establish a proper dose. In Phase III
of clinical trials, the drug is further tested on several hundred to
several thousand patients in clinics and hospitals. Physicians
monitor patients closely to determine efficacy and identify adverse
reactions. To avoid false judgments on results, these studies are
blinded so that neither the patient nor the treating physician knows
who receives the study drug or a placebo, whenever possible. Studies
are unblinded only after completion of the trial.

   Following the completion of all three phases of clinical trials,
all of the data is analyzed and a new drug application (NDA) for
drugs or a biologic license application (BLA) for biologics is filed
with the FDA (or its equivalent in other countries) if the data
successfully demonstrate safety and efficacy. In the United States,
the FDA is required to review and make a recommendation for approval
of new drugs within 12 months. For drugs designated as "priority"
drugs, the review time is six months. The


                                 61

<PAGE>


NDA or BLA (or its equivalent) must contain all the scientific
information that has been gathered, and can run to several hundred
volumes.

   Once the FDA (or the respective agency in another country)
approves the application, the new pharmaceutical becomes available
for physicians to prescribe. The pharmaceutical company must continue
to submit periodic reports to the agency, including any cases of
adverse reactions and appropriate quality-control records. For some
medications, additional studies (Phase IV) are required to evaluate
long-term effects.

   The duration of trials and the vast amount of data that must be
collected and evaluated makes clinical testing the most time
consuming and expensive part of new drug development. We have
instituted a global system for coordinating this process in order to
increase its speed and reduce costs.

   Marketed products are reviewed continuously for quality, safety
and efficacy. For this, we have established an internal review board.
From time to time, we may elect or be required, upon consultation
with or at the direction of governmental regulators, to take certain
action (e.g. change of product information, recall). In the past such
action was required only rarely and has been limited to individual
products, and the effect on the Group has not been material.

   In addition to the regulations enforced by the FDA (and the
respective government agencies in other countries), we are subject to
laws regarding environmental protection and hazardous substances that
govern our use, handling and disposal of various biological, chemical
and radioactive substances used in, and wastes generated by, our
operations.

   Certain of the products that we market and are developing may be
considered biotechnology products. Ethical, social and legal concerns
about gene therapy, genetic testing and genetic research could also
result in additional regulations restricting or prohibiting the
processes we or our suppliers may use. Various governments have
expressed interest in further regulating biotechnology. More
restrictive regulations or claims that such products are unsafe or
pose a hazard could prevent or delay the continued sale or
commercialization of such products.

   In addition to the normal competitive forces that affect the
level of pharmaceuticals prices,
a further constraint exists in the form of governmental intervention
such as price or profit controls, budgets or patient contribution
requirements in most countries in which the Group sells its products.
These controls arise either by law or because the government or other
health care providers in a particular jurisdiction are the principal
purchasers of the product or reimburse purchasers of the product for
all or a portion of the cost of the product. Price control mechanisms
operate differently from jurisdiction to jurisdiction and can result
in large price differentials between markets. These differentials may
be increased by currency fluctuations and the intensity of
competition in specific markets, since not all drugs are authorized
in every market.

   We cannot predict with certainty what future effects various
pharmaceutical cost control efforts will have on our business. These
efforts could have significant adverse consequences for the
pharmaceutical industry as a whole and consequently also for the
Group. Increasing budgeting and price controls, the inclusion of
patent protected drugs in a fixed price system and lists for the
rational use of drugs as well as legislation permitting or requiring
a dispensing pharmacist to substitute another version of the
pharmaceutical product for the one prescribed may occur in the
future.


                                 62

<PAGE>


ORGANIZATIONAL STRUCTURE

   Schering AG is the parent company of the Schering AG Group. The
Group is comprised of over 120 subsidiaries worldwide.

   The following table sets forth, by geographic segment, as of
December 31, 2000, the name, jurisdiction of incorporation, and
ownership interest and voting interest held in, of Schering AGs
principal operating subsidiaries.


<TABLE>
<CAPTION>
Europe Region:
                                                                        Percentage of
                                                                        Ownership and
Company                                                   Jurisdiction Voting Interest
<S>                                                                <C>             <C>
Asche AG..............................................         Germany           100.0
Jenapharm GmbH & Co. KG...............................         Germany            74.9
Schering Deutschland GmbH.............................         Germany           100.0
N.V. Schering S.A.....................................         Belgium           100.0
Leiras Oy.............................................         Finland           100.0
CIS bio international S.A.............................          France            60.0
Schering S.A..........................................          France            99.9
Schering Health Care Ltd..............................   Great Britain           100.0
Schering S.p.A........................................           Italy           100.0
Schering Nederland B.V................................     Netherlands           100.0
Schering Wien Ges. m.b.H..............................         Austria           100.0
Schering Lusitana Lda.................................        Portugal           100.0
Schering (Schweiz) AG.................................     Switzerland           100.0
Schering Espana S.A...................................           Spain           100.0
Schering Alman Ilac ve Ecza Ticaret Ltd...............          Turkey           100.0
Schering (Pty.) Ltd...................................    South Africa           100.0
Schering Pty. Ltd.....................................       Australia           100.0


United States Region:
                                                                        Percentage of
                                                          Jurisdiction  Ownership and
Company                                                                Voting Interest
Schering Berlin Inc...................................   United States           100.0
Berlex Laboratories, Inc..............................   United States           100.0
Diatide, Inc..........................................   United States     100.0{(1)}
Medrad, Inc...........................................   United States           100.0


Japan Region:
                                                                        Percentage of
                                                                        Ownership and
Company                                                   Jurisdiction Voting Interest
Nihon Schering K.K....................................           Japan      99.9{(2)}
Mitsui Pharmaceuticals Inc............................           Japan   99.9{(2)(3)}
</TABLE>

-----
(1)  Diatide Inc. was merged in Berlex Laboratories, Inc. as of February 1, 2001
(2)  Voting interest is 100.0%
(3)  Mitsui Pharmaceuticals Inc. was merged in Nihon Schering K.K. as
     of January 1, 2001


                                 63

<PAGE>


<TABLE>
<CAPTION>
Latin America/Canada Region:
                                                                        Percentage of
                                                                        Ownership and
Company                                                   Jurisdiction Voting Interest
<S>                                                                <C>             <C>
Berlex Canada Inc....................................           Canada           100.0
Schering Argentina S.A.I.C...........................        Argentina           100.0
Schering do Brasil Ltda..............................           Brazil           100.0
Schering Colombiana S.A..............................         Colombia           100.0
Schering Mexicana S.A................................           Mexico           100.0


Asia Region:
                                                                        Percentage of
                                                                        Ownership and
Company                                                   Jurisdiction
 Voting Interest
Schering Pharmaceutical Ltd..........................            China            97.0
P.T. Schering Indonesia..............................        Indonesia            76.8
Schering Korea Ltd...................................      South Korea           100.0
Schering Taiwan Ltd..................................           Taiwan           100.0
Schering Bangkok Ltd.................................         Thailand           100.0
</TABLE>


PROPERTY, PLANTS AND EQUIPMENT

   Schering AGs principal executive offices are located in Berlin,
Germany.

   We produce active pharmaceutical ingredients and intermediate
products at our primary facility in Bergkamen, Germany, and several
smaller facilities in Germany, Finland, Spain and Mexico. In addition
to these production operations, we operate production facilities for

the formulation and packaging of pharmaceutical products in 17
countries. We also own or lease other properties used for
administration, research and development, marketing and sales and
warehouses.

   We believe that our manufacturing and production facilities have
capacities adequate for our current and projected needs.

   For information regarding our capital expenditure program, see
"Group Organization-Group Segments-Europe Region-Capital
Expenditures", "-United States Region-Capital Expenditures",
"-Latin America/Canada Region-Capital Expenditures", "-Japan Region-
Capital Expenditures" and
"-Asia Region-Capital Expenditures", and "Item 5-Operating and
Financial Review and Prospects- Liquidity and Capital Resources-
Capital Expenditures".

   The following table sets forth, by segment, the location, size
and use of our principal production, distribution and other
facilities. These facilities are owned unless otherwise indicated.
Administration offices comprise functions such as finance, marketing,
sales and medical departments.


                                 64

<PAGE>


<TABLE>
<CAPTION>
                                      Size
                                     square
Location                         meters){(1)} Principal Uses

Europe Region:
<S>                                        <C> <C>
Berlin-Wedding, Germany{(2)}....      184,000 Production, research and development and offices
Berlin-Charlottenburg,
Germany{(2)}.....................       87,000 Production
Bergkamen, Germany...............      958,000 Production
Hamburg, Germany.................        8,000 Production and offices
Jena, Germany....................       16,500 Production, research and development and offices
Weimar, Germany..................       63,800 Production and warehousing
Saclay, France...................       63,000 Production and research and development
Marcoule, France.................       46,000 Production
Lys-Lez-Lannoy, France{} (3).....       60,000 Production, warehousing and offices
Madrid, Spain....................       13,000 Offices
Alcala de Henares, Spain.........       30,000 Production
Milan, Italy.....................       39,000 Production and offices
Turku, Finland {(4)}.............      155,000 Production and research and development
Tammisaari, Finland{(5)}.........       36,000 Production
Vienna, Austria..................       24,000 Production and offices

United States Region:
Montville, New Jersey............       20,000 Development and offices
Wayne, New Jersey................       23,000 Production, development, warehousing and offices
Richmond, California.............       25,000 Research and development, warehousing and offices
Indianola, Pennsylvania..........       26,000 Production, research and development, warehousing and
                                               offices
Londonderry, New Hampshire{(6)}..        2,000 Research and development and offices

Japan Region:
Osaka City, Japan................       26,000 Production, research and development and offices
Mobara City, Chiba, Japan........       39,800 Production, research and development, warehousing and
                                               offices

Latin America/Canada Region:
Orizaba, Veracruz, Mexico........      152,100 Production, development and offices
Bogota, Colombia.................       14,000 Production, warehousing and offices
Sao Paulo, Brazil................       10,700 Production, warehousing and offices
Buenos Aires, Argentina..........       10,200 Production, warehousing and offices

Asia Region:
Ansung, South Korea..............       17,000 Production
Jakarta, Indonesia...............       19,000 Production, warehousing and offices
Guangzhou, China.................       20,000 Production
</TABLE>

-----
(1)  For production facilities, this measure corresponds to the size
     of the land, for administrative and research and development
     facilities to the size of the office space.
(2)  Subject to a mortgage.
(3)  A portion of this facility is subject to a lease expiring in
     2011.
(4)  Subject to a lease expiring in 2006.
(5)  Subject to a lease expiring in 2006.
(6)  Subject to a lease expiring in 2002.


                                 65
<PAGE>


SOCIAL RELATIONS

   We are committed to being a good corporate citizen. An important
part of our commitment is the support we provide to the communities
in which we operate.

   We have joined the foundation established by German industry,
Responsibility, Remembrance and the Future. The foundation is
establishing a compensation fund for former forced laborers from the
World War II era.


ENVIRONMENTAL AND SAFETY MATTERS

   We are subject to extensive regulation regarding environmental,
health and safety matters in the countries where we manufacture and
sell our products. We expect that such regulations will become
increasingly stringent. Changes in applicable laws may require us to
install additional emissions controls, make significant alterations
in our manufacturing processes or to clean up contamination at
facilities where such remediation is not currently required. By
restricting or prohibiting the distribution of our current products,
environmental regulations could also harm our business by forcing us
to increase research and development expenditures. In the normal
course of our business, we are exposed to risks related to possible
releases of hazardous substances into the environment which could
cause personal injuries or property damage and which could require
costly clean-up.

   We have obtained all material environmental permits and
authorizations required for the operation of our facilities and the
distribution of our products. We are in material compliance with
applicable environmental, health and safety laws. An integral part of
operations is the maintenance of high standards of safety, health and
environmental protection and performance. Our internal audit systems
and our participation in our industrys Responsible Care program are
intended to provide continuous improvements in these areas. In
participating in the Responsible Care program, we focus on Product
Stewardship, Occupational Safety, Environmental Protection and
Dialog. We integrate the existing management systems for quality,
safety and environmental protection throughout the Groups
facilities. The integrated management system is based on the
International Standards of ISO 9000, ISO 14001 and Eco Management and
Audit Scheme (EMAS).

   We are responsible for the clean-up of certain sites which have
been contaminated by releases or disposal of hazardous substances
from former operations. In some cases, our clean-up liability is
shared with others who contributed to the contamination. As a result
of our long history of manufacturing operations, there may be other
sites for which we may be responsible for all or a portion of clean-
up costs. However, we believe that we have adequate reserves for our
currently known remediation matters and that such matters will not
have a material adverse effect on our results of operation, liquidity
or consolidated financial position.

   We have spent in 2000 and anticipate that we will continue to
spend in 2001 and following years substantial amounts on
environmental protection and safety measures. Our 1999 and 2000
operation and maintenance costs for safety and environmental
protection measures totaled E 59 million and E 62 million,
respectively. Our 1999 and 2000 capital expenditures for
environmental protection projects and other projects resulting in
environmental benefits totaled E 4 million in each year respectively.
We estimate that our operation and maintenance costs for safety and
environmental measures will be approximately E 61 million for each of
the years 2001 through 2005. We also estimate that capital
expenditures for environment projects and other projects resulting in
environmental benefits will be approximately E 5 million for each of
the years 2001 through 2005.


                                 66

<PAGE>


Item 5.  Operating and Financial Review and Prospects

   You should read the following operating and financial review of our
results of operations and
financial condition together with our Consolidated Financial
Statements included elsewhere in this annual report.


INTRODUCTION

Accounting Policies
   We prepared our Consolidated Financial Statements in accordance
with the International Accounting Standards (IAS) of the
International Accounting Standards Committee. For periods ending on
or prior to December 31, 1998, the Consolidated Financial Statements
also were in accordance with the German Commercial Code
(Handelsgesetzbuch). Differences between IAS and the German
Commercial Code were not material for periods ending on or prior to
December 31, 1998. Following a revision to the German Commercial Code
in 1998 to facilitate capital raising by German companies in the
international capital markets (Kapitalaufnahme-Erleichterungsgesetz),
we were permitted to prepare our Consolidated Financial Statements
solely in accordance with IAS, and no longer required to follow the

German Commercial Code. We elected to do so commencing in fiscal
1999. IAS differ in certain material respects from United States
Generally Accepted Accounting Principles. You can read about some of
the principal differences in note 36 to our Consolidated Financial
Statements. Note 36 to our Consolidated Financial Statements also
provides a reconciliation of our Consolidated Financial Statements to
United States Generally Accepted Accounting Principles.


Currency of Presentation

   Effective January 1, 1999, Germany and 10 other member states of
the European Union introduced the euro as their common currency. The
euro replaced the currencies of the participating member states. The
national currencies are only denominations of the euro with fixed
exchange rates to the euro. The euro-as its national denomination
like the Deutsche Mark-is a fully convertible currency. We prepared
our Consolidated Financial Statements for periods ending on or prior
to December 31, 1998, in Deutsche Mark. We restated these
Consolidated Financial Statements from Deutsche Mark to euro using
the official fixed conversion rate for January 1, 1999, of DM 1.95583
per E 1.00. Accordingly, our Consolidated Financial Statements for
these periods translated into euro depict the same trends that would
have been presented if our Consolidated Financial Statements were
presented in Deutsche Mark. However, our financial statements for
these periods may not be comparable to the Consolidated Financial
Statements of other companies which are presented in euro but
translated from a currency other than the Deutsche Mark. For periods
ending after December 31, 1998, we prepared our Consolidated
Financial Statements in euro directly, rather than restating them
from Deutsche Mark to euro.


                                 67

<PAGE>


Segment Reporting
   The segment information reported in note 32 to our Consolidated
Financial Statements is presented in accordance with IAS 14
(revised). As required by IAS 14 (revised), our primary basis of
segment reporting is geographic, which reflects the management
structure of our sales organization, our system of internal financial
reporting and what we believe to be the predominant source and nature
of risks and returns of our business. Our segment reporting is
comprised of five geographic segments (Europe Region, United States
Region, Japan Region, Latin America/Canada Region, Asia Region).
Other Activities (primarily our pharmaceutical chemicals business)
are managed and reported on a worldwide basis and are therefore
presented as a separate segment.


RESULTS OF OPERATIONS

Introduction

   The following table sets forth the net sales, net sales expressed
as a percentage of total net sales, and percentage change in net
sales from the prior year, the segment performance, segment
performance expressed as a percentage of total segment performance
and percentage change in segment performance from the prior year, and
the segment result, segment result expressed as a percentage of total
segment result and percentage change in segment result from the prior
year, for each of the Groups segments for the three years ended
December 31, 2000. As discussed in note 32 to our Consolidated
Financial Statements:

  .  Segment performance is an internal financial reporting
     measurement utilized by our management. Transfers from our
     centralized production facilities in Europe are charged to
     segments at standard production cost. Research and development
     expenses are not included in segment performance because
     research and development activities are managed on a worldwide
     basis.

  .  To determine segment result for a segment, we subtract an
     allocation of research and development expenses and central
     production overhead and production variances from segment
     performance.

  .  To determine total operating profit for the Group, we subtract
     certain items (such as costs of corporate functions and other
     operating income and expenses) from the total segment result.


                                 68

<PAGE>


<TABLE>
<CAPTION>
                                                                          Year ended December 31,
                                                         2000                            1999                           1998
                                                         % of    Percentage              % of     Percentage            % of
                                                        Segment    Change               Segment     Change             Segment
                                                   E     Total   from 1999     E         Total    from 1998     E        Total
                                                                    (in millions, except percentages)
Net Sales:
<S>                                                <C>    <C>       <C>        <C>        <C>        <C>        <C>        <C>
Europe Region*.................................. 2,008     45        14      1,766         48          7      1,649         50
United States Region............................   992     22        28        775         21         14        678         21
Japan Region....................................   670     15        48        454         12         32        343         10
Latin America/Canada Region.....................   474     11        27        372         10          4        359         11
Asia Region.....................................   198      4        21        164          5         28        128          4
Other Activities................................   151      3         6        143          4         12        128          4
                                                -------  -----      -----   -------      -----       -----   -------      -----
Total Net Sales................................. 4,493    100        22      3,674        100         12      3,285        100
                                                -------  -----      -----   -------      -----       -----   -------      -----
                                                -------  -----      -----   -------      -----       -----   -------      -----

Segment Performance:
Europe Region*..................................   819     50         7        769         53         12        687         55
United States Region............................   292     18         5        277         19         13        245         20
Japan Region....................................   246     15        47        167         11         40        119         10
Latin America/Canada Region.....................   152      9        28        119          8         14        104          8
Asia Region.....................................    69      4        28         54          4         38         39          3
Other Activities................................    73      4        (3)        75          5         36         55          4
                                                -------  -----      -----   -------      -----       -----   -------      -----
Total Segment Performance....................... 1,651    100        13      1,461        100         17      1,249        100
                                                -------  -----      -----   -------      -----       -----   -------      -----
                                                -------  -----      -----   -------      -----       -----   -------      -----
Central Production Overhead/Variances...........  (139)               6      (131)                   (1)      (132)
Research and Development........................  (811)              19      (684)                    9       (628)
                                                -------  -----      -----   -------      -----       -----   -------      -----
Segment Result..................................   701                9        646                    32        489
                                                -------  -----      -----   -------      -----       -----   -------      -----
                                                -------  -----      -----   -------      -----       -----   -------      -----

Segment Result:
Europe Region*..................................   402     57         6        381         59         20        317         65
United States Region............................    42      6       (28)        58          9         26         46         10
Japan Region....................................   108     15        44         75         12         83         41          8
Latin America/Canada Region.....................    87     13        30         67         10         24         54         11
Asia Region.....................................    36      5        50         24          4        118         11          2
Other Activities................................    26      4       (37)        41          6        105         20          4
                                                -------  -----      -----   -------      -----       -----   -------      -----
Total Segment Result............................   701    100         9        646        100         32        489        100
                                                -------  -----      -----   -------      -----       -----   -------      -----
                                                -------  -----      -----   -------      -----       -----   -------      -----
Other
                                                   (61)              45       (110)                   39        (79)
                                                -------  -----      -----   -------      -----       -----   -------      -----
Total Operating Profit..........................   640               19        536                    31        410
                                                -------  -----      -----   -------      -----       -----   -------      -----
                                                -------  -----      -----   -------      -----       -----   -------      -----
</TABLE>

-----
* incl. Africa, Australia and New Zealand




                                 69
<PAGE>


   The following table sets forth the net sales, net sales expressed as
a percentage of total net sales, and percentage change in net sales
from the prior period for the Groups business areas for the three
years ended December 31, 2000. During the first half of 2000, due to
our recent significant acquisitions in the field of
Radiopharmaceuticals, including Diatide and CIS bio international, we
formed a new business area, Diagnostics and Radiopharmaceuticals
(formerly the Diagnostics business area). This business area has
responsibility for the development of diagnostic and
radiopharmaceutical products. In the table below and elsewhere in
this annual report, we have not restated net sales for periods prior
to 2000 to give effect to the formation of this new business area
because there have not been material net sales of
radiopharmaceuticals prior to 2000.


<TABLE>
   <CAPTION>
                                                             Year ended December 31,
                                                 2000                                                       1998
                                              Percentage Percentage         Percentage Percentage     Percentage
                                               of Net     Change             of Net     Change            of Net
                                     E          Sales   from 1999    E        Sales   from 1998    E       Sales
                                                        (in millions, except percentages)
Net Sales by Business Area:
<S>                                  <C>         <C>       <C>       <C>       <C>       <C>       <C>       <C>
Fertility Control and Hormone
Therapy.........................   1,353          30        15    1,173        32         6      1,109        34
Therapeutics....................   1,402          31        24    1,128        31        14        991        30
Diagnostics and
Radiopharmaceuticals............   1,360          30        31    1,040        28        18        882        27
Dermatology.....................     221           5        11      199         5         5        189         6
Other Sources...................     157           4        17      134         4        18        114         3
                                  -------       -----      ----   -------     -----      ----   -------     -----
Total                              4,493         100        22    3,674       100        12      3,285       100
                                  -------       -----      ----   -------     -----      ----   -------     -----
                                  -------       -----      ----   -------     -----      ----   -------     -----
</TABLE>


2000 Compared with 1999
Group


<TABLE>
<CAPTION>
                                              Consolidated Income Statements
                                                  2000                     1999
                                           E       % of Net sales    E       % of Net sales
                                             (in millions, except percentages)
<S>                                         <C>          <C>          <C>          <C>
Net sales..............................  4,493           100       3,674           100
Cost of sales.......................... (1,089)           24        (902)           25
                                        -------         -----     -------         -----
Gross profit...........................  3,404            76       2,772            75
Marketing and selling costs............ (1,498)           33      (1,165)           32
Engineering and administration costs...   (456)           10        (367)           10
Research and development costs.........   (811)           18        (684)           19
Other operating income.................    300                       334
Other operating expenses...............   (299)                     (354)
                                        -------         -----     -------         -----
Operating profit.......................    640            14         536            15
Financial result.......................     (5)                      (77)
                                        -------         -----     -------         -----
Profit on ordinary activities..........    635            14         459            12
Taxes on profit........................   (290)            6        (181)            5
                                        -------         -----     -------         -----
Income before minority interests.......    345             8         278             8
Minority interests.....................     (9)                       (6)
                                        -------         -----     -------         -----
Net income.............................    336             7         272             7

                                        -------         -----     -------         -----
                                        -------         -----     -------         -----
</TABLE>


                                 70
<PAGE>


   The following table sets forth our top-selling products during 2000.
These products represented approximately 61% of the total net sales
for the Group in 2000:


<TABLE>
<CAPTION>
                                                                         Percentage
                                                                           Change
                                                           Net Sales      from 1999
                                                          (E millions)

<S>                                                            <C>              <C>
1.  Betaferon(R) (Betaseron(R)) (Therapeutics)............     593               31
2.  Iopamiron(R) (Diagnostics)............................     372               21
3.  Magnevist(R) (Diagnostics)............................     286               23
4.  Ultravist(R) (Diagnostics)............................     238                9
5.  Diane(R) (Gynecology).................................     200               17
6.  Betapace(R) (Therapeutics)............................     168                7
7.  Microgynon(R) (Levlen(R)) (Fertility Control).........     130               21
8.  Fludara(R) (Therapeutics).............................     111               30
9.  Femovan(R) (Fertility Control)........................     109                5
10.  Climara(R) (HRT).....................................     106               14
11.  Androcur(R) (Therapeutics, Gynecology)...............     103                5
12.  Meliane(R) (Fertility Control).......................     102               26
13.  Triquilar(R) (Tri-Levlen(R)) (Fertility Control).....      92               (4)
14.  Mirena(R) (Fertility Control)........................      70               17
15.  Noctamid(R) (Therapeutics)...........................      42                8
                                                            -------

Total ....................................................   2,722
                                                            -------
                                                            -------
</TABLE>


   Net Sales

   Net sales represents the gross inflow of economic benefits
received and receivable by the Group on its own account from the
sales of goods and services. Sales rebates and discounts as well as
amounts collected on behalf of third parties such as sales taxes and
goods and services taxes are excluded from net sales.

   Net sales increased by 22% to E 4,493 million in 2000 compared to
E 3,674 million in 1999.
This increase is primarily attributable to higher sales volumes for
our products (13%) and to the favorable development of exchange rates
(7%).

   Net sales in the Fertility Control and Hormone Therapy business
area increased by 15% to
E 1,353 million in 2000 compared to E 1,173 million in 1999, mainly
due to sales growth of Diane(R), Microgynon(R), Mirena(R), an intra-uterine
hormone delivery system for fertility control, and the low dosage
oral contraceptive Meliane(R).

   In our Therapeutics business area net sales increased by 24% to E
1,402 million in 2000 compared to E 1,128 million in 1999. Improved
net sales of Betaferon(R), our product for the treatment of multiple
sclerosis, and Fludara(R), the standard treatment for patients with
chronic lymphocytic leukemia (CLL), as well as additional net sales
of products of Mitsui Pharmaceuticals, which we acquired in March
2000, were the main reasons for the increase. Sales of Betaferon(R)
increased 31% from E 454 million in 1999 to E 593 million in 2000.
Betaferon(R) was launched in Japan in November 2000. Positive volume,
price and exchange-rate effects caused Fludara(R), with E 111 million
net sales in 2000, to grow by 30% compared to E 86 million in 1999.

   In 2000, net sales in our Diagnostics and Radiopharmaceuticals
business area increased to E 1,360 million from E 1,040 million in
1999, which represents an increase of 31%. Net sales of X-ray
contrast media products increased 14% to E 738 million in 2000 from E
646 million in 1999, while


                                 71
<PAGE>


net sales of MRI contrast media products grew 23% to E 289 million in
2000 compared to E 234 million in 1999. Net sales of our contrast
medium application technologies increased 35% from E 152 million in 1999
to E 205 million in 2000. Net sales of radiopharmaceuticals came
to E 117 million in 2000.

   In our Dermatology business area, net sales increased 11% to E
221 million in 2000 compared to E 199 million in 1999. The increase
is primarily attributable to higher sales of Advantan(R) and Nerisona(R),
both preparations for the treatment of eczema, and Neriproct(R)
(marketed as Scheriproct(R) outside of Japan), a product to treat hemorrhoids.

   Gross Profit
   Gross profit represents net sales after cost of sales. Cost of
sales includes the production costs of goods sold and the purchased
cost of goods for resale.

   Gross profit increased 23% to E 3,404 million in 2000 compared to
E 2,772 million in 1999. Gross profit increased at a slightly higher
rate than net sales due to a lower increase of cost of goods sold.


   Operating Profit
   Operating profit represents gross profit after marketing and
selling costs, engineering and administration costs, research and
development costs and other operating income and expense. Engineering
and administration costs include costs of production management and
planning, factory safety and administration, environmental
protection, technology cost centers such as workshops, energy
production, services and waste disposal (to the extent that these
costs are not internally reallocated), training, and administration
such as data processing, purchasing and accountancy.

   Operating profit increased 19% to E 640 million in 2000 from E
536 million in 1999. Marketing and selling costs increased at a
higher rate than sales by 29% to E 1,498 million in 2000 from E 1,165
million in 1999. The increase was due to costs incurred during 2000
for the launch of products in 2001, especially in the United States.
Engineering and administration costs also increased at a higher rate
than sales by 24% from E 367 million in 1999 to E 456 million in
2000. The reasons for the increase were costs for the integration of
acquired companies in Japan, costs for restructuring in the
production area as well as impacts from the first-time consolidation
of acquired companies. Research and development costs increased by
19% to E 811 million in 2000 from E 684 million in 1999. The increase
was largely attributable to higher research and development costs in
the United States but also due to the first-time consolidation of
Mitsui Pharmaceuticals in Japan. As a percentage of net sales,
research and development costs decreased slightly from 19% in 1999 to
18% in 2000.

   Other operating income decreased by 10% from E 334 million in
1999 to E 300 million in 2000. The decrease was attributable to lower
income from changes in foreign exchange rates as well as lower income
from the reduction of provisions. The 16% decrease in other operating
expenses from E 354 million in 1999 to E 299 million in 2000 was
mainly attributable to lower expenses from changes in foreign
exchange rates.

   Financial Result
   Financial result represents net income from investments, interest
result and other financial result.

   The Financial result improved by E 72 million, showing a loss of
E 5 million in 2000 versus a loss of E 77 million in 1999. The improvement
is mainly attributable to income of E 34 million from the first-time
consolidation of special funds that was required by SIC-12
"Consolidation-Special Purpose Entities "-as well as to gains from
the sale of venture capital investments of E 42 million.


                                 72
<PAGE>

Our share in the result of Aventis CropScience was a loss of E 59
million in 2000 versus a loss of E 60 million in 1999. In early 2000
the crop protection activities of Rhone Poulenc and AgrEvo, a joint
venture of Hoechst and Schering, were merged to form Aventis CropScience.
Schering has a 24% interest in the new company, compared to AgEvos former
holding of 40 %. The losses resulting from our share of the result include
E 24 million (1999: E 28 million) relating to the amortization of goodwill
as well as restructuring and other one-off costs of E 78 million (1999: E 57
million). Thus our share of the result before amortization of goodwill and
one-off cost improved from E 25 million in 1999 to E 43 million in 2000.

   Taxes on Profit
   Taxes on profit increased 60% from E 181 million in 1999 to E 290
million in 2000. Taxes on profit are influenced by the fact that our
share of the result of Aventis CropScience is recorded after tax.
Furthermore, we recorded a one-off charge from the revaluation of
deferred tax due to a tax reform in Germany (E 15 million).
Eliminating these effects as well as expenses related to a tax risk
in Brazil and one-off tax profits in the United States in 1999, the
effective tax rate in 2000 (as in 1999) was approximately 38 %.

   Net Income
   Net income outperformed the growth in net sales increasing by 24%
to E 336 million in 2000 from E 272 in 1999. The result per share
(basic) is E 1.70 and thus -after repurchasing outstanding shares in
1999- 26% higher than 1999.


Results of Operations by Segment
   Net sales, segment performance and segment result of each of our
geographic segments and our Other Activities segment are presented in
note 32 to our Consolidated Financial Statements and in accordance
with IAS 14 (revised).


   Europe Region
   The geographic segment Europe, referred to in this annual report
as the Europe Region, consists of the members of the European Union,
all other countries of continental Europe, Turkey, the members of the
Commonwealth of Independent States, South Africa, Australia, New
Zealand and African export markets (excluding Egypt, Libya and
Sudan). Net sales for the Europe Region also include worldwide sales
to third parties of Leiras, Jenapharm, CIS bio international and
Justesa Imagen. In the period covered by our Consolidated Financial
Statements included elsewhere in this annual report, our six largest
markets in the Europe Region in terms of net sales have been Germany,
France, Great Britain, Italy, Spain and Finland, which together
constituted approximately 31% of the Groups net sales and 69% of
this segments net sales in 2000. In recent years, we have
experienced a significant level of sales growth in Italy, France,
Great Britain and Spain. In the Europe Region, the Fertility Control
and Hormone Therapy, Therapeutics and Dermatology business areas are
expected to continue growing, while the prevailing price competition
is expected to affect net sales growth in the diagnostics business
field. Despite considerable price competition in this business field
in the Europe Region, we believe that higher market shares over the
next three to five years will only be realized through increased
sales volume of our marketed products and through the successful
introduction of new products. In general, we believe that government-
imposed price cuts, parallel imports (imports of products from
countries with lower government-fixed price levels) and the increased
availability of generic substitute products may slow the achievement
of net sales growth.


                                 73
<PAGE>

The following table sets forth the net sales by business area, and
net sales by business area expressed as a percentage of total net
sales, of the Europe Region for the years ended December 31, 2000 and
1999:

<TABLE>
<CAPTION>

                                                                  Year ended December 31,
                                                               2000                     1999
                                                                   Percentage               Percentage
                                                                   of Net                   of Net
                                                          E        Sales           E        Sales
                                                             (in millions, except percentages)
Net Sales Europe Region by Business Area:
<S>                                                      <C>         <C>          <C>         <C>
Fertility Control and Hormone Therapy.............       765          38          702          40
Therapeutics......................................       690          34          613          35
Diagnostics and Radiopharmaceuticals{(1)}........       408          20          319          18
Dermatology.......................................       131           7          122           7
Other Sources.....................................        14           1           10           0
                                                      -------       -----      -------       -----
Total.............................................     2,008         100        1,766         100
                                                      -------       -----      -------       -----
                                                      -------       -----      -------       -----
</TABLE>
-----
(1)  Net sales of our radiopharmaceutical products have been included
     in the recently formed Diagnostics and Radiopharmaceuticals business area
     with effect from January 1, 2000.


   Net Sales
   Net sales increased by 14% to E 2,008 million in 2000 compared to
E 1,766 million in 1999. The increase was mainly attributable to
higher sales volume (12%) and to a minor extent due to positive price
effects (1%). Net sales continued to be affected by government-imposed price
cuts, government fixed  budgets, positive and negative lists for the
reimbursement of products as well as the increased use of generic
substitute products.

   In Germany, net sales increased 4% to E 504 million in 2000 from
E 487 million in 1999, despite the prevailing price sensitivity in
the market, especially in the contrast media field. The increase in
net sales was mainly due to a 32% increase in net sales of
Betaferon(R), our treatment for multiple sclerosis, from E 55 million
in 1999 to E 72 million in 2000. In 2000, net sales of Ultravist(R)
decreased 21% from E 54 million in 1999 to E 43 million, caused by
highly unfavorable price effects (14%) and lower sales volume (7%).
The decrease was offset by E 11 million additional net sales of
products of CIS bio international, which expanded the product range
of our Diagnostics and Radiopharma- ceuticals business area in
Germany in 2000.

   In France, net sales improved significantly by E 70 million or
38% to E 253 million in 2000 compared to E 184 million in 1999. Net
sales increased mainly due to the first-time consolidation of CIS bio
international and increased net sales of Betaferon(R). Higher sales
volume caused Betaferon(R) to grow from E 23 million in 1999 to E 35
million in 2000. Net sales of the Mirena(R) intra-uterine hormone
delivery system for fertility control increased 14% from E 13 million
in 1999 to E 15 million in 2000.

   Net sales in Great Britain increased 16% to E 137 million in 2000
compared to E 118 million in 1999. Favorable exchange-rate effects
(7%) as well as increased net sales of Betaferon(R) (38%) and
additional E 5 million net sales of our new product Levonelle(R)-2, a
new form of emergency contraception that reduces the risk of
unplanned pregnancy after unprotected intercourse, were the main
reasons for the increase.

   In Italy, net sales increased 15% to E 231 million in 2000 from E
201 million in 1999, due to positive volume effects of the low-dosage
oral contraceptive Meliane(R) and of Betaferon(R).


                                 74
<PAGE>

Net sales in Spain increased 15% to E 154 million in 2000 from E 134
million in 1999. The increase in net sales was attributable to higher
sales volume of Betaferon(R), Meliane(R) and Ultravist(R), while
unfavorable price effects of Ultravist(R) were offset by positive
exchange-rate effects, which were caused by worldwide sales to third
parties of Justesa Imagen.

   Compared to E 113 million in 1999 net sales in Finland (which
include worldwide export sales of Leiras Oy) decreased 2% to E 111
million in 2000. The decrease was mainly due to lower export sales
volume of our transdermal hormonal contraceptive Norplant(R) and sales
volume of our therapeutic Bonefos(R).

   In the markets of Central and Eastern Europe, net sales increased
25% from E 89 million in 1999 to E 112 million in 2000.

   In the Fertility Control and Hormone Therapy business area, net
sales increased by 9% to E 765 million in 2000 compared to E 702
million in 1999, principally due to higher prices and increased sales
volume. The intra-uterine hormone delivery system Mirena(R) and Diane(R)
both achieved favorable sales volume growth during 2000. Net sales of
Mirena(R) increased 15% to E 67 million in 2000 from E 59 million in
1999, with significant sales growth reported in France, Great Britain
and in the markets of Central Europe. Net sales of Diane(R) increased
9% from E 134 million in 1999 to E 145 million in 2000.

   Net sales in the Therapeutics business area increased by 13% to E
690 million in 2000 compared to E 613 million in 1999, mainly due to
increases in sales volume. The increase in net sales was driven by a
significant growth in sales volume of Betaferon(R) and Ilomedin(R). Sales
of Betaferon(R) increased by E 68 million or 30% to E 295 million in
2000 compared to E 227 million in 1999. Net sales of Ilomedin(R), our
product for the intravenous treatment of severe forms of peripheral
arterial disease (PAOD), increased 50% from E 20 million in 1999 to
E 30 million in 2000.

   In 2000, net sales in the Diagnostics and Radiopharmaceuticals
business area increased by 28% to E 408 million compared to E 319
million in 1999. As a result of the first-time consolidation of CIS
bio international, which we acquired in April 2000, net sales
increased by E 84 million compared to 1999. Concerning Ultravist(R),
negative price effects, offset positive volume effects, and caused
net sales of Ultravist(R) to decrease from E 150 million in 1999 to E
147 million in 2000.

   In the Dermatology business area, net sales increased by 7% to E
131 million in 2000 as compared to E 122 million in 1999. The
increase was due to favorable volume and price effects, which more
than offset a negative currency effect. The top-selling dermatology
products were Advantan(R), a preparation for the treatment of eczema,
Psorcutan(R), a product for the treatment of psoriasis, and Travocort(R),
a product for the treatment of fungal infections, which together
accounted for the favorable volume effect.

   Segment Performance/Segment Result
   Segment performance increased by 7% to E 819 million in 2000
compared to E 769 million in 1999. The increase in net sales was
partly offset by increased marketing and selling costs and increased
costs of administration in the region. These higher costs relate
mainly to Germany, France, Great Britain and Italy due to the first-
time consolidation of CIS bio international in 2000. Furthermore,
costs of administration also increased due to restructuring measures
in our subsidiaries in Finland.


                                 75
<PAGE>

After allocation of E 357 million of research and development costs
and E 60 million of central production overhead/variances, the
segment result in 2000 was E 402 million, representing an increase of
6% from E 381 million in 1999. Compared to 1999, costs of research
and development increased by E 32 million mainly due to higher costs
of clinical studies and costs of strategic projects and collaborations.

United States Region
   The geographic segment United States, referred to in this annual
report as the United States Region, consists of the United States and
Puerto Rico, and is comprised of two sub-segments. The first sub-
segment, Berlex Laboratories, Inc., represents all sales of
pharmaceutical products in the United States. The pharmaceutical
business is operated by Berlex Laboratories, Inc. The second sub-
segment represents Medrads business with application technologies
for contrast media which, because Medrad is responsible for the
management of the worldwide sales of its products, includes the
worldwide sales of Medrad and its subsidiaries.

   The following table sets forth the net sales by sub-segment, and
net sales by sub-segment expressed as a percentage of total net
sales, of the United States Region for the years ended
December 31, 2000 and 1999:

<TABLE>
<CAPTION>

                                                                  Year ended December 31,
                                                               2000                     1999
                                                                   Percentage               Percentage
                                                                   of Net                   of Net
                                                          E        Sales           E        Sales
                                                             (in millions, except percentages)
Net Sales by Sub-Segment:
<S>                                                      <C>         <C>          <C>         <C>
Berlex ...........................................       790          80          626          81
Medrad ...........................................       202          20          149          19
                                                        -----       -----        -----       -----
Total ............................................       992         100          775         100
                                                        -----       -----        -----       -----
                                                        -----       -----        -----       -----
   </TABLE>

   The following table sets forth the net sales by business area,
and net sales by business area expressed as a percentage of total net
sales, of the United States Region, for the years ended December 31,
2000 and 1999:

<TABLE>
<CAPTION>

                                                                  Year ended December 31,
                                                               2000                     1999
                                                                   Percentage               Percentage
                                                                   of Net                   of Net
                                                          E        Sales           E        Sales
                                                             (in millions, except percentages)
Net Sales United States Region by Business Area:
<S>                                                      <C>         <C>          <C>         <C>
Fertility Control and Hormone Therapy.............       152          15          129          17
Therapeutics......................................       482          49          403          52
Diagnostics and Radiopharmaceuticals{(1)}........       357          36          243          31
Dermatology.......................................         1           -            -           -
                                                        -----       -----        -----       -----
Total ............................................       992         100          775         100
                                                        -----       -----        -----       -----
                                                        -----       -----        -----       -----
</TABLE>
-----
(1) Net sales of our radiopharmaceutical products have been included
    in the recently formed Diagnostics and Radiopharmaceuticals business area
    with effect from January 1, 2000.


                                 76
<PAGE>

   Net Sales
   Net sales increased by 28% to E 992 million in 2000 compared to E
775 million in 1999. The increase in net sales was driven by higher
sales volume (10%), positive price effects (2%) and highly favorable
exchange-rate effects (16%).
   Net sales of Berlex increased by 26% from E 626 million in 1999
to E 790 million in 2000, while net sales of Medrad increased by 35%
from E 149 million in 1999 to E 202 million in 2000. Of Medrads
sales, 70% or E 141 million were achieved in the United States Region
during 2000, the same percentage level as in 1999. Medrads net sales
increase was attributable to increased net sales of vascular
injectors, MRI injectors and syringes, and to favorable exchange-rate
effects. Prices for Medrads products generally remained stable.


   Net sales in the Therapeutics business area increased by 21% to E
482 million in 2000 compared to E 403 million in 1999. Increased
sales volume and favorable exchange-rate effects for Betaseron(R) (the
trademark for Betaferon(R) in the United States) and positive volume,
price and exchange-rate effects for the leukemia therapy Fludara(R)
were the main reasons for the increase in net sales. Net sales of
Betaseron(R) increased strongly by E 58 million to E 247 million in
2000 from E 189 million in 1999. Lower sales volume of Betapace(R),
whose orphan drug exclusivity expired in the United States Region in
April 2000, were offset by favorable price effects and exchange-rate
effects, leading to an overall increase of E 11 million to E 168 million
in 2000.

   In the Diagnostics and Radiopharmaceuticals business area, net
sales increased by 47% to E 357 million in 2000 from E 243 million in
1999. Excluding the contribution to sales growth by Medrad, net sales
increased by 65% to E 155 million in 2000 from E 94 million in 1999,
due to the development in net sales of Magnevist(R), our MRI contrast
medium, and Ultravist(R), our X-ray contrast medium. Sales of
Magnevist(R) increased 41% from E 79 million in 1999 to E 111 million
in 2000, while net sales of Ultravist increased 37 % to E 19 million
in 2000 compared to E 14 million in 1999.

   Net sales in the Fertility Control and Hormone Therapy business
area increased 18% from E 129 million in 1999 to E 152 million in
2000. Oral contraceptive sales increased 20% from E 59 million in
1999 to E 71 million in 2000, primarily due to increased sales of
Levlite(R) (the trademark for Miranova(R) in the United States) and
Levlen(R) (the trademark for Microgynon(R) in the United States). As a
result of strong competition net sales of Tri-Levlen(R) (the trademark
for Triquilar(R) in the United States) decreased 17% from E 37 million
in 1999 to E 31 million in 2000. We intend to strengthen our position
in the fertility control business by introducing Yasmin(R), an oral
contraceptive containing the new progestin drospirenone and Mirena(R),
our intra-uterine hormone delivery system for fertility control. We
expect Yasmin(R) to be approved by the FDA within the first half of
2001. We received approval by the FDA for Mirena(R) in December 2000
and launched the product in February 2001. In the field of hormone
therapy, net sales of Climara(R), our hormone patch for the treatment
of climacteric disorders, continued to increase significantly.
Compared to E 70 million in 1999 net sales of Climara(R) increased by
16% to E 81 million in 2000.

   In late 2000 we launched our new Dermatology business area in the
United States Region by introducing Levulan(R), a product for the
treatment of actinic keratosis.


                                 77
<PAGE>

   Segment Performance/Segment Result
   Segment performance increased by 5% to E 292 million in 2000
compared to E 277 million in 1999. The increase in net sales was
partially offset by increased marketing and selling costs. Marketing
and selling costs grew significantly due to additional expenses for
the sales force, in order to strengthen our position in the fields of
female healthcare, radiopharmaceuticals and to build up our
dermatology business.

   We have targeted the United States Region as a key market for
achieving accelerated sales and profit growth rates over the next
five years. In order to achieve this goal as part of our global
R&D activities, we are investing heavily in research and development
in this region, thereby investing in broadening our product portfolio
in the US market. As a consequence, research and development expense
as a percentage of external net sales was higher compared to the
other segments and significantly reduced the United States Region
segment result.

   After allocation of E 242 million of research and development
costs and E 8 million of central production overhead/variances,
segment result in 2000 was E 42 million, representing a decrease of
28% compared to 1999. This decrease is due to our strategic
commitment to significantly expand our business in the United States.
Compared to 1999, costs of research and development rose by E 28
million. This increase was mainly attributable to strategic projects
and cooperations.

Japan Region
   The Japan geographic segment, referred to in this annual report
as the Japan Region, corresponds to the geographical area of Japan
and comprises the business of Nihon Schering K.K., Mitsui
Pharmaceuticals Inc. (which was merged into Nihon Schering as of
January 1, 2001) and CIS Diagnostic K.K. in Japan as well as direct
sales by Schering AG to Japanese pharmaceutical companies.

   The following table sets forth the net sales by business area,
and net sales by business area expressed as a percentage of total net
sales, of the Japan Region for the years ended December 31, 2000 and 1999:

<TABLE>
<CAPTION>

                                                                  Year ended December 31,
                                                               2000                     1999
                                                                   Percentage               Percentage
                                                                   of Net                   of Net
                                                          E        Sales           E        Sales
                                                             (in millions, except percentages)
Net Sales Japan Region by Business Area:
<S>                                                      <C>         <C>          <C>         <C>
Fertility Control and Hormone Therapy..............       26           4           16           3
Therapeutics.......................................      126          19           25           6
Diagnostics and Radiopharmaceuticals {(1)}........      475          71          380          84
Dermatology........................................       43           6           33           7
                                                        -----       -----        -----       -----
Total .............................................      670         100          454         100
                                                        -----       -----        -----       -----
                                                        -----       -----        -----       -----
</TABLE>
-----
(1)  Net sales of our radiopharmaceutical products have been included
     in the recently formed Diagnostics and Radiopharmaceuticals business area
     with effect from January 1, 2000

   Net Sales
   Net sales increased by 48% to E 670 million in 2000 compared to E
454 million in 1999. The extraordinary increase in net sales is
primarily attributable to the first-time consolidation of the
acquired companies Mitsui Pharmaceuticals and CIS Diagnostic (24%),
highly favorable exchange- rate effects (20%) and to volume increases
(6%). Price reductions mandated by the Japanese Ministry of Health
and Welfare led to slightly negative price effects (2%).


                                 78
<PAGE>

In the Diagnostics and Radiopharmaceuticals business area, which
accounted for 71% of total net sales during 2000, net sales increased
by 25% to E 475 million in 2000 compared to E 380 million in 1999.
This increase was due to favorable exchange-rate effects and volume
increases, which were partly offset by decreased prices. Increased
net sales of pre-filled containers of our X-ray contrast medium
Iopamiron(R) and of our MRT contrast medium Magnevist(R) continued to be
a key factor in this sales growth. net sales in our radiopharmaceuticals
business amounted to e 7 million in 2000.

   Net sales of products from the fertility control and hormone
therapy business area, which represented 4% of net sales in the Japan
region in 2000, increased 65% to E 26 million in 2000 compared to E
16 million in 1999, due to volume increases and favorable exchange-
rate effects.

   In 2000, net sales of the Therapeutics business area increased
significantly from E 25 million in 1999 to E 126 million in 2000,
principally due to the acquisition of Mitsui Pharmaceuticals in March
2000, which contrituded net sales of E 102 million in 2000.
Betaferon(R) was introduced in the Japan Region in November 2000.

   Net sales in the Dermatology business area increased 32% from E
33 million in 1999 to E 43 million in 2000. The increase is
attributable to a higher sales volume of Neriproct(R) and Nerisona(R).

   Segment Performance/Segment Result
   Segment performance increased by 47% to E 246 million in 2000
compared to E 167 million in 1999. The increase was achieved despite
higher costs of production due to higher contractually- determined
costs for iopamidol, the active ingredient of Iopamiron(R), our best-
selling product in the Japan Region. Marketing and selling costs and
costs of administration also increased, primarily attributable to the
integration of Mitsui Pharmaceuticals and CIS Diagnostic K.K.

   After allocation of E 123 million of research and development
costs and E 15 million of central production overhead/variances,
segment result in 2000 was E 108 million, representing an increase of
44% from E 75 million in 1999. This increase was primarily driven by
the significant growth in segment performance.

Latin America/Canada Region

   The geographic segment for Latin America and Canada, referred to
in this annual report as the Latin America/Canada Region, consists of
the countries of Latin America, Canada and the Caribbean. In the
period covered by our Consolidated Financial Statements included
elsewhere in this annual report, our five largest markets in this
segment have been Brazil, Argentina, Mexico, Canada and Colombia,
which together constituted 9% of the Groups net sales and 81% of the
segments net sales in 2000. Net sales growth in the five largest
markets was accompanied by favorable development of exchange rates in
the region. In Argentina the development of sales was influenced by
government- fixed prices for sales to hospitals and welfare
institutions, and by negative volume effects.


                                 79
<PAGE>

The following table sets forth the net sales by business area, and
net sales by business area expressed as a percentage of total net
sales, of the Latin America/Canada Region for the years ended
December 31, 2000 and 1999:

<TABLE>
<CAPTION>

                                                                  Year ended December 31,
                                                               2000                     1999
                                                                   Percentage               Percentage
                                                                   of Net                   of Net
                                                          E        Sales           E        Sales
                                                             (in millions, except percentages)
Net Sales Latin America/
Canada Region by Business Area:
<S>                                                      <C>         <C>          <C>         <C>
Fertility Control and Hormone Therapy.............       303          64          233          63
Therapeutics......................................        83          18           63          17
Diagnostics and Radiopharmaceuticals {(1)}.......        49          10           42          11
Dermatology.......................................        29           6           25           7
Other Sources.....................................        10           2            9           2
                                                        -----       -----        -----       -----
Total ............................................       474         100          372         100
                                                        -----       -----        -----       -----
                                                        -----       -----        -----       -----
</TABLE>
-----
(1)  Net sales of our radiopharmaceutical products have been included
     in the recently formed Diagnostics and Radiopharmaceuticals business area
     with effect from January 1, 2000

   Net Sales
   Net sales increased by 27% to E 474 million in 2000 compared to E
372 million in 1999, primarily as a result of volume increases (10%)
and favorable exchange-rate effects (11%).

   The increase in net sales was mainly driven by higher net sales
in Brazil, Canada and Mexico. as a result of the ongoing recession,
net sales in Argentina increased only by 8% to E 69 million in 2000
compared to E 64 million in 1999, while net sales in Brazil increased
27% to E 143 million in 2000 from E 112 million in 1999. Higher net
sales in Argentina and Brazil were driven by favorable exchange-rate
effects. Net sales in Canada increased significantly by 39% from E 44
million in 1999 to E 61 million in 2000, while net sales in Mexico
increased 38% to E 79 million in 2000 compared to E 57 million in
1999. The increase in Canada and Mexico is due to favorable exchange-
rate effects as well as increased sales volume. The top-selling
products in the Latin America/Canada region during 2000 were
Microgynon(R) and Betaferon(R), with E 49 million and E 46 million net
sales respectively.

   Net sales in the Fertility Control and Hormone Therapy business
area increased 30% to E 303 million in 2000 compared to E 233 million
in 1999. The increase was attributable to the 57% increase in net
sales of Diane(R) (primarily in Canada), the 57% increase in net sales
of the low-dosage oral contraceptive Meliane(R) and the 27% increase in
net sales of the oral contraceptive Microgynon(R). Net sales of climara(R),
our hormone patch for the treatment of climacteric disorders, rose 27% to
E 5 million in 2000 from E 4 million in 1999.

In the therapeutics business area, net sales increased 31% to e
83 million in 2000 compared to e 63 million in 1999. This
growth is primarily due to higher net sales of Betaferon(R) in
Brazil and, despite strong competition, in Canada, net sales of
Betaseron(R) increased 46% from E 31 million in 1999 to E 46
million in 2000. Net sales of Fludara(R) increased from E 6
million in 1999 to E 7 million in 2000, mainly due to increased
sales in Canada, Mexico, Argentina and Brazil. Net sales of
Androcur(R), an antiandrogen used for the treatment of prostate
cancer, increased 12% to E 18 million in 2000 compared to E 16
million in 1999 despite competition from generic products.

   Net sales in the Diagnostics and Radiopharmaceuticals business
area increased by 16% to E 49 million in 2000 from E 42 million
in 1999. The increase was mainly due to higher net sales of


                                 80

<PAGE>


Iopamiron(R), which increased 20% to E 29 million in 2000 compared to
E 24 million in 1999, particularly was a result of increased sales to
public hospitals in Mexico.

   In 2000, net sales in the Dermatology business area increased 20%
to E 29 million compared to E 25 million in 1999. This change was
primarily due to increased net sales of Gyno-Travogen(R) and Travogen(R)
as well as Advantan(R).


   Segment Performance/Segment Result
   Segment performance increased by 28% to E 152 million in 2000
compared to E 119 million in 1999. The increase was attributable to
improved net sales. Costs increased at the same rate as net sales.

   After allocation of E 58 million of research and development
costs and E 7 million of central production overhead/variances,
segment result in 2000 was E 87 million, representing an increase of
30% from E 67 million in 1999.


Asia Region
   The geographic segment Asia, referred to in this annual report as
the Asia Region, is comprised of the countries of the Pacific Rim of
Asia (but excluding Japan, Australia and New Zealand), the Middle
East, Egypt, Libya and Sudan. In the period covered by our
Consolidated Financial Statements included elsewhere in this annual
report, our three largest markets in this segment in terms of net
sales have been China (including Hong Kong), South Korea and
Indonesia, which together constituted 45% of the segments net sales
in 2000.

   The following table sets forth the net sales by business area,
and net sales by business area expressed as a percentage of total net
sales, of the Asia Region for the years ended December 31, 2000 and
1999:


<TABLE>
<CAPTION>
                                                                               Year ended December 31,
                                                                           2000                          1999
                                                                                Percentage               Percentage
                                                                      E        of Net Sales        E    of Net Sales
                                                                          (in millions, except percentages)
Net Sales Asia Region by Business Area:
<S>                                                                 <C>            <C>            <C>            <C>
Fertility Control and Hormone Therapy.....................           81             41             63             38
Therapeutics..............................................           20             10             21             13
Diagnostics and Radiopharmaceuticals {(1)}...............           71             36             56             34
Dermatology...............................................           15              7             16             10
Other Sources.............................................           11              6              8              5
Total .....................................................         198            100            164            100
</TABLE>

-----
(1)  Net sales of our radiopharmaceutical products have been included
     in the recently formed Diagnostics and Radiopharmaceuticals business area
     with effect  from January 1, 2000



   Net Sales

   Net sales increased by 21% to E 198 million in 2000 compared to E
164 million in 1999. This increase was mainly attributable to higher
volume (8%) and favorable exchange-rate effects (9%) due to the
ongoing recovery of the markets in the Asia Region during 2000 as
compared to the years before. In South Korea, net sales increased 34%
to E 48 million from E 35 million in 1999, while in China (including
Hong Kong) net sales increased 18% from E 17 million in 1999 to E 20
million in 2000. In Indonesia net sales of E 22 million in 2000
compared to E 14 million in 1999, showed a significant growth of 56%.


                                 81

<PAGE>


   Net sales in the Fertility Control and Hormone Therapy business area
increased 30% to E 81 million in 2000 compared to E 63 million in
1999. Net sales of our oral contraceptive Microgynon(R),  increased 56%
from E 8 million in 1999 to E 12 million in 2000. Higher net sales of
Diane(R), which increased 13% to 12 million net sales in 2000, and
Femovan(R), which increased 18% to E 11 million in 2000, resulted from
higher sales volumes and favorable exchange-rate effects.

   In the Therapeutics business area, net sales remained viritually
constant at E 20 million in 2000 compared to E 21 million in 1999.
This slight change in net sales in the Therapeutics business area is
due to negative volume effects of our product Betaferon(R). Net sales
of Betaferon(R) decreased by 2 million from E 7 million in 1999 to E 5
million in 2000, primarily due to a significant fall in Israel,
caused by the reduction of wholesalers stocks. Net sales of
Androcur(R) increased 23% from E 5 million in 1999 to E 6 million in
2000, while net sales of Bonefos(R), a tumor therapy, remained constant
at E 4 million.

   Net sales in the Diagnostics and Radiopharmaceuticals business
area increased 27% to E 71 million in 2000 compared to E 56 million
in 1999. The growth is primarily attributable to increased net sales
of Ultravist(R) and Magnevist(R). Net sales of our top-selling X-ray
contrast medium Ultravist(R), which accounted for 66% of net sales of
the diagnostics business in the region, increased 30% from E 36
million in 1999 to E 47 million in 2000. Net sales of the MRI
contrast medium Magnevist(R) increased by E 2 million to E 12 million
in 2000.

   Net sales in the Dermatology business area decreased 11% to E 15
million in 2000 from E 16 million in 1999. Lower sales volumes of
Nerisona(R), Skinoren(R), Travocort(R) and Travogen(R) were the main reasons
for the decrease. Net sales of Advantan(R) rose from E 1 million in
1999 to E 2 million in 2000.


   Segment Performance/Segment Result
   Segment performance rose by 28% from E 54 million in 1999 to E 69
million in 2000. Increased net sales and positive exchange-rate
effects more than offset higher marketing and selling costs, mainly
in South Korea.

   After allocation of E 20 million of research and development
costs and E 13 million of central production overhead/variances,
segment result in 2000 was E 36 million compared to E 24 million in
1999.

Other Activities
   The Segment Other Activities primarily consists of our
Pharmaceutical Chemicals business with other pharmaceutical
companies. See "Item 4-Information on the Company-Group Organization-
Group Segments-Other Activities".


                                 82

<PAGE>


The following table sets forth the net sales by sub-segment, and net
sales as a percentage of total net sales, for the Other Activities
segment for the years ended December 31, 2000 and 1999:


<TABLE>
<CAPTION>
                                                     Year ended December 31,
                                                 2000                      1999
                                                    Percentage              Percentage
                                           E       of Net Sales        E   of Net Sales
                                                (in millions, except percentages)
Net Sales by Sub-Segment:
<S>                                       <C>           <C>           <C>           <C>
Pharmaceutical Chemicals...............   116            77            97            68
Other .................................    35            23            46            32
                                         -----         -----         -----         -----
Total .................................   151           100           143           100
                                         -----         -----         -----         -----
                                         -----         -----         -----         -----
</TABLE>


   Net Sales

   Net sales increased by 5% to E 151 million in 2000 compared to E
143 million in 1999.

   Net sales of Pharmaceutical Chemicals increased 19% to E 116
million in 2000 compared to E 97 million in 1999, primarily due to
higher sales volumes of various intermediates and active ingredients,
price increases and favorable exchange-rate effects. Net sales of the
sub-segment Other decreased by 24% to E 35 million in 2000 compared
to E 46 million in 1999, due primarily to lower net sales from toll
manufacturing and sales collaborations.


   Segment Performance/Segment Result

   Segment performance decreased by 3% to E 73 million in 2000 from
E 75 million in 1999. The decrease is primarily attributable to lower
net sales from sales collaborations as well as to increased cost of
goods sold in the area of Pharmaceutical Chemicals due to higher raw
material prices.

   After allocation of E 11 million of research and development
costs and E 36 million of central production overhead/variances,
segment result in 2000 was E 26 million compared to E 41 million in
1999. This decrease primarily resulted from lower segment performance
as well as from increased central production overhead/variances in
Pharmaceutical Chemicals.


                                 83

<PAGE>


1999 Compared with 1998

   Group


<TABLE>
<CAPTION>
                                              Consolidated Income Statements
                                                1999                        1998
                                          E       % of Net sales      E  % of Net sales
                                              (in millions, except percentages)
<S>                                       <C>           <C>           <C>           <C>
Net sales.............................  3,674           100         3,285           100
Cost of sales.........................  (902)            25          (800)           24
                                       -------         -----       -------         -----
Gross profit..........................  2,772            75         2,485            76
Marketing and selling costs...........(1,165)            32        (1,053)           32
Engineering and administration costs..  (367)            10          (365)           11
Research and development costs........  (684)            19          (628)           19
Other operating income................    334                         262
Other operating expenses..............  (354)                        (291)
                                       -------         -----       -------         -----
Operating profit......................    536            15           410            12
Financial result......................   (77)                          14
                                       -------         -----       -------         -----
Profit on ordinary activities.........    459            12           424            13
Taxes on profit.......................  (181)             5          (175)            5
                                       -------         -----       -------         -----
Income before minority interests......    278             8           249             8
Minority interests....................    (6)                          (4)
                                       -------         -----       -------         -----
Net income............................    272             7           245             7
                                       -------         -----       -------         -----
                                       -------         -----       -------         -----
</TABLE>


   The following table sets forth our top-selling products during
1999. These products represented 63% of the total net sales for the
Group in 1999.


<TABLE>
<CAPTION>
                                                                             Percentage
                                                                                change
                                                                  Net sales   from 1998
                                                                 (E millions)
<S>                                                                   <C>           <C>
1.  Betaferon(R) (Betaseron(R)) (Therapeutics)...................     454            23
2.  Iopamiron(R) (Diagnostics)...................................     307            31
3.  Magnevist(R) (Diagnostics)...................................     233            18
4.  Ultravist(R) (Diagnostics)...................................     219             5
5.  Diane(R) (Gynecology)........................................     171            10
6.  Betapace(R) (Therapeutics)...................................     157            23
7.  Microgynon(R) (Levlen(R)) (Fertility Control)................     108             7
8.  Femovan(R) (Fertility Control)...............................     103            (5)
9.  Androcur(R) (Therapeutics, Gynecology).......................      99            (2)
10.  Triquilar(R) (Tri-Levlen(R)) (Fertility Control)............      95           (16)
11.  Climara(R) (HRT)............................................      93             8
12.  Fludara(R) (Therapeutics)...................................      86            14
13.  Meliane(R) (Fertility Control)..............................      81            63
14.  Mirena(R) (Fertility Control)...............................      60            45
15.  Noctamid(R) (Therapeutics)..................................      39             7
                                                                   -------
Total ...........................................................   2,305
                                                                   -------
                                                                   -------
</TABLE>


                                 84

<PAGE>


   Net Sales

   Net sales increased by 12% to E 3,674 million in 1999 compared to
E 3,285 million in 1998.

   This increase was based primarily on higher sales volumes for our
products (9%). The remainder was due in equal measure to pricing
developments and exchange-rate effects. Net sales for products in our
Therapeutics business area increased by 14% to E 1,128 million in
1999 compared to E 991 million in 1998, principally due to the 23%
increase in sales of Betaferon(R), our product for the treatment of
multiple sclerosis. In January 1999, Betaferon(R) was approved for the
treatment of the secondary progressive form of multiple sclerosis in
the European Union. Sales of Betaferon(R) increased to E 454 million in
1999 compared to E 368 million in 1998, with sales of Betaferon(R) in
the Europe Region increasing by 23% and in the United States Region
increasing by 21%. In the Fertility Control and Hormone Therapy
business area, net sales increased by 6% to E 1,173 million in 1999
compared to E 1,109 million in 1998, largely due to sales growth of
Mirena(R), an intra-uterine hormone delivery system for fertility
control, and the low dosage oral contraceptive Meliane(R). Net sales in
our Diagnostics business area increased by 18% to E 1,040 million in
1999 compared to E 882 million in 1998. Net sales of X-ray contrast
media products increased 17% to E 646 million in 1999 from E 554
million in 1998, while net sales of MRI contrast media products
increased 18% to E 234 million in 1999 compared to E 199 million in
1998. Net sales of our contrast medium application technologies
increased 21% to E 152 million in 1999 from E 125 million in 1998. In
our Dermatology business area, net sales increased 5% to E 199
million in 1999 compared to E 189 million in 1998, primarily due to
increased sales of Advantan(R) and Nerisona(R), both preparations for the
treatment of eczema, and Travocort(R), a product for the treatment of
fungal infections.


   Gross Profit


   Gross profit increased 12% to E 2,772 million in 1999 compared to
E 2,485 million in 1998. Gross profit increased at the same rate as
net sales.


   Operating Profit
   Operating profit increased 31% to E 536 million in 1999 from E
410 million in 1998. Marketing and selling costs increased 11% to E
1,165 million in 1999 from E 1,053 million in 1998, but remained
constant as a percentage of net sales at 32% in 1999. Engineering and
administration costs slightly increased by E 2 million to E 367
million in 1999, but as a percentage of net sales decreased to 10% in
1999 from 11% in 1998. Research and development costs increased by 9%
to E 684 million in 1999 from E 628 million in 1998. As a percentage
of net sales, research and development costs remained constant at 19%
in 1999. The increase in research and development costs was largely
attributable to the costs of clinical studies of Betaferon(R) for the
treatment of secondary progressive multiple sclerosis and the
commencement of several cooperation projects. Other operating income
increased to E 334 million in 1999 from E 262 million in 1998. Other
operating expenses increased to E 354 million in 1999 from E 291
million in 1998. The increase of other operating income was largely
attributable to higher income from the reduction of provisions for
environmental matters, the removal from the accounts of warranties
related to the divestment of the Groups Electroplating Division and,
to a lesser extent, from changes in foreign exchange rates. The
increase of other operating expenses was nearly all attributable to
higher expenses from changes in foreign exchange rates.


   Financial Result

   Financial result decreased to a loss of E 77 million in 1999 from
a gain of E 14 million in 1998. This decrease is primarily due to
results from our investment in the AgrEvo joint venture. Our income
from AgrEvo decreased from a profit of E 25 million in 1998 to a loss
of E 60 million in 1999. Goodwill amortization of E 6 million
relating our investment in AgrEvo has been recognized as well as our
share of the amortization of goodwill, amounting to E 22 million,
arising from AgrEvos


                                 85

<PAGE>


purchase of a number of companies. Included in the loss for 1999 are
restructuring costs of E 57 million. The decrease in financial result
in 1999 is also attributable to the inclusion in financial result in
1998 of extraordinary income of E 28 million from the disposal of
securities held for investment of a German insurance company.


   Taxes on Profit
   Taxes on profit increased E 6 million or 3% to E 181 million in
1999 from E 175 million in 1998. The effective tax rate decreased
from 41.3% in 1998 to 39.4% in 1999. Profit (loss) contributions from
AgrEvo are recorded net after tax. Adjusting for this effect would
reduce the effective tax rate to 34.9%. The decrease of the
(adjusted) tax rate is mainly attributable to the fact that (i) a
larger portion of the profit was distributed as dividends (with a
lower tax rate) and (ii) the corporate tax rate in Germany for
retained earnings was reduced from 45% to 40% in 1999.


   Net Income
   As a result of the foregoing, net income for 1999 increased by E
27 million or 11% to E 272 million in 1999 compared to E 245 million
in 1998.


Results of Operations by Segment

   Net sales, segment performance and segment result of each of our
geographic segments and our Other Activities segment are presented in
note 32 to our Consolidated Financial Statements and in accordance
with IAS 14 (Revised).


Europe Region
   The following table sets forth the net sales by business area,
and net sales by business area expressed as a percentage of total net
sales, of the Europe Region for the years ended December 31, 1999 and
1998:


<TABLE>
<CAPTION>
                                                          Year ended December 31,
                                                      1999                      1998
                                                          Percentage               Percentage
                                                            of Net                  of Net
                                                  E         Sales           E        Sales
                                                     (in millions, except percentages)
Net Sales Europe Region by Business Area:
<S>                                             <C>          <C>          <C>          <C>
Fertility Control and Hormone Therapy..........   702         40            657         40
Therapeutics...................................   613         35            562         34
Diagnostics....................................   319         18            310         19
Dermatology....................................   122          7            120          7
Other Sources..................................    10         --             --         --
                                               -------      -----        -------      -----
Total ......................................... 1,766        100          1,649        100
                                               -------      -----        -------      -----
                                               -------      -----        -------      -----
</TABLE>


   Net Sales
   Net sales increased by 7% to E 1,766 million in 1999 compared to
E 1,649 million in 1998. Overall, increases in sales volume (6%) and
prices (2%) offset minor negative exchange-rate effects (1%). Net
sales continued to be affected by government imposed price cuts,
fixed payments, positive and negative lists for the reimbursement of
products as well as the increased use of generic substitute products.

   In Germany, net sales increased 2% to E 487 million in 1999 from
E 476 million in 1998, despite price sensitivity in the market,
especially in the contrast media field. The increase in net sales was


                                 86
<PAGE>


mainly due to a 41% increase in net sales of Betaferon(R), our
treatment for multiple sclerosis, from E 39 million in 1998 to E 55
million in 1999. Net sales of our oral contraceptive Valette(R)
increased 7% to E 30 million in 1999 compared to E 28 million in
1998, enabling us to maintain our leading position in the German oral
contraceptive market. Net sales of our non-ionic X-ray contrast
medium Ultravist(R) decreased 14% to E 54 million in 1999 from E 62
million in 1998, but still made a substantial contribution to German
sales.

   In France, net sales increased 7% to E 184 million in 1999
compared to E 172 million in 1998. The increase was mainly due to
higher sales of the Mirena(R) intrauterine hormone delivery system for
fertility control and the introduction of a new range of gestodene-
based hormonal oral contraceptive products. Higher net sales of
Climara(R), our hormonal patch for the treatment of climacteric
disorders, and Betaferon(R) also contributed to the increase in France.
In Italy, net sales increased 9% to E 201 million in 1999 from E 184
million in 1998, due to positive volume effects in net sales of the
low-dosage oral contraceptive Meliane(R), the X-ray contrast medium
Ultravist(R), and our therapeutic for the treatment of sleep disorders,
Noctamid(R), and favorable price effects in net sales of our anti- acne
product Diane(R)-35. Net sales in Spain increased 15% to E 134 million
in 1999 from E 117 million in 1998. The increase in net sales was
attributable to positive volume and price effects for the active
ingredient of Ultravist(R) (which is manufactured in Spain for export)
and increased sales volume of Betaferon(R). A decrease in sales volume
of Diane(R)-35 was offset by favorable price effects. In Great Britain,
net sales increased 11% to E 118 million in 1999 compared to E 106
million in 1998. Increased sales volumes of Mirena(R), Betaferon(R) and
Diane(R)-35 drove the increase in net sales. Net sales in Finland
(which include worldwide export sales of Leiras Oy) decreased 11% to
E 113 million in 1999 from E 127 million in 1998. The lower export
sales volume of our transdermal hormonal contraceptive Norplant(R) was
partly offset by the increased sales volume of our therapeutic
Bonefos(R). In the markets of Central and Eastern Europe, net sales
increased 12% in 1999 as compared to 1998.

   In the Fertility Control and Hormone Therapy business area, net
sales increased by 7% to E 702 million in 1999 compared to E 657
million in 1998, due to increased prices and higher sales volume. The
intrauterine hormone delivery system Mirena(R) and the low dosage oral
contraceptive Meliane(R) both achieved significant sales volume growth
during 1999. Net sales of Mirena(R) increased 45% to E 59 million in
1999 from E 41 million in 1998, with significant sales growth
reported in France, Germany and the Netherlands. Net sales of
Meliane(R) increased 68% from E 28 million in 1998 to E 48 million in
1999.

   Net sales in the Therapeutics business area increased by 9% to E
613 million in 1999 compared to E 562 million in 1998 principally due
to increases in sales volume. Increased prices also contributed to
the growth in net sales. The increase in net sales was driven by a
significant growth in sales volume of Betaferon(R). Sales of Betaferon(R)
increased 23% to E 227 million in 1999 compared to E 185 million in
1998. In January 1999, Betaferon(R) was approved for the treatment of
the secondary progressive form of multiple sclerosis in the European
Union. Betaferon(R) is the only product approved in Europe for the
treatment of both the more advanced, secondary progressive form of
multiple sclerosis as well as the relapsing-remitting form of the
disease.

   Net sales in the Diagnostics business area increased by 3% to E
319 million in 1999 compared to E 310 million in 1998. A significant
increase in sales volume was partly offset by a reduction in product
prices.

   In the Dermatology business area, net sales increased by 2% to E
122 million in 1999 as compared to E 120 million in 1998. The
increase was due to favorable volume and price effects, which offset
a negative currency effect. The top selling dermatology products were
Advantan(R), a preparation for the treatment of eczema, and Travocort(R),
a product for the treatment of fungal infections, which mainly
accounted for the volume effect.


                                 87
<PAGE>


   Segment Performance/Segment Result

   Segment performance increased by 12% to E 769 million in 1999
compared to E 687 million in 1998. The increase in net sales was
partly offset by increased expenses and adverse exchange-rate
effects, particularly with respect to Turkey and the Commonwealth of
Independent States. Segment performance was particularly affected by
increased marketing and selling costs during 1999, which resulted
primarily from new product launches (including Betaferon(R) for the
treatment of the secondary progressive form of multiple sclerosis,
Meliane(R) in the Great Britain and Mirena(R) in several markets) and
from the implementation of a new product distribution structure in
Germany.

   After allocation of E 325 million of research and development
costs and E 63 million of central production overhead/variances, the
segment result in 1999 was E 381 million, representing an increase of
20% from E 317 million in 1998. Compared to 1998, costs of research
and development increased by E 25 million mainly due to strategic
projects and cooperations launched in 1999.


United States Region

   The following table sets forth the net sales by sub-segment, and
net sales by sub-segment expressed as a percentage of total net
sales, of the United States Region for the years ended December 31,
1999 and 1998:


<TABLE>
<CAPTION>
                                                         Year ended December 31,
                                                     1999                    1998
                                                       Percentage                 Percentage
                                               E      of Net Sales       E       of Net Sales
                                                   (in millions, except percentages)
Net Sales United States Region by Sub-Segment:
<S>                                           <C>          <C>          <C>          <C>
Berlex .....................................  626           81          554           82
Medrad .....................................  149           19          124           18
                                             -----        -----        -----        -----
Total ......................................  775          100          678          100
                                             -----        -----        -----        -----
                                             -----        -----        -----        -----
</TABLE>


   The following table sets forth the net sales by business area,
and net sales by business area expressed as a percentage of total net
sales, of the United States Region, for the years ended December 31,
1999 and 1998:


<TABLE>
<CAPTION>
                                                         Year ended December 31,
                                                     1999                    1998
                                                       Percentage                 Percentage
                                               E      of Net Sales       E       of Net Sales
                                                   (in millions, except percentages)
Net Sales by Business Area:
<S>                                           <C>          <C>          <C>          <C>
Fertility Control and Hormone Therapy......   129           17         143           21
Therapeutics...............................   403           52         331           49
Diagnostics................................   243           31         204           30
                                             -----        -----        -----        -----
Total .....................................   775          100         678          100
                                             -----        -----        -----        -----
                                             -----        -----        -----        -----
</TABLE>


   Net Sales
   Net sales increased by 14% to E 775 million in 1999 compared to E
678 million in 1998. The increase in net sales was driven by a
significant increase in sales volume (12%) which was partly offset by
decreased product prices (3%). The depreciation of the euro against
the dollar during 1999 also accounted for a portion of the increase
in net sales (5%).


                                 88

<PAGE>


Net sales of Berlex increased by 13% from E 554 million in 1998 to E
626 million in 1999, while net sales of Medrad increased by 20% from
E 124 million in 1998 to E 149 million in 1999. Of Medrads sales,
70% or E 105 million were achieved in the United States Region during
1999 compared to 71% or E 88 million during 1998. Medrads net sales
increase was attributable to increased sales volume of MRI injectors
and syringes and the expansion of Medrads international business.
Prices for Medrads products generally remained stable.

   Net sales in the Therapeutics business area increased by 22% to E
403 million in 1999 compared to E 331 million in 1998. Increased
sales volume for Betaseron(R) (the trademark for Betaferon(R) in the
United States) and increased sales volume and increased prices for
Betapace(R), used for the treatment of severe cardiac rhythm disorders,
were the main factors leading to the increase in net sales. Net sales
of Betapace(R) increased 23% to E 157 million in 1999 from E 128

million in 1998. Net sales of Betaseron(R) increased 21% to E 189
million in 1999 compared to E 156 million in 1998, despite lower
prices due to competitive pressure. Net sales of the leukemia therapy
Fludara(R) and the radiopharmaceutical product Quadramet(R) also
contributed to the increase in net sales.

   In the Diagnostics business area, net sales increased by 19% to E
243 million in 1999 from E 204 million in 1998. Excluding the
contribution to sales growth by Medrads vascular injection systems,
net sales increased by 17% to E 93 million in 1999 from E 80 million
in 1998, due to increases of sales volume for Magnevist(R) and
Ultravist(R), which volume increases were partly offset by a decline in
pricing for the two products. Sales of Magnevist(R), our MRI contrast
medium, increased 14% from E 69 million in 1998 to E 79 million in
1999, while sales of Ultravist(R), our X-ray contrast medium, increased
36% from E 10 million in 1998 to E 14 million in 1999.

   Net sales in the Fertility Control and HormoneTherapy business
area decreased 10% from E 143 million in 1998 to E 129 million in
1999. Oral contraceptive sales decreased 22% from E 76 million in
1998 to E 59 million in 1999, primarily due to decreased sales of
Levlen(R) (the trademark for Microgynon(R)30 in the United States) and
Tri-Levlen(R) (the trademark for Triquilar(R) in the United States) as a
result of competitive pressures and availability of generic
substitutes. Decreased sales of these products were partly offset by
increased sales of Levlite(R) (the trademark for Miranova(R) in the
United States). Sales of Climara(R), a hormone patch for the treatment
of climacteric disorders, increased slightly to E 70 million in 1999
compared to E 66 million in 1998. Climara(R) continues to have a strong
leadership position within the transdermal estrogen-only product
segment in the United States Region.

   Segment Performance/Segment Result
   Segment performance increased by 13% to E 277 million in 1999
compared to E 245 million in 1998. The increase in net sales was
partly offset by increased marketing and selling costs and higher
royalty payments due to higher volume of sales of Betaseron(R) and
Betapace(R). The increase in marketing and selling costs is primarily
attributable to increases in the sales force in the Fertility Control
and Hormone Therapy and Therapeutics business areas in preparation
for planned product launches in 2000.

   We have targeted the United States Region as a key market for
achieving accelerated sales and profit growth rates over the next
five years. As part of our global research and development activity,
we are broadening our research and development activity in the United
States Region. As a consequence, research and development expense was
higher as a percentage of external net sales compared to the other
segments and significantly reduced the United States Region segment
result.

   After allocation of E 214 million of research and development
costs and E 5 million of central production overhead/variances,
segment result in 1999 was E 58 million, representing an increase of


                                 89

<PAGE>


26% from E 46 million in 1998. Compared to 1998, costs of research
and development rose E 19 million. This increase was mainly
attributable to strategic projects and cooperations launched in 1999.


Japan Region

   The following table sets forth the net sales by business area,
and net sales by business area expressed as a percentage of total net
sales, of the Japan Region for the years ended December 31, 1999 and
1998:

<TABLE>
<CAPTION>

                                                                  Year ended December 31,
                                                               1999                     1998
                                                                   Percentage               Percentage
                                                                   of Net                   of Net
                                                          E        Sales           E        Sales
                                                             (in millions, except percentages)
Net Sales Japan Region by Business Area:
<S>                                                      <C>         <C>          <C>         <C>
Fertility Control and Hormone Therapy.............        16           3            9           3
Therapeutics......................................        25           6           24           7
Diagnostics.......................................       380          84          282          82
Dermatology.......................................        33           7           28           8
                                                        -----       -----        -----       -----
Total ............................................       454         100          343         100
                                                        -----       -----        -----       -----
                                                        -----       -----        -----       -----
</TABLE>

   Net Sales
   Net sales increased by 32% to E 454 million in 1999 compared to
E 343 million in 1998. The extraordinary increase in net sales is
primarily attributable to highly favorable exchange-rate effects
(23%) and, to a lesser extent, volume increases (10%). Price
reductions expected to be mandated by the Japanese Ministry of Health
and Welfare did not occur in 1999, but did become effective in April 2000.

   In the Diagnostics Business area, which accounted for 84% of
total net sales during 1999, net sales increased by 35% to E 380
million in 1999 compared to E 282 million in 1998. This increase was
due to favorable exchange-rate effects and volume increases, which
were partly offset by decreased prices. Increased net sales of the
MRI contrast medium Magnevist(R) and the X-ray contrast medium
Iopamiron(R) drove the growth in diagnostics. Increased net sales of
pre-filled containers of Iopamiron(R) and Magnevist(R) were a key factor
in this sales growth.

   Net sales of products from the Fertility Control and Hormone
Therapy business area, which represented 3% of net sales in the Japan
region in 1999, increased 78% to E 16 million in 1999 compared to
E 9 million in 1998 due to volume increases and favorable exchange-rate
effects. We expect our net sales in the Fertility Control and Hormone
Therapy business in 2000 to be strengthened from increased net sales
of the oral contraceptive Triquilar(R), which was launched in September
1999. We also believe that net sales of therapeutics products will
increase substantially in 2000 due to the acquisition of Mitsui
Pharmaceuticals in March 2000.

   Segment Performance/Segment Result
   Segment performance increased by 40% to E 167 million in 1999
compared to E 119 in 1998. Increased net sales and lower cost of
sales led to a higher gross contribution, which was partly offset by
increased marketing and selling costs as well as by higher
contractually-determined costs for iopamidol, the active ingredient
of Iopamiron(R), our best-selling product in the Japan Region. The
increase in marketing and selling costs resulted from adverse
exchange-rate effects.

   After allocation of E 75 million of research and development
costs and E 17 million of central production overhead/variances,
segment result in 1999 was E 75 million, representing an increase of


                                 90
<PAGE>

83% from E 41 million in 1998. This increase was due to a favorable
development of segment performance which was only partly offset by
the allocated cost components.

Latin America/Canada Region
   The following table sets forth the net sales by business area,
and net sales by business area expressed as a percentage of total net
sales, of the Latin America/Canada Region for the years ended
December 31, 1999 and 1998:

<TABLE>
<CAPTION>

                                                                  Year ended December 31,
                                                               1999                     1998
                                                                   Percentage               Percentage
                                                                   of Net                   of Net
                                                          E        Sales           E        Sales
                                                             (in millions, except percentages)
Net Sales Latin America/Canada Region
by Business Area:
<S>                                                      <C>         <C>          <C>         <C>
Fertility Control and Hormone Therapy.............       233          63          226          63
Therapeutics......................................        63          17           59          17
Diagnostics.......................................        42          11           40          11
Dermatology.......................................        25           7           26           7
Other Sources.....................................         9           2            8           2
                                                        -----       -----        -----       -----
Total ............................................       372         100          359         100
                                                        -----       -----        -----       -----
                                                        -----       -----        -----       -----
</TABLE>

   Net Sales
   Net sales increased by 4% to E 372 million in 1999 compared to E
359 million in 1998, primarily as a result of volume increases (10%)
and price increases (12%), partially offset by highly unfavorable
exchange-rate effects (18%). The unfavorable exchange-rate effects
were caused primarily by the depreciation of the Brazilian real,
which lost 34% of its value against the euro during 1999.

   The increase in net sales was driven by increased net sales in
Argentina, Canada and Mexico, which offset significantly decreased
net sales in Brazil. In Argentina, net sales increased by 14% to E 64
million in 1999 compared to E 56 million in 1998, while net sales in
Canada increased 25% from E 35 million in 1998 to E 44 million in
1999. Net sales in Mexico increased 32% to E 57 million in 1999
compared to E 43 million in 1998. The increase in net sales in
Argentina and Mexico is attributable to higher volumes and prices,
while the increase in Canada is mainly attributable to increased
sales volume, particularly Betaseron(R) and our leukemia therapy
Fludara(R). Net sales in Brazil decreased by 19% from E 139 million in
1998 to E 112 million in 1999, primarily due to the depreciation of
the Brazilian real.

   Net sales in the Fertility Control and Hormone Therapy business
area increased 3% to E 233 million in 1999 compared to E 226 million
in 1998. The increase is attributable to the 60% increase in net
sales of the low-dosage oral contraceptive Meliane(R), the 15% increase
in net sales of the oral contraceptive Microgynon(R) and the 9%
increase in net sales of Diane(R)-35. These increases were achieved due
to increases in sales volume and price, which offset highly
unfavorable exchange-rate effects, primarily in Brazil. The top-
selling products in the Latin America/Canada region during 1999 were
Microgynon(R) (net sales of E 39 million) and Femovan(R) (E 34 million).

   In the Therapeutics business area, net sales increased 7% to E 63
million in 1999 compared to E 59 million in 1998. This growth is
primarily due to a 31% increase in net sales of Betaferon(R), primarily
in Canada, despite strong competition, from E 24 million in 1998 to E
31 million in 1999. Net sales also increased for Fludara(R) from E 4 million
in 1998 to E 6 million in 1999, mainly due to increased sales in Canada,
Argentina and Brazil. Net sales of Androcur(R), an antiandrogen used for the


                                 91
<PAGE>

treatment of prostate cancer, decreased to E 16 million in 1999
compared to E 22 million in 1999 due to competition from generic
products.

   Net sales in the Diagnostics business area increased 5% to E 42
million in 1999 compared to E 40 million in 1998. The increase is
mainly due to higher net sales of Iopamiron(R), which increased 11% to
E 24 million in 1999 compared to E 22 million, particularly on
account of increased institutional sales in Mexico.


   Net sales in the Dermatology business area remained at a nearly
constant level of E 25 million in 1999 compared to E 26 million in
1998. This change is primarily due to decreases in net sales of Gyno-
Travogen(R) and Travogen(R), which decreases were partly offset by net
sales of the recently launched product Advantan(R).

   Segment Performance/Segment Result
   Segment performance increased by 14% to E 119 million in 1999
compared to E 104 million in 1998. The increase is due to the
increase in net sales in 1999 and the improvement in costs (due to
exchange-rate effects) compared to 1998. During 1998, we incurred
significant one-time expenses in our Brazilian operations and to a
lesser extent, our Chilean operations. See "-1998 Compared with
1997-Latin America/Canada Region-Segment Performance/Segment Result".

   After allocation of E 44 million of research and development
costs and E 8 million of central production overhead/variances,
segment result in 1999 was E 67 million, representing an increase
of 24% from E 54 million in 1998.

Asia Region
   The following table sets forth the net sales by business area,
and net sales by business area expressed as a percentage of total net
sales, of the Asia Region for the years ended December 31,
1999 and 1998:

<TABLE>
<CAPTION>

                                                                  Year ended December 31,
                                                               1999                     1998
                                                                   Percentage               Percentage
                                                                   of Net                   of Net
                                                          E        Sales           E        Sales
                                                             (in millions, except percentages)
Net Sales Asia Region by Business Area:
<S>                                                      <C>         <C>          <C>         <C>
Fertility Control and Hormone Therapy..............       63          38           52          41
Therapeutics.......................................       21          13           13          10
Diagnostics........................................       56          34           46          36
Dermatology........................................       16          10           13          10
Other Sources......................................        8           5            4           3
                                                        -----       -----        -----       -----
Total .............................................      164         100          128         100
                                                        -----       -----        -----       -----
                                                        -----       -----        -----       -----
</TABLE>

   Net Sales
   Net sales increased by 28% to E 164 million in 1999 compared to
E 128 million in 1998. This extraordinary increase is mainly
attributable to the higher volume (28%) and favorable exchangerate
effects (9%) due to the recovery of the markets in the Asia Region
during 1999 as compared to 1998. In South Korea, net sales increased
36% to E 35 million from E 26 million in 1998, while in China
(including Hong Kong), net sales increased 19% from E 14 million in
1998 to E 17 million in 1999. Net sales for Indonesia increased
steeply from E 7 million in 1998 to E 14 million in 1999.

   Net sales in the Fertility Control and Hormone Therapy business
area increased 21% to E 63 million in 1999 compared to E 52 million
in 1998. Net sales of Diane(R)-35, which constituted 16% of net


                                 92
<PAGE>

sales from this business area in 1999, increased 42% from E 7
million in 1998 to E 10 million in 1999. Higher net sales of the oral
contraceptives Femovan(R), which increased from E 8 million in 1998 to
E 9 million in 1999, and Microgynon(R)-30, which increased from E 7
million in 1998 to E 8 million in 1999, resulted from higher volumes.

   In the Therapeutics business area, net sales increased 62% to E
21 million in 1999 from E 13 million in 1998. The steep increase in
net sales in the Therapeutics business area is primarily attributable
to positive volume effects of our products Betaferon(R), Androcur(R) and
Bonefos(R). Net sales of Betaferon(R) increased 82% from E 4 million in
1998 to E 7 million in 1999 (67% of Betaferon(R)s net sales in the
Asia Region were made in Israel). Net sales of Androcur(R) increased
42% from E 3 million in 1998 to E 5 million in 1999, while net sales
of Bonefos(R), a tumor therapy, doubled to E 4 million in 1999 from E 2
million in 1998.

   Net sales in the Diagnostics business area increased 22% to E 56
million in 1999 compared to E 46 million in 1998. The growth is
primarily attributable to increased net sales of Ultravist(R) and
Magnevist(R). Net sales of our top-selling X-ray contrast medium
Ultravist(R), which constituted 65% of net sales of the diagnostics
business area in 1999, increased 27% from E 28 million in 1998 to E
36 million in 1999. Net sales of the MRI contrast medium Magnevist(R)
increased to E 10 million in 1999 as compared to E 8 million in 1998.

   Net sales in the Dermatology business area increased 23% to E 16
million in 1999 from E 13 million in 1998. The increase in net sales
resulted from positive volume, price and exchange-rate effects over
the product range.

   Segment Performance/Segment Result
   Segment performance increased by 38% from E 39 million in 1998 to
E 54 million in 1999. The increase resulted from higher net sales
offsetting higher, primarily currency induced, costs.

   After allocation of E 18 million of research and development
costs and E 12 million of central production overhead/variances,
segment result in 1999 was E 24 million, representing an increase of
118% from E 11 million in 1998. This increase was primarily driven by
the significant growth in segment performance.

Other Activities
   The following table sets forth the net sales by sub-segment, and
net sales as a percentage of total net sales, for the Other
Activities segment for the years ended December 31, 1999 and 1998:

<TABLE>
<CAPTION>

                                                                  Year ended December 31,
                                                               1999                     1998
                                                                   Percentage               Percentage
                                                                   of Net                   of Net
                                                          E        Sales           E        Sales
                                                             (in millions, except percentages)
Net Sales:
<S>                                                      <C>         <C>          <C>         <C>
Pharmaceutical Chemicals...........................       97          68           84          66
Other .............................................       46          32           44          34
                                                        -----       -----        -----       -----
Total .............................................      143         100          128         100
                                                        -----       -----        -----       -----
                                                        -----       -----        -----       -----
</TABLE>


                                 93
<PAGE>

   Net Sales
   Net sales increased by 12% to E 143 million in 1999 compared to E
128 million in 1998.

   Net sales for the Pharmaceutical Chemicals sub-segment increased
16% to E 97 million in 1999 compared to E 84 million in 1998,
primarily due to increased volumes of various intermediates and
active ingredients and new projects involving tailor-made chemistry.

   Segment Performance/Segment Result
   Segment performance increased by 36% to E 75 million in 1999 from
E 55 million in 1998. This increase is primarily attributable to
increased sales volume of pharmaceutical chemicals.

   After allocation of E 8 million of research and development costs
and E 26 million of central production overhead/variances, segment
result in 1999 was E 41 million, representing an increase of 105%
from E 20 million in 1998. This increase was primarily driven by the
significant growth in segment performance.

LIQUIDITY AND CAPITAL RESOURCES

Overview
   The Groups cash and cash equivalents as of December 31, 2000,
1999, 1998 were E 274, E 102 and E 367 million respectively. As of
December 31, 2000 the Group had a positive net cash position (which
it defines as cash, cash equivalents and marketable securities less
liabilities to banks) of E 418 million, compared with E 397 million
at December 31, 1999, and approximately E 821 million at December 31,
1998. The positive net cash position is primarily due to pension
liabilities from German retirement benefit plans, which are financial
resources for the Group, and as of December 31, 2000, 1999, 1998
amounted to E 1,153, E 1,101 and E 1,049 million, respectively. As
the pension obligations in Germany usually remain unfunded, the
Group, like most German companies, considers its unfunded pension
obligations as long-term financing obligations. We believe that cash
flows from operating activities, along with available cash and cash
equivalents and marketable securities, will be sufficient to fund all
of our anticipated operating needs in 2001, including capital
expenditures, research cooperation projects, debt service and dividends.

Operations
   Cash flows from operating activities were E 465 million in 2000,
E 275 million in 1999 and E 382 million in 1998. The cash flow before
working capital changes for 2000 of E 645 million was only slightly
higher compared to E 631 million in  1999 due to profits of E 31
million (after taxes) from the disposal of financial investments that
are shown within the cash flow from investing activities.

Investing
   Cash flows used in investing activities were E 119 million in
2000, E 261 million in 1999 and E 561 million in 1998. The decrease
in 2000 as compared to 1999 is mainly due to the capital contribution
of E 159 million to AgrEvo in 1999. The main acquisition projects in
2000 were Mitsui Pharmaceuticals and 60% of the CIS group which
together accounted for approximately E 99 million. In 1999 the
acquisition of Diatide for E 126 million was the main item. Proceeds
of E 190 million (1999: E 132 million) resulted from the change in
securities.


                                 94
<PAGE>

Financing
   Cash flows used in financing activities were E 172 million in
2000, E 283 million in 1999 and E 193 million in 1998. This cash flow
resulted mainly from dividend payments of E 165 million.  In 1999 in
addition to dividend payments of E 91 million our share repurchase
program had an impact of E 183 million.

Borrowings
   Borrowings are reflected in our Consolidated Financial Statements
as "liabilities to banks". Our liabilities to banks are generally of
a short term nature (maturity of less than one year). Liabilities to
banks at December 31, 2000 were E 234 million, compared to E 186
million at December 31, 1999 and E 177 million at December 31, 1998.

Share Repurchase Program
   Our share repurchase program, started in 1998, was not continued
during 2000. Instead we paid a bonus dividend from existing, fully-
taxed equity to enable our German resident shareholders to benefit
from certain tax advantages in Germany prior to the introduction of a
tax law change.

   During 1998 and 1999, Schering AG acquired approximately 7
million shares (representing approximately 3.4% of its share capital
at the beginning of the share repurchase program) at an aggregate
purchase price of E 253 million.

   In December 2000, 170,000 shares were acquired to be used for the
share bonus program for employees.

Recent Acquisitions
   We make small-sized to mid-sized acquisitions from time to time
in order to

  .  expand our product portfolio,

  .  acquire promising technological developments,

  .  increase our presence in important geographic markets.

   During November 1999, we acquired Diatide Inc., a pharmaceutical
firm that specializes in research and development of
radiopharmaceuticals for diagnostic imaging and cancer therapy.


   During March 2000, we acquired the Japanese pharmaceutical
company Mitsui Pharmaceuticals.

   Since April 2000 we hold a  60%  interest in the French
radiopharmaceutical company  CIS bio international S.A.

   We presently intend to acquire the 25.1% of Jenapharm that we do
not own in 2001 for E 150 million through the exercise of a call option
granted in connection with our initial acquisition of Jenapharm in 1996.


                                 95
<PAGE>

Capital Expenditures

   We generally fund our capital expenditures with cash flow from
operations and, if such funds are not sufficient, liquid funds,
including cash, cash equivalents and marketable securities. Capital
expenditures for property, plant and equipment amounted to E 184
million in 2000 as compared to E 163 million in 1999 and E 180
million in 1998.

   45% of the expenditure in 2000 related to Germany, 16% to other
countries of the European Union, 18% to the United States and 9% to
Japan. 16% of our capital outlay was spent on research and
development. 50% was spent in the production area and on safety and
environmental protection. Improving infrastructure and miscellaneous
functions accounted for 34% of overall investment. To cater to our
expanding marketing and sales activities in the United States, we
completed the expansion of our site in Montville, New Jersey.

   Capital expenditures during 2001 will increase considerably and
are expected to total E 229 million. We have begun to concentrate
formulation and packaging of liquid and solid dosage forms, which are
currently divided over two sites, at one site in Berlin. At our
Bergkamen production site, we plan to expand the microbiological
production capacity. In addition, we plan to expand our
biotechnological development plant in Richmond, California.

   Capital expenditures are expected to be at the same level as in
2001 over the next years in order to maintain existing facilities,
meet changing regulatory, health, safety and environmental law
requirements, achieve process improvement and to promote the launch
and manufacture of new products.

Dividends
   Schering AG paid cash dividends of E 165 million (E 0.50 per
share plus a bonus dividend of E 0.33 per share) in 2000, E 91
million (E 0.46 per share) in 1999, and E 87 million (E 0.43 per
share) in 1998. The Executive Board will propose to the Annual General
Meeting that the dividend for fiscal 2000 be increased to E 0.67 per
share with an additional bonus dividend of E 0.33 per share
(E 198 million or E 1.00 per share in total). The primary purpose of
additional bonus dividends paid in 2000 and proposed to be paid in 2001
is to enable German resident shareholders to benefit from certain tax
credits available in Germany prior to the introduction of a tax law amendent.

United States GAAP Reconciliation
   As discussed elsewhere in this annual report, we prepared our
Consolidated Financial Statements in accordance with IAS. For periods
ending on or prior to December 31, 1998, the Consolidated Financial
Statements also were in accordance with the German Commercial Code
(Handelsgesetzbuch). Differences between IAS and the German
Commercial Code were not material for periods ending on or prior to
December 31, 1998. IAS differ in certain material respects from
United States Generally Accepted Accounting Principles. A comparison
of net income, net income per share (basic) and shareholders equity
at, or for the year ended, December 31, 1998, 1999 and 2000
determined under IAS and after reflecting the material adjustments
which would arise if United States Generally Accepted Accounting
Principles were to be applied instead of IAS is shown below.


                                 96
<PAGE>

<TABLE>
<CAPTION>

                                                                       December 31,
                                                                2000         1999     1998
                                                             $        E        E        E
                                                          (in millions, except per share data)
Net income:
<S>                                                         <C>      <C>      <C>      <C>
IAS..................................................       315      336      272      245
United States GAAP...................................       287      306      248      254
Net income per share (basic):
IAS..................................................      1.59     1.70     1.35     1.19
United States GAAP...................................      1.46     1.55     1.23     1.24
Shareholders equity:
IAS..................................................     2,156    2,297    2,098    2,010
United States GAAP...................................     2,163    2,304    2,061    1,979
</TABLE>

   As more fully described and quantified in note 36 to our
Consolidated Financial Statements, the major differences between IAS
and United States Generally Accepted Accounting Principles relate to
accounting for business combinations (research-in-process charges),
compensation costs for early retirement programs and stock option
plans, environmental costs, valuation of securities, capitalization
of interest costs and cash flow hedges.

   Net income under US GAAP is lower by 9% in 2000 and 1999,
respectively, as compared to net income under IAS for the same
periods. In 2000, net income under US GAAP was primarily affected by
higher compensation costs for our early retirement programs (the
costs are recognized up front under IAS but recognized over the
remaining service period of the employees under US GAAP) and higher
costs for our stock option plans. In 1999, the primary reasons for
lower net income under US GAAP are the reversal of environmental
provisions not included in net income under US GAAP, our policy for
deferring profits and losses on hedging instruments under IAS which
does not qualify for hedge accounting under US GAAP, and expenses for
acquired research-in-process which are capitalized as part of
goodwill under IAS.

   While our Consolidated Financial Statements for 1999 show an
increase in net income of 11% under IAS as compared to 1998, net
income decreased slightly by 2% under US GAAP for the same period.
The primary reasons for this change in trend are the items with an
adverse effect on net income under US GAAP in 1999 which are
discussed above.

   A classification difference also arises in presenting interest
relating to unfunded pension obligations. Under IAS, interest
relating to the unfunded pension obligation is classified in
financial result. See note 10 to our Consolidated Financial
Statements. Under US GAAP, interest on pension obligations is
considered a component of compensation expense. Accordingly,
operating profit under US GAAP would be lower and financial result
higher by E 73 million in 2000, E 69 million in 1999, and E 71
million in 1998.

Restructuring Program

   We have engaged in two major restructuring programs involving our
European production facilities in recent years.

   As part of the implementation of the European Production
Initiative, we have reduced the number of production facilities in
Europe. Each of our remaining facilities now generally specializes in
one dosage form. Between 1996 and 1999, non-capitalized
implementation costs for this program totaled E 24 million and
capital investment for infrastructure upgrades was E 50 million. The
program implementation is completed and final optimization efforts
were completed in 2000.


                                 97
<PAGE>

   A second restructuring plan involving the consolidation of the
packaging operations for liquid and solid dosage forms in Berlin was
approved in 1998, implementation started in 1999, and it is scheduled
to be completed during 2003. These operations, which currently are
spread over two sites in Berlin, will be conducted only at the Berlin
Wedding facility in order to optimize the utilization of facilities,
permitting a sustained reduction in inventory and allowing for
enhanced flexibility in reacting to market demands. The total costs
of the program are expected to be E 75 million, of which E 35 million
are non-capitalized implementation costs expensed as occurred and E
40 million are capital expenditures. As a consequence, approximately
270 jobs will become redundant in the subsequent years. As a result
of the restructuring plan in 1998, we recognized a provision of E 18
million for employee termination benefits.

Aventis CropScience
   Formation of Aventis CropScience
   AgrEvo was formed in 1994 as a joint venture between Hoechst
Aktiengesellschaft, Roussel Uclaf and Schering AG. The Group
contributed its agrochemical assets (which accounted for
approximately 22% of Group net sales in 1992) to the joint venture
and obtained a 40% interest in AgrEvo. As a result of the acquisition
by Hoechst AG of all of the shares of Roussel Uclaf in 1997, Hoechst
increased its ownership interest in AgrEvo to 60%.

   During December 1999, Rhone-Poulenc S.A. acquired Hoechst. Rhone-
Poulenc subsequently changed its name to Aventis S.A. In connection
with this transaction, we entered into a Partners Agreement with
Aventis and Hoechst on December 29, 1999. Under this agreement,
Aventis contributed all of its shares in its crop protection and crop
science business, Rhone-Poulenc Agro S.A., and we and Hoechst each
contributed all of our interests in AgrEvo GmbH to form a new
company, Aventis CropScience S.A. Following the completion of these
transactions, this combined company, Aventis CropScience, became a
76%-owned consolidated subsidiary of Aventis and the Schering AG
Group holds the remaining 24% ownership interest in Aventis
CropScience. Under the Partners Agreement, we were legally obligated
to the exchange of our interests in AgrEvo for interests in Aventis
Crop Science on December 29, 1999. The transaction was consummated on
January 1, 2000. For a description of the Partners Agreement, see
"Item 4- Information on the Company-Aventis CropScience-Description
of Aventis CropScience Partners Arrangements".

   Since the formation of AgrEvo through December 31, 2000, we have
contributed an aggregate of approximately E 500 million to the
AgrEvo/Aventis CropScience joint venture. Of this aggregate amount,
approximately E 210 million or 42% (primarily our agrochemical assets
and liabilities) was contributed in connection with the formation of
the joint venture in 1994 and approximately E 290 million or 58% was
contributed in cash during the years 1997 to 1999 in connection with
proposed acquisitions.

   We presently hold a 24% ownership interest in Aventis CropScience
for investment purposes. As is described under "Item 4-Information on
the Company-Aventis CropScience-Description of Aventis CropScience
Partners Arrangements", under the terms of the Partners Agreement
with Aventis S.A., we generally do not participate in the management
of Aventis CropScience. The Partners Agreement also restricts our
ability to transfer our shares in Aventis CropScience to a third
party or pledge such shares until after December 31, 2003. Under the
agreement, we will have the right to sell our shares of Aventis
CropScience in a public offering after December 31, 2003 (subject to
the rights of Aventis S.A. to purchase all of our shares at fair
market value if we exercise this right). After January 1, 2007, we
may exercise an option entitling us to put all of our shares in
Aventis CropScience to Aventis S.A. at fair market value, and Aventis
may exercise an option entitling it to call all of our shares in
Aventis CropScience at fair market value.


                                 98

<PAGE>


   As the restructuring of Aventis CropScience continues, we may be
requested by Aventis S.A. to make additional capital contributions to
Aventis CropScience. If we do not make such contributions, our
ownership interest in Aventis CropScience would probably be reduced.
In addition, further significant restructuring charges by Aventis
CropScience could also adversely affect our results of operations.

   Aventis has publicly stated that it is considering selling part
or all of its shares in Aventis CropScience by way of an initial
public offering or otherwise. In connection with this, we are
presently discussing with Aventis certain possible amendments to the
Partners Agreement.


   Aventis CropScience Results of Operations
   2000 Compared to 1999

   2000 was the first full year of operations for Aventis
CropScience, in which we have a 24% stake. Aventis CropScience
reported net sales of E 4,034 million in 2000, which was slightly
down on pro forma sales of E 4,060 million in 1999 (all the figures
for 1999 are on a pro forma basis). Favorable exchange-rate effects
almost offset the effects of lower sales volumes and prices.

   In June 2000, Aventis CropScience reorganized its global
commercial operations structure to focus on seven lead countries
(Brazil, China, France, Germany, Japan, Great Britain and the United
States). The organizations in these lead countries have also taken
responsibility for marketing and distribution in certain neighboring
countries. For this reason, comparisons with last year have been made
on this basis.

   The global crop protection market grew at a nominal rate of 1-2%
in 2000. Among other things, this growth was based on stronger demand
for soya herbicides and cereal fungicides, two areas in which Aventis
CropScience  is not very active. In cereal herbicides by contrast,
one of Aventis CropSciences core businesses, the market came under
pressure  from poor weather conditions, intense competition and
falling world market prices for cereals.

   In the United States, where Aventis CropScience made 19% of total
sales in 2000, net sales increased 18% to E 764 million in 2000
compared to E 650 million in 1999. Lower sales of the corn herbicide
Balance(R), were more than offset by excellent results elsewhere,
including the insecticide Temik(R) and the herbicides Puma(R) and
Liberty(R). In Brazil, the source of  10% of Aventis CropSciences
total sales in 2000, net sales rose 44% to E 409 million in 2000,
compared to net sales of E 284 million in 1999. Most of this increase
came from the sale of products containing the active substance
Fipronil for crops such as sugar-cane, soya and rice, as well as from
higher net sales in corn.

   Net sales in France, which accounted for 12% of total sales in
2000, decreased 14% to E 491 million in 2000 compared to net sales of
E 572 million in 1999. This was due to a decline in the market for
cereals and the imposition of an eco-tax in December 1999. In
Germany, which accounted for 6% of total sales in 2000, net sales
fell 14% to E 243 million compared to net sales of E 281 million in
1999. Net sales in the UK, which accounted for 2% of total sales in
2000, were down 31% at E 88 million
in 2000, compared to E 127 million in 1999. The main cause of this
was extremely difficult agronomic weather conditions, which prevented
any appreciable sowing in December.

   Net sales in Japan, which accounted for 4% of total sales in
2000, increased 18% to E 181 million in 2000 compared to E 153
million in 1999. This was partly due to the reorganization of the
business structure in Japan. In China, the source of less than 1% of
total sales in 2000, net sales rose 8%  from E 36 million in 1999 to
E 39 million in 2000.


                                 99
<PAGE>


Net sales in other countries, which together accounted for 45% of
total sales in 2000, fell 7% to E 1,819 million in 2000, compared to
E 1,957 million in 1999. Net sales in Canada decreased 23% to E 152
million in 2000 compared to E 198 million in 1999. This was caused by
the decision to streamline the product range and reduce the acreage
for Liberty(R)Link seeds. The decline in net sales thus caused was
partly offset by increases in sales volume of Puma(R) thanks to an
increase in the acreage devoted to cereals. Net sales in Colombia
increased 16% to E 68 million in 2000, compared to E 59 million in
1999, despite reduced acreages and lower pest pressures. In Argentina
net sales fell 37% to E 45 million in 2000, compared to E 71 million
in 1999 due to changes in the product portfolio in that country and
the economic situation of customers, which  led to a high level of
credit notes and bad debt issues with distributors. Net sales in
Mexico also fell 29% to E 41 million in 2000 compared to E 58 million
in 1999 due to a significant level of returned products as
distributor stocks were reduced. In Spain, Italy and the Benelux
countries net sales were  5% down at E 364 million, compared to E 384
million in 1999. Net sales in Australia were also 16% lower in 2000
at E 132 million, compared to E 157 million in 1999, due to a poor
cotton market. Net sales in India increased 29% to E 112 million in
2000, compared to E 87 million in 1999 despite a very competitive
environment.

   The EBITA (earnings before interest, taxes and amortization)
amounted to E 529 million in 2000, excluding one-time effects. This
was 12% up on the result of E 474 million in 1999, and was
essentially caused by an increase in gross profit from 47% to 50%.
The improved gross margin reflects the focus on key products and
countries. We expect that the product-range streamlining program,
which aims at concentrating on products with higher gross margins and
has involved  the sale of seven active substances, will lead to a
further improvement in the business result in 2001.

   Scherings share of losses totaled E 59 million after deduction
of goodwill write-offs, expenditure on restructuring measures, taxes
on profit, and additional one-off effects such as expenditures for a
call back program connected with the StarLink(R) seeds technology.


   1999 Compared to 1998
   Net sales for AgrEvo decreased 1% to E 2,158 million in 1999
compared to E 2,169 million in 1998. Favorable exchange-rate effects
and the first-time consolidation of results of acquired companies
almost completely offset reduced sales volumes and price decreases.

   Net sales in Europe, AgrEvos largest market (36% of net sales in
1999), decreased 3% to E 772 million in 1999 from E 800 million in
1998, principally due to lower sales in the Netherlands, the Great
Britain and Poland. The cereal herbicide market in Europe,
particularly in the Great Britain, came under heavy pressure due to
increased competition and lower demand.

   In North America, which represented 19% of AgrEvos net sales in
1999, net sales increased 2% to E 416 million in 1999 compared to E
407 million in 1998, due mainly to positive exchange-rate effects.
This increase is against the background of an overall market decrease
of approximately 5% in North America due to extreme weather
conditions and lower commodity prices to farmers, which has resulted
in lower use of crop protection products.

   Net sales in the Asia/Pacific region, accounting for 19% of
AgrEvos net sales in 1999, increased 9% to E 419 million in 1999
from E 383 million in 1998, primarily due to positive currency
movements and a general recovery from the regions economic
difficulties. Net sales were particularly strong
in South Korea (38% increase) due to price and exchange-rate effects,
in Japan (20% increase) due
to exchange-rate effects and Australia (12% increase) due to
favorable weather conditions. The increases in net sales were
partially offset by decreases in net sales in Pakistan (21%) and Hong
Kong/ China (17%).


                                 100

<PAGE>


Latin American sales, representing 12% of AgrEvos net sales in 1999,
decreased 15% from E 313 million in 1998 to E 266 million in 1999.
Particularly hard hit were Argentina (28% decrease) due to poor
weather and general economic difficulties in the agricultural sector,
Colombia (25% decrease), where the generally difficult economic
situation reduced sales, and Brazil, which sustained a 10% reduction
in net sales in 1999 compared to 1998 primarily due to the currency
devaluation having a negative effect on business.

   Operating profit for AgrEvo decreased 86% from E 180 million in
1998 to E 26 million in 1999. Operating profit for 1999 includes non-
recurring costs mostly related to the formation of Aventis
CropScience. Excluding the effects of these costs, operating profit
would have decreased by 24% due mainly to the reduction in business,
particularly in Latin America, and an increase in idle capacity.
Additionally, costs for research and development increased to E 276
million (13% of net sales in 1999) compared to E 253 million (12% of
net sales in 1998), reflecting an increase in resources allocated to
functional genomics research.

   AgrEvo had a loss after tax of E 8 million (excluding
extraordinary costs for the integration and restructuring of Aventis
CropScience) compared to a profit after tax of E 55 million in 1998.

   After deducting an additional E 6 million for amortization of
goodwill, after conforming to Schering AGs accounting policies (E 6
million) and including E 57 million for non-recurring charges, the
Groups share of the loss for 1999 was E 60 million. These charges
included E 15 million of integration costs incurred in 1999, and E 42
million relating to restructuring measures to be completed in 2000.

   See note 37 to our Consolidated Financial Statements under the
caption "Summarized financial information for significant associated
companies" for financial information of Aventis CropScience.

Inflation
   During the past three years, the effects of inflation on our
operations have not been material.


Foreign Currency
   Prior to January 1, 1999, our reporting currency was the Deutsche
Mark. Effective as of January 1, 1999, we adopted the euro as our
reporting currency.

   Sales made, and expenses incurred, by our subsidiaries located
outside of Germany (and the ten other member countries of the
European Union that have adopted the euro as their common currency)
are generally denominated in local currency. As a consequence, a
significant amount of our sales have been generated, and our costs
have been incurred, in currencies other than the euro.


                                 101

<PAGE>


We made sales in a range of currencies during 1998, 1999 and 2000 as
follows:


<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                                       2000     1999     1998
                                                                     (percentage of net sales)
<S>                                                                    <C>      <C>      <C>
Euro{(1)}.......................................................       39       43       --
Deutsche mark.....................................................      --       --       23
US dollar.........................................................      23       22       21
UK pound sterling.................................................       3        3        3
Italian lira......................................................      --       --        6
French franc......................................................      --       --        5
Japanese yen......................................................      15       12       10
Brazilian real....................................................       3        3        4
Other .............................................................     17       17       28
                                                                      -----    -----    -----
                                                                       100      100      100
                                                                      -----    -----    -----
                                                                      -----    -----    -----
</TABLE>

-----
(1)  Germany and ten other member states of the European Union adopted the euro
     as their common currency effective as of January 1, 1999.


   We translate the balance sheets of our subsidiaries that do not
use the euro as their functional currency into euro at the mid-market
rate on the balance-sheet date. Income and expenses are translated at
the average rate of exchange for the period. Comparability of our
performance between financial periods can be significantly affected
by fluctuations in the value of the euro against other currencies.
Moreover, our financial condition and results of operations may be
materially affected by movements in the exchange rate between foreign
currencies to which the Group is exposed and the euro. In general,
due to translation effects, appreciation of the euro relative to a
foreign currency has a negative effect on our reported consolidated
net sales, operating profit and net income. The depreciation of the
euro relative to a foreign currency generally has a positive effect
on our reported consolidated net sales, operating profit and net
income. The U.S. dollar, Japanese yen, British pound sterling and
Brazilian real are the most significant sources of this currency
translation risk. See note 5 to our Consolidated Financial
Statements.

   Net sales in 2000 increased 15% in local currency terms and 22%
in euro terms as compared to 1999. The positive translation effect
was due to the depreciation of the euro relative to foreign
currencies like the U.S. dollar and the Japanese yen.

   Net sales in 1999 increased 11% in local currency terms and 12%
in euro terms as compared to 1998. The 34% depreciation of the
Brazilian real against the euro was more than offset by the
strengthening of the U.S. dollar and British pound sterling relative
to the euro and the recovery of the Japanese yen and other Asian
currencies during 1999.

   For a discussion of the significant effects of foreign currency
on our results of operations, see "-Results of Operations-2000
Compared with 1999-Results of Operations by Segment-United States
Region", "-Japan Region" and "-Asia Region","-Results of Operations-
1999 Compared with 1998- Results of Operations by Segment-Latin
America/Canada Region", "-Japan Region" and "-Asia Region".


Environmental Matters

   Environmental laws and regulations impose stringent limitations
on emissions and discharges to the environment from various
manufacturing operations. In 1999 and 2000, we incurred capital
expenditures of approximately E 4 million in each year respectively
for


                                 102
<PAGE>


environmental protection. Capital expenditures for environmental
protection are forecasted to be approximately E 5 million for each of
the years 2001 through 2005. In addition, our operating and
maintenance expenditures for environmental matters were E 59 million
in 1999 and E 62 million in 2000. Operating and maintenance
expenditures for this purpose for each of the years 2001 through 2005
are forecasted to be E 61 million.

   We believe that the expenditures required to comply with
applicable laws and regulations concerning environmental protection,
including ongoing clean-up matters, will not have a material adverse
effect on the Groups financial condition, cash flows or results of
operations.


Changes in Accounting Policies

   IAS
   We have applied IAS since 1994. The IASC has issued a number of
new standards as part of its project to develop a core set of
International Accounting Standards. Accordingly, we have adopted or
will adopt a number of new or revised International Accounting
Standards as described below. Our policy is to adopt all new
standards at the required adoption date.

   As of January 1, 1999, we adopted IAS 19 "Employee Benefits"
(revised 1998). Under the new standard, actuarial assumptions for our
defined benefit pension plans reflect market expectations at the
balance-sheet date rather than long-term estimates. The effect of
adoption of this standard was not material.

   During 1998, we changed our accounting policy to adopt revised
International Accounting Standard IAS 12 "Income Taxes" (revised
1996). IAS 12 (revised) requires the use of the balance-sheet
liability method for the calculation of deferred taxes. The change in
accounting policy did not materially affect net income.

   In 1999, we adopted International Accounting Standard IAS 14
"Segment Reporting" (revised 1997). IAS 14 (revised) requires
disclosure of more items of information for the identified segments,
provides more detailed guidance for the identification of segments
and for the allocation of revenues and expenses to the identified
segments, and introduces the concept of a primary basis and secondary
basis of segment reporting. Our Consolidated Financial Statements for
1998 have been adjusted to ensure comparability with our Consolidated
Financial Statements for 1999.

   As of January 1, 2000, we adopted IAS 36 "Impairment of Assets".
The new standard established procedures to ensure that an
enterprises assets are not overstated in the financial statements.
It also stipulates the method an enterprise should use to assess the
amount to be recovered from an asset and the timing when an
enterprise should account for an impairment loss. The effect of
adoption of this standard was not material.

   As of January 1, 2000, we adopted IAS 37 "Provisions, Contingent
Liabilities and Contingent Assets". This standard established for the
first time the conditions that must be fulfilled for a provision to
be recognized. Under IAS 37, a provision may be recognized when:

  .  an enterprise has a present obligation as a result of a past
     event,

  .  it is probable that an outflow of resources embodying economic
     benefits will be required to settle the obligation, and

  .  a reliable estimate can be made of the amount of the obligation.


                                 103
<PAGE>


   IAS 37 requires that provisions for restructuring obligations must
also meet the following additional criteria:

  .  a detailed formal plan identifying certain specifics, and

  .  announcement of its main features to those affected by the
     plan.

   The effect of adoption of this standard was not material.

   As of January 1, 2000, we adopted IAS 38 "Intangible Assets".
This standard provides that intangible assets should only be
recognized when it is probable that future economic benefits

attributable to the asset will flow to the enterprise and that the
cost of the asset can be reliably measured. The adoption of this
standard resulted in the capitalization of expenses for internally
generated software amounting to E 13 million.

   As required by SIC-12 "Consolidation-Special Purpose Entities" we
have consolidated two special funds for the first time in 2000.
Results relating to prior periods of E 16 million have been included
in net income of 2000. If the special funds had always been
consolidated, net income
in 1999 would have been lower by E 2 million, net income in 1998
would have been higher by
E 8 million and the aggregated net income of periods before 1998
would have been higher by
E 10 million.


   US GAAP
   As of January 1, 1999, we adopted SOP 98-1 "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use".
The statement requires capitalization of certain costs incurred in
the development of internal-use software, including payroll and
payroll-related costs. In the years ending on or prior to December
31, 1998, these costs were expensed as incurred.


New Accounting Standards
   IAS

   In 1998, the International Accounting Standards Committee issued
International Accounting Standard IAS 39 "Financial Instruments:
Recognition and Measurement". This standard, effective for financial
statements for periods beginning after December 31, 2000,
significantly increases the use of fair values in accounting for
financial instruments, particularly with respect to assets reported
in the balance sheet. Securities included in current assets will be
classified as available-for-sale financial assets and measured at
their fair values. A gain or loss arising from a change in the fair
value of such available-for-sale financial assets will be recognized
directly in equity, through the statement of changes in equity, until
the securities are sold, collected, or otherwise disposed of, or
until the financial assets are determined to be impaired, at which
time the cumulative gain or loss previously recognized in equity
should be included in net profit or loss for the period. The Group
adopted the standard as of January 1, 2001.

   In 2000, the International Accounting Standards Committee issued
International Accounting Standard IAS 40 "Investment Property". This
standard, effective for financial statements for periods beginning
after December 31, 2000, introduces a fair value accounting model for
investment property held to earn rentals or for capital appreciation
or both. A gain or loss arising from a change in the fair value of
such non-financial assets will be recognized in net income for the
period in which it arises. IAS 40 alternatively allows a measurement
of investment property using the benchmark treatment in IAS 16
"Property, Plant and Equipment" (cost model). The adoption of this
standard as of January 1, 2001, did not change our previous valuation
and accounting policies as we opted for the cost model and continue
to measure investment property in accordance with IAS 16, "Property,
Plant and Equipment".


                                 104

<PAGE>


   US GAAP
   SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" is effective
for fiscal periods beginning after June 15, 2000. The statement
requires that all derivatives be recognized in the balance sheet as
either assets or liabilities and measured at fair value. In addition,
all hedging relationships must be designated, documented and
reassessed pursuant to the provisions in the standard. As we will
conform our hedging strategies for future cash flows to the
provisions of the standard, we will be able to defer profits and
losses on these hedging instruments under US GAAP. In the future,
there will not be a reconciliation item for this issue [see note (36)
for the difference in accounting under IAS and US GAAP at December
31, 2000]. We do not expect any other impact upon the adoption of
this standard.


Risk Management

   The information provided in this section contains forward-looking
statements that involve inherent risks and uncertainties, principally
with respect to unanticipated changes in foreign exchange or interest
rates and changes in the level of our exposure to such market risks.
Actual results may differ from those set forth in these forward-
looking statements.

   Market risk represents the risk of an adverse price change of a
financial instrument, derivative or nonderivative, caused by
fluctuations in interest rates, currency exchange rates, and equity
prices. We have policies for managing potential exposures related to
these risks. See note 30 to our Consolidated Financial Statements.

   We use exchange-traded and over the counter (OTC) derivative
financial instruments to manage currency and interest rate risks
resulting from business transactions and from existing assets as well

as to control the impact of interest rate and price changes on our
portfolio. Transactions in derivative instruments are concluded with
high-rated banks within fixed risk limits. Taking into account the
hedged positions, we do not anticipate any material adverse effect on
the Groups financial position, results of operations, liquidity or
cash flows resulting from our use of derivative financial
instruments.


   Foreign Exchange Risk Management

   Prior to the adoption of the euro by Germany and 10 other member
countries of the European Union as their common currency, our
functional currency was the Deutsche Mark. The euro is now our
functional currency. We have receivables and payables denominated in
currencies other than the euro and the functional currencies of our
foreign subsidiaries, which creates foreign exchange risk. Since the
introduction of the euro on January 1, 1999, our exposure to exchange
rate fluctuations is eliminated in relation to all the countries that
have adopted the euro. Our most significant sources of currency risk
are presently the U.S. dollar, Japanese yen, British pound sterling
and Brazilian real. We enter into foreign currency forwards and
options to reduce our exposure to foreign currency fluctuations. Our
currency risk includes balance-sheet assets denominated in foreign
currencies and expected future net cash flows in foreign currencies
for 12 months on a rolling basis.


   Asset/Liability Risk Management

   We are primarily exposed to changes in market prices of assets in
our net liquid funds, primarily denominated in euro. The investments
we undertake are allocated into several asset categories in order to
generate a diversified portfolio and an attractive risk/return ratio.

   See "Item 11-Quantitative and Qualitative Disclosure about Market
Risk".


                                 105

<PAGE>


Euro Conversion

   On December 31, 1998, Germany and ten other member countries
(participating countries) of the fifteen members of the European
Union established fixed conversion rates between their existing
sovereign currencies and the euro and adopted the euro as their
common legal currency.

   39% of the Groups net sales in 2000 were denominated in euro. In
addition, a significant portion of our production capacity and
research and development activities are located in the participating
countries.

   The Group commenced planning for the euro conversion in 1996. The
implementation phase of the euro conversion project for the Groups
European businesses started at the beginning of 1998. The euro
conversion project at Schering AG has been completed, and all of the
Groups subsidiaries in participating countries have likewise
completed their euro conversion projects. Due to uncertainties
relating to the German tax and social insurance systems, the euro
conversion changeover for the human resources operations will occur
at a later date (but in any event no later than January 1, 2002).

   Beginning on January 1, 1999, Schering AG adopted the euro as its
reporting currency.

   We do not expect that the euro conversion will lead to changes in
the short-term in business-specific cost structures or market
positions. The euro conversion may contribute to the convergence of
product prices in Europe over the longer term. However, since most
European countries closely regulate the pricing of pharmaceutical
products, pricing convergence may be achieved only in the long term.

   The Group does not have any derivatives or other financial
instruments that have been materially affected by the euro
conversion.

   We anticipate that transaction costs related to foreign exchange
conversions and hedging costs in Europe will be significantly reduced
as a result of the euro conversion.

   We do not anticipate that the euro conversion will have any
impact on the taxation status of our European operations.


Year 2000

   We recognized the potential risk to our global business posed by
the millennium computer date ("Year 2000") issues and initiated a
comprehensive Year 2000 program in order to mitigate this risk.
Through the end of 2000, we had experienced no significant
interruptions to our business operations arising from the Year 2000
problem.


Legal Matters

   The Group is involved in a number of legal proceedings and claims
incidental to the normal conduct of its business, relating to such
matters as product liability, patent infringement, tax assessments,
competition, past waste disposal practices and release of chemicals

into the environment. Although the outcome of these proceedings and
claims cannot be predicted with certainty, Schering AG believes that
any resulting liabilities, net of amounts recoverable from insurance
or otherwise, will not, in the aggregate, have a material adverse
effect on the Groups consolidated results of operations, financial
condition and cash flows. For a discussion of certain legal
proceedings in which we are involved, see "Item 8-Financial
Information-Legal Proceedings."


                                 106
<PAGE>


Item 6.  Directors, Senior Management and Employees
DIRECTORS AND SENIOR MANAGEMENT


General

   As required by the German Stock Corporation Act (Aktiengesetz),
Schering AG has a two-tier board system consisting of a Supervisory
Board (Aufsichtsrat) and an Executive Board (Vorstand).

   The Executive Board is responsible for managing the business of
Schering AG in accordance with the German Stock Corporation Act and
the Articles of Association (Satzung) of Schering AG. The Executive
Board is authorized to represent Schering AG and to enter into
binding agreements with third parties on behalf of Schering AG.

   The principal function of the Supervisory Board is to supervise
the Executive Board. The Supervisory Board is also responsible for
appointing and removing the members of the Executive Board. The
Supervisory Board may not make management decisions, but may
determine that certain types of transactions require its prior
consent.

   In carrying out their duties, the members of the Supervisory
Board and the Executive Board must exercise the standard of care of a
diligent and prudent business person. In complying with this standard
of care, the members must take into account a broad range of
considerations, including the interests of Schering AG and our
shareholders, employees and creditors. The members of the Supervisory
Board and the Executive Board may be personally liable for violation
of their duties.


Supervisory Board
   Our present Supervisory Board consists of 16 members,8 of whom
are elected by our shareholders by a simple majority of the votes
cast at a shareholder meeting in accordance with the provisions of
the German Stock Corporation Act, and 8 of whom are elected by our
employees in accordance with the German Co-Determination Act
(Mitbestimmungsgesetz).

   A member of our Supervisory Board elected by our shareholders
may be removed by our shareholders by a majority of the votes
cast at a meeting of shareholders. A member of the Supervisory
Board elected by our employees may be removed by three-quarters
of the votes cast by the relevant class of employees. The
Supervisory Board appoints a Chairman and a Deputy Chairman
from among its members. At least half the total required number
of members of the Supervisory Board must be present or
participate in the decision making to constitute a quorum.
Unless otherwise provided for by law, resolutions are passed by
a simple majority of the votes cast. In the event of a tie,
another vote is held and, in the case of a second tie, the
Chairman (who is, in practice, a representative of the shareholders
because the representatives of the shareholders have the right to elect
the Chairman if two-thirds of the total required number of members
of the Supervisory Board fail to agree on a candidate) then
has a casting vote.

   The members of our Supervisory Board are each elected for the
same fixed term of approximately five years. The term expires at the
end of the annual general shareholders meeting after the fourth
fiscal year following the year in which the Supervisory Board was
elected. Re- election is possible. The remuneration of the members of
the Supervisory Board is determined by our Articles of Association.

   Because all members of our Supervisory Board are elected at the
same time, their terms expire simultaneously. The current members of
our Supervisory Board, their respective ages as of March 16, 2001,
their principal occupation and the year in which they were first
elected to our Supervisory Board and by whom they were elected are as
follows:


                                 107

<PAGE>


<TABLE>
<CAPTION>


                                                                                              Year First Elected
                                                                                                     by
Name                                              Age   Principal Occupation                   shareholders (S)/
                                                                                                 employees (E)
<S>                                               <C>   <C>                                        <C>
Klaus Subjetzki.................................  70                                               1978 (S)
   Chairman of the Supervisory Board
   since 1984

Jurgen Wingefeld................................  57    Director for General Personnel and         1979 (E)
Vice Chairman of the Supervisory Board                     Social Services of Lausitzer und
   until September 30, 2000                                Mitteldeutsche Bergbauverwaltungs-
                                                           gesellschaft mbH

Norbert Deutschmann.............................  49    Chairman of the Wedding Works              1999 (E)
   Vice Chairman of the Supervisory Board                  Council, Schering AG
   since October 1, 2000

Dr rer. oec. Karl-Hermann Baumann...............  65    Chairman of the Supervisory Board          1994 (S)
                                                           of Siemens AG

Prof. Dr med. Piet Borst........................  66    Professor of Clinical Biochemistry,        2000 (S)
                                                           University of Amsterdam

Professor John A. Dormandy......................  65    Professor of Vascular Sciences,            1996 (S)
                                                           University of London; Head of
                                                           Surgical Services, St. Georges
                                                           Hospital, London

Joachim Elsholz.................................  51    District Head of Industriegewerkschaft     2000 (E)
   since October 1, 2000                                   Bergbau, Chemie, Energie, Berlin

Dr rer. pol. Reiner Hagemann....................  53    Chairman of the Executive Board of         1997 (S)
                                                           Allianz Versicherungs-AG

Johannes Heitbaum...............................  37    Vice Chairman of the Bergkamen             1999 (E)
                                                           Works Council, Schering AG

Dr h.c. Martin Kohlhaussen......................  65    Spokesman of the Executive Board of        1996 (S)
                                                           Commerzbank AG

Dr rer. pol. Jurgen Krumnow.....................  56    Member of the Advisory Group,              1989 (S)
                                                           Deutsche Bank AG

Dr med. Hans Peter Niendorf.....................  54    Head of Clinical Development               1999 (E)
                                                           Diagnostics, Schering AG

Hans-Jurgen Scheel..............................  57    Vice Chairman of the Wedding Works         1994 (E)
                                                           Council, Schering AG

Gunter Schmitt..................................  58    Member of the Wedding Works                1999 (E)
                                                           Council, Schering AG

Dr rer. oec. Ulrich Sommer......................  53    Chairman of the Schering Wedding           1999 (E)
                                                           Works Chapter of the VAA
                                                           Professional and Management Union
                                                           for the Chemical Industry, Berlin

Heinz Georg Webers..............................  41    Chairman of the Central Works              1999 (E)
                                                           Council of Schering AG; Chairman of
                                                           the Bergkamen Works Council,
                                                           Schering AG

Professor Dr rer. nat. Meinhart H. Zenk.........  68    Professor of Pharmaceutical Biology,       1984 (S)
                                                           Martin-Luther University, Halle-
                                                           Wittenberg
</TABLE>


                                 108
<PAGE>


Executive Board

   Our Executive Board currently consists of 6 members. Under our
Articles of Association, our Supervisory Board determines the size of
the Executive Board, although it must have at least two members.

   Any two members of the Executive Board or one member of the
Executive Board and the holder of a special power of attorney
(Prokura) may legally represent Schering AG.

   The Executive Board reports regularly to the Supervisory Board,
including with respect to proposed business policy or strategy,
profitability, the current business of Schering AG, business
transactions that may affect the profitability or liquidity of
Schering AG, and any exceptional matters which arise from time to
time. The Supervisory Board may also request special reports from the
Executive Board.

   The Supervisory Board appoints each member of the Executive Board
for a maximum term of five years. Executive Board members may be
reappointed or have their term extended for one or more terms of up
to five years each. The Supervisory Board may remove a member of the
Executive Board prior to the expiration of his term if he commits a
serious breach of duty or is incapable of carrying out his duties or
if there is a bona fide vote of no confidence by a majority of the
votes cast at an annual general meeting.

   A member of the Executive Board may not vote on matters relating
to certain contractual arrangements between the member and the
Schering AG Group and may be liable to Schering AG if the member has
a material interest in any contractual agreement between the Schering
AG Group and a third party which was not disclosed to, and approved
by, the Supervisory Board.



                                 109
<PAGE>


The current members of our Executive Board, their respective ages as
of March 16, 2001, their positions, the years in which they were
first appointed to our Executive Board and the years in which their
terms expire, respectively, are as follows:


<TABLE>
<CAPTION>
                                                                                               Year First Year Term
Name                                   Age          Position                                    Appointed Expires
<S>                                    <C>   <C>                                                   <C>      <C>

Dr Giuseppe Vita.....................  65    Chairman of the Executive Board                       1987     2001
                                                (since 1989; term expires April 26, 2001)

Prof. Dr Klaus Pohle.................  63    Vice Chairman of the Executive Board,                 1981     2002
                                               current responsibilities: finance and
                                               administration, Asia, Australia;
                                               responsibilities effective from April 26,
                                               2001: finance and administration,
                                               information technology, equity
                                               participations, Japan, Asia, Australia

Dr Hubertus Erlen....................  57   Member of the Executive Board,                         1985     2005
                                               current responsibilities: personnel,
                                               production and environmental protection,
                                               North America;
                                               responsibilities effective from April 26,
                                               2001: Chairman of the Executive Board,
                                               strategy and corporate development,
                                               corporate communication, audit,
                                               human resources (temporary)

Dr Ulrich Kostlin...................  48   Member of the Executive Board,                          1994     2004
                                               current responsibilities: marketing and
                                               sales, Europe, Africa; responsibilities
                                               effective from April 26, 2001:
                                               marketing and sales, supply chain,
                                               Europe, Africa

Lutz Lingnau........................  58   Member of the Executive Board,                          2001     2005
                                               responsibilities effective from April 26,
                                               2001: Therapeutics, Dermatology, North
                                               America

Prof. Dr Dr h.c. Gunter Stock........  57   Member of the Executive Board                          1989     2004
                                               current responsibilities: research and
                                               development, Latin America;
                                               responsibilities effective from April 26, 2001:
                                               research and product development,
                                               Fertility Control and Hormone Therapy,
                                               Diagnostics and Radiopharmaceuticals,
                                               Latin America
</TABLE>


   Dr Giuseppe Vita joined Schering AG in 1964 as a scientific
advisor. From 1965 to 1987, Dr Vita served as general manager of
Schering S.p.A., Milan, and subsequently was appointed as a member of
the Executive Board of Schering AG. Since 1989, Dr Vita has been
Chairman of the Executive Board of Schering AG. Dr Vita will retire
with the expiration of this term on April 26, 2001. He will be
succeeded by Dr Hubertus Erlen who was appointed by the Supervisory
Board as Schering AGs future chairman.


                                 110

<PAGE>


Prof. Dr Klaus Pohle joined Schering AG as a member of the Executive
Board in 1981. Prior to joining Schering AG, Prof. Dr Pohle was with
BASF from 1966 to 1980. At BASF he first served as a director of
various subsidiaries in Europe and Brazil, including from 1967 to
1968 as treasurer and controller in the United States and later as a
director of BASF AG. Prof. Dr Pohle is currently
Vice Chairman of the Executive Board of Schering AG, a position he
has held since 1989.

   Dr Hubertus Erlen began his career with Schering AG in a
pharmaceutical manufacturing function in 1972. In 1978 he joined the
central office of the Executive Board, which he later headed for two
years. Prior to his appointment as a member of the Executive Board of
Schering AG in 1985, he served as a technical director in the
Electroplating Division and became a member of the Electroplating
Divisional Board in 1984. Dr Erlen was appointed in September 2000 by
the Supervisory Board as Schering AGs future Chairman of the
Executive Board, following the retirement of Dr Vita in April 2001.

   Dr Ulrich Kostlin joined Schering AG in 1982 as a management
trainee. He served as
general manager of several affiliates of Schering AG in Latin America
from 1983 to 1986, and was subsequently appointed the head of pharma
for Latin America and Canada. Prior to his appointment as a member of
the Executive Board of Schering AG in 1994, he served from 1990 to
1993 as vice president of Berlex Laboratories, Inc., and as a member
of the Pharma Executive Committee of Schering AG from 1993 to 1994.

   Lutz Lingnau joined Schering AGs business trainee program in
1966. From 1968 to 1989,
Mr Lingnau served in various capacities at Schering AG and in a
number of subsidiaries in South America and the United States,
including as president of Berlex Laboratories, Inc., from 1983 to
1985. Since 1989, Mr Lingnau has been the president and chief
executive officer of Schering Berlin, Inc.
He was appointed a member of the Executive Board of Schering AG
effective January 1, 2001.

   Prof. Dr Dr h.c. Gunter Stock joined Schering AG as head of the
Cardiovascular Pharmacology Department in 1983. From 1987 to 1989, he
served as head of the Institute for Pharmacology.
Prof. Dr Stock was appointed as a member of the Executive Board of
Schering AG in 1989.


Other Senior Management

   Jorg Graumann joined Schering AG in 1960 as a business trainee.
From 1964 to 1973,
Mr Graumann served in various capacities in a number of subsidiaries
including in Pakistan, the Philippines and South Korea. In 1976, Mr
Graumann was appointed vice president of Nihon Schering K.K. Mr
Graumann is currently the representative director and president of
Nihon Schering K.K.,
a position he has held since 1977.

   Dr med. habil. Joachim-Friedrich Kapp joined Schering AG in 1975
as a scientist. From 1975
to 1983, Dr Kapp served in various capacities at the Schering AG
Group, including as vice president of research and development of
Berlex Laboratories, Inc. From 1984 to 1991, he was employed by
Godecke AG where he held several positions, including head of
research and development. In 1991, Dr Kapp returned to Schering AG
where he currently serves as head of Therapeutics.

   Christian Nowak began his career at Schering AG in 1968 in the
agrochemicals division. From 1968 to 1989, he held various positions
in the area of agrochemicals, including head of agrochemicals sales
and marketing, head of sales and marketing and member of the
agrochemicals management board. From 1989 to 1991, he served as
director of sales and marketing and member of the pharmaceuticals
management board. Mr Nowak is currently the head of the Europe
Region, a position he has held since 1991.



                                 111

<PAGE>


Prof. Dr Werner Karl Raff served as the director of the medical-
scientific department of Schering AG from 1977 to 1980. From 1980 to
1996, Prof. Dr Raff held various positions, including deputy director
of FB Medizin and general manager of Scherax Arzneimittel GmbH,
Hamburg. In 1996, Prof. Dr Raff returned to Schering AG as head of
Fertility Control and Hormone Therapy.

   Hans-Michael Rook began his career at Schering AG in 1967 as a
business trainee. He served in numerous capacities within the
Schering AG Group, including from 1979 to 1985 as head of pharma
product and marketing planning of Nihon Schering K.K. and from 1991
to 1997 as head of marketing and business development for the Europe
Region at Schering AG. Mr Rook currently serves as head of
Diagnostics and Radiopharmaceuticals.


COMPENSATION

   The aggregate remuneration of all members of the Supervisory
Board for 2000 amounted to E 2,790,000. In addition to reimbursement
of out-of-pocket expenses, the members of the Supervisory Board
receive an aggregate fixed annual payment of E 60,000 plus an
aggregate variable annual payment that depends on the amount of
dividends paid to the shareholders of Schering AG. For each E 0.05
dividend per share paid over and above a base amount of E 0.10
dividend per share, the aggregate variable compensation component
amounts to E 210,000.

   The aggregate remuneration (including compensation, benefits in
kind and contingent or deferred compensation accrued) of all members
of the Executive Board for 2000 amounted to E 8,061,116.

   Employees who are elected as members of the Supervisory Board in
accordance with the German Co-Determination Act maintain their
pension, retirement and similar benefits while serving on the Board.
The aggregate amount set aside or accrued by the Schering AG Group to
provide pension, retirement or similar benefits to the employees who
are currently members of the Supervisory Board amounted to E
1,185,482. As of December 31, 2000, the total amount set aside or
accrued by the Schering AG Group to provide pension, retirement or
similar benefits to current and retired members of the Executive
Board amounted to E 26,560,516.
Stock-Based Compensation Plans


   The Long Term Incentive Plan 2000

   In 1999, we established the Long Term Incentive Plan 2000. We
offered approximately 270 eligible key executives worldwide the
opportunity to participate in the plan. Eligibility was based on the
position and expected long term individual performance of the
participant and prospective continued employment with us for the next
two years. The plan has a duration of seven years and expires on
December 31, 2006.

   Under this plan, participants who make a personal investment in
our shares and hold these shares for a minimum of three years are
entitled to receive one option right for each eighteen shares
purchased. A minimum of five option rights, requiring the purchase of
ninety shares, is needed to participate in the plan. A maximum number
of option rights has been determined for each eligible plan
participant.

   Option rights cannot be exercised within the first three years of
the effective date of the plan. Option rights can be exercised from
the first trading day in 2003 until the last trading day in 2006.
Option rights cannot be exercised during a three-week period prior to
the release of corporate earnings information. Any option rights that
have not been exercised at the end of the exercise


                                 112

<PAGE>


period will be exercised automatically on the last trading day in
2006. Upon exercise of the option rights, the participant is entitled
to receive award shares. The award shares that the Company provides
to the participants are purchased in the open market.

   The number of award shares that a participant receives upon the
exercise of option rights depends on certain performance measures.
One option right entitles the participant to receive three award
shares for each 2% increase in the value of the shares (for this
purpose this includes absolute stock price changes plus dividends
paid) over the opening stock price on the effective date of the plan.
Members of the Executive Board can receive award shares due to this
performance measure only if, at the time of exercise, the value of
the shares has increased at least by 30%. In addition, one option
right entitles the participant to receive three award shares for each
1% by which the shares outperform the STOXX (Healthcare) over the
relevant period. STOXX (Healthcare) is a European industry stock
index which measures the performance of 34 pharmaceutical companies,
including Schering AG. The maximum number of award shares that a
participant can receive for each option right under either
performance category is ninety shares. Therefore, a participant can
receive a maximum of 180 award shares for one option right or
eighteen shares of personal investment.

   In connection with the plan, we have purchased 810,000 call
options on Schering AGs shares at a strike price of E 39.64 per
share.


   The Long Term Incentive Plan 1998

   In 1997, we established the Long Term Incentive Plan 1998. We
offered approximately 215 eligible key executives worldwide the
opportunity to participate in the plan. The plan has a duration of
five years, expires on December 31, 2002 and has terms that are
otherwise substantially equivalent to the Long Term Incentive Plan
2000.

   However, due to the shorter duration of this incentive plan,
option rights can be exercised only during a two-year window, from
the first trading day in 2001 until the last trading day in 2002. In
addition, members of the Executive Board can receive award shares due
to the value of the shares only if, at the time of exercise, the
value of the shares has increased by at least 20%. The other
difference from the Long Term Incentive Plan 2000 is that the DAX
index is used as the basis for the outperformance component. The DAX
is a stock index which measures the performance of thirty large
German corporations, including Schering AG.

   In connection with the plan, we have purchased 600,000 call
options on Schering AGs shares at a strike price of E 30.21 per
share.

   The following table sets forth, as of December 31, 2000, certain
information relating to the Long Term Incentive Plan 1998 and the
Long Term Incentive Plan 2000:


<TABLE>
<CAPTION>
<S>                 <C>                <C>                  <C>            <C>
                                                              Number of            Maximum
                            Initial                             Options             Number
Plan                  Exercise Date      Expiration Date    Outstanding    of Award Shares
1998 Plan.........  January 1, 2001    December 31, 2002          3,905            702,900
2000 Plan.........  January 1, 2003    December 31, 2006          4,910            883,800
</TABLE>


                                 113
<PAGE>


BOARD PRACTICES

   The employment agreements of the members of the Executive Board
do not provide for benefits upon termination of employment.

   The Supervisory Board has established a number of committees,
including an executive committee, a research and development
committee, an audit committee and a remuneration committee. The
members of the executive committee are Klaus Subjetzki, Norbert
Deutschmann,
Dr Reiner Hagemann and Heinz-Georg Webers. The executive committee
acts on urgent matters in between the sessions of the full
Supervisory Board. The members of the research and development
committee are Klaus Subjetzki, Prof. John A. Dormandy, Norbert
Deutschmann, Dr Hans Peter Niendorf, Dr Ulrich Sommer and Prof.
Meinhart H. Zenk. The research and development committee regularly
reviews the progress of our research and development portfolio and
advises on the long- term policy in this area. The members of the
audit committee are Klaus Subjetzki, Norbert Deutschmann, Dr Reiner
Hagemann and Heinz-Georg Webers. The audit committee recommends areas
of special emphasis of the audit to be performed by the independent
auditors, reviews the financial statements of the Group before they
are presented to the full Supervisory Board and issues a
recommendation as to their adoption. The members of the remuneration
committee are Klaus Subjetzki, Norbert Deutschmann, Dr Reiner
Hagemann and Hans-Jurgen Scheel. The remuneration committee is
responsible for reviewing and approving the terms and conditions of
contracts between Schering AG and members of the Executive Board and
the Supervisory Board.


EMPLOYEES

   The average number of people employed by the Group during 1998,
1999 and 2000 was 21,818, 22,430 and 23,720, respectively. As of
December 31, 2000, we employed 24,541 persons. The following tables
set forth, as of December 31, 2000, a breakdown of our employees by
the main category of activity and by geographic area:


<TABLE>
<CAPTION>
Category of Activity:                  Number
<S>                                       <C>

  Administration.....................   3,813
  Research and development...........   4,282

  Production.........................   8,313
  Sales and marketing................   8,133


Geographic Areas:                      Number
  Europe.............................  15,276

  North America......................   3,034
  Latin America......................   2,899
  Japan..............................   1,792

  Asia ..............................   1,245
  Africa.............................     160

  Rest of World......................     135
</TABLE>


   The increase in the number of persons employed by the Group in
2000 was mainly due to the acquisitions of Mitsui Pharmaceuticals,
Inc. and CIS bio international.  We do not employ a significant
number of temporary employees.

   We believe that the success of the Groups businesses in an
increasingly competitive environment will depend, in significant
part, on our ability to attract, retain and motivate highly


                                 114

<PAGE>


    qualified personnel. Accordingly, we have established
compensation, employee benefit, equity participation and work
environment policies intended to assist in attracting, retaining and
motivating highly qualified personnel:

  .  We have expanded the variable remuneration elements of our
     salary system in order to enhance rewards for individual
     performance. This includes performance oriented pay, long term
     incentive programs and share option plans.

  .  We have implemented a system of management by objectives with
     annual performance evaluations for our employees.

  .  We offer equal opportunities regardless of race, sex, national
     origin, religion, marital status, age or disability.

  .  We encourage our employees to become involved at all levels in
     order to contribute to the growth of the Group.

  .  We endeavor to inform our employees regularly and
     systematically on matters affecting them as employees and on the
     financial and economic factors affecting the Groups
     performance.


Labor Relations

   Europe Region

   We believe that a significant number of our employees in the
Europe Region are presently represented by trade unions. Labor
relations in the Europe Region have been good and we have not
experienced any material work stoppages in recent years.

   Wages and general working conditions are generally the subject of
centrally negotiated collective bargaining agreements. Within the
limits established by these agreements, the operating companies of
the Group negotiate directly with unions and other labor
organizations representing our employees. Collective bargaining
agreements relating to remuneration typically have a term of one
year.

   In addition to trade unions, we also consult from time to time
with various local, national and European work councils. Employees
generally elect the members of work councils. These work councils
primarily serve an advisory role. However, under certain
circumstances, we may be required to consult with one or more of the
work councils before proceeding with a course of action. Furthermore,
we are obliged to inform the work councils of activities which affect
our workforce in Europe.

   Other Regions

   Our employees in the United States, Latin America/Canada and Asia
Regions are generally not either represented by trade unions or
employed pursuant to collective bargaining agreements. In the Japan
Region, approximately half of our employees are represented by
company labor unions. Labor relations in these Regions have been good
and we have not experienced any material work stoppages in recent
years.


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<PAGE>

SHARE OWNERSHIP

European Employee Share Program

   In 1999, we established a European Employee Share Program. This
program covers employees of Schering AG and its European
subsidiaries.

   In 2001 our Employee Share Program will be widened to include the
United States, Canada and Japan. Within these programs the employees
are offered by their employing companies Schering AG shares
(respectively ADRs) at subsidized prices. The volume of the subsidy
per participating employee (E 900 at maximum per employee and year)
is variable and depends among others on the subsidy level per share
(higher total subsidy volume for offers with less subsidy per share).
Virtual shares are offered in those countries where the use of actual
shares is hindered by local laws or transaction and depositary cost
considerations. Virtual shares entitle their holders to receive the
market value of the shares in cash at the end of the holding period.
Certificates are not issued for virtual shares and the rights are not
negotiable.

   In December 2000, we purchased 170,000 treasury shares at an
average price of E 63.44.
These shares will be offered to employees at a price of E 26.50 per
share in 2001.


Share Ownership by Directors

   No member of the Supervisory Board or the Executive Board
beneficially owns 1% or more of the outstanding shares.

   Dr Reiner Hagemann, a member of our Supervisory Board, is the
Chairman of the Executive Board of Allianz Versicherungs-AG, which is
the corporate parent of AS Industriebesitz und Beteiligungen Allianz
Versicherungs-AG & Co. OHG (which holds approximately 11.4% of our
outstanding shares). Dr Hagemann disclaims beneficial ownership of
such shares.


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<PAGE>


Item 7.  Major Shareholders and Related Party Transactions
MAJOR SHAREHOLDERS

   As of March 16, 2001, Schering AG had an aggregate of 198,000,000
shares outstanding.

   The shares are issued only in bearer form. Therefore, we are
unable to determine with precision how many shareholders we have and
how many shares a particular shareholder owns. Although we are unable
to determine the exact number of our shares held in the United
States, we believe that as of May 15, 2000, approximately 7% of the
shares were held in the United States.
As of March 8, 2001, there were 8 registered holders of American
Depositary Receipts (ADRs) under our sponsored program with Morgan
Guaranty Trust Company New York. The ADRs are listed on the New York
Stock Exchange, and each ADR represents one share. Of  these
registered holders, 8 had addresses in the United States. One of the
registered holders is the Depository Trust Company, which represents
the total number of ADRs held in book-entry-form. The ADR holders
collectively held 464,290 ADRs, or approximately 0.2% of the total
issued shares as of March 8, 2001.

   Under Section 21 of the German Securities Trading Act
(Wertpapierhandelsgesetz), which became effective on January 1, 1995,
holders of voting securities of a German company (including Schering
AG) admitted to official trading on a stock exchange within the
European Union or the European Economic Area are obliged to notify
promptly in writing a company and the German Federal Supervisory
Authority for Securities Trading (Bundesaufsichtsamt fur den
Wertpapierhandel) of the level of their holdings whenever such
holdings reach, exceed or fall below certain thresholds. These
thresholds are set at 5%, 10%, 25%, 50% and 75% of a companys
outstanding voting rights. If a shareholder fails to notify the
company as required, the shareholder will be disqualified from
exercising the voting rights attached to its shares, for so long as
such failure continues. The German Securities Trading Act contains
various rules designed to ensure the attribution of shares to the
person who has effective control over the shares.

   Schering AG has been informed that as of February 14, 2001, AS
Industriebesitz und Beteiligungen Allianz Versicherungs-AG & Co. OHG
had direct or indirect share holdings representing approximately
11.4% of the outstanding shares. Schering AG has also been informed
that as of December 31, 2000, Deutsche Bank AG (through various
investment funds and other entities) beneficially owned shares
representing 6.6% of the outstanding shares. Major shareholders do
not have different voting rights.

   To the extent known to us, the Schering AG Group is not owned or
controlled directly or indirectly by any corporation, foreign
government or any person, jointly or severally.


RELATED PARTY TRANSACTIONS

Aventis CropScience

   On December 29, 1999, we entered into a Partners Agreement with
Hoechst AG and Aventis S.A. pursuant to which Aventis agreed to
contribute all of its shares in Rhone-Poulenc Agro S.A., Hoechst
agreed to contribute all of its shares in AgrEvo GmbH and we agreed
to contribute all of our shares in AgrEvo GmbH to Aventis CropScience
S.A. The agreement, among other things, provided for the
establishment of a research cooperation between us and Aventis
CropScience to provide for a mutual exchange of compounds and certain
other technologies. Aventis CropScience has the right to an exclusive
license for the compounds we contribute and we have the right to an
exclusive license for compounds contributed by Aventis CropScience,
subject to a right of first refusal by Aventis. Since the formation
of AgrEvo through December 31, 1999, we have contributed an


                                 117

<PAGE>


aggregate of approximately E 500 million to the AgrEvo/Aventis
CropScience joint venture. We believe that all past transactions with
AgrEvo GmbH have been on an arms length basis. For a description of
certain terms of the Partners Agreement, see "Item 4-Information on
the Company- Aventis CropScience-Description of Aventis CropScience
Partners Arrangements" and "Item
5-Operating and Financial Review and Prospects-Aventis CropScience".
Professor Dr Klaus Pohle,
Vice Chairman of the Executive Board of Schering AG, is a member of
the Supervisory Board of Aventis CropScience.


Shareholders

   Allianz Versicherungs-AG, which is the corporate parent of AS
Industriebesitz und Beteiligungen Allianz Versicherungs-AG & Co. OHG,
currently provides insurance services to the Schering AG Group in a
number of different areas such as property, business interruption,
directors and officers liability, marine, personal accident and
automobile insurance. Deutsche Bank AG provides us with a variety of
financial services in the ordinary course of business. We believe
that these services are provided on an arms length basis.


Directors

   As of December 31, 2000, loans outstanding to a member of the
Supervisory Board totaled E 39,402 and loans outstanding to members
of the Executive Board totaled E 292,410. Interest on these loans is
charged at an annual rate of 6%.

   Professor John A. Dormandy, a member of the Supervisory Board,
has provided consultancy services to Schering AG in connection with
research relating to certain cardiovascular indications pursuant to a
consultancy agreement since June of 1996 for an annual fee of E
56,242.

   Certain members of the Supervisory and Executive Boards are
members of supervisory boards of certain financial institutions with
which we engage in transactions in the ordinary course of business.


                                 118

<PAGE>


Item 8.  Financial Information

LEGAL PROCEEDINGS

   The Group is involved in a number of legal proceedings and claims
incidental to the normal conduct of its business, relating to such
matters as product liability, patent infringement, tax assessments,
competition, past waste disposal practices and release of chemicals
into the environment. Although the outcome of these proceedings and
claims cannot be predicted with certainty, Schering AG believes that
any resulting liabilities, net of amounts recoverable from insurance
or otherwise, will not, in the aggregate, have a material adverse
effect on the Groups consolidated results of operations, financial
condition and cash flows. What we believe to be the most significant
of these proceedings and claims are described below.

   The Groups Brazilian subsidiary is a defendant in approximately
400 civil actions brought in courts in Brazil by women, suing
individually. Many of them claim that they became unintentionally
pregnant after taking placebo pills packaged by the subsidiary in
connection with test runs of a new packaging machine between January
and April 1998. The placebo pills were intended for destruction and
not for sale. However, some packages were stolen and illegally
appeared in the hands of some women. Most of these claims are still
pending. In the majority of the judgments obtained to date, the
claims were rejected by the Brazilian courts. In connection with this
incident, in July 2000 two managers of the Groups Brazilian
subsidiary were convicted in a Brazilian court of the first instance
for the failure to label properly the pouches and blisters for the
placebo pills. The Brazilian court imposed community service
activities to be rendered during a 28 month period. Both managers
have filed appeals.

   The Groups subsidiary in the Great Britain, Schering Health Care
Limited, is one of three manufacturers of so-called "third
generation" combined oral contraceptive pills against whom claims
have been made by women who allege they have suffered injury as a
result of taking such pills. As of December 31, 1999, approximately
130 individuals had submitted claims in respect of all of the
manufacturers. Of these claims, 52 concern Schering Health Care. The
claimants have not quantified their claims in terms of damages. The
primary allegations made in the Statements of Claim of the claimants
are that the "third generation" combined oral contraceptive pills
should not have been marketed, or, alternatively, that the
manufacturers should have discovered and warned prescribers and
consumers that there was an increased risk of venous thrombo-embolism
(VTE) associated with "third generation" combined oral contraceptive
pills as compared with "second generation" oral contraceptive pills.
The Legal Aid Board in the Great Britain granted funding to the
claimants to pursue their claims in Great Britain and Wales. All of
the cases were transferred to a court in London, Great Britain. Two

of the cases against each of the manufacturers are pending as pilot
cases, and the remainder of the claims have been sustained. An
initial procedural hearing was held before a court-appointed Master
in July 1997. The firm representing all of the claimants served a
Statement of Claim on each of the three manufacturers (including
Schering Health Care) in 1997 and February 1998. Schering Health Care
and the other manufacturers served Defences in November 1998. The
plaintiffs amended their Statement of Claim in the two pilot cases
against Schering Health Care. The amended Statement of Claim no
longer alleges that the "third generation" combined oral
contraceptive pills should not have been marketed, but now includes a
claim under the Consumer Protection Act. The defendants responded to
the amended Statement of Claim on June 30, 2000. Schering Health Care
denies these allegations and intends to continue to contest this
litigation vigorously.


                                 119

<PAGE>


During 1996 Hoffmann-La Roche Inc. and Genentech, Inc. (collectively
"Roche") filed suit in the United States District Court for New
Jersey against Berlex Laboratories, Inc. alleging that Berlexs
product Betaseron(R) infringes a certain Roche patent. Berlex answered
denying infringement and counterclaimed for declaratory judgment that
the Roche patent is invalid and not infringed by Betaseron(R). The
litigation was settled by an agreement during 1998, and was dismissed
with prejudice. Pursuant to the settlement agreement, a private
arbitration was commenced to determine the question of infringement.
In March 2000 the panel held that Betaseron(R) does not literally
infringe the Roche patent. A settlement agreement was reached in
February 2001 between Berlex and Roche under which Berlex will pay
Roche certain past and future royalties.

   Schering AG was named as one of several defendants in two cases
filed in United States District Court in New Jersey during May 1999
in which class certification was sought on behalf of persons alleging
that they were the subject of medical experiments performed in
concentration camps during World War II. These cases have been
dismissed with prejudice.

   During November 1998, Liebel-Flarsheim, Inc. filed an action
against Medrad, Inc. in the United States District Court for the
Southern District of Ohio alleging that Medrad infringes three of
Liebel-Flarsheims patents through Medrads manufacture and sale of
front load medical injectors used to inject contrast medium and
certain types of syringes used with these injectors. Medrad several
days later filed an action against Liebel-Flarsheim, Inc., and
several of its affiliates, including Mallinckrodt Inc., in the United
States District Court for the Western District of Pennsylvania
alleging that certain activities undertaken by Mallinckrodt with
respect to the manufacture, use and sale by Mallinckrodt of a certain
syringe adapter assembly for use with injectors manufactured by
Medrad constitute as to Medrad unfair competition and trademark
dilution under United States federal law; unfair competition,
misappropriation, damage to business reputation and dilution,
tortious interference with contractual and prospective business
relationships and civil conspiracy under Pennsylvania state and
common law; and infringement of a Medrad patent. Medrad subsequently
amended its complaint to add an additional unfair competition claim
and filed a second action against Liebel-Flarsheim in Pennsylvania to
declare Liebel-Flarsheims three patents both not infringed by Medrad
and invalid. Liebel-Flarsheim filed an amended complaint in Ohio in
March 1999 alleging that Medrad had engaged in certain activities in
connection with the sale of syringes for injectors which violate
United States antitrust laws and constitute tortious interference
with contractual relations and prospective business relations, and
subsequently filed a second amended complaint adding a declaratory
judgment count to declare Medrads patent both not infringed by
Liebel-Flarsheim and invalid. As to the allegations of infringement
of its four patents, Liebel- Flarsheim seeks preliminary and
permanent injunctive relief, damages resulting from the infringement
and an award of three times actual damages because of Medrads
alleged willful infringement of the patents; as to the allegations of
violation of the antitrust laws, Liebel-Flarsheim seeks a permanent
injunction and compensatory damages to be trebled as permitted under
the antitrust laws; and as to allegations of tortious interference
with contractual business relations, Liebel-Flarsheim seeks permanent
injunctive relief, compensatory damages and punitive damages. The two
actions filed in Pennsylvania were transferred to Ohio in June 1999.
Medrad dismissed the second action it had filed in Pennsylvania
during November 1999, and incorporated its request for declaratory
relief as to the four Liebel-Flarsheim patents as counterclaims in
Medrads answer filed in November 1999 to the initial action in Ohio.
Medrad also denied all of the allegations made by Liebel-Flarsheim in
the Ohio action. Mallinckrodt also filed an answer in November 1999
to the Pennsylvania action in which it denied all of the allegations
made by Medrad and included a counterclaim that Medrads patent was
invalid and not infringed by Mallinckrodts syringe adapter assembly.
Liebel-Flarsheim filed a fourth amended complaint in January 2000
alleging that Medrads manufacture and sale of certain medical
injectors and syringes further infringes a Liebel-


                                 120

<PAGE>


Flarsheim United States patent related to the Liebel-Flarsheim
patent on which Medrad was originally sued. Medrad filed a second
amended complaint in January 2000 to add Couer Laboratories, Inc. as
an additional defendant. The two actions are consolidated for
discovery purposes and discovery is now ongoing. The court has issued
a scheduling order by which fact discovery was to close on October
31, 2000 and which sets the trials of both actions for summer 2001.
The two actions have not been consolidated for trial. Medrad will
continue to contest vigorously this litigation against Liebel-
Flarsheim, Mallinckrodt and the other parties.


SIGNIFICANT CHANGES

   Except as otherwise disclosed in this annual report, there has
been no material adverse change in the financial position of Schering
AG since December 31, 2000.


                                 121

<PAGE>


Item 9.  The Listing

LISTING DETAILS

Stock Price History

   The table below sets forth, for the periods indicated, the high
and low intraday prices for the shares on the Frankfurt Stock
Exchange, as reported by the Frankfurt Stock Exchange, and as
adjusted to give effect, retroactively, to Schering AGs three-for-
one share split effective on June 1, 2000, and the high and low
prices of the American Depositary Receipts (ADRs), each representing
one share, which were listed on the New York Stock Exchange (NYSE) on
October 12, 2000.  See the discussion under "Item 3-Key Information-
Exchange Rates" with respect to rates of exchange between the U.S.
dollar and the Deutsche Mark and the euro applicable during the
periods set forth below. While Schering AGs shares are also listed
on the London and Zurich stock exchanges, the trading volume of the
shares outside of Germany is negligible. Therefore, providing stock
price information for these trading markets would not be meaningful.


<TABLE>
<CAPTION>
                                                                            New York           Frankfurt
                                                                         Stock Exchange      Stock Exchange
                                                                          Price Per ADS        Price Per
                                                                                                Share{(1)}
                                                                          High      Low       High      Low
<S>                                                                       <C>       <C>       <C>       <C>

1996                                                                            ($)                 (E)
Annual ...........................................................                            22.99     16.26

1997
Annual ...........................................................                            36.46     21.52

1998
Annual ...........................................................                            38.77     26.59

1999
First Quarter....................................................                             42.83     34.67
Second Quarter...................................................                             37.33     33.17
Third Quarter....................................................                             36.17     31.87
Fourth Quarter...................................................                             40.47     33.58
Annual ...........................................................                            42.83     31.87

2000
First Quarter....................................................                             49.67     37.40
Second Quarter...................................................                             61.00     45.87
Third Quarter                                                                                 74.75     56.50
September........................................................                             74.75     57.50
October..........................................................         60.50     54.25     75.80     64.05
November.........................................................         59.75     54.00     70.20     61.40
December.........................................................         56.94     50.25     63.20     55.00
Fourth Quarter...................................................         60.50     50.25     75.80     55.00
Annual ...........................................................        60.50     50.25     75.80     37.40

2001
January..........................................................         58.38     50.00     62.20     52.40
February.........................................................         55.45     48.20     59.50     52.65
March (through March 8)..........................................         52.65     49.25     56.95     52.70
</TABLE>

-----
(1)  Share prices for periods before January 1999 reported in Deutsche Mark were
     converted into euro at the official fixed conversion rate of DM 1.95583
     per E 1.00.


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<PAGE>


Share Capital

   The share capital of Schering AG consists of ordinary shares. All
the issued ordinary share capital of Schering AG is in bearer form
and is freely transferable. On December 31, 2000, there were
198,000,000 issued and outstanding shares without par value. There
are also American Depositary Receipts (ADRs) issued under our
sponsored ADR program with Morgan Guaranty Trust Company of New York.
Each ADR evidences an American Depositary Share (ADS) which
represents one share. On March 8, 2001, there were 464,200 issued and
outstanding ADRs.


MARKETS

General

   The principal trading market for the shares is the Frankfurt
Stock Exchange. The shares are also listed on other German stock
exchanges, namely Berlin, Bremen, Dusseldorf, Hamburg, Hanover,
Munich and Stuttgart. In addition, the shares are listed on the
London and Zurich stock exchanges. Options on shares are traded on
the German options exchange (Eurex).

   ADRs, each representing one share, were listed on the New York
Stock Exchange (NYSE) October 12, 2000 and trade under the symbol
"SHR".


Trading on the Frankfurt Stock Exchange

   The Frankfurt Stock Exchange is operated by Deutsche Borse AG and
is the most significant
of the eight German stock exchanges. Trading on the floor takes place
every business day between 9:00 a.m. and 8:00 p.m., Central European
Time. Securities listed on the Frankfurt Stock Exchange
are generally traded in the auction market, but such securities also
change hands in interbank
dealer markets.

   On behalf of the Frankfurt Stock Exchange, the Association of
Members of the Frankfurt Stock Exchange (Kursmaklerkammer Frankfurt
am Main) publishes an official daily list of quotations (Amtliches
Kursblatt) containing the fixed prices as well as the intraday high
and low prices for all traded securities.

   A computerized trading system now known as Xetra is operated by
Deutsche Borse. Trading may be conducted only by banks and securities
dealers who have been admitted to trading on at least one German
stock exchange. Trading through the Xetra system takes place from
9:00 a.m. to 8:00 p.m., Central European Time, on each business day.

   Transactions on the Frankfurt Stock Exchange, including
transactions through the Xetra system, are settled on the second
business day following the trade. Transactions off the Frankfurt
Stock Exchange, e.g. some large trades or trades with a non-German
party, are generally also settled on the second business day
following the trade, although a different period may be agreed to by
the parties. Under the German banks standard terms and conditions
for securities transactions, customers orders for listed securities
must be executed on a stock exchange unless the customer gives
specific instructions to the contrary.

   The Frankfurt Stock Exchange can suspend a quotation if orderly
stock exchange trading is temporarily threatened or if a suspension
appears necessary in order to protect the public interest. The
Hessian Stock Exchange Supervisory Authority and the Trading Monitors
of the Frankfurt Stock Exchange, which are under the control of the
Stock Exchange Supervisory Authority for Securities Trading, an
independent federal authority, are responsible for generally
supervising securities trading pursuant to the provisions of the
German Securities Trading Act.


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<PAGE>


Item 10.  Additional Information

ARTICLES OF ASSOCIATION

   Incorporated by reference to Form 20-F Registration Statement of
Schering Aktiengesellschaft filed with the Securities and Exchange
Commission on September 27, 2000.


MATERIAL CONTRACTS

   On December 29, 1999, Schering AG entered into a Partners
Agreement with Hoechst AG and Aventis S.A. For a description of
certain terms of this agreement, see "Item 4-Information on the
Company-Aventis CropScience-Description of Aventis CropScience
Partners Arrangements".


EXCHANGE CONTROLS

   The DM and the euro are fully convertible currencies. There are,
except in limited embargo circumstances, no legal restrictions in
Germany on international capital movements and foreign exchange
transactions. For statistical purposes only, with certain exceptions,
every corporation or individual residing in Germany must report to
the German Central Bank (Deutsche Bundesbank) any payment received
from or made to a non-resident corporation or individual if the
payment exceeds DM 5,000 or E 2,500 (or the equivalent in a foreign
currency). Additionally, corporations and individuals residing in
Germany must report to the German Central Bank any claims of a
resident corporation or individual against, or liabilities payable

to, a non-resident corporation or individual exceeding an aggregate
of DM 3 million or E 1.5 million (or the equivalent in a foreign
currency) at the end of any calendar month.

   Neither German law nor our Articles of Association restrict the
right of non-resident or non- German owners to hold or vote the
shares.


TAXATION

German Taxation

   The following discussion describes the material German tax
consequences of owning shares or American Depositary Shares (ADSs).
It applies to you if you are a "Non-German Holder". You are a Non-
German Holder if you:

  .  are not a German resident for German income tax purposes; and

  .  do not hold shares or ADSs as part of a permanent establishment or
     a fixed base you maintain in Germany.

   This summary is based on German law and tax and other treaties
between Germany and other countries as they are in effect as of the
date hereof, and is subject to changes in German law or such
treaties. In particular, the corporate income tax imputation system
described below and the applicable tax rates will change as of
January 1, 2001 as a result of the reform of the taxation of
enterprises which the German parliament passed on July 14, 2000. This
section is not a comprehensive discussion of all of the German tax
consequences that may be relevant for Non- German Holders. You should
consult your tax adviser regarding the German federal, state and
local tax consequences of the purchase, ownership and disposition of
shares or ADSs and the procedures for the refund of German taxes
withheld from dividends.


                                 124

<PAGE>


Dividends

   Under German law, German corporations must withhold tax on
dividends in an amount equal to 25% of the gross amount paid to
resident and non-resident holders. An applicable tax treaty may
reduce the rate of withholding tax on dividend distributions paid to
Non-German Holders. Most tax treaties to which Germany is party,
including the treaty between Germany and the United States (the
"Treaty"), reduce the withholding tax rate to 15%. You would receive
this reduction by applying for a refund of the difference between the
tax withheld at the statutory rate of 25% (20% for dividends received
after 2001) and the applicable treaty rate to the German tax
authorities, located at the Bundesamt fur Finanzen, Friedhofstrasse
1, D-53225 Bonn, Germany. If you are entitled to benefits under the
Treaty, a special refund procedure may apply, which we describe below
under the heading "-Dividend refund procedure for U.S. holders".

   In addition, as long as the German corporate tax imputation
system provides German resident individual shareholders with a tax
credit in respect of dividends paid by German corporations, the
Treaty entitles qualifying U.S. shareholders to an additional refund
from the German government. This additional refund is equal to 5.88%
of the gross amount of the dividend paid by Schering AG, and is
itself subject to a 15% German withholding tax. After such
withholding tax, the additional refund is equal to 5% of the gross
amount of the dividend paid by Schering AG (5.88% less 0.88% (15% x
5.88%) equals 5%). You may obtain this refund together with the
general treaty refund discussed in the preceding paragraph. Because
of the German tax reform measures described above, this refund will
not apply to dividends paid after 2001.

   A surtax on the German withholding tax is currently levied on
dividend distributions paid by a German resident company at a rate of
5.5% of the basic 25% (20% for dividends received after 2001)
withholding tax on dividend distributions. At this rate, the surtax
amounts to 1.375% (5.5% x 25%) (1.100% (5.5 x 20%) for dividends
received after 2001) of the gross amount of the dividend paid by
Schering AG. The Treaty entitles qualifying U.S. shareholders to a
full refund of this surtax.

   As a result, a qualifying U.S. shareholder entitled to a gross
dividend of E 100 from Schering AG will, after applicable refunds of
German withholding tax, receive a cash payment of E 90 [E 100 gross
dividend from Schering AG plus E 5.88 gross refund from the German
government (or E 105.88), minus E 15 German withholding tax (E 25
basic withholding tax on the gross dividend paid by Schering AG,
minus applicable Treaty refund of E 10), minus E 0.88 (15% net
withholding tax on E 5.88 tax refund from the German government)].
For the years 2002 and later, the total cash payment will be E 85 (E
100 gross dividend from Schering AG minus E 15 German witholding tax
[E 20 basic withholding tax on the gross dividend minus applicable
Treaty refund of E 5)].


Dividend refund procedure for U.S. holders

For shares and ADSs that are kept in custody with the
Depositary Trust Company in New York or one of its
participating banks, the German tax authorities have introduced
a collective procedure for the refund of German withholding tax
and surtax, on a trial basis. Under this procedure, the
Depositary Trust Company may submit claims for refunds payable
to U.S. holders under the Treaty collectively to the German tax
authorities on behalf of these U.S. holders. The German Federal
Tax Office (Bundesamt fur Finanzen) will pay the refund amounts
on a preliminary basis to the Depositary Trust Company, which
will redistribute these amounts to you and other U.S. holders
according to the regulations governing the procedure. The
Federal Tax Office may review whether the refund conforms with
the law within four years after making the payment to the
Depositary Trust Company.Details of this collective refund
procedure are available from the Depositary Trust Company.


                                 125

<PAGE>


If you are not eligible for the special refund procedure described in
the preceding paragraph, you must make an individual claim for
refund. Individual claims for refund are made on a special German
form, which you must file with the German authorities at the
Bundesamt fur Finanzen, Friedhofstrasse 1, D-53225 Bonn, Germany. You
can obtain copies of the required form from the German tax
authorities at the same address or from the Embassy of the Federal
Republic of Germany, 4645 Reservoir Road, N.W., Washington D.C.
20007-1998.

   As part of the individual refund claim, you must submit to the
German tax authorities the original bank voucher (or certified copy
thereof) issued by the paying entity documenting the tax withheld,
and an official certification on IRS Form 6166 of your last United
States federal income tax return. You can obtain IRS Form 6166 by
filing a request with the Internal Revenue Service Center in
Philadelphia, Pennsylvania. Foreign Certification Request, P.O. Box
16347, Philadelphia, PA 19114- 0447. Requests for certification must
include your name, Social Security Number or Employer Identification
Number, tax return form number, and tax period for which the
certification is requested. You can also request that the Internal
Revenue Service send the certification directly to the German tax
authorities. If you do not make such a request, the Internal Revenue
Service will send a certificate on IRS Form 6166 to you, and you must
submit the certification with its claim for refund.
Capital gains

   Under German domestic tax law, capital gains you derive from the
sale or other disposition of shares or ADSs are subject to tax in
Germany only if you have held, directly or indirectly, shares or ADSs
representing 10% (1% after 2001) or more of the registered share
capital of Schering AG at any time during the five-year period
immediately preceding the disposition. Most German tax treaties,
including the Treaty, provide that Non-German Holders are not subject
to German tax even in that case.


Inheritance and gift tax

   Under German law, German gift or inheritance tax will be imposed
on transfers of shares or ADSs by a gift or on the death of a Non-
German Holder only in the following situations:

  .  if you or another transferor, or your heir, donee or other
     beneficiary, was domiciled in Germany at the time of the
     transfer or, if you are a German citizen who is not domiciled
     in Germany, if you, another transferor or your beneficiary has
     not been continuously outside of Germany for a period of more
     than 5 years; or

  .  if your shares or ADSs are subject to such a transfer and form
     part of a portfolio which represents 10% or more of the
     registered share capital of the company and you have held such
     shares directly or indirectly yourself or together with a
     related person.

   The few German estate tax treaties currently in force, including
the treaty with the United States, usually provide that German gift
or inheritance tax may only be imposed in situations falling under
the first condition above.


Other taxes

   No German transfer, stamp or other similar taxes apply to your
purchase, sale or other disposition of shares or ADSs.


                                 126

<PAGE>


U.S. Taxation

   This section describes the material United States Federal income
tax consequences of owning shares or ADSs. It applies to you only if
you hold your shares or ADSs as capital assets for tax purposes. This
section does not address special classes of holders, some of whom may
be subject to other rules, including:

  .  tax-exempt entities;

  .  certain insurance companies;

  .  broker-dealers;

  .  traders in securities that elect to mark to market;

  .  investors liable for alternative minimum tax, investors that
     actually or constructively own 10% or more of the voting stock
     of Schering AG, investors that hold shares or ADSs as part of a
     straddle or a hedging or conversion transaction; or

  .  investors whose functional currency is not the U.S. dollar.

   This section is based on the tax laws of the United States,
including the Internal Revenue Code of 1986, as amended, its
legislative history, existing and proposed regulations, and published
rulings and court decisions, as currently in effect, as well as on
the Treaty. These laws are subject to change, possibly on a
retroactive basis.

   You are a "U.S. holder" if you are a beneficial owner of shares
or ADSs and you are:

  .  a citizen or resident of the United States;

  .  a United States corporation or other entity taxable as a
     corporation in the United States;

  .  an estate whose income is subject to United States Federal
     income tax regardless of its source, or a trust if a United
     States court can exercise primary supervision over the trusts
     administration and one or more United States persons are
     authorized to control all substantial decisions of the trust.

   You are an "eligible U.S. holder" if you are a U.S. holder
and you are:

  .  a resident of the United States for purposes of the Treaty, do
     not maintain a permanent establishment or fixed base in
     Germany to which the shares or ADSs are attributable and
     through which you carry on or have carried on business or, if
     you are an individual, perform or have performed independent
     personal services; and

  .  otherwise eligible for benefits under the Treaty with respect
     to income and gain from the shares or ADSs.

   You are a "non-U.S. holder" if you are a beneficial owner of
shares or ADSs that is not a U.S. holder (as described above).

   This discussion addresses only United States Federal income
taxation. You should consult your own tax advisor regarding the
United States Federal, state, local and other tax consequences of
owning and disposing of shares and ADSs in your particular
circumstances. In particular, you should confirm your status as an
eligible U.S. holder with your advisor and should discuss any
possible consequences of failing to qualify as an eligible U.S.
holder.

   In general, for United States Federal income tax purposes, if you
hold ADRs evidencing ADSs, you will be treated as the owner of the
shares represented by those ADSs. Exchanges of shares for ADSs, and
ADSs for shares, generally will not be subject to United States
Federal income tax.


                                 127

<PAGE>


Taxation of Dividends

   U.S. Holders

   If you are a U.S. holder, you must include in your gross income
the gross amount of any dividend paid by Schering AG out of its
current or accumulated earnings and profits, as these amounts are
determined for United States Federal income tax purposes. In addition
to this amount, you must also include the gross amount of the
additional Treaty refund from the German government in respect of
dividends paid by Schering AG.

   The dividend is ordinary income that you must include in income
when you receive the dividend, actually or constructively. The
dividend will not be eligible for the dividends-received deduction
generally allowed to United States corporations in respect of
dividends received from other United States corporations. The amount
of the dividend distribution that you must include in your income as
a U.S. holder will be the U.S. dollar value of the euro payments
made, determined at the spot euro/U.S. dollar rate on the date the
dividend distribution is includable in your income, regardless of
whether the payment is in fact converted into U.S. dollars.
Generally, any gain or loss resulting from currency exchange
fluctuations during the period from the date you include the dividend
payment in income to the date you convert the payment into U.S.
dollars will be treated as ordinary income or loss. The gain or loss
generally will be income from sources within the United States for
foreign tax credit limitation purposes. Distributions in excess of
current and accumulated earnings and profits, as determined for
United States Federal income tax purposes, will be treated as a
return of capital to the extent of your basis in the shares or ADSs
and thereafter as capital gain.

   Dividends will constitute income from sources outside the United
States, but generally will be "passive income" or "financial services
income" which are treated separately from other types of income for
purposes of computing the foreign tax credit allowable to you.

   Subject to certain limitations, you may credit against your
United States federal tax liability the net amount (after applicable
refunds) of any German tax withheld in accordance with German law or
the Treaty. For United States tax purposes, you will be treated as
paying German withholding taxes of E 15.88 on every E 100 of gross
dividend paid by Schering AG (E 15 basic German withholding tax after
applicable E 10 refund and E 0.88 German withholding tax on E 5.88
tax refund from the German government). As a result of the German tax
reform described above, after December 31, 2000, you will be treated
as paying German withholding taxes of E 15 on every E 100 of gross
dividend paid by Schering AG (E 15 basic German withholding tax after
applicable E 10 refund). If you cannot or choose not to use the
German withholding tax as a credit, you may generally treat that tax
as an itemized deduction for United States Federal income tax
purposes.

   Non-U.S. Holders

   If you are a non-U.S. holder, dividends paid to you in respect of
shares or ADSs will not be subject to United States Federal income
tax unless effectively connected with your conduct of a trade or
business within the United States. The dividends must also be
attributable to a permanent establishment that you maintain in the
United States, if that is required by an applicable income tax treaty
as a condition for subjecting you to United States taxation on a net
income basis. In such cases you will be taxed in the same manner as a
U.S. holder. If you are a corporate non-U.S. holder, effectively
connected dividends may, under certain circumstances, be subject to
an additional branch profits tax at a 30% rate or at a lower rate if
you are eligible for the benefits of an income tax treaty that
provides for a lower rate.


                                 128

<PAGE>


Taxation of capital gains

   U.S. Holders

   If you are a U.S. holder and sell or otherwise dispose of your
shares or ADSs, you will recognize capital gain or loss for United
States Federal income tax purposes equal to the difference between
the U.S. dollar value of the amount that you realize and your tax
basis, determined in U.S. dollars, in your shares or ADSs. Capital
gain of a non-corporate U.S. holder is generally taxed at a maximum
rate of 20% for property held more than one year. Additionally, gain
or loss will generally be income from sources within the United
States for foreign tax credit limitation purposes.


   Non-U.S. Holders

   If you are a non-U.S. holder, you will not be subject to United
States Federal income tax on gain recognized on the sale or other
disposition of your shares or ADSs unless:

  .  the gain is effectively connected with your conduct of a trade
     or business in the United States; the gain must also be
     attributable to a permanent establishment that you maintain in
     the United States, if that is required by an applicable income
     tax treaty as a condition for subjecting you to United States
     taxation on a net income basis; or

  .  you are an individual, you are present in the United States
     for 183 or more days in the taxable year of the sale and
     certain other conditions exist.

   If you are a corporate non-U.S. holder, effectively connected
gains that you recognize may also, under certain circumstances, be
subject to an additional branch profits tax at a 30% rate or at a
lower rate if you are eligible for the benefits of an income tax
treaty that provides for a lower rate.


Backup withholding and information reporting

   In general, dividend payments, or other taxable distributions,
made within the United States to you will be subject to information
reporting requirements and backup withholding tax at the rate of 31%
if you are a non-corporate United States person and, you:

  .  fail to provide an accurate taxpayer identification number;

  .  are notified by the Internal Revenue Service that you have
     failed to report all interest or dividends required to be shown
     on your Federal income tax returns; or

  .  in certain circumstances, fail to comply with applicable
     certification requirements.

   Certain corporations and persons that are not United States
persons may be required to establish their exemption from information
reporting and backup withholding by certifying their status on
Internal Revenue Service Form W-8 or W-9.

   If you sell your shares or ADSs to or through a United States
office of a broker, the payment of the proceeds is subject to both
United States backup withholding and information reporting unless you
certify that you are a non-U.S. person, under penalties of perjury,
or you otherwise establish an exemption. If you sell your shares or
ADSs through a non-U.S. office of a non-U.S. broker and the sale
proceeds are paid to you outside the United States then information
reporting and backup withholding generally will not apply to that
payment. However, United States information reporting requirements,
but not backup withholding, will apply to a payment of sales
proceeds, even if that payment is made to you outside the United
States, if you sell your shares or ADSs through a non-U.S. office of
a broker that is a U.S. person or has certain other contacts with the
United States.

   You generally may obtain a refund of any amounts withheld under
the backup withholding rules that exceed your income tax liability by
filing a refund claim with the United States Internal Revenue
Service.


                                 129

<PAGE>


DOCUMENTS ON DISPLAY

   Schering AG is subject to the informational reporting
requirements of the Securities Exchange Act of 1934 and files reports
and other information with the Securities and Exchange Commission.
You may examine the reports and other information filed by Schering
AG, without charge, at the public reference facilities maintained by
the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.,
20549, and at the SECs regional offices located at Suite 1400,
Northwest Atrium Center, 500 West Madison Street (Suite 1400),
Chicago, Illinois, 60661-2551 and Room 1300, Seven World Trade
Center, New York, New York, 10048. You may also receive copies of
these materials by mail from the SECs Public Reference Branch at 450
Fifth Street, N.W., Washington, D.C., 20549. For more information on
the public reference rooms, call the SEC at 1-800-SEC-0330. Our
reports and other information filed with the SEC are also available
to the public from commercial document retrieval services and the
website maintained by the SEC at http://www.sec.gov. The ADRs are
traded on the New York Stock Exchange, and the materials are
available for inspection and copying at their offices at 20 Broad
Street, New York, New York, 10005.


                                 130

<PAGE>


Item 11.  Quantitative and Qualitative Disclosures about Market Risk

   Due to our global business and existing current assets, we are
exposed to various market risks (i.e., the risk of loss arising from
adverse changes in market rates and prices). Our principal market
risks are:

  .  foreign exchange rates, generating translation and transaction
      gains and losses.

  .  interest rate and other risks related to financial assets and
      liabilities.

  .  equity price risks relating to the equity securities we hold
      of certain of our collaboration partners.

   Our central treasury function located at Schering AGs
headquarters is responsible for market risk management. The Schering
AG central treasury enters into virtually all derivatives contracts
utilized by the Group. Derivative instruments are used only for non-
trading purposes such as hedging. Subsidiaries are permitted to enter
into derivative contracts only in exceptional situations after
obtaining the prior consent of Schering AG central treasury.

   Risk management transactions are executed within the common
framework of limits, segregation of duties, and position and result
reporting by an experienced staff with selected banks with a minimum
long-term rating of A. The positions are valued mark-to-market on a
regular (mainly daily) basis.

   The risks involved with cash and derivative positions in foreign
exchange and asset-liability risk management are measured and limited
with an in-house risk management system based on historical
simulation. The simulation system calculates the worst case results
for given single positions and whole portfolios within the last ten
years. The time bracket to calculate the worst case adverse market
movements can be flexibly determined and is normally set to one-month
and one- year periods.


FOREIGN EXCHANGE RISK MANAGEMENT

   Approximately 61% of our net sales in 2000 were made in
currencies other than the euro, including the US dollar, the Japanese
yen, the British pound sterling and the Brazilian real.
See "Item 5-Operating and Financial Review and Prospects-Liquidity
and Capital Resources-Foreign Currency" for information on the range
of currencies in which we made sales in  1998, 1999 and 2000. We
therefore face considerable foreign exchange risks regarding our
balance-sheet exposure (current assets minus current liabilities in
foreign currencies) and our future anticipated exposure (future sales
minus future costs in non-euro currencies). In accordance with our
risk management policy, balance-sheet exposure is fully hedged and
our future anticipated exposure for a rolling twelve-month period is
in general 50% hedged. The hedge level of our anticipated exposure
may be varied between 0% and 100% of this anticipated exposure in
accordance with our market expectations. As of December 31, 2000, the
maximum term of our foreign exchange contracts was less than six
months.


                                 131

<PAGE>


   Hedges for Balance-Sheet Exposure

   The following table sets forth, as of December 31, 2000,
information about foreign currency forward exchange contracts entered
into to hedge our balance-sheet exposure:


<TABLE>
<CAPTION>
Foreign Currency Forward Exchange Agreements
                                                             Contract
                                             Exchange         Amount
                                               Rate         Buy (Sell) Fair Value
    Currency Pairs                               (E millions)
<S>                         <C>                  <C>            <C>        <C>
Australian dollar........   euro              1.6448           15.6       (0.3)
British pound............   euro              0.6118            (32)       0.6
British pound............   euro              0.6082            9.1       (0.2)
Canadian dollar..........   euro              1.3673          (17.2)       0.4
Canadian dollar..........   euro              1.3448            5.2       (0.2)
Indonesia rupiah.........   euro               8,397           (7.7)       0.6
Japanese yen.............   euro               97.03         (312.9)      31.9
Mexican peso.............   euro              8.4000            2.2        0.1
South African rand.......   euro              6.8450           (4.5)       0.1
Swedish krona............   euro              8.5113           (3.2)       0.1
Swedish krona............   euro              8.6204            1.2        0.0
Swiss franc..............   euro              1.5066          (11.4)       0.1
Swiss franc..............   euro              1.5052            4.9       (0.1)
Thailand bath............   euro               39.16           (4.4)       0.1
U.S. dollar..............   euro              0.8935         (271.1)      11.2
U.S. dollar..............   euro              0.9066            6.3       (0.2)
U.S. dollar..............   Thailand bath      40.85            0.4        0.0
U.S. dollar..............   South Korean won   1,263            7.0        0.0
</TABLE>


   Hedges for Anticipated Exposure

   The following table sets forth, as of December 31, 2000,
information about foreign currency forward exchange contracts entered
into to hedge our anticipated exposure:


<TABLE>
<CAPTION>
Foreign Currency Forward Exchange Agreements
                                                             Contract
                                             Exchange         Amount
                                               Rate         Buy (Sell) Fair Value
    Currency Pairs                               (E millions)
<S>                         <C>                  <C>            <C>        <C>
Australian dollar........   euro              1.6448          (33.5)       0.7
Australian dollar........   euro              1.6611           11.2       (0.1)
British pound............   euro              0.6109          (69.1)       1.5
Canadian dollar..........   euro              1.3673          (15.3)       0.3
Canadian dollar..........   euro              1.4008            7.7        0.0
Japanese yen.............   euro               99.24         (135.1)      10.5
Japanese yen.............   euro              103.84           18.7       (0.6)
Mexican peso.............   euro              8.4000          (25.6)       1.6
Mexican peso.............   euro              8.4000           12.8       (0.8)
South African rand.......   euro              6.8450           (8.9)       0.2
Swedish krona............   euro              8.6204            (20)       0.5
Swiss franc..............   euro              1.5052          (13.1)       0.2
Swiss franc..............   euro              1.5052            3.3        0.0
Thailand baht............   euro               39.16           (6.6)       0.2
U.S. dollar..............   euro              0.8808         (213.9)      12.1
U.S. dollar..............   euro              0.8872           32.3       (1.6)
</TABLE>


                                 132
<PAGE>


2000 Compared to 1999

   The foreign currency hedge for our balance-sheet exposure
increased from a total nominal amount E 637 million as of December
31, 1999 to E 663 million as of December 2000. This increase is
attributable to higher intercompany financing activities.

   The foreign currency hedge for our anticipated exposure decreased
from E 518 million as of December 31, 1999 to E 455 million as of
December 31, 2000. The primary reason for this decrease was the level
of hedging which decreased from 76% as of December 31, 1999 to 62% as
of December 31, 2000.


ASSET-LIABILITY RISK MANAGEMENT
   Asset-Liability Risk Management encompasses the interest rate and
other risks related to financial assets and liabilities. As of
December 31, 2000, our cash and securities classified as current
assets amounted to E 652 million. Our short-term cash deposits are
mainly euro denominated. Our total bank liabilities as of December
31, 2000 amounted to E 234 million. These liabilities are mostly
short-term liabilities (maturity of less than one year) and are
principally denominated in the local currencies of the group
companies.

   As of December 31, 2000, our positive net cash position (which we
define as marketable securities and cash and cash equivalents less
liabilities to banks) was E 418 million. These assets are invested in
order to achieve a high rate of return within defined risk limits.
The portfolio is diversified in a range of cash assets which are
supplemented by derivative instruments in order to generate the
intended asset profile for the whole portfolio. Apart from risk
limits, the short-term and mid-term liquidity requirements of the
Group are also taken into account in the management of the maturity
profile of cash assets. As is discussed under "-Foreign Exchange Risk
Management", currency risk caused by cash and derivative positions of
Asset-Liability Risk Management is hedged as a balance-sheet
exposure.


                                 133
<PAGE>


   The following tables set forth the nominal and fair values, maturity
and contract terms of the interest rate sensitive financial
instruments that were held by the Group as of December 31, 2000.


<TABLE>
<CAPTION>
Assets and Liabilities
                                                                                       There-           Fair
                                                2001    2002    2003   2004    2005    after  Total    Value
                                                                    (E millions)
<S>                                             <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>
Euro:
Cash/Deposits................................   199                                              199     199
Average yield (%)............................   4.9                                              4.9
Fixed income securities......................     8       7      66      26        8     72      186     198
Average yield (%)............................   5.5     4.7     5.6     7.1      8.6    8.2      6.9
Liabilities..................................  (150)                                            (150)  (148)
Average yield (%)............................   5.1                                              5.1

US dollar:
Liabilities..................................   (30)                                     (4)     (34)    (34)
Average yield................................   6.9                                     3.5      6.5

Japanese yen:
Liabilities..................................   (15)     (5)                      (2)            (22)    (22)
Average yield (%)............................   1.6     1.8                      1.8             1.7

Other:
Equity securities (mainly E).................                                                             91
Hedge funds (US$ based)......................                                                            123
</TABLE>


<TABLE>
<CAPTION>
Derivative Positions
                                                                                        There-           Fair
                                                2001   2002    2003    2004    2005     after  Total    Value
                                                                    (E millions)
<S>                                             <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>
Euro:
German Bund Futures.                                                                    124     124      1
Yield (%).....................................                                          4.9
German Bobl Futures...........................                                   32              32      0
Yield (%).....................................                                  4.6
Interest rate swap............................                                           50      50     (2)
Yield (%) (pay fixed rate)....................                                          5.5
Forward starting swap (starting 2009).........                                           25      25      0
Yield (%) (receive fixed rate)................                                          6.5
Forward starting swap (starting 2010).........                                           25      25
Yield (%) (receive fixed rate)................                                          6.5
Japanese yen:
Japanese government bond futures..............                                           17      17      0
Yield (%).....................................                                          1.9
British pound:
Forward starting swap (starting 2009).........                                           26      26      0
Yield (%) (pay fixed rate)....................                                          4.9
Forward starting swap (starting 2010).........                                           23      23     (1)
Yield (%) (pay fixed rate)....................                                          4.8
Other:
Long call on equity index (EuroStoxx50).......          20                                       20      3
Short call on equity index (EuroStoxx50)......          20                                       20     (1)
Short put on equity index (EuroStoxx50)                 20                                       20     (1)
</TABLE>


                                 134


<PAGE>


2000 Compared to 1999

   Our net cash position as described above increased by E 21
million to E 418 million at December 2000 from E 397 million at
December 31, 1999. The increase is mainly due to valuation increases
in our portfolio assets.


EQUITY PRICE RISK IN RESEARCH COLLABORATION PARTNERS

   As part of our research and development activities, we from
time to time enter into research collaboration efforts with
various companies in the pharmaceutical sector. In connection
with these research collaboration efforts, we acquire equity
investments in our collaboration partners from time to time. In
most cases, the transfer and sale of these equity investments
are subject to contractual and regulatory restrictions. Equity
investments subject to such restrictions are shown in the
Balance Sheet in our Consolidated Financial Statements under
"Financial assets/ Other Investments". The book value of these
equity investments (of which only some are publicly traded
securities) amounted to approximately E 66 million as of December 31,
2000. The market value of certain of these equity investments has
fluctuated significantly. We do not have any derivative financial
instruments to mitigate the fluctuation in the value of the
investments.

Item 12.  Description of Securities Other than Equity Securities
   Not applicable.


                                 135

<PAGE>


                               PART II


Item 13.  Defaults, Dividend Arrearages and Delinquencies
   Not applicable.


Item 14.  Material Modifications to the Rights of Security Holders
and Use of Proceeds
   Not applicable.


Item 15.  [Reserved]


Item 16.  [Reserved]


                                 136

<PAGE>


                              PART III

Item 17.  Financial Statements
   Schering AG is furnishing financial statements pursuant to the
instructions of Item 18 of Form 20-F.


Item 18.  Financial Statements
   See our Consolidated Financial Statements beginning at F-1.


Item 19.  Exhibits


<TABLE>
<CAPTION>
<S>   <C>
1.1   Articles of Association (Satzung) of Schering Aktiengesellschaft, as amended to date
      (English-language translation thereof).*

2.1   Form of Deposit Agreement among Schering Aktiengesellschaft, Morgan Guaranty Trust
      Company of New York, as depositary, and the holders from time to time of American
      Depositary Receipts.*

2.2   Form of American Depositary Receipt (included in Exhibit 2.1).

2.3   Long-term debt instruments. Schering Aktiengesellschaft undertakes to provide the
      Securities and Exchange Commission with copies upon request.

4.1   Partners Agreement dated as of December 29, 1999, among Hoechst AG, Aventis
      S.A., and Schering AG.*

8.1   Subsidiaries of Schering Aktiengesellschaft.*
</TABLE>

-----
(* Incorporated by reference to Form 20-F Registration Statement
of Schering Aktiengesellschaft filed with the Securities and
Exchange Commission on September 27, 2000)


                                 137

<PAGE>


SIGNATURES

   Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant certifies that it meets all of
the requirements for filing on Form 20-F and has duly caused this
annual report to be signed on its behalf by the undersigned,
thereunto duly authorized.



                                          SCHERING AKTIENGESELLSCHAFT


                                          By: /s/ KLAUS POHLE
                                              ----------------------------
                                              Name:  Klaus Pohle
                                              Title: Vice Chairman of the
                                                     Executive Board

Date: March 15, 2001


                                 138

<PAGE>


SCHERING AG


Index to Consolidated Financial Statements


<TABLE>
<CAPTION>
                                                                                Page
<S>                                                                             <C>
Report of Independent Accountants.............................................  F-2

Consolidated Financial Statements:
   Consolidated Income Statements for the years ended
   December 31, 2000, 1999 and 1998...........................................  F-3
   Consolidated Balance Sheets as of December 31, 2000 and 1999...............  F-4
   Consolidated Cash Flow Statements for the years ended
   December 31, 2000, 1999 and 1998...........................................  F-5
   Consolidated Statements of Changes in Shareholders Equity for the years
   ended December 31, 2000, 1999 and 1998.....................................  F-6
   Notes to the Consolidated Financial Statements.............................  F-7
</TABLE>


                                 F-1

<PAGE>


Report of Independent Accountants

   We have audited the consolidated balance sheets of Schering
Aktiengesellschaft (Schering AG) as of December 31, 2000 and 1999,
and the consolidated statements of income, cash flows and changes in
shareholders equity for each of the years in the three year period
ending December 31, 2000, and the notes to the Consolidated Financial
Statements. These Consolidated Financial Statements are the
responsibility of the Companys Executive Board. Our responsibility
is, to express an opinion based on our audit as to whether these
Consolidated Financial Statements comply with International
Accounting Standards (IAS).

   We conducted our audits in accordance with International
Standards on Auditing (ISA) issued by the International Federation of
Accountants and auditing standards generally accepted in the United
States (US GAAS). These standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
Consolidated Financial Statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the Consolidated Financial Statements. An
audit also includes assessing 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, the Consolidated Financial Statements referred to
above present fairly, in all material respects, the consolidated
financial position of Schering AG as of December 31, 2000 and 1999
and the consolidated results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 2000 in
accordance with IAS.

   Application of accounting principles generally accepted in the
United States would have affected shareholders equity as of December
31, 2000, 1999 and 1998 and net income for each of the years in the
three-year period ended December 31, 2000 to the extent summarized in
notes (36) and (37) to the Consolidated Financial Statements.


<TABLE>
<CAPTION>
<S>                <C>                                <C>
Berlin, Germany    BDO Deutsche Warentreuhand
March 5, 2001      Akiengesellschaft
                   Wirtschaftsprufungsgesellschaft
                   Dyckerhoff                         Schulz
                   Wirtschaftsprufer                  Wirtschaftsprufer


                   BDO International GmbH
                   Wirtschaftsprufungsgesellschaft
                   Dyckerhoff                         Braasch
                   Wirtschaftsprufer                  Wirtschaftsprufer
</TABLE>


                                 F-2

<PAGE>


SCHERING AG
CONSOLIDATED INCOME STATEMENTS

for the Years Ended December 31,
(in millions except per share data)


<TABLE>
<CAPTION>
                                                            See Notes  2000      2000      1999       1998


                                                                       ${(1)}     E         E       E{(2)}
<S>                                                              <C>   <C>       <C>       <C>        <C>

Net sales............................................            (6)    4,218    4,493     3,674      3,285
Cost of sales........................................                 (1,022)   (1,089)     (902)      (800)
                                                                       ------    ------    ------     ------
Gross profit.........................................                  3,196     3,404     2,772      2,485

Marketing and selling costs..........................                 (1,407)   (1,498)   (1,165)    (1,053)
Engineering and administration costs.................            (7)    (428)     (456)     (367)      (365)

Research and development costs.......................                   (761)     (811)     (684)      (628)
Other operating income...............................            (8)     282       300       334        262
Other operating expenses.............................            (9)    (281)     (299)     (354)      (291)
                                                                       ------    ------    ------     ------

Operating profit.....................................                    601       640       536        410
Financial result.....................................           (10)      (5)       (5)      (77)        14
                                                                       ------    ------    ------     ------

Profit on ordinary activities........................                    596       635       459        424
Taxes on profit......................................           (11)    (272)     (290)     (181)      (175)
                                                                       ------    ------    ------     ------
Income before minority interests.....................                    324       345       278        249

Minority interests...................................                     (9)       (9)       (6)        (4)
                                                                       ------    ------    ------     ------
Net income...........................................                    315       336       272        245
                                                                       ------    ------    ------     ------
                                                                       ------    ------    ------     ------

EARNINGS PER SHARE (basic) {(3)}....................           (12)    1.59      1.70      1.35       1.19
                                                                       ------    ------    ------     ------
                                                                       ------    ------    ------     ------
EARNINGS PER SHARE (diluted) {(3)(4)}...............           (12)    1.58      1.68      1.35       1.19
                                                                       ------    ------    ------     ------
                                                                       ------    ------    ------     ------
</TABLE>

-----
(1)  The 2000 figures have been translated solely for the convenience of
     the reader at an exchange rate of $ 0.9388 to E 1.00, the noon buying rate
     on December 29, 2000
(2)  The 1998 figures have been restated from the prior reporting currency (DM)
     into E at an exchange rate of DM 1.95583 to E 1.00, the official legal rate
     on January 1, 1999
(3)  Figures for 1999 and 1998 adjusted because of a 1:3 share split
(4)  Diluted by stock options issued as part of Long-Term Incentive Plans
     for employees







   The accompanying notes are an integral part of these Consolidated
Financial Statements


                                 F-3
<PAGE>


SCHERING AG
CONSOLIDATED BALANCE SHEETS

as of December 31,


<TABLE>
<CAPTION>
                                                             See
                                                            Notes           2000          2000          1999
                                                                       $ million{(1)}  E million    E million
ASSETS
<S>                                                           <C>            <C>           <C>           <C>
Intangible assets........................................... (14)            470           501           454
Property, plant and equipment............................... (15)          1,127         1,201         1,123
Financial assets............................................ (16)            511           543           581
                                                                          -------       -------       -------
Fixed assets................................................               2,108         2,245         2,158
                                                                          -------       -------       -------
Inventories................................................. (17)            731           779           682
Trade receivables........................................... (18)            926           987           791
Other receivables and other assets.......................... (19)            510           543           415
Marketable securities....................................... (20)            355           378           481
Cash and cash equivalents...................................                 257           274           102
                                                                          -------       -------       -------
Other non-current and current assets........................               2,779         2,961         2,471
                                                                          -------       -------       -------
TOTAL ASSETS................................................               4,887         5,206         4,629
                                                                          -------       -------       -------

SHAREHOLDERS EQUITY AND LIABILITIES
Issued capital (198,000,000 shares outstanding                              186            198           172
in 2000 and 1999){(2)}
Share premium account.......................................                 310           330           356
                                                                          -------       -------       -------
Paid-up capital of Schering AG.............................. (21)            496           528           528
Retained earnings........................................... (22)          1,660         1,769         1,570
                                                                          -------       -------       -------
Shareholders equity........................................               2,156         2,297         2,098
                                                                          -------       -------       -------
Minority interests..........................................                  86            92            55
                                                                          -------       -------       -------
Provisions for pensions and similar obligations............. (23)          1,200         1,278         1,201
Other provisions............................................ (24)            678           722           627
                                                                          -------       -------       -------
Provisions..................................................               1,878         2,000         1,828
                                                                          -------       -------       -------
Liabilities to banks........................................                 220           234           186
Other liabilities...........................................                 547           583           462
                                                                          -------       -------       -------
Liabilities................................................. (25)            767           817           648
                                                                          -------       -------       -------

TOTAL SHAREHOLDERS EQUITY AND LIABILITIES..................               4,887         5,206         4,629
                                                                          -------       -------       -------
                                                                          -------       -------       -------
</TABLE>

-----
(1) The 2000 figures have been translated solely for the convenience of the
    reader at an exchange rate of $ 0.9388 to E 1.00, the noon buying rate
    on December 29, 2000.
(2) Shares outstanding on December 31, 2000 include 170,000 treasury shares;
    these shares will be sold to employees in 2001; employees will be entitled
    to receive the dividend for fiscal year 2000. Conditionally authorized
    capital: E 12 million.















   The accompanying notes are an integral part of these Consolidated

Financial Statements

                                 F-4

<PAGE>


SCHERING AG
CONSOLIDATED CASH FLOW STATEMENTS

for the Years Ended December 31,


<TABLE>
<CAPTION>
                                                       See Notes        2000       2000       1999         1998
                                                                $ million {(1)} E million  E million E million {(2)}
<S>                                                          <C>          <C>       <C>        <C>          <C>

Income before minority interests..................                       324        345        278          249
Depreciation of fixed assets......................                       224        239        216          222
Increase in long-term provisions..................                        42         45         50           65
Other non-cash expenses and income{(3)}..........                        44         47         86          (17)
Result from disposal of fixed assets{(3)}........                       (29)       (31)         1          (14)
                                                                        -----      -----      -----        -----
Cash flows before working capital changes.........                       605        645        631          505
Change in inventories and receivables.............                      (217)      (231)      (218)        (237)
Change in liabilities and provisions
(other than long-term)............................                        48         51       (138)         114
                                                                        -----      -----      -----        -----
Cash flows from operating activities..............         (28)          436        465        275          382
                                                                        -----      -----      -----        -----
Purchase of fixed assets{(3)}....................                      (274)      (292)      (290)        (243)
Proceeds from sale of fixed assets{(3)}..........                        77         82         23           75
Purchase and sale of marketable securities........                       179        190        132        (393)
Cash flow on acquisition of business net of cash
acquired{(3)}....................................                       (93)       (99)      (126)          --
                                                                        -----      -----      -----        -----
Cash flows used in investing activities...........         (29)         (111)      (119)      (261)        (561)
                                                                        -----      -----      -----        -----
Dividends paid....................................                      (155)      (165)       (91)         (87)
Purchase of treasury shares.......................                        --         --       (183)         (70)
Change in liabilities to banks....................                        (7)        (7)        (9)         (36)
                                                                        -----      -----      -----        -----
Cash flows used in financing activities...........                      (162)      (172)      (283)        (193)
                                                                        -----      -----      -----        -----
Net change in cash and cash equivalents...........                       163        174       (269)        (372)
Effect of exchange rate movements on cash and
cash equivalents..................................                        (2)        (2)         4           (5)
Cash and cash equivalents at January 1............                        96        102        367          744
                                                                        -----      -----      -----        -----
Cash and cash equivalents at December 31..........         (27)          257        274        102          367
                                                                        -----      -----      -----        -----
                                                                        -----      -----      -----        -----
</TABLE>

-----
(1) The 2000 figures have been translated solely for the convenience
    of the reader at an exchange rate of $ 0.9388 to E 1.00, the noon
    buying rate on December 29, 2000.
(2) The 1998 figures have been restated from the prior reporting currency (DM)
    into E at an exchange rate of DM 1.95583 to E 1.00, the official legal rate
    on January 1, 1999.
(3) Figures for 1999 and 1998 adjusted following reclassification


















   The accompanying notes are an integral part of these Consolidated

Financial Statements

                                 F-5

<PAGE>


SCHERING AG
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

for the Years Ended December 31,


<TABLE>
<CAPTION>
                                          Paid-up capital
                                          of Schering AG           Retained earnings
                                                   Share    Schering AG  Currency     Other
                                        Issued    premium   reserve for translation  retained    Total
                                        capital   account   own shares   adjustment  earnings    equity
                                                              E million{(1)}
<S>                                        <C>       <C>        <C>        <C>         <C>         <C>
January 1, 1998......................     175        350          1          8       1,420       1,954
Dividend payments....................      --         --         --         --         (87)        (87)
Purchase of treasury shares..........      (2)         2         --         --         (70)        (70)
Net income...........................      --         --         --         --         245         245
Translation adjustments..............      --         --         --        (32)         --         (32)
Other changes........................      --         --         (1)        --           1          --
                                         -----      -----        ---       ----     -------     -------
December 31, 1998....................     173        352         --        (24)      1,509       2,010
Dividend payments....................      --         --         --         --         (91)        (91)
Purchase of treasury shares..........      (4)         4         --         --        (183)       (183)
Increase of legal capital............       3         --         --         --          (3)         --
Net income...........................      --         --         --         --         272         272
Translation adjustments..............      --         --         --         90          --          90
Other changes........................      --         --          2         --          (2)         --
                                         -----      -----        ---       ----     -------     -------
December 31, 1999....................     172        356          2         66       1,502       2,098
Dividend payments....................       -         --         --         --        (165)       (165)
Increase of legal capital............      26        (26)        --         --          --          --
Net income...........................      --         --         --         --         336         336
Translation adjustments..............      --         --         --         28          --          28
Other changes........................      --         --          3         --          (3)         --
                                         -----      -----        ---       ----     -------     -------
December 31, 2000....................     198        330          5         94       1,670       2,297
                                         -----      -----        ---       ----     -------     -------
                                         -----      -----        ---       ----     -------     -------
</TABLE>

-----
(1) The 1998 figures have been restated from the prior reporting currency (DM)
    into E at an exchange rate of DM 1.95583 to E 1.00, the official legal rate
    on January 1, 1999.





















   The accompanying notes are an integral part of these Consolidated
Financial Statements


                                 F-6

<PAGE>


SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A.  BASIS OF PRESENTATION

   (1) General principles and other matters
   The Consolidated Financial Statements of Schering
Aktiengesellschaft (Schering AG) have been prepared in accordance
with the International Accounting Standards (IAS) of the
International Accounting Standards Committee (IASC). New standards
established by the IASC are adopted at the required adoption date.
The Consolidated Financial Statements also comply with EEC directive
83/349/EEC. Following a revision to the German Commercial Code (HGB)
in 1998 (section 292a of
the HGB), Schering AG was permitted to elect to no longer prepare the
Consolidated Financial Statements in accordance with German generally
accepted accounting principles (German GAAP). In 1999, Schering AG
made this election and commencing with fiscal year 1999, has prepared
the Consolidated Financial Statements solely in accordance with IAS.

   Consolidated Financial Statements for periods ended on or prior
to December 31, 1998, were also in accordance with HGB. Differences
between IAS and HGB were not material for periods ended on or prior
to December 31, 1998.

   As of January 1, 1999, Schering AG adopted the euro as its
reporting currency for the Consolidated Financial Statements. The
1998 figures have been restated from the prior reporting currency
(DM) into euro at an exchange rate of DM 1.95583 to E 1.00, the
official legal rate on January 1, 1999. The comparative Financial
Statements depict the same trends as would have been presented if the
Group had continued to present Financial Statements in DM. Financial
Statements for years prior to January 1, 1999 may not be comparable
to the Financial Statements of other companies that report in euro
and that restated amounts from a different currency than DM.


   (2) Companies included in the Consolidated Financial Statements

   The Consolidated Financial Statements include, in addition to
Schering AG, all companies in which Schering AG controls a majority
of the members voting rights (collectively the Schering AG Group or
the Group).

   There are 34 domestic companies and 101 foreign companies
included in the Consolidated Financial Statements. 18 companies were
consolidated for the first time in 2000, including the newly acquired
Mitsui Pharmaceuticals and the CIS Group, where the Schering AG Group
acquired 60% of the shares. Four companies are no longer consolidated
because of sale, termination or mergers. As a result of the first-
time application of interpretation SIC-12 "Consolidation
-- Special Purpose Entities" we also included two special funds in the
Consolidated Financial Statements. Results relating to prior periods
of E 16m  have been included in net income of 2000. If the special
funds had always been consolidated, net income in 1999 would have
been lower by E 2m, net income in 1998 would have been higher by E 8m
and the aggregated net income of periods before 1998 would have been
higher by E 10m. All other changes to the companies included in the
Consolidated Financial Statements did not have - on an overall basis
- a material effect on the assets and liabilities or net income of
the Group. Comparability with the previous years is not affected.

   Joint ventures are consolidated proportionately. Associated
companies - investments where we have the ability to exercise
significant influence - are accounted for using the equity method.


   The principal companies included in the Consolidated Financial
Statements are listed in note (33). The complete list of Group
ownership interests is filed in the Commercial Register of the
Amtsgericht Charlottenburg, Berlin.





                                 F-7
<PAGE>
SCHERING AG

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


   (3)   Consolidation principles
   Investments in subsidiaries are consolidated by offsetting the
Groups acquisition costs against its portion of shareholders equity
at the date of acquisition or first-time consolidation. Differences
between acquisition costs and shareholders equity are allocated to
identifiable assets and liabilities. Any excess of the acquisition
costs over the fair value of net assets acquired is capitalized as
goodwill. Any excess of the fair value of net assets acquired over
the acquisition costs is-after deducting the fair values of
intangible assets-recognized as negative goodwill and offset against
other goodwills. Differences in respect of investments in joint
ventures and associates are calculated using the same principles;
where appropriate, the financial statements of joint ventures and
associates are conformed to the Groups accounting policies and
procedures described in note (4).

   Inter-company profits and losses, sales, income and expenses,
receivables and liabilities between companies included in the
Consolidated Financial Statements have been eliminated. Inter-
company profits with joint ventures and associated companies have
been eliminated to the extent of our ownership interest.

   (4) Valuation and accounting policies

   Goodwill is capitalized and amortized on a straight-line basis
over periods of up to 15 years. In determining the economic useful
life of goodwill, the Group considers contractual obligations, the
period in which synergies are expected to be realized, and the
strategic importance of the acquisition. Amortization of goodwill is
included in "Other operating expenses". Negative goodwill  -to the
extent that it relates to expected future losses-is recognized as
income under "Other operating income" when the future losses are
realized. Other intangible assets are valued at cost less accumulated
straight-line amortization. Other intangible assets generally have a
useful life of 4 to 8 years unless a different period is indicated
(e.g. periods based on the life of a patent). Amortization of
intangible assets other than goodwill is included in the expenses of
the respective consuming functions. As of January 1, 2000, we adopted
IAS 38 "Intangible Assets". Under the new standard, intangible assets
are recognized when it is probable that future economic benefits
attributable to the asset will flow to the enterprise and cost of the
asset can be reliably measured.
As a result, the Group capitalized E 13m relating to internally
generated software.

   Property, plant and equipment are valued at cost less accumulated
depreciation based on normal wear and tear. The production cost of
self-manufactured assets includes, in addition to direct costs, an
allocation of production overhead and depreciation. Grants by third
parties reduce the purchase price or production cost. Interest on
third-party borrowings is not included in production costs. Repair
costs are written off immediately as expenses. Buildings are
depreciated on a straight- line basis over a useful life of no more
than 40 years. Machinery and technical equipment are generally
depreciated over a useful life of 3 to 20 years, and factory, office
and other equipment over a useful life of 3 to 10 years using the
straight-line method. Assets used for the production of active
ingredients and intermediate products are depreciated using an
accelerated method due to the specialized nature of equipment and
associated business risks. Fully depreciated assets are retained in
tangible fixed assets and depreciation accounts until they are
removed from service. In the case of disposals, assets and related
depreciation are removed from the accounts and the net amount, less
proceeds from disposal, is charged to the income statement.






                                 F-8
<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


   Investments are shown at cost. Investments in associates are
accounted for using the equity method and therefore are valued at
cost plus or minus amortization of goodwill, profit distributions,
and the retained profits or losses of the company concerned.
Interest-free loans and loans at below- market interest rates are
shown at their discounted cash value.

   If the carrying amount of a tangible or intangible asset
calculated in accordance with these principles exceeds the
recoverable amount, the carrying amount is reduced to the recoverable
amount. The recoverable amount is measured as the higher of net
selling price and value in use determined by the present value of
estimated future cash flows. Impairment reviews are made every year
for assets or groups of assets affected by events and circumstances
which warrant such a review. If reasons for the impairment charge no
longer exist, it is reversed into income. As of January 1, 2000,
we adopted IAS 36 "Impairment of Assets". The adoption did not
significantly change our previous valuation and accounting policies
and did not have an effect on the assets and liabilities or net income
of the Group.

   Inventories are valued at the lower of purchase cost or
production cost and net realizable value. Inventory costs are
determined using the weighted average method. Production costs
include direct costs, factory overheads and depreciation. In
addition, cost of sales includes expenses relating to unutilized
capacity. Allowances are provided for slow moving and obsolete
inventory.

   Accounts receivable and bills of exchange are reflected net of an
allowance for doubtful accounts.

   Marketable securities are valued at the lower of cost or quoted
market value.

   Provisions for defined benefit pension plans are calculated using
the projected unit credit method, which considers future increases in
salaries and pensions. The current service cost arises from the
change in the provision for projected benefits. We do not apply the
corridor approach permitted under IAS 19 (revised 1998). All
actuarial gains and losses are deferred and recognized over the
expected remaining service period of existing employees.

   The following assumptions were used in calculating the pension
liabilities (weighted average figures for foreign plans):

<TABLE>
<CAPTION>
                                          German Plans     Other Plans
                                       2000  1999  1998  2000  1999  1998
<S>                                    <C>   <C>   <C>   <C>   <C>   <C>
Discount rate........................  6.5%  6.5%  7.0%  5.5%  5.7%  7.0%
Increase in salaries.................  3.0%  3.0%  3.5%  4.5%  4.2%  4.5%
Increase in pensions.................  1.5%  1.5%  1.5%  0.7%  0.7%  0.9%
Expected return on
plan assets..........................  n.a.  n.a.  n.a.  6.3%  6.5%  6.6%
</TABLE>


   Mortality rates for German plans are based on Prof. Dr Klaus
Heubecks biometric calculation tables 1998.

   Assumptions for defined benefit pension plans outside Germany are
based on local conditions.





                                 F-9
<PAGE>
SCHERING AG

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


   As of January 1, 1999, we adopted IAS 19 (revised 1998). Under
the new standard, actuarial assumptions reflect market expectations
at the balance-sheet date rather than long-term estimates. The effect
of adoption of this standard was not material.

   "Other provisions" are recognized when it is probable that a
liability has been incurred and a reasonable estimate of the amount
can be made. As of January 1, 2000, we adopted IAS 37 "Provisions,
Contingent Liabilities and Contingent Assets". The adoption of IAS 37
did not significantly change our previous valuation and accounting
policies and did not have a material effect on the assets and
liabilities or net income of the Group.

   Derivative financial instruments, which are used to reduce
currency risk on existing assets or liabilities and anticipated
transactions as well as to control the duration of our liquid funds,
marketable securities and loans, are accounted for as hedging
instruments.

   Commitments and contingencies that have not been recognized in
the balance-sheet are described in note (31).

   Income and expenses for the year are recognized on an accrual
basis. Income from the sale of products, merchandise and services is
recognized when delivery has taken place, transfer of risk has been
completed and the amount of future returns can be reasonably
estimated.

   Product returns are accepted as a matter of contract or as a
matter of practice. In the reported periods, product returns were
insignificant. Sales rebates and discounts as well as amounts
collected on behalf of third parties such as sales taxes, and goods
and service taxes are excluded from net sales. Costs for research and
development are charged to expenses as incurred.

   Income taxes have been deferred or accrued on temporary
differences between the carrying amount of assets or liabilities in
the balance-sheet and their associated tax bases. Deferred taxes
related to consolidation adjustments and tax loss carry forwards have
been calculated according to the same principle. Deferred taxes are
based on the tax rates enacted or substantively enacted for the
subsequent periods when the temporary differences are expected to
reverse. Deferred tax assets are recognized only when it is probable
that the future economic benefit will be realized. Deferred tax
assets and deferred tax liabilities are offset only if they relate to
income taxes levied by the same tax authority and the enterprise has
a legally enforceable right to offset tax assets against tax
liabilities. As of January 1, 1998, we adopted IAS 12 (revised 1996).
The effect of adoption was not significant on net income, however,
deferred tax assets and liabilities increased by E 24m as assets and
liabilities are offset only under certain circumstances under the
revised standard. Prior to 1998, deferred taxes were recognized based
on the concept of timing differences.

   Preparation of the Consolidated Financial Statements in
accordance with IAS requires management to make estimates and
assumptions affecting the reported amounts of assets, liabilities,
revenues and expenses, as well as disclosure of contingent assets and
liabilities. Actual results could differ from these estimates.
Significant estimates include provisions for inventory obsolescence,
environmental and legal matters, and the probability of deferred tax
assets being recovered against future taxable profits.





                                F-10
<PAGE>
SCHERING AG

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   (5) Currency translation
   Foreign currency balances included in the financial statements of
individual group companies are translated at the exchange rate on the
balance-sheet date, unless hedged by forward transactions, in which
case they are valued at the forward rate.

   Translation of the financial statements of group companies
located outside the European Monetary Union is based on the
appropriate functional currency. The functional currency of such
companies is the relevant local currency as these companies conduct
their business independently in financial, economic and
organizational respects. As a result, the assets and liabilities of
these companies as well as the Groups share of the equity of foreign
associated companies are translated at the exchange rate on the
balance-sheet date. Income and expenses are translated at the average
rate of exchange for the year. Goodwill arising on the acquisition of
an entity located outside the European Monetary Union and any fair
value adjustments to the carrying amounts of assets and liabilities
arising on the acquisition of such entity are treated as assets and
liabilities of that entity and translated at the exchange rate on the
balance-sheet date. Exchange differences are recognized directly in
shareholders equity.

   As of January 1, 1999, group companies located in countries
participating in the European Monetary Union adopted the euro as
their reporting currency.

   Currencies which are of particular importance to the Group have
experienced the exchange- rate fluctuations shown below:


<TABLE>
<CAPTION>
                                                 Balance-sheet rate (E)  Annual average rate (E)
                                                  2000   1999   1998      2000   1999   1998
<S>                                                  <C>    <C>    <C>    <C>    <C>    <C>
1 US Dollar.....................................   1.07   1.00   0.86     1.09   0.95   0.90
1 Pound Sterling................................   1.60   1.61   1.43     1.65   1.53   1.49
1 Brazilian Real................................   0.55   0.55   0.71     0.59   0.51   0.77
100 Japanese Yen................................   0.94   0.97   0.74     1.01   0.84   0.69
</TABLE>


B.  NOTES TO THE CONSOLIDATED INCOME STATEMENTS

   (6) Net sales


<TABLE>
<CAPTION>
                                                2000    1999    1998
                                                E m     E m     E m
Sales by business area
<S>                                             <C>     <C>     <C>
Fertility Control and Hormone Therapy.......... 1,353   1,173   1,109
Therapeutics................................... 1,402   1,128     991
Diagnostics and Radiopharmaceuticals........... 1,360   1,040     882
Dermatology....................................   221     199     189
Other Sources..................................   157     134     114
                                                -----   -----   -----
                                                4,493   3,674   3,285
                                                -----   -----   -----
                                                -----   -----   -----
</TABLE>






                                F-11

<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   (7) Engineering and administration costs

   "Engineering and administration costs" include costs of
production management and planning, factory safety and
administration, environmental protection, technology cost centers
such as workshops, energy production, services and waste disposal
(only to the extent that these costs are not internally reallocated
to production costs), training, and administration such as data
processing, purchasing and accountancy.

   (8) Other operating income
<TABLE>
<CAPTION>
                                                    2000 1999 1998
                                                    E m  E m  E m
<S>                                                 <C>  <C>  <C>
Income from changes in foreign exchange rates......  62   100   85
License and commission income......................  36    30   23
Income from recharged costs........................  65    73   75
Income from reversal of provisions.................  47    66   20
Other .............................................  90    65   59
                                                   ----  ----  ---
                                                    300   334  262
                                                   ----  ----  ---
                                                   ----  ----  ---
</TABLE>

   Income from recharged costs relates to fees from third parties
for the supply of technical infrastructure as well as income from
other services provided to third parties. The related costs are
included in other operating expenses [see note (9)].


(9) Other operating expenses


<TABLE>
<CAPTION>
                                                 2000  1999  1998
                                                 E m   E m   E m
<S>                                              <C>   <C>   <C>
Expenses from changes in foreign exchange rates.  110   149    70
Amortization of goodwill........................   38    32    35
Restructuring costs.............................    -     -    21
Costs of recharged services.....................   62    51    51
Other ...........................................  89   122   114
                                                 ----  ----  ----
                                                  299   354   291
                                                 ----  ----  ----
                                                 ----  ----  ----
</TABLE>

   Restructuring costs in 1998 primarily relate to termination
benefit costs relating to the consolidation of the packaging
operations for liquid and solid dosage forms in Berlin.



                                F-12
<PAGE>

SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   (10) Financial result


<TABLE>
<CAPTION>
                                                                 2000  1999  1998
                                                                 E m   E m   E m
Net income from investments
<S>                                                              <C>   <C>   <C>
Result from investments in associates
                                                                  (57)  (59)  25
Income from other investments................................       0     0    0
Income from disposal of investments..........................      56     -   28
Impairment of investments....................................        -    -  (11)
                                                                 ----  ----  ----
                                                                   (1)  (59)  42
                                                                 ----  ----  ----

Interest result
Income from long-term securities and loans...................       2     2    3
Interest receivable and similar income.......................      40    69   72
Interest payable and similar charges.........................     (15)  (20) (21)
                                                                 ----  ----  ----
Net interest.................................................      27    51   54
Interest costs included in additions to provisions for pensions   (73)  (69) (71)
                                                                 ----  ----  ----
                                                                  (46)  (18) (17)
                                                                 ----  ----  ----

Other financial result
Amortization of premiums on debt securities..................      (4)  (21) (20)
Other financial income.......................................      60    28   17
Other financial expenses.....................................     (14)   (7)  (8)
                                                                 ----  ----  ----
                                                                   42     0  (11)
                                                                 ----  ----  ----
Financial result.............................................      (5)  (77)  14
                                                                 ----  ----  ----
                                                                 ----  ----  ----
</TABLE>

   The "Result from investments in associates" includes a loss of E
59m relating to our ownership interest in Aventis CropScience (1999:
loss of E 60m; 1998: income of E 25m). As of January 1, 2000, the
agribusiness of Rhone-Poulenc and AgrEvo, a joint venture of Schering
and Hoechst, have been contributed to Aventis CropScience. Schering
AG Group received a 24% share in Aventis CropScience in exchange for
the Groups 40% share in AgrEvo GmbH. The loss includes goodwill
amortization of E 24m (1999: E 28m; 1998: E 24m) as well as
restructuring and other one-time costs of E 78m (1999: E 57m; 1998: E
0m).

   "Income from disposal of investments" in 2000 principally relates
to the sale of shares in  public companies in the United States.
"Income from disposal of investments" in 1998 principally relates to
the sale of shares in a German public company.

   Investments in two US public companies were written down in 1998
by E 11m to reflect a permanent impairment in value.

   "Other financial income" and "Other financial expenses" include
gains and losses from the sale of marketable securities and gains and
losses from interest-rate derivative transactions.



                                F-13

<PAGE>
SCHERING AG

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   (11) Taxes on profit

   Income before taxes is as follows:


<TABLE>
<CAPTION>
                        2000  1999  1998
                         E m  E m  E m
<S>                      <C>  <C>  <C>
Domestic..............   314   234   237
Foreign...............   321   225   187
                        ----  ----  ----
                         635   459   424
                        ----  ----  ----
                        ----  ----  ----
</TABLE>

   The respective tax expenses are:


<TABLE>
<CAPTION>
                        2000  1999  1998
                        E m   E m   E m
<S>                     <C>   <C>   <C>
Domestic.............. (156)  (111) (117)
Foreign............... (134)   (70)  (58)
                        ----  ----  ----
                       (290)  (181) (175)
                        ----  ----  ----
</TABLE>

   The reconciliation of notional tax expenses based on the
statutory tax rate applicable to Schering AG to tax expenses at the
effective tax rate is as follows:


<TABLE>
<CAPTION>
                                                                    2000  1999  1998
                                                                   E  m  E  m  E  m
<S>                                                                   <C>   <C>   <C>
Income before taxes...............................................   635   459   424
                                                                    ----  ----  ----
Notional tax expenses (at the statutory rate applicable to          (331) (239) (239)
Schering AG)......................................................
Tax reduction relating to proposed dividend payments..............    42    35    20
                                                                    ----  ----  ----
                                                                    (289) (204) (219)
Tax effect of non-deductible expenses and tax-free receipts......     (5)  (12)  (29)
Tax effect of recognizing income from associates net of tax......    (30)  (29)   12
Deferred tax expenses from applying reduced tax rates
reflecting German tax reform.....................................   (15)    --    --
Effects of lower tax rates abroad................................    49     64    61
                                                                    ----  ----  ----
Tax expenses.....................................................  (290) (181) (175)
Tax rate in %....................................................   45.7  39.4  41.3
Current tax expenses.............................................  (217) (199) (204)
Deferred tax income/expenses.....................................   (73)   18    29
                                                                    ----  ----  ----
Tax expenses.....................................................  (290) (181) (175)
                                                                    ----  ----  ----
                                                                    ----  ----  ----
</TABLE>

   Current tax expenses in 2000 were reduced by E 2m relating to the
use of tax loss carry forwards (1999: E 1m: 1998: E 1m). Deferred tax
assets of E 11m are recognized at December 31, 2000 relating to tax
loss carry forwards (December 31, 1999: E 9m). At December 31, 2000,
unrecognized tax loss carry forwards totaled E 34m (December 31,
1999: E 18m). Of these amounts, E 9m has no expiration date, while
the remainder expires within five years.




                                F-14

<PAGE>
SCHERING AG

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


   The deferred tax assets and liabilities relate to the following
balance-sheet items; assets relating to tax loss carry forwards are
included in "Other":

<TABLE>
<CAPTION>
                                                      December 31, 2000   December 31, 1999
                                                      Assets Liabilities  Assets Liabilities
                                                      E m          E m    E m       E m
<S>                                                   <C>          <C>    <C>       <C>
Property, plant and equipment and intangible assets     2           94    (115)       0
Inventories..................................          13          (39)    111        5
Provisions for pensions......................          21          (26)     56       (1)
Other provisions.............................          41          (33)     81        0
Other ........................................         43           54      15       12
                                                     ----      -------    -----     -----
                                                      120           50     148       16
                                                     ----      -------    -----     -----
                                                     ----      -------    -----     -----
</TABLE>

   Deferred taxes on property, plant and equipment principally
relate to lower tax bases resulting from special tax allowances for
assets in certain parts of Germany.

   Deferred tax liabilities have not been established for
withholding tax on retained earnings of foreign subsidiaries as
management considers such amounts to be permanently reinvested.
Retained earnings of subsidiaries in countries where a withholding
tax would be levied in case of dividend payments totaled E 578m. If
such earnings were distributed, withholding tax of E 35m would be due
based on tax rates in effect at the balance-sheet date.


                                F-15
<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   (12) Earnings per share
   Basic earnings per share are calculated by dividing net income by
the weighted average number of shares outstanding.


<TABLE>
<CAPTION>
                                    2000         1999         1998
<S>                                      <C>          <C>           <C>
Net income (E m)..............          336           272           245
Weighted average number
of shares outstanding.........  198,000,000   201,064,245   204,821,961
Basic earnings per share (E)..         1.70          1.35          1.19
                                -----------   -----------   -----------
</TABLE>

   For the calculation of diluted earnings per share the weighted
average number of shares outstanding is adjusted to assume conversion
of all potential dilutive shares. The Group`s stock option plans
represent a potential dilution in the earnings per share. The plans
grant Schering AG share options to key executives. The exercise of
the options depends on certain performance criteria relating to the
Schering AG share price which are determined in the stock option
plans [see note (35)].


<TABLE>
<CAPTION>
                                               2000        1999        1998
<S>                                            <C>         <C>         <C>
Net income (E m)..........................         336         272         245
Weighted average number
of shares outstanding..................... 198,000,000 201,064,245 204,821,961
Adjustment for potential dilutive shares..   1,586,700     165,690      59,475
                                           ----------- ----------- -----------
Weighted average number of shares
(including potential dilutive shares)..... 199,586,700 201,229,935 204,881,436
Diluted earnings per share (E)............        1.68        1.35        1.19
                                           ----------- ----------- -----------
                                           ----------- ----------- -----------
</TABLE>

   The conditions of the plans reserve Schering AG the right to
settle claims from the exercise of option rights in the form of cash
payments instead of issuing shares.


                                F-16
<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -
                                               - (Continued)
   (13) Personnel costs/employees


<TABLE>
<CAPTION>
                                            2000    1999   1998
Personnel costs (E m)
<S>                                            <C>     <C>     <C>
Wages and salaries.......................    1,149     923     859
Social security and support payments......     209     173     162
                                            ------  ------  ------
                                             1,358   1,096   1,021
Pensions.................................       64      64      49
                                            ------  ------  ------
                                             1,422   1,160   1,070
                                            ------  ------  ------
                                            ------  ------  ------

Number of employees (average for year)
Production...............................    8,056   7,738   7,612
Marketing and selling....................    7,848   7,242   6,954
Research and development.................    4,171   3,968   3,841
Engineering and administration...........    3,645   3,482   3,411
                                            ------  ------  ------
                                            23,720  22,430  21,818
                                            ------  ------  ------
                                            ------  ------  ------
</TABLE>


                                F-17
<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

C.  NOTES TO THE CONSOLIDATED BALANCE SHEETS
   (14) Intangible assets


<TABLE>
<CAPTION>

                                                               Patents,
                                                              licenses,
                                                              trademarks
                                                    Internally   and
                                                    generated  similar           Negative
                                                     software   assets  Goodwill goodwill Total
                                                       E m       E m      E m      E m    E m
<S>                                                    <C>       <C>      <C>       <C>   <C>
Cost
January 1, 1999....................................    --           88     418      --    506
Change in consolidated companies...................    --           18      --      --     18
Additions..........................................    --            8      90      --     98
Disposals..........................................    --           (2)     (5)     --     (7)
Translation adjustments............................    --            3       3      --      6
                                                     ------     -------   -------  ----  -----
December 31, 1999..................................    --          115     506      --    621
Change in consolidated companies...................    --           40       8      --     48
Additions..........................................    13           58       4     (13)    62
Disposals..........................................    --           (5)     --      --     (5)
Translation adjustments............................     0            0       7      --      7
                                                     ------     -------   -------  ----  -----
December 31, 2000..................................    13          208     525     (13)   733
                                                     ------     -------   -------  ----  -----
                                                     ------     -------   -------  ----  -----

Accumulated depreciation and reversals
January 1, 1999....................................    --           40      85      --    125
Additions..........................................    --           16      32      --     48
Disposals..........................................    --           (2)     (5)     --     (7)
Translation adjustments............................    --            1       0      --      1
                                                     ------     -------   -------  ----  -----
December 31, 1999..................................    --           55     112      --    167
Change in consolidated companies...................    --            5       4      --      9
Additions..........................................     0           23      38      (1)    60
Disposals..........................................    --           (4)     --      --     (4)
Translation adjustments............................    --            0       0      --      0
                                                     ------     -------   -------  ----  -----
December 31, 2000..................................     0           79     154      (1)   232
                                                     ------     -------   -------  ----  -----
                                                     ------     -------   -------  ----  -----
Book values as at December 31, 1999................    --           60     394      --    454
Book values as at December 31, 2000................    13          129     371     (12)   501
</TABLE>

   The amount reported under "Change in consolidated companies" in
2000 refers mainly to acquired intangibles arising from the
acquisition of Mitsui Pharmaceuticals, and is being amortized over
eight years. The amount reported in 1999 refers to acquired
intangibles arising from the acquisition of Diatide, and is being
amortized over six years.

   The negative goodwill of E 13m results from the acquisition of
60% of the shares of the CIS Group, and is being reversed into income
to the extent expected future losses from the CIS Group are realized
(2000: E 1m). Additions to goodwill in 1999 relates primarily to
goodwill from the acquisition of Diatide, and is being amortized over
15 years.


                                F-18
<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (15) Property, plant and equipment


<TABLE>
<CAPTION>
                                                                                           Construction
                                                               Machinery and Other factory  in progress
                                                       Land and  technical    and office    and advance
                                                      buildings  equipment    equipment      payments    Total
                                                          E m        E m          E m         E m         E m
Cost
<S>                                                      <C>        <C>          <C>             <C>      <C>
January 1, 1999.......................................   1,236        1,147          635          44    3,062
Change in consolidated companies......................       0            0            1          --        1
Additions.............................................      17           36           63          47      163
Disposals.............................................     (20)         (66)         (60)         (1)    (147)
Transfers.............................................      21           25           11         (57)       0
Translation adjustments...............................      53           15           26           6      100
                                                        -------      -------      -------      ------   ------
December 31, 1999                                        1,307        1,157          676          39    3,179
Change in consolidated companies......................      76           87           21           1      185
Additions.............................................      14           28           72          70      184
Disposals.............................................     (14)         (34)         (55)         (1)    (104)
Transfers.............................................      18           13           15         (46)      --
Translation adjustments...............................       8            2            6           1       17
                                                        -------      -------      -------      ------   ------
December 31, 2000.....................................   1,409        1,253          735          64    3,461
                                                        -------      -------      -------      ------   ------
                                                        -------      -------      -------      ------   ------

Accumulated depreciation
January 1, 1999.......................................     597          912          472          --    1,981
Change in consolidated companies......................       0            0            0          --        0
Additions.............................................      37           62           63          --      162
Disposals.............................................     (18)         (64)         (55)         --     (137)
Transfers.............................................      --            0           --          --        0
Translation adjustments...............................      22           10           18          --       50
                                                        -------      -------      -------      ------   ------
December 31, 1999.....................................     638          920          498          --    2,056
Change in consolidated companies......................      32           68           16          --      116
Additions.............................................      42           62           74          --      178
Disposals.............................................    (11)         (33)         (51)          --      (95)
Reversal of impairments...............................     (2)          (1)           --          --       (3)
Transfers.............................................      --           --           --          --       --
Translation adjustments...............................       2            1            5          --        8
                                                        -------      -------      -------      ------   ------
December 31, 2000.....................................     701        1,017          542          --    2,260
Book values as at December 31, 1999...................     669          237          178          39    1,123
Book values as at December 31, 2000...................     708          236          193          64    1,201
                                                        -------      -------      -------      ------   ------
                                                        -------      -------      -------      ------   ------
</TABLE>

   Additions to property, plant and equipment were up by 13% to E
184m in 2000. 45% of this expenditure related to Germany, 16% to
other countries of the European Union, 18% to the United States, and
9% to Japan.

   50% of capital expenditures were related to replacement and
expansion of production facilities, 16% to research and development,
and 34% to infrastructure and other functions.



                                F-19
<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   (16) Financial assets
<TABLE>
<CAPTION>

                                                     Investments     Other    Long-term    Sundry
                                                    in associates investments securities   loans  Total
                                                         E m          E m        E m        E m    E m
Cost
<S>                                                      <C>          <C>        <C>        <C>    <C>
January 1, 1999....................................         393         34         2        48     477
Additions..........................................         164         29         0         8     201
Disposals..........................................         (11)        (4)        0       (11)    (26)
Translation adjustments............................          12          7         0         2      21
                                                         -------      -----      ----      ----   -----
December 31, 1999..................................         558         66         2        47     673
Change in consolidated companies...................          --          2        --         2       4
Additions..........................................           5         29        --         4      38
Disposals..........................................          (5)       (23)       --       (10)    (38)
                                                         -------      -----      ----      ----   -----
Translation adjustments............................           8          5         -         1      14
December 31, 2000..................................         566         79         2        44     691
                                                         -------      -----      ----      ----   -----
                                                         -------      -----      ----      ----   -----

Accumulated depreciation
January 1, 1999....................................           6         14         0        11      31
Additions..........................................          61          0        --         2      63
Disposals..........................................          --         (2)       --        (2)     (4)
Translation adjustments............................          --          2        --         0       2
                                                         -------      -----      ----      ----   -----
December 31, 1999..................................          67         14         0        11      92
Change in consolidated companies...................          --         --        --        --      --
Additions..........................................          62         --        --         1      63
Disposals..........................................          --         (7)       --        (2)     (9)
Translation adjustments............................          --          2        --         0       2
                                                         -------      -----      ----      ----   -----
December 31, 2000..................................         129          9         0        10     148
                                                         -------      -----      ----      ----   -----
                                                         -------      -----      ----      ----   -----
Book values as at December 31, 1999................         491         52         2        36     581
Book values as at December 31, 2000................         437         70         2        34     543
</TABLE>

   Additions to "Investments in associates" relate to profit shares
and in 1999 also to a E 159m increase in capital at former Hoechst
Schering AgrEvo GmbH.

   Disposals of  "Investments in associates" include dividend
payments and in 1999 also a loss of E 3m relating to our former
ownership interest in AgrEvo.

   Additions to depreciation of " Investments in associates" reflect
our share in the loss of the Aventis CropScience Group of E 59m.  In
1999, depreciation included expenses of E 57m for restructuring
measures at Aventis CropScience in which we contributed our share in
AgrEvo.

   Market values of marketable investments exceed book values by E
46m (December 31, 1999: E 21m).

   Sundry loans include E 30m (December 31, 1999: E 32m) in loans to
employees.


                                F-20
<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   Development of book values of investments in associated
companies:


<TABLE>
<CAPTION>
                              Aventis      Other
                            CropScience  associated
                          (1999: AgrEvo)  companies   Total
                               E m          E m        E m
<S>                            <C>          <C>        <C>
January 1, 1999..........         356         31       387
Capital increases........         159         --       159
Profit/loss shares {(1)}         (60)         1       (59)
Dividend payments........          (1)        (7)       (8)
Translation adjustments..          12         --        12
                                ------     ------     ------
December 31, 1999........         466         25       491
Profit/loss shares{(1)}.         (59)         2       (57)
Dividend payments........           -         (5)       (5)
Translation adjustments..           7          1         8
                                ------     ------     ------
December 31, 2000........         414         23       437
                                ------     ------     ------
                                ------     ------     ------
(1) after deduction of goodwill amortization.
</TABLE>



                                F-21
<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   (17) Inventories


<TABLE>
<CAPTION>
                                       Dec. 31,   Dec. 31,
                                         2000       1999
                                          E m       E m
<S>                                       <C>       <C>
Raw materials and supplies...........     154        140
Work in process......................     316        231
Finished goods and goods for resale..     307        310
Payments on account..................       2          1
                                        ------     ------
                                          779        682
                                        ------     ------
                                        ------     ------
</TABLE>

   Inventories at December 31, 2000 include E 28m carried at net
realizable values lower than purchase or production costs (December
31, 1999: E 72m).

   (18) Trade receivables
   Trade receivables at December 31, 2000 include E 14m with a
remaining term of more than one year (December 31, 1999: E 6m).
Allowances for doubtful accounts on trade receivables as of December
31, 2000 were E 28m (December 31, 1999: E 22m).
   (19) Other receivables and other assets


<TABLE>
<CAPTION>
                                                            Dec. 31,   Dec. 31,
                                                              2000      1999
                                                              E m       E m
<S>                                                          <C>        <C>
Loans to companies, in which an equity interest is held....      7       51
Current tax assets.........................................    166       46
Deferred tax assets........................................    120      148
Sundry assets..............................................    250      170
                                                             ------   ------
                                                               543      415
                                                             ------   ------
                                                             ------   ------
</TABLE>

   Other receivables and other assets include E 130m with a
remaining term of more than one year (December 31, 1999: E 160m).
   (20) Marketable securities


<TABLE>
<CAPTION>
                       Dec. 31,  Dec. 31,
                         2000     1999    Change
                         E m       E m     E m
<S>                      <C>       <C>     <C>
Book values...........   378       481    (103)
Fair values...........   441       578    (137)
                        -----     -----   ------
Unrealized gains......    63        97     (34)
                        -----     -----   ------
                        -----     -----   ------

</TABLE>


                                F-22
<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   During November 2000 Schering AG purchased 170,000 treasury
shares at an average price of E 63.44 per share for distribution to
employees in April 2001. Participants in the share bonus program are
entitled to purchase shares at E 26.50 each. The shares are valued at
the price paid by the employee and are included in marketable
securities, totaling E 5m (marketable securities as at December 31,
1999 included treasury shares for distribution to employees of E 2m).
The difference between the price paid by Schering AG and that paid by
the employee(E 36.94 per share; total cost of E 6m) was charged to
compensation costs in 2000 (1999: E 28.94 per share; total cost of E
6m).

   (21) Paid-up capital of Schering AG
   At December 31, 2000, issued capital totaled E 198m (December 31,
1999: E 172m; December 31, 1998: E 173m) and was divided into
198,000,000 shares (December 31, 1999: 198,000,000 shares; December
31, 1998: 202,974,069 shares). Issued capital was increased by E 26m
to E 198m in 2000 through transfer of share premiums. Furthermore,
issued capital was divided into 198,000,000 shares (1:3 share split).

As a result, each share now represents a proportion of E 1.00 of
issued capital. All share and per share amounts included in the
Consolidated Financial Statements have been restated to reflect the
split.

   At the Annual General Meeting held on April 29, 1998, a decision
was made to reclassify the issued capital under which the par value
shares were converted to no par value shares. At April 29, 1998, the
issued capital consisted of 205,026,069 shares.

   The Executive Board is authorized to purchase treasury shares
until September 30, 2001 for the purpose of redemption. In total, up
to E 15,000,000 in issued capital may be acquired under this
authorization.

   In 2000, no treasury shares were repurchased for the purpose of
redemption. In 1999, 4,974,069 treasury shares (1998: 2,052,000
shares) were repurchased for a total cost of E 183m (1998: E 70m).
Issued capital of E 4m relating to these shares (1998: E 2m) was
deducted. In accordance with (S) 237 section 5 of the German Stock
Corporation Act (Aktiengesetz), the same amount was transferred from
retained earnings to the share premium account.
   The Executive Board is authorized until April 26, 2004 to
increase issued capital with the approval of the Supervisory Board
once or on several occasions by issuing new shares for cash or non-
cash consideration, providing that the overall increase in issued
capital does not exceed a total amount of E 85,000,000 and that the
shareholders are given the right to subscribe. With the agreement of
the Supervisory Board, however, the Executive Board is authorized to
issue shares without giving the shareholders the right to subscribe:

  .  if the capital increase from cash proceeds does not exceed a
     total amount of E 15,000,000 and the issue price of the new
     shares is not substantially below the stock exchange price
     for the shares at the time the issue price is determined by
     the Executive Board; or

  .  if the capital increase is effected for the issue of employee
     shares; or

  .  if the capital increase is effected for non-cash
     consideration; or

  .  to the extent necessary to allow holders of convertible bonds
     or option debenture bonds of Schering AG to subscribe to the
     new shares.


                                F-23
<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   The Executive Board is also authorized, with the agreement of the
Supervisory Board, to issue convertible bonds and/or option debenture
bonds once or on several occasions in the period up to April 26,
2004. The total nominal value of such bond issues is not to exceed E
300,000,000. Convertible or debenture options on Schering AG shares
may be issued up to a total of E 11,538,462 in issued capital.
Accordingly, the issued capital of Schering AG may be increased by up
to E 11,538,462 through the issue of up to 11,538,462 shares. This
conditional increase in issued capital is solely for the exercise of
convertible bonds and option debenture bonds.

   (22) Retained earnings
   The difference between the purchase price and issued capital for
shares retired in 1999 totaled E 179m (1998: E 68m), and was charged
to retained earnings. In accordance with (S) 237 section 5 of the
German Stock Corporation Act, issued capital for the retired shares
(1999: E 4m; 1998: E 2m) was transferred from retained earnings to
the share premium account.

   The Executive Board expects to propose to the Annual General
Meeting a dividend of E 0.67 per share (totaling E 133m) and a bonus
dividend of E 0.33 per share (totaling E 65m). The overall amount of
E 198m proposed for distribution will be deducted from retained
earnings in 2001.

   (23) Provisions for pensions and similar obligations


<TABLE>
<CAPTION>

                                                                   Dec. 31, 2000   Dec. 31, 1999
                                                                        E m             E m
<S>                                                                     <C>             <C>
Provisions for retirement benefit plans in Germany, unfunded....       1,153           1,101
Provisions for retirement benefit obligations outside Germany....         71              51
Provisions for similar obligations...............................         54              49
                                                                      -------         -------
                                                                       1,278           1,201
                                                                      -------         -------
                                                                      -------         -------
</TABLE>

   Pension benefits in Germany are primarily determined by years of
service and average remuneration in the last five years before
retirement.

   Defined benefit plans of foreign subsidiaries, which are
primarily service related, are generally funded. In calculating the
net periodic pension costs for these plans we consider planned
service costs and expected return on plan assets.


                                F-24
<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   Changes in the projected benefit obligation (PBO) and the fair
value of plan assets are as follows:


<TABLE>
<CAPTION>

                                                        German plans Other plans
                                                         2000  1999  2000  1999
                                                         E m   E m   E m   E m
Change in projected benefit obligation
<S>                                                      <C>   <C>   <C>   <C>
PBO at beginning of the year...........................1,132  1,046   231   161
Service costs..........................................   23     26    19    14
Interest costs.........................................   73     69    15    11
Actuarial (gains) and losses...........................  (26)    36   (16)   17
Benefits paid..........................................  (46)   (43)  (11)   (7)
Transfer of obligations................................    1     (2)   (1)   --
Change in consolidated companies.......................    1     --    45    --
Translation adjustments................................   --     --     0    35
                                                       ------ ------ ----- -----
PBO at end of year.....................................1,158  1,132   282   231
                                                       ------ ------ ----- -----
                                                       ------ ------ ----- -----

Change in plan assets
Fair value of plan assets at beginning of the year.....   --     --   175   126
Actual return on plan assets...........................   --     --     4    17
Employer contribution..................................   --     --    14    10
Contributions by plan participants.....................   --     --     1     0
Benefits paid..........................................   --     --   (10)   (7)
Change in consolidated companies.......................   --     --    32    --
Translation adjustments................................   --     --    (1)   29
                                                       ------ ------ ----- -----
Fair value of plan assets at end of year...............   --     --   215   175
                                                       ------ ------ ----- -----
                                                       ------ ------ ----- -----
Funded status..........................................1,158  1,132    67    56
Unrecognized actuarial gains...........................   --     --     9     3
Unrecognized actuarial losses..........................   (5)   (31)   (5)   (8)
                                                       ------ ------ ----- -----
Provisions for pensions................................1,153  1,101    71    51
                                                       ------ ------ ----- -----
                                                       ------ ------ ----- -----
</TABLE>

   Pension expenses for unfunded plans include both compensation
costs that are classified in operating expenses and interest, which
is classified as a component of interest costs. Net periodic pension
costs of defined benefit plans and total pension costs are as
follows:


<TABLE>
<CAPTION>
                                                                  2000  1999  1998
                                                                  E m   E m   E m
<S>                                                               <C>   <C>   <C>
Service costs....................................................   42    40    34
Interest costs..................................................    88    80    81
Expected return on plan assets..................................   (12)  (10)   (8)
Amortization of unrecognized actuarial gains and losses..........    2     4     1
                                                                  ----- ----- -----
Net periodic pension costs of defined benefit plans..............  120   114   108
Costs of defined contribution plans and other pension costs......   17    19    12
                                                                  ----- ----- -----
Total pension costs..............................................  137   133   120
                                                                  ----- ----- -----
                                                                  ----- ----- -----
</TABLE>


                                F-25
<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   (24) OTHER PROVISIONS


<TABLE>
<CAPTION>
                       January 1, 2000
                        Current  Total   Additions
                          E m     E m       E m
Provisions for
<S>                       <C>     <C>       <C>
current tax...........     99      99       96
deferred tax..........     --      16       36
personnel costs.......    158     231      273
third-party claims....     --      75        2
environmental matters.     --      36       13
restructuring.........     --      24       --
other ................    126     146      112
                         -----   -----    -----
                          383     627      532
                         -----   -----    -----
                         -----   -----    -----
</TABLE>

   (24) OTHER PROVISIONS - (Continued)


<TABLE>
<CAPTION>
                                                                 December 31, 2000
                                        Change in
                                       consolidated  Translation
                         Use  Reversals companies    adjustments  Total  Current
                         E m     E m       E m           E m       E m     E m
Provisions for
<S>                      <C>     <C>       <C>           <C>       <C>     <C>
current tax...........   (78)    (21)        1             0        97      97
deferred tax..........    --      (3)       --             1        50      --
personnel costs.......  (184)     (2)        8             2       328     206
third-party claims....    (8)     (7)        0             0        62      34
environmental matters.    (8)     (1)       16             1        57      10
restructuring.........   (24)     --        --            --        --      --
other ................  (119)    (27)       12             4       128     127
                        -----   ------     ----          ----     -----   -----
                        (421)    (61)       37             8       722     474
                        -----   ------     ----          ----     -----   -----
                        -----   ------     ----          ----     -----   -----
</TABLE>

   "Provisions for personnel costs" includes accrued salaries
[vacation and holiday, bonuses, and bonus payments based on years of
service (known as jubilee premiums)], as well as early retirement
benefits. "Provisions for third party claims" includes indemnities
related to the sale of businesses and expected costs relating to
patent infringement litigations.

   (25) Liabilities


<TABLE>
<CAPTION>                                           Dec. 31, 2000   Dec. 31, 1999
                                                    Current Total   Current Total
                                                      E m    E m      E m    E m
<S>                                                   <C>    <C>      <C>    <C>
Liabilities to banks...............................   217    234      151    186
Advance payments received..........................     6      6        2      2
Trade payables.....................................   335    338      260    261
Bills payable......................................     1      1        2      2
Amounts due to companies in which an equity
interest is held...................................     3      3        1      1
Taxes payable......................................    62     62       47     47
Social security costs payable......................    27     27       22     23
Payables to employees..............................    18     35       28     43
Other liabilities..................................   104    111       76     83
                                                     -----  -----    -----  -----
                                                      773    817      589    648
                                                     -----  -----    -----  -----
                                                     -----  -----    -----  -----
</TABLE>

   "Liabilities to banks" includes long-term liabilities of E 43m
(December 31, 1999: E 58m) bearing interest at rates between 3.5% and
7.0% per annum. E 26m of these long-term liabilities are due for
repayment in 2001 (December 31, 1999: E 23 m due for repayment in
2000).

   (26) Total amount of collateralized loans

   The total amount of collateralized loans at December 31, 2000
(all collateralized by mortgages) was E 51m (December 31, 1999: E
64m).


                                F-26
<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


   "Provisions for environmental matters" includes asbestos clean-up
as well as various other clean-up obligations in Germany, France and
the United States. As of January 1, 2000, the "provision for
restructuring" consisted of expected costs for early retirement
benefits where the affected employee had not yet signed the benefit
agreement.

D.  NOTES TO THE CONSOLIDATED CASH FLOW STATEMENTS

   (27) Cash and cash equivalents
   "Cash and cash equivalents" includes cash at banks and cash on
hand.

   (28) Cash flows from operating activities
   "Cash flows from operating activities" includes interest received
of E 55m (1999: E 83m; 1998: E 65m) and interest paid of E 16m (1999:
E 20m; 1998: E 21m). Payments for income taxes amounted to E 330m
(1999: E 350m; 1998: E 171m).

   "Other non-cash expenses and income" includes our share of the
loss from Aventis CropScience.

   (29) Cash flows used in investing activities
   "Purchase and sale of marketable securities" includes purchases
of E 203m and sales of E 393m (1999: purchases of E 200m and sales of
E 332m; 1998: purchases of E 627m and sales
of E 234m).

   "Cash flows used in investing activities" for 1999 includes a
capital increase of E 159m at AgrEvo GmbH.


                                F-27
<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   "Cash flow on acquisition of business net of cash acquired" in
2000 relates to the acquisition of Mitsui Pharmaceuticals and 60% of
the shares of the CIS Group (1999: acquisition of Diatide). The
allocation of purchase consideration to assets and liabilities
acquired is as follows:


<TABLE>
<CAPTION>
                                                                  2000   1999
                                                                   E m    E m
<S>                                                                <C>   <C>
Fixed assets                                                       110    18
Other non-current and current assets.............................. 247    37
Provisions and liabilities........................................(206)  (11)
Minority Interests................................................ (29)   --
Goodwill.......................................................... (13)   89
                                                                  ----- -----
Acquisition costs................................................. 109   133
Cash acquired..................................................... (10)   (7)
                                                                  ----- -----
Cash flow on acquisition of business net of cash acquired.........  99   126
                                                                  ----- -----
                                                                  ----- -----
</TABLE>


E.  ADDITIONAL INFORMATION
   (30) Derivative financial instruments
   As we operate on a global basis, the Schering AG Group is subject
to various market risks.
We make use of exchange-traded and over-the-counter derivative
financial instruments to reduce currency and interest rate risks
resulting from anticipated transactions and from existing assets and
liabilities. We also make use of derivative financial instruments to
manage the asset and maturity profile of our investment portfolio.

   The following derivative positions were open at the balance-sheet
date:


<TABLE>
<CAPTION>
                                              Notional amount    Fair value
                                                December 31,     December 31,
                                                2000   1999      2000   1999
                                                E m    E m        E m    E m
Currency hedging of anticipated sales and costs
<S>                                             <C>    <C>        <C>    <C>
Currency forwards.............................  455    468         25    (4)
Options.......................................   --     50         --     0
                                               -----  -----      -----  -----
                                                455    518         25    (4)
                                               -----  -----      -----  -----
                                               -----  -----      -----  -----
Currency hedging of assets and liabilities
Currency forwards.............................  663    637         44   (10)
                                               -----  -----      -----  -----
Asset and liability management
Options.......................................  105     57         43    19
Interest rate swaps...........................  149     77         (2)   (2)
Interest rate futures.........................  173    157          1     3
                                               -----  -----      -----  -----
                                                427    291         42    20
                                               -----  -----      -----  -----
                                               -----  -----      -----  -----
</TABLE>

   Notional amounts reflect the net of sale and purchase contracts.
Purchase contracts were immaterial in each individual currency.


                                F-28
<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   The underlying exposure in each currency is defined as the net
amount of receivables and liabilities on the balance-sheet date as
well as anticipated sales and expenses for the next 12 months. At the
balance-sheet date, approximately 80% (December 31, 1999: 87%) of the
underlying exposure of E 1.4 billion (December 31, 1999: E 1.3
billion) was hedged. Yen and US dollar amounts accounted for
approximately 81% (December 31, 1999: 82%) of currency hedging.

   We measure financial derivatives at fair values. Unrealized gains
are included in "Other receivables and other assets" and unrealized
losses in "Other provisions". Classification in the income statement
is consistent with the hedging intent. Accordingly, gains and losses
arising from currency hedging are included in other operating income
and expenses, while gains and losses relating to asset and liability
management are included in financial result. Gains and losses
relating to Schering call options acquired for the purpose of a
partial hedge of our stock option plans are included in personnel
costs.

   In order to properly match gains and losses from currency hedging
of anticipated sales and costs with the underlying hedged
transaction, we have deferred losses of E 26m at December 31,
1999 and gains of E 11m at December 31, 2000.

   Gains and losses resulting from currency hedging of existing
assets and liabilities generally correspond to changes in the hedged
balance-sheet items.
   At the balance-sheet date, our net financial position based on
liquid funds (cash and cash equivalents plus marketable securities)
and bank loans was approximately E 0.4 billion (December 31, 1999: E
0.4 billion). The average maturity of fixed-rate interest bearing
securities and fixed-rate deposits including financial derivatives
was five years (December 31, 1999: less than one year).

   Market risks resulting from open derivative positions are
estimated by a risk assessment system using a simulation of
historical data. Various measures have been put in place to manage
the risks. These include the setting of limits for individual classes
of instruments, the segregation of duties between dealing,
settlement, accounting, and controlling as well as the regular
reporting on open positions and results based on mark-to-market
valuations.

   Derivative financial instruments create credit risk limited to
the positive market values of these derivatives.

   In order to minimize credit risks, investments and transactions
in derivative instruments are entered into with high-rated debtors
and banks within fixed risk limits.


                                F-29
<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   (31) Contingent liabilities and other financial commitments


<TABLE>
<CAPTION>
                                        Dec. 31, 2000  Dec. 31, 1999
                                             E m            E m
Contingent liabilities
<S>                                          <C>            <C>
Bills and notes......................         --              2
Financial guarantees.................         25             17
                                            -----          -----
                                              25             19
                                            -----          -----
                                            -----          -----

Other financial commitments
Liabilities under operating leases
  due within 1 year....................       35             29
  due between 1 and 5 years............       89             81
  due after 5 years....................       16             23
Authorized capital commitments.........      229            186
                                            -----          -----
                                             369            319
                                            -----          -----
                                            -----          -----
</TABLE>

   Schering AG Group has entered into long-term research agreements
with various third parties under which Schering AG Group will fund
various research projects and other commitments based upon the
achievement of certain milestones or other specific conditions. The
approximate payments to these third parties, assuming the milestones
or other conditions are met, are as follows:


<TABLE>
<CAPTION>
                         E m
<S>                      <C>
2001 ..................  57
2002 ..................  52
2003 ..................  21
2004 ..................  73
2005 ..................  11
thereafter ............  42
                       -----
                        256
                       -----
                       -----
</TABLE>



                                F-30
<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (32) Segment reporting


<TABLE>
<CAPTION>
                                                 Segment  Internal  External   Change
                                                net sales net sales   net       over
                                                                     sales    last year
                                                   E m      E m       E m
2000
<S>                                                <C>      <C>       <C>       <C>
Europe Region{(1)}...........................     2,825      817    2,008        14%
United States Region..........................      999        7      992        28%
Japan Region..................................      670       --      670        48%
Latin America/Canada Region...................      496       22      474        27%
Asia Region...................................      201        3      198        21%
Other Activities..............................      227       76      151         6%
                                                 -------    -----  -------      -----
Segment total.................................    5,418      925    4,493        22%
Other ........................................       --       --       --         --
                                                 -------    -----  -------      -----
Schering AG Group.............................    5,418      925    4,493        22%
                                                 -------    -----  -------      -----
                                                 -------    -----  -------      -----

1999
Europe Region{(1)}...........................     2,418      652    1,766         7%
United States Region..........................      780        5      775        14%
Japan Region..................................      454        -      454        32%
Latin America/Canada Region...................      393       21      372         4%
Asia Region...................................      165        1      164        28%
Other Activities..............................      204       61      143        12%
                                                 -------    -----  -------      -----
Segment total.................................    4,414      740    3,674        12%
Other ........................................       --       --       --         --
                                                 -------    -----  -------      -----
Schering AG Group.............................    4,414      740    3,674        12%
                                                 -------    -----  -------      -----
                                                 -------    -----  -------      -----

1998
Europe Region{(1)}...........................     2,228      579    1,649         6%
United States Region..........................      681        3      678         9%
Japan Region..................................      343        0      343       (10)%
Latin America/Canada Region...................      371       12      359        (3)%
Asia Region...................................      129        1      128       (15)%
Other Activities..............................      297      169      128        11%
                                                 -------    -----  -------      -----
Segment total.................................    4,049      764    3,285         3%
Other ........................................       --       --       --         --
                                                 -------    -----  -------      -----
Schering AG Group.............................    4,049      764    3,285         3%
                                                 -------    -----  -------      -----
                                                 -------    -----  -------      -----
</TABLE>

-----
(1) incl. Africa, Australia and New Zealand

   The primary basis for our segment reporting is geographic, based
on location of customers. This reflects the management structure of
our sales organization, our system of internal financial reporting,
and the predominant source of risks and returns in our business.
Segment reporting is therefore divided into five geographic segments.
Other Activities (mainly our pharmaceutical chemicals business) are
managed on a worldwide basis and are therefore also presented as a
separate segment.
   Segment net sales include sales to third parties (external net
sales) and sales to group companies belonging to a different region
(internal net sales). Inter-segment sales are determined at arms
length prices.


                                F-31
<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   Information on external net sales is generally based on the
location of the customer. However, based on our management reporting
format, our net sales figures of the Europe Region also include the
net sales of the subsidiaries Leiras, Jenapharm, CIS bio
international and Justesa Imagen (a subgroup), realized outside
Europe. Net sales reported for the United States Region include net
sales of the Medrad Group achieved outside the United States.


<TABLE>
<CAPTION>
                                                           Central production Research
                                         Segment    Change      overhead/        and
                                       performance   over       variances    development  Segment    Change over
                                                   last year                  expenses    result      last year
                                          E m                      E m           E m       E m
2000
<S>                                       <C>        <C>           <C>            <C>      <C>            <C>
Europe Region{(1)}..................      819         7%          (60)           (357)    402              6%
United States Region.................     292         5%           (8)           (242)     42            (28)%
Japan Region.........................     246        47%          (15)           (123)    108             44%
Latin America/Canada Region..........     152        28%           (7)            (58)     87             30%
Asia Region..........................      69        28%          (13)            (20)     36             50%
Other Activities.....................      73        (3)%         (36)            (11)     26            (37)%
                                       -------      ------      -------         -------  ------         -------
Segment total........................   1,651        13%         (139)           (811)    701              9%
Other................................  (1,011)         9%         139             811     (61)           (45)%
                                       -------      ------      -------         -------  ------         -------
Schering AG Group....................     640        19%           --              --     640             19%
                                       -------      ------      -------         -------  ------         -------
                                       -------      ------      -------         -------  ------         -------

1999
Europe Region{(1)}..................      769        12%          (63)           (325)    381             20%
United States Region.................     277        13%           (5)           (214)     58             26%
Japan Region.........................     167        40%          (17)            (75)     75             83%
Latin America/Canada Region..........     119        14%           (8)            (44)     67             24%
Asia Region..........................      54        38%          (12)            (18)     24            118%
Other Activities.....................      75        36%          (26)             (8)     41            105%
                                       -------      ------      -------         -------  ------         -------
Segment total........................   1,461        17%         (131)           (684)    646             32%
Other ...............................    (925)        10%         131             684    (110)            39%
                                       -------      ------      -------         -------  ------         -------
Schering AG Group....................     536        31%           --              --     536             31%
                                       -------      ------      -------         -------  ------         -------
                                       -------      ------      -------         -------  ------         -------

1998
Europe Region{(1)}..................      687         6%          (70)           (300)    317              1%
United States Region.................     245         4%           (4)           (195)     46            (19)%
Japan Region.........................     119       (18)%         (12)            (66)     41            (39)%
Latin America/Canada Region..........     104       (27)%          (7)            (43)     54            (42)%
Asia Region..........................      39       (24)%         (13)            (15)     11            (48)%
Other Activities.....................      55         2%          (26)             (9)     20              0 %
                                       -------      ------      -------         -------  ------         -------
Segment total........................   1,249        (2)%        (132)           (628)    489            (15)%
Other................................    (839)       (2)%         132             628     (79)           (48)%
                                       -------      ------      -------         -------  ------         -------
Schering AG Group....................     410        (3)%          --              --     410             (3)%
                                       -------      ------      -------         -------  ------         -------
                                       -------      ------      -------         -------  ------         -------
</TABLE>

-----
(1) incl. Africa, Australia and New Zealand



                                F-32
<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   Segment performance and segment result are presented on a
consolidated basis to ensure comparability with external net sales.
Segment performance is an internal financial reporting measurement
utilized by our management. Under that approach, transfers from our
centralized production facilities in Europe are charged to the
segments at standard production cost. Research and development
expenses are not included as this function is managed on a worldwide
basis.

   Segment result comprises segment performance less an allocation
of research and development expenses and central production overhead
and production variances. Research and development expenses
specifically attributable to individual segments have been allocated
directly while all other expenses of our corporate research and
development organization (such as general research, global
development activities, and infrastructure) have been allocated to
the segments based on sales. Central production overhead and
production variances have been allocated based on the production
supplied from our central production facilities to the individual
segments.

   Total segment result is reconciled to consolidated operating
profit as follows:


<TABLE>
<CAPTION>
                                    2000  1999  1998
                                    E m   E m   E m
<S>                                 <C>   <C>   <C>
Total segment result..............  701   646   489
                                   ----- ----- -----
Costs of corporate functions...... (172) (166) (157)
Other operating income/expenses...  111    56    78
                                   ----- ----- -----
Total other.......................  (61) (110)  (79)
                                   ----- ----- -----
Operating profit..................  640   536   410
                                   ----- ----- -----
                                   ----- ----- -----
</TABLE>

   The "Costs of corporate functions" comprise administration cost
of Schering AG.

   Income and expenses, which were not incurred by the segments
and/or arose in the course of unusual transactions, are summarized in
"Other operating income/expenses".


                                F-33
<PAGE>


SCHERING AG


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


<TABLE>
<CAPTION>
                                                                    Investments in
                                           Other                      intangibles     Segment    Investments
                                        significant         Segment  and property,   assets by       by
                             Deprecia-   non-cash  Segment  Liabil-   plant and     geographical geographical
                               tion      expenses  assets    ities    equipment       location     location
                               E m          E m     E m       E m        E m            E m          E m
2000
<S>                            <C>          <C>     <C>       <C>        <C>            <C>          <C>
Europe Region{(1)}.........     93           19   1,607       753         76          1,779          107
United States Region........    57            9     681       236         73            641           67
Japan Region................    23            8     510        55         25            471           18
Latin America/Canada Region     14           --     226        36         25            203           21
Asia Region.................     8           --      98         9          8             77            4
Other Activities............    17           --     114        18         17             65            7
                              -----        -----  ------   -------      -----        -------        -----
Segment total...............   212           36   3,236     1,107        224          3,236          224
Other ......................    26           11   1,970     1,710         22          1,970           22
                              -----        -----  ------   -------      -----        -------        -----
Schering AG Group...........   238           47   5,206     2,817        246          5,206          246
                              -----        -----  ------   -------      -----        -------        -----
                              -----        -----  ------   -------      -----        -------        -----

1999
Europe Region{(1)}.........     95           18   1,471       596         73          1,630           99
United States Region........    40            4     590       178        120            554          114
Japan Region................    16            6     356        44         15            318            9
Latin America/Canada Region     13           --     203        29         22            179           18
Asia Region.................     9           --     104        10          9             82            6
Other Activities............    17           --      98        14         12             59            5
                              -----        -----  ------   -------      -----        -------        -----
Segment total...............   190           28   2,822       871        251          2,822          251
Other ......................    20           14   1,807     1,605         10          1,807           10
                              -----        -----  ------   -------      -----        -------        -----
Schering AG Group...........   210           42   4,629     2,476        261          4,629          261
                              -----        -----  ------   -------      -----        -------        -----
                              -----        -----  ------   -------      -----        -------        -----

1998
Europe Region{(1)}.........     96           14   1,399       622         86          1,550          112
United States Region........    42            2     443       141         37            410           31
Japan Region................    12            1     265        28         14            233            8
Latin America/Canada Region     12           --     166        30         13            146            9
Asia Region.................     9           --      90         5         12             67            9
Other Activities............    18           --     105        11         13             62            6
                              -----        -----  ------   -------      -----        -------        -----
Segment total...............   189           17   2,468       837        175          2,468          175
Other ......................    19           12   2,101     1,674         23          2,101           23
                              -----        -----  ------   -------      -----        -------        -----
Schering AG Group...........   208           29   4,569     2,511        198          4,569          198
                              -----        -----  ------   -------      -----        -------        -----
                              -----        -----  ------   -------      -----        -------        -----
</TABLE>

-----
(1) INCL. AFRICA, AUSTRALIA AND NEW ZEALAND
    Depreciation by segment includes amortization of intangible
    assets and depreciation of property, plant and equipment.


   "Other significant non-cash expenses" principally consists of
pension expenses included in operating profit.

   Segment assets include all assets with the exception of assets
relating to corporate functions, financial assets, other receivables
and other assets, marketable securities and cash and cash
equivalents.

   Segment liabilities include all liabilities with the exception of
liabilities relating to corporate functions, financial liabilities
and tax liabilities. Financial liabilities include E 1,153m (1999:
E 1,101m; 1998: E 1,049m) pension obligations from German retirement
benefit plans with corresponding E 73m (1999: E 69m; 1998: E 71m)
interest costs included in financial result.


                                F-34

<PAGE>


SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   The secondary basis for our segment reporting are the business
areas:


<TABLE>
<CAPTION>
                                                                                    Investments in
                                                              Change                 intangibles
                                                               over                 and property,
                                                  External     last    Segment         plant and
                                                 net sales     year    assets        equipment
                                                    E m                  E m             E m
2000
<S>                                                 <C>         <C>      <C>             <C>
Fertility Control and Hormone Therapy..........      1,353      15%      889              62
Therapeutics...................................      1,402      24%      896              81
Diagnostics and Radiopharmaceuticals...........      1,360      31%    1,097              43
Dermatology....................................        221      11%      211              29
Other Sources..................................        157      17%      143               9
                                                    -------    -----  -------           -----
Segment total..................................      4,493      22%    3,236             224
Other..........................................         --      --     1,970              22
                                                    -------    -----  -------           -----
Schering AG Group..............................      4,493      22%    5,206             246
                                                    -------    -----  -------           -----
                                                    -------    -----  -------           -----

1999
Fertility Control and Hormone Therapy..........      1,173       6%      849              58
Therapeutics...................................      1,128      14%      698              43
Diagnostics and Radiopharmaceuticals...........      1,040      18%      950             134
Dermatology....................................        199       5%      175               9
Other Sources..................................        134      18%      150               7
                                                    -------    -----  -------           -----
Segment total..................................      3,674      12%    2,822             251
Other..........................................         --       --    1,807              10
                                                    -------    -----  -------           -----
Schering AG Group..............................      3,674      12%    4,629             261
                                                    -------    -----  -------           -----
                                                    -------    -----  -------           -----

1998
Fertility Control and Hormone Therapy..........      1,109       8%      804              60
Therapeutics...................................        991       4%      642              46
Diagnostics and Radiopharmaceuticals...........        882      (4)%     740              47
Dermatology....................................        189      (2)%     158              13
Other Sources..................................        114       0%      124               9
                                                    -------    -----  -------           -----
Segment total..................................      3,285       3%    2,468             175
Other..........................................         --       --    2,101              23
                                                    -------    -----  -------           -----
Schering AG Group..............................      3,285       3%    4,569             198
                                                    -------    -----  -------           -----
                                                    -------    -----  -------           -----
</TABLE>


                                F-35

<PAGE>


SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   (33) Information on principal companies included in the
   Consolidated Financial Statements
   The table below contains information on principal companies
included in the Consolidated Financial Statements as of and for the
year ended December 31, 2000 (the complete list of Group ownership
interests will be filed in the Commercial Register of the Amtsgericht
Charlottenburg, Berlin):


<TABLE>
<CAPTION>
Name and location of company                            % of equity Equity    Result    Sales  Employees
                                                                    E m{(1)} E m{(1)} E m{(1)}
Germany
<S>                                                            <C>      <C>      <C>      <C>      <C>
Schering AG, Berlin{(2)}..........................                   1,197      227    1,920    7,519
Schering Deutschland Holding AG, Hamburg{(3)}.....          100.0      235       34      395      788
Jenapharm GmbH & Co. KG, Jena{(3)}................           74.9      103       30      143    1,057
Europe (excluding Germany)
N.V. Schering S.A., Diegem/Belgium.................          100.0       18        1       54      126
Leiras Oy, Turku/Finland{(3)}.....................           100.0      162       35      186    1,095
Schering S.A., Lys-Lez-Lannoy/France{(3)}.........            99.9      128       15      299    1,323
Schering Holdings Ltd., Burgess Hill/UK{(3)}......           100.0       30        4      136      341
Schering S.p.A., Milan/Italy{(3)}.................           100.0       51       11      250      835
Schering Nederland B.V., Weesp/Netherlands.........          100.0       23        4       53       72
Schering Wien Ges. mbH, Vienna/Austria.............          100.0      279       10       57      166
Schering Lusitana Lda., Mem Martins/Portugal.......          100.0        9        1       38      120
Schering (Schweiz) AG, Zurich/Switzerland..........          100.0       11        2       49       57
Schering Espana S.A., Madrid/Spain{(3)}...........            99.9       45        9      171      636
Schering Alman Ilac ve Ecza Ticaret Ltd., Sirketi,
Istanbul/Turkey....................................          100.0        3        0       49      138
North America
Schering Berlin Inc., Wilmington,
Del./United States{(3)}.........................             100.0      513       42    1,000    2,804
Berlex Canada Inc., Lachine/Canada.................          100.0        6        1       61      162
Latin America
Schering Argentina S.A.I.C., Buenos Aires/Argentina          100.0       17        0       87      355
Schering do Brasil Ltda., Sao Paulo/Brazil.........          100.0       52        0      160      822
Schering Colombiana S.A., Bogota/Colombia..........          100.0       19        3       49      330
Schering Mexicana S.A., Mexico City/Mexico.........          100.0       41       14       95      247
Asia/Australia
P.T. Schering Indonesia, Jakarta/Indonesia.........           76.8        9        2       23      549
Nihon Schering K.K., Osaka/Japan{(3)}.............            99.9      124       10      649    1,792
Schering Pty. Ltd., Sydney/Australia...............          100.0       27        9       72      110
Schering Korea Ltd., Seoul/Korea...................          100.0       19        2       48      214
Schering Chemicals Ltd., Bangkok/Thailand{(3)}....           100.0        7        2       15      125
Africa
Schering (Pty.) Ltd., Midrand/South Africa.........          100.0       12        2       30       96
</TABLE>

-----
(1) With companies outside the European Monetary Union, equity and
    annual results were converted from local currency amounts into E at
    the exchange rate in effect on December 31, 2000. Sales were converted
    into E at the annual average rate of exchange.
(2) Schering AG sells its products mainly to subsidiaries; these sales are
    not included in the Consolidated Financial Statements.
(3) Details include consolidated subsidiaries.


                                F-36
<PAGE>


SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   (34) Emoluments of the Supervisory Board and the Executive Board;
   loans granted
   The total remuneration of the members of the Supervisory Board
amounts to E 2,790k and that of the Executive Board to E 8,061k. A
provision for the pensions of former members of the Executive Board
and their dependents of E 14,337k has been recognized; the expenses
for the year ended December 31, 2000 amounted to E 1,402k.

   As part of the stock option plans set up in 1998 and 2000,
members of the Executive Board held non-transferable stock options on
up to a maximum of 202,500 Schering AG shares as at December 31,
2000. The exercise of the options depends on certain performance
criteria of the Schering AG share price which are determined under
the provisions of the plans [see note (35)] to our Consolidated
Financial Statements). As of January 1, 2001, options on 90,000
Schering AG shares became vested and may be exercised in 2001 and
2002.

   We have granted a loan of E 39k to one member of the Supervisory
Board and loans of E 292k to members of the Executive Board
(repayments in 2000: E 62k). Interest is charged on the loans at
either 5% or 6%. The loans are repayable over 10, 11, 13 and 16
years.

   (35) Stock option plans
   Schering AG implemented Long-Term Incentive (LTI) Plans in 1998
and 2000. Under the plans, participants invest in Schering AG shares
and receive option rights (entitling them to award shares) based on
the number of shares purchased. Participants receive one option for
each 18 shares of personnel investment. One option right entitles the
participant to a maximum of 180 award shares. If the shares acquired
by the participants are held during the entire vesting period, the
option rights become fully vested, and may be exercised during the
exercise period. However, the number of shares available under each
option right varies based on any increase in the share price (perfor-
mance shares) and the performance of Schering AGs shares relative to
a comparator index (outperformance shares). In addition, performance
shares for members of the Executive Board are available only if the
increase in Schering AGs share price is at least 20% (LTI plan 1998)
or 30% (LTI plan 2000).

   Compensation costs are recognized over the three-year vesting
period based upon an estimate on the outcome of the performance
conditions on the respective balance-sheet dates. Compensation costs
are recognized in the income statement.


<TABLE>
<CAPTION>
                                                                LTI 1998          LTI 2000
<S>                                                                  <C>               <C>
Number of options outstanding as of January 1, 2000..              3,945                --
Granted..............................................                 --             4,970
Forfeited in 2000....................................                 40                60
Exercised in 2000....................................                 --                --
Number of options outstanding as of December 31, 2000              3,905             4,910
Maximum number of award shares.......................            702,900           883,800
Exercise price per share (E).........................                  0                 0
Compensation costs 2000 (E m)........................                 22                16
Compensation costs 1999 (E m)........................                  4                --
Comparator index.....................................                DAX     STOXX Healthcare
Exercise period...................................... Jan. 1, 2001 until   Jan. 1, 2003 until
                                                           Dec. 31, 2002        Dec. 31, 2006
</TABLE>


                                F-37

<PAGE>


SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

F.  SIGNIFICANT DIFFERENCES BETWEEN IAS AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (US GAAP)

   (36) Reconciliation to US GAAP
   The Groups Consolidated Financial Statements have been prepared
in accordance with IAS, which, as applied by the Group, differ in
certain significant respects from US GAAP. The effects of the
application of US GAAP to net income and shareholders equity are set
out in the tables below:

   Reconciliation of net income to US GAAP (in E millions except per
share data)


<TABLE>
<CAPTION>
                                                    Note 2000 1999 1998
<S>                                                  <C>  <C>  <C>  <C>
Net income under IAS...............................       336  272  245
US GAAP adjustments
Business combinations
  Acquired R&D.....................................   (a)   3  (17)   3
  Other differences................................   (a)  (5)   1   (5)
Property, plant and equipment
  Capitalization of interest.......................   (b)  (4)  (4)  (4)
  Reversal of impairment charges...................   (b)  (2)  --   --
Internal-use software..............................   (c)  (4)  10   --
Available-for-sale securities......................   (d)  --   --   --
Equity investment (Aventis CropScience/AgrEvo).....   (e) (22)  26    3
Inventories........................................   (f)   1   (2)   0
Provisions for pensions............................   (g)   2    3   (1)
Other provisions...................................   (h) (24) (42)  (1)
Treasury shares/Schering call options..............   (i)  --   --   --
Stock option plans.................................   (j) (18)   0    3
Cash flow hedges...................................   (k)  37  (32)  11
Tax effect on US GAAP adjustments..................   (l)   6   33    0
                                                         ----- ---- ----
Net income under US GAAP...........................       306  248  254
                                                         ----- ---- ----
                                                         ----- ---- ----
Earnings per share under US GAAP
  basic............................................      1.55  1.23 1.24
                                                         ----- ---- ----
                                                         ----- ---- ----
  diluted..........................................      1.53  1.23 1.24
                                                         ----- ---- ----
                                                         ----- ---- ----
</TABLE>



                                F-38

<PAGE>


SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   Reconciliation of shareholders equity to US GAAP (in E millions)


<TABLE>
<CAPTION>
                                                   Note  2000  1999  1998
<S>                                                <C>    <C>   <C>   <C>
Shareholders equity under IAS....................      2,297  2,098 2,010
US GAAP adjustments
Business combinations
  Acquired R&D.................................... (a)    (80)  (81)  (64)
  Other differences............................... (a)     41    52    51
Property, plant and equipment
  Capitalization of interest...................... (b)     20    24    28
  Reversal of impairment charges.................. (b)     (2)   --    --
Internal-use software............................. (c)      6    10    --
Available-for-sale securities..................... (d)    109   118    69
Equity investment (Aventis CropScience/AgrEvo).... (e)    (72)  (53)  (79)
Inventories....................................... (f)     17    16    18
Provisions for pensions........................... (g)     (2)   (4)   (7)
Other provisions.................................. (h)     10    34    76
Treasury shares/Schering call options............. (i)    (20)  (18)   (5)
Stock option plans................................ (j)     45     8     4
Cash flow hedges.................................. (k)     11   (26)    6
Tax effect on US GAAP adjustments................. (l)    (76) (117) (128)
                                                        ----- ----- ------
Shareholders equity under US GAAP................       2,304  2,061 1,979
                                                        ----- ----- ------
                                                        ----- ----- ------
</TABLE>


   a.) Business combinations
   Under IAS, research-in-process is not identified as an acquired
asset in connection with the allocation of the purchase price but
rather capitalized as goodwill. US GAAP requires the identification
of research-in-process as a separate component of the purchase price
allocation. Such amounts must be charged as expenses at the time of
the acquisition. In addition, certain identifiable intangible assets
recognized under US GAAP are included in goodwill under IAS. The
adjustments are related to the acquisitions of Medrad Group (1995),
Leiras Group and Jenapharm Group (both 1996) and Diatide (1999).
Research-in-process charged to expenses relating to Diatide
was E 20m in 1999.

   The negative goodwill arising on the acquisition of the CIS Group
[see note (14)] is deducted proportionately from fixed assets
excluding securities under US GAAP.

   b.) Property, plant and equipment
   Schering does not capitalize interest costs on self-constructed
assets under IAS. Under US GAAP, interest costs incurred during the
construction period must be capitalized and amortized. Costs of E 3m,
E 2m and E 3m that were expensed in the years 2000, 1999 and 1998
were capitalized under US GAAP. Total capitalized interest under US
GAAP as of December 31, 2000 was E 20m (December 31, 1999: E 24m;
December 31, 1998: E 28m). The reduction relates to depreciation.

   Impairments of fixed assets in our production plant in Bergkamen
have been reversed in 2000 under IAS [see note (15)]. Impairment
charges can not be reversed under US GAAP.


                                F-39

<PAGE>


SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   c.) Internal-use software
   As of January 1, 1999, we adopted SOP 98-1 "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use"
under US GAAP. The statement requires capitalization of certain costs
incurred in the development of internal-use software, including
payroll and payroll- related costs. Under IAS, these costs are
capitalized starting on January 1, 2000 [see note (4)]. The
reconciliation item relates to costs of the year 1999, which were
capitalized under US GAAP but expensed under IAS.

   d.) Available-for-sale securities
   In accordance with IAS, securities are stated at the lower of
their amortized acquisition cost or fair value on the balance-sheet
date. Under US GAAP, securities are classified into one of three
categories: held-to-maturity securities, available-for-sale
securities or trading securities. The securities of the Group are
considered to be available-for-sale and therefore valued at market
value at the balance-sheet date. Unrealized gains and losses are
excluded from earnings and reported as a separate component of other
comprehensive income.

   As of January 1, 2001, we adopted IAS 39 "Financial Instruments:
Recognition and Measurement". Under the new standard, the securities
of the Group are valued at market value under IAS as well.

   e.) Equity investment (Aventis CropScience/AgrEvo)
   The application of US GAAP in the consolidated financial
statements of Aventis CropScience/ AgrEvo reduces our investment
balance. The most significant differences relate to acquired
research- in-process from certain prior AgrEvo acquisitions and the
timing of recognition and use of restructuring provisions in
connection with the merger of the agribusiness of AgrEvo and Rhone-
Poulenc Agro.

   f.) Inventories
   Under IAS, the allocation of fixed production overheads to the
cost of inventories is based on the normal capacity of the production
facilities. Idle facility expenses are treated as a current period
charge. Under US GAAP, idle facility expenses are allocated between
cost of sales and inventories.

   g.) Provisions for pensions
   The Group has elected not to apply the "corridor approach" under
IAS; any actuarial gain/loss is amortized over the average remaining
service period of active employees.

   Under US GAAP, pension costs and similar obligations are
accounted for in accordance with Statement of Financial Accounting
Standards (SFAS) No. 87 "Employers Accounting for Pensions".
Companies located outside the United States had to adopt the
provisions of SFAS No. 87 for fiscal years beginning after December
15, 1988. Due to the long period of time between the effective date
and the time when the Group first prepared US GAAP information,
adoption of the provisions of SFAS No. 87 as of January 1, 1989 was
not feasible. The Group adopted SFAS No. 87 as of January 1, 1998 and
recognized a transition obligation of E 13m. On January 1, 1998, the
average remaining service period of active employees was 20 years. An
amount of E 6m was directly recorded to equity (for the period 1989
to 1997). E 1m (5% of the transition obligation) has to be recognized
in income each year through 2008. As we make use of the "corridor
approach" under US GAAP we excluded from income the amounts
recognized as "amortization of unrecognized actuarial losses" under
IAS [see note (23)].


                                F-40

<PAGE>


SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   h.) Other provisions
   In 2000, the reconciliation item relates almost exclusively to
liabilities arising from our early retirement program. Under the
terms of our early retirement program, an employee older than 54 is
offered the opportunity to work half-time for up to six years for 85%
of pay. Under IAS, a liability for such benefits is recognized when
management is demonstrably committed to the employee terminations. We
have classified such liabilities as restructuring provisions (almost
all reductions in headcount resulting from the closure or
reorganization of production facilities have been accomplished
through our early retirement program). When the employee formally
accepts the offer, the liability is reclassified as a personnel
provision. Under US GAAP, a liability for these benefits is
established only after the employee has accepted the offer. In
addition, the incremental costs are recognized upfront on a
discounted basis under IAS. Under US GAAP, such amounts are
recognized over the employees` remaining service period (on an
undiscounted basis).

   In 1999, the reconciliation of net income includes E 27m relating
to the reversal of provisions for asbestos clean-up costs. Under US
GAAP, these provisions would have been reversed in 1996 when the
respective government directive changed.

   i.) Treasury shares/Schering call options
   As of December 31, 2000, 170,000 treasury shares (December 31,
1999: 216,000 treasury shares) held for distribution to employees
under employee share bonus programs are shown as an asset under IAS
[see note (20) to the Consolidated Financial Statements]. In
addition, the Schering call options acquired for the purpose of a
partial hedge of the stock option plans are recognized as an asset
under IAS. Under US GAAP, treasury shares and the Schering call
options are deducted from equity.

   j.) Stock option plans
   For a description of our stock option plans (LTI 1998 and LTI
2000) refer to note (35) of the Consolidated Financial Statements.

   Compensation costs under IAS are measured on an estimate of the
outcome of the performance conditions on each balance-sheet date.
Compensation costs are recorded net of gains from the market
valuation of the Schering call options acquired for a partial hedge
of the stock option plans. For US GAAP purposes we elected to follow
APB No. 25 "Accounting for Stock Issued to Employees" in accounting
for our stock option plans and to provide the disclosures required
under SFAS No. 123 "Accounting for Stock Based Compensation". Our
stock option plans are variable award plans. Compensation costs are
recognized over the three-year vesting period based upon the fair
value of the Schering share on the respective balance-sheet dates.
The acquisition costs of the Schering call options are deducted from
equity and the proceeds from the sale of the options will
be shown as an addition to equity without an effect on income. Under
IAS, the accumulated unvested compensation costs are shown as a
liability. Under US GAAP, these costs are a part of shareholders
equity.


                                F-41

<PAGE>


SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   k.) Cash flow hedges
   For a description of our policies for deferring profits and
losses on hedging instruments see note (30) to our Consolidated
Financial Statements. Under US GAAP, our hedging strategies do not
qualify for hedge accounting. The following profits and losses were
deferred under IAS, but are included in income under US GAAP:


<TABLE>
<CAPTION>
                                                                             2000  1999  1998
                                                                             E m   E m   E m
<S>                                                                          <C>   <C>   <C>
Results on hedging instruments of the previous year, which are related to
sales and costs of the actual year.........................................   26   (6)     5
Results on hedging instruments of the actual year, which are related to
planned sales and costs of the following year..............................   11  (26)     6
                                                                             ---- ----   ----
Total effect on income before taxes under US GAAP..........................   37  (32)    11
                                                                             ---- ----   ----
                                                                             ---- ----   ----
</TABLE>

   l.) Tax effect on US GAAP adjustments
   This reconciliation item includes all tax effects due to the
aforementioned reconciling items except the adjustment related to the
equity method (Aventis CropScience/AgrEvo), which is presented net of
tax.

   As of January 1, 2001, the tax rate applicable to Schering AG in
Germany was reduced. The impact of the reduced tax rate for deferred
taxes on the reconciliation to US GAAP was an increase in net income
of E 2m and an increase in equity of E 14m. In the future, certain
gains on the sale of securities will be tax-free in Germany resulting
in an additional increase in equity of E 12m.

                                F-42
<PAGE>
SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   (37) Additional US GAAP information
   SFAS 130 "Reporting Comprehensive Income"
   SFAS No. 130 "Reporting Comprehensive Income" requires the
reporting of comprehensive income, which includes all changes in
shareholders equity except those resulting from investments by or
distributions to shareholders.
   Statement of comprehensive income for the years ended December 31:


<TABLE>
<CAPTION>
                                                                      2000   1999   1998
                                                                      E m    E m    E m
<S>                                                                   <C>    <C>    <C>
US GAAP net income [see note (36)]
                                                                      306    248    254
Currency translation adjustments
IAS accounts......................................................     28     90    (32)
Reconciliation to US GAAP.........................................     (3)    --     --
Unrealized gains and losses on available-for-sale securities
(after tax expense 2000: E 7m; 1999: E 23m; 1998: E 9m)...........     83     27     12
Less realized gains on available-for-sale securities in net income
(after tax expense 2000:  E 36m; 1999:  E 0m; 1998:  E 15m).......    (59)    --    (14)
                                                                     -----   ----  -----
Other comprehensive income, net of tax............................     49    117    (34)
                                                                     -----   ----  -----
Comprehensive income, net of tax..................................    355    365    220
                                                                     -----   ----  -----
                                                                     -----   ----  -----
</TABLE>

   Accumulated other comprehensive income balances as of December 31:


<TABLE>
<CAPTION>
                                                 Unrealized  Accumulated
                                      Currency   gains and    other com-
                                     translation  losses on   prehensive
                                     adjustment  securities    income
                                        E m         E m          E m
<S>                                     <C>         <C>          <C>
January 1, 1998...................        8         40           48
Other comprehensive income 1998...      (32)        (2)         (34)
                                       -----       -----       ------
December 31, 1998.................      (24)        38           14
Other comprehensive income 1999...       90         27          117
                                       -----       -----       ------
December 31, 1999.................       66         65          131
Other comprehensive income 2000...       25         24           49
                                       -----       -----       ------
December 31, 2000.................       91         89          180
                                       -----       -----       ------
                                       -----       -----       ------
</TABLE>


   Statement of US GAAP equity as of December 31:


<TABLE>
<CAPTION>
                                                       2000    1999    1998
                                                        E m     E m     E m
<S>                                                     <C>     <C>     <C>
Equity according to US GAAP before accumulated other
comprehensive income................................. 2,124   1,930   1,965
Accumulated other comprehensive income...............   180     131      14
                                                     ------- ------- -------
Total equity according to US GAAP.................... 2,304   2,061   1,979
                                                     ------- ------- -------
                                                     ------- ------- -------
</TABLE>


                                F-43

<PAGE>


SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   Available-for-sale securities

   Available-for-sale securities consisted of the following:


<TABLE>
<CAPTION>

                                          Gross       Gross
                               Book     unrealized  unrealized  Market
                              value       gains       losses     value
                               E m         E m         E m       E m
As of December 31, 2000
<S>                            <C>         <C>         <C>       <C>
Investments (non-current)....   44          60         (14)       90
Marketable securities........  373          63          --       436
                              -----       -----       -----     -----
                               417         123         (14)      526
                              -----       -----       -----     -----
                              -----       -----       -----     -----
As of December 31, 1999
Investments (non-current)....   23          21          --        44
Marketable securities........  479          97          --       576
                              -----       -----       -----     -----
                               502         118          --       620
                              -----       -----       -----     -----
                              -----       -----       -----     -----
As of December 31, 1998
Investments (non-current)....   10          --          (3)        7
Marketable securities........  632          72          --       704
                              -----       -----       -----     -----
                               642          72          (3)      711
                              -----       -----       -----     -----
                              -----       -----       -----     -----
</TABLE>


   Proceeds from sales of available-for-sale securities in 2000 were
E 465m (1999: E 332m; 1998: E 290m). Gross gains of E 95m were
realized on the sale of securities in 2000 (1998: gross gains of
E  28m). Gross gains in 1999 and gross losses in 2000, 1999 and 1998
on such sales were immaterial.

   Marketable securities include fixed-term securities. Maturities
as of December 31, 2000 are as follows:


<TABLE>
<CAPTION>
                         Book   Market
                         value   value
                         E m     E m
<S>                      <C>     <C>
Less than 1 year......     8       8
Between 1 and 5 years.   146     147
More than 5 years.....    38      40
                        -----   -----
                         192     195
                        -----   -----
                        -----   -----
</TABLE>


   Impairment of long-lived assets
   The Group periodically evaluates the carrying value of long-lived
assets to be held and used, including goodwill and other intangible
assets, when events and circumstances warrant such a review. The
carrying value of a long-lived asset is considered impaired when the
anticipated cash flow from such an asset is separately identifiable
and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds
the fair market value of the long-lived asset. Fair market value is
determined primarily using anticipated cash flows discounted at a
rate commensurate with the risk involved. As of December 31, 1998,
1999 and 2000 there was no reconciliation item arising from different
policies for recognizing impairment of long- lived assets under IAS
and US GAAP.


                                F-44

<PAGE>


SCHERING AG


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   Summarized financial information for significant associated
companies

   At December 31, 2000, three investments were accounted for under
the equity method:


<TABLE>
<CAPTION>
                                       Percentage of
                                       common stock
                                       Dec. 31, 2000
<S>                                         <C>
Aventis CropScience S.A., Lyon........       24
Medac GmbH, Hamburg...................       25
Metreon Bioproducts GmbH, Freiburg....       50
</TABLE>


   The table below contains financial information of the Aventis
CropScience Group after conforming the Aventis CropScience financial
statements to Schering AG Group accounting policies and principles as
of and for the years ended December 31, 2000 and 1999 (1999 on a pro
forma basis):


<TABLE>
<CAPTION>
                                  2000    1999
                                  E m     E m
<S>                               <C>     <C>
Net sales....................... 4,034   4,060
Gross profit.................... 1,997   1,901
Net income......................  (210)   (132)
Assets other than fixed assets.. 3,523   3,509
Fixed assets.................... 2,726   2,697
Current liabilities............. 4,339   4,267
Non-current liabilities.........   695     608
Shareholders equity............  1,215   1,331
</TABLE>


   The share of the net income in the Schering AG Group accounts
amounted to a loss of E 59m (1999: loss of E 60m relating to the
share of the net income of the Hoechst Schering AgrEvo Group).

   The amount at which the investment is carried exceeds the amount
of underlying equity in net assets by E 123m (December 31, 1999: E
24m). The goodwill is related to the formation of Aventis CropScience
and is amortized over 15 years until 2014.

   Corporate Debt

   At December 31, 2000 Schering AG had aggregate unused committed
lines of credit of E 44m (December 31, 1999: E 41m).

   Employee benefit plans

   The information required by SFAS No. 132 "Employers Disclosures
about Pensions and Other Postretirement Benefits" are included in
note (4) and note (23) to the Consolidated Financial Statements.


                                F-45

<PAGE>


SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   Pension obligations and expenses determined under SFAS No. 87
were based on the following assumptions (weighted average figures for
foreign plans):


<TABLE>
<CAPTION>
                                        German plans     Other plans
                                      2000 1999 1998 2000 1999  1998
<S>                                    <C>  <C>  <C>  <C>  <C>   <C>
Discount rate........................ 6.5% 6.5% 6.0% 5.5% 5.7%  6.3%
Increase in salaries................. 3.0% 3.0% 2.2% 4.5% 4.2%  4.5%
Increase in pensions................. 1.5% 1.5% 1.0% 0.7% 0.7%  0.9%
Expected return on plan assets....... n.a. n.a. n.a. 6.3% 6.5%  6.0%
</TABLE>


   Under IAS, interest relating to the unfunded pension obligation
in Germany is classified in financial result (see note (10)). Under
US GAAP, interest on pension obligations is considered a component of
compensation expenses. Accordingly "operating profit" under US GAAP
would be lower and "financial result" higher by E 73m (1999: E 69m;
1998: E 71m).

   Stock option plans

   In electing to continue to follow APB No. 25 for expense
recognition purposes, we are obliged to provide the expanded
disclosures required under SFAS No. 123. The fair value at date of
grant of one option for LTI 1998 was E 2,408 (E 10m for all options).
The fair value at date of grant of one option for LTI 2000 was E
6,374 (E 32m for all options). Both calculations were based on a
Monte Carlo Simulation. The pro forma information for the years ended
December 31, 2000, 1999 and 1998, prepared in accordance with the
provisions of FAS No. 123, is as follows:


<TABLE>
<CAPTION>
                                                2000    1999     1998
<S>                                              <C>     <C>      <C>
Pro forma net income ........................  E 348m  E 248m   E 253m
Pro forma earnings per share (basic).........  E 1.76  E 1.23   E 1.23
Pro forma earnings per share (diluted).......  E 1.74  E 1.23   E 1.23
</TABLE>


   Litigation

   The Group is involved in a number of legal proceedings and claims
incidental to the normal conduct of its business, relating to such
matters as product liability, patent infringement, tax assessments,
competition, past waste disposal practices and release of chemicals
into the environment. Although the outcome of these proceedings and
claims cannot be predicted with certainty, we believe that any
resulting liabilities will not, in the aggregate, have a material
adverse effect on the Groups consolidated results of operations,
financial condition and cash flows; where these legal proceedings and
claims meet the conditions of SFAS No.5"Accounting for
Contingencies", a liability is recognized in the Consolidated
Financial Statements.

   Schering AG historically has provided certain indemnities in
connection with the sale of businesses. These indemnities related to
environmental and other contingencies. Remaining contingencies
totaling E 16m related to the sale of the electroplating division in
1993 were reversed in 1999, as the guarantee period ended. Guarantee
related to the sale of the Industrial Chemicals and Natural
Substances divisions in 1992, will end in 2004. The Group has
recognized a liability for servicing indemnities of E 25m relating to
probable claims to be asserted by the buyer.


                                F-46

<PAGE>


SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   During 1996 Hoffmann-LaRoche Inc. and Genentech, Inc.
(collectively "Roche") filed suit in the United States District Court
for New Jersey against Berlex Laboratories, Inc. alleging that
Berlexs product Betaseron(R) infringes a certain Roche patent. Berlex
answered denying infringement and counterclaimed for declaratory
judgment that the Roche patent is invalid and not infringed by
Betaseron(R). The litigation was settled by an agreement during 1998,
and was dismissed with prejudice. Pursuant to the settlement
agreement, a private arbitration was commenced to determine the
question of infringement. In March 2000 the panel held that
Betaseron(R) does not literally infringe the Roche patent. A settlement
agreement was reached in February 2001 between Berlex and Roche under
which Berlex will pay Roche certain past and future royalties.

   The Groups Brazilian subsidiary is a defendant in approximately
400 civil actions brought in courts in Brazil by women, suing
individually. Many of them claim that they became unintentionally
pregnant after taking placebo pills packaged by the subsidiary in
connection with test runs of a new packaging machine between January
and April 1998. The placebo pills were intended for destruction and
not for sale. However, some packages were stolen and illegally
appeared in the hands of some women. Most of these claims are still
pending. In the majority of the judgments obtained to date, the
claims were rejected by the Brazilian courts. In connection with this
incident, in July 2000 two managers of the Groups Brazilian
subsidiary were convicted in a Brazilian court of the first instance
for the failure to label properly the pouches and blisters for the
placebo pills. The Brazilian court imposed community service
activities to be rendered during a 28 month period. Both managers
have filed appeals.

   The Groups subsidiary in Great Britain, Schering Health Care
Limited, is one of three manufacturers of so-called "third
generation" combined oral contraceptive pills against whom claims
have been made by women who allege they have suffered injury as a
result of taking such pills. As of December 31, 1999, approximately
130 individuals had submitted claims in respect of all of the
manufacturers. Of these claims, 52 concern Schering Health Care. The
claimants have not quantified their claims in terms of damages. The
primary allegations made in the Statements of Claim of the claimants
are that the "third generation" combined oral contraceptive pills
should not have been marketed, or, alternatively, that the
manufacturers should have discovered and warned prescribers and
consumers that there was an increased risk of venous thrombo-embolism
(VTE) associated with "third generation" combined oral contraceptive
pills as compared with "second generation" oral contraceptive pills.
The Legal Aid Board in Great Britain granted funding to the claimants
to pursue their claims in England and Wales. All of the cases were
transferred to a court in London, England. Two of the cases against
each of the manufacturers are pending as pilot cases, and the
remainder of the claims have been sustained. An initial procedural
hearing was held before a court-appointed Master in July 1997. The
firm representing all of the claimants served a Statement of Claim on
each of the three manufacturers (including Schering Health Care) in
1997 and February 1998. Schering Health Care and the other
manufacturers served Defences in November 1998. The plaintiffs
amended their Statement of Claim in the two pilot cases against
Schering Health Care. The amended Statement of Claim no longer
alleges that the "third generation" combined oral contraceptive pills
should not have been marketed, but now includes a claim under the
Consumer Protection Act. The defendants responded to the amended
Statement of Claim on June 30, 2000. Schering Health Care denies
these allegations and intends to continue to contest this litigation
vigorously.


                                F-47

<PAGE>


SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   Schering AG was named as one of several defendants in two cases
filed in United States District Court in New Jersey during May 1999
in which class certification was sought on behalf of persons alleging
that they were the subject of medical experiments performed in
concentration camps during World War II. These cases have been
dismissed with prejudice.

   During November 1998, Liebel-Flarsheim, Inc. filed an action
against Medrad, Inc. in the United States District Court for the
Southern District of Ohio alleging that Medrad infringes three of
Liebel-Flarsheims patents through Medrads manufacture and sale of
front load medical injectors used to inject contrast medium and
certain types of syringes used with these injectors. Medrad several
days later filed an action against Liebel-Flarsheim, Inc., and
several of its affiliates, including Mallinckrodt Inc., in the United
States District Court for the Western District of Pennsylvania
alleging that certain activities undertaken by Mallinckrodt with
respect to the manufacture, use and sale by Mallinckrodt of a certain
syringe adapter assembly for use with injectors manufactured by
Medrad constitute as to Medrad unfair competition and trademark
dilution under United States federal law; unfair competition,
misappropriation, damage to business reputation and dilution,
tortious interference with contractual and prospective business
relationships and civil conspiracy under Pennsylvania state and
common law; and infringement of a Medrad patent. Medrad subsequently
amended its complaint to add an additional unfair competition claim
and filed a second action against Liebel-Flarsheim in Pennsylvania to
declare Liebel-Flarsheims three patents both not infringed by Medrad
and invalid. Liebel-Flarsheim filed an amended complaint in Ohio in
March 1999 alleging that Medrad had engaged in certain activities in
connection with the sale of syringes for injectors which violate
United States antitrust laws and constitute tortious interference
with contractual relations and prospective business relations, and
subsequently filed a second amended complaint adding a declaratory
judgment count to declare Medrads patent both not infringed by
Liebel-Flarsheim and invalid. As to the allegations of infringement
of its four patents, Liebel- Flarsheim seeks preliminary and
permanent injunctive relief, damages resulting from the infringement
and an award of three times actual damages because of Medrads
alleged willful infringement of the patents; as to the allegations of
violation of the antitrust laws, Liebel-Flarsheim seeks a permanent
injunction and compensatory damages to be trebled as permitted under
the antitrust laws; and as to allegations of tortious interference
with contractual business relations, Liebel-Flarsheim seeks permanent
injunctive relief, compensatory damages and punitive damages. The two
actions filed in Pennsylvania were transferred to Ohio in June 1999.
Medrad dismissed the second action it had filed in Pennsylvania
during November 1999, and incorporated its request for declaratory
relief as to the four Liebel-Flarsheim patents as counterclaims in
Medrads answer filed in November 1999 to the initial action in Ohio.
Medrad also denied all of the allegations made by Liebel-Flarsheim in
the Ohio action. Mallinckrodt also filed an answer in November 1999
to the Pennsylvania action in which it denied all of the allegations
made by Medrad and included a counterclaim that Medrads patent was
invalid and not infringed by Mallinckrodts syringe adapter assembly.
Liebel-Flarsheim filed a fourth amended complaint in January 2000
alleging that Medrads manufacture and sale of certain medical
injectors and syringes further infringes a Liebel- Flarsheim United
States patent related to the Liebel-Flarsheim patent on which Medrad
was originally sued. Medrad filed a second amended complaint in
January 2000 to add Couer Laboratories, Inc. as an additional
defendant. The two actions are consolidated for discovery purposes
and discovery is now ongoing. The court has issued a scheduling order
by which fact discovery was to close on October 31, 2000 and which
sets the trials of both actions for summer 2001. The two actions have
not been consolidated for trial. Medrad will continue to contest
vigorously this litigation against Liebel-Flarsheim, Mallinckrodt and
the other parties.


                                F-48

<PAGE>


SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

   Dividends

   Under the German Commercial Code (HGB), dividends can be paid
only from the unappropriated retained earnings of the parent company,
Schering AG. At December 31, 2000, unappropriated retained earnings
of Schering AG totaled E 198m, resulting from 2000 net income of E
227m less a transfer of E 29m to retained earnings, as determined by
the Executive Board and the Supervisory Board.
   Related Party Transactions

   On December 29, 1999, we entered into a Partners Agreement with
Hoechst AG and Aventis S.A. pursuant to which Aventis agreed to
contribute all of its shares in Rhone-Poulenc Agro S.A., Hoechst
agreed to contribute all of its shares in AgrEvo GmbH and we agreed
to contribute all of our shares in AgrEvo GmbH to Aventis CropScience
S.A. The agreement, among other things, provided for the
establishment of a research cooperation between us and Aventis
CropScience to provide for a mutual exchange of compounds and certain
other technologies. Aventis CropScience has the right to an exclusive
license for the compounds we contribute and we have the right to an
exclusive license for compounds contributed by Aventis CropScience,
subject to a right of first refusal by Aventis. We have contributed
an aggregate of approximately E 500 million to the AgrEvo/Aventis
CropScience joint venture; all contribution were paid before January
1, 2000. We believe that all past transactions with AgrEvo GmbH have
been on an arms length basis. Professor Dr. Klaus Pohle, Vice-
Chairman of the Executive Board of Schering AG, is a member of the
Supervisory Board of Aventis CropScience.

   Allianz Versicherungs-AG, which is the corporate parent of AS
Industriebesitz und Beteiligungen Allianz Versicherungs-AG & Co. OHG,
currently provides insurance services to the Schering AG Group in a
number of different areas such as property, business interruption,
directors and officers liability, marine, personal accident and
automobile insurance. We believe that these services are provided on
an arms-length basis.

   Professor John A. Dormandy, a member of the Supervisory Board,
has provided consultancy services to Schering AG in connection with
research relating to certain cardiovascular indications pursuant to a
consultancy agreement since June of 1996 for an annual fee of E
56,242.

   Certain members of the Supervisory and Executive Boards are
members of supervisory boards of certain financial institutions with
which we engage in transactions in the ordinary course of business.

   New Accounting Standards under IAS

    IAS 39 "Financial Instruments: Recognition and Measurement" is
effective for fiscal periods beginning after December 31, 2000.
The standard significantly increases the use of fair values in
accounting for financial instruments. In addition, it establishes
specific criteria relating to hedge accounting. We adopted the
standard as of January 1, 2001. Securities are now valued at
market
value on the balance-sheet date. The adoption had no impact on
net income as unrealized gains and losses are excluded from
earnings and reported as a separate component of equity.

    IAS 40 "Investment property" is effective for fiscal periods
beginning after December 31, 2000. The standard introduces a fair
value accounting model for investment property held to earn
rentals or for capital appreciation or both. The adoption of this
standard as of January 1, 2001, did not change our previous
valuation and accounting policies as we opted for the cost model
and continue to measure investment property in accordance with
IAS 16 "Property, Plant and Equipment".


                                               F-49

<PAGE>


SCHERING AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


    New Accounting Standards under US GAAP

    SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" is effective
for fiscal periods beginning after June 15, 2000. The statement
requires that all derivatives be recognized in the balance-sheet
as either assets or liabilities and measured at fair value. In
addition, all hedging relationships must be designated,
documented and reassessed pursuant to the provisions in the
standard. As we will conform our hedging strategies for future
cash flows to the provisions of the standard, we will be able to
defer profits and losses on these hedging instruments under US
GAAP. In the future, there will not be a reconciliation item for
this issue [see note (36) for the difference in accounting under
IAS and US GAAP at December 31, 2000]. We do not expect any other
impact upon the adoption of this standard.
                                               F-50