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                                   FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

(MARK ONE)

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
                                            -----------------

                                       OR

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

                        COMMISSION FILE NUMBER 001-13255
                                               ---------

                                  SOLUTIA INC.
                                  ------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

             DELAWARE                                       43-1781797
             --------                                       ----------
   (STATE OR OTHER JURISDICTION OF                         (I.R.S. EMPLOYER
    INCORPORATION OR ORGANIZATION)                        IDENTIFICATION NO.)

10300 OLIVE BOULEVARD, P.O. BOX 66760, ST. LOUIS, MISSOURI     63166-6760
----------------------------------------------------------     ----------
         (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)              (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (314) 674-1000
                                                          --------------

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
                                                      NAME OF EACH EXCHANGE
     TITLE OF EACH CLASS                               ON WHICH REGISTERED
     -------------------                             ----------------------
<S>                                                  <C>
$.01 PAR VALUE COMMON STOCK                          NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS                      NEW YORK STOCK EXCHANGE
</TABLE>

         SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                                    NONE
                              (TITLE OF CLASS)

    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. /X/ YES  / / NO

    INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. /X/

    STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES
OF THE REGISTRANT: APPROXIMATELY $3.2 BILLION AS OF THE CLOSE OF BUSINESS ON
FEBRUARY 28, 1998.

    INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE: 117,024,896 SHARES
OF COMMON STOCK, $.01 PAR VALUE, OUTSTANDING AT FEBRUARY 28, 1998.

                      DOCUMENTS INCORPORATED BY REFERENCE

(1) PORTIONS OF SOLUTIA INC.'S ANNUAL REPORT TO SECURITY HOLDERS FOR THE YEAR
    DECEMBER 31, 1997 (PART I, PART II, AND PART IV OF FORM 10-K).

(2) PORTIONS OF SOLUTIA INC.'S NOTICE OF ANNUAL MEETING OF STOCKHOLDERS AND
    PROXY STATEMENT DATED MARCH 11, 1998 (PART III OF FORM 10-K).

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    This Annual Report on Form 10-K includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
regarding the expected future financial position, results of operations, cash
flows, dividends, financing plans, business strategy, budgets, projected costs
and capital expenditures, competitive positions, growth opportunities for
existing products, benefits from new technology, plans and objectives of
management for future operations, and markets for stock of Solutia Inc. (the
"Company") are forward-looking statements. Although the Company believes its
expectations reflected in such forward-looking statements are based on
reasonable assumptions, no assurance can be given that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from the expectations reflected in the forward-looking
statements herein include, among others, those set forth below or incorporated
by reference herein as well as general economic and business and market
conditions, customer acceptance of new products, efficacy of new technology and
facilities, changes in U.S. and ex-U.S. laws and regulations, costs or
difficulties relating to the establishment of the Company as an independent
entity, shortages of raw materials and fuels and increased competitive and/or
customer pressure.

                                     PART I

ITEM 1. BUSINESS.

    Solutia Inc. and its subsidiaries produce and market a range of high
performance chemical-based materials, including nylon and acrylic fibers and
fiber intermediates, Saflex(R) plastic interlayer, phosphorus derivatives, and
specialty chemicals. These materials are used by customers to make consumer,
household, automotive, and industrial products. Unless otherwise indicated by
the context, "Solutia" means Solutia Inc. and consolidated subsidiaries, and
the "Company" means Solutia Inc. only.

    Solutia's strategic focus is built on four key technology strengths: polymer
chemistry, phosphorus chemistry, fiber technology, and process engineering
expertise. These technologies are used in various combinations to create
value-added products in three operating segments:

    * CHEMICALS--comprised of the Intermediates, Phosphorus Derivatives and
      Industrial Products business units;

    * FIBERS--comprised of the Carpet Fibers, Nylon Industrial Fibers and
      Acrilan(R) Acrylic Fibers business units; and

    * POLYMERS & RESINS--comprised of the Saflex(R) Plastic Interlayer, Nylon
      Plastics & Polymers, Resins and Polymer Modifiers business units.

    To compete effectively in its markets, Solutia is implementing a strategy
which emphasizes the following key elements:

    CORE PRODUCTS AND TECHNOLOGIES: Solutia is focusing on its core products and
technologies throughout its ten business units. Solutia will continue to invest
in manufacturing technology, product research and technical and marketing
support in order to continually improve its cost and quality positions as well
as its applications support and technical service.

    AGGRESSIVE COST CONTROLS AND FOCUS ON PROFITABILITY: Over the past several
years, Solutia has restructured its product portfolio to exit underperforming
businesses. Solutia believes that additional expense reductions can be achieved
in manufacturing and administrative functions.

    SELECTED GROWTH INITIATIVES: Solutia intends to develop the growth potential
of its core chemistries and technologies through targeted new product
introductions, innovations in related fields and selective expansions of its
presence in international markets.

    PERFORMANCE INCENTIVES: Solutia is providing incentives for employees to
increase cash flow, earnings per share and stockholder value.

    The Company was incorporated in Delaware in April 1997 as a wholly-owned
subsidiary of Monsanto Company ("Monsanto"). On or prior to September 1, 1997,
the businesses that form Solutia, which previously

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were wholly owned by Monsanto, were transferred to Solutia. On September 1, 1997
(the "Distribution Date"), Monsanto distributed all of the outstanding shares
of common stock of the Company as a dividend to Monsanto stockholders (the
"Spinoff"). The distribution resulted in the issuance of one share of Solutia
common stock for every five shares of Monsanto common stock held of record as of
August 20, 1997. As a result of the Spinoff, on September 1, 1997, Solutia
became an independent publicly-held company listed on the New York Stock
Exchange, and its operations ceased to be owned by Monsanto. Monsanto and
Solutia entered into a number of agreements (the "Distribution Agreement")
with respect to the separation of the companies and to provide mechanisms for an
orderly transition following the Spinoff.

DESCRIPTION OF PRINCIPAL PRODUCTS AND COMPETITIVE SITUATION

    Set forth below are descriptions of the products in each of Solutia's three
segments: Chemicals, Fibers and Polymers & Resins.

    The tabular and narrative information contained in Note 18 of "Notes to
Consolidated Financial Statements" appearing on pages 42 through 43 of the 1997
Annual Report is incorporated herein by reference.

CHEMICALS SEGMENT

  INDUSTRIAL PRODUCTS

    Solutia is a leading manufacturer of specialty industrial fluids and
lubricants. Its products are widely recognized in their market segments for high
performance characteristics which result from proprietary formulations.
Substantially all of the products in this business unit are trademarked, and
include the following brands: Skydrol(R) hydraulic fluids for aviation;
Therminol(R) heat transfer fluids; SkyKleen(TM) aviation solvent; Dequest(R)
water treatment chemicals; and Glacier Metalworking Fluids.(TM)

    The Skydrol(R) product line includes fire-resistant hydraulic fluids which
are used in more than half of the world's commercial aircraft. A new product,
Skydrol(R) 5, was introduced in 1996. It offers a range of enhanced performance
characteristics, such as improved thermal stability and reduced weight. The
Skydrol(R) brand's major competitor is manufactured by Exxon Corporation
("Exxon").

    Therminol(R) heat transfer fluids are leaders in the worldwide high
temperature liquid phase market. These products, used in various types of
capital equipment, are known for remaining thermally stable at high temperatures
and for their low temperature pumping characteristics. Competitors include The
Dow Chemical Company and Nippon Steel Chemical Co., Ltd.

    SkyKleen(TM) aviation solvents are used for their cleaning performance in
the assembly of aircraft, original equipment manufacture and repair for both
commercial and military markets. SkyKleen(TM) helps reduce volatile organic
compound emissions in maintenance shops and parts cleaning operations where
volatile solvents like methyl ethyl ketone currently are used. Additional
characteristics of this clear liquid include biodegradability, low odor,
non-ozone depletion and improved worker safety.

    Dequest(R) water treatment chemicals are used to solve problems in a number
of heavy and light industrial applications. These products offer functional
properties such as sequestration, scale inhibition and corrosion control.
Competing products are marketed by Albright & Wilson plc ("Albright & Wilson")
and Bayer Corporation ("Bayer").

    Launched in 1996, Glacier Metalworking Fluids(TM) are the industry's first
protein-based fluids designed for machining operations such as grinding,
drilling and threading. The fluids are biodegradable and practically
non-toxic.

    Solutia's specialty industrial fluids are sold throughout the world, with no
single customer accounting for a significant level of sales.

    Industrial Products expects to develop new opportunities in its niche
markets by continuing to develop and introduce new products such as Glacier
Metalworking Fluids(TM) and by pursuing sales in additional geographic areas
such as Asia and Latin America. A joint venture with Jiangsu Chemical Pesticide
Group in Suzhou, China, manufactures Therminol(R) heat transfer fluids.

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    Industrial Products relies on a number of raw materials such as benzene and
phenol, most of which are purchased from a number of suppliers.

  INTERMEDIATES

    Intermediates manufactures more than three dozen "building block"
chemicals which are used by Solutia and other companies to make a wide variety
of finished products. Intermediates' product lines include nylon intermediates,
sold to a number of fibers and plastics manufacturers worldwide; chlorobenzenes,
used in applications such as rubber chemicals, pigments, antioxidants,
herbicides, solvents and resins; and other intermediates which are used to
produce fertilizers, detergents and animal feed supplements.

    Intermediates relies on aggressive cost control, exceptional product
quality, world-class manufacturing scale and proprietary manufacturing
technology to drive its competitive success. Its strategy is to support the
competitiveness of other Solutia products by achieving the low-cost position on
their critical "building block" chemicals and to pursue profitable external
sales of these products. Intermediates has achieved a leading position in nylon
intermediates through a combination of proprietary technology and scale.

    Intermediates obtains its key raw materials, including natural gas,
cyclohexane, propylene, benzene and chlorine, from a number of suppliers.

    To meet internal demand and address external sales opportunities,
Intermediates is planning an expansion of its acrylonitrile manufacturing
capacity, which is expected to reduce its manufacturing costs. See "Item 2.
PROPERTIES."

    The majority of the production of Intermediates is used internally, with
most of the external sales made to a limited number of customers. In some
product lines, external sales are dependent on a major customer. However, in
each of these cases, sales to internal customers account for the majority of the
business unit's production capacity.

    Competitors vary by product line and by world region and include Asahi
Chemical Industry Co., Ltd., E.I. du Pont de Nemours and Company ("DuPont"),
BASF AG ("BASF") and Rhodia, the chemicals subsidiary of Rhone-Poulenc S.A.
("Rhodia").

  PHOSPHORUS DERIVATIVES

    Solutia has developed an extensive franchise in phosphorus chemistry and is
recognized as a world leader in developing and marketing applications for
phosphorus chemistry. Solutia is a low-cost producer of phosphorus-based
chemicals, and most of its product technologies are proprietary. It also has a
joint venture in Brazil using purified wet acid technology to produce many of
these products. Solutia manufactures products for a wide range of industries:

    FOOD AND BEVERAGE. Its phosphates are used in many food products to improve
texture, appearance and flavor. Branded products include Levn-Lite(R),
Pan-O-Lite(R) and Leverage(R) brand leavening agents, used in baking;
Nutrifos(R) sodium tripolyphosphate, used in meat and poultry processing; and
Katch(TM) phosphate, used to extend the shelf life of fish products.

    PERSONAL CARE PRODUCTS. Major toothpaste manufacturers around the world rely
on Solutia's oral care phosphates to improve the performance of their products.
Solutia has been a leader in the development of dentifrice agents which are used
to control tartar and to polish and whiten teeth.

    SPECIALTY CHEMICALS. Solutia manufactures a number of phosphorus-based
intermediates which serve as key ingredients in oil additives, pesticides and
mining chemicals. Solutia also offers high-purity phosphoric acid, used as a
building block in the manufacture of high-purity phosphate salts.

    INDUSTRIAL CLEANERS AND FIRE RETARDANTS. Solutia provides specialized
cleaning ingredients for commercial laundries, restaurant and hospital
dishwashing systems and vehicle wash facilities. Solutia also makes and sells
Phos-Chek(R) fire fighting agent, used in aerial spraying to control forest
fires and wildfires.

    ELEMENTAL PHOSPHORUS. Solutia also offers for sale elemental phosphorus
sourced from the Company's P4 joint venture with Monsanto.

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    The primary competitors for Phosphorus Derivatives are FMC Corporation,
Albright & Wilson and Rhodia. The business unit's primary raw material is
elemental phosphorus, which is mined and processed in Soda Springs, Idaho, at
facilities which are jointly owned by the Company and Monsanto through the P4
joint venture. See "Principal Equity Affiliates."

FIBERS SEGMENT

  ACRILAN(R) ACRYLIC FIBERS

    Solutia is the largest producer of acrylic fiber in North America. It
manufactures and markets a full line of commodity and specialty grades of this
fiber, which is used to make finished products such as apparel, craft yarns,
upholstery fabrics, and brake fibers.

    Solutia's Acrilan(R) trademark is widely recognized in the industry, as are
the following brand names which are used to identify products made with
Acrilan(R) acrylic fibers: Wear-Dated(R) upholstery; Duraspun(R) fibers; The
Smart Yarns(R) fibers (for socks); and Wintuk(R), Sayelle(R) and Bounce-Back(R)
fibers (for craft yarn).

    The principal competitor for acrylic fiber in North America is Sterling
Chemicals, Inc. Competitors worldwide include MonteFibre S.p.A. (Italy), AKSA
Akrilik Kimya Sanayii A.S. (Turkey), Courtalds plc (United Kingdom) and
Mitsubishi Chemicals Corporation (Japan). Acrylic fiber also competes against
other fibers such as cotton and polyester.

    The primary raw material for acrylic fiber is acrylonitrile, which is
produced internally by Intermediates and supplemented with external purchases.

    There are a variety of differentiated Acrilan(R) brand products, including
producer-colored fiber, pigmented UV resistant fibers, bi-component
Bounce-Back(R) fibers, Duraspun(R) abrasion-resistant fibers and technical
fibers used in friction applications, as well as precursor chemicals for carbon
fibers. These products--and the opportunity to develop sales in other parts of
the Western Hemisphere--represent the business unit's best opportunity for
growth. In addition, Solutia generates significant income from the licensing of
its proprietary wet spinning acrylic technology, primarily in Asian markets.

  CARPET FIBERS

    Solutia is the world's largest producer of nylon staple fiber and a major
supplier of nylon bulk continuous filament ("BCF") to the carpet industry in
North America. Its products are used by carpet mills in the residential market
(new construction and replacement), the contract market (offices, hotels,
restaurants, retail and institutions) and the rug market. Its product portfolio
includes nylon 6,6 staple, BCF and acrylic staple fibers--offering carpet mills
a wide range of performance and styling characteristics.

    Solutia's products are marketed under two of the industry's most respected
brand names: Wear-Dated(R) carpets for the residential market and Ultron(R) VIP
nylon for the contract or commercial market. The Wear-Dated(R) brand is widely
recognized by consumers in North America for its guarantee of the finished
carpet's outstanding quality and exceptional performance.

    Competitive success is determined by different factors in different segments
of the market. Overall, Carpet Fibers benefits from vertical integration with
Intermediates. In the residential segment, branded products compete based on
technical advances and marketing programs, such as Solutia's warranty offered on
Wear-Dated(R) carpets, retailer sales incentives and similar activities.

    In contract markets, the basis for competition is product performance and
downstream marketing programs. The Ultron(R) VIP nylon brand offers carpet
makers an innovative mix of fiber shapes and sizes that are specifically
engineered for features such as soil-hiding ability and extra bulk and cover.
Carpet Fibers works closely with the building design community to develop new
products which address the contract market's needs. It also sells Ultron(R) SD
Solution-Dyed nylon 6,6, which offers superior colorfastness and protection
against harsh chemicals, bacterial growth and stains.

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    Solutia is introducing Dyenamix(TM) technology, a substantially improved
fiber system which permits rich, deep colors and enhances the print clarity of
carpets. This proprietary technology is environmentally friendly, while also
allowing carpet mills to achieve higher efficiencies and lower dye costs.

    The principal competitors for nylon carpet fiber in the United States are
DuPont, AlliedSignal Inc. ("AlliedSignal") and BASF. Solutia and AlliedSignal
offer both nylon staple and BCF products, while DuPont and BASF are primarily
BCF suppliers. Solutia owns and operates the world's largest integrated nylon
manufacturing plant in Pensacola, Florida.

    A majority of Carpet Fibers' sales are generated by a few major customers in
the carpet mill industry.

    Carpet Fibers receives almost all of its major raw materials from
Intermediates.

  NYLON INDUSTRIAL FIBERS

    Solutia makes and supplies a complete line of industrial-strength nylon 6,6
fibers to a variety of manufacturing customers. Nylon Industrial Fibers' product
line features continuous filament nylon 6,6 yarns in thickness ranging from 60
to 2000 deniers. Heavier yarns are used for applications such as bias tires for
earth movers, NASA space shuttles, aircraft and trucks; mining conveyor belts;
ropes; and cargo slings. Lighter weight yarns are used to make backpacks,
ribbons, sewing threads and dental floss. Cost per unit of performance, service
(including the ability to tailor the properties of yarns for use in specific
applications) and breadth of product line are the major drivers of success in
the industrial fibers market. Solutia has built a strong presence in the bias
tire and other heavy-denier segments and in industrial sewing threads. Sales to
five major tire companies account for about 50% of total Nylon Industrial Fibers
volume.

    Solutia recently increased spinning capacity with enhanced spinning
technology at its Greenwood, South Carolina plant. This project used proprietary
technology (licensed from Toray Industries Inc. ("Toray")) to improve product
quality, enhance yarn performance and tenacity and enable Solutia to achieve a
low-cost position in key segments of the market, including automotive airbags
and high performance tires.

    Nylon Industrial Fibers receives almost all of its major raw materials from
Intermediates. Competitors in the United States include DuPont (the market
leader) and AlliedSignal.

POLYMERS & RESINS SEGMENT

  NYLON PLASTICS & POLYMERS

    Solutia manufactures and markets a line of Vydyne(R) nylon 6,6 molding
resins and extrusion polymers and nylon 6,6 polymers for fiber applications.
Vydyne(R) nylon gives plastics molders the ability to provide their products
with enhanced performance characteristics, such as heat resistance, chemical
resistance and toughness. Vydyne(R) nylon molding resins are used in
under-the-hood automotive components, electrical connectors for telephone
systems and computers, medical devices and similar applications.

    Product performance, technical service, vertical integration and breadth of
product line are the major drivers of success in this market. Nylon Plastics &
Polymers relies on nylon 6,6 salt as its primary raw material. This material is
produced internally by Intermediates. The business unit's primary competitors
are DuPont and the Hoechst Group.

  POLYMER MODIFIERS

    Solutia manufactures and markets a line of polymer modifiers and specialty
plasticizers which are used to improve the performance of flooring products,
sealants, caulks, adhesives and other goods. Unit brands include Santicizer(R)
polymer modifiers and plasticizers, and Santotac MRS(R), a flooring additive.

    Polymer Modifiers is focused on specialty applications, in which technical
expertise and processing knowledge can be used to help customers obtain valuable
performance attributes in their products (such as flexibility, mar/scratch
resistance, stain resistance, enhanced gloss and flame retardance). Competitors
vary by product line and include Bayer and Akzo Nobel N.V. ("Akzo Nobel").

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    Polymer Modifiers obtains its key raw materials from U.S. and European
markets. New products (such as Santotac MRS(R) additives) and geographic
expansion (particularly into central Europe and Asia) are expected to be the
primary drivers of growth.

  RESINS

    This business unit manufactures and markets a line of specialty resins which
are used in the manufacture of products such as thermoset paints and coatings,
pressure sensitive adhesives, paper coatings and plastic products, among others.
Brands include Resimene(R) amino crosslinkers, Gelva(R) pressure sensitive
adhesives, Santosol(R) solvents, Scripset(R) resins for paper sizing, Butvar(R)
specialty binders, Modaflow(R) flow and leveling agents, Clear Pass(R) spray
control systems and other fabricated products.

    Resins provides technical expertise to help customers obtain value-added
performance characteristics. Major competitors vary by product line and include
Cytec Industries, Inc. (coatings and surface size); National Starch and Chemical
Co. and Ashland Inc. (solution acrylic adhesives); Rohm and Haas Company and Air
Products and Chemicals, Inc. (emulsion water-based adhesives); and DuPont
(solvents which have improved environmental characteristics).

    Resins relies on a number of commodity chemicals as raw materials, all of
which are readily available. New products (such as di-methyl esters, a solvent
with improved environmental characteristics) and geographic expansion
(particularly into Europe, Latin America and Asia) are expected to be the
primary drivers of growth.

  SAFLEX(R) PLASTIC INTERLAYER

    Solutia is the world's largest producer of polyvinyl butyral ("PVB"), a
plastic interlayer used in the manufacture of laminated glass for automotive and
architectural applications. The business unit's product is marketed under the
Saflex(R), Saflex SV(R) (superior value) and KeepSafe(R) (for residential
security windows) trademarks. In 1997, Saflex(R) Plastic Interlayer began
commercializing a patented, reformulated product which is designed to provide
superior processing and application performance. Continued business development
will be driven by the introduction of the reformulated PVB product, by increased
penetration of geographic markets (especially Asia) and by the creation of new
primary demand for PVB in laminated glass worldwide. A Saflex(R) interlayer
finishing plant began operation in Singapore in early 1998.

    Six customers account for 65% to 70% of total sales of Saflex(R) products
worldwide. Saflex(R) Plastic Interlayer relies on vinyl acetate monomer,
polyvinyl alcohol and butanol as raw materials, all of which are readily
available in the U.S. and European markets. Sales volumes are influenced by
shifts in automotive production and commercial building construction, which are
cyclical businesses. The principal competitor in the manufacture of PVB is
DuPont.

PRINCIPAL EQUITY AFFILIATES

    Solutia participates in a number of joint ventures in which it shares
management control with other companies. Solutia's equity earnings from
affiliates were $31 million, $21 million and $15 million in 1997, 1996 and 1995,
respectively. Principal joint ventures include Flexsys, L.P. ("Flexsys"),
Advanced Elastomer Systems, L.P. ("A.E.S.") and the P4 joint venture.

    The Flexsys joint venture, headquartered in Belgium, is the world's leading
supplier of process chemicals to the rubber industry. Its product line includes
a number of branded accelerators (Santocure(R), Thiofide(R), Thiotax(R)),
pre-vulcanization inhibitors (Santogard(R)), antidegradants and antioxidants
(Flectol(R), Santowhite(R)), and insoluble sulphur (Crystex(R)). Flexsys is a
50/50 joint venture between the Company and Akzo Nobel.

    A.E.S., headquartered in the United States, produces and sells thermoplastic
elastomers--materials that combine the processability of thermoplastic and the
functional performance of thermoset rubber products. The joint venture's product
lines include Santoprene(R) thermoplastic rubber and Vistaflex(R) thermoplastic
elastomer. A.E.S. is a 50/50 joint venture between Solutia and Exxon.

    The P4 joint venture was formed in conjunction with the Spinoff. Monsanto
formed this venture for the mining of phosphate rock and the production of
elemental phosphorus and contributed a 40% interest in the

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venture to Solutia, retaining the remaining 60% interest, thereby forming
the P4 joint venture. The elemental phosphorus production facilities are located
at Soda Springs, Idaho, and are operated by Solutia under an operating agreement
with the P4 joint venture. The elemental phosphorus produced by the P4 joint
venture is sold to both Monsanto and Solutia generally at cost with certain
adjustments to reflect ownership. Monsanto has priority for a certain percentage
of the production volume. Monsanto uses the elemental phosphorus as a raw
material in the manufacture of herbicides (including Monsanto's Roundup(R)
brand). Solutia uses the elemental phosphorus as a raw material in the
manufacture of phosphorus derivatives, which Solutia then sells, and it sells
the elemental phosphorus to other users. In the event of a change of control of
Solutia or the sale of the phosphorus derivative business (including Solutia's
interest in the P4 joint venture), Monsanto has an option to acquire Solutia's
interest in the P4 joint venture at the then book value. Monsanto is paying
Solutia an annual fee in consideration of this option.

SALE OF PRODUCTS

    Solutia's products are sold directly to end users in various industries, and
to wholesalers, principally by Solutia's own sales force. Solutia's marketing
and distribution practices do not result in unusual working capital requirements
on a consolidated basis. Inventories of finished goods, goods in process and raw
materials are maintained to meet customer requirements and Solutia's scheduled
production. In general, Solutia does not manufacture its products against a
backlog of firm orders; production is geared to the level of incoming orders and
to projections of future demand. Solutia generally is not dependent upon one or
a group of customers, and it has no material contracts with the government of
the United States, or any U.S., state or local, or foreign government. In
general, Solutia's sales are not subject to seasonality.

RAW MATERIALS AND ENERGY RESOURCES

    Solutia is a significant purchaser of basic, commodity raw materials,
including propylene, cyclohexane, benzene and natural gas. Major requirements
for key raw materials and fuels are typically purchased pursuant to long-term
contracts. Solutia is not dependent on any one supplier for a material amount of
its raw materials or fuel requirements, but certain important raw materials are
obtained from a few major suppliers. In general, where Solutia has limited
sources of raw materials, it has developed contingency plans to minimize the
effect of any interruption or reduction in supply. Information regarding
specific raw materials is provided under "Description of Principal Products and
Competitive Situation."

    While temporary shortages of raw materials and fuels may occasionally occur,
these items are generally sufficiently available to cover current and projected
requirements. However, their continuing availability and price are subject to
unscheduled plant interruptions occurring during periods of high demand, or due
to domestic and world market and political conditions, as well as to the direct
or indirect effect of U.S. and other countries' government regulations. The
impact of any future raw material and energy shortages on Solutia's business as
a whole or in specific world areas cannot be accurately predicted. Operations
and products may, at times, be adversely affected by legislation, shortages or
international or domestic events.

PATENTS AND TRADEMARKS

    Solutia owns a large number of patents which relate to a wide variety of
products and processes, has pending a substantial number of patent applications,
and is licensed under a small number of patents owned by others. Solutia owns a
considerable number of established trademarks in many countries under which it
markets its products. Such patents and trademarks in the aggregate are of
material importance in the operations of Solutia and to each of its Chemicals,
Fibers, and Polymers & Resins segments.

COMPETITION

    Solutia encounters substantial competition with respect to each of its
product lines. This competition, from other manufacturers of the same products
and from manufacturers of different products designed for the same uses, is
expected to continue in both U.S. and ex-U.S. markets. Depending on the product
involved, various types of competition are encountered, including price,
delivery, service, performance, product innovation, product recognition and
quality. Overall, Solutia regards its principal product groups to be competitive
with


                                       7
<PAGE> 9

many other products of other producers and believes that it is an important
producer of many such product groups. For information regarding competition in
specific markets, see "Description of Principal Products and Competitive
Situation."

RESEARCH AND DEVELOPMENT

    Research and development constitute an important part of Solutia's
activities. In recent years, Solutia's research and development expenses
amounted to approximately 2.4% of sales on average, or $60 million, $81 million
and $77 million in 1997, 1996 and 1995, respectively. Solutia focuses its
research and development expenditures on process improvements and select product
development.

    Solutia actively pursues technologies from around the world that are
expected to bring value to its business. Recent examples include new technology
for converting benzene to phenol, which was licensed from Boreskov Institute of
Catalysis in Russia, and which Solutia is actively seeking to license to third
parties; and nylon industrial spinning technology, licensed from Toray in Japan.
Solutia is actively licensing technologies to other firms, such as acrylic fiber
spinning, acrylonitrile manufacturing and others.

ENVIRONMENTAL MATTERS

    The narrative information appearing under "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Environmental
Matters" on pages 23 through 25 of the 1997 Annual Report is incorporated
herein by reference.

EMPLOYEE RELATIONS

    As of December 31, 1997, Solutia had approximately 8,800 employees
worldwide. Satisfactory relations have prevailed between Solutia and its
employees. Solutia uses self-directed work teams, incentive programs and other
initiatives to keep employees actively involved in the success of the business.
Substantially all of Solutia's employees have options to purchase Company Common
Stock. Approximately 20% of Solutia's workforce is represented by various labor
unions.

INTERNATIONAL OPERATIONS

    Solutia and affiliated companies are engaged in manufacturing, sales and
research and development in areas outside the United States, including Europe,
Canada, Latin America and Asia. Approximately one-third of Solutia's overall
1997 sales were made into markets outside the United States. Operations outside
the United States are potentially subject to a number of risks and limitations
which are not present in domestic operations, including fluctuations in currency
values, trade restrictions, investment regulations, governmental instability and
other potentially detrimental governmental practices or policies affecting
companies doing business abroad. Solutia's Chemicals and Polymers & Resins
segments are particularly dependent upon their international operations.
Approximately one-third and one-half of their 1997 sales, respectively, were
made into markets outside of the United States.

ITEM 2. PROPERTIES.

    The general offices of the Company are located in St. Louis County, Missouri
in premises leased from Monsanto. Solutia also has research laboratories,
research centers and manufacturing locations worldwide. In addition to the
general offices, Solutia has the following principal facilities all of which are
owned:

<TABLE>
<CAPTION>

Plant Site                           Business Units Served
----------                           ---------------------
<S>                                  <C>
Anniston, Alabama..................  Industrial Products

Augusta, Georgia...................  Phosphorus Derivatives

Carondelet (St. Louis, Missouri)...  Phosphorus Derivatives

Chocolate Bayou (Alvin, Texas).....  Industrial Products, Intermediates

Decatur, Alabama...................  Acrilan(R) Acrylic Fiber, Intermediates, Research Center

                                       8
<PAGE> 10

<CAPTION>

Plant Site                           Business Units Served
----------                           ---------------------
<S>                                  <C>
Delaware River (Bridgeport, New
  Jersey)..........................  Industrial Products, Intermediates, Polymer Modifiers

Foley, Alabama.....................  Carpet Fibers, Nylon Plastics & Polymers

Ghent, Belgium.....................  Resins, Saflex(R) Plastic Interlayer

Greenwood, South Carolina..........  Carpet Fibers, Nylon Industrial Fibers, Intermediates, Nylon
                                     Plastics & Polymers

Indian Orchard (Springfield,
  Massachusetts)...................  Research Center, Resins, Saflex(R) Plastic Interlayer

Krummrich (Sauget, Illinois).......  Intermediates, Phosphorus Derivatives

LaSalle, Canada....................  Polymer Modifiers, Resins

Newport, Wales (U.K.)..............  Industrial Products, Polymer Modifiers, Resins

Pensacola, Florida.................  Carpet Fibers, Nylon Industrial Fibers, Intermediates, Nylon
                                     Plastics & Polymers, Research Center

Queeny (St. Louis, Missouri).......  Industrial Products, Polymer Modifiers, Resins

Trenton, Michigan..................  Phosphorus Derivatives, Resins, Saflex(R) Plastic Interlayer

Westport (St. Louis, Missouri).....  Resins
</TABLE>

    Solutia also owns certain buildings and production equipment, and leases the
underlying real estate, used to produce products for the indicated business
units at the following Monsanto sites:

<TABLE>
<CAPTION>

Plant Site                                                       Business Units Served
----------                                                       ---------------------
<S>                                                              <C>
Antwerp, Belgium...............................................  Industrial Products, Polymer Modifiers, Saflex(R) Plastic
                                                                 Interlayer

Luling, Louisiana..............................................  Intermediates

Sao Jose dos Campos, Brazil....................................  Industrial Products, Phosphorus Derivatives, Saflex(R) Plastic
                                                                 Interlayer
</TABLE>

    Monsanto and Solutia have entered into certain operating agreements,
including master operating agreements (the "Operating Agreements") with
respect to each of the three facilities listed above and Chocolate Bayou in
Alvin, Texas. Under these Operating Agreements, Solutia is the guest (the
"Guest") and Monsanto is the operator (the "Operator") at all of the
facilities except the Chocolate Bayou facility, at which Monsanto is the Guest
and Solutia is the Operator. Pursuant to each of the Operating Agreements, the
Operator, as an independent contractor, provides, or arranges for the provision
of, such production, utility and certain ancillary services as are reasonably
necessary or required for the Guest's production operations at the facility, and
the Operator leases to the Guest the real property at the facility that is used
in connection with the Guest's production operations. The Guest is required to
pay all direct and indirect costs incurred by the Operator in the performance or
supply of such services, plus an agreed upon return on the net capital employed
in connection with the respective Operating Agreement. The Guest owns the
production assets related to its operations at the facility.

    Unless terminated earlier by either party thereto in accordance with the
terms of the Operating Agreements, the initial term of each of the Operating
Agreements is 20 years. After the initial term, the Operating Agreements
continue indefinitely unless and until terminated by either party upon at least
24 months' prior written notice. Each of the Operating Agreements also provides
that, under certain circumstances, either the Operator or the Guest may
terminate the Operating Agreement prior to the expiration of its initial term.

    The Operating Agreements contain provisions requiring the Guest to indemnify
the Operator for all losses (other than environmental liabilities) arising out
of the operation of the facility or the provision of services, except to the
extent that such losses are caused by the Operator's willful misconduct or
fraud. The Operating Agreements also apportion certain environmental
liabilities.

                                       9
<PAGE> 11

    Solutia operates several facilities for third parties in addition to
Monsanto, principally within the Chocolate Bayou, Krummrich and Pensacola sites,
under long-term lease and operating agreements.

    Solutia's principal plants are suitable and adequate for their use.
Utilization of these facilities may vary with seasonal, economic and other
business conditions, but none of the principal plants is substantially idle. The
facilities generally have sufficient capacity for existing needs and expected
near-term growth.

    Solutia plans to undertake four large construction projects during 1998 and
1999 for expansion in its Intermediates unit. These construction projects
include a world-scale acrylonitrile production facility at Chocolate Bayou which
employs Solutia's proprietary catalyst system and is expected to be capable of
producing in excess of 500 million pounds annually. Solutia has agreements with
customers who will participate in this project including Bayer, Novus
International Inc., and a leading Japanese chemical company. The other projects
include two projects at the Pensacola, Florida site to produce intermediates in
the nylon manufacturing process, one a phenol production facility and the other
a phenol processing facility; and an adiponitrile production facility at the
Decatur, Alabama site. These projects will require the Company to manage more
engineering and construction activity than it has had to supervise in recent
years.

    Solutia is an active participant in the safety and health Voluntary
Protection Program ("VPP") administered by OSHA for sites in the U.S., and
implemented by Solutia for sites outside the U.S. Currently, 10 Solutia sites in
the U.S. qualify for the VPP "Star" designation, a rating designating full
compliance, and two European sites have achieved similar standards under
comparable local programs.

ITEM 3. LEGAL PROCEEDINGS.

    At the time of the Spinoff, the Company assumed from Monsanto, pursuant to
the Distribution Agreement, liabilities related to specified legal proceedings.
As a result, although Monsanto remains the named defendant, the Company will
manage the litigation and indemnify Monsanto for costs, expenses and judgments
arising from such litigation. Most of these proceedings have arisen in the
ordinary course of business and involve claims for money damages. While the
results of litigation cannot be predicted with certainty, Solutia does not
believe these matters or their ultimate disposition will have a material adverse
effect on Solutia's combined financial position, profitability or liquidity in
any one year, as applicable. The following describes certain proceedings to
which Monsanto is a party and for which the Company assumed any liabilities as
of the Distribution Date pursuant to the Distribution Agreement.

    On April 12, 1985, Monsanto was named as a defendant in Alanis et al. v.
Farm & Home Savings, et al., filed in the District Court in Harris County,
Texas, the first of a number of lawsuits in which plaintiffs claim injuries
resulting from alleged exposure to substances present at or emanating from the
Brio Superfund site near Houston, Texas. Monsanto is one of a number of
companies that has sold materials to the chemical reprocessor at that site.
Currently pending are the following matters: (1) Monsanto is one of a number of
defendants in five cases brought in Harris County District Court or the United
States District Court for the Southern District of Texas on behalf of 131
plaintiffs who owned homes or lived in subdivisions near the Brio site, attended
school near the site or used nearby recreational baseball fields. Plaintiffs
claim to have suffered various personal injuries and fear future disease; they
assert the need for medical monitoring, and, in the case of the homeowners,
claim property damage. In addition to their claims of personal injury, four
plaintiffs in one of these cases allege business losses. Plaintiffs seek
compensatory and punitive damages in an unspecified amount. Plaintiffs in one
additional case brought on behalf of 20 individuals who owned property along
Clear Creek downstream from the Brio site have agreed to settle their claims
against Monsanto for $150,000. (2) Monsanto is one of a number of defendants in
two actions brought in Harris County District Court and one action brought in
Galveston County District Court on behalf of 429 plaintiffs, who are former
employees of the owners/operators of the Brio site, and members of the
employees' families or persons who worked near the Brio site. Plaintiffs in one
of these actions also owned homes or lived in subdivisions near the site,
attended schools near the site or used nearby recreational ball fields.
Plaintiffs claim physical and emotional injury and seek compensatory and
punitive damages in an unspecified amount. The Company believes that there are
meritorious defenses to all of these lawsuits including lack of proximate cause,
lack of negligent or other improper conduct on the part of Monsanto, and
negligence of plaintiffs (or their parents) and/or of builders and developers of
the Southbend subdivision. These actions are being vigorously defended.

    On November 15, 1993, Monsanto was named as a defendant in Dyer et al. v.
Monsanto Company, et al., filed in the Circuit Court in St. Clair County,
Alabama, the first of a number of lawsuits in which plaintiffs claim

                                       10
<PAGE> 12

to have sustained personal injuries or property damage as a result of the
discharge of hazardous substances, including polychlorinated biphenyls
("PCBs"), from its Anniston, Alabama, plant site. The following matters are
currently pending: (1) Monsanto is a defendant in a case pending in Circuit
Court in St. Clair County, Alabama which has been certified as a class action on
behalf of all property owners in a specified area along waterways near the
plant. Monsanto is a defendant in an additional action filed in Circuit Court in
Shelby County, Alabama on behalf of a purported class of property owners farther
downstream along this waterway. Plaintiffs in both actions claim loss in the
value of their property. Plaintiffs in the Shelby County action additionally
claim increased risk of illness, emotional distress and the need for medical
monitoring. Plaintiffs seek compensatory and punitive damages in an unspecified
amount. (2) Monsanto is a defendant in 12 additional cases brought in Circuit
Court in Calhoun County, Circuit Court in St. Clair County, Circuit Court in
Taladega County or in U.S. District Court in the Northern District of Alabama on
behalf of 2,580 individual plaintiffs who own or rent homes or own or operate
businesses near the plant or along waterways near the plant or who attend
churches near the plant. An additional case has been filed in Circuit Court in
Calhoun County by one of the churches near the plant. The individual plaintiffs
claim to have suffered various personal injuries and fear future disease; they
assert the need for medical monitoring and claim to have suffered loss in the
value of their property or commercial injury. They seek compensatory and
punitive damages of $3 million or in unspecified amounts for each individual,
and $20 million for the church. (3) Monsanto was a defendant in an action
brought in U.S. District Court in the Northern District of Alabama pursuant to
the Resource Conservation and Recovery Act Section 7002(a) (1) (B) on behalf of
four individuals who are plaintiffs in one of the suits pending in Circuit Court
in Calhoun County. Plaintiffs sought an order enjoining Monsanto from continuing
to handle improperly hazardous waste from the Anniston plant, directing Monsanto
immediately to remove all PCBs released from the plant and granting plaintiffs
their costs of suit, including attorney and expert witness fees. On February 13,
1998, the Court granted plaintiffs' motion to dismiss the case without prejudice
to its refiling at a later date. The Company believes that there are meritorious
defenses to all these matters, including lack of any physical injury or property
damage to plaintiffs, lack of any imminent or substantial endangerment to health
or the environment and lack of negligence or improper conduct on Monsanto's
part. These actions are being vigorously defended.

    During the fourth quarter of 1997, the Florida Department of Environmental
Protection ("FDEP") and the Company began discussions related to allegations
of violations of state air pollution standards and air permits. The alleged
violations related to operations at the Company's facility located in Pensacola,
Florida. Without admitting the allegations, the Company negotiated an
administrative consent order with the FDEP. The Company has agreed to pay an
administrative penalty of $207,375 to the FDEP and to perform certain corrective
actions at the facility.

RISK MANAGEMENT

    Solutia has evaluated risk retention and insurance levels for product
liability, property damage and other potential areas of risk. Solutia will
continue to devote significant effort to maintaining and improving safety and
internal control programs, which reduce its exposure to certain risks.
Management decides the amount of insurance coverage to purchase from
unaffiliated companies and the appropriate amount of risk to retain based on the
cost and availability of insurance and the likelihood of a loss. Management
believes that the levels of risk retention which it has implemented are
consistent with those of other companies in the chemical industry. There can be
no assurance that Solutia will not incur losses beyond the limits, or outside
the coverage, of its insurance. Solutia's combined financial position,
profitability and liquidity are not expected to be affected materially by the
levels of risk retention that it accepts.

    Under the Distribution Agreement, Solutia is entitled to the benefit of
liability insurance coverage under certain Monsanto policies, to the extent such
coverage existed and coverage limits are not exhausted, for claims for which it
is assuming responsibility. Such insurance coverage generally will be shared
with Monsanto for other liabilities existing prior to the Distribution Date
which Monsanto has retained, on an as available basis, without allocation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

    No matters were submitted to the security holders during the fourth quarter
of 1997.

                                       11
<PAGE> 13
                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

    The narrative and tabular information regarding the market for the Company's
common equity and related stockholder matters appearing under "Financial
Summary" on page 45 and "Shareholder Information--Stock Listing" on the
inside back cover of the 1997 Annual Report is incorporated herein by reference.

    As reported in the Company's Form 10-Q for the period ending September 30,
1997, the Company filed a Registration Statement on Form S-1, File No. 333-36355
(the "Registration Statement"), to register certain debt securities (the
"Debt Securities"). The Securities and Exchange Commission declared the
Registration Statement, as amended, effective on October 15, 1997. The Company
estimates that its total expenses incurred in connection with the issuance and
distribution of the Debt Securities were $5,368,338, of which $4,462,000 was for
underwriting commissions and $906,338 was for other offering expenses, including
legal, printing and filing fees. None of the expenses involved payments to
directors or officers of the Company, persons owning more than 10 percent of any
class of equity securities of the Company, or affiliates of the Company
(collectively, "Affiliates"). Of the $906,338 in other expenses incurred,
$511,838 were actual expenses and $394,500 are estimated expenses. All of the
Company's net proceeds from the issuance of the Debt Securities, after deducting
the actual and estimated expenses set forth above, were used to refinance
existing debt. None of the proceeds were paid to Affiliates.

ITEM 6. SELECTED FINANCIAL DATA.

    The tabular information under "Financial Summary" appearing on page 45 of
the 1997 Annual Report, is incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

    The information appearing under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 20 through 26 of the
1997 Annual Report is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

    The information appearing under "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Derivative Financial
Instruments" on page 26 of the 1997 Annual Report is incorporated herein by
reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

    The consolidated financial statements of Solutia appearing on pages 27
through 43; the Report of Independent Auditors' Opinion appearing on page 19;
and the tabular and narrative information appearing under "Quarterly Data" on
page 44 of the 1997 Annual Report are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

    None.

                                       12
<PAGE> 14
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

    Information regarding directors and executive officers appearing under
"Election of Directors" on pages 3 through 6 of the Solutia Inc. Notice of
Annual Meeting and Proxy Statement (the "1998 Proxy Statement") dated March
11, 1998, is incorporated herein by reference. The following information
regarding Executive Officers of the Company on March 1, 1998, is included
pursuant to Instruction 3 of Item 401(b) of Regulation S-K:


<TABLE>
<CAPTION>
                                                                     Year
                                                                     First
                                                                   Became an
                               Present Position with               Executive
     Name-Age                       Registrant                      Officer    Other Business Experience since January 1, 1993
-----------------------------------------------------------------------------------------------------------------------------------

<S>                        <C>                                       <C>       <C>
Robert G. Potter, 58       Chairman, Chief Executive Officer         1997      Chief executive of chemical businesses of Monsanto
                           and Director                                        Company, 1986-1997. Executive Vice President of
                                                                               Monsanto, 1990-1997. Advisory Director of Monsanto,
                                                                               1986-1997.

Karl R. Barnickol, 56      Senior Vice President, General Counsel    1997      Associate General Counsel and Assistant Secretary of
                           and Secretary                                       Monsanto, 1985-1997.

Rodney L. Bishop, 57       Vice President and Treasurer              1997      General Auditor of Monsanto, 1993-1997. Assistant
                                                                               Controller of Monsanto, 1982-1993.

Dennis L. Cavner, 43       Vice President, Operations Excellence     1997      Director, Manufacturing, Saflex(R) Plastic
                                                                               Interlayer, of Monsanto, 1996-1997. Director,
                                                                               Manufacturing, Phosphorus and Derivatives, of
                                                                               Monsanto, 1995-1996. Plant Manager of Monsanto's
                                                                               Muscatine, Iowa facility, 1992-1995.

Robert A. Clausen, 53      Senior Vice President and Chief           1997      President, Monsanto Business Services, 1994-1997.
                           Financial Officer; Advisory Director                Vice President, Asset Management of Monsanto,
                                                                               1992-1994.

Sheila B. Feldman, 43      Vice President, Human Resources           1997      Director, Human Resources, Monsanto Business Services
                                                                               and Stewardship, 1995-1997. Director, Human
                                                                               Resources, The Chemical Group of Monsanto, 1993-1995.
                                                                               Manager, Human Resources Planning, The Chemical
                                                                               Group of Monsanto, 1991-1993.

G. Bruce Greer, Jr., 37    Vice President, Growth and Commercial     1997      Senior Director, Strategic Change, of Monsanto,
                           Development                                         1996-1997. Associate Manager and Principal of Gemini
                                                                               Consulting, a management consulting firm, 1992-1996.

Roger S. Hoard, 53         Vice President and Controller             1997      Senior Director, Finance, Monsanto Business Services,
                                                                               1995-1997. Controller, Fibers Division, The Chemical
                                                                               Group of Monsanto, 1990-1995.


                                       13
<PAGE> 15

<CAPTION>
                                                                     Year
                                                                     First
                                                                   Became an
                               Present Position with               Executive
     Name-Age                       Registrant                      Officer    Other Business Experience since January 1, 1993
-----------------------------------------------------------------------------------------------------------------------------------

<S>                        <C>                                       <C>       <C>
John C. Hunter III, 51     President, Chief Operating Officer        1997      President, Fibers Business Unit of Monsanto,
                           and Director                                        1995-1997. Vice President and General Manager, Fibers
                                                                               Division and Asia-Pacific, The Chemical Group of
                                                                               Monsanto, 1993-1995. Vice President and General
                                                                               Manager, Asia-Pacific, Monsanto Chemical Company,
                                                                               1989-1993.

Michael E. Miller, 56      Senior Vice President and Chief           1997      President, Specialty Products Business Unit of
                           Administrative Officer; Advisory                    Monsanto, 1995-1997. Group Vice President, Industrial
                           Director                                            Products of Monsanto, 1993-1995. Senior Vice
                                                                               President, Operations, The Chemical Group of
                                                                               Monsanto, 1993-1995. Corporate Vice President,
                                                                               Administration of Monsanto, 1989-1993.

O. Jerry Mullis, 55        Vice President, Growth and Commercial     1997      Director of Technology and MTS for Specialty Products
                           Development and Chief Technical Officer             Division, The Chemical Group of Monsanto, 1993-1997.
                                                                               Director of Technology, Fibers Division, The Chemical
                                                                               Group of Monsanto, 1991-1993.

</TABLE>

    The above listed individuals are elected to the offices set opposite their
names to hold office until their successors are duly elected and have qualified,
or until their earlier death, resignation or removal.

ITEM 11. EXECUTIVE COMPENSATION.

    Information appearing under "Compensation of Directors" on pages 7 and 8
and under "Compensation of Executive Officers" on pages 14 through 18 of the
1998 Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

    Information appearing under "Ownership of Company Common Stock" on pages 8
and 9 of the 1998 Proxy Statement is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

    None.

                                       14
<PAGE> 16
                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

    (a) Documents filed as part of this Report:

        1. The financial statements set forth at pages 27 through 43 and the
           Report of Independent Auditors on page 19 of the 1997 Annual Report
           (See Exhibit 13 under Paragraph (a)3 of this Item 14)

        2. Financial Statement Schedules

            The following supplemental schedule for the years ended December 31,
            1997, 1996 and 1995:

                V--Valuation and Qualifying Accounts

            All other supplemental schedules are omitted because of the absence
            of the conditions under which they are required.

        3. Exhibits--See the Exhibit Index beginning at page 20 of this Report.
           For a listing of all management contracts and compensatory plans or
           arrangements required to be filed as Exhibits to this Form 10-K, see
           the Exhibits listed under Exhibit Nos. 10(a), 10(b), 10(d), 10(e),
           10(f), 10(h) and 10(i) on pages 20 and 21 of the Exhibit Index. The
           following Exhibits listed in the Exhibit Index are filed with this
           Report:

                10(a) Financial Planning and Tax Preparation Services Program
                      for the Executive Leadership Team

                13    The Company's 1997 Annual Report to stockholders

                18    Preferability Letter from Deloitte & Touche LLP, dated
                      February 25, 1998

                21    Subsidiaries of the registrant (see page 22)

                23(a) Consent of Independent Auditors (see page 23)

                23(b) Consent of Company Counsel (see page 23)

                24(a) Powers of Attorney submitted by Robert G. Potter, John C.
                      Hunter III, Robert A. Clausen, Roger S. Hoard, Robert T.
                      Blakely, Joan T. Bok, Paul H. Hatfield, Robert H. Jenkins,
                      Howard M. Love, Frank A. Metz, Jr., William D. Ruckelshaus
                      and John B. Slaughter

                24(b) Certified copy of Board resolution authorizing Form 10-K
                      filing utilizing powers of attorney

                27    Financial Data Schedule (part of electronic submission
                      only)

    (b) Reports on Form 8-K during the quarter ended December 31, 1997:

        The Company did not file any Reports on Form 8-K during the quarter
        ended December 31, 1997.

                                       15
<PAGE> 17
                         REPORT OF INDEPENDENT AUDITORS

Solutia Inc.:

    We have audited the statement of consolidated financial position of Solutia
Inc. and Subsidiaries as of December 31, 1997 and 1996 and the related
statements of consolidated income, stockholders' equity (deficit) and cash flow
for each of the three years in the period ended December 31, 1997 and have
issued our opinion thereon dated February 25, 1998 (which includes an
explanatory paragraph as to a change in method of accounting); such financial
statements and opinion are included in your 1997 Annual Report to stockholders
and are incorporated herein by reference. Our audits also comprehended the
schedule of Solutia Inc. and Subsidiaries, listed in Item 14(a)2. This schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.


/S/ DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP

Saint Louis, Missouri
February 25, 1998

                                       16
<PAGE> 18
                                                                    SCHEDULE V
<TABLE>

                                                        SOLUTIA INC.
                                                        ------------
                                             VALUATION AND QUALIFYING ACCOUNTS
                                   FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

                                                       (In millions)
<CAPTION>

                        COLUMN A                                          COLUMN B        COLUMN C      COLUMN D     COLUMN E
                        --------                                          --------        --------      --------     --------

                                                                                         Additions
                                                                          Balance at     Charged to                 Balance at
                                                                          Beginning      Costs and                    End of
                      Description                                          of Year        Expenses     Deductions      Year
                      -----------                                         ----------     ----------    ----------   ----------
<S>                                                                          <C>            <C>           <C>          <C>
Year Ended December 31, 1997:

    Reserves deducted from related assets in the Statement of
      Consolidated Financial Position:

    Valuation accounts, principally for doubtful receivables
      and returns and allowances                                             $ 9            $ 1           $3           $7

Year Ended December 31, 1996:

    Reserves deducted from related assets in the Statement of
      Consolidated Financial Position:

    Valuation accounts, principally for doubtful receivables
      and returns and allowances                                             $ 7            $ 2           --           $9

Year Ended December 31, 1995:

    Reserves deducted from related assets in the Statement of
      Consolidated Financial Position:

    Valuation accounts, principally for doubtful receivables
      and returns and allowances                                             $16            $(2)          $7           $7



</TABLE>

                                       17
<PAGE> 19
                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                        SOLUTIA INC.

                                            By:       /S/ ROGER S. HOARD
                                                --------------------------------

                                                        Roger S. Hoard
                                                 Vice President and Controller
                                                (Principal Accounting Officer)

Date: March 13, 1998

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

<TABLE>
<CAPTION>
                     SIGNATURE                                                TITLE                               DATE
                     ---------                                                -----                               ----

<C>                                                         <S>                                               <C>

                       <F*>                                 Chairman, Chief Executive Officer and             March 13, 1998
--------------------------------------------------          Director (Principal Executive Officer)
                 Robert G. Potter

                       <F*>                                 President and Director                            March 13, 1998
--------------------------------------------------
                John C. Hunter III

                       <F*>                                 Senior Vice President and Chief Financial         March 13, 1998
--------------------------------------------------          Officer (Principal Financial Officer)
                 Robert A. Clausen

                /S/ ROGER S. HOARD                          Vice President and Controller (Principal          March 13, 1998
--------------------------------------------------          Accounting Officer)
                  Roger S. Hoard

                       <F*>                                 Director                                          March 13, 1998
--------------------------------------------------
                 Robert T. Blakely

                       <F*>                                 Director                                          March 13, 1998
--------------------------------------------------
                    Joan T. Bok

                       <F*>                                 Director                                          March 13, 1998
--------------------------------------------------
                 Paul H. Hatfield

                       <F*>                                 Director                                          March 13, 1998
--------------------------------------------------
                 Robert H. Jenkins

                       <F*>                                 Director                                          March 13, 1998
--------------------------------------------------
                  Howard M. Love

                                       18
<PAGE> 20

<CAPTION>
                     SIGNATURE                                                TITLE                               DATE
                     ---------                                                -----                               ----

<C>                                                         <S>                                               <C>

                       <F*>                                 Director                                          March 13, 1998
--------------------------------------------------
                Frank A. Metz, Jr.

                       <F*>                                 Director                                          March 13, 1998
--------------------------------------------------
              William D. Ruckelshaus

                       <F*>                                 Director                                          March 13, 1998
--------------------------------------------------
                 John B. Slaughter

<FN>

<F*> Karl R. Barnickol, by signing his name hereto, does sign this document on
     behalf of the above noted individuals, pursuant to powers of attorney duly
     executed by such individuals which have been filed as an Exhibit to this
     Form 10-K.
</TABLE>

                                                    /s/ KARL R. BARNICKOL
                                              ----------------------------------
                                                      Karl R. Barnickol
                                                       Attorney-in-Fact

                                       19
<PAGE> 21
                                   EXHIBIT INDEX

    These Exhibits are numbered in accordance with the Exhibit Table of Item 601
of Regulation S-K.

<TABLE>
<CAPTION>

Exhibit No.                                Description
-----------                                -----------
   <C>       <S>
    2        Distribution Agreement (incorporated herein by reference to Exhibit 2
             of the Company's Registration Statement on Form S-1 (333-36355) filed
             September 25, 1997)

    3(a)     Restated Certificate of Incorporation of the Company (incorporated
             herein by reference to Exhibit 3(a) of the Company's Registration
             Statement on Form S-1 (333-36355) filed September 25, 1997)

    3(b)     By-Laws of the Company (incorporated herein by reference to Exhibit
             3(b) of the Company's Registration Statement on Form S-1 (333-36355)
             filed September 25, 1997)

    4(a)     Rights Agreement (incorporated herein by reference to Exhibit 4 of the
             Company's Registration Statement on Form 10 filed on August 7, 1997)

    4(b)     Indenture dated as of October 1, 1997, between Solutia Inc. and The
             Chase Manhattan Bank, as Trustee (incorporated herein by reference to
             Exhibit 4.1 of the Company's Form 10-Q for the quarter ended September
             30, 1997 filed on November 12, 1997)

    4(c)     6.5% Notes due 2002 in the principal amount of $150,000,000
             (incorporated herein by reference to Exhibit 4.2 of the Company's Form
             10-Q for the quarter ended September 30, 1997 filed on November 12,
             1997)

    4(d)     7.375% Debentures due 2027 in the principal amount of $200,000,000
             (incorporated herein by reference to Exhibit 4.3 of the Company's Form
             10-Q for the quarter ended September 30, 1997 filed on November 12,
             1997)

    4(e)     7.375% Debentures due 2027 in the principal amount of $100,000,000
             (incorporated herein by reference to Exhibit 4.4 of the Company's Form
             10-Q for the quarter ended September 30, 1997 filed on November 12,
             1997)

    4(f)     6.72% Debentures due 2037 in the principal amount of $150,000,000
             (incorporated herein by reference to Exhibit 4.5 of the Company's Form
             10-Q for the quarter ended September 30, 1997 filed on November 12,
             1997)

    9        Omitted--Inapplicable

   10(a)     Financial Planning and Tax Preparation Services Program for the
             Executive Leadership Team

   10(b)     Employee Benefits Allocation Agreement (incorporated herein by
             reference to Exhibit 10(a) of the Company's Registration Statement on
             Form S-1 (333-36355) filed September 25, 1997)

   10(c)     Tax Sharing and Indemnification Agreement (incorporated herein by
             reference to Exhibit 10(b) of the Company's Registration Statement on
             Form S-1 (333-36355) filed September 25, 1997)

   10(d)     Solutia Inc. Management Incentive Replacement Plan (incorporated herein
             by reference to Exhibit 10(c) of the Company's Registration Statement
             on Form S-1 (333-36355) filed September 25, 1997)

                                       20
<PAGE> 22

<CAPTION>

                                    EXHIBIT INDEX (CONT'D)

Exhibit No.                              Description
-----------                              -----------
   <C>       <S>

   10(e)     Solutia Inc. 1997 Stock-Based Incentive Plan (incorporated herein by
             reference to Exhibit 10(d) of the Company's Registration Statement on
             Form S-1 (333-36355) filed September 25, 1997)

   10(f)     Solutia Inc. Non-Employee Director Compensation Plan (incorporated
             herein by reference to Exhibit 10(e) of the Company's Registration
             Statement on Form S-1 (333-36355) filed September 25, 1997)

   10(g)     $800,000,000 Credit Agreement, dated as of August 14, 1997, among
             Solutia Inc., the initial lenders named therein, Bank of America
             National Trust and Savings Association and Citibank, N.A. (incorporated
             herein by reference to Exhibit 10(f) of the Company's Registration
             Statement on Form S-1 (333-36355) filed September 25, 1997)

   10(h)     Form of Employment Agreement with Named Executive Officers (incorpo-
             rated herein by reference to Exhibit 10(h) of the Company's
             Registration Statement on Form S-1 (333-36355) filed September 25,
             1997)

   10(i)     Form of Employment Agreement with other executive officers
             (incorporated herein by reference to Exhibit 10(i) of the Company's
             Registration Statement on Form S-1 (333-36355) filed September 25,
             1997)

   11        Omitted--Inapplicable; see "Earnings per Share" on pages 40 through
             41 of the 1997 Annual Report

   12        Omitted--Inapplicable

   13        The Company's 1997 Annual Report to stockholders. (The electronic
             submission includes only the financial report section of the Annual
             Report, consisting of pages 18 through 49 of that Report.) Only those
             portions expressly incorporated by reference into this Form 10-K are
             deemed "filed"; other portions are furnished only for the information
             of the Commission.

   16        Omitted--Inapplicable

   18        Preferability Letter from Deloitte & Touche LLP, dated February 25,
             1998

   21        Subsidiaries of the Registrant (see page 22)

   22        Omitted--Inapplicable

   23(a)     Consent of Independent Auditors (see page 23)

   23(b)     Consent of Company Counsel (see page 23)

   24(a)     Powers of Attorney submitted by Robert G. Potter, John C. Hunter III,
             Robert A. Clausen, Roger S. Hoard, Robert T. Blakely, Joan T. Bok, Paul
             H. Hatfield, Robert H. Jenkins, Howard M. Love, Frank A. Metz, Jr.,
             William D. Ruckelshaus and John B. Slaughter

   24(b)     Certified copy of Board resolution authorizing Form 10-K filing
             utilizing powers of attorney

   27        Financial Data Schedule (part of electronic submission only)

<FN>
--------

Only Exhibits Nos. 21, 23(a) and 23(b) have been included in the printed copy of
this Report.
</TABLE>

                                       21

<PAGE> 23

                                   APPENDIX

1.  On printed page 1, the bullets in the printed document are represented
    by asterisks in the EDGAR document.

2.  In Exhibit 13 to the printed form 10-K, on page 49, three pie-charts
    appear and depict information as follows:  "1997 Capital Expenditures
    by Operating Segment" depicting a percentage breakdown of Solutia's
    1997 capital expenditures by operating segment; "1997 Capital Expenditures
    by World Area" depicting a percentage breakdown of Solutia's 1997 capital
    expenditures by world area; and "1997 Shareowner Composition" depicting a
    percentage breakdown of Solutia's 1997 shareowner composition.

3.  Throughout the printed Form 10-K, trademarks are designated by the
    superscript letters "R" in a circle or "TM."  The EDGAR copy indicates
    trademarks with an "R" or "TM" in parentheses.