<PAGE>

MANAGEMENT REPORT

Management is responsible for the integrity, objectivity, and
preparation of Solutia Inc.'s consolidated financial statements and all
of the related information appearing in this annual report. The
statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. Where necessary,
this information reflects estimates that are based upon currently
available information and management's judgments.
     Management is also responsible for maintaining a system of internal
accounting controls designed to provide reasonable assurance that
Solutia's assets are safeguarded against material loss from unauthorized
use or disposition and that authorized transactions are properly
recorded to permit the preparation of accurate financial information.
Cost/benefit judgments are an important consideration in this regard.
The effectiveness of internal controls is maintained by careful
personnel selection and thorough training, division of responsibilities,
establishment and communication of policies, and ongoing internal review
programs and audits.
     Management believes that Solutia's system of internal accounting
controls as of and for the period ended December 31, 1999, was effective
and adequate to accomplish the objectives described above.


/s/ John C. Hunter III

John C. Hunter III
Chairman, President, and Chief Executive Officer


/s/ Robert A. Clausen

Robert A. Clausen
Senior Vice President and Chief Financial Officer

February 23, 2000


AUDIT AND FINANCE COMMITTEE REPORT

The Audit and Finance Committee, composed of non-employee directors, met
four times during 1999. The committee reviews and monitors Solutia's
internal controls, financial reports, and accounting practices as well
as the scope and extent of the audits performed by both the independent
and internal auditors. The committee also recommends to the full Board
the selection of Solutia's principal independent auditors, and it
approves in advance all significant audit and nonaudit services provided
by these auditors. Deloitte & Touche LLP was appointed independent
auditor to examine, and to express an opinion as to the fair
presentation of, the consolidated financial statements. The Deloitte &
Touche LLP report follows.
     The internal and principal independent auditors meet with the
committee, with and without management representatives present, to
discuss the results of their examination, the adequacy of the company's
internal accounting controls, and the quality of Solutia's financial
reporting. The Audit and Finance Committee also reviews and monitors
Solutia's financial policies, including planning and structure, so that
they conform to Solutia's requirements for growth and sound operation.
     The Audit and Finance Committee has reviewed the financial section
of this annual report. Upon the recommendation of the committee, the
Board of Directors has approved the financial section.


/s/ Frank A. Metz Jr.

Frank A. Metz Jr.
Chairman, Audit and Finance Committee

February 23, 2000


                             18

<PAGE>
<PAGE>

                   REPORT OF INDEPENDENT AUDITORS

To the Shareholders of Solutia Inc.:

We have audited the accompanying statements of consolidated financial
position of Solutia Inc. and subsidiaries as of December 31, 1999, and
1998, and the related statements of consolidated income, comprehensive
income, cash flow, and shareholders' equity (deficit) for each of the
three years in the period ended December 31, 1999. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
     We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
     In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of Solutia Inc.
and subsidiaries as of December 31, 1999, and 1998, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States of America.
     As discussed in Note 15 to the financial statements, in 1997, the
company changed its method of accounting for environmental obligations
under the Resource Conservation and Recovery Act.


/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
St. Louis, Missouri

February 23, 2000


                               19

<PAGE>
<PAGE>

<TABLE>
FINANCIAL SUMMARY

<CAPTION>
Dollars in millions, except per share amounts

                                                    1999          1998           1997            1996           1995
                                                -----------------------------------------------------------------------
<S>                                              <C>           <C>            <C>               <C>            <C>
OPERATING RESULTS:

Net Sales<F1>                                    $  2,830      $   2,835      $   2,969         $2,977         $2,964
Gross Profit                                          652            750            653            652            721
   As percent of net sales                             23%            26%            22%            22%            24%
Marketing, Administrative and
Technological Expenses                                355            364            363            427            410
   As percent of net sales                             13%            13%            12%            14%            14%
Amortization Expense                                    3              -              -              -              -
Operating Income<F2>                                  294            386            290             33            258
   As percent of net sales                             10%            14%            10%             1%             9%
Income Before Income Taxes                            303            375            290             33            231
Net Income<F3>                                        206            249            192             32            147
   As percent of net sales                              7%             9%             6%             1%             5%

SHARE DATA:
                                                -----------------------------------------------------------------------
Basic Earnings per Share<F4>                     $   1.86      $    2.16      $    1.63         $ 0.28         $ 1.30
Diluted Earnings per Share<F4>                       1.80           2.03           1.55           0.27           1.27
Dividends per Share                                  0.04           0.04           0.01              -              -
Common Stock Price:
High                                              26 5/16             32         27 3/4              -              -
Low                                                13 1/2       18 11/16       18 11/16              -              -
Close                                             15 7/16         22 3/8       26 11/16              -              -

Price/Earnings Ratio on Year-end Stock Price            9             11             17              -              -
Number of Registered Shareholders                  39,171         41,864         57,894              -              -
Year-end Shares Outstanding (in millions)           109.5          112.8          117.4              -              -
Shares Repurchased (in millions)                      3.8            6.2            1.6              -              -
Average Daily Trading Volume (in thousands)           458            401          1,053              -              -

OTHER DATA:
                                                -----------------------------------------------------------------------
Interest Expense<F5>                             $     40      $      43      $      41         $   36         $   36
Income Taxes                                           97            126             98              1             84
Depreciation and Amortization                         151            147            145            166            162
Total Assets                                        3,770          2,765          2,768          2,483          2,462
Capital Expenditures                                  257            158            165            192            179
Long-Term Debt                                        802            597            597              -              -
Employees (year-end)                               10,600          8,700          8,800              -              -
                                                -----------------------------------------------------------------------
<FN>
<F1> Net sales for the company included $140 million in 1995 for its
     rubber chemicals business. In May 1995, this business was
     contributed by Monsanto to the Flexsys, L.P. joint venture.
<F2> Operating income includes charges for restructuring and other
     actions of $61 million in 1999, $1 million in 1998, $84 million in
     1997, $248 million in 1996, and $46 million in 1995.
<F3> Net income includes charges for restructuring and other actions of
     $38 million, or $0.33 per share, in 1999, $1 million, or $0.01 per
     share, in 1998, $53 million, or $0.43 per share, in 1997, $164 million,
     or $1.37 per share, in 1996, and $52 million, or $0.45 per share, in 1995.
<F4> For periods ended prior to the spinoff, the number of Monsanto
     weighted average shares outstanding and common share equivalents
     were adjusted for the distribution ratio in the spinoff of one
     share of Solutia's common stock for every five shares of Monsanto
     common stock.
<F5> Monsanto used a centralized approach to cash management and the
     financing of its operations. As a result, cash and cash
     equivalents and debt were not allocated to Solutia in the
     historical financial statements. Interest expense was allocated to
     Solutia in its consolidated financial statements to reflect
     Solutia's pro rata share of the financing structure of Monsanto.
</TABLE>

                               20

<PAGE>
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Solutia Inc. and its subsidiaries produce and market a variety of high-
performance, chemical-based materials. Solutia's strategic focus is
built on key strengths, including complex manufacturing capabilities,
process engineering expertise, polymer chemistry, fiber technology,
technical service, and customer problem solving. These world-class
skills are applied to create solutions and products for customers in the
consumer, household, automotive, and industrial products industries.
Solutia's products include Saflex(R) plastic interlayer; adhesives; window
and industrial films; liquid, powder and waterborne resins; Vydyne(R) and
Ascend(TM) nylon polymers; chemical intermediates; and nylon fibers.
   During December 1999, Solutia refined its management structure to
align with its growth strategy. Solutia's management is now organized
around four strategic business platforms: Performance Films, Resins and
Additives, Specialties, and Integrated Nylon. Resins and Additives and
Specialties have been aggregated into the Specialty Products reportable
segment because of their similar economic characteristics, as well as
their similar products and services, production processes, types of
customers, and methods of distribution. Solutia's new reportable
segments and representative products are as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
PERFORMANCE FILMS             SPECIALTY PRODUCTS              INTEGRATED NYLON
-----------------------------------------------------------------------------------------------
<C>                           <C>                             <C>
Saflex(R) plastic interlayer  Resins and additives,           Intermediate "building
                              including Alftalat(R)           block" chemicals
KeepSafe(R), Saflex           polyester resins, Resimene(R)
Inside(TM), and KeepSafe      and Maprenal(R) crosslinkers,   Merchant polymer and
Maximum(TM) glass for         Synthacryl(R) acrylic resins,   nylon extrusion polymers,
residential security and      and Alnovol(R) phenolic resins  including Vydyne(R) and Ascend(TM)
hurricane protection windows
                              Therminol(R) heat transfer      Carpet fibers, including
Llumar(R), Vista(R), and      fluids                          the Wear-Dated(R) and Ultron
Gila(R) professional and                                      VIP(R) brands
after-market window films     Dequest(R) water treatment
                              chemicals                       Industrial nylon fibers
Conductive and anti-
reflective coated films       Skydrol(R) hydraulic fluids     Acrilan(R) acrylic fibers
and deep-dyed films           and SkyKleen(R) cleaning        for apparel, upholstery
                              fluid for aviation              fabrics, craft yarns, and
Gelva(R) pressure-sensitive                                   other applications
adhesives                     Phosphorus-based
                              materials for food and
Santicizer(R) plasticizers    beverage ingredients,
and other polymer modifiers   personal care products,
                              industrial cleaners, and
                              fire retardants
</TABLE>


   Internally, Solutia reports its financial results under this revised
management structure. As required by Statement of Financial Accounting
Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise
and Related Information," financial information for the years ended
December 31, 1999, 1998, and 1997, that is included in this annual
report has been restated to conform to the new segment structure. See
Note 19 to the Consolidated Financial Statements for further
information.
   Prior to September 1, 1997, the businesses that form Solutia were
wholly owned by Monsanto Company (Monsanto). On September 1, 1997,
Monsanto distributed all of the outstanding shares of common stock of
Solutia as a dividend to Monsanto stockholders (the spinoff). As a
result of the spinoff, 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 to facilitate the separation of the companies and to provide
mechanisms for an orderly transition following the spinoff. The
separation from Monsanto and the subsequent transition of services have
been completed, although operating agreements for Solutia's
manufacturing facilities located in Monsanto plant sites and Monsanto
manufacturing facilities located in a Solutia plant site continue for
longer terms.
   Financial data included in Solutia's consolidated financial
statements for periods prior to the spinoff reflect an estimate of what
the historical assets, liabilities, and operations would have been if
Solutia had been organized as a separate legal entity, owning certain
net assets of Monsanto, during those periods. Management


                               21


<PAGE>
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

believes that the assumptions underlying these financial statements are
reasonable. These historical consolidated financial statements, however,
may not necessarily reflect the results of operations, cash flows, or
financial position that would have existed if Solutia had been a
separate stand-alone public entity.
   For periods after the spinoff, Solutia's consolidated financial
statements reflect the historical value of the assets, liabilities, and
operations of the businesses that were contributed to Solutia by
Monsanto. See Note 1 to the Consolidated Financial Statements for a
discussion of the basis of presentation used in the preparation of
Solutia's consolidated financial statements.

RESULTS OF OPERATIONS

Solutia's net sales for 1999 of $2.830 billion were essentially equal to
1998 net sales of $2.835 billion and 5 percent lower than 1997 net sales
of $2.969 billion. Although Solutia's net sales for 1999 were almost
unchanged from 1998, the 1999 results were affected by volume
improvements of 5 percent, directly offset by average selling price
reductions of 5 percent. Operating income for the year ended December 31,
1999, was $294 million, 24 percent lower than 1998 operating income
of $386 million, and slightly higher than 1997 operating income of
$290 million. Most of the decline in 1999 operating income was caused by
special charges taken in the first quarter of 1999 related to exiting
the ammonia business, to writing down certain manufacturing equipment in
the Integrated Nylon segment to fair value, and to the anticipated
settlement of two lawsuits relating to the Anniston, Alabama, plant
site. The remainder of the decline resulted from lower average selling
prices.
   During 1999, Solutia began repositioning its portfolio of businesses
to achieve $5 billion in net sales within three to four years. This
growth program includes internal initiatives such as the full global
commercialization of Saflex IIIG(TM), Solutia's third-generation polyvinyl
butryl product, the continued commercialization of KeepSafe(R), Saflex
Inside(TM), and KeepSafe Maximum(TM) for residential security and hurricane
protection windows, the launch of a Saflex(R) product for Enhanced
Protective Glass in side and rear automotive windows, and the
introduction of Ascend(TM) nylon plastics and polymers, among other
programs. As part of Solutia's external growth programs, Solutia
acquired CPFilms Inc., a leading manufacturer and marketer of window
films and other high-technology films products for automotive,
architectural, and other applications, in May 1999, and purchased
Vianova Resins, a leading European producer of resins and additives for
coatings and technical applications, in December 1999. In April 1999,
Solutia announced an agreement with FMC Corporation to form a joint
venture to manufacture and market phosphorus chemicals. Solutia and FMC
will each contribute their phosphorus derivatives businesses, and each
company will own a 50 percent share of the combined venture. The
formation of the joint venture is being reviewed by the Federal Trade
Commission under the Hart-Scott-Rodino Antitrust Improvements Act of
1976. The joint venture is expected to begin operations in the first
half of 2000.

PERFORMANCE FILMS
Net sales for Performance Films were $713 million in 1999, compared with
$614 million in 1998 and $651 million in 1997. The 16 percent increase in
1999 net sales over 1998 was due to an overall volume gain of more than 20
percent, partially offset by selling price declines. The sales volume increase
is attributable to the May 1999 acquisition of CPFilms, and to a greater than
10 percent increase in Saflex(R) plastic interlayer sales volumes. Volume gains

[PERFORMANCE FILMS NET SALES graph]

[PERFORMANCE FILMS SEGMENT PROFIT graph]

for Saflex(R) plastic interlayer resulted from the full global
commercialization of Saflex IIIG(TM), the continued commercialization of
KeepSafe(R), Saflex Inside(TM), and KeepSafe Maximum(TM), and the launch of
a Saflex(R) product for Enhanced Protective Glass. Contractual pricing
provisions that adjust pricing downward for increased volume, caused the
selling price declines.
   Performance Films' net sales for 1998 declined compared with 1997 net
sales because of lower selling prices and sales volumes. During 1998,
Solutia reduced its selling prices for Saflex(R) products to maintain
market share. Also during 1998, sales volume of polymer modifier
products used in vinyl flooring declined as a result of competition from
alternative flooring materials.
   Segment profit was $189 million in 1999, versus $168 million in 1998
and $177 million in 1997. The improvement in 1999 segment profit over
1998 is due to higher year-over-year net sales, including


                               22

<PAGE>
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

the acquisition of CPFilms, lower raw material costs, and employee
benefits cost and other cost reductions, partially offset by increased
marketing expenditures related to the promotion of KeepSafe(R), Saflex
Inside(TM), KeepSafe Maximum(TM), and Enhanced Protective Glass. Segment profit
for 1998 was lower than that for 1997 due to lower 1998 net sales and
higher production costs related to the changeover of production from the
previous generation of polyvinyl butryl to Saflex IIIG(TM).

SPECIALTY PRODUCTS
Solutia's Specialty Products segment had net sales of $615 million in
1999, compared with $613 million in 1998 and $635 million in 1997. The
slight increase in 1999 net sales over 1998 was due to increased sales
volumes of Solutia's resins and additives products and Skydrol(R) 5
hydraulic fluid for aviation, partially offset by unfavorable currency
exchange movements. The growth in sales volumes for resins and additives
is attributable to strong sales in the coatings market, especially
during the fourth quarter of 1999. Also during 1999, Solutia became the
sole supplier of hydraulic

[SPECIALTY PRODUCTS IN NET SALES graph]

[SPECIALTY PRODUCTS SEGMENT PROFIT graph]

fluid to Boeing Corporation for its new commercial aircraft. Specialty
Products' 1998 net sales were 3 percent lower than in 1997 primarily
because of lower sales volumes of phosphorus derivative products, caused
by competitor price reductions to obtain market share.
   Specialty Products' segment profit was $159 million in 1999, compared
with $152 million in 1998 and $137 million in 1997. The 1999 improvement
was due to improved manufacturing performance for Solutia's phosphorus
derivatives products, and to a lesser extent, lower raw material costs.
Segment profit for 1998 improved by 11 percent because of lower
operating costs, including personnel and benefits-related costs.
   On April 30, 1999, Solutia announced an agreement with FMC
Corporation to form a joint venture to manufacture and market phosphorus
chemicals. Solutia and FMC will each contribute their phosphorus
derivatives businesses, and each company will hold a 50 percent share of
the combined venture. The formation of the joint venture is being
reviewed by the Federal Trade Commission under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976. The joint venture is expected to
begin operations in the first half of 2000.
   On December 22, 1999, Solutia purchased Vianova Resins by acquiring
the interest of Morgan Grenfell Private Equity Ltd., a private equity
syndicate, and the interests of the minority shareholders in Viking
Resins Group Holdings B.V.  Vianova Resins is a leading European
producer of resins and additives for coatings and technical
applications. It has annual net sales of approximately $450 million.
With the acquisition of Vianova Resins, Solutia is one of the leading
worldwide suppliers of resins and additives. Results of Vianova's
operations for the period of December 22, 1999, through December 31,
1999, were not material to Solutia's Statement of Consolidated Income
for the year ended December 31, 1999. See Note 3 to the Consolidated
Financial Statements for additional information.

INTEGRATED NYLON
Solutia's Integrated Nylon segment had net sales in 1999 of $1.508
billion, compared with $1.613 billion in 1998 and $1.699 billion in
1997. The 7 percent decline in this segment's 1999 net sales compared
with 1998 resulted from lower selling prices for almost all products and
lower Acrilan(R) acrylic fiber volumes, partially offset by higher sales
volumes of carpet fibers and nylon polymers. Lower selling prices and
sales volumes for Acrilan(R) acrylic fibers were caused by weak market
conditions in the Asia Pacific region. In addition, that region's lower
demand depressed markets in the Americas, as acrylic fiber producers
sought alternative outlets for their products. The impact of these
events began early in the third quarter of 1998 and continued through
the third quarter of 1999. Prices stabilized early in the fourth quarter
of 1999 and increased slightly during the remainder of the year. For
1999 compared with 1998, Acrilan(R) acrylic fiber accounted for more than
half of Integrated Nylon's net sales decline. Nylon carpet selling
prices were adversely affected in 1999 by the consolidation of the
carpet mill industry in late 1998 and the resultant increase in the
carpet mills' buying leverage. In addition, lower-priced polyester
carpet fiber also put downward pressure on prices. Sales volumes for the
segment's products were mixed, as improved carpet fiber and Vydyne(R) nylon
molding resins volumes


                               23


<PAGE>
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

were offset by lower Acrilan(R) acrylic fiber volumes, and chlorobenzenes
volumes, and Solutia's exit from the ammonia business.
   The decline in 1998 net sales compared with 1997 was due to lower
average selling prices for intermediate chemicals and carpet fibers and
lower selling prices and volumes for Acrilan(R) acrylic

[INTEGRATED NYLON NET SALES graph]

[INTEGRATED NYLON SEGMENT PROFIT graph]

fiber products. These unfavorable trends were partially offset by higher
carpet fiber sales volumes that resulted from strong builder and
commercial sales and by new introductions of Wear-Dated(R) brand products.
   Integrated Nylon segment profit was $289 million in 1999, versus
$376 million in 1998 and $350 million in 1997. The 23 percent decrease in
1999 segment profit from 1998 was caused by lower selling prices in
1999, which were partially offset by reduced manufacturing and overhead
costs. Segment profit for 1998 increased 7 percent over 1997 because of
lower raw material costs and other cost-reduction actions, including
those related to benefit costs.

OPERATING INCOME
Solutia's operating income for 1999 was $294 million, compared with
$386 million in 1998 and $290 million in 1997. The 24 percent decline in 1999
operating income from 1998 operating income was caused by lower
Integrated Nylon segment profit and charges recorded in the first
quarter of 1999, partially offset by higher profit in the Performance
Films and Specialty Products segments and lower administrative and
technological expenses.
   During February 1999, certain equipment critical to the ammonia
production process failed. After analyzing the economics of purchased
ammonia versus the cost to repair the equipment, Solutia decided to exit
the ammonia business. A $28 million ($18 million aftertax, or $0.16 per
share) charge to cost of goods sold was recorded in the first quarter to
complete the exit plan. The charge included $2 million to write down the
assets to their fair value of approximately $4 million, $4 million of
dismantling costs, and $22 million of estimated costs for which Solutia
is contractually obligated under an operating agreement. The
contractually obligated costs represent an estimate of the direct
manufacturing, overhead, and utilities that Solutia is required to pay
to a third-party operator during a 36-month termination period. Solutia
expects to complete the dismantling of the equipment by the end of the
first quarter of 2000. Ammonia business net sales for the years ended
December 31, 1999, 1998, and 1997, were $1 million, $20 million, and
$17 million, respectively. Operating income for those periods was minimal.
   An impairment charge of $6 million ($4 million aftertax, or $0.03 per
share) was recorded to cost of goods sold primarily to write down a bulk
continuous filament spinning machine that was shut down due to a
noncompetitive cost position. The adjusted carrying value of the machine
is $0.5 million. The charge resulted from a  SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and Assets to Be Disposed Of"
review, which indicated that the carrying amount of the assets exceeded
the identifiable, undiscounted cash flows related to the assets. Fair
value of the assets was determined based on estimates of market prices
for the machinery. Operating income derived from the machinery was
minimal in the years ended December 31, 1999, 1998, and 1997.
   During the first quarter of 1999, Solutia also recorded a $29 million
($18 million aftertax, or $0.16 per share) charge to cost of goods sold
related to the anticipated settlement of two lawsuits  concerning the
alleged discharge of polychlorinated biphenyls (PCBs) from the

[OPERATING INCOME graph]

Anniston, Alabama, plant site. The anticipated settlement of these cases
provided information that allowed management to estimate more accurately
Solutia's position with respect to that litigation.
   During the fourth quarter of 1999, Solutia reversed excess
restructuring reserves due to the completion of the actions at a lower
cost than the 1996 restructuring plan contemplated. A reversal of
$1 million ($1 million aftertax, or $0.01 per share) was made to eliminate
a reserve for headcount reductions after the final stage of headcount
reductions was carried out. A second reversal


                               24

<PAGE>
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

of $1 million ($1 million aftertax, or $0.01 per share) was made to
eliminate a reserve recorded to shutdown a non-strategic facility after
that shutdown was completed at a lower cost.
   See Note 4 to the Consolidated Financial Statements for additional
information regarding Solutia's restructuring activities.
   Operating income in 1998 increased by 33 percent over 1997 operating
income because of lower environmental charges, as discussed below, and
higher segment profit. Marketing, administrative, and technological
expenses were essentially unchanged in 1998 compared with 1997. However,
the comparison of operating income between 1998 and 1997 was affected by
several unusual items related to reversals of excess restructuring
reserves, inventory charges, the adoption of new accounting standards,
and environmental-related charges.
   During 1998 and 1997, Solutia reversed excess restructuring reserves
to reflect lower cost estimates for restructuring actions. A reversal of
$3 million ($2 million aftertax, or $0.02 per share) was made in the
second quarter of 1998 due to lower cost estimates for the shutdown of
certain facilities included in the 1996 restructuring plan. Reversals
made in the third and fourth quarters of 1998 of $3 million ($2 million
aftertax, or $0.02 per share) and $3 million ($2 million aftertax, or
$0.02 per share), respectively, were due to lower cost estimates to
implement Solutia's employment reduction plans. Estimates were lowered
because of higher than anticipated attrition, which reduced employment
levels without additional cost to Solutia. The 1997 reversal of $8 million
($5 million aftertax, or $0.04 per share) occurred in the second quarter.
It became excess as the result of lower than expected exit costs associated
with the sale and closure of certain nonstrategic facilities included in the
1995 restructuring actions.
   Operating income for 1998 was also affected by inventory charges of
$4 million ($3 million aftertax, or $0.03 per share) in the third
quarter and $6 million ($4 million aftertax, or $0.04 per share) in the
fourth quarter. The third quarter charge was taken to reduce certain
slow-moving inventories to their net realizable values. The fourth
quarter charge was primarily caused by losses on the disposition of
certain nonsalable inventories.
   Operating income for 1998 also included stand-alone expenses for
certain general and administrative services that were provided by
Monsanto during 1997.
   Operating income in 1997 was affected by the adoption of new
accounting standards and environmental-related charges taken in the
first, second, and fourth quarters. The first quarter charge of $10 million
($6 million aftertax, or $0.05 per share) was associated with the adoption of
American Institute of Certified Public Accountants' Statement of Position
(SOP) No. 96-1, "Environmental Remediation Liabilities." The second quarter
charge of $10 million ($6 million aftertax, or $0.05 per share) was caused by
environmental-related litigation associated with the Brio Superfund site near
Houston, Texas. The fourth quarter charge of $72 million ($46 million aftertax,
or $0.37 per share) was associated with environmental remediation liability
charges. These charges are discussed further in Note 15 to the
Consolidated Financial Statements.

EQUITY EARNINGS FROM AFFILIATES
Equity earnings from affiliates were $36 million in 1999, compared with
$25 million in 1998 and $31 million in 1997. The improvement in 1999
equity earnings was due to strong sales volumes for products sold by the
Flexsys, L.P., (Flexsys) joint venture, and the Advanced Elastomer
Systems, Inc., joint venture, in which Solutia

[EQUITY EARNINGS FROM AFFILIATES graph]

has 50 percent ownership interests. In addition, Flexsys had higher
earnings as the result of good manufacturing performance in the PPD2
unit, which started operations in 1998. The PPD2 unit produces 4-amino-
diphenylamine, a product that extends the life of rubber products.
   Equity earnings from affiliates in 1998 were lower than in 1997
primarily due to the lower earnings from the Quimica "M" S.A. de C.V.
(Quimica) joint venture, in which Solutia has a 49 percent ownership
share, and lower earnings from Flexsys. Quimica was adversely affected
by changeover costs for production of Saflex IIIG(TM) plastic interlayer
and by the devaluation of the Mexican peso. Flexsys experienced lower
earnings due to start-up costs and operational difficulties associated
with the joint venture's new PPD2 facility.

OUTLOOK AND ECONOMIC CONDITIONS
Solutia is affected by economic conditions, particularly those in the
domestic housing industry, the domestic and international automotive
industries, and the domestic and international textile industries. Each
of these industries is cyclical. Global competition


                               25

<PAGE>
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

and weakened general economic conditions in Asia have led to declining
average selling prices. Also contributing to the decline in average
selling prices were products that use formula pricing. Pricing for those
products is tied to raw material costs, which were significantly lower
during the first half of 1999.
   During the second half of 1999, costs of many raw material feedstocks
increased significantly as the price of crude oil increased, ending the
trend of declining prices for raw materials. Recent forecasts indicate
that raw material prices will maintain their elevated levels for most of
2000. Solutia expects that average selling prices will rise for those
products with formula pricing. For those products that do not have
contracts with formula pricing, Solutia has announced a number of
selling price increases to help restore gross margins. However, the
delay in adjusting formula pricing and the difficulty in obtaining price
increases for other products may negatively impact gross margins in
2000.
   Also, average selling prices and sales volumes to the domestic carpet
industry could be adversely affected by the consolidation of the carpet
mills, by consumer trends toward alternative flooring materials, and by
competition from lower-priced polyester staple.

FINANCIAL CONDITION

During 1999, Solutia took two significant steps in the implementation of
its strategy to improve the overall growth rate of its business. First,
in May, Solutia acquired CPFilms Inc. in an approximately $200 million
transaction that was financed with commercial paper.  Second, in
December, Solutia acquired Vianova Resins in an approximately $640 million
transaction that was primarily financed with commercial paper. As a result
of these transactions, Solutia's outstanding commercial paper increased to
$712 million at December 31, 1999, from $0 at December 31, 1998.
   Solutia's commercial paper program is supported by an $800 million,
five-year revolving credit facility ($800 million facility) with a
syndicate of commercial banks. The $800 million facility is also
available for working capital and other general corporate purposes. This
agreement was amended during November 1999, principally to allow the
issuance of commercial paper in euros, as well as U.S. dollars.
   Also during November 1999, Solutia put in place a $300 million, 364-
day multi-currency revolving credit agreement ($300 million facility)
with a syndicate of commercial banks. The $300 million facility has
terms that are generally consistent with the terms of the $800 million
facility. The $300 million facility supports Solutia's commercial paper
program and is available for working capital and other general corporate
purposes.
   During February 2000, Solutia completed the issuance of euro 200 million
($201 million) of notes, due February 2005. Proceeds from the notes were used
primarily to refinance outstanding commercial paper, and also for general
corporate purposes. In anticipation of this transaction, $201 million of the
outstanding commercial paper was reclassified to long-term debt at December 31,
1999.
   Solutia's working capital at December 31, 1999, was negative $213 million
as compared to a positive $259 million at December 31, 1998. This decline in
working capital is primarily due to acquiring Vianova Resins assets that were
primarily of a long-term nature, and the funding of the acquisition with
commercial paper.
   Cash from operations was $364 million during 1999, which was lower
than 1998 cash from operations of $537 million. The decrease is
primarily due to strong fourth quarter 1999 sales, which resulted in
higher accounts receivable balances between December 31, 1998, and
December 31, 1999, as compared to the significant decrease in accounts
receivable balances between December 31, 1997, and December 31, 1998. In
addition, cash from operations was lower as a result of 1998 incentives
paid during 1999 that were not offset by accruals of 1999 incentives,
and accounts payable balances that were lower in 1999 than in 1998 due
to normal business cycles.
   Capital expenditures for 1999 were $257 million. These expenditures
were used to fund various cost reduction, maintenance, and capacity-
expansion projects. Solutia expects that its capital requirements will
be approximately $240 million to $270 million in both 2000 and 2001,
principally for capacity-expansion and cost-reduction projects.
Approximately $100 million of these estimated capital requirements were
committed at December 31, 1999. A portion of the capital expenditures in
1999 was funded from advance payments received from third parties
participating in these projects. Third party payments received during
1999 totaled $56 million.
   Solutia had shareholders' equity of $82 million at December 31, 1999,
as compared to a shareholders' deficit of $7 million at December 31,
1998. This $89 million improvement was caused by Solutia's net income,
partially offset by share repurchases and a $44 million decline in the
currency translation adjustment included in Accumulated Other
Comprehensive Income.

                               26


<PAGE>
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)


   During 1999, Solutia repurchased 3.3 million shares of its common
stock under share repurchase programs, fully utilizing the second
5.0 million share program and beginning on the third 5.0 million share
program authorized by the Board of Directors. The cost of the shares
repurchased in 1999 under these programs was approximately $69 million.
In addition, Solutia repurchased 0.5 million shares, at a cost of
approximately $10 million, for compensation and benefits programs.
   Solutia believes that its cash flow from operations and available
borrowing capacity under the $800 million facility and the $300 million
facility provide sufficient resources to finance its operations and
planned capital needs for the next 12 months.

ENVIRONMENTAL MATTERS

Solutia continues its strong commitment to comply with laws and
government regulations concerning environmental matters and employee
safety and health in the United States and other countries. U.S.
environmental legislation that has a particular impact on Solutia
includes the Toxic Substances Control Act; the Resource Conservation and
Recovery Act; the Clean Air Act; the Clean Water Act; the Safe Drinking
Water Act; and the Comprehensive Environmental Response, Compensation
and Liability Act (commonly known as Superfund). Solutia is also subject
to the Occupational Safety and Health Act and regulations of the
Occupational Safety and Health Administration (OSHA) concerning employee
safety and health matters. The U.S. Environmental Protection Agency
(EPA), OSHA, and other federal agencies have the authority to promulgate
regulations that have an impact on Solutia's operations. In addition to
these federal activities, various states have been delegated certain
authority under several of the aforementioned federal statutes. Many
state and local governments have adopted environmental and employee
safety and health laws and regulations, some of which are similar to
federal requirements. State and federal authorities may seek fines and
penalties for violation of these laws and regulations.
   Solutia is dedicated to long-term environmental protection and
compliance programs that reduce and monitor emissions of hazardous
materials into the environment as well as to the remediation of
identified existing environmental concerns. Solutia is among the leaders
in Responsible Care, the chemical industry's performance-enhancement
program.
   Expenditures in 1999 were approximately $14 million for environmental
capital projects and approximately $88 million for the management of
environmental programs, including the operation and maintenance of
facilities for environmental control, of which $22 million was charged
against recorded environmental liabilities. Solutia estimates that a
total of approximately $25 million will be spent during 2000 and 2001 on
additional capital projects for environmental protection and that
expenses for the management of environmental programs in 2000 and 2001
will increase slightly from the 1999 levels.
   With respect to environmental remediation obligations, Solutia's
policy is to accrue costs for remediation of contaminated sites in the
accounting period in which the obligation is probable and the cost is
reasonably estimable.
   At the time of the spinoff, Solutia assumed from Monsanto, pursuant
to a distribution agreement, liabilities related to specified Superfund
proceedings. As a result, while Monsanto remains the named potentially
responsible party (PRP) or defendant for actions that occurred prior to
September 1, 1997, Solutia will manage proceedings and litigation against
Monsanto and indemnify Monsanto for costs, expenses, and judgments, if any
are incurred by Monsanto, arising from these proceedings.
   Solutia's estimates of its liabilities for Superfund sites are based
on evaluations of currently available facts with respect to each
individual site and take into consideration factors such as existing
technology, laws and agency policy, and prior experience in remediation
of contaminated sites. As assessments and remediation activities
progress at individual sites, these liabilities are reviewed
periodically and adjusted to reflect additional technical, engineering
and legal information that becomes available. Solutia has an accrued
liability of $32 million as of December 31, 1999, for Superfund sites.
Major Superfund sites in this category include the noncompany-owned Brio
and MOTCO sites in Texas, and Fike/Artel in West Virginia, which account
for $21 million of the accrued amount. Solutia spent approximately
$8 million in 1999 for remediation of Superfund sites. Similar amounts can
be expected in future years.
   Solutia had an accrued liability of $88 million as of December 31,
1999, for plants no longer in operation and third-party sites for which
it assumed responsibility pursuant to a distribution agreement entered
into with Monsanto. Solutia's estimate of its liability related to these
sites is based on evaluations of currently available facts with respect
to each individual site. The estimate

                               27


<PAGE>
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)


takes into consideration factors such as existing technology, laws and
agency policy, and prior experience in remediation of contaminated
sites. The company spent $8 million in 1999 for remediation of these
sites. Similar amounts can be expected in the future.
   Solutia had an accrued liability of $81 million as of December 31,
1999, for solid and hazardous waste remediation, and for post-closure
costs at the company's operating locations. Solutia recognizes certain
post-closure costs over the estimated remaining useful life of the
related facilities. Solutia spent $6 million in 1999 for remediation of
these facilities.
   Uncertainties related to all of the company's environmental
liabilities are evolving government regulations, the method and extent
of remediation, and future changes in technology. Because of these
uncertainties, Solutia estimates that potential future expenses
associated with these liabilities could be an additional $20 million to
$30 million. Although the ultimate costs and results of remediation of
contaminated sites cannot be predicted with certainty, they are not
expected to result in a material adverse effect on Solutia's
consolidated financial position, liquidity, or profitability in any one
year.

THE YEAR 2000 ISSUE

The year 2000 (Y2K) issue refers to the inability of a date-sensitive
computer program to recognize a two-digit date field designated "00" as
the year 2000. Solutia experienced no significant Y2K problems with its
business applications, manufacturing and warehousing equipment,
information technology infrastructure, or environmental operations
systems. In total, Solutia incurred approximately $8 million in
additional costs specifically to complete Y2K work, excluding the cost
of implementing business application software licensed from SAP AG.

DERIVATIVE FINANCIAL INSTRUMENTS

Solutia's business operations give rise to market risk exposures that
result from changes in currency exchange rates, interest rates, and
certain commodity prices. To manage the volatility relating to these
exposures, Solutia enters into various hedging transactions that enable
it to alleviate the adverse effects of financial market risk. Solutia's
hedging transactions are carried out under policies and procedures
approved by the Audit and Finance Committee of the Board of Directors,
which do not permit the purchase or holding of any derivative financial
instruments for trading purposes.
   Solutia uses value-at-risk (VAR) testing and analysis to measure and
control risks. VAR estimates the loss in fair market values, which
Solutia would potentially incur, given a certain move in market prices
over a certain period of time, using specified confidence levels. The
tests discussed below for exposure to interest rate and currency rate
exposures are based on a one-day horizon and a 95 percent confidence
level. The model assumes that financial returns are normally
distributed. The value-at-risk model takes into account correlations and
diversification across market factors, including currencies and interest
rates. Estimates of volatility and correlations of market factors are
drawn from the JP Morgan RiskMetrics dataset as of December 31, 1999. In
cases where data is unavailable, a reasonable approximation is included.
Solutia estimates that the maximum loss that could arise in one day is
not  material to shareholders' equity and net income. For the year ended
December 31, 1998, Solutia based its VAR calculations on a one-year
horizon and a 95 percent confidence level. The change in assumption to a
one-day horizon from a one-year horizon did not have a material effect
on Solutia's VAR.

FOREIGN CURRENCY EXCHANGE RATE RISK
Currency forward contracts are used to manage currency exposures for
financial instruments denominated in currencies other than the entity's
functional currency. Gains and losses on contracts that are designated
and effective as hedges are included in net income and offset the
exchange gain or loss of the transaction being hedged. Solutia's policy
prescribes the range of allowable hedging activity and the instruments
that are permitted for use. Because the counterparties to these
contracts are major international financing institutions, credit risk
arising from these contracts is not significant and Solutia does not
anticipate any counterparty losses. This hedging activity is intended to
protect Solutia from adverse fluctuations in foreign currency exchange
rates.
   At December 31, 1999, Solutia had currency forward contracts to
purchase $44 million and sell $44 million of other currencies,
principally the Belgian franc, Canadian dollar and euro, with average
maturities of three months. Net unrealized hedging losses at December 31,
1999, were not material.
   Based on Solutia's overall currency rate exposure at December 31,
1999, including derivative and other foreign currency sensitive
instruments, a near-term change in currency rates, within a 95 percent
confidence level based on historical currency rate movements, would not
materially affect the consolidated financial position, results of
operations, or cash flows of the company.


                               28

<PAGE>
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

INTEREST RATE RISK
Interest rate risk is primarily related to the changes in fair value
of fixed-rate, long-term debt and short-term, floating-rate debt.
Solutia does not actively manage interest rate risk. Based on the
company's overall interest rate exposure at December 31, 1999, a near-
term change in interest rates, within a 95 percent confidence level
based on historical interest rate movements, would not materially affect
the consolidated financial position, results of operations, or cash
flows of the company. This is consistent with the overall interest rate
exposure at December 31, 1998.

COMMODITY PRICE RISK
Certain raw materials are subject to price volatility caused by weather,
crude oil prices, and other unpredictable factors. Solutia employs
commodity price swaps to hedge this exposure. The commodity price risk
associated with the derivative instruments is not material to Solutia's
consolidated financial position, results of operations, or cash flow.

EUROPEAN MONETARY UNION

On January 1, 1999, 11 member countries of the European Union adopted
the euro as their common legal currency. On that date, conversion rates
between the existing sovereign currency (legacy currency) of each of
these participating countries and the euro were irrevocably fixed, and
the euro became available for noncash transactions. The legacy
currencies of these countries will remain legal tender during a
transition period from January 1, 1999, to January 1, 2002. During this
transition period, parties may pay for goods and services using either
the euro or the relevant legacy currency. Currency conversion will be
performed using a triangulation method, whereby one legacy currency is
converted to the euro and then to the second legacy currency. The
transition to the euro will be completed in July 2002, when the legacy
currencies of the participating member countries cease to be legal
tender.
   The conversion to the euro has increased cross-border price
transparency and stimulated cross-border competition within the single-
currency zone. However, the effect of the price transparency on raw
materials that Solutia purchases generally offsets the effect of price
transparency on the sale of Solutia's finished products. In addition,
the conversion to the euro had the positive effects of eliminating
currency risk in cross-border sales and of reducing currency exchange
costs.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activity." SFAS No. 133 provides comprehensive and consistent standards
for the recognition and measurement of derivative and hedging
activities. It requires that derivatives be recorded on the Statement of
Consolidated Financial Position at fair value and establishes criteria
for hedges of changes in the fair value of assets, liabilities or firm
commitments, hedges of variable cash flows of forecasted transactions,
and hedges of foreign currency exposures of net investments in foreign
operations. Changes in the fair value of derivatives that do not meet
the criteria for hedges are to be recognized in the Statement of
Consolidated Income. During June 1999, FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral
of the Effective Date of FASB Statement No. 133," to defer the effective
date of SFAS No. 133 by one year. The standard will now be effective for
Solutia beginning January 1, 2001. Solutia does not expect the adoption
of SFAS No. 133 to have a material effect on its consolidated financial
statements.


                               29

<PAGE>
<PAGE>

<TABLE>
STATEMENT OF CONSOLIDATED INCOME
<CAPTION>
                                                                         Year Ended December 31,
                                                                ----------------------------------------
Dollars in millions, except per share amounts                      1999           1998           1997
                                                                ----------------------------------------
<S>                                                               <C>            <C>            <C>
NET SALES                                                         $2,830         $2,835         $2,969
Cost of goods sold                                                 2,178          2,085          2,316
                                                                ----------------------------------------
GROSS PROFIT                                                         652            750            653
Marketing expenses                                                   153            145            143
Administrative expenses                                              122            136            133
Technological expenses                                                80             83             87
Amortization expense                                                   3              -              -
                                                                ----------------------------------------
OPERATING INCOME                                                     294            386            290
Equity earnings from affiliates                                       36             25             31
Interest expense                                                     (40)           (43)           (41)
Other income (expense) - net                                          13              7             10
                                                                ----------------------------------------
INCOME BEFORE INCOME TAXES                                           303            375            290
Income taxes                                                          97            126             98
                                                                ----------------------------------------
NET INCOME                                                        $  206         $  249         $  192
                                                                ========================================
BASIC EARNINGS PER SHARE                                          $ 1.86         $ 2.16         $ 1.63
                                                                ========================================
DILUTED EARNINGS PER SHARE                                        $ 1.80         $ 2.03         $ 1.55
                                                                ========================================

Weighted average equivalent shares (in millions):
Basic                                                              110.8          115.5          117.7

Effect of dilutive securities:
Common share equivalents - common stock issuable
   upon exercise of outstanding stock options                        3.8            7.3            6.0
                                                                ----------------------------------------
Diluted                                                            114.6          122.8          123.7
                                                                ========================================
</TABLE>


<TABLE>
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME
<CAPTION>
                                                                         Year Ended December 31,
                                                                ----------------------------------------
Dollars in millions                                                1999           1998          1997
                                                                ----------------------------------------
<S>                                                               <C>            <C>           <C>
NET INCOME                                                         $206           $249          $192
OTHER COMPREHENSIVE INCOME:
Currency translation adjustments                                    (44)            10            19
Minimum pension liability adjustments, net of tax of $2 in 1999,
   $2 in 1998, and $4 in 1997                                        (4)            (3)           (7)
                                                                ----------------------------------------
COMPREHENSIVE INCOME                                               $158           $256          $204
                                                                ========================================

See accompanying Notes to Consolidated Financial Statements.
</TABLE>

                               30

<PAGE>
<PAGE>

<TABLE>
STATEMENT OF CONSOLIDATED FINANCIAL POSITION
<CAPTION>
                                                                                                  As of December 31,
                                                                                              ------------------------
Dollars in millions, except per share amounts                                                    1999          1998
                                                                                              ------------------------
<S>                                                                                             <C>           <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents                                                                       $   28        $   89
Trade receivables, net of allowances of $12 in 1999 and $7 in 1998                                 483           357
Miscellaneous receivables and prepaid expenses                                                     131           126
Deferred income tax benefit                                                                        101            88
Inventories                                                                                        371           331
                                                                                              ------------------------
TOTAL CURRENT ASSETS                                                                             1,114           991

PROPERTY, PLANT AND EQUIPMENT:
Land                                                                                                68            17
Buildings                                                                                          436           371
Machinery and equipment                                                                          2,919         2,786
Construction in progress                                                                           272           127
                                                                                              ------------------------
Total property, plant and equipment                                                              3,695         3,301
Less accumulated depreciation                                                                    2,379         2,357
                                                                                              ------------------------
NET PROPERTY, PLANT AND EQUIPMENT                                                                1,316           944

INVESTMENTS IN AFFILIATES                                                                          377           394
GOODWILL, NET OF AMORTIZATION                                                                      511             -
LONG-TERM DEFERRED INCOME TAX BENEFIT                                                              232           274
OTHER ASSETS                                                                                       220           162
                                                                                              ------------------------
TOTAL ASSETS                                                                                    $3,770        $2,765
                                                                                              ========================

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
Accounts payable                                                                                $  312        $  278
Wages and benefits                                                                                  59           107
Postretirement liabilities                                                                          86            88
Miscellaneous accruals                                                                             359           259
Short-term debt                                                                                    511             -
                                                                                              ------------------------
TOTAL CURRENT LIABILITIES                                                                        1,327           732

LONG-TERM DEBT                                                                                     802           597
POSTRETIREMENT LIABILITIES                                                                         998           971
OTHER LIABILITIES                                                                                  561           472

SHAREHOLDERS' EQUITY (DEFICIT):
Common stock (authorized, 600,000,000 shares, par value $0.01)
   Issued: 118,400,635 shares in 1999 and 1998                                                       1             1
   Additional contributed capital                                                                 (137)         (131)
   Treasury stock, at cost (8,859,764 shares in 1999 and 5,629,677 shares in 1998)                (209)         (143)
Unearned ESOP shares                                                                               (18)          (25)
Accumulated other comprehensive income                                                             (29)           19
Reinvested earnings                                                                                474           272
                                                                                              ------------------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)                                                                82            (7)
                                                                                              ------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)                                            $3,770        $2,765
                                                                                              ========================

See accompanying Notes to Consolidated Financial Statements.
</TABLE>

                               31

<PAGE>
<PAGE>

<TABLE>
STATEMENT OF CONSOLIDATED CASH FLOW
<CAPTION>
                                                                                        Year Ended December 31,
                                                                              ----------------------------------------
Dollars in millions                                                               1999           1998           1997
                                                                              ----------------------------------------
<S>                                                                             <C>              <C>           <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income                                                                      $   206          $ 249         $ 192
Adjustments to reconcile to Cash From Operations:
  Items that did not use (provide) cash:
    Deferred income taxes                                                            23             32            32
    Depreciation and amortization                                                   151            147           145
    Amortization of deferred credits                                                (10)            (7)          (11)
    Other                                                                            78             17           (39)
  Working capital changes that provided (used) cash:
    Trade receivables                                                               (18)            68            (9)
    Inventories                                                                      42             (6)          (32)
    Accounts payable and accrued liabilities                                       (114)             3          (115)
    Other                                                                             6             15           (45)
  Other items                                                                         -             19            41
                                                                              ----------------------------------------
CASH FROM OPERATIONS                                                                364            537           159
                                                                              ----------------------------------------
INVESTING ACTIVITIES:
Property, plant and equipment purchases                                            (257)          (158)         (165)
Acquisition and investment payments, net of cash acquired                          (835)            (8)           (2)
Investment and property disposal proceeds                                            30             22             9
                                                                              ----------------------------------------
CASH FROM INVESTING ACTIVITIES                                                   (1,062)          (144)         (158)
                                                                              ----------------------------------------
FINANCING ACTIVITIES:
Net transactions with Monsanto Company                                                -              -           292
Long-term debt proceeds                                                               -              -           600
Net change in debt obligations                                                      712           (190)         (840)
Treasury stock purchases                                                            (79)          (161)          (35)
Dividend payments                                                                    (4)            (5)           (1)
Common stock issued under employee stock plans                                        8             28             7
                                                                              ----------------------------------------
CASH FROM FINANCING ACTIVITIES                                                      637           (328)           23
                                                                              ----------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                    (61)            65            24

CASH AND CASH EQUIVALENTS:
Beginning of year                                                                    89             24             -
                                                                              ----------------------------------------
End of year                                                                     $    28          $  89         $  24
                                                                              ========================================

See accompanying Notes to Consolidated Financial Statements.
</TABLE>

The effect of exchange rate changes on cash and cash equivalents was not
material. Cash payments for interest (net of amounts capitalized) were
$41 million in 1999, $44 million in 1998, and $3 million in 1997. Cash
payments for income taxes were $43 million in 1999, $94 million in 1998
and $30 million in 1997.


                               32

<PAGE>
<PAGE>

<TABLE>
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (DEFICIT)
<CAPTION>
                                                                                         Year Ended December 31,
                                                                                 -------------------------------------
Dollars in millions                                                                1999           1998         1997
                                                                                 -------------------------------------
<S>                                                                                <C>            <C>        <C>
COMMON STOCK:
BALANCE, JANUARY 1                                                                 $   1          $   1      $     -
   Issuance of 118,371,280 shares at spinoff                                           -              -            1
   Issuance of 29,355 shares in 1997 for stock option exercises                        -              -            -
                                                                                 -------------------------------------
BALANCE, DECEMBER 31                                                               $   1          $   1      $     1
                                                                                 -------------------------------------

ADDITIONAL CONTRIBUTED CAPITAL:
BALANCE, JANUARY 1                                                                 $(131)         $(119)     $     -
   Net liability transfer to Solutia at spinoff                                        -              -         (101)
   Post-spinoff adjustments                                                            -              -          (12)
   Employee stock plans and ESOP                                                      (6)           (12)          (6)
                                                                                 -------------------------------------
BALANCE, DECEMBER 31                                                               $(137)         $(131)     $  (119)
                                                                                 -------------------------------------

TREASURY STOCK:
BALANCE, JANUARY 1                                                                 $(143)         $ (22)     $     -
   Shares purchased (3,781,700 shares in 1999, 6,246,300 shares in 1998,
   and 1,569,800 shares in 1997)                                                     (79)          (161)         (35)
   Net shares issued under employee stock option plans (551,613 shares in 1999,
   1,609,451 shares in 1998, and 576,972 shares in 1997)                              13             40           13
                                                                                 -------------------------------------
BALANCE, DECEMBER 31                                                               $(209)         $(143)     $   (22)
                                                                                 -------------------------------------

UNEARNED ESOP SHARES:
BALANCE, JANUARY 1                                                                 $ (25)         $ (31)     $     -
   Transfer of ESOP reserve balance to Solutia at spinoff                              -              -          (31)
   Amortization of ESOP balance                                                        7              6            -
                                                                                 -------------------------------------
BALANCE, DECEMBER 31                                                               $ (18)         $ (25)     $   (31)
                                                                                 -------------------------------------

ACCUMULATED OTHER COMPREHENSIVE INCOME:
BALANCE, JANUARY 1                                                                 $  19          $  12      $     -
   Currency translation adjustments                                                  (44)            10           19
   Minimum pension liability adjustments                                              (4)            (3)          (7)
                                                                                 -------------------------------------
BALANCE, DECEMBER 31                                                               $ (29)         $  19      $    12
                                                                                 -------------------------------------

REINVESTED EARNINGS:
BALANCE, JANUARY 1                                                                 $ 272          $  28      $     -
   Net income                                                                        206            249           29
   Dividends                                                                          (4)            (5)          (1)
                                                                                 -------------------------------------
BALANCE, DECEMBER 31                                                               $ 474          $ 272      $    28
                                                                                 -------------------------------------

MONSANTO COMPANY EQUITY:
BALANCE, JANUARY 1                                                                 $   -          $   -      $   656
   1997 activity to date of spinoff:
      Net income                                                                                                 163
      Currency translation adjustments                                                                            13
      Net transactions with Monsanto Company                                                                     292
   Elimination of Monsanto Company Equity at spinoff                                                          (1,124)
                                                                                 -------------------------------------
BALANCE, DECEMBER 31                                                               $   -          $   -      $     -
                                                                                 -------------------------------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)                                               $  82          $  (7)     $  (131)
                                                                                 =====================================

See accompanying Notes to Consolidated Financial Statements.
</TABLE>

                               33

<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Dollars in millions, except per share amounts

1. BASIS OF PRESENTATION

Solutia Inc. and its subsidiaries produce and market a variety of high-
performance, chemical-based materials. Solutia's strategic focus is built
on key strengths, including complex manufacturing capabilities, process
engineering expertise, polymer chemistry, fiber technology, technical
service, and customer problem solving. These world-class skills are applied
to create solutions and products for customers in the consumer, household,
automotive, and industrial products industries. Solutia's products include
Saflex(R) plastic interlayer; adhesives; window and industrial films; liquid,
powder and waterborne resins; Vydyne(R) and Ascend(TM) nylon polymers; chemical
intermediates; and nylon fibers.
     Prior to September 1, 1997, the businesses that form Solutia were
wholly owned by Monsanto Company (Monsanto). On September 1, 1997, Monsanto
distributed all of the outstanding shares of common stock of Solutia as a
dividend to Monsanto stockholders (the spinoff). 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 to facilitate the separation of the companies and to provide
mechanisms for an orderly transition following the spinoff. The separation
from Monsanto and the subsequent transition of services have been
completed, although operating agreements for Solutia's manufacturing
facilities located in Monsanto plant sites and Monsanto manufacturing
facilities located in a Solutia plant site continue for longer terms.

PRE-SPINOFF FINANCIAL INFORMATION
Financial data included in the accompanying consolidated financial
statements for periods prior to the spinoff were prepared on a combined
basis. They reflect an estimate of what the historical assets, liabilities,
and operations would have been if Solutia had been organized as a separate
legal entity, owning certain net assets of Monsanto, during those periods.
Generally, only those assets and liabilities of the ongoing chemicals
businesses that were expected to be transferred to Solutia prior to the
spinoff were included in the Statement of Consolidated Financial Position.
     Prior to the spinoff, Monsanto provided certain general and
administrative services to Solutia, including finance, legal, treasury,
information systems, and human resources. The cost allocated to Solutia for
these services was based upon the percentage relationship between the net
assets used in Solutia's operations and Monsanto's total net assets, as
well as other methods which management believed to be reasonable. These
allocations were $12 million in 1997. In preparation for the spinoff,
Monsanto began a transition plan for the separation. As part of this plan,
Monsanto discontinued its allocation of corporate expenses for these
general and administrative services on April 1, 1997, as these expenses
were specifically identified and segregated as part of Solutia's ongoing
cost infrastructure. Solutia now performs these general and administrative
functions using its own resources or purchased services. If Solutia had
operated as a stand-alone entity in 1997, management estimates that general
and administrative expenses would have been higher by approximately $13 million
in 1997 to reflect the cost of replacing the services represented by these
allocations.
     As described in Notes 11 and 12, Solutia employees and retirees
participated in various Monsanto pension, health care, savings, and other
benefit plans. The costs and certain obligations related to these plans
were included in Solutia's consolidated financial statements. Generally,
such costs were based on the percentage of Solutia payroll costs to total
Monsanto payroll costs.
     Monsanto used a centralized approach to manage its cash and to
finance its operations. As a result, cash and cash equivalents and debt
were not allocated to Solutia in the pre-spinoff historical financial
statements. Solutia generally did not have borrowings, except amounts due
to Monsanto. Interest expense was allocated to Solutia in the consolidated
financial statements to reflect Solutia's pro rata share of the financing
structure of Monsanto. This allocation in the consolidated financial
statements is based on the percentage relationship between the net assets
used in Solutia's operations and Monsanto's total net assets.
     The allocation method followed in preparing the pre-spinoff
consolidated financial statements may not necessarily reflect the results
of operations, cash flows, or financial position of Solutia in the future,
or reflect what the results of operations, cash flows, or financial
position would have been if Solutia had been a separate stand-alone entity.

POST-SPINOFF FINANCIAL INFORMATION
Financial data included in the accompanying consolidated financial
statements, for periods subsequent to the spinoff have been prepared to
reflect the historical value of the assets, liabilities, and operations of
the businesses that were contributed to Solutia by Monsanto in accordance
with the distribution and employee benefits and compensation allocation
agreements described in the preceding paragraphs.
     Effective with the spinoff on September 1, 1997, the assets contributed
to Solutia and the liabilities assumed by Solutia included cash of $75 million,
debt of $1.029 billion, accrued net pension liability for the U.S. and ex-U.S.
defined benefit pension plans, and additional obligations for health care and
other postretirement benefits. At the date of the spinoff, the amount of
postretirement liabilities assumed by Solutia totaled approximately
$1.018 billion.


                               34

<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


2. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Solutia and
its majority-owned subsidiaries. Other companies in which Solutia has a
significant interest (20 to 50 percent) are included in "Investments in
Affiliates" in the Statement of Consolidated Financial Position. Solutia's
share of these companies' net earnings or losses is reflected in "Equity
Earnings from Affiliates" in the Statement of Consolidated Income. Prior to
the spinoff, the consolidated financial statements included the accounts of
Solutia as described in Note 1.

USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and that affect
revenues and expenses during the period reported. Estimates are adjusted
when necessary to reflect actual experience. Significant estimates were
used to account for the allocation between Monsanto and Solutia of
financial statement amounts, restructuring reserves, environmental
reserves, self-insurance reserves, employee benefit plans, asset
impairments, and contingencies.

CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and temporary investments with
maturities of three months or less when purchased.

INVENTORY VALUATION
Inventories are stated at cost or market, whichever is less. Actual cost is
used to value raw materials and supplies. Standard cost, which approximates
actual cost, is used to value finished goods and goods in process. Standard
cost includes direct labor and raw materials, and manufacturing overhead
based on practical capacity. The cost of certain inventories (67 percent as
of December 31, 1999) is determined by the last-in, first-out (LIFO)
method, which generally reflects the effects of inflation or deflation on
cost of goods sold sooner than other inventory cost methods. The cost of
other inventories generally is determined by the first-in, first-out (FIFO)
method.

PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. The cost of plant and
equipment is depreciated over weighted average periods of 20 years for
buildings and 12 years for machinery and equipment, by the straight-line
method.

IMPAIRMENT OF LONG-LIVED ASSETS
Impairment tests of long-lived assets are made when conditions indicate a
possible loss. Such impairment tests are based on a comparison of
undiscounted cash flows to the recorded value of the asset. If an
impairment is indicated, the asset value is written down to its fair value
based upon market prices or, if not available, upon discounted cash value
at an appropriate discount rate.

ENVIRONMENTAL REMEDIATION
Costs for remediation of waste disposal sites are accrued in the accounting
period in which the obligation is probable and when the cost is reasonably
estimable. Postclosure costs for hazardous and other waste facilities at
operating locations are accrued over the estimated life of the facility as
part of its anticipated closure cost. Environmental liabilities are not
discounted, and they have not been reduced for any claims for recoveries
from insurance or third parties. In those cases where insurance carriers or
third-party indemnitors have agreed to pay any amounts and management
believes that collectability of such amounts is probable, the amounts are
reflected as receivables in the consolidated financial statements.
     Effective January 1, 1997, Solutia adopted the American Institute of
Certified Public Accountants' Statement of Position (SOP) 96-1,
"Environmental Remediation Liabilities." SOP 96-1 establishes authoritative
guidance regarding the recognition, measurement and disclosure of
environmental remediation liabilities. The primary change in Solutia's
accounting principles associated with the adoption of this SOP was an
acceleration of the recognition of certain environmental remediation
liabilities at operating facilities. This change and the amounts associated
with it are more fully described in Note 15.

REVENUE RECOGNITION
Revenues are recorded when products are shipped.

DERIVATIVE FINANCIAL INSTRUMENTS
Currency forward contracts are used to manage currency exposures for
financial instruments denominated in currencies other than the entity's
functional currency. Gains and losses on contracts that are designated and
effective as hedges are included in net income and offset the exchange gain
or loss of the transaction being hedged.
     Major currencies affecting Solutia's business are the U.S. dollar,
the British pound sterling, the euro, the Canadian dollar, and the
Brazilian real. Currency restrictions are not expected to have a
significant effect on Solutia's cash flow, liquidity, or capital resources.


                               35


<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


INCOME TAXES
Prior to the spinoff, the company did not file separate tax returns because
its results were included in the income tax returns filed by Monsanto and
its subsidiaries in various U.S. and ex-U.S. jurisdictions. The tax
provisions reflected in the Statement of Consolidated Income for periods
prior to the spinoff have been computed as if Solutia were a separate
company.
     Solutia accounts for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences of temporary differences between
the carrying amounts and tax bases of assets and liabilities at enacted
rates.

CURRENCY TRANSLATION
The financial statements for most of Solutia's ex-U.S. operations are
translated into U.S. dollars at current exchange rates. Unrealized currency
translation adjustments in the Statement of Consolidated Financial Position
are accumulated in equity. The financial statement components of ex-U.S.
entities that operate in hyperinflationary economies are translated at
either current or historical exchange rates, as appropriate. These currency
translation adjustments are included in net income.

EARNINGS PER SHARE
Solutia measures earnings per share under the guidance of Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." Basic
earnings per share is a measure of operating performance that assumes no
dilution from securities or contracts to issue common stock. Diluted
earnings per share is a measure of operating performance by giving effect
to the dilution that would occur if securities or contracts to issue common
stock were exercised or converted.

COMPREHENSIVE INCOME
Effective January 1, 1998, Solutia adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement establishes the standards for
reporting and displaying comprehensive income and its components in a full
set of general-purpose financial statements. Comprehensive income includes
net income and several other items that were recognized directly in
shareholders' equity under previous accounting standards.

RECLASSIFICATIONS
Certain reclassifications of prior years' financial information have been
made to conform to the 1999 presentation.

3. ACQUISITIONS

On May 25, 1999, Solutia acquired CPFilms Inc. from Akzo Nobel N.V. for
approximately $200 million, which was financed with commercial paper.
CPFilms is a leading manufacturer and marketer of window film and other
high-technology film products for automotive and architectural after-
markets and a variety of other specialty film applications. The acquisition
has been accounted for using the purchase method. The allocation of the
purchase price to the identifiable assets and liabilities acquired resulted
in goodwill of approximately $80 million. This allocation is preliminary
and is subject to change. Goodwill and other intangible assets will be
amortized over their estimated useful lives of 20 years. CPFilms' results
of operations from May 25, 1999, through December 31, 1999, are included in
Solutia's Statement of Consolidated Income for the year ended December 31,
1999.
     On December 22, 1999, Solutia acquired Vianova Resins from Morgan
Grenfell Private Equity Ltd. for approximately 1.2 billion deutsche marks
(approximately $640 million), which was financed with commercial paper and
the assumption of debt. Vianova Resins is a leading European producer of
resins and additives for coatings and technical applications for the
specialty, industrial, and automotive sectors.
     The acquisition has been accounted for using the purchase method. The
allocation of the purchase price to the assets and liabilities acquired
resulted in goodwill of approximately $430 million. This allocation is
preliminary, due to completing the acquisition near Solutia's fiscal year-
end, and is subject to change. The valuations of assets and liabilities
have not been finalized. Also, Solutia intends to fully integrate Vianova
Resins with Solutia's resins business and corporate service organizations.
Solutia began considering how to integrate Vianova Resins with its
operations during the evaluation of the acquisition, but has not completed
the plans for the corporate service organizations. As part of completing
the integration plans, Solutia expects to record a liability in accordance
with Emerging Issues Task Force Issue 95-3, "Recognition of Liabilities in
Connection with a Purchase Business Combination." In addition to goodwill,
the major components of the purchase allocation were current assets of
$197 million, non-current assets of $235 million, current liabilities of
$67 million, and non-current liabilities of $155 million. Solutia anticipates
completing the allocation of the purchase price by the end of the second
quarter of 2000. Any adjustments to acquired assets and liabilities will
result in either an increase or a decrease to goodwill. Goodwill will be
amortized over its estimated useful life of 20 years. Results of Vianova's
operations for the period of December 22, 1999, through December 31, 1999,
were not material to Solutia's Statement of Consolidated Income for the
year ended December 31, 1999.

<PAGE>
     The following unaudited pro forma condensed information for the years
ended December 31, 1999, and 1998, give effect to the acquisitions of
CPFilms and Vianova Resins, and the associated debt financing, as if the
acquisitions and the financing had occurred as of the beginning of the
periods presented.
                                                  For the Year Ended
                                                      December 31

(Unaudited)                                       1999           1998
                                               -------------------------
Net sales                                        $3,357         $3,465
Net income                                          203            241
Basic earnings per share                           1.83           2.09
Diluted earnings per share                         1.77           1.97

                               36


<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


4. RESTRUCTURING

During February 1999, certain equipment critical to the ammonia production
process failed. Based on an analysis of the economics of purchased ammonia
versus the cost to repair the equipment, Solutia decided to exit the
ammonia business. A $28 million ($18 million aftertax) charge to cost of
goods sold was recorded in the first quarter to complete the exit plan. The
charge included $2 million to write down the assets to their fair value of
approximately $4 million, $4 million of dismantling costs, and $22 million
of estimated costs for which Solutia is contractually obligated under an
operating agreement. The contractually obligated costs represent an
estimate of the direct manufacturing, overhead, and utilities that Solutia
is required to pay to a third-party operator during a 36-month termination
period. Solutia expects to complete the dismantling of the equipment by the
end of the first quarter of 2000. The ammonia business's net sales for the
years ended December 31, 1999, 1998, and 1997, were $1 million, $20 million,
and $17 million, respectively. Operating income for those periods was minimal.
     The following table summarizes the 1999 restructuring charge and
amounts utilized to carry out those plans:

<TABLE>
<CAPTION>
                                              Shutdown         Asset         Other
                                            of Facilities   Impairments      Costs         Total
                                            ----------------------------------------------------
<S>                                              <C>           <C>            <C>           <C>
Balance at January 1, 1999                       $-            $ -            $ -           $  -
Charges taken                                     4              2             22             28
Amounts utilized                                  -             (2)            (6)            (8)
                                            ----------------------------------------------------
BALANCE AT DECEMBER 31, 1999                     $4            $ -            $16           $ 20
                                            ====================================================
</TABLE>

     In December 1996, Solutia recorded pretax restructuring charges of
$256 million ($164 million aftertax) to cover costs associated with the
closure or sale of certain facilities, asset write-offs, and work force
reductions of approximately 900 people across all world areas and functions
of the company. The workforce reductions were required to reduce staffing
for the spinoff and for the implementation of new business systems and
methodologies. Approximately two-thirds of the workforce reductions were
planned for North American shared service, business and manufacturing
operations, and approximately one-third were planned for European, Asian,
and Latin American shared service operations and sales offices. Of the
North American reductions, approximately half of the reductions were
management and senior management positions.
     Activities completed during 1999 include the shutdowns of certain
facilities and the final stage of headcount reductions totaling
approximately 150 people. The 1999 headcount reductions occurred in
Solutia's Asian, European, and North American shared service operations.
Total headcount reductions under the 1996 restructuring were approximately
900 people. The headcount reductions occurred over a longer period of time
than management estimated due to the efforts required to complete the
separation from Monsanto and the transition to new business systems and
methodologies. In the fourth quarter of 1999, Solutia reversed excess
restructuring reserves due to the completion of the actions at a lower cost
than contemplated in the 1996 plan. A reversal of $1 million ($1 million
aftertax) was made to eliminate a reserve for headcount reductions after
the final stage of headcount reductions was carried out. A second reversal
of $1 million ($1 million aftertax) was made to eliminate a reserve
recorded to shutdown a non-strategic facility after that shutdown was
completed at a lower cost.
     During 1998, actions taken under the 1996 restructuring plan included
continuing the shutdowns of certain facilities and headcount reductions of
approximately 50 people. The 50 people affected were in almost all areas of
Solutia, but primarily in Solutia's shared service operations, and left the
company by the end of 1998. Solutia also terminated approximately 100
individuals during December 1998 who left Solutia on various dates in the
first half of 1999. During 1998, evaluations of the costs to complete
Solutia's restructuring plans yielded lower cost estimates for certain of
the restructuring actions. The second quarter 1998 review yielded lower
cost estimates to complete the shutdown of certain facilities and resulted
in the reversal of $3 million ($2 million aftertax) in that quarter. The
third and fourth quarter 1998 reviews yielded downward revisions of the
costs to implement the employment reduction plans due to higher than
anticipated attrition that reduced employment levels without additional
cost to the company. As a result, the company reversed restructuring
reserves of $3 million ($2 million aftertax) in the third quarter 1998 and
$3 million ($2 million aftertax) in the fourth quarter.
     Significant progress was made on the 1996 restructuring during 1997,
with employment being reduced by approximately 600 people. Employees
terminated were from all regions and areas of Solutia, with almost half in
North American manufacturing operations.

<PAGE>
     The following table summarizes the actions of the 1996 plan carried
out during 1997, 1998, and 1999:

<TABLE>
<CAPTION>
                                             Employee       Shutdown
                                            Reductions    of Facilities     Total
                                            -------------------------------------
<S>                                            <C>            <C>            <C>
Balance at January 1, 1997                     $147           $ 30           $177
Amounts utilized                                (80)            (1)           (81)
                                            -------------------------------------
BALANCE AT DECEMBER 31, 1997                     67             29             96
                                            -------------------------------------
Amounts utilized                                (24)            (8)           (32)
Adjustments                                      (6)            (3)            (9)
                                            -------------------------------------
BALANCE AT DECEMBER 31, 1998                     37             18             55
                                            -------------------------------------
Amounts utilized                                (36)           (17)           (53)
Adjustments                                      (1)            (1)            (2)
                                            -------------------------------------
BALANCE AT DECEMBER 31, 1999                   $  -           $  -           $  -
                                            =====================================
</TABLE>

                               37


<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


     In December 1995, Monsanto's Board of Directors approved a plan of
restructuring resulting in a pretax charge of $66 million ($57 million
aftertax). The charge covered the costs of work force reductions, business
consolidations, facility closures, and the exit from nonstrategic
businesses and facilities. Significant progress was made toward the
completion of the 1995 restructuring during 1996. The actions resulted in
reduced employment of approximately 100 people and the closure of certain
facilities. Reviews of the 1995 restructuring reserves during 1997 resulted
in a second quarter reversal of $8 million ($5 million aftertax) due to
lower exit costs associated with the sale and closure of nonstrategic
facilities.
     The following table summarizes the actions of the 1995 plan:

                                                             Shutdown
                                                           of Facilities
                                                           -------------
Balance at January 1, 1997                                     $24
Amounts utilized                                                (8)
Adjustments                                                     (8)
                                                           -------------
BALANCE AT DECEMBER 31, 1997                                     8
                                                           -------------
Amounts utilized                                                (8)
                                                           -------------
BALANCE AT DECEMBER 31, 1998                                   $ -
                                                           =============

     For all of Solutia's restructuring charges, expenses were recorded
based on estimates prepared at the time the restructuring actions were
approved by the Board of Directors. Adjustments to these estimates, shown
in the tables above, were credited to costs of goods sold in the respective
year.

5. ASSET IMPAIRMENTS

An impairment charge of $6 million ($4 million aftertax) was recorded in
the first quarter of 1999 to cost of goods sold primarily to write down a
bulk continuous filament spinning machine as a result of management's
decision to shut down the equipment due to a noncompetitive cost position.
The adjusted carrying value of the machine is $0.5 million. The charge is
due to a Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and Assets to Be Disposed Of,"
review, which indicated that the carrying amount of the assets exceeded the
identifiable, undiscounted cash flows related to the assets. Fair value of
the assets was determined based on estimates of market prices for the
machinery. Operating income derived from the machinery was minimal in the
years ended December 31, 1999, 1998, and 1997.

6. INVESTMENTS IN AFFILIATES

At December 31, 1999, Solutia's investments in affiliates consisted
principally of its 50 percent interests in the Flexsys, L.P. (Flexsys)
rubber chemicals joint venture and the Advanced Elastomers Systems, L.P.
(AES) joint venture for which Solutia uses the equity method of accounting.
Summarized combined financial information for 100 percent of the Flexsys
and AES joint ventures is as follows:

<TABLE>
<CAPTION>
                                               1999           1998          1997
                                               ---------------------------------
<S>                                            <C>            <C>           <C>
Results of operations:
Net sales                                      $869           $838          $865
Gross profit                                    267            256           254
Operating income                                108            116           107
Net income                                       85             94            78

Financial position:
Current assets                                 $398           $438
Noncurrent assets                               518            538
Current liabilities                             275            282
Noncurrent liabilities                           48             54
</TABLE>

7. INVENTORY VALUATION

The components of inventories were:

<TABLE>
<CAPTION>
                                               1999           1998
                                              --------------------
<S>                                           <C>            <C>
Finished goods                                $ 260          $ 252
Goods in process                                121             87
Raw materials and supplies                      109            116
                                              --------------------
Inventories, at FIFO cost                       490            455
Excess of FIFO over LIFO cost                  (119)          (124)
                                              --------------------
TOTAL                                         $ 371          $ 331
                                              ====================
</TABLE>


<PAGE>
     Inventories at FIFO approximate current cost. The effects of LIFO
inventory liquidations were not significant in 1999, 1998 and 1997.

8. INCOME TAXES

The components of income before income taxes were:

<TABLE>
<CAPTION>
                                               1999           1998           1997
                                               ----------------------------------
<S>                                            <C>            <C>            <C>
United States                                  $224           $285           $187
Outside United States                            79             90            103
                                               ----------------------------------
TOTAL                                          $303           $375           $290
                                               ==================================
</TABLE>

     The components of income tax expense charged to operations were:

<TABLE>
<CAPTION>
                                               1999           1998           1997
                                               ----------------------------------
<S>                                             <C>           <C>             <C>
Current:
U.S. federal                                    $48           $ 66            $36
U.S. state                                        6              3              7
Outside United States                            20             25             23
                                               ----------------------------------
                                                 74             94             66
                                               ----------------------------------
Deferred:
U.S. federal                                     18             21             19
U.S. state                                        -              6              2
Outside United States                             5              5             11
                                               ----------------------------------
                                                 23             32             32
                                               ----------------------------------
TOTAL                                           $97           $126            $98
                                               ==================================
</TABLE>

                               38

<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


     Factors causing Solutia's effective tax rate to differ from the U.S.
federal statutory rate were:

<TABLE>
<CAPTION>
                                               1999           1998           1997
                                               ----------------------------------
<S>                                             <C>            <C>            <C>
U.S. federal statutory rate                      35%            35%           35%
U.S. state income taxes                           2              2             2
Tax benefit of foreign sales corporation         (2)            (2)           (2)
Taxes related to foreign income,
net of credits                                   (1)             -             -
Income from equity affiliates
recorded net of tax                              (4)            (2)           (3)
Other                                             2              1             2
                                               ----------------------------------
EFFECTIVE INCOME TAX RATE                        32%            34%           34%
                                               ==================================
</TABLE>

     Deferred income tax balances were related to:

<TABLE>
<CAPTION>
                                               1999           1998
                                              --------------------
<S>                                           <C>            <C>
Property                                      $(197)         $(174)
Postretirement benefits                         399            393
Restructuring reserves                            7             31
Environmental liabilities                        76             72
Inventory                                        (3)             5
Other                                            17             31
                                              --------------------
NET DEFERRED TAX ASSETS                       $ 299          $ 358
                                              ====================
</TABLE>

     Income taxes and remittance taxes have not been recorded on $85 million
in undistributed earnings of subsidiaries, either because any taxes on dividends
would be offset substantially by foreign tax credits or because Solutia intends
to reinvest those earnings indefinitely. It is not practicable to estimate the
tax effect of remitting these earnings to the United States.

9. DEBT OBLIGATIONS

Solutia's debt obligations include commercial paper, notes, and debentures.
The weighted average interest rate on total debt outstanding was 6.8
percent at December 31, 1999, and was 7.0 percent at December 31, 1998.

DEBT MATURING IN ONE YEAR
Debt maturing in one year consisted of commercial paper balances of $511 million
at December 31, 1999, and $0 at December 31, 1998. Interest expense on
commercial paper balances charged to income during 1999, 1998, and 1997, for the
period following the spinoff, were at weighted average rates of 5.5 percent,
5.7 percent, and 5.8 percent, respectively.
     At December 31, 1999, $201 million of outstanding commercial paper
was reclassified from short-term debt to long-term debt based on Solutia's
intention to refinance that amount through the issuance of euro 200 million of
notes, due February 2005.
     Solutia's commercial paper program is principally supported by an
$800 million, five-year revolving credit facility ($800 million facility)
with a syndicate of commercial banks. The $800 million facility is also
available for working capital and other general corporate purposes. This
agreement was amended during November 1999, principally to allow the
issuance of commercial paper in euros, as well as U.S. dollars.
     During November 1999, Solutia put in place a $300 million, 364-day
multi-currency revolving credit agreement ($300 million facility) with a
syndicate of commercial banks. The $300 million facility has terms that are
generally consistent with the terms of the $800 million facility. The
$300 million facility supports Solutia's commercial paper program and is
available for working capital and other general corporate purposes.
     Both the $800 million facility and the $300 million facility contain
various covenants that, among other things, restrict Solutia's ability to
merge with another entity and require Solutia to meet certain leverage and
interest coverage ratios. The company does not anticipate that future
borrowings will be limited by the terms of these agreements. Interest on
amounts borrowed under these credit facilities is expected to approximate
money market rates.


<PAGE>
LONG-TERM DEBT
Long-term debt consisted of the following:

<TABLE>
<CAPTION>
                                               1999           1998
                                               -------------------
<S>                                            <C>            <C>
Commercial paper                               $201           $ -
6.5% notes due 2002                             150            150
7.375% debentures due 2027                      300            300
6.72% debentures due 2037                       150            150
Other                                             4              -
Unamortized debt discount                        (3)            (3)
                                               -------------------
TOTAL                                          $802           $597
                                               ===================
</TABLE>

     Other notes of $4 million were assumed in the acquisition of Vianova
Resins.
     The notes and debentures are unsecured obligations. Interest is
payable semiannually, on April 15 and October 15 of each year. The holders
of the 2037 debentures have the right to require repayment on October 15,
2004. The notes and debentures contain provisions that, among other things,
restrict Solutia's ability to create liens against assets and its ability
to enter into sale and leaseback transactions.

                               39


<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


10. FAIR VALUES OF FINANCIAL INSTRUMENTS

The estimated fair value of Solutia's long-term debt was $761 million as of
December 31, 1999, and $587 million as of December 31, 1998. These
estimates compare with the recorded amount of $802 million in 1999 and
$597 million in 1998.
     The recorded amounts of cash, trade receivables, third-party
guarantees, accounts payable, and short-term debt approximate their fair
values at both December 31, 1999, and December 31, 1998. The estimated fair
value of the company's foreign currency forward contracts approximates
their notional amounts. Notional amounts at December 31, 1999, and December 31,
1998, for purchase contracts were $44 million and $34 million, respectively,
and for sell contracts were $44 million and $34 million, respectively.
     Fair values are estimated by the use of quoted market prices,
estimates obtained from brokers, and other appropriate valuation techniques
and are based upon information available as of December 31, 1999, and
December 31, 1998. The fair-value estimates do not necessarily reflect the
values Solutia could realize in the current market.

11. POSTRETIREMENT BENEFITS

Effective December 31, 1998, the company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," which
standardizes, to the extent practicable, the disclosure requirements for
pensions and other postretirement benefits, and which requires disclosure
of the components of the changes in the benefit obligation and fair values
of plan assets.
     Pension benefits are based on the employee's age, years of service,
and compensation level. The pension plans are funded in accordance with
Solutia's long-range projections of the plans' financial conditions. These
projections take into account benefits earned and expected to be earned,
anticipated returns on pension plan assets, and income tax and other
regulations. Prior to the spinoff, the majority of Solutia's employees
participated in Monsanto's noncontributory pension plans. In conjunction
with the spinoff, Solutia assumed pension liabilities and received related
assets from those plans for its applicable active employees and for certain
former employees who left Monsanto in earlier years.
     The majority of Solutia's employees also participate in benefit
programs that provide certain health care and life insurance benefits for
retired employees. Substantially all regular, full-time U.S. employees and
certain employees in other countries may become eligible for these benefits
if they reach retirement age while employed by Solutia. These
postretirement benefits are unfunded and are generally based on the
employee's years of service and/or compensation level. The costs of
postretirement benefits are accrued by the date the employees become
eligible for the benefits. In connection with the spinoff, Solutia assumed
retiree medical liabilities for its applicable active employees and for
approximately two-thirds of the retired U.S. employees of Monsanto.
     During the second quarter of 1998, Solutia amended certain of its
postretirement health care plans, primarily to adjust cost-sharing
provisions. The amendment resulted in a $161 million reduction in the
company's accumulated postretirement benefit obligation, which is being
amortized over the average remaining service life of plan participants of
approximately 12 years.
     Net pension cost for 1997 consisted of $9 million of net pension
costs incurred subsequent to the spinoff and $19 million of cost
allocations from Monsanto. Similarly, the 1997 postretirement benefit cost
consisted of $23 million of postretirement benefit costs incurred
subsequent to the spinoff and $31 million of cost allocations from
Monsanto. For the 1999, 1998, and the four months of 1997 subsequent to the
spinoff, the company's pension and healthcare and other benefit costs were
as follows:

<TABLE>
<CAPTION>
                                                Pension Benefits                   Healthcare and Other Benefits
                                        -----------------------------              -----------------------------
                                         1999        1998        1997              1999         1998        1997
                                        -----------------------------              -----------------------------
<S>                                     <C>         <C>          <C>               <C>          <C>          <C>
Service costs for benefits earned       $  38       $  33        $ 11              $ 11         $ 11         $ 4
Interest cost on benefit obligation       132         130          52                49           54          20
Assumed return on plan assets            (153)       (147)        (53)                -            -           -
Prior service costs                        21          19           4               (18)         (12)          -
Transition asset                          (10)        (10)         (4)                -            -           -
Unrecognized net (gain)/loss               (3)         (3)         (1)                6            1          (1)
                                        -----------------------------              -----------------------------
TOTAL                                   $  25       $  22        $  9              $ 48         $ 54         $23
                                        =============================              =============================
</TABLE>


                               40

<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Components of the changes in fair value of plan assets, changes in
the benefit obligation, and the funding status of Solutia's postretirement
plans are as follows:

<TABLE>
<CAPTION>
                                                                                    Healthcare and
                                                    Pension Benefits                Other Benefits
                                                   ------------------              ----------------
                                                     1999        1998              1999       1998
                                                   ------------------              ----------------
<S>                                                <C>         <C>                 <C>        <C>
CHANGES IN FAIR VALUE OF PLAN ASSETS
Fair value of plan assets at January 1             $1,910      $1,834              $  -       $   -
Actual return on plan assets                          349         288                 -           -
Acquisitions                                            2           -                 -           -
Benefits paid                                        (288)       (212)                -           -
                                                   ------------------              ----------------
FAIR VALUE OF PLAN
ASSETS AT DECEMBER 31                              $1,973      $1,910              $  -       $   -
                                                   ==================              ================

CHANGES IN BENEFIT OBLIGATION
Benefit obligation at January 1                    $1,983      $1,824              $726       $ 918
Service costs                                          38          33                11          11
Interest cost                                         132         130                49          54
Participant contributions                               -           -                 2           1
Actuarial (gain)/loss                                 (54)        214                12         (19)
Acquisitions                                           21           -                 -           -
Benefits paid                                        (300)       (229)              (80)        (78)
Plan amendments                                        13          11                 -        (161)
                                                   ------------------              ----------------
BENEFIT OBLIGATION AT DECEMBER 31                  $1,833      $1,983              $720       $ 726
                                                   ==================              ================
</TABLE>

     Plan assets consist principally of common stocks and U.S. government
and corporate obligations. Contributions to the pension benefit plans were
neither required nor made in 1999 and 1998 because Solutia's principal
pension plan is adequately funded, using assumed returns.
     The funded status of Solutia's postretirement benefit plans at
December 31, 1999, and 1998, was as follows:

<TABLE>
<CAPTION>
                                                                                  Healthcare and
                                                    Pension Benefits              Other Benefits
                                                    ----------------             -----------------
                                                    1999        1998             1999         1998
                                                    ----------------             -----------------
<S>                                                 <C>        <C>               <C>         <C>
FUNDED STATUS                                       $ 140      $ (73)            $(720)      $(726)
Unrecognized actuarial (gain)/loss                   (464)      (228)               18          11
Unrecognized prior service costs                      149        184              (159)       (176)
Additional liability                                  (25)       (19)                -           -
Unrecognized net transition
(gain)/loss                                           (13)       (23)                -           -
                                                    ----------------             -----------------
ACCRUED NET LIABILITY AT DECEMBER 31                $(213)     $(159)            $(861)      $(891)
                                                    ================             =================
</TABLE>

     The accrued net liability was included in:

<TABLE>
<CAPTION>
                                                                                   Healthcare and
                                                    Pension Benefits               Other Benefits
                                                    ----------------             -----------------
                                                    1999        1998              1999        1998
                                                    ----------------             -----------------
<S>                                                 <C>        <C>               <C>         <C>
Current postretirement liabilities                  $   -      $   -             $ (86)      $ (88)
Long-term postretirement liabilities                 (223)      (168)             (775)       (803)
Less: Other assets                                     10          9                 -           -
                                                    ----------------             -----------------
ACCRUED NET LIABILITY AT DECEMBER 31                $(213)     $(159)            $(861)      $(891)
                                                    ================             =================
</TABLE>

     Certain of Solutia's pension benefit plans are unfunded and therefore
have accumulated benefit obligations in excess of plan assets. Information
regarding these unfunded plans is as follows:

<TABLE>
<CAPTION>
                                                      1999        1998
                                                      ----------------
<S>                                                   <C>         <C>
Projected benefit obligation                          $30         $27
Accumulated benefit obligation                         24          23
Fair value of plan assets                               -          -
</TABLE>


<PAGE>
     The significant actuarial assumptions used to estimate the projected
benefit obligation for the Solutia's principal pension, healthcare, and
other benefit plans were as follows:

<TABLE>
<CAPTION>
                                                                                   Healthcare and
                                                    Pension Benefits               Other Benefits
                                                    ----------------             -----------------
                                                    1999        1998              1999        1998
                                                    ----------------             -----------------
<S>                                                 <C>        <C>               <C>         <C>
Discount rate                                       7.50%       7.00%            7.50%        7.00%
Assumed long-term rate
of return on plan assets                            9.50%       9.50%               -            -

Annual rates of salary increase
(for plans that base benefits
on final compensation level)                        4.50%       4.00%               -            -

Assumed trend rate for
healthcare costs                                       -           -             5.25%        5.00%

Ultimate trend rate for
healthcare costs                                       -           -             5.25%        5.00%
</TABLE>

     A 1 percent change in the assumed health care cost trend rates would
have the following effect as of December 31, 1999:

<TABLE>
<CAPTION>
                                                             1-Percentage-     1-Percentage-
                                                            Point Increase    Point Decrease
                                                            --------------------------------
<S>                                                               <C>             <C>
Effect on total service and
interest cost components                                          $ 1             $ (1)

Effect on postretirement benefit obligation                        10              (11)
</TABLE>

12. EMPLOYEE SAVINGS PLANS

In connection with the spinoff, Monsanto common stock held by the Monsanto
Employee Stock Ownership Plan (ESOP) and related Monsanto ESOP borrowings
were allocated between Solutia and Monsanto. As a result of this
allocation, Solutia received 2.4 million shares of Monsanto common stock
and assumed $29 million of ESOP debt to third parties. Simultaneously,
Solutia created its own ESOP, established a trust to hold the Monsanto
shares, and issued a $29 million loan to the trust. The trust used the
proceeds of the loan to repay the assumed third-party debt. Subsequent to
the spinoff, the ESOP trust was required by government regulations to
divest its holdings of Monsanto common stock and to use the proceeds to
acquire Solutia common stock. The divestiture of Monsanto common stock and
the purchase of Solutia common stock were completed in early 1998. The
trust held approximately 10.7 million shares of Solutia common stock at
December 31, 1999.

                               41

<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


     Substantially all U.S. employees of Solutia are eligible to
participate in the Solutia Inc. Savings and Investment Plan, a 401(k) plan.
Shares held in the ESOP are used to make Solutia's matching contribution to
eligible participants' accounts under this plan. The number of shares
released is computed on each pay date based on a formula that considers the
participant contribution, the Solutia matching rate, and Solutia's closing
stock price. Shares allocated to participant accounts totaled 979,439
shares in 1999, 622,598 shares in 1998, and 232,674 shares in 1997, leaving
2,908,080 unallocated shares as of December 31, 1999. The value of these
contributions was $18 million in 1999, $16 million in 1998, and $10 million
in 1997.  Unallocated shares held by the ESOP are considered outstanding
for earnings per share calculations.  Compensation expense is equal to the
cost of the shares allocated to participants, less dividends paid on the
shares held by the ESOP.  Information regarding the ESOP follows:

<TABLE>
<CAPTION>
                                                      1999     1998    1997
                                                      ---------------------
<S>                                                   <C>      <C>     <C>
Total ESOP expense                                    $ 8      $6      $5
Interest portion of total ESOP expense                  2       2       3
Cash contributions                                     10       7       -
</TABLE>

     For the eight-month period of 1997 prior to the spinoff, Monsanto
ESOP expense and related interest were allocated to Solutia by Monsanto.
Cash contributions and dividends paid on ESOP shares for periods prior to
the spinoff were not applicable to the Solutia ESOP.

13. STOCK OPTION PLANS

The Solutia Inc. 1997 Stock-Based Incentive Plan (1997 Plan) provides
incentives to officers and employees of Solutia and its subsidiaries
directly linked to the price of Solutia's stock. The 1997 Plan is the
company's current stock-based incentive plan for management.
     The 1997 Plan authorizes up to 7,800,000 shares of Solutia common
stock for grants of non-qualified and incentive stock options, stock
appreciation rights, restricted stock awards, and bonus stock awards to
Solutia's officers and employees. The shares used may be either newly
issued shares, treasury shares, or a combination. Under the 1997 Plan, the
exercise price of a stock option must be no less than the fair market value
of Solutia's common stock on the grant date. Additionally, the 1997 Plan
provides that the term of any stock option granted under the plan may not
exceed 10 years. At December 31, 1999, approximately 1,341,608 shares of
Solutia's common stock remained available for grants under the plan.
     During 1999, nonqualified options to purchase 571,000 shares of
Solutia common stock were granted under the 1997 Plan to current executive
officers and other senior executives as a group, and non-qualified stock
options to purchase 1,449,325 shares were granted to other employees at an
average exercise price of $20.61 per share. Total shares covered by options
granted under the 1997 Plan to current executive officers and other senior
executives as a group and other employees were 1,643,000 and 5,200,392,
respectively, through December 31, 1999. The options granted to Solutia's
executive officers and other senior executives are performance options that
become exercisable upon the earlier of achievement of specified share price
targets or the ninth anniversary of the option grant. The options granted
to the other management employees are time-based. They generally become
exercisable in thirds, one-third on each of the first three anniversaries
of the option grant date.
     The Solutia Inc. Non-Employee Director Compensation Plan (NEDCP)
provides incentives to non-employee members of Solutia's Board of
Directors. The NEDCP authorizes up to 400,000 shares for grants of non-
qualified stock options and for grants of deferred shares in payment of all
or a portion of the annual retainer for the non-employee directors. Only
treasury shares may be used. Under the NEDCP, the exercise price of a stock
option must be no less than the fair market value of Solutia's common stock
on the grant date and the term of any stock option granted under the plan
may not exceed 10 years. At December 31, 1999, 274,995 shares of Solutia's
common stock remained available for grants under the Plan. Shares covered
by options granted, and deferred shares credited to non-employee directors'
accounts, during 1999, 1998 and 1997 totaled 34,333, 16,000, and 74,672,
respectively.
     Certain options granted under Monsanto's stock option plans (Monsanto
options) to Solutia employees in 1997 prior to the spinoff were converted
into Solutia options with adjustments to preserve their value. In addition,
unexercised Monsanto options granted to Solutia and Monsanto employees
prior to 1997 were converted into two awards, one based on Monsanto common
stock and one based on Solutia common stock, with the same overall value at
the time of the spinoff as the original Monsanto award.
     As permitted by SFAS No. 123, "Accounting for Stock-Based
Compensation," Solutia has elected to continue following the guidance of
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees," for measurement and recognition of stock-based
transactions with employees. Accordingly, no compensation cost has been
recognized for Solutia's option plans. Had the determination of
compensation cost for these plans been based on the fair value at the grant
dates for awards under these plans, consistent with the method of

                               42

<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SFAS No. 123, Solutia's net income would have been reduced to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
                                                     1999              1998              1997
                                                    -----------------------------------------
<S>                                                 <C>               <C>               <C>
NET INCOME:
As reported                                         $ 206             $ 249             $ 192
Pro forma                                             187               224               159

DILUTED EARNINGS PER SHARE:
As reported                                         $1.80             $2.03             $1.55
Pro forma                                            1.63              1.82              1.29
</TABLE>

     Compensation expense resulting from the fair value method of SFAS No.
123 may not be representative of compensation expense to be incurred on a
pro forma basis in future years.
     The fair value of each option grant is estimated on the date of grant
by use of the Black-Scholes option-pricing model.
     The following weighted-average assumptions were used to calculate the
expense attributable to Solutia for Monsanto options granted to Solutia
employees in 1997:

<TABLE>
<CAPTION>
                                                    1997
                                                    ----
<S>                                                 <C>
Expected dividend yield                              0.3%
Expected volatility                                 27.0%
Risk-free interest rates                             6.3%
Expected option lives (years)                        4.0
</TABLE>

     The following weighted-average assumptions were used for grants of
Solutia options in 1999, 1998, and 1997:

<TABLE>
<CAPTION>
                                                    1999              1998              1997
                                                    ----------------------------------------
<S>                                                 <C>               <C>               <C>
Expected dividend yield                              0.2%              0.2%              0.2%
Expected volatility                                 34.0%             28.0%             25.0%
Risk-free interest rates                             6.0%              5.1%              5.9%
Expected option lives (years)                        5.0               5.0               4.0
</TABLE>

     The weighted-average fair values of options granted during 1999,
1998, and 1997 were $8.05, $9.33, and $4.83 per share, respectively.
     A summary of the status of the Solutia's stock option plans for years
ended December 31, 1999, and 1998, and the period subsequent to the spinoff
through December 31, 1997, follows:

<TABLE>
<CAPTION>
                                                                            Outstanding
                                                                 ---------------------------------
                                               Exercisable                        Weighted-Average
                                                 Shares            Shares          Exercise Price
                                               ---------------------------------------------------
<S>                                            <C>               <C>                   <C>
September 1, 1997                              10,269,960        24,122,741            $13.48
                                               ---------------------------------------------------
Granted                                                           4,640,172             19.23
Exercised                                                          (752,102)             9.29
Expired                                                            (118,411)            16.32
                                               ---------------------------------------------------
DECEMBER 31, 1997                               9,517,858        27,892,400             14.53
                                               ---------------------------------------------------
Granted                                                             273,567             27.12
Exercised                                                        (1,833,225)            12.19
Expired                                                            (475,637)            16.22
                                               ---------------------------------------------------
DECEMBER 31, 1998                              17,116,842        25,875,105             14.79
                                               ---------------------------------------------------
Granted                                                           2,054,658             20.61
Exercised                                                          (678,710)            10.93
Expired                                                            (495,232)            18.43
                                               ---------------------------------------------------
DECEMBER 31, 1999                              18,852,246        26,737,821            $15.27
                                               ===================================================
</TABLE>


<PAGE>
    The following table summarizes information about stock options
outstanding at December 31, 1999:

OPTIONS OUTSTANDING:

<TABLE>
<CAPTION>
                                       Weighted-Average
   Range of                               Remaining            Weighted-Average
Exercise Prices        Shares          Contractual Life         Exercise Price
                     ----------------------------------------------------------
<S>                  <C>                  <C>                      <C>
  $ 3 to  7           4,661,143           3.3 years                $ 5.87
    8 to 11              47,979           5.9 years                 10.12
   12 to 15           1,399,674           6.3 years                 12.60
   16 to 18          13,922,189           7.0 years                 16.44
   19 to 22           6,461,526           8.3 years                 19.70
   23 to 29             245,310           8.4 years                 27.62
                     ----------------------------------------------------------
  $ 3 to 29          26,737,821           6.7 years                $15.27
                     ==========================================================
</TABLE>

OPTIONS EXERCISABLE:

<TABLE>
<CAPTION>
   Range of                                               Weighted-Average
Exercise Prices                       Shares               Exercise Price
                                    --------------------------------------
<S>                                 <C>                       <C>
  $ 3 to  7                          4,661,143                $ 5.87
    8 to 11                             47,979                 10.12
   12 to 15                          1,390,741                 12.59
   16 to 18                          9,354,897                 16.46
   19 to 22                          3,335,046                 19.32
   23 to 29                             62,440                 27.35
                                    --------------------------------------
  $ 3 to 29                         18,852,246                $14.08
                                    ======================================
</TABLE>

14. CAPITAL STOCK

Solutia's Board of Directors declared a dividend of one preferred stock
purchase right for each share of Solutia's common stock issued in the
distribution of shares by Monsanto to its shareholders on the effective
date of the spinoff and authorized the issuance of one right for each share
of common stock issued after the effective date of the spinoff until the
earlier of the date the rights become exercisable and the termination date
of the rights plan. If a person or group acquires beneficial ownership of
20 percent or more, or announces a tender offer that would result in
beneficial ownership of 20 percent or more, of Solutia's outstanding common
stock, the rights become exercisable. Then, for every right held, the owner
will be entitled to purchase one one-hundredth of a share of a series of
preferred stock for $125. If Solutia is acquired in a business combination
transaction while the rights are outstanding, for every right held, the
holder will be entitled to purchase, for $125, common shares of the
acquiring company having a market value of $250. In addition, if a person
or group acquires beneficial ownership of 20 percent or more of Solutia's
outstanding common stock, for every right held, the holder (other than such
person or members of such group) will be entitled to purchase, for $125, a
number of shares of Solutia's common stock having a market value of $250.
Furthermore, at any time after a person or group acquires beneficial
ownership of 20 percent or more (but less than 50 percent) of Solutia's
outstanding common stock, Solutia's Board of Directors may, at its option,
exchange part or all of the rights (other than rights held by the acquiring
person or group) for shares of Solutia's common stock on a one-share-for-
every-one-right basis. At any time

                               43


<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


prior to the acquisition of such a 20 percent position, Solutia can
redeem each right for $0.01. The Board of Directors is also authorized
to reduce the aforementioned 20 percent thresholds to not less than 10
percent. The rights expire in the year 2007.
     The company has 10 million shares of preferred stock, par value
$0.01 per share, authorized. As of December 31, 1999, there were no
preferred shares issued or outstanding.

15. COMMITMENTS AND CONTINGENCIES

Commitments, principally in connection with uncompleted additions to
property, were approximately $100 million at December 31, 1999. Solutia
was contingently liable as a guarantor for bank loans totaling
approximately $14 million at December 31, 1999. In addition, as of
December 31, 1999, the company was contingently liable under letters of
credit, primarily related to environmental remediation, totaling
$43 million. Solutia's future minimum payments under noncancelable operating
leases and unconditional purchase obligations are $26 million for 2000,
$22 million for 2001, $19 million for 2002, $52 million for 2003,
$13 million for 2004, and $93 million thereafter.
     Solutia has entered into agreements with customers to supply a
guaranteed quantity of certain products annually at prices specified in
the agreements. In return, the customers have advanced funds to Solutia
to cover the costs of expanding capacity to provide the guaranteed
supply. Solutia has recorded the advances as deferred credits and
amortizes the amounts to income as the customers purchase the products.
At December 31, 1999 and 1998, the unamortized deferred credits were
approximately $183 million and $137 million, respectively.
     The more significant concentrations in Solutia's trade receivables
at year-end were:

<TABLE>
<CAPTION>

                                       1999              1998
                                       ----------------------
<S>                                    <C>               <C>
U.S. chemical industry                 $51               $55
U.S. carpet industry                    41                51
European glass industry                 50                36
European chemical industry              28                 -
</TABLE>

   Management does not anticipate losses on its trade receivables in
excess of established allowances.
   Solutia's Statement of Consolidated Financial Position included
accrued liabilities of $201 million and $198 million at December 31,
1999 and 1998, respectively, for the remediation of identified waste
disposal sites. Expenditures related to remediation activities were
$22 million in 1999, $22 million in 1998, and $39 million in 1997. Solutia
recorded charges against cost of goods sold of approximately $34 million
($22 million aftertax) in the fourth quarter of 1997 to increase its
environmental reserves. This action was required in order to reflect
revised estimates for changed circumstances relating to the ultimate
outcome of previously known environmental matters. These revised
estimates were based upon further discussions with environmental
authorities and the availability of new information from recently
completed environmental studies. These events and activities help to
define better and to quantify the company's ultimate liability for these
matters.
   Effective January 1, 1997, Solutia adopted SOP 96-1, "Environmental
Remediation Liabilities." SOP 96-1 is the authoritative guidance regarding
the recognition, measurement and disclosure of environmental remediation
liabilities. A charge to cost of goods sold of approximately $10 million
($6 million aftertax) was recorded in the first quarter of 1997 associated
with the adoption of SOP 96-1. The timing of this charge was predicated upon
an application of SOP 96-1 in which liabilities arising under the Resource
Conservation and Recovery Act (RCRA) should be recorded when a RCRA corrective
measures study (CMS) is completed. Subsequently, Solutia reassessed its
application of SOP 96-1 and concluded that these liabilities would be recorded
over a continuum of events leading up to and including a CMS. As a result,
Solutia recorded in the fourth quarter of 1997, additional charges
against cost of goods sold of approximately $38 million ($24 million
aftertax) associated with these RCRA environmental liabilities.
   Uncertainties related to all of Solutia's environmental liabilities include
evolving government regulations, the method and extent of remediation, and
future changes in technology. Because of these uncertainties, Solutia estimates
that potential future expenses associated with these liabilities could be an
additional $20 million to $30 million. Although the ultimate costs and results
of remediation of contaminated sites cannot be predicted with certainty, they
are not expected to have a material adverse effect on Solutia's consolidated
financial position, liquidity, or profitability in any one year.
   During the first quarter of 1999, Solutia recorded a $29 million
($18 million aftertax) charge to cost of goods sold to increase reserves
related to the anticipated settlement of two lawsuits brought against
Monsanto, for which Solutia assumed responsibility in the 1997 spinoff
from Monsanto, relating to the alleged discharge of polychlorinated
biphenyls (PCBs) from the Anniston, Alabama, plant site, and to
environmental remediation of the allegedly affected areas. The
anticipated settlement of these cases provided information that allowed
management to estimate more accurately its position with respect to such
litigation.

<PAGE>
   Monsanto is a party to a number of lawsuits and claims relating to
Solutia, for which Solutia assumed responsibility in the spinoff. In
addition, Solutia is also a named party in a number of lawsuits and
claims directly. Solutia intends to defend all suits and claims
vigorously. Such matters arise out of the normal course of business and
relate to product liability; government regulation, including
environmental issues; employee relations; and other issues. Certain of
the lawsuits and claims seek damages in very large amounts. Although the
results of litigation cannot be predicted with certainty, management's
belief is that the final outcome of such litigation will not have a
material adverse effect on Solutia's consolidated financial position,
liquidity or profitability, as applicable, in any one year.


                               44


<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. INTERCOMPANY TRANSACTIONS

Transactions with Monsanto before the spinoff, included in the Statement
of Consolidated Income, are summarized as follows:

<TABLE>
<CAPTION>
                                                      Year Ended
                                                   December 31, 1997
                                                   -----------------
<S>                                                      <C>
Intercompany sales                                       $42
General and administrative services                       12
Interest expense                                          26
</TABLE>

     Intercompany sales were made at Monsanto's established transfer
prices. In addition, the costs for certain general and administrative
services were allocated to Solutia. As further discussed in Note 1,
Monsanto discontinued its allocation of the cost of general and
administrative expenses to Solutia, effective April 1, 1997, as part of
its plan for separation. Such expenses were specifically identified and
segregated as part of Solutia's ongoing cost infrastructure. Interest
expense charged to Solutia represents an allocation from Monsanto of its
total interest expense.

17. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activity." SFAS No. 133 provides comprehensive and consistent standards
for the recognition and measurement of derivative and hedging
activities. It requires that derivatives be recorded on the Statement of
Consolidated Financial Position at fair value. It also establishes
criteria for hedges of changes in the fair value of assets, liabilities,
or firm commitments, hedges of variable cash flows of forecasted
transactions, and hedges of foreign currency exposures of net
investments in foreign operations. Changes in the fair value of
derivatives that do not meet the criteria for hedges would be recognized
in the Statement of Consolidated Income. During June 1999, FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133,"
to defer the effective date of SFAS No. 133 by one year. The standard
will now be effective for Solutia as of January 1, 2001. Based on
analyses performed to date, Solutia does not expect the adoption of SFAS
No. 133 to have a material effect on its consolidated financial
statements.

18. SUPPLEMENTAL DATA

Supplemental income statement data were:

<TABLE>
<CAPTION>
                                                        1999              1998             1997
                                                        ----------------------------------------
<S>                                                     <C>               <C>             <C>
Raw material and energy costs                           $984              $994            $1,102
Employee compensation and benefits                       728               757               746
Current income and other taxes                           166               176               149
Rent expense                                              26                26                28
Technological expenses:
  Research and development                                58                60                60
  Engineering, commercial development
  and patent                                              22                23                27
                                                        ----------------------------------------
Total technological expenses                              80                83                87
Interest expense:
  Total interest cost                                     53                49                49
  Less capitalized interest                               13                 6                 8
                                                        ----------------------------------------
Net interest expense                                      40                43                41
</TABLE>

19. SEGMENT AND GEOGRAPHIC DATA

During December 1999, Solutia refined its management structure to align
with its growth strategy. Solutia's management is now organized around four
strategic business platforms: Performance Films, Resins and Additives,
Specialties, and Integrated Nylon. Resins and Additives and Specialties
have been aggregated into the Specialty Products reportable segment because
of their similar economic characteristics, as well as their similar
products and services, production processes, types of customers, and
methods of distribution. Solutia's new reportable segments and
representative products are as follows:


<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
PERFORMANCE FILMS             SPECIALTY PRODUCTS              INTEGRATED NYLON
-----------------------------------------------------------------------------------------------
<C>                           <C>                             <C>
Saflex(R) plastic interlayer  Resins and additives,           Intermediate "building
                              including Alftalat(R)           block" chemicals
KeepSafe(R), Saflex           polyester resins, Resimene(R)
Inside(TM), and KeepSafe      and Maprenal(R) crosslinkers,   Merchant polymer and
Maximum(TM) glass for         Synthacryl(R) acrylic resins,   nylon extrusion polymers,
residential security and      and Alnovol(R) phenolic resins  including Vydyne(R) and Ascend(TM)
hurricane protection windows
                              Therminol(R) heat transfer      Carpet fibers, including
Llumar(R), Vista(R), and      fluids                          the Wear-Dated(R) and Ultron
Gila(R) professional and                                      VIP(R) brands
after-market window films     Dequest(R) water treatment
                              chemicals                       Industrial nylon fibers
Conductive and anti-
reflective coated films       Skydrol(R) hydraulic fluids     Acrilan(R) acrylic fibers
and deep-dyed films           and SkyKleen(R) cleaning        for apparel, upholstery
                              fluid for aviation              fabrics, craft yarns, and
Gelva(R) pressure-sensitive                                   other applications
adhesives                     Phosphorus-based
                              materials for food and
Santicizer(R) plasticizers    beverage ingredients,
and other polymer modifiers   personal care products,
                              industrial cleaners, and
                              fire retardants
</TABLE>

                               45

<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Internally, Solutia reports its financial results under the revised
management structure. As required by Statement of Financial Accounting
Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and
Related Information," financial information for the years ended December 31,
1999, 1998 and 1997, that is included in this annual report has been
restated to conform to the new segment structure.
     In April 1999, Solutia announced the agreement with FMC Corporation
to form a joint venture to manufacture and market phosphorus chemicals.
Solutia will contribute its phosphorus derivatives business and will hold a
50 percent ownership share. The formation of the joint venture is being
reviewed by the Federal Trade Commission under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976. It is expected that the joint venture
will be consummated during the first half of 2000.
     Accounting policies of the segments are the same as those described
in the summary of significant accounting policies in Note 2. However,
segment profit reflects only operating expenses that are directly
attributable to the segment. Unallocated service costs are managed
centrally and primarily include costs of technology, engineering, and
manufacturing services that are provided to the segments. These amounts
also include corporate administration costs. The company accounts for
intersegment sales at agreed upon transfer prices. Intersegment sales are
eliminated in consolidation. Segment assets consist primarily of customer
receivables, finished goods inventories, and fixed assets directly
associated with the production processes of the segment (direct fixed
assets). Segment depreciation and amortization is based upon direct fixed
assets. Unallocated assets consist primarily of goodwill, deferred taxes,
certain investments in equity affiliates, and indirect fixed assets.
     Solutia's 1999, 1998, and 1997 segment information follows:

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                    ----------------------------------------------------------------------------------------------
                                                1999                              1998                           1997
                                    ----------------------------     ----------------------------     ---------------------------
                                     Net     Intersegment             Net    Intersegment              Net  Intersegment
SEGMENT:                            Sales       Sales     Profit     Sales      Sales      Profit     Sales    Sales       Profit
                                    ----------------------------     ----------------------------     ---------------------------
<S>                                 <C>          <C>      <C>        <C>          <C>       <C>       <C>        <C>        <C>
Performance Films                   $  713       $ -      $ 189      $  614       $ -       $ 168     $  651     $  -       $ 177
Specialty Products                     615         2        159         613         3         152        635       13         137
Integrated Nylon                     1,508         4        289       1,613         4         376      1,699       10         350
                                    ----------------------------     ----------------------------     ---------------------------
SEGMENT TOTALS                       2,836         6        637       2,840         7         696      2,985       23         664
RECONCILIATION TO
 CONSOLIDATED TOTALS:
  Sales eliminations                    (6)       (6)                    (7)       (7)                   (23)     (23)
  Other revenues                         -                                2                                7
  Less unallocated service costs:
    Cost of goods sold                                     (124)                              (70)                           (148)
    Marketing, administrative and
    technological expenses                                 (216)                             (240)                           (226)
  Amortization expense                                       (3)                                -                               -
  Equity earnings from affiliates                            36                                25                              31
  Interest expense                                          (40)                              (43)                            (41)
  Other income (expense)-net                                 13                                 7                              10
CONSOLIDATED TOTALS:
                                    ----------------------           -----------------------          ----------------------
NET SALES                           $2,830       $ -                 $2,835       $ -                 $2,969     $  -
                                    ======================------     =======================-----     ======================-----
INCOME BEFORE INCOME TAXES                                $  303                            $ 375                           $ 290
                                                          ======                            =====                           =====

<CAPTION>
                                                                   Year Ended December 31,
                           ------------------------------------------------------------------------------------------------------
                                         1999                               1998                              1997
                           ---------------------------------  ---------------------------------  --------------------------------
                                                Depreciation                       Depreciation                      Depreciation
                                      Capital       and                  Capital       and                Capital         and
SEGMENT:                   Assets  Expenditures Amortization  Assets  Expenditures Amortization  Assets Expenditures Amortization
                           ---------------------------------  ---------------------------------  --------------------------------
<S>                        <C>         <C>         <C>        <C>         <C>         <C>        <C>        <C>         <C>
Performance Films          $  538      $ 21        $ 30       $  376      $ 24        $ 27       $  358     $ 33         $ 30
Specialty Products            693         8          18          340        20          19          341       18           21
Integrated Nylon              991       189          57          890        81          56          873       87           52
                           ---------------------------------  ---------------------------------  --------------------------------
SEGMENT TOTALS              2,222       218         105        1,606       125         102        1,572      138          103
RECONCILIATION TO
 CONSOLIDATED TOTALS:
   Unallocated amounts      1,548        39          46        1,159        33          45        1,196       27           42
                           ---------------------------------  ---------------------------------  --------------------------------
CONSOLIDATED TOTALS        $3,770      $257        $151       $2,765      $158        $147       $2,768     $165         $145
                           =================================  =================================  ================================
</TABLE>

                               46

<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Solutia's geographic information for 1999, 1998, and 1997 follows:


<TABLE>
<CAPTION>
                                              Net Sales                                       Long-Lived Assets
                                ------------------------------------                        ---------------------
                                 1999           1998           1997                          1999           1998
                                ------------------------------------                        ---------------------
<S>                             <C>            <C>            <C>                           <C>              <C>
United States                   $1,992         $2,009         $2,030                        $1,001           $820
Other countries                    838            826            939                           315            124
                                ------------------------------------                        ---------------------
Consolidated totals             $2,830         $2,835         $2,969                        $1,316           $944
                                ====================================                        =====================
</TABLE>

20. QUARTERLY DATA - UNAUDITED

<TABLE>
<CAPTION>
                                               First         Second          Third         Fourth         Total
                                              Quarter        Quarter        Quarter        Quarter        Year
                                  -------------------------------------------------------------------------------
<S>                               <C>         <C>            <C>           <C>            <C>            <C>
Net Sales                         1999        $   652        $   711       $    731       $    736       $  2,830
                                  1998            720            745            703            667          2,835

Gross Profit                      1999            105            193            183            171            652
                                  1998            187            206            188            169            750

Operating Income                  1999             26            102             94             72            294
                                  1998             99            115             95             77            386

Net Income                        1999             23             71             61             51            206
                                  1998             64             72             58             55            249

Basic Earnings per Share          1999           0.21           0.64           0.55           0.46           1.86
                                  1998           0.55           0.62           0.50           0.49           2.16

Diluted Earnings per Share        1999           0.20           0.61           0.53           0.46           1.80
                                  1998           0.51           0.58           0.47           0.46           2.03
Common Stock Price:
1999                              HIGH         24 3/8        26 5/16       22 15/16         18 7/8        26 5/16
                                   LOW         15 7/8        16 1/16         16 1/8         13 1/2         13 1/2

1998                              High             32        30 5/16       30 15/16         28 1/2             32
                                   Low        24 3/16        25 9/16         21 1/2       18 11/16       18 11/16
</TABLE>

     Net income in the first quarter of 1999 includes aftertax charges of
$18 million related to exiting Integrated Nylon's ammonia business, $4 million
related to the write down of an Integrated Nylon bulk continuous filament
spinning machine to fair value, and $18 million related to the anticipated
settlement of certain property claims litigation involving the Anniston,
Alabama, plant site.
     Net income in the second, third, and fourth quarters of 1998 includes
aftertax reversals of excess restructuring reserves established in 1996 of
$2 million, $2 million, and $2 million, respectively. In the third quarter
of 1998, net income includes an aftertax charge of $3 million to reduce the
carrying value of certain slow-moving inventories to their net realizable
value. Net income for the fourth quarter of 1998 includes an aftertax
charge of $4 million that was caused by losses on the disposition of
certain nonsalable inventories.
     Under SFAS No. 128, "Earnings per Share," the quarterly and total
year calculations of basic and diluted earnings per share are based on
weighted average shares outstanding for that quarterly or total year
period, respectively. As a result, the sum of diluted earnings per share
for the quarterly periods may not equal total year earnings per share.

21. SUBSEQUENT EVENT

On February 14, 2000, Solutia completed the offering of euro 200 million of
notes, due February 14, 2005. The notes are listed on the Luxembourg Stock
Exchange and bear interest at 6.25 percent per year.

                               47