Bayer Schering Pharma Aktiengesellschaft (SHR) SC TO-C Information about tender offer

Exhibit 99.17

Schering AG
Annual Financial Statements
as of December 31, 2003

BALANCE SHEET OF SCHERING AG
(€ thousand)

ASSETS	NOTE				Dec. 31, 2003			Dec. 31, 2002
Intangible assets		(3	)			224,871			282,657
Tangible fixed assets		(4	)			542,933			518,638
Shares in affiliated companies		(5	)	1,535,119			1,527,664
Other financial assets		(6	)	37,706			16,428
Financial assets						1,572,825			1,544,092
Fixed assets		(2	)			2,340,629			2,345,387
Inventories		(7	)			730,128			660,400
Trade receivables				127,586			111,038
Receivables from affiliated companies				398,057			317,645
Other receivables and assets		(8	)	219,250			127,538
Receivables and other assets						744,893			556,221
Securities and liquid assets		(9	)			799,556			702,412
Current assets						2,274,577			1,919,033
						4,615,206			4,264,420

EQUITY AND LIABILITIES	NOTE				Dec. 31, 2003			Dec. 31, 2002
Subscribed capital *)		(10	)	194,000			196,500
Capital reserves		(10	)	334,494			331,994
Revenue reserves		(11	)	811,467			646,675
Unappropriated profit				223,420			216,745
Equity						1,563,381			1,391,914
Special tax-allowable reserves		(12	)			195,118			208,032
Provisions for pensions and similar obligations		(13	)	1,224,563			1,181,549
Other provisions		(14	)	575,938			535,313
Provisions						1,800,501			1,716,862
Liabilities to banks				33,005			282
Other liabilities				1,023,201			947,330
Liabilities		(15	)			1,056,206			947,612
						4,615,206			4,264,420

*) Contingent capital 16,538

2

INCOME STATEMENT OF SCHERING AG
(€ thousand)

	NOTE			2003		2002
Net Sales		(18	)		2,338,332		2,280,398
Cost of sales		(19	)	-	971,147	-	913,883
Gross profit		(19	)		1,367,185		1,366,515
Cost of
Marketing and selling				-	390,506	-	355,350
engineering and administration		(20	)	-	265,406	-	274,474
research and development				-	649,169	-	674,040
Other operating income		(21	)		498,358		418,608
Other operating expenses		(22	)	-	258,627	-	295,256
Operating profit					301,835		186,003
Net income from long-term equity investments		(23	)		202,558		158,096
Interest result		(24	)	-	17,847	-	54,158
Other financial result		(25	)		56,614	-	69,709
Profit from ordinary activities					543,160		220,232
Extraordinary result		(26	)	-	82,344		302,101
Net profit before tax					460,816		522,333
Income taxes		(27	)	-	18,721	-	90,588
Profit for the period					442,095		431,745
Appropriation of net profit
Profit for the period					442,095		431,745
Retained profits brought forward					2,325		—
Appropriation to revenue reserves				-	221,000	-	215,000
Unappropriated profit					223,420		216,745

The annual financial statements and the management report of Schering AG for fiscal year 2003 are published in theBundesanzeiger(German Federal Gazette) and filed with the commercial register of the Charlottenburg, Berlin, Local Court. The management report of Schering AG has been combined with the group management report. It has been published on pages 25 to 50 of our 2003 Annual Report.

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STATEMENT OF CHANGES IN FIXED ASSETS(€ thousand)

	Cost
	Jan. 1, 2003		Additions		Disposals		Reclassifications		Dec. 31, 2003
Industrial and similar rights and assets		350,890		13,434		22,090				342,234
Intangible assets		350,890		13,434		22,090		—		342,234
Land, land rights, and buildings, including buildings on third-party land		673,211		6,452		1,604		2,291		680,350
Technical equipment and machinery		916,989		55,335		21,531		36,079		986,872
Other equipment, operating and office equipment		391,048		47,800		35,018		2,733		406,563
Advance payments and assets under construction		53,374		16,400		549		- 41,103		28,122
Tangible fixed assets		2,034,622		125,987		58,702		0		2,101,907
Shares in affiliated companies		1,678,678		7,480		25				1,686,133
Other equity investments		24,659		10,078						34,737
Other loans		7,343		23,121		3,545				26,919
Financial assets		1,710,680		40,679		3,570		—		1,747,789
Fixed assets of Schering AG		4,096,192		180,100		84,362		0		4,191,930

SHAREHOLDINGS OF SCHERING AG(as of Dec. 31, 2003)

	% of
Name and location of company	Equity		Equity1		Result1		Sales1		Employees
Affiliated companies
Germany
Schering Deutschland Holding AG, Hamburg2		100.0		276		29		408		616
Jenapharm GmbH & Co. KG, Jena2		100.0		47		41		163		1,069
Schering Finnland Holding GmbH, Berlin		100.0		207		29		—		—
Europe (excl. Germany)
N.V. Schering S.A., Diegem/Belgium		100.0		24		2		71		148
Schering Oy, Turku/Finland2		100.0		179		49		221		878
Schering S.A., Lys-Lez-Lannoy/France2		99.9		193		3		393		1,554
Schering Holdings Ltd., Burgess Hill/United Kingdom2		100.0		24		10		155		325
Schering S.p.A., Milan/Italy2		100.0		92		22		315		882
Schering Nederland B.V., Weesp/Netherlands		100.0		37		5		65		92
Schering Wien Ges.m.b.H., Vienna/Austria		100.0		297		8		63		110
Schering Lusitana Lda., Mem Martins/Portugal		100.0		15		2		53		133
Schering (Schweiz) AG, Baar/Switzerland		100.0		10		3		64		79
Schering Espana S.A., Madrid/Spain2		99.9		92		16		214		667
Schering Alman Ilaç ve Ecza Ticaret Ltd., Sirketi, Istanbul/Turkey		100.0		11		0		61		171

1	Amounts in€m. The amounts in the local currency of companies located outside the euro zone were translated at the middle rate at December 31, 2003 (equity and results only). Sales were translated at the average rate for the year.
2	Amounts include consolidated subsidiaries

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Accumulated depreciation, amortization, and write-downs
											Carrying
				Reversals of							amounts
Jan. 1, 2003		Additions		write-downs		Disposals		Reclassifications		Dec. 31, 2003	Dec. 31, 2003		Dec. 31, 2002
	68,233		70,909				21,779			117,363		224,871		282,657
	68,233		70,909		—		21,779		—	117,363		224,871		282,657
	420,009		18,835				1,552			437,292		243,058		253,202
	789,587		43,594				21,065		112	812,228		174,644		127,402
	306,388		35,775				32,597		-112	309,454		97,109		84,660
												28,122		53,374
	1,515,984		98,204		—		55,214		0	1,558,974		542,933		518,638
	151,014									151,014		1,535,119		1,527,664
	13,709		6,670							20,379		14,358		10,950
	1,865		2,638				932			3,571		23,348		5,478
	166,588		9,308		—		932		—	174,964		1,572,825		1,544,092
	1,750,805		178,421				77,925		0	1,851,301		2,340,629		2,345,387

	% of
Name and location of company	Equity		Equity1		Result1		Sales1		Employees
North America
Schering Berlin Inc., Wilmington, Del./U.S.A.2		100.0		746		53		1,202		3,714
Berlex Canada Inc., Lachine/Canada		100.0		12		4		66		214
Latin America
Schering Argentina S.A.I.C., Buenos Aires/Argentina		100.0		13		6		47		212
Schering do Brasil Ltda., Sao Paulo/Brazil		100.0		43		3		118		743
Schering Colombiana S.A., Bogotá/Colombia		100.0		25		6		62		310
Schering Mexicana S.A., Mexico City/Mexico		100.0		41		8		75		254
Asia/Australia
P.T. Schering Indonesia, Jakarta/Indonesia		85.0		8		1		18		355
Nihon Schering K.K., Osaka/Japan		100.0		139		16		497		1,560
Schering Pty. Ltd., Sydney/Australia		100.0		18		5		77		117
Schering Korea Ltd., Seoul/Korea		100.0		23		2		58		263
Schering Bangkok Ltd., Bangkok/Thailand2		100.0		6		1		17		123
Africa
Schering (Pty.) Ltd., Midrand/South Africa		100.0		10		-1		30		100

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NOTES TO THE ANNUAL FINANCIAL
STATEMENTS OF SCHERING AG FOR FISCAL
YEAR 2003

(1) ACCOUNTING POLICIES

     Purchased intangible assets are carried at cost less straight-line amortization. The standard useful life is four to six years unless a different period is required, e.g., because of the life of a patent.

     Tangible fixed assets are carried at cost less depreciation for wear and tear. In addition to directly attributable costs, the cost of self-constructed assets also includes appropriate indirect costs and depreciation. Investment subsidies reduce cost. In the case of buildings, depreciation is charged on a straight-line basis over a maximum useful life of 40 years; movable items of tangible fixed assets are initially depreciated using the declining balance method, switching subsequently to straight-line depreciation; the useful life of technical equipment and machinery is between 10 and 20 years, and that of other equipment, operating and office equipment is between 5 and 10 years. Accelerated depreciation required by tax rules is presented in special tax-allowable reserves.

     Equity investments are carried at cost. Non-interest-bearing and low-interest loans are carried at their present value or at the lower value allowed under tax law.

     Where the value of items of fixed assets measured in accordance with the principles set out above is higher than their fair value at the balance sheet date, the carrying amount is written down. If it emerges in a subsequent fiscal year that the reasons for this no longer apply, the amount of this write-down is reversed to reflect the increase in value, up to a maximum of the amount that would have resulted if the assets had been depreciated during that period.

     Inventories are carried at cost using permitted simplified measurement options, or at the lower market values. In addition to directly attributable costs, cost also includes indirect labor and materials costs, as well as depreciation. In addition, the cost of sales presented in the income statement also includes expenses relating to unutilized capacity and expenses for voluntary social benefits and pensions.

     Valuation allowances take account of identifiable specific risks in receivables and bills of exchange.

     A global valuation allowance on receivables takes sufficient account of the general credit risk.

     Securities are carried at cost or at the lower market prices.

     Items of current assets are written down to reflect negative fluctuations in their value in the near future.

     Provisions for pensions are measured using the projected unit credit method and reflect future salary and pension adjustments; the minimum carrying amount of these provisions is the amount permitted under section 6a of the EStG (German Income Tax Act).

Measurement basis and parameters:

- Biometric measurement basis in accordance with the 1998 mortality tables published by Prof. Dr. Klaus Heubeck
- - Discount rate 5.5%
- - Increase in salaries 2.5%
- - Increase in pension 1.25%

     The current service cost for the beneficiaries arises from the change in the provision for projected benefits. Actuarial gains and losses are deferred and recognized over the expected remaining service period of the employees participating in those plans, to the extent to which such gains and losses exceed 10% of the obligation.

     The other provisions take account of all identifiable risks and uncertain obligations. Provisions are recognized for deferred maintenance if the maintenance will be completed in the first three months of the following fiscal year.

     The amounts disclosed for contingent liabilities from guarantees and warranties correspond to the actual credit amounts utilized at the balance sheet date.

     Receivables and liabilities denominated in foreign currencies are measured at the exchange rate at the transaction date, or at the forward rate if they are hedged by forward transactions. Changes in exchange rates are recognized in the income statement.

     Gains and losses on the disposal of long-term financial assets and securities classified as current assets are presented in the financial result. The same applies to all income and expenses from derivative financial instruments if the income and expenses from the underlyings are also attributable to the financial result.

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BALANCE SHEET DISCLOSURES
(AMOUNTS IN€ THOUSAND, UNLESS
OTHERWISE STATED)

(2) FIXED ASSETS

     The breakdown of the asset items combined in the balance sheet and their changes in 2003 are presented on pages 4 and 5.

(3) INTANGIBLE ASSETS

     The additions to industrial and similar rights and assets relate to computer software and product rights.

(4) TANGIBLE FIXED ASSETS

			Carrying		Carrying
	Additions		amounts		amounts
	2003		2003		2002
		€ m		€ m		€ m
Berlin		71		372		369
Bergkamen		55		171		150
		126		543		519

(5) SHARES IN AFFILIATED COMPANIES

     The additions relate to the acquisition of additional shares of P.T. Schering Indonesia, Jakarta/Indonesia, and to capital increases at Schering de Venezuela S.A., Caracas/Venezuela, and at other affiliated companies.

     Unless they are insignificant, the shareholdings of Schering AG are presented on pages 4 and 5.

(6) OTHER LONG-TERM FINANCIAL ASSETS

     The addition results from shares of Astex Technology Ltd, Cambridge, United Kingdom, following the merger with metaGen Pharmaceuticals GmbH, Berlin. A write-down was charged on the investment in MorphoSys AG, Martinsried.

     The other loans relate primarily to loans to employees and to housing companies for the purpose of residential property procurement, as well as to loans to suppliers.

(7) INVENTORIES

	2003		2002
Raw materials, consumables, and supplies		147,721		128,704
Work in process, finished goods and goods for resale		582,407		531,696
		730,128		660,400

(8) OTHER RECEIVABLES AND ASSETS

	2003			2002
Receivables from other
investees and investors		27			1
of which due after more than 1 year		(—	)		(—	)
Other assets		219,223			127,537
of which due after more than 1 year		(6,089	)		(2,769	)
		219,250			127,538

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(9) SECURITIES AND LIQUID ASSETS

	2003		2002
Other securities		707,140		662,141
Checks, cash-in-hand, central bank and postal giro balances, bank balances		92,416		40,271
		799,556		702,412

(10) SUBSCRIBED CAPITAL, CAPITAL RESERVES

	2003		2002
Subscribed capital
Balance at January 1		196,500		198,000
Redemption of shares		- 2,500		-1,500
Balance at December 31		194,000		196,500
Capital reserves
Balance at January 1		331,994		330,494
Appropriation		2,500		1,500
Balance at December 31		334,494		331,994

     The share capital amounts to€194,000,000 and is composed of 194,000,000 no-par value shares. Each share thus has a notional value of€1.00.

     In the year under review, 2,500,000 own shares were purchased at a total price of€90,208 thousand and retired. The Supervisory Board amended the Articles of Association correspondingly. The shares had an aggregate notional value of€2,500 thousand, which was deducted from the share capital. In accordance with section 237(5) of the AktG (German Stock Corporation Act), a corresponding amount was withdrawn from revenue reserves and appropriated to the capital reserves.

     In 2003, Schering AG purchased 242,660 own shares at an average price of€43.62 per share to issue employee shares. The shares were offered to qualified employees at€17 per share.

     The Executive Board is authorized to purchase own shares of Schering AG until September 30, 2004 for purposes allowed under section 71(1) no. 8 of the AktG. Shares with an aggregate notional value of€15,000,000 may be acquired on the basis of this authorization.

     In addition, the Executive Board is authorized until April 26, 2004, to increase the share capital with the approval of the Supervisory Board on one or on several occasions by issuing new shares for cash or non-cash consideration, provided that the overall increase in the share capital does not exceed a total amount of€85,000,000. Shareholders must be granted preemptive rights. However, with the agreement of the Supervisory Board, the Executive Board is authorized to disapply shareholders, preemptive rights:

a)	if the capital increase from cash contributions does not exceed a total amount of€15,000,000 and the issue price of the new shares is not substantially below the quoted market price for the shares at the time the issue price is determined by the Executive Board; or
b)	if the capital increase is implemented for the issue of employee shares; or
c)	if the capital increase is implemented for non-cash consideration; or
d)	to the extent necessary to allow holders of convertible bonds or bonds with warrants of Schering AG to subscribe for new shares.

8

     The Executive Board is also authorized, with the agreement of the Supervisory Board, to issue convertible bonds and/or bonds with warrants on one or on several occasions in the period up to April 26, 2004. The aggregate principal amount of such bond issues may not exceed€300,000,000. Conversion rights or options on Schering AG shares may be issued up to a notional aggregate€11,538,462 of share capital. Accordingly, the share capital of Schering AG may be contingently increased by up to€11,538,462 through the issue of up to 11,538,462 shares (Contingent Capital I). This contingent capital increase serves solely to redeem conversion rights and options.

     The share capital may be contingently increased by up to€5,000,000 (Contingent Capital II). This contingent capital increase will only be implemented to the extent that holders of stock options that have been issued until September 30, 2003 on the basis of the authorization by the Annual General Meeting on April 26, 2001 exercise their option rights, and that the options are not settled by the transfer of treasury shares or cash payments.

     Allianz AG, Munich, notified us of the following in a communication dated December 16, 2003: The share of voting rights of Schering AG held by AZ-SER Vermögensverwaltungsgesellschaft mbH exceeded the threshold of 10% on December 12, 2003 and amounts to 10.58%.

(11) REVENUE RESERVES

     These relate solely to other revenue reserves, to which€221,000 thousand was appropriated from the net income for the fiscal year.

(12) SPECIAL TAX-ALLOWABLE RESERVES

	2003		2002
Write-downs of fixed assets in accordance with s. 14 BFG (Berlin Subsidies Act),
s. 6b EStG, s. 7 EStG,
s. 7b EStG, s. 7d EStG, s. 51 EStG, s. 35 EStR
(Income Tax Guidelines), s. 4 FördergebietsG (Regional Assistance Act), EntwHStG (Developing Countries Tax Act)		157,874		162,610
Reserves in accordance with s. 6b EStG		37,244		44,345
Reserves in accordance with s. 52 EStG		—		1,077
		195,118		208,032

     Net income for the fiscal year would have been€8 million lower excluding the€13 million change in special tax-allowable reserves recognized in the income statement.

     The income tax liability when the special tax-allowable reserves are reversed is approximately 40%.

(13) PROVISIONS FOR PENSIONS AND SIMILAR OBLIGATIONS

	2003		2002
Present value of pension benefit obligations		1,301,150		1,242,069
Unrecognized actuarial losses		- 96,368		- 78,412
Provisions for pensions		1,204,782		1,163,657
Provisions for similar obligations		19,781		17,892
		1,224,563		1,181,549

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(14) OTHER PROVISIONS

	2003		2002
Provisions for taxes		5,914		5,254
Other provisions		570,024		530,059
		575,938		535,313

     The provisions for taxes relate to amounts for the period under review and for prior years.

     The other provisions contain amounts for bonuses, early retirement benefits, other personnel expenses, environmental protection, restructuring, liability risks, maintenance, currency and other risks relating to international business, and other uncertain liabilities.

(15) LIABILITIES

	Due
	up to 1			more than 5			2003			2002
	year			years			Total			Total
Liabilities to banks		33,005			—			33,005			282
of which collateralized by mortgages		(-	)		(-}			(-	)		(-	)
Payments received on account of orders		163			—			163			208
Trade payables		192,471			356			193,515			208,213
Liabilities to affiliated companies		741,488			—			741,488			650,676
Liabilities to other investees and investors		418			—			418			329
Tax liabilities		135			—			135			28,803
Social security liabilities		10,533			.			10,533			9,993
Other liabilities and deferred income		65,850			5,691			76,949			49,108
of which collateralized by mortgages		(-	)		(-	)		(-	)		(-	)
		1,044,063			6,047			1,056,206			947,612

(16) TOTAL AMOUNT OF COLLATERALIZED LIABILITIES

     There were no collateralized liabilities as of December 31, 2003.

(17) CONTINGENT LIABILITIES AND OTHER FINANCIAL COMMITMENTS

	2003
Contingent liabilities
Liabilities from guarantees relating to affiliated companies		44,462
Liabilities from warranties		14,929
Other financial commitments
Liabilities from rental and leasing agreements		88,636
Liabilities from research agreements		198,291
Approved investments in fixed assets		190,600
Total amount		477,527
of which commitments to affiliated companies		59,091

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INCOME STATEMENT
DISCLOSURES
(AMOUNTS IN€ THOUSAND UNLESS
OTHERWISE STATED)

(18) SALES

	2003		2002		Change
	€m		€m		%
Sales by Business Area
Gynecology & Andrology		804		724	+	11
Specialized Therapeutics		721		679	+	6
Diagnostics&Radiopharmaceuticals		561		590	-	5
Dermatology		139		161	-	14
Other		113		126	-	10
		2,338		2,280	+	3
Breakdown by region
Europe Region*		1,292		1,214	+	6
United States Region		296		251	+	18
Japan Region		231		270	-	14
Latin America/Canada Region		245		255	-	4
Asia/Middle East Region		141		148	-	5
Other Activities		133		142	-	6
		2,338		2,280	+	3

* including Africa, Australia, and NewZealand

(19) COST OF SALES, GROSS PROFIT

     The cost of sales consists of the cost of goods sold and the cost of merchandise sold. The ratio of gross profit to sales is 58%.

(20) ENGINEERING AND ADMINISTRATION COSTS

     Engineering and administration costs include costs of production management and planning, factory            safety            and administration, environmental protection, technology cost centers such as workshops, energy production, utilities and waste disposal (only to the extent that these costs are not internally reallocated to the consuming functions), training, and general administration, such as human resources, purchasing, financial control, and accounting.

(21) OTHER OPERATING INCOME

	2003		2002
Income from the reversal of special tax-allowable reserves		19,914		60,574
Income from foreign currency hedges and monetary transactions		231,693		139,837
License and commission income		87,613		66,115
Income from providing services to third parties		62,255		68,473
Miscellaneous		96,883		83,609
		498,358		418,608

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(22) OTHER OPERATING EXPENSES

	2003		2002
Expenses from appropriations to special tax-allowable reserves		7,000		57,123
Expenses from foreign currency hedges and monetary transactions		134,982		117,548
Additional expense from declining balance depreciation and write-downs		3,014	-	1,482
Cost of providing services to third parties		60,651		71,252
Miscellaneous		52,980		50,815
		258,627		295,256

(23) NET INCOME FROM LONG-TERM EQUITY INVESTMENTS

	2003			2002
Income from profit transfer agreements		920			320
income from long-term equity investments		199,846			179,707
of which from affiliated companies		(199,846	)		(179,707	)
Gains on the disposal of long-term equity investments		9,253			1,541
Cost of loss absorption	-	791		-	736
of which relating to affiliated companies	(-	791	)		(-736	)
Write-downs of long-term equity investments	-	6,670		-	22,736
of which relating to affiliated companies		( -	)	(-	9,351	)
		202,558			158,096

(24) NET INTEREST RESULT

	2003			2002
Income from other securities and long-term loans		461			410
Other interest and similar income		74,950			43,960
of which from affiliated companies		(154	)		(311	)
Interest component of addition to provisions for pensions	-	70,270		-	72,207
Other interest and similar expenses	-	22,988		-	26,321
of which to affiliated companies	(-	19,018	)	(-	22,102	)
	-	17,847		-	54,158

(25) OTHER FINANCIAL RESULT

	2003		2002
Write-downs of loans and securities classified as current assets	-	14,807	-	71,285
Reversals of write-downs of securities classified as current assets		55,438		220
Other financial income		20,646		10,850
Other financial expenses	-	4,663	-	9,494
		56,614	-	69,709

     Gains and losses on the disposal of other loans and securities classified as current assets, as well as gains and losses on interest rate derivatives, are presented in other financial income and expenses.

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(26) EXTRAORDINARY RESULT

	2003		2002
Extraordinary income		—		534,589
Extraordinary expense	-	82,344	-	232,488
	-	82,344		302,101

     The extraordinary expense relates to the recognition of a provision for a compensation payment to Berlex Inc., Montville, U.S.A., on the basis of an agreement with the German and U.S. tax authorities.

     The extraordinary income in the prior year results from the sale of the investment in Aventis CropScience Holding            S.A., Lyon/France, to Bayer AG, Leverkusen.

     The extraordinary expense in the prior year contains the purchase price of€212 million for the rights to the development project for the use of Leukine^® in Crohn’s disease, and a further€20 million resulting from the establishment of theSchering Stiftung(a foundation under German law) for the promotion of science and culture.

(27) INCOME TAXES

     €52 million of income taxes is attributable to the result from ordinary activities.

     The extraordinary result reduced the income tax expense by€33 million.

(28) OTHER TAXES

     To the extent that they are attributable to the operating functions, the other taxes are included in the corresponding income state ment line items; in other cases, they are recorded in other operating expenses. The expense amounted to€2 million.

(29) COST OF MATERIALS

	2003		2002
	€m		€m
Cost of raw materials, consumables, and supplies and of purchased merchandise		728		749
Cost of purchased services		169		136
		897		885

(30) PERSONNEL COSTS/EMPLOYEES

	2003		2002
Personnel costs	€m		€m
Wages and salaries		429		414
Social security and support payments		77	70
		506		484
Pensions		25		33
		531		517

	2003		2002
Number of employees (annual average)
Production		4,138		4,203
Research and development		2,330		2,275
Administration		1,581		1,494
Marketing and sales		271		251
		8,320		8,223

13

(31) TOTAL REMUNERATION OF THE SUPERVISORY BOARD AND THE EXECUTIVE BOARD, LOANS GRANTED

     The total remuneration of the members of the Supervisory Board amounted to€3,092 thousand and is broken down as follows:

Dr. Giuseppe Vita (Chairman)
Other members of the Supervisory
Board

Professor John A. Dormandy, a member of the Supervisory Board, has provided consultancy services to Schering AG in connection with research relating to certain cardiovascular indications since June 1996. For these services, Prof. Dormandy received a fee of€56,242 in 2003, plus expenses of€2,272.

     Prof. Dr. Piet Borst and Prof. John A. Dormandy are members of the Board of

Dr. Hubertus Erlen (Chairman)
Other members of the Executive
Board

     A provision in the total amount of€22,923 thousand has been recognized for the pension obligations to former members of the Executive Board and their surviving dependents; benefits paid for the period under review amounted to€1,967 thousand.

     As part of the stock option plan established in 2000, the members of the Executive Board held non-transferable stock options on up to a maximum of 76,500 Schering AG shares at the balance sheet date. These options may be exercised between 2003 and 2006. The exercise of the options depends on certain performance criteria relating to the Schering AG share price.

Dr. Hubertus Erlen (Chairman)
Other members of the Executive
Board

     At the balance sheet date, a member of the Supervisory Board held non-transferable stock options on a maximum of 22,500 Schering AG shares, which were granted to him in his former capacity as a member of the Executive Board of Schering AG under the stock option plan established in 2000.

     At the balance sheet date, there was a loan to a member of the Supervisory Board with a balance outstanding of€30 thousand (repayments in 2003:€3 thousand). Interest of 6% is charged on the loan, which is repayable over 13 years. The loan granted to a member

Fixed	Variable		Committee
compensation	compensation		functions
7		298		76
51		2,267		393
58		2,565		469

     Governors of Schering Forschungsgesellschaft mbH, a wholly owned subsidiary of Schering AG. They received attendance fees of€1,000 and€2,000 respectively in this capacity in 2003.

     The total remuneration of the members of the Executive Board amounted to€11,164 thousand, and is broken down as follows:

Fixed	Variable		Exercise of
compensation	compensation		LTI Plan 2000
544		1,638		—
2,150		6,716		116
2,694		8,354		116

     In addition, the members of the Executive Board held 84,000 stock appreciation rights as part of the LTI Plan 2001/1 (introduced in 2001), 100,000 stock appreciation rights as part of the LTI Plan 2001/II (introduced in 2002), and 120,000 stock appreciation rights as part of the LTI Plan 2001/111 (introduced in 2003), which are subject to certain exercise hurdles. These stock appreciation rights do not grant the right to acquire Schering AG shares, but rather the right to a cash settlement of the difference between the market price of Schering AG shares at the time of exercise and the exercise price.

     The maximum number of shares (LTI Plan 2000) or stock appreciation rights (LTI Plans 2001/1 through 2001/II) is as follows:

LTI Plan	LTI Plan		LTI Plan		LTI Plan
2000	2001/1		2001/II		2001/III
22,500		20,000		20,000		20,000
54.000		64.000		80,000		100,000
76,500		84,000		100,000		120,000

of the Board in the previous year was repaid in full in the year under review. The loans were granted prior to July 29, 2002. They have neither been extended since that date, nor have the agreed terms been amended.

     A directors’ and officers’ (D&O) liability insurance policy has been taken out for the members of the Supervisory and Executive Boards. The deductible is€25 thousand for members of the Supervisory Board and€50 thousand for members of the Executive Board.

     The members of the Supervisory and Executive Boards are listed on pages 16-19.

14

(32) DECLARATION OF CONFORMITY WITH THE GERMAN CORPORATE GOVERNANCE CODE

     Schering Aktiengeseli schaft has issued and made accessible to the shareholders the declaration required by section 161 of theAktiengesetz (German Stock Corporation Act).

     The declaration of conformity is published on page 20 of the 2003 Annual Report and on the Internet at www.schering.de.

PROPOSAL FOR THE APPROPRIATION OF UNAPPROPRIATED PROFIT

     Following the appropriation of€221,000 thousand to revenue reserves from the net income for fiscal year 2003, the remaining unappropriated profit amounts to€223,420 thousand, including retained profits of€2,325 thousand brought forward. We are proposing to the Annual General Meeting to distribute€180,420 thousand from unappropriated profit to the shareholders in the form of a dividend of€0.93 per share, and to transfer the remaining unappropriated profit of€43,000 thousand to other revenue reserves. The distributable amount of unappropriated profit attributable to treasury shares shall be carried forward to new account.

Berlin, February 11, 2004

Schering Aktiengesellschaft
The Executive Board

Erlen Köstlin Lingnau
Rubin Spiekerkötter Stock

AUDITORS’ REPORT

     We have audited the annual financial statements, together with the bookkeeping system, of Schering Aktiengesellschaft and its report on the position of the Company and the Group prepared by the Company for the fiscal year from January 1, 2003 to December 31, 2003, The maintenance of the books and records and the preparation of the annual financial statements and the report on the position of the Company and the Group in accordance with German commercial law are the responsibility of the Company’s management. Our responsibili ty is to express an opinion on the annual financial statements, together with the bookkeeping system, and the report on the position of the Company and the Group, based on our audit.

      We conducted our audit of the annual financial statements in accordance with section 317 of the HGB (German Commercial Code) and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsp rüfer (IDW). Those standards require that we plan and perform the audit such that misstatement s materially affecting the presentation of the net assets, financial position, and results of operations in the annual financial statements in accordance with German principles of proper accounting, and in the report on the position of the Company and the Group, are detected with reasonable assurance.

      Knowledge of the business activities and the economic and legal environment of the Company, and evaluations of possible misstatement s, are taken into account in the determinatio n of audit procedures. The effectivenes s of the accounting-r elated internal control system and the evidence supporting the disclosures in the books and records, the annual financial statements and the report on the position of the Company and the Group are examined primarily on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the annual financial statements and the report on the position of the Company and the Group. We believe that our audit provides a reasonable basis for our opinion.

      Our audit has not led to any reservations.

     In our opinion, the annual financial statements give a true and fair view of the net assets, financial position, and results of operations of the Company in accordance with German principles of proper accounting. On the whole the report on the position of the Company and the Group provides a suitable understanding of the position of the Company and the Group and suitably presents the risks of future development.

Berlin, February 25, 2004

BDO Deutsche Warentreuhand
Aktiengeseltschaft
Wirtschaftsprüfungsgesellschaft
Dyckerhoff Eckmann
Wirtschaftsprüfer Wirtschaftsprüfer

15

SUPERVISORY BOARD

Dr. Giuseppe Vita, Berlin; * Apr. 28, 1935
Chairman of the Supervisory Board
First appointed: Apr. 26, 2001
Appointed until: Apr. 16, 2004
Chairman of the Supervisory Board
- - Axel Springer Verlag AG, Berlin

- HUGO BOSS AG, Metzingen

Member of the Supervisory Board
- - Allianz Lebensversicherungs-AG, Stuttgart

- Medical Park AG, Bad Wiessee - - Vattenfall Europe AG, Berlin

Chairman of the Administrative Board
- - Riunione Adriatica di Sicurtà (RAS) S.p.A., Milan

Member of the Administrative Board

- - Techosp S.p.A., Milan

- - Marzotto S.p.A., Valdagno

Norbert Deutschmann, Berlin; * Apr. 11, 1951
Vice Chairman of the Supervisory Board
First appointed: Apr. 27, 1999
Appointed until: Apr. 16, 2004
Chairman of the Berlin Works Council of Schering AG, Berlin

Dr. rer. oec. Karl-Hermann Baumann,
Munich; * July 22, 1935

First appointed: May 4, 1994
Appointed until: Apr. 16, 2004

Chairman of the Supervisory Board
- - Siemens AG, Berlin and Munich
Member of the Supervisory Board
- - Deutsche Bank AG, Frankfurt/Main

- - E.ON AG, Düsseldorf

- - Linde AG, Wiesbaden

- - ThyssenKrupp AG, Düsseldorf

- - Wilhelm von Finck AG, Grasbrunn

Prof. Dr. Piet Borst, Amsterdam; * July 5, 1934
First appointed: Feb. 9, 2000
Appointed until: Apr. 16, 2004
Professor of Clinical Biochemistry,
   University of Amsterdam
Director Emeritus of the Netherlands
Cancer Institute, Amsterdam

Dr. Mathias Döpfner, Berlin; * Jan. 15, 1963
First appointed: Apr. 26, 2001
Appointed until: Apr. 16, 2004
Chairman of the Executive Board
- - Axel Springer Verlag AG, Berlin

Member of the Supervisory Board (Group appointment)

- - ProSiebenSat. 1 Media AG, Unterföhring

Prof. John A. Dormandy, D.Sc.
FRCS, London; * May 5, 1937
First appointed: Apr. 30, 1996
Appointed until: Apr. 16, 2004
Professor of Vascular Sciences, University of London
Director, Vascular Clinical Research Unit, St. George’s Hospital, London

Joachim Elsholz, Berlin; * Sept. 2, 1949
First appointed: Oct. 1, 2000
Appointed until: Apr. 16, 2004
Head of Berlin Liaison Office of Industriegewerkschaft Bergbau, Chemie, Energie
Member of the Supervisory Board

- - Bayer CropScience AG, Monheim

Dr. rer. pol. Reiner Hagemann, Munich;

* Dec. 7, 1947

First appointed: Jan. 1, 1997
Appointed until: Apr. 16, 2004
Chairman of the Executive Board

- - Allianz Versicherungs-AG, Munich
Member of the Supervisory Board

- - E.ON Energie AG, Munich

- - Steag AG, Essen

Domestic Group appointments:
Chairman of the Supervisory Board

- - Allianz Private Krankenversicherungs -AG, Munich

- - Bayerische Versicherungsbank AG, Munich

- - Frankfurter Versicherungs-AG, Frankfurt/Main

- - Euler Hermes Kreditversicherungs- AG, Hamburg

Member of the Supervisory Board

- - Allianz Global Risks Rückversicherungs-AG , Munich

Foreign Group appointments;
- -Allianz Cornhill Insurance plc, London

- - Allianz Elementar Lebensversicherungs- AG, Vienna

- - Allianz Elementar Versicherungs-AG, Vienna

- - Allianz Investmentbank Aktiengesellschaft, Vienna

- - Allianz Irish Life, Dublin

- - Allianz Suisse Lebensversicherungs- AG, Zurich

- - Allianz Suisse Versicherungs-AG, Zurich

- - EULER & HERMES, Paris

- - RAS International N.V., Amsterdam

16

Johannes Heitbaum, Werne; * June 10, 1963
First appointed: Apr, 27, 1999
Appointed until: Apr. 16, 2004
Vice Chairman of the Bergkamen Works
Council of Schering AG, Berlin

Dr. h.c. Martin Kohlhaussen,
Bad Hornburg v.d.H.; * Nov. 6, 1935
First appointed: Apr, 30, 1996
Appointed until: Apr. 16, 2004
Chairman of the Supervisory Board
- - Commerzbank AG, Frankfurt/Main

Vice Chairman of the Supervisory Board
- - Infineon Technologies AG, Munich
Member of the Supervisory Board
- - Bayer AG, Leverkusen
- - Heraeus Holding GmbH, Hanau
- - Hochtief AG, Essen
- - ThyssenKrupp AG, Düsseldorf
- - Verlagsgruppe Georg von Holtzbrinck GmbH, Stuttgart

Hermann-Josef Lamberti, Königstein im
Taunus;* Feb. 5, 1956
First appointed: Apr. 26, 2001
Appointed until: Apr. 16, 2004
Member of the Executive Board
- - Deutsche Bank AG, Frankfurt/Main
Chairman of the Supervisory Board

- Deutsche Bank Privat-und Geschäftskunden AG, Frankfurt/Main (Group appointment)
- - Deutsche Bank S.A./N.V., Brussels (Group appointment)

- Deutsche Bank S.A.E., Barcelona (Group appointment)

- e-millennium 1 GmbH & Co. KG, Munich
- - european transaction bank AG, Frankfurt/Main (Group appointment)
Member of the Supervisory Board
- - Fiat S.p.A., Turin
Member of the Advisory Board
- - Barmenia Versicherungen, Wuppertal
Member of the Company Board
- - Carl-Zeiss-Stiftung, Oberkochen

Member of the Board of Directors
- - Euroclear Bank S.A., Brussels
- - Euroclear plc, London

Dr. med. Hans-Peter Niendorf, Berlin;
* June 25, 1946
First appointed: Apr. 27, 1999
Appointed until: Apr. 16, 2004
Head of Corporate Clinical Development Diagnostics&Radiopharmaceuticals, Schering AG, Berlin

Hans-Jürgen Scheel, Berlin; * June 21, 1943
First appointed: Feb. 11, 1994

Appointed until: Apr. 16, 2004
Corporate Human Resources Schering AG, Berlin

Günter Schmitt, Berlin; * Jan, 13, 1943

First appointed: Apr. 27, 1999
Appointed until: Apr, 16, 2004
Member of the Berlin Works Council of Schering AG, Berlin

Dr. rer. oec. Ulrich Sommer, Berlin; * June 1, 1947
First appointed: Apr. 27, 1999
Appointed until: Apr. 16, 2004
Area Manager Marketing Europe Region, Schering AG, Berlin

Heinz-Georg Webers, Bergkamen; * Dec. 27, 1959
First appointed: Apr. 27, 1999
Appointed until: Apr. 16, 2004
Chairman of the Company Works Council and Chairman of the Bergkamen Works Council of Schering AG, Berlin

Committees established by the Supervisory Board

Executive Committee
Dr. Giuseppe Vita (Chairman)
Norbert Deutschmann
Dr. Reiner Hagemann
Heinz-Georg Webers

Audit Committee
Dr. Karl-Herrmann Baumann (Chairman)
Norbert Deutschmann
Dr. Giuseppe Vita
Heinz-Georg Webers

Nomination and Compensation Committee
Dr. Giuseppe Vita (Chairman)
Norbert Deutschmann
Dr. Reiner Hagemann
Hans-Jurgen Scheel

Research and Development Committee
Dr. Giuseppe Vita (Chairman)
Prof. Dr. Piet Borst
Norbert Deutschmann
Prof. John A. Dormandy
Dr. Hans-Peter Niendorf
Dr. Ulrich Sommer

Committee stipulated by section 27(3) of the MitbestG
Norbert Deutschmann
Joachim Elsholz
Dr. Reiner Hagemann
Dr. Giuseppe Vita

17

EXECUTIVE BOARD

Position held

Place of residence
Date of birth
Term of office

Responsibility within Schering AG Group

Appointments to statutory
supervisory boards
in Germany

Membership of
comparable supervisory bodies
of companies in Germany
and abroad

Dr. Hubertus Erlen
Chairman of the Executive Board

Berlin, Germany
June 7, 1943
First appointed: July 1, 1985
Appointed until: June 30, 2005

Strategy and Business
Development, Corporate
Communication, Senior
Executives, Corporate Auditing

Member of the Supervisory Board
- - B. Braun Melsungen AG, Melsungen
- - Celesio AG, Stuttgart

Chairman of the Board of Directors
- - Schering Berlin Inc., U.S.A.

Member of the Supervisory Board
- - Partner für Berlin Gesellschaft für Hauptstadt-Marketing mbH, Berlin
Member of the Curatorship
- - Bertelsmann-Stiftung, Gütersloh

Prof. Dr. Klaus Pohle
Vice Chairman of the Executive Board
Berlin, Germany
November 3, 1937
First appointed: January 1, 1981
Appointed until: April 10, 2003
Equity Investments, Finance and Administration, Information Technology

Japan, Asia, Australia

Member of the Supervisory board
- - Berliner Börse AG, Berlin
- - DWS Investment GmbH, Frankfurt/Main
- - Schering Germany Holding AG, Hamburg (Group appointment)

Chairman of the Board of Directors
- - Nihon Schering K.K., Japan

Member of the Board of Directors
- - Schering Berlin Inc., U.S.A.

- Coty Inc., U.S.A.

Dr. Ulrich Köstlin
Member of the Executive Board

Berlin, Germany
December 31, 1952
First appointed: June 1, 1994
Appointed until: May 31, 2009
Marketing and Sales,
Production, Logistics, and
Environment

Europe, Africa

Member of the Supervisory Board
- - Institut für Management und Technologie IMT BERLIN GmbH, Berlin
- - Schering Deutschland Holding AG, Hamburg (Group appointment)

Member of the Board of Directors
- - Schering Berlin Inc., U.S.A.
- - Schering Oy, Finland

18

Lutz Lingnau
Member of the Executive Board

Mendham, NJ, U.S.A.
March 9, 1943
First appointed: January 1 , 2001
Appointed until; December 31, 2005

Specialized Therapeutics, Dermatology

North America

Chairman of the Board of Directors
- - Berlex Inc., U.S.A.
- - Medrad, Inc., U.S.A.

Vice Chairman of the Board of Directors
- - Schering Berlin Inc., U.S.A.

Marc Rubin, MD
Member of the Executive Board

Fort Lee, NJ, U.S.A.
January 10, 1955
First appointed: October 1, 2003
Appointed until: September 30, 2008

Development

Vice Chairman of the Board of Directors
- - Schering Berlin Inc., U.S.A.

Dr. Jörg Spiekerkötter
Member of the Executive Board

Kleinmachnow, Germany
May 15, 1958
First appointed: April 15, 2002
Appointed until: April 14, 2007

Finance and Administration,
Information Technology,
Human Resources

Latin America

Member of the Board of Directors

- Schering Berlin Inc., U.S.A.

Prof. Dr. Dr. h.c. Günter Stock
Member of the Executive Board

Berlin, Germany
February 7, 1944
First appointed: May 1, 1989
Appointed until: April 30, 2009

Research;
Gynecology&Andrology,
Diagnostics& Radiopharmaceuticals

Japan, Asia, Australia

Member of the Supervisory Board

- Gerling Allgemeine Versicherungs-AG, Cologne

Member of the Supervisory Board
- - Biomedizinischer Forschungs-campus Berlin-Buch GmbH, Berlin
- - Klinikum Bayerische Julius-Maximilians Universität Würzburg

Chairman of the Board of Directors
- - Nihon Schering K.K., Japan

Member of the Board of Directors
- - Schering Berlin Inc., U.S.A.
- - Schering Oy, Finland

Member of the Scientific Advisory Board
- - Heidelberg Innovation Fonds Management GmbH, Heidelberg

Date: February 15, 2004

19

Schering Aktiengesellschaft
13342 Berlin, Germany
Tel.:+49-30-468-11 11
Fax:+49-30-468-153 05
Internet: http://www.schering.de