ELSEVIER NV /, 20-F, 2000-03-23

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As filed with the Securities and Exchange Commission on March 23, 2000
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g)
OF THE SECURITIES EXCHANGE ACT OF 1934

ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999

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

For the transition period from _______ to _______

Commission file number: 1-3334

REED INTERNATIONAL P.L.C. ELSEVIER NV
- ------------------------------ ------------------------------
(Exact name of Registrant (Exact name of Registrant
as specified in its charter) as specified in its charter)

England The Netherlands
- ------------------------------ ------------------------------
(Jurisdiction of incorporation (Jurisdiction of incorporation
or organisation) or organisation)

25 Victoria Street Van de Sande Bakhuyzenstraat 4
London SW1H 0EX 1061 AG Amsterdam
England The Netherlands
- ------------------------------ ------------------------------
(Address of principal (Address of principal
executive offices) executive offices)

Securities registered or to be registered pursuant to section 12(b) of the Act:

Name of exchange
Title of each class on which registered
- ------------------- -------------------
Reed International P.L.C.:
American Depositary Shares (each representing
four Reed International P.L.C. Ordinary Shares) New York Stock Exchange
Ordinary Shares of 12.5p each
(the "Reed International Ordinary Shares") New York Stock Exchange*

Elsevier NV:
American Depositary Shares (each representing
two Elsevier NV Ordinary Shares) New York Stock Exchange
Ordinary Shares of e0.06 each
(the "Elsevier Ordinary Shares") New York Stock Exchange*

* Listed, not for trading, but only in connection with the listing of the
applicable Registrant's American Depositary Shares issued in respect
thereof.

Securities registered or to be registered pursuant to Section 12(g) of the
Act: None

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

<PAGE>

Indicate the number of outstanding shares of each of the issuers' classes of
capital or common stock as of December 31, 1999:

Number of
Title of each class outstanding shares
- ------------------- ------------------
Reed International P.L.C.:
Ordinary Shares of 12.5p each 1,145,631,010

Elsevier NV:
Ordinary Shares of e0.06 each 668,251,106
R-shares of e0.6 each (held by a subsidiary
of Reed International P.L.C.) 4,049,951

Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) have been subject to such
filing requirements for the past 90 days:

Yes [X] No [ ]

Indicate by check mark which financial statement item the registrants have
elected to follow:

Item 17 [ ] Item 18 [X]
<PAGE>

TABLE OF CONTENTS

Page
----
DEFINITIONS ............................................................. 1

FORWARD-LOOKING STATEMENTS .............................................. 1

PART I

ITEM 1: DESCRIPTION OF BUSINESS ..................................... 2

ITEM 2: DESCRIPTION OF PROPERTY ..................................... 20

ITEM 3: LEGAL PROCEEDINGS ........................................... 20

ITEM 4: CONTROL OF REGISTRANTS ...................................... 21
Reed International ........................................ 21
Elsevier .................................................. 21
Reed Elsevier ............................................. 21

ITEM 5: NATURE OF TRADING MARKET .................................... 23
Reed International ........................................ 23
Elsevier .................................................. 24

ITEM 6: EXCHANGE CONTROLS AND OTHER LIMITATIONS
AFFECTING SECURITY HOLDERS .................................. 25
Reed International ........................................ 25
Elsevier .................................................. 25

ITEM 7: TAXATION .................................................... 26
Reed International ........................................ 26
Elsevier .................................................. 29

ITEM 8: SELECTED FINANCIAL DATA ..................................... 32
Reed Elsevier ............................................. 32
Reed International ........................................ 34
Elsevier .................................................. 36

ITEM 9: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS ........................ 39
Reed Elsevier ............................................. 39
Reed International ........................................ 51
Elsevier .................................................. 52

ITEM 9A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .. 53
Reed Elsevier ............................................. 53

(i)

<PAGE>

Page
----
ITEM 10: DIRECTORS AND OFFICERS OF REGISTRANTS ....................... 55
Reed Elsevier ............................................. 55
Reed International ........................................ 55
Elsevier .................................................. 55

ITEM 11: COMPENSATION OF DIRECTORS AND OFFICERS ...................... 58

ITEM 12: OPTIONS TO PURCHASE SECURITIES FROM
REGISTRANTS OR SUBSIDIARIES ................................. 63
Reed International ........................................ 63
Elsevier .................................................. 65
Reed Elsevier ............................................. 66

ITEM 13: INTERESTS OF MANAGEMENT IN CERTAIN TRANSACTIONS ............. 69
Reed International ........................................ 69
Elsevier .................................................. 69

PART II

ITEM 14: DESCRIPTION OF SECURITIES TO BE REGISTERED .................. 69
Reed International ........................................ 69
Elsevier .................................................. 69

PART III

ITEM 15: DEFAULTS UPON SENIOR SECURITIES ............................. 69
Reed International ........................................ 69
Elsevier .................................................. 69

ITEM 16: CHANGES IN SECURITIES AND CHANGES IN
SECURITY FOR REGISTERED SECURITIES .......................... 69
Reed International ........................................ 69
Elsevier .................................................. 69

PART IV

ITEM 17: FINANCIAL STATEMENTS ....................................... 69

ITEM 18: FINANCIAL STATEMENTS ........................................ 69

ITEM 19: FINANCIAL STATEMENTS AND EXHIBITS ........................... F-1

* The registrants have responded to Item 18 in lieu of responding to this Item.

(ii)

<PAGE>
DEFINITIONS

The following definitions apply throughout this Annual Report unless the context
otherwise requires:

"Reed International" "Reed International"

"Elsevier" Elsevier NV

"Merger" The merger on January 1, 1993 of the businesses
of Reed International and Elsevier; see
"Description of the Business -- Introduction".

"Reed Elsevier" The collective reference to the separate legal
entities of Reed International, Elsevier, Reed
Elsevier plc, Elsevier Reed Finance BV and
their respective subsidiaries, associates and
joint ventures.

"ERF" Elsevier Reed Finance BV

"Combined Businesses" The collective reference to the businesses of
all the entities comprising Reed Elsevier.

"Combined Financial Statements" The combined financial statements of the
Combined Businesses.

"U.K. GAAP" Generally accepted accounting principles in the
United Kingdom.

"Dutch GAAP" Generally accepted accounting principles in The
Netherlands.

"U.K. and Dutch GAAP" Accounting policies that comply with both U.K.
and Dutch generally accepted accounting
principles.

"U.S. GAAP" Generally accepted accounting principles in the
United States.

"Noon Buying Rate" The noon buying rate in New York City for cable
transfers for a specified territory as
certified for customs purposes by the Federal
Reserve Bank of New York.

In this Annual Report references to "U.S. Dollars" or "$" are to U.S.
currency, references to "pounds sterling", "sterling", "(pound)", "pence" or "p"
are to U.K. currency.

Since January 4, 1999, the prices of all shares listed on the Amsterdam
Stock Exchange, including Elsevier, have been quoted in euro rather than Dutch
guilders. For the 1999 financial year Elsevier has adopted the euro as its
primary currency for the presentation of financial information and the
declaration of dividends. References to "euro" and "e" are to the currency of
the European Economic and Monetary Union. For a discussion of the effects of the
introduction of the euro on Reed Elsevier's combined results of operations and
combined financial position, see "Management's Discussion and Analysis of
Financial Conditions and Results of Operations -- Reed Elsevier".

The rates used in the preparation of the Combined Financial Statements for
the 1999 financial year were $1.62 per (pound)1.00 and $1.066 per e1.00 for
profit and loss account items (the average prevailing exchange rate during the
year) and $1.62 per (pound)1.00 and $1.006 per e1.00 for balance sheet items
(the rate prevailing at December 31, 1999). e amounts for periods prior to the
1999 financial year have been stated using the relevant Dutch guilder amounts,
translated at the Official Conversion Rate of Dfl2.20371 per e1.00 which was
fixed at January 1, 1999. For a discussion of the effects of currency
fluctuations on Reed Elsevier's combined results of operations and combined
financial position, see "Management's Discussion and Analysis of Financial
Conditions and Results of Operations -- Reed Elsevier".

Noon Buying Rates are not used in the preparation of the Combined Financial
Statements included in this Annual Report except where indicated for certain
convenience translations. At December 31, 1999, the Noon Buying Rates were
$1.615 per (pound)1.00 and $1.066 per e1.00; at February 23, 2000 the Noon
Buying Rates were $1.60 per (pound)1.00 and $1.00 per e1.00.

FORWARD-LOOKING STATEMENTS

This Annual Report contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Such statements are based on the beliefs of the management of
the Combined Businesses as well as assumptions made by, and information
currently available to, the management of the Combined Businesses. These
forward-looking statements are subject to a number of risks and uncertainties
and actual results and events could differ materially from those currently
anticipated as reflected in such forward-looking statements. The terms "expect",
"should be", "will be" and similar expressions identify forward-looking
statements. Factors which may cause or contribute to different future outcomes
from those foreseen in forward-looking statements include, but are not limited
to, those discussed in Item 1, "Description of Business", Item 9, "Management's
Discussion and Analysis of Financial Conditions and Results of Operations" and
Item 9A, "Quantitative and Qualitative Disclosures about Market Risk", as well
as general economic and business conditions in Reed Elsevier's markets,
customers' acceptance of its products and services, the actions of competitors,
changes in law and legal interpretation affecting Reed Elsevier's intellectual
property rights, and the impact of technological change.

<PAGE>

PART I

ITEM 1: DESCRIPTION OF BUSINESS

Introduction

Reed Elsevier is a world leading publisher and information provider. Its
activities include scientific, legal and business publishing. Its principal
operations are in North America and Europe. For the year ended December 31,
1999, Reed Elsevier had total turnover of approximately (pound)3.4 billion and
an average of approximately 27,700 employees. In 1999, North America represented
Reed Elsevier's largest single geographic market, based on turnover by
destination, contributing 56% of Reed Elsevier's total turnover.

Structure

Reed Elsevier came into existence on January 1, 1993 when Reed
International and Elsevier contributed their businesses to two jointly owned
companies, Reed Elsevier plc, a U.K. registered company which owns all the
publishing and information businesses, and Elsevier Reed Finance BV, a Dutch
registered company which owns the finance activities. Reed International and
Elsevier have retained their separate legal and national identities and are
publicly held companies with separate stock exchange listings in London,
Amsterdam and New York.

Reed International and Elsevier each holds a 50% interest in Reed Elsevier
plc. Reed International holds a 46% interest in Elsevier Reed Finance BV, with
Elsevier holding a 54% interest. Reed International additionally holds a 5.8%
indirect economic interest in Elsevier, as shown in the structure diagram. This
equity interest has been taken into account in determining the equalisation
ratio whereby one Elsevier Ordinary Share is, in broad terms, intended to confer
equivalent economic interests to 1.538 Reed International Ordinary Shares. The
equalisation ratio is subject to change to reflect share splits and similar
events that affect the number of outstanding ordinary shares of either Reed
International or Elsevier.

Under the equalisation arrangements, Reed International shareholders have a
52.9% economic interest in Reed Elsevier and Elsevier shareholders (other than
Reed International) have a 47.1% economic interest in Reed Elsevier. Holders of
ordinary shares in Reed International and Elsevier enjoy substantially
equivalent dividend and capital rights with respect to their ordinary shares.

The boards of both Reed International and Elsevier have agreed, except in
exceptional circumstances, to recommend equivalent gross dividends (including,
with respect to the dividend on Reed International Ordinary Shares, the
associated U.K. tax credit), based on the equalisation ratio. A Reed
International Ordinary Share pays dividends in sterling and is subject to U.K.
tax law with respect to dividend and capital rights. An Elsevier Ordinary Share
pays dividends in euros and is subject to Dutch tax law with respect to dividend
and capital rights.

The following diagram presents a simplified view of the structure of Reed
Elsevier.

[GRAPHIC OMITTED]

The principal assets of Reed International comprise its 50% interest in
Reed Elsevier plc, its 46% interest in Elsevier Reed Finance BV, its 5.8%
indirect economic interest in Elsevier and certain amounts receivable from
subsidiaries of Reed Elsevier plc. The principal assets of Elsevier comprise its
50% interest in Reed Elsevier plc, its 54% interest in Elsevier Reed Finance BV
and certain amounts receivable from subsidiaries of Reed Elsevier plc and
Elsevier Reed Finance BV. Elsevier also owns shares, carrying special dividend
rights, in certain of the Dutch subsidiaries of Reed Elsevier plc. These shares
enable Elsevier to receive dividends from companies within its tax jurisdiction,
thereby mitigating potential tax costs for Reed Elsevier.

Strategy and Key Objectives

Reed Elsevier's key objective is to become the indispensable partner to its
target customers, the scientist, lawyer and business professional, for
information-driven services and solutions. This will be achieved through
delivery of highly valued and demonstrably superior and flexible information
solutions, increasingly via the Internet. Reed Elsevier's goal is to build a
global capability and leadership in all its target sectors with immediate focus
on its three principal markets: scientific, legal and business.

<PAGE>

The Reed Elsevier group strategy is built around eight key foundations:

1. Focus on the existing three core businesses, to maximise immediate growth
potential

Reed Elsevier believes that the scientific, legal and business markets all
offer real opportunities for growth and all offer opportunities for Internet
migration and business expansion. Each of these markets is large and is growing.
There is a continuing and expanding information and related services need. Reed
Elsevier is well placed, holding number 1 or 2 positions in its market segments,
with strong brands, content and market reach. These three businesses share a
number of important characteristics and benefit from common ownership. All rely
on the provision of proprietary and high value content to professional
customers. All are transitioning to electronic. All exploit comparable
publishing and sales/marketing skills. All are becoming more global. The
Internet is fast becoming the preferred customer access system for all three,
with links to a wider range of content-related services and to transactional
capabilities.

Reed Elsevier plans to exit businesses that do not fit directly with the
strategy. Reed Elsevier will thus be divesting a number of businesses, which in
1999 contributed approximately (pound)200 million revenue and (pound)33 million
operating profit. These include OAG Worldwide and Springhouse.

2. Significantly upgrade management and organisation effectiveness

There is a clear need to strengthen the management structure, capability
and skill set, to deliver strong focused leadership and to ensure outstanding
execution of the new strategy. This is a critical priority for Reed Elsevier.

To achieve this, key initiatives are:

o Creation of three global business units: Science, Legal and Business,
each headed by a global Chief Executive Officer ("CEO") with main
board membership. This is to ensure the strongest possible customer
focus and alignment. This structure will accelerate global expansion,
brand and portfolio development, and product/marketing upgrade.

o The noon buying rate in New York City for cable transfers for a
specified territory as certified for customs purposes by the Federal
Reserve Bank of New York.

o Strong new appointments to senior management positions. These include
the three key global business unit CEO positions. In Science a new CEO
has been appointed; the recruitment of the other two positions is
underway. In order to leverage the significant technology
opportunities across the business a global Chief Technology Officer
will also be appointed. Appointments to other key positions, including
a new head of Cahners in the U.S. and also NEXIS, have been completed.
Others will follow.

o Organisational separation of Internet activities. Internet development
is now separately organised within the businesses with clear
management leadership and accountabilities. Whilst working closely
with the print brands, content and marketing, the electronic media
groups will independently pursue growth opportunities in existing and
carefully defined new market segments.

o Re-definition of head office structure and role. The regional head
office structure has been streamlined. The role has become more
sharply strategic and catalytic, with reduction in staffing of over
40%.

o Introduction of significantly enhanced incentive schemes for all key
management, linked to Reed Elsevier's strategic goals. This includes a
significant new long-term 5-year incentive programme for key managers
requiring superior growth and shareholder return. This scheme will be
put to shareholders at the Annual General Meetings of Reed
International and Elsevier in April 2000.

3. Major upgrade of products, leveraging Internet technology, to deliver
superior services to customers

At the core of Reed Elsevier's strategy is an absolute focus on Internet
delivery, additional high value added content and services, and greater ease of
use and functionality. Products will be increasingly customised to meet the
specific needs of the individual customer or customer group.

o In Science, the focus is on expanding ScienceDirect. New research from
Elsevier Science journals and from a growing number of other
publishers is being added to ScienceDirect daily and the archive is
being significantly extended. Authoring tools, library management
tools and other taskware is being added to improve customer
productivity and utility. Throughout 2000 services and content will be
customised to specific scientific disciplines, e.g. biotechnology and
pharmaceutical, and to the differing research markets, e.g. academic,
government and corporate.

o In Legal, Reed Elsevier's content is continuing to expand through an
ambitious authoring and editorial programme, and acquisitions and
licensing. These include specialist areas of law, case summaries and
enhanced citations. Functionality upgrades include improved browser
based interfaces, smart indexing and Intranet solutions. The flagship
Internet products, lexis.com in the U.S. and Butterworths Direct in
the U.K. are being customised to suit large, medium and small law
firms, corporate law and courts and to provide Intranet solutions for
individual customers.

o In Business, the focus is on building vertical Internet portals in key
market sectors where Reed Elsevier has scale, and which offer
potential for Internet delivered information, marketing services and,
critically, e- commerce connectivity. In the U.S., key sectors include
Electronics, Construction, Entertainment and Publishing. In Europe,
priority sectors include Aerospace, Computing, Chemicals, Property and
Recruitment. In each sector a deeper content resource is being built
(news, market, product and service information). Reed Elsevier will
increasingly work in alliances and partnerships to deliver total
e-commerce solutions for customers.

3
<PAGE>

The product development programme is focused on the Internet. In 1999,
approximately (pound)120 million of revenues were Internet sourced. These are
expected to increase rapidly through media migration and new revenue streams so
that in 2002 it is expected that approximately one quarter of revenue will be
Internet based.

4. More effective marketing and sales programmes

Significantly improved sales and marketing is a key strategic priority for
Reed Elsevier to extend market penetration, to win new business and increase
overall customer loyalty:

o Sales forces are being significantly enlarged to address the market
more comprehensively and, specifically, the broader online customer
opportunity. For instance, in both Science and Legal, the worldwide
sales forces are being almost doubled.

o Reed Elsevier is also investing in more sophisticated customer
research, usage tracking and customer intelligence databases, as well
as customer service facilities.

Reed Elsevier is pursuing a significant programme of customising marketing and
selling efforts to the differing customer groups across markets. This includes
re-invention of pricing models more suited to growth in Internet services and
away from "one size fits all".

o Global branding of Internet services, such as ScienceDirect and LEXIS,
together with channel alliances and marketing networks with other
online service providers, will be a key element of Reed Elsevier's
marketing strategy. Reed Elsevier is also significantly increasing
spending on advertising and promotion behind Internet initiatives.

5. Significantly increase investment-- largely against Internet-- to drive
revenue growth.

Current business conditions require a significantly higher level of
investment than in recent years, particularly in the areas of product
development, marketing and sales. The U.S. and Internet development are key
areas for increased investment. A significant portion of this investment will be
Internet related, including product, technology development, marketing and
sales. Detailed plans have been developed and are in execution.

6. Aggressive cost saving programmes

To finance this substantial investment, a wide ranging cost review has been
carried out across the whole business, primarily directed at non-revenue
generating costs, e.g. support staff, production, infrastructure, head office.
In addition to saving costs and freeing resources for revenue development, this
programme aims to achieve a leaner, higher calibre, and faster moving
organisation.

7. Expand geographically to build global capability and leadership position

Most Reed Elsevier markets are becoming increasingly global, or at least
regional, assisted by the increasing ubiquity of Internet connectivity. Within
Science, Reed Elsevier has moved a long way towards a fully global organisation.
Legal and Business are still regional in emphasis but both are developing a
global strategy. Reed Elsevier will focus on key geographical gaps in its
portfolio and develop branding and marketing strategies that align with the
changing market shape. Specifically and as a priority Reed Elsevier will pursue
Legal and Business expansion into Continental Europe, South America and Asia.

8. Continue to target acquisitions/alliances to accelerate achievement of
strategic goals

In the short to medium term, acquisitions and alliances, particularly in
the context of Internet development will continue to be used to reinforce Reed
Elsevier's strategy. Alliances with other Internet companies are a significant
component of the Business portal initiatives where a range of content, market
and technology partners is necessary to deliver complete solutions for
customers.

Additionally, Reed Elsevier is establishing a venture fund of, initially,
up to $100 million to make early stage investments in Internet related
businesses, to provide insight and involvement in new market and technology
initiatives as well as financial return.

Reed Elsevier's dividend policy has been adjusted to support this
investment lead growth strategy through a reduction by one-third of the
equalised Reed International and Elsevier dividends from the 1998 level. This
will be implemented through a proposed reduction in the 1999 final dividend.

History and Development of Reed International Prior to the Merger

Reed International was founded in 1903, although certain of its
publications originated in the 19th century. Reed International was originally a
paper manufacturing company. It diversified into publishing in 1970 developing
its publishing holdings into a significant business by 1986, at which time the
Board of Reed International decided to concentrate on publishing and information
businesses. Over the period up to the Merger, Reed International disposed of its
manufacturing businesses and made a number of significant acquisitions of
publishing and information businesses. Reed International's strategic focus
within the publishing and information businesses was directed primarily towards
higher margin, subscription-based businesses in English language markets.

History and Development of Elsevier Prior to the Merger

Elsevier was formed in 1880 when a number of established Dutch publishers
and booksellers pooled their interests. Initially, Elsevier's activities
comprised small scale publishing for the general trade market. After World War
II, Elsevier broadened the scope of its operations, diversifying into consumer
magazines, newspapers, business publications and commercial printing and
achieving considerable growth as a publisher of English language scientific
journals. Since the late 1980's, Elsevier's strategy has been directed primarily
towards expansion in publishing and information in English language information
markets. This strategy resulted in the disposal of Elsevier's commercial
printing and consumer book publishing operations and in the acquisition of a
number of publishing houses active in the fields of scientific, professional and
business to business publishing.

4
<PAGE>

Material Acquisitions and Disposals

Reed Elsevier has made strategic acquisitions in the scientific, legal and
business markets to enhance existing activities. Total acquisition expenditure
in the five years ended December 31, 1999 was approximately (pound)2.45 billion.
In the five years ended December 31, 1999, the principal acquisitions have been;

o Tolley Publishing Company, a legal and tax publisher in the United
Kingdom, in August 1996 for(pound)101 million;

o MDL Information Systems, Inc., a U.S. provider of scientific
information management systems, in April 1997 for $320 million
((pound)195 million);

o Chilton Business Group, a U.S. business information publisher, in
September 1997 for $447 million ((pound)273 million);

o A 50% interest in a joint venture with Times Mirror Company in
November 1996 to own and operate Shepard's, the premier U.S. legal
citation business;

o Matthew Bender, a leading U.S. publisher of legal analysis and case
law and the remaining 50% equity in Shepard's from Times Mirror in
August 1998 for $1.65 billion ((pound)1 billion).

In addition, Reed Elsevier has made a significant number of smaller
acquisitions.

In 1995 a major divestment programme to withdraw from consumer publishing
markets was initiated. At the end of 1995, the newspaper businesses in the
United Kingdom and The Netherlands and the consumer magazine businesses in the
United States and The Netherlands were divested in five separate transactions
yielding gross proceeds of (pound)751 million. In 1998 the sale of Reed
Elsevier's consumer book publishing operations was completed and Reed Elsevier
completed the last major step in its withdrawal from consumer publishing markets
with the divestment of IPC Magazines in the United Kingdom, yielding gross
proceeds of (pound)878 million.

Reed Elsevier

Reed Elsevier is a world leading publisher and information provider. Its
activities include scientific, legal and business publishing. Turnover is
derived principally from subscriptions, advertising sales, circulation and copy
sales and exhibition fees. In 1999, 39% of Reed Elsevier's turnover was derived
from subscriptions; 24% from advertising sales; 18% from circulation and copy
sales; 9% from exhibition fees; and 10% from other sources. Subscription sales
are defined as turnover derived from the periodic distribution or update of a
product which is usually prepaid, while circulation and copy sales include all
other turnover from the distribution of a product, usually on cash or credit
terms. The level of publishing-related advertising sales has historically been
tied closely to the economic cycle with changes in the profit performance of
advertisers, business confidence and other economic factors having a high
correlation with changes in the size of the market. Subscription sales and
circulation and copy sales have tended to be more stable than advertising sales
through economic cycles. Both subscription and circulation and copy sales
include the electronic distribution of products and subscription and
transactional sales of online services. Approximately 21% of Reed Elsevier's
turnover is derived from electronic information products, and approximately 4%
is Internet sourced.

5
<PAGE>

The following table shows turnover of Reed Elsevier by business segment and
on the basis of geographic origin and markets and adjusted operating profit of
Reed Elsevier, which is stated before the amortisation of goodwill and
intangible assets and exceptional items, by business segment and on the basis of
its geographic origin, in each of the three years ended December 31, 1999:

<TABLE>
<CAPTION>
Turnover Adjusted Operating Profit(1)(2)
------------------------------------------------ ------------------------------------------------
1997 1998 1999 1997 1998 1999
-------------- -------------- -------------- -------------- -------------- --------------
((pound) ((pound) ((pound) ((pound) ((pound) ((pound)
million) % million) % million) % million) % million) % million) %
-------- --- -------- --- -------- --- -------- --- -------- --- -------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Business Segment
Scientific .................... 571 17 622 19 652 19 230 26 223 27 231 29
Legal(5) ...................... 1,033 30 1,107 35 1,268 37 289 33 322 40 316 40
Business ...................... 1,383 40 1,434 45 1,470 44 293 33 268 33 245 31
----- --- ----- --- ----- --- --- --- --- --- --- ---
Continuing Operations ......... 2,987 87 3,163 99 3,390 100 812 92 813 100 792 100
Discontinued Operations(3) .... 430 13 28 1 -- -- 73 8 -- -- -- --
----- --- ----- --- ----- --- --- --- --- --- --- ---
Total ......................... 3,417 100 3,191 100 3,390 100 885 100 813 100 792 100

Geographic Origin(4)
North America ................. 1,512 44 1,663 52 1,836 54 394 45 390 48 359 45
United Kingdom ................ 694 20 692 22 698 21 207 23 204 25 191 24
The Netherlands ............... 369 11 383 12 391 11 123 14 128 16 135 17
Rest of Europe ................ 263 8 293 9 307 9 69 8 76 9 87 11
Rest of world ................. 149 4 132 4 158 5 19 2 15 2 20 3
----- --- ----- --- ----- --- --- --- --- --- --- ---
Continuing Operations ......... 2,987 87 3,163 99 3,390 100 812 92 813 100 792 100
Discontinued Operations(3) .... 430 13 28 1 -- -- 73 8 -- -- -- --
----- --- ----- --- ----- --- --- --- --- --- --- ---
Total ......................... 3,417 100 3,191 100 3,390 100 885 100 813 100 792 100

Geographic Market(4)
North America ................. 1,582 46 1,726 54 1,906 56
United Kingdom ................ 432 13 483 15 484 14
The Netherlands ............... 208 6 222 7 237 7
Rest of Europe ................ 401 12 407 13 418 13
Rest of world ................. 364 10 325 10 345 10
----- --- ----- --- ----- ---
Continuing Operations ......... 2,987 87 3,163 99 3,390 100
Discontinued Operations(3) .... 430 13 28 1 -- --
----- --- ----- --- ----- ---
Total ......................... 3,417 100 3,191 100 3,390 100
</TABLE>

(1) Adjusted operating profit is shown before the amortisation of goodwill and
intangible assets and exceptional items. Reed Elsevier businesses focus on
adjusted profits as an additional performance measure. See note 1 to the
Combined Financial Statements.

(2) Exceptional items are significant items within Reed Elsevier's ordinary
activities which, under U.K. and Dutch GAAP, are required to be disclosed
separately due to their size or incidence. Exceptional items before tax
totalled (pound)232 million (loss) in the year ended December 31, 1999,
(pound)603 million (profit) in the year ended December 31, 1998, and
(pound)448 million (loss) in the year ended December 31, 1997. See
"Management's Discussion and Analysis of Financial Conditions and Results
of Operations -- Reed Elsevier" and note 6 to the Combined Financial
Statements for a further description of these items.

(3) Discontinued operations, are presented in accordance with U.K. and Dutch
GAAP, and comprise IPC Magazines and the consumer book publishing
operations which were the final elements of the Consumer segment sold in
1998.

(4) The analysis by geographic origin attributes turnover and adjusted
operating profit to the territory where the product originates. The
analysis by geographic market attributes turnover on the basis of the
destination market.

(5) The Professional segment has been renamed Legal to reflect its most
significant markets. The Legal and Business segments have also been
re-stated to reflect the transfer of management and development
responsibilities for Elsevier Tuition to Elsevier Business Information.

Reed Elsevier's businesses compete for circulation and marketing
expenditures in the scientific, legal and business markets. The bases of
competition include, for readers and users of the information, the quality and
variety of the editorial content, the quality of the software to derive added
value from the information, the timeliness and the price of the products and,
for advertisers, the quality and the size of the audiences targeted.

6
<PAGE>

The following table shows the main business units by reference to business
segment and geographical location.

<TABLE>
<CAPTION>
Geographical Location
-------------------------------------------------------------------------------------------------------------------
Business Segment North America(1) United Kingdom The Netherlands Rest of Europe Rest of world
- ---------------- ------------------------------ ---------------- ---------------- ---------------------- -----------------------
<S> <C> <C> <C> <C> <C>
Scientific Elsevier Science Elsevier Science Elsevier Science Elsevier Science, Elsevier Science,
Excerpta Medica Communications The Lancet Excerpta Medica Republic of Ireland Japan
Springhouse Corporation(6) Communications Elsevier Science, Excerpta Medica
MDL Information Systems Switzerland Communications,
Editions Scientifiques Japan
et Medicales
Elsevier, France
Beilstein, Germany

Legal LEXIS-NEXIS Group Butterworths UK Editions du Juris- Butterworths,
LEXIS Publishing(2) Butterworths Tolley Classeur, France Australia
Michie(2) Publishing Verlag Orac, Austria Butterworths,
Matthew Bender(2) Heinemann Dott. A. Giuffre South East Asia
Shepard's(2) Ginn Editore, Italy (40%) Butterworths,
Martindale-Hubbell(2) Butterworth- Stampfli Verlag, South Africa (50.01%)
NEXIS Heinemann Switzerland (40%) Depalma, Argentina
Congressional Information LEXIS-NEXIS Wydawnictwa Abeledo Perrot,
Services Europe Prawnicze PWN, Argentina (66%)
Butterworths, Canada Poland (50%) Rigby-Heinemann,
Rigby Australia
Greenwood-Heinemann

Business Cahners Business Information Reed Business Elsevier Business Pan European Reed Business
Cahners Travel Group Information Information(3) Publishing Company, Information,
ICIS-LOR Reed Exhibition Elsevier Belgium(3) Australia
Reed Exhibition Companies (4) Companies(4) Tuition(3) Elsevier Informacion Reed Exhibitions,
OAG Worldwide(6) OAG Worldwide(6) Profesional, Spain(3) Japan(4)
REZsolutions, Inc.(67%)(5) Reed Elsevier, Reed Exhibitions,
Deutschland, Singapore(4)
Germany(3) Reed Exhibitions,
Editions Prat, France(3) Australia(4)
Groupe Strategies, OAG Worldwide,
France(3) Singapore(6)
Reed Midem Organisation,
France(4)
OIP, France(4)
Messe Salzburg, Austria(4)
</TABLE>

(1) U.S. unless otherwise stated.

(2) These businesses form part of LEXIS Publishing.

(3) These businesses form part of Elsevier Business Information. During 1999
management and development responsibilities for the Elsevier Tuition
businesses were transferred from the Legal to the Business segment.

(4) These businesses form part of Reed Exhibition Companies.

(5) REZsolutions, Inc. is in the process of being sold.

(6) In February 2000, Reed Elsevier announced that it planned to divest a
number of businesses including OAG Worldwide and Springhouse Corporation.

7
<PAGE>

REED ELSEVIER PLC

Scientific

Adjusted operating profit .... 230 223 -1% 231 +5%
Operating margin ............. 40.3% 35.9% -4.4pts 35.4% -0.5pts
</TABLE>

(1) Represents percentage change over 1997 at constant rates of exchange, which
have been calculated using the average exchange rates for the 1997
financial year.

(2) Represents percentage change over 1998 at constant rates of exchange, which
have been calculated using the average exchange rates for the 1998
financial year.

The Scientific segment of Reed Elsevier comprises worldwide scientific and
medical publishing and communications businesses.

The Scientific segment strategy is to extend its global leadership position
in providing high quality scientific, technical and medical information
solutions to research scientists and information professionals. Reed Elsevier
believes the prime driver of growth will be revenue, led by the ScienceDirect
family of Internet products, where electronic access, extensive inter-linked
content, and search capability offer added value to users.

Key strategic initiatives include:

o Significant expansion of the ScienceDirect Internet products to meet
the needs of specific scientific communities:

New research is added daily from Elsevier Science journals and a
growing number of other publishers. The archive is being enlarged, and
links to related scientific databases are now established. Current
awareness and scientific news services are being expanded, abstracting
and indexing layers are being extended;

Throughout 2000, services and content will be developed further,
tailored to specific scientific disciplines, e.g. biotechnology,
pharmaceutical and engineering, and to the differing research markets,
e.g. academic, government and corporate;

Advanced search, navigation and access/delivery software tools
will remain a priority, exploiting development in web technologies and
the ScienceDirect search engine. Archiving tools, library management
and other taskware are being added to improve customer productivity
and utility;

o Accelerated migration from print to electronic products, which have
demonstrably better capability to extend services and add further
value. A clear pricing policy has been introduced to facilitate this
migration, and enhance customer loyalty. This ensures a moderate and
more predictable level of price increases for core content
subscriptions, whilst providing a more tailored pricing approach to
additional online services;

o Expansion to new usage groups, including smaller academic
institutions, individual researchers and corporate and industrial
markets, supported by customised products and pricing;

o Significant expansion of the sales and customer service activities
that have historically been conducted through third-party subscription
agents. Strengthened sales and marketing efforts and pricing
initiatives will support the migration of customers to ScienceDirect
and related services, and expansion to new usage groups. No competitor
has a comparable sales operation;

o Continued upgrade of systems infrastructure to provide Internet-based
authoring tools, speedier peer review and production, and to
streamline back office functions and distribution.

Revenue growth in the Scientific segment is expected to accelerate through
customer migration from print to Internet services, greater customer loyalty to
more valued services and increased usage, and penetration of untapped market
segments.

8
<PAGE>

Elsevier Science. Elsevier Science is the leading international publisher
of scientific information, based on the number of journals published, with
headquarters in the Netherlands and operations located around the globe. Within
the Scientific segment, Elsevier Science's scientific information businesses
contributed approximately 82% of the total turnover in the year ended December
31, 1999. Through a number of imprints including Elsevier, Pergamon, Excerpta
Medica and North Holland, Elsevier Science supplies scientific information
through journals, books, CD-ROMs and online to research libraries, scientists
and professional markets serving an increasingly wide range of research fields.
Elsevier Science is integral to the scientific community through the publication
of more than 1,200 subscription based journals with more than 150,000 new
research articles published each year, focused on the life sciences, chemistry
and physical sciences. These peer-reviewed publications are an essential conduit
for the dissemination of authoritative research findings. Other publishing
programmes include econometrics, statistics, geology, computer sciences,
management and psychology. Among Elsevier Science's most widely known and
largest print journals are Cell, Brain Research, Neuroscience and Biochimica et
Biophysica Acta ("BBA") in the life sciences; The Lancet, the Journal of the
American College of Cardiologists and Annals of Thoracic Surgery in the medical
sciences; Tetrahedron and Journal of Chromatography in chemistry; Physics
Letters and Solid State Communications in the physical sciences; Journal of
Financial Economics in economics; and Artificial Intelligence in the computer
sciences field. Elsevier Science also publishes secondary material in the form
of supporting bibliographic data, indexes and abstracts, and tertiary layers of
information in the form of review and reference works, including the Trends and
Current Opinion series and Encyclopaedia of Neuroscience. In addition the
company publishes conference proceedings, letters, journals for rapid
communications, handbooks, bulletins, magazines, dictionaries, newsletters, and
sponsored publications.

Elsevier Science offers a number of sophisticated secondary databases,
available electronically online or on CD-ROM. These include: EMBASE, covering
pharmaceutical and biomedical sciences; Compendex, covering all the engineering
disciplines; Geobase, focusing on geoscience and related areas; Beilstein
Database, providing online access to approximately eight million chemical
structures with linked descriptions of the properties, reactions, preparations,
citations and other relevant data; and Elsevier BIOBASE, a biological science
database. Elsevier Science also maintains such highly specialized databases as
World Textiles and FLUIDEX. All of these databases are available in one source,
the OPSBANK database.

In 1999 Elsevier Science continued its major investment programme to
capitalise on its position as the leading provider of authoritative scientific
information.

Good progress was made during the year in the roll-out of ScienceDirect,
the web-based scientific information service, with over 25% of journal
subscription revenues now covering both print journals and the ScienceDirect
service. Over 800,000 scientific research articles are now available in the
online database. Usage is growing rapidly, significantly increasing the value of
Reed Elsevier's information to the scientific community.

An increasing number of publishers now include their information within
ScienceDirect, and linkages have been established with other major databases.
This will enable researchers to cross refer seamlessly to journal articles from
participating publishers to which they have also subscribed.

The new pricing approach introduced in the year, moderating the impact of
currencies so as to give more predictable journal pricing for customers, has
contributed to the continuing success of the migration of revenue from print to
electronic delivery.

Elsevier Science enhanced its core content of 1,200 subscription based
journals through new launches and acquisitions. Cell Press, acquired in April
1999, added four first-class journals in the life sciences field, Cell,
Molecular Cell, Neuron and Immunity, which in addition to their strong print
positions, are valuable drivers of online usage in molecular biology.

The scientific publishing business is highly cash generative as journal
subscriptions are usually paid annually in advance. In the year ended December
31, 1999, subscriptions accounted for approximately 82% of Elsevier Science's
turnover, circulation and copy sales for 3% of turnover and other sources for
15% of turnover. In the year ended December 31, 1999, approximately 41% of
Elsevier Science's turnover was derived from North America, 35% from Europe, and
the remaining 24% from Asia/ Pacific.

9
<PAGE>

Much of the pre-press production of the scientific businesses is undertaken
in-house. An electronic production system, CAP (Computer Aided Production), is
used to deliver the full text of journal articles in whichever format the
customer requires: online, on CD-ROM, or in print. Electronic files of all
journals are fed from CAP into the Electronic Warehouse, which in turn stores
content and makes it available as required for delivery to customers. Printing
is primarily sourced through a variety of unaffiliated printers located in cost
effective printing centres, mainly in Europe. The distribution of hard copy
scientific journals is to a large extent handled through independent
subscription agents. Electronic delivery is directly fulfilled principally
through ScienceDirect. Elsevier Science is the world's leading publisher of
English language scientific information, based on the number of journals
published. Competition with Elsevier Science is generally on a title by title
basis. Leading competing titles are normally published by learned societies such
as the American Chemical Society, the Institute of Electrical and Electronics
Engineers and the American Institute of Physics in the United States and the
Royal Society of Chemistry in the United Kingdom.

Medical Businesses

Elsevier Science also operates a worldwide network of medical publishing
and communications businesses. The medical businesses within the Scientific
segment comprise Excerpta Medica Communications, Springhouse Corporation,
Editions Scientifiques et Medicales Elsevier and The Lancet, and together these
businesses contributed approximately 18% of the Scientific segment's turnover in
the year ended December 31, 1999.

Excerpta Medica Communications. Excerpta Medica Communications ("EMC")
publishes customised information to healthcare professionals, medical societies
and pharmaceutical companies worldwide. Consistent with the global structure of
its main clients, EMC fulfils the needs of pharmaceutical companies'
international and domestic marketing operations through its offices in the
Netherlands, Germany, Italy, France, Spain, the U.K., the United States, Japan,
Hong Kong and Australia. Activities include educational and promotional
scientific information delivered via medical symposia, traditional print media,
audio-visual and computer-based programs. EMC works closely with pharmaceutical
companies to provide worldwide marketing platforms for new drugs. In the year
ended December 31, 1999, approximately 91% of EMC's turnover was derived from
sponsored projects and 9% from subscriptions. In the same period, approximately
37% of turnover came from North America, 35% from Europe and 28% from Asia/
Pacific.

Springhouse Corporation. Springhouse Corporation ("Springhouse") publishes
nursing reference products and additional materials for nursing students and
instructors in the United States. Notable titles include Nursing Drug Handbook,
the respected and widely used drug reference for nurses, and the Nursing
magazine. The decision has been taken to sell Springhouse because its ownership
is not seen as core to the continued development of the medical publishing
business. In the year ended December 31, 1999, Springhouse's circulation and
copy sales accounted for approximately 37% of total turnover, with a further 20%
from advertising, 20% from subscriptions and 23% from other sources.

Editions Scientifiques et Medicales Elsevier. Editions Scientifiques et
Medicales Elsevier ("ESME") based in Paris, publishes 79 medical, biotechnology
and clinical chemistry titles, including the renowned Encyclopedie Medico
Chirurgicale. ESME has continued to add to its portfolio of French language
medical, biotechnology and clinical chemistry journals in both hard copy and
electronic formats. In the year ended December 31, 1999, ESME's circulation and
copy sales accounted for approximately 53% of total turnover, with a further 7%
from advertising, 29% from subscriptions and 11% from other sources.

The Lancet. The Lancet is one of the world's most respected medical
journals, covering all aspects of human health and is sold through subscription
in over 75 countries. In the year ended December 31, 1999, subscriptions
accounted for 83% of total turnover, advertising for 16% and other sources for
1%.

The medical publishing market is highly fragmented and no individual
company competes on a similar scale on an international level. There is regional
competition from a number of publishers and service providers in the United
States, such as the Thomson Corporation, American Medical Association,
Massachusetts Medical Society (New England Journal of Medicine), Medi Media,
Adis Press and Lippincott-Raven (Wolters Kluwer), Advanstar, IMS (Cognizant) and
Mosby (Harcourt Brace).

10
<PAGE>

Legal

<TABLE>
<CAPTION>
1997 1998 1999
---- ---- % change ---- % change
Turnover ((pound)million) ((pound)million) at constant rates(1) ((pound)million) at constant rates(2)
- -------- ---------------- ---------------- -------------------- ---------------- --------------------
<S> <C> <C> <C> <C> <C>
LEXIS-NEXIS Group ............ 661 741 +13% 854 +13%
Reed Elsevier Legal Division . 206 207 +6% 233 +13%
Reed Elsevier Educational
& Professional Publishing .. 166 159 -5% 181 +12%
----- ----- -----
1,033 1,107 +10% 1,268 +13%
Adjusted operating profit ...... 289 322 +14% 316 -4%
Operating margin ............... 27.9% 29.1% +1.2pts 24.9% -4.2pts
</TABLE>

(1) Represents percentage change over 1997 at constant rates of exchange, which
have been calculated using the average exchange rates for the 1997
financial year.

(2) Represents percentage change over 1998 at constant rates of exchange, which
have been calculated using the average exchange rates for the 1998
financial year.

The Professional segment has been renamed Legal to reflect the principal
markets of this segment. The segment also includes research and other
information products and services to professionals in business and government,
through NEXIS, and education and academic publishing through Reed Educational &
Professional Publishing.

The Legal strategy is to be the leading, preferred global provider of
information services and information-based solutions to legal professionals.
Reed Elsevier believes this will be driven by superior content and
functionality, targeted sales and marketing programmes and expansion into new
markets.

Key strategic initiatives include:

o Developing and launching demonstrably superior products and services,
with focus on enhancing ease of use, content and navigation. The
majority of this effort will be on online Internet products, whilst
continuing to expand the print and CD-ROM products in specific
markets;

Content is being significantly expanded and enhanced through an
ambitious authoring and editorial programme e.g. core terms and case
law summaries at LEXIS, and the Eclipse (employment law and related
fields) acquisition in the U.K.;

Ease of use and functionality is a key focus of the product
strategy to provide intuitive navigation and access to a growing range
of Internet solution-driven research tools. Key functionality upgrades
include smart indexing, search advisors, reports and dossiers, and
customised Intranet solutions;

o Customisation of online products: including content, functionality,
pricing and customer support for different market sectors, e.g. small
law, corporate legal, government, corporate research, geographical
sectors and areas of specialised practice, as well as customer
specific personalisation. Intranet solutions are being provided to
major customers, seamlessly linking LEXIS-NEXIS information services
with the customer's data and other information available on the
Internet;

o Significant expansion of the sales operations and marketing programmes
to secure market share shift in core markets. The sales force is to be
nearly doubled worldwide with extensive technical support teams. Law
schools, where preferences are first developed, are a priority target
as well as other customer groups. Investment is being made in a new
legal portal to provide a more effective channel to the small law firm
market;

o Expansion into related professional areas, with investment in content,
functionality, sales and marketing, and acquisitions, e.g. in the U.K.
into regulatory and financial services, and in the U.S. into corporate
marketing, sales and risk management;

o Building up of global capability and presence, with increased
alignment of the U.S. and non U.S. businesses, particularly in
servicing global accounts and in branding, and expansion through
acquisition and alliance in Continental Europe, Asia and South
America;

o Continued upgrade of systems infrastructure to provide integrated
fulfilment, customer service and back office support.

11
<PAGE>

Growth in the Legal segment is expected to be driven by increased migration
to the Internet, customer preference and market share shift, increased usage and
new services, and expansion into new market sectors and geographical locations.

LEXIS-NEXIS Group

In the year ended December 31, 1999, LEXIS-NEXIS Group contributed
approximately 67% of the total turnover of the Legal segment.

LEXIS-NEXIS Group is a leading provider of decision support information and
services to the legal, corporate and government markets in North America and, to
a lesser extent, internationally. LEXIS-NEXIS Group makes most of its branded
information products available via the Internet, through online dial-up, on
CD-ROM and in print.

In 1999, LEXIS-NEXIS Group significantly stepped up its investment in new
products and services, in sales and marketing, and in support activities, to
better meet the changing needs and expectations of legal and other professionals
and to improve its competitive position.

LEXIS-NEXIS Group's legal publishing businesses were reorganised during the
year as LEXIS Publishing, to provide greater market focus by bringing together
the LEXIS online service with the offline legal publishing businesses.
Throughout the year, new legal research products have been launched. They
reflect LEXIS Publishing's core strengths in content, editorial and analytical
expertise, and the speed and sophistication of its online search capabilities.

A significant development has been the roll-out of lexis.com, which
provides intuitive, easy to use access to the LEXIS- NEXIS online service.
Additionally, LEXIS Publishing has launched a new legal classification system,
LEXIS Search Advisor, that significantly enhances the legal research process by
enabling search by area of law and related topics rather than by statute or
case. Searchable core terms have also been added to provide a quick and easy
method for finding critical information by focusing on specific words or phrases
of particular significance. The system also includes two newly updated tools for
validating research results: the new Shepard's Citations Service and CheckCite
2000.

The launch of the Internet delivered lexis.com service has had a positive
impact in law schools where customer preferences are first developed. The
benefits of these new launches may take a little while to be realised due to the
timing of subscription cycles and of customers migrating their own networks to
web based platforms, but these and other initiatives have been well received in
the market and are expected to improve LEXIS Publishing's competitive position.

Matthew Bender. Matthew Bender, a leading U.S. publisher of legal analysis
and case law, was acquired by Reed Elsevier in August 1998. Matthew Bender
offers more than 500 publications in print and electronic formats -- sold to
subscribers in more than 160 countries. Some of its most successful publications
include California Forms of Pleading and Practice, Collier on Bankruptcy,
Immigration Law and Procedure, Moore's Federal Practice, Nimmer on Copyright and
Rabkin & Johnson's Current Legal Forms.

Michie. Michie has been a leader in U.S. legal publishing since the early
1800's. Michie offers more than 700 practice-enhancing titles, 400 Custom Legal
Publications and the Annotated Codes of 35 states and territories. In addition,
Michie is the official publisher of the United States Code Service and United
States Supreme Court Reports, Lawyers' Edition. Law school professors and
students have long relied on the Michie Contemporary Legal Education Series to
provide course materials, prepared by leading legal scholars.

Shepard's. Shepard's is the premier U.S. legal citation service, providing
a comprehensive mix of Federal and State jurisdictional and topical citator
services delivered online or in print or CD-ROM formats. "Shepardizing" is a key
process for all U.S. lawyers and involves checking the continuing authority of a
case or statutory reference in the light of subsequent legal changes.

Martindale-Hubbell. Martindale-Hubbell is the publisher of the leading
biographical guides to the legal profession in North America and
internationally. Its flagship product, the Martindale-Hubbell Law Directory,
includes more than 900,000 U.S. lawyer and law firm listings. There are also
special Canadian and International editions. The Martindale-Hubbell Law
Directory is available through hardbound print, CD-ROM and online. During the
year, Martindale-Hubbell expanded its coverage of the legal field by launching
its first online directory of professional legal staff.

12
<PAGE>

Martindale-Hubbell also offers the lawyers.com service to small law offices
to connect them with prospective clients. The service, which was launched in
1998 and is free to users, provides profiles of 420,000 attorneys and firms
world-wide. In 1999, lawyers.com was named by Yahoo! Internet Life as one of the
"50 Most Incredibly Useful Sites" on the Internet.

NEXIS. NEXIS is responsible for developing, marketing and selling the
LEXIS-NEXIS online service to corporations, businesses and local, state and
federal government agencies, and also manages news, business, financial and
public records content acquisition and enhancements. The NEXIS business unit was
restructured in the second half of 1999 and a new senior management team was put
in place, to prioritise product initiatives in key targeted customer groups, and
to improve ease of use. Increasingly, NEXIS current awareness and online
research materials are being integrated with a customer's own information and
information on the Internet, to provide customer specific corporate research
solutions and service. This integrated approach to knowledge management is
becoming an increasingly important differentiator. SmartIndexing Technology was
used to create the Company Dossier capability, launched in December 1999, which
provides easy-to-use reports on public and private companies, derived from the
broad collection of information within the LEXIS-NEXIS data warehouse.

LEXIS-NEXIS Europe. LEXIS-NEXIS Europe, formed in January 1997, offers a
wide range of LEXIS-NEXIS online information products in its European markets.
In 1999 it released local-language Internet browser products into Germany and
France. In January 2000, the business was expanded through the acquisition of FT
Profile and a long term licence agreement for Financial Times content.

Other businesses within the LEXIS-NEXIS Group include: LEXIS Document
Services, a provider of comprehensive searching and filing services to U.S. law
firms and asset-based lenders which provides service for all 4,300 jurisdictions
throughout the U.S. and Canada; Marquis Who's Who, a U.S. publisher of
biographical information; National Register Publishing, a U.S. publisher of
directories serving the advertising, financial, real estate, and general
reference markets; and Reed Technology & Information Services ("RTIS"), a
provider of content management and information delivery systems.

In the year ended December 31, 1999, approximately 65% of LEXIS-NEXIS
Group's turnover came from subscription sales, including online services, 11%
from transactional sales of online services, 9% from advertising (including
directory listings), 6% from circulation and copy sales and the remaining 9%
from other sources. In the same period approximately 97% of turnover came from
North America and 3% from the rest of the world.

In the U.S. legal information and services markets, LEXIS-NEXIS Group's
principal competitor is the Thomson Corporation. The principal competitors in
the business information market include Dialog Corporation and Factiva (Dow
Jones and Reuters).

Reed Elsevier Legal Division

The Reed Elsevier Legal Division comprises the Butterworths group of
companies, including Butterworths Tolley Publishing, Editions du Juris-Classeur
in France, Verlag Orac in Austria, Orac Publishers in the Czech Republic, 40%
interests in Giuffre in Italy and in StImpfli Verlag in Switzerland, 50%
interests in Wydawnictwa Prawnicze PWN, a Polish joint venture, HVG-Orac, a
joint venture in Hungary, and, in Argentina, Depalma and a 66% interest in
Abeledo Perrot. In the year ended December 31, 1999 Reed Elsevier Legal Division
contributed 19% of the total turnover of the Legal segment.

Butterworths. Butterworths operates in the legal markets in the U.K.,
Australia, New Zealand, South Africa, South East Asia, India, Canada and the
Republic of Ireland. Butterworths provides legal, tax and regulatory materials
in loose-leaf, book, CD-ROM and online formats.

Among its most widely known publications in the U.K. are Halsbury's Laws of
England, The Encyclopaedia of Forms and Precedents, Simon's Taxes and
Butterworth's Company Law Service. An increasing amount of its information is
now available online, through the web-based Butterworths Direct service,
launched in 1998, and through the LEXIS online service. Butterworths Direct is a
leader in electronic legal publishing both in terms of content and functionality
and comprises several services: Law Direct, a subscription based current
awareness service; All England Direct, comprising a 24-hour case reporting
service, and the entire All England Law Reports; and Halsbury's Law Direct,
comprising the complete text of the 56 volume set of the latest edition fully
updated, Legislation Direct covering statute law; and four specialist practice
databases.

The Butterworths Direct online legal information service continued its
successful roll-out in the U.K., adding both content and customers, and
providing the facility for alliance with other information providers. A further
development has been the integration of Butterworths Direct and LEXIS. This will
provide access, via a single subscription, to an unrivalled range of U.K.,
Commonwealth and U.S. legal materials.

Butterworths Tolley Publishing, acquired in August 1996, is a market leader
in "first point of reference" tax publishing, through its single volume guides
and its loose leaf service. Butterworths Tolley Publishing complements
Butterworths' position in publishing for practitioners at the specialist end of
the legal and tax markets in the U.K.. Butterworths Tolley Publishing also
produces several CD-ROM and online products for tax, regulatory and business
markets. The expansion into regulatory publishing continued with the acquisition
in January 2000 of Eclipse, a leading publisher of employment law and related
material.

Outside the U.K., Butterworths companies also have leading positions in
legal, tax and regulatory information publishing. The global reach was extended
during the year through acquisitions in Austria, Argentina, Australia, South
Africa and India.

In the year ended December 31, 1999, approximately 91% of Butterworths'
turnover was derived from hard copy sales, with 9% attributable to electronic
products. Significant investment in and growth from electronic publishing are
expected over the next few years. In the same period, approximately 61% of
turnover came from the U.K., 15% from Australia, 7% from Canada and the balance
from the rest of the world. Printing is primarily sourced through a variety of
unaffiliated printers located in cost-effective printing centres. Warehousing
and distribution are largely outsourced. The principal U.K. competitor in the
legal field is Sweet & Maxwell (Thomson Corporation), with Commerce Clearing
House (Wolters Kluwer) competing against its tax publications.

13
<PAGE>

Editions du Juris-Classeur. Editions du Juris-Classeur ("EJC") is a French
publisher of legal materials in loose-leaf form for lawyers and notaries. The
Juris-Classeur collection comprises some 400 regularly updated volumes covering
66 topics. Its 20 journals, including the leading weekly La Semaine Juridique,
also cover all the important areas of French legal practice. EJC's online
service, Juris-Data, contains the largest case law database in France, including
exclusive coverage of the Cour d'Appel (French Court of Appeal). EJC also
includes the Infolib, Legisoft and La Documentation Organique ("LaDo")
businesses. Infolib specialises in legal software and other materials for
notaries. Legisoft markets information and software for lawyers, enabling them
to search an extensive database of codes and cases and to draft deeds using
ready-made forms. LaDo publishes an encyclopaedia for tax specialists, which is
available in both loose-leaf and CD-ROM formats. EJC has its own printing and
warehousing facilities. In the year ended December 31, 1999, subscriptions
comprised approximately 75% of EJC's turnover, while circulation and copy sales
comprised approximately 18% of turnover, with 7% from other sources. EJC's major
competitors are Dalloz (CEP) and Lamy (Wolters Kluwer).

Verlag Orac. Verlag Orac, the leading tax publisher and a leading law
publisher in Austria, was acquired in November 1998. It publishes a
comprehensive range of tax materials, including the fortnightly Austrian Tax
Newspaper and the monthly Journal of Accountancy. Verlag Orac also has an equity
holding in a Hungarian law publisher HVG-Orac (50%) and now has full ownership
of Orac Publishers in the Czech Republic.

Giuffre. Giuffre, in which Reed Elsevier has a 40% interest, publishes
reference materials in both hard copy and, increasingly, CD-ROM formats for the
Italian legal market. It also has a journals programme and is a major Italian
academic legal publisher.

Stampfli Verlag. Stampfli Verlag is a Swiss legal and tax publisher in
which Reed Elsevier has a 40% interest.

Wydawnictwa Prawnicze PWN. Wydawnictwa Prawnicze PWN ("WP-PWN") is a joint
venture company which was established in 1994 with PWN, Poland's leading
academic publisher in which Reed Elsevier has a 50% interest.

Abeledo Perrot. In January 1999, Reed Elsevier acquired a 66% interest in
Abeledo Perrot, one of the leading legal publishers in Argentina, which
publishes for legal practitioners and for the academic and student markets.

Depalma. Depalma, an Argentine publishing house which has a leading list of
legal text books for both practitioner and student markets, was acquired by Reed
Elsevier in February 1999.

Reed Educational & Professional Publishing. Reed Educational & Professional
Publishing ("REPP") serves the educational markets of the U.K., U.S., Australia,
New Zealand and South Africa, as well as the international professional and
academic sectors. REPP contributed approximately 14% of the total turnover of
the Legal segment in the year ended December 31, 1999.

REPP operates through eight main businesses: U.K. Schools comprising the
Heinemann, Rigby and Ginn imprints; Global Library and Butterworth-Heinemann
based in the U.K.; Rigby and Greenwood-Heinemann based in the U.S.A.;
Rigby-Heinemann based in Australia; Heinemann in South Africa; and Reed
Publishing in New Zealand. U.K. Schools is a publisher for the U.K. primary and
secondary markets. Global Library publishes reference material for school
libraries and has operational units in the U.K., U.S.A. and Australia.
Butterworth-Heinemann is an international publisher of professional information
and learning materials for higher education and professional markets. It has
publishing units in the U.K., U.S.A. and Australia. In the U.S.A., Rigby
publishes supplemental materials for elementary school literacy development.
Greenwood-Heinemann publishes monograph and reference lists and teachers'
professional resources. The Australian business, Rigby Heinemann, is a leading
publisher of primary and secondary school books in Australia. In South Africa,
Heinemann is a leading publisher of school texts and in New Zealand, Reed
Publishing publishes text-books for the local market.

REPP aims to be the number one choice for the provision of support
materials to teachers and of professional and academic knowledge and instruction
in targeted market segments. Four key elements underpin the achievement of this
aim: expansion into new disciplines in the supplemental segment of the U.S.
schools market; continued consolidation of its strong position in the U.K.
schools market; development of electronic products for the educational and
teacher professional development markets; and expansion of the professional and
academic product offerings based on direct electronic access to the customer. A
strong base exists for the implementation of this strategy. In the U.K. the
publishing programmes in the primary market achieved market leadership based on
their alignment to the objectives of the new government educational initiatives.
In the U.S., Pebble Soup, a resource based programme for early childhood
language and literacy teaching developed in partnership with Children's
Television Workshop, position Rigby as a leader in this expanding market. In
academic and professional markets, electronic initiatives include the launch of
new editions of authoritative publications such as Bradley's Neurology in
Clinical Practice together with bundled access to Web sites offering full text
search, video, neurological updates, links to external information resources and
discussion groups.

In the year ended December 31, 1999, approximately 39% of REPP's turnover
derived from the United Kingdom, 42% from North America, 2% from continental
Europe, 6% from Australia and the remaining 11% from the rest of the world.
Printing and binding are performed by unaffiliated printers and in cost
effective printing centres both in the country of origin and around the world.
REPP has its own warehouse and distribution facilities in its principal
territories. REPP's major U.K. competitors are Longman (Pearson), Oxford
University Press, Stanley Thomes (Wolters Kluwer) and Cambridge University
Press. In the United States, principal competitors include Wright Group
(Tribune), SRA/ Open Court (McGraw Hill) and MCP (Pearson). University presses
are considered to be competitors in the academic market. In Australia, principal
commercial competitors include Nelson, Macmillan, AWL and Jacaranda.

14
<PAGE>

Business

<TABLE>
<CAPTION>
1997 1998 % change 1999 % change
Turnover ((pound)million) ((pound)million) at constant rates(1) ((pound)million) at constant rates(2)
- -------- ---------------- ---------------- -------------------- ---------------- --------------------
<S> <C> <C> <C> <C> <C>
Cahners Business Information .... 482 531 +11% 542 -1%
Reed Business Information ....... 236 248 +6% 243 -2%
Elsevier Business Information ... 220 257 +20% 270 +7%
OAG Worldwide ................... 99 90 -7% 85 -6%
Reed Exhibition Companies ....... 257 274 +9% 301 +8%
Other ........................... 89 34 29
----- ----- -----
1,383 1,434 +5% 1,470 +2%
Adjusted operating profit ......... 293 268 -8% 245 -9%
Operating margin .................. 21.1% 18.7% -2.4pts 16.7% -2.0pts
</TABLE>

(1) Represents percentage change over 1997 at constant rates of exchange, which
have been calculated using the average exchange rates for the 1997
financial year.
(2) Represents percentage change over 1998 at constant rates of exchange, which
have been calculated using the average exchange rates for the 1998
financial year.

The Business segment is comprised of business magazine and information
companies operating principally in the U.S., the U.K., Europe and Australia and
a worldwide exhibitions business. During 1999 management and development
responsibilities for the Elsevier Tuition businesses were transferred to
Elsevier Business Information.

The Business strategy is to be the first choice of business professionals
for information and decision support, marketing services and e-commerce
connectivity. Reed Elsevier believes strong brands and market positions in key
sectors, built on high quality and online decision support information and
premium exhibition services, will attract audiences and deliver effective
buyer-seller connections.

Key strategic initiatives include:

o Creation of leading Internet portals in market sectors where Reed
Elsevier has scale, and which offer significant growth potential for
Internet delivered information, marketing services and transactions.
In the US, key vertical sectors includes Electronic (e-inSITE),
Manufacturing (Manufacturing.net), Construction (Buildingteam.com),
Entertainment (Variety.com); and Publishing. In Europe, priority
sectors include Aerospace (ATi), Computing (ComputerWeekly.com),
Chemicals (CNi) and Property (EGi). Vertical portals will be supported
by horizontal services, such as the totaljobs.com online recruitment
portal, NEXIS news feeds and other licensed services;

o Expansion of the value chain into e-commerce, through acquisition or
alliance. Each service includes an extended content resource (news,
market information, products and services, directories), and
critically will provide direct connections to e- commerce services. An
example is the joint venture between e-inSITE, which has the brands,
information and market reach of the Cahners Electronic titles, the
electronic parts databases of Information Handling Services, and the
sourcing and distribution capabilities of PartMiner;

o Expanded marketing and sales activities, and customer relationship
management. Internet based channel alliances and marketing networks
are increasingly important. A key priority is to deepen customer
profiling and databases to strengthen relationships with
advertisers/exhibitors, and to develop further customisation of
product;

o Further growth in print magazines and exhibitions portfolios through
acquisition and increased investment in new launches and line
extensions, such as the EXPO COMM joint venture in telecoms
exhibitions, the magazine launches of GRID in institutional real
estate and CommVerge in electronics, and through expansion of other
market products, such as supplements, newsletters and conferences;

o Geographical expansion, particularly, in Continental Europe and Asia.
In the Business segment, the information and exhibitions industry is
fragmented and opportunities exist for strategic acquisitions and
competitive product launch. Expansion will be focused on priority
global sectors.

Growth in the Business segment is expected to be accelerated by new revenue
streams from the Internet portals and launches. These revenue streams will be a
mix of subscriptions from users for valued information, advertising from sellers
for cost effective audience delivery and a share of transactional revenues
through participation in e-commerce.

15
<PAGE>

Business Magazines and Information

The business magazine and information businesses within the Business
segment are made up of Cahners Business Information, Reed Business Information
and Elsevier Business Information. Together these businesses contributed
approximately 78% of the turnover of the Business segment in the year ended
December 31, 1999. In the U.S. business to business magazines are primarily
distributed on a "controlled circulation" basis, whereby the product is
delivered without charge to qualified buyers within a targeted industry group
based upon circulation lists developed and maintained by the publisher. In the
U.K. business magazines are distributed both on a "controlled circulation" basis
and a "paid circulation" basis, but in both cases are dependent on advertising
for a significant proportion of their revenues. As turnover is mainly derived
from advertising, these businesses are sensitive to economic conditions and
advertiser expenditure in those countries. In the Netherlands, however, a higher
proportion of publications is sold by subscription, thus such publications are
generally more resilient through economic cycles.

In 1999, the businesses within the Business segment added to their
portfolios of leading print publications and expanded their online services in
vertical sectors. As a result of the review of strategy, a substantial
acceleration of online initiatives is now underway to capture more of the
opportunities that the Internet provides for the businesses to facilitate, and
participate in, e- commerce.

Cahners Business Information. Cahners Business Information ("Cahners") is a
leading publisher of business information in the United States, with more that
120 trade magazines and 120 Web sites organized in eighteen market-focused
groups. The key sectors served include Communications, Entertainment, Travel,
Electronics, Building and Construction, Manufacturing, Automotive, Materials,
Publishing and Retail Home Furnishings. Among the best known titles are Variety,
Broadcasting & Cable, Multichannel News, Publishers Weekly, EDN, American Metal
Market, Pollution Engineering, Design News and Automotive Industries. Cahners
also publishes product tabloids which provide information primarily on new
products to managers and professionals in the industrial, processing, medical,
scientific and high technology fields. Cahners operates primarily in the United
States, with major publishing centres in New York, Boston, Chicago, Los Angeles,
Denver and Greensboro. During 1999 the Radnor publishing centre was closed.
Readership of its publications is expanding beyond U.S. borders, reflecting both
the growing importance of U.S. exports and the increasing internationalization
of the industries served.

Cahners leverages its knowledge of the business sectors it serves and the
extensive databases of business names and reader related demographics it has
collated through a broad range of products and services. These include websites,
direct mail, product news tabloids, newspapers, newsletters and custom published
supplements, as well as the feature publications which continue to serve as the
core of the portfolio.

Cahners had a very difficult year in 1999. Whilst many sectors performed
well, such as Entertainment and Retail, revenues fell in certain key sectors,
such as U.S. Manufacturing and Electronics, which faced cyclical decline after
years of unprecedented growth. Cahners had, therefore, to restructure its core
cost base whilst at the same time continuing to invest in its expansion
programme, particularly in Internet delivered services.

The alliance with, and investment in, PartMiner announced in September 1999
illustrates the potential to leverage Cahners' brands, content and market reach
with e-commerce technology and product databases. PartMiner combines the content
and market reach of Cahners e-inSITE websites based on its Electronics titles,
with the ability to find components from the millions of parts included in the
databases of Information Handling Services, and to buy them using the sourcing
software and distribution capabilities provided by PartMiner.

In parallel with this Internet initiative, Cahners has enhanced the content
of the Electronics group through the acquisition of MicroDesign Resources, a
leading source of commentary and analysis on microprocessors and related
technologies. Cahners acquired, in early 2000, MarketCast, a U.S. provider of
market research for the entertainment industry and LA411 Publishing Company, a
U.S. provider of business to business directories in the Entertainment sector.

Other collaborative ventures include the extension of the Buildingteam.com
service for architects, engineers, contractors and facilities managers to
provide online training and meet continuing education requirements. Also in the
Construction sector, Cahners acquired Plants, Sites and Parks, a business to
business magazine in the Building and Construction sector.

In the year ended December 31, 1999, approximately 81% of Cahners' total
turnover came from advertising, 12% from subscriptions and circulation sales and
7% from other sources. Cahners operates circulation management and fulfilment
facilities in Colorado and the Caribbean island of St Kitts which identify,
qualify and maintain subscriber lists for substantially all of its titles. These
lists enable Cahners to serve its advertisers by creating highly targeted
readerships for its magazines. Much of the editorial pre-press production is
performed in-house. Paper and printing services are purchased on a co-ordinated
basis with other Reed Elsevier businesses in the U.S.. Distribution of magazines
is primarily through the U.S. postal service, supplemented by news-stand sales
through unaffiliated wholesalers.

Reed Elsevier's U.S. business to business titles compete on an individual
basis with the publications of a number of publishers, including CMP
Publications (United News & Media) in its electronics markets and Advanstar,
BPI/VNU, Primedia, Penton Media, Hanley Wood, Miller Freeman (United News &
Media) and McGraw-Hill in other markets. No one competitor matches Reed
Elsevier's breadth of titles in the U.S. business to business magazine market.

Reed Business Information. Reed Business Information ("RBI"), the U.K.
based business to business publisher, has a portfolio of around 100 business
magazines, directories, market access products and online services. RBI
publishes over 50 primary business magazine brands in some 20 market facing
sectors. Its business magazines include Computer Weekly, Farmers Weekly, Estates
Gazette, Flight International, New Scientist, Caterer & Hotelkeeper, Doctor,
Commercial Motor and Community Care. Its major directories are Kelly's, Kompass
and The Bankers' Almanac, and it also has online services which include Estates
Gazette Interactive, ComputerWeekly.com, Air Transport Intelligence, Planet
Science, ICIS-LOR and totaljobs.com.

In the UK, RBI continued to launch new online services to complement its
print strength. Of most significance has been the launch of totaljobs.com in
July 1999 in the online recruitment market leveraging RBI's strong brands in the
print recruitment market. Initially focused on the key markets of computing,
aerospace and commercial property, totaljobs.com has now been extended to cover
some fifteen sectors and holds over 17,000 UK jobs, significantly more than any
competing service. A major marketing campaign was launched in January 2000 and
has received a very positive market response.

16
<PAGE>

In the year ended December 31, 1999, approximately 83% of RBI's turnover
came from the U.K., 8% from continental Europe and 9% from Asia/Pacific. In the
same year, approximately 66% of turnover was derived from advertising, 14% from
subscription sales, 11% from circulation sales and the remaining 9% from other
sources. RBI performs full computerised editorial make-up in-house for all of
its titles. Paper and printing services are purchased from unaffiliated third
parties, primarily on a co-ordinated basis with other Reed Elsevier businesses
in the U.K.. RBI's distribution is generally through public postal systems, with
news-stand distribution for some titles through outside wholesalers. RBI
competes directly with EMAP Business Communications and Miller Freeman (United
News & Media) in a number of sectors in the U.K., and also with many smaller
companies on an individual title by title basis.

At OAG Worldwide, continued progress was made in the development of its
electronic products with OAG Worldwide travel solutions now embedded in the
products of a number of software and telecoms companies. In the Reed Elsevier
strategy review, it was concluded that OAG Worldwide was not core to Reed
Elsevier and the decision was taken to divest the business.

Elsevier Business Information. Elsevier Business Information ("EBI")
comprises the business and reference publishing operations in continental
Europe, which operates in the Netherlands, Belgium, Spain, Germany and France,
and Elsevier Tuition in the Netherlands and Belgium.

EBI in the Netherlands, is organised in market facing groups focused on 13
market segments. It publishes over 160 titles and is the leading business
magazine and information publisher. Its principal titles include Elsevier, the
major current affairs weekly, Beleggers Belangen and FEM in business and
management, Boerderij and Buiten in agriculture. Its titles are predominantly
subscription-based and revenue is principally divided between subscriptions and
advertising. Most titles are published in the Dutch language. Through trade
journals, product news tabloids, directories, documentary systems, databases and
newspapers, EBI serves markets which include agriculture, catering,
construction, engineering, food, fashion, horticulture, transportation, tourism
and travel.

EBI continued in 1999 its expansion in the Netherlands and Continental
Europe with the launch of a number of new publications and electronic services,
including Agriwide, a major Internet based information service for the important
Agriculture sector. EBI's portfolio was also extended through acquisitions of a
number of individual titles in various segments including Technical Analyse
Magazine in the personal finance sector.

At the end of the year, the Elsevier Tuition training business were
transferred to EBI so as to provide greater focus on key market segments common
to both businesses, such as finance, legal, construction and medical. During
2000, the training portfolio will be reorganised accordingly. In January 2000,
Elsevier Tuition acquired the Baard group which is a leading provider of
financial management training in the Netherlands.

In the year ended December 31, 1999, approximately 33% of EBI's turnover
was derived from advertising, 31% from magazine subscriptions and 11% from
magazine circulation and copy sales, 20% from training and the remaining 5% from
other sources including sales of software. Printing and production is contracted
out to third parties and distribution is mainly through the Dutch postal system.
EBI competes with a number of companies on a title by title basis in individual
market sectors, the largest competitors being Wolters Kluwer and VNU. In the
agricultural sector, the main competition is from Oogst (association journal).

Pan European Publishing Company (PEPCO), based in Belgium, publishes 10
English language product news tabloids for the international market. This
business provides specialised information on new products in the international
electronic, laboratory, biotechnical and industrial markets. The Spanish
operations, Grupo Arte y Cemento, a publisher of product news tabloids, and
Construdatos, which publishes market information on new building projects, were
combined to form Elsevier Informacion Profesional, which launched a series of
publications around the established titles.

Other constituents of EBI are Editions Prat, a publisher of mainly
loose-leaf information aimed at the fiscal, legal and administration sectors in
France; Reed Elsevier Deutschland, which includes Artzliche Praxis, a prominent
German language medical journal; K.G. Saur, a leading publisher for the German
library information market; Groupe Strategies, which publishes the journal
Strategies and other information materials for the French advertising and
communications industry.

Exhibitions

The exhibitions business contributed approximately 20% of the turnover of
the Business segment in the year ended December 31, 1999.

Reed Exhibition Companies ("REC") is an international event organizer, with
350 events in 27 countries, attracting over 100,000 exhibitors and 5.5 million
buyers annually. REC's events are concentrated in a number of industry sectors
of which the most important are: marketing and business services; publishing;
IT/communications; manufacturing; aerospace; leisure; electronics; hospitality;
travel; entertainment; and retail.

17
<PAGE>

Many of REC's events are industry leaders, including National Hardware
Show, National Manufacturing Week, JCK International Jewellery Shows,
Professional Golfers Association (PGA) Merchandise Show, PGA International Golf
Show and Canadian Machine Tool Show in North America; Pakex, World Travel Market
and London Book Fair in the U.K.; MIDEM, MIPTV, MIPIM, Salon Nautique and FIAC
in France; Computer Faire in South Africa; AIMEX in Australia and Australian
Gift Fairs; International Jewellery Tokyo in Japan; Asian Aerospace and Thai
Metalex in South-East Asia; and the Nepcon and Travel series of international
events.

REC launched 30 new shows in 1999 reflecting the continued demand for
well-organised and focused industry shows which provide an efficient marketing
tool for customers. Additions were also made to the Exhibitions portfolio
through acquisition, including InterBev in the food and drinks industry,
E-Business Expo and, in the interior design industry, 100% Design Exhibition.
Joint ventures were also entered into with Montgomery Exhibitions to focus on
the food and food service market, and with EXPO COMM in the international
telecommunications market. An interest was also acquired in EXCEL, the new
London Docklands Exhibition Centre development.

REC are putting increasing emphasis on visitor pre-selection and contact
broking, using Internet marketing and administration tools, to make the trade
shows as effective as possible for the buying and selling participants.

Over 80% of REC's turnover is derived from licences of exhibition
participation rights, with the balance attributable to conference fees,
advertising in exhibition guides, sponsorship fees and admission charges. With
few exceptions no capital is employed in exhibition halls, the majority of which
are leased on a short term basis. In the year ended December 31, 1999,
approximately 47% of REC's turnover came from North America, 27% from
continental Europe, 13% from the U.K. and the remaining 13% from Asia/Pacific.
As some events are held other than annually, turnover in any single year may be
affected by the cycle of non-annual exhibitions.

The exhibition industry has historically been extremely fragmented. Within
domestic markets, competition comes primarily from industry focused trade
associations and convention center and exhibition hall owners. The main global
competitor is United News & Media, although a number of hall owners are
increasingly seeking international presence.

Discontinued Operations

Discontinued operations are presented in accordance with U.K. and Dutch
GAAP and comprise IPC Magazines and the consumer book publishing operations, the
disposal of which was completed during 1998. For the years ended December 31,
1998 and December 31, 1997, the Discontinued Operations achieved turnover of
(pound)28 million and (pound)430 million, respectively.

Joint Ventures

Reed Elsevier's principal joint ventures are Giuffre in Italy and
REZsolutions, Inc.

In January 1994, Reed Elsevier acquired its 40% interest in the Italian
legal publisher Giuffre from the majority shareholders, the Giuffre family.
Giuffre, which has its principal offices in Milan and Rome, is a leading legal
publisher for the university and professional markets in Italy.

During 1997, Reed Elsevier contributed the Utell hotel reservations
business in return for a 67% non controlling interest in REZsolutions, Inc, a
joint venture between Utell and Anasazi, Inc., which provides technology,
marketing and reservations services to the hospitality industry. REZsolutions,
Inc. is in the process of being sold.

Elsevier Reed Finance BV

ERF, the Dutch resident parent company of the ERF group, is directly owned
by Reed International and Elsevier. ERF provides treasury, finance and insurance
services to the Reed Elsevier plc businesses through its subsidiaries in
Switzerland: Elsevier Finance SA ("EFSA"), Elsevier Properties SA ("EPSA") and
Elsevier Risks SA ("ERSA"). These three Swiss companies are organised under one
Swiss holding company, which is in turn owned by ERF.

18
<PAGE>

EFSA, EPSA and ERSA each focus on their own specific area of expertise.
EFSA is the principal treasury centre for the Combined Businesses. It is
responsible for all aspects of treasury advice and support for Reed Elsevier
plc's businesses operating in continental Europe and certain other territories
and undertakes foreign exchange and derivatives dealing services for the whole
of the Combined Businesses. EFSA also provides Reed Elsevier plc businesses with
financing for acquisitions and product development and manages cash pools and
investments. EPSA is responsible for the exploitation of tangible and intangible
property rights whilst ERSA is responsible for insurance activities relating to
risk retention.

To provide capacity to meet new lending requests, in 1999, EFSA increased
the size of the European Commercial Paper Programme, used by both EFSA and EPSA,
from $1,000 million to $1,500 million and continues to look for opportunities to
issue term debt in the domestic or international capital markets.

EFSA continued to advise Reed Elsevier plc businesses on the treasury
implications of the introduction of the euro and all euro transfer programmes
are progressing according to plan. EFSA also assisted continental European
operating businesses with their treasury preparations for the millennium date
change. The volume of foreign exchange dealt by EFSA during 1999 amounted to
approximately $2 billion equivalent. The average balance of cash under
management, on behalf of Reed Elsevier plc companies, was approximately $1
billion equivalent.

Employees

Reed Elsevier's average number of employees in the year ended December 31,
1999 was 27,700. Approximately 5,500 were located in the U.K., 14,800 in North
America, 3,000 in the Netherlands, 2,300 in the rest of Europe and 2,100 in the
rest of the world. The average number of employees in the business segments in
the year ended December 31, 1999 was 3,600 in Scientific, 12,200 in Legal and
11,900 in Business.

Labour Relations

The board of Reed Elsevier plc is fully committed to the concept of
employee involvement and participation, and encourages each of its businesses to
formulate its own tailor-made approach with the co-operation of employees. The
group is an equal opportunity employer, and recruits and promotes employees on
the basis of suitability for the job. Appropriate training and development
opportunities are available to all employees. Codes of Conduct applicable to
employees within the Reed Elsevier plc group have been adopted throughout its
businesses.

19
<PAGE>

ITEM 2: DESCRIPTION OF PROPERTY

The Combined Businesses do not own any physical property which is
considered material to the Combined Businesses taken as a whole. None of the
real property owned or leased by the Combined Businesses is presently subject to
liabilities relating to environmental regulations which is considered material
to the Combined Businesses taken as a whole.

ITEM 3: LEGAL PROCEEDINGS

The Combined Businesses are party to various legal proceedings, the
ultimate resolutions of which are not expected to have a material adverse effect
on the financial position of the Combined Businesses or the results of their
operations.

A lawsuit has been filed in the United States against Reed Elsevier, Inc.
by, Jurisline.com LLC ("Jurisline") seeking declaratory relief relating to
copyright and trademarks and challenging the validity of subscription
agreements. It also alleges that Reed Elsevier, Inc. has engaged in
anti-competitive behaviour and seeks damages and injunctive relief. The lawsuit
is being vigorously defended. In a related lawsuit, the Reed Elsevier
subsidiary, Matthew Bender & Company, Inc. has filed a suit alleging that
Jurisline has fraudulently obtained its products and has sought to use these
products in developing a legal information service in breach of express
contractual restrictions. Reed Elsevier fully expects the courts to reaffirm the
enforceability of its contracts and dismiss the claims filed against Reed
Elsevier, Inc. A decision against Reed Elsevier could, however, have significant
consequences across the information industry in relation to the protection of
databases.

A lawsuit has also recently been filed against Reed Elsevier, Inc., and the
Thomson Corporation by two practising attorneys in the U.S. Virgin Isles,
alleging anti competitive behaviour and misuse of copyright, claiming $6 billion
in damages and penalties. The claim is regarded as baseless and Reed Elsevier
expects that it will be successfully defended.

20
<PAGE>

ITEM 4: CONTROL OF REGISTRANTS

REED INTERNATIONAL

As of February 23, 2000, Reed International is aware of the following
disclosable interests in the issued Reed International Ordinary Shares:

Number of Reed
International
Ordinary %
Identity of Person or Group(1) Shares Owned of Class
- ------------------------------ -------------- --------
Prudential Corporation ........................... 79,882,798 6.9
Lord Hamlyn ...................................... 43,302,816 3.7
Directors and Officers ........................... 39,663 --

(1) Under U.K. Law, subject to certain limited exceptions, persons or groups
owning or controlling 3% or more of the issued Reed International Ordinary
Shares are required to notify Reed International of the level of their
holdings.

As far as Reed International is aware, except as disclosed herein, it is
neither directly or indirectly owned nor controlled by one or more corporations
or by any government.

Reed International is not aware of any arrangements the operation of which
may at a subsequent date result in a change in control of Reed International.

ELSEVIER

As of February 23, 2000, Elsevier is aware of the following disclosable
interests in the issued Elsevier Ordinary Shares, in addition to the 4,049,951
R-shares in Elsevier held by a subsidiary of Reed International and representing
a 5.8% equity interest in the total share capital of Elsevier:

Number of
Elsevier
Ordinary %
Identity of Person or Group(2) Shares Owned(1) of Class
- ------------------------------ --------------- --------
ING Group ........................................ 53,114,651 7.9
Directors and Officers(3) ........................ 23,380 --

(1) The Elsevier Ordinary shares may be issued in registered or bearer form.

(2) Under Dutch law, individuals or corporate bodies acquiring shares which
result in such individual or corporate bodies holding more than 5% of the
issued share capital of Elsevier are required to notify Elsevier thereof.

(3) No individual member of the Supervisory Board or the Executive Board of
Elsevier or executive officer of Elsevier has notified Elsevier that they
hold more than 5% of the issued share capital of Elsevier pursuant to the
Dutch law described in the immediately preceding footnote.

As far as Elsevier is aware, except as disclosed herein, it is neither
directly nor indirectly owned or controlled by one or more corporations or by
any government.

Elsevier is not aware of any arrangements the operation of which may at a
subsequent date result in a change in control of Elsevier.

REED ELSEVIER

The Boards of Directors of Reed International and Elsevier manage their
respective shareholdings in Reed Elsevier plc and Elsevier Reed Finance BV.
During 1999 Reed International, Elsevier and Reed Elsevier plc introduced a
unitary management structure of a single non-executive Chairman, a sole Chief
Executive Officer and, so far as practicable, the same directors for all three
companies. This was a logical evolution of the management structure in place
since the Merger, under which the day to day management of the jointly owned
businesses of Reed Elsevier plc had been under the control of an Executive
Committee of the Board of Reed Elsevier plc. For a complete description of the
Board membership positions and executive officer positions within Reed Elsevier
plc, see "Directors and Officers of Registrants".

Under the governance arrangements approved by the shareholders of Reed
International and Elsevier in 1999, there shall be no less than three and no
more than five executive directors, and six non-executive directors. A person
may only be appointed or proposed or recommended for appointment to the board if
that person has been nominated for that appointment by the joint Nominations
Committee of Reed International and Elsevier. Persons nominated by the joint
Nominations Committee will be required to be approved by the Reed Elsevier plc
Board, prior to appointment to the Reed Elsevier plc Board.

Decisions of the Board of Directors of Reed Elsevier plc require a simple
majority, and the quorum required for meetings of the Board of Reed Elsevier plc
is any two directors.

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<PAGE>

The Reed Elsevier plc Board has established the following committees:

o Strategy -- comprising the Chairman, Chief Executive Officer and two
non-executive directors

o Audit -- comprising three non-executive directors

o Remuneration -- comprising three non-executive directors

Arrangements established at the time of the Merger provide that, if any
person (together with persons acting in concert with him) acquires shares, or
control of the voting rights attaching to shares, carrying more than 50% of the
votes ordinarily exercisable at a general meeting of Reed International or
Elsevier and has not made a comparable take-over offer for the other party, the
other party may by notice suspend or modify the operation of certain provisions
of the Merger arrangements, such as (i) the right of the party in which control
has been acquired (the "Acquired Party") to appoint or remove directors of Reed
International, Elsevier and Reed Elsevier plc and (ii) the Standstill
Obligations in relation to the Acquired Party. Such a notice will cease to apply
if the person acquiring control makes a comparable offer for all the equity
securities of the other within a specified period or if the person (and persons
acting in concert with him) ceases to have control of the other.

In the event of a change of control of one parent company and not the other
(where there has been no comparable offer for the other), the parent company
which has not suffered the change in control will effectively have the sole
right to remove and appoint directors of Reed Elsevier plc. Also, a director
removed from the board of a parent company which has suffered a change in
control will not have to resign from the board of the other parent company or
Reed Elsevier plc.

The Articles of Association of Reed Elsevier plc contain certain
restrictions on the transfer of shares in Reed Elsevier plc. In addition,
pursuant to arrangements established at the time of the Merger, neither Reed
International nor Elsevier may acquire or dispose of any interest in the share
capital of the other or otherwise take any action to acquire the other without
the prior approval of the other (the "Standstill Obligations"). The Panel on
Take-overs and Mergers in the United Kingdom (the "Panel") has stated that in
the event of a change of statutory control of either Reed International or
Elsevier, the person or persons acquiring such control will be required to make
an offer to acquire the share capital of Reed Elsevier plc (but not Elsevier
Reed Finance BV) held by the other, in accordance with the requirements of the
City Code on Take-overs and Mergers in the United Kingdom. This requirement
would not apply if the person acquiring statutory control of either Reed
International or Elsevier made an offer for the other on terms which are
considered by the Panel to be appropriate.

The Supervisory Board of Elsevier Reed Finance BV comprises four members,
and the Management Board consists of two members. The minimum number of members
of the Supervisory Board of Elsevier Reed Finance BV is two, of which at least
one is nominated for appointment by Elsevier and one by Reed International. The
quorum for meetings of the Supervisory Board is one Reed International nominee
and one Elsevier nominee, and resolutions at such meetings require to be passed
by unanimous vote. The Management Board of Elsevier Reed Finance BV constitutes
at least one member nominated by Elsevier together with any further appointees
as Reed International and Elsevier shall determine. The Articles of Association
of Elsevier Reed Finance BV contain provisions requiring the Executive Board to
obtain the approval of the Supervisory Board for certain specified activities.
For a complete description of the Board membership positions within Elsevier
Reed Finance BV, see "Directors and Officers of Registrants".

22
<PAGE>

ITEM 5: NATURE OF TRADING MARKET

REED INTERNATIONAL

The Reed International Ordinary Shares are listed on the London Stock
Exchange, the New York Stock Exchange and the Amsterdam Stock Exchange. The
London Stock Exchange is the principal trading market for Reed International
Ordinary Shares. Trading on the New York Stock Exchange is in the form of
American Depositary Shares ("ADSs"), evidenced by American Depositary Receipts
("ADRs") issued by Citibank NA, as depositary. Each ADS represents four Reed
International Ordinary Shares. At December 31, 1999, there were 79 persons with
registered addresses in the United States who were record owners of Reed
International Ordinary Shares (excluding shares held in ADR form), and the
portion of Reed International Ordinary Shares held by them constituted less than
0.01% of all Reed International Ordinary Shares. At December 31, 1999, there
were 46 registered holders of ADRs representing 17,806,112 Reed International
Ordinary Shares, constituting approximately 1.5% of all Reed International
Ordinary Shares.

The table below sets forth, for the calendar quarters indicated, the high
and low closing middle market quotations for the Reed International Ordinary
Shares on the London Stock Exchange as derived from the Daily Official List of
the London Stock Exchange.

Pence per Ordinary Share
------------------------
Calendar Periods High Low
- ---------------- ---- ---
1998
- ----
First Quarter ........................................ 716 578
Second Quarter ....................................... 635 519
Third Quarter ........................................ 641 434
Fourth Quarter ....................................... 517 428

1999
- ----
First Quarter ........................................ 630 470
Second Quarter ....................................... 590 423
Third Quarter ........................................ 495 366
Fourth Quarter ....................................... 465 344

2000
- ----
First Quarter (through February 23, 2000) ............ 633 447

On February 23, 2000, the closing middle market quotation of the Reed
International Ordinary Shares on the London Stock Exchange, as derived from the
Daily Official List of the London Stock Exchange, was 605 pence per Reed
International Ordinary Share.

The following table sets forth, for the calendar quarter indicted, the high
and low last reported sales prices in U.S. dollars for the Reed International
American Depositary Shares on the New York Stock Exchange, as derived from the
New York Stock Exchange Composite Tape, and reported by Datastream International
Ltd:

U.S. dollars per ADS
------------------------
Calendar Periods High Low
- ---------------- ---- ---
1998
- ----
First Quarter ........................................ 48.25 39.75
Second Quarter ....................................... 43.00 35.63
Third Quarter ........................................ 42.38 29.63
Fourth Quarter ....................................... 34.75 28.50

1999
- ----
First Quarter ........................................ 39.63 31.50
Second Quarter ....................................... 37.63 27.06
Third Quarter ........................................ 31.69 24.13
Fourth Quarter ....................................... 29.88 22.75

2000
- ----
First Quarter (through February 23, 2000) ............ 39.88 29.75

On February 23, 2000, the closing last reported sales price of the Reed
International ADSs on the New York Stock Exchange, as derived from the New York
Stock Exchange Composite Tape, and reported by Datastream International Ltd, was
39.00 U.S. dollars per ADS.

23
<PAGE>

ELSEVIER

The Elsevier Ordinary Shares are quoted on the Amsterdam Stock Exchange,
the New York Stock Exchange and the London Stock Exchange. In addition Elsevier
Ordinary Shares are quoted on the EBS stock exchange in Switzerland and are also
traded on the Freiverkehrsmarkt in Frankfurt. The Amsterdam Stock Exchange is
the principal trading market for Elsevier Ordinary Shares. Trading on the New
York Stock Exchange is in the form of American Depositary Shares ("ADSs"),
evidenced by American Depositary Receipts ("ADRs") issued by Citibank NA, as
depositary. Each ADS represents two Elsevier Ordinary Shares. Elsevier Ordinary
Shares may be issued in registered or bearer form. At December 31, 1999, there
were 372 persons with registered addresses in the United States who were record
owners of Elsevier Ordinary Shares (excluding shares held in ADR form) and the
portion of Elsevier Ordinary Shares held by them constituted approximately 7.08%
of all Elsevier Ordinary Shares. At December 31, 1999 there were 47 registered
holders of ADRs representing 4,277,476 Elsevier Ordinary Shares constituting
approximately 0.64% of all Elsevier Ordinary Shares.

The table below sets forth, for the calendar quarters indicated, the high
and low closing middle market quotations for the Elsevier Ordinary Shares on the
Amsterdam Stock Exchange as derived from the Officiele Prijscourant of the
Amsterdam Stock Exchange. From January 4, 1999, all market quotations on the
Amsterdam Stock Exchange have been presented in euro. Quotations prior to
January 4, 1999, have, for the convenience of the reader, been translated into
euro at the Official Conversion Rate of Dfl2.20371 per e1.00.

e per Ordinary Share
------------------------
Calendar Periods High Low
- ---------------- ---- ---
1998
- ----
First Quarter ........................................ 17.74 14.88
Second Quarter ....................................... 15.97 13.39
Third Quarter ........................................ 15.66 11.07
Fourth Quarter ....................................... 15.52 10.48

1999
- ----
First Quarter ........................................ 15.25 11.85
Second Quarter ....................................... 14.25 11.25
Third Quarter ........................................ 12.65 9.65
Fourth Quarter ....................................... 11.86 8.95

2000
- ----
First Quarter (through February 23, 2000) ............ 14.99 11.27

On February 23, 2000, the closing middle market quotation of the Elsevier
Ordinary Shares on the Amsterdam Stock Exchange, as derived from the Officiele
Prijscourant of the Amsterdam Stock Exchange, was e14.75 per Elsevier Ordinary
Share.

The following table sets forth, for the calendar quarter indicated, the
high and low last reported sales prices in U.S. dollars for the Elsevier
American Depositary Shares on the New York Stock Exchange, as derived from the
New York Stock Exchange Composite Tape, and reported by Datastream International
Ltd:

U.S. dollars per ADS
------------------------
Calendar Periods High Low
- ---------------- ---- ---
1998
- ----
First Quarter ........................................ 38.25 32.13
Second Quarter ....................................... 34.13 29.00
Third Quarter ........................................ 34.06 24.81
Fourth Quarter ....................................... 29.50 24.75

1999
- ----
First Quarter ........................................ 33.63 27.25
Second Quarter ....................................... 31.00 23.38
Third Quarter ........................................ 26.38 20.63
Fourth Quarter ....................................... 23.88 18.63

2000
- ----
First Quarter (through February 23, 2000) ............ 29.94 22.88

On February 23, 2000, the closing last reported sales price of the Elsevier
ADSs on the New York Stock Exchange, as derived from the New York Stock Exchange
Composite Tape, and reported by Datastream International Ltd, was 29.94 U.S.
dollars per ADS.

24
<PAGE>

ITEM 6: EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

REED INTERNATIONAL

There are currently no U.K. decrees or regulations restricting the import
or export of capital or affecting the remittance of dividends or other payments
to holders of Reed International Ordinary Shares who are non-residents of the
United Kingdom.

There are no limitations relating only to non-residents of the United
Kingdom under U.K. law or Reed International's Memorandum and Articles of
Association on the right to be a holder of, and to vote, Reed International
Ordinary Shares.

ELSEVIER

There are currently no Dutch decrees or regulations restricting the import
or export of capital or affecting the remittance of dividends or other payments
to holders of Elsevier Ordinary Shares who are non-residents of the Netherlands.

There are no limitations relating only to non-residents of the Netherlands
under Dutch law or Elsevier's Articles of Association on the right to be a
holder of, and to vote, Elsevier Ordinary Shares.

25
<PAGE>

ITEM 7: TAXATION

REED INTERNATIONAL

The following is a summary of all material United States federal and U.K.
tax consequences of the acquisition, ownership and disposition of Reed
International ADSs. The discussion is applicable to U.S. Holders (as defined
below) (i) who are residents of the United States for purposes of the United
States/United Kingdom Double Taxation Convention (the "U.K. Tax Treaty") and
(ii) whose ADSs are not, for purposes of the U.K. Tax Treaty, effectively
connected with a permanent establishment in the United Kingdom.

This discussion is intended only as a descriptive summary and does not
purport to be a complete analysis or listing of all possible tax considerations.
The discussion deals only with Reed International ADSs held as capital assets
and does not address any special tax consequences that may be applicable to U.S.
Holders that are subject to special treatment under the U.K. Tax Treaty or the
United States Internal Revenue Code of 1986, as amended (the "Code"), such as
dealers in securities, financial institutions, life insurance companies,
corporations which alone, or together with one or more associated companies,
control (directly or indirectly) 10% or more of the voting power of Reed
International, persons holding Reed International ADSs as part of a hedging or
conversion transaction or a straddle or persons whose functional currency is not
the U.S. dollar.

The statements regarding U.S. and U.K. tax laws (including the U.K. Tax
Treaty) set forth below are based (i) on those laws as in force and as applied
in practice on the date of this Annual Report and are subject to changes to
those laws and/or changes in practice subsequent to the date of this Annual
Report that may affect the tax consequences described herein (some of which may
have retroactive effect), and (ii) in part on representations of the Depositary
and assume that each obligation in the Reed International Deposit Agreement (as
defined below) and any related agreement will be performed in accordance with
its terms. This summary is not exhaustive of all possible tax considerations and
prospective purchasers are advised to satisfy themselves as to the overall tax
consequences, including specifically the consequences under U.S. state and local
and other laws, of the acquisition, ownership and disposition of Reed
International ADSs by consulting their own tax advisers.

As used herein, a "U.S. Holder" of a Reed International ADS means a holder
that is a citizen or resident of the United States, a corporation, partnership
or other entity created or organised in or under the laws of the United States
or any political subdivision thereof, or an estate or trust the income of which
is subject to United States federal income taxation regardless of its source.

This summary does not address the tax consequences for a U.S. Holder who is
resident (or in the case of an individual, resident or ordinarily resident) in
the United Kingdom.

In general, for U.S. federal income tax purposes, U.S. Holders of Reed
International ADSs will be treated as the owners of the underlying Reed
International Ordinary Shares that are represented by such ADSs. Deposits or
withdrawals of Reed International Ordinary Shares by U.S. Holders for Reed
International ADSs generally will not be subject to U.S. federal income tax.

Taxation of Dividends

Under current U.K. taxation legislation, no tax is required to be withheld
at source from dividends paid on Reed International Ordinary Shares.

Under the terms of the U.K. Tax Treaty, Eligible U.S. Holders are, in
principle, entitled to receive a payment equal to the tax credit which is
usually available to U.K. residents (less a withholding tax). Such tax credit is
one-ninth of the amount of the dividend (10% of the aggregate of the dividend
and the tax credit). However, in practice Eligible U.S. Holders will not receive
any payment from the U.K. Inland Revenue in respect of any such tax credit. This
is because the U.K. Tax Treaty provides for a U.K. withholding tax, which
exceeds the U.K. tax credit of 10%. The withholding tax is however treated as
fully satisfied by an offset against the tax credit.

For the purposes of this Annual Report, the term "Eligible U.S. Holder"
means a U.S. Holder that is a beneficial owner of the dividend paid with respect
to its Reed International ADSs and that satisfies all of the following
conditions: the U.S. Holder (i) is an individual or a corporation resident in
the United States for purposes of the U.K. Tax Treaty (and, in the case of a
corporation, not also resident in the United Kingdom for U.K. tax purposes),
(ii) is not a corporation which, alone or together with one or more associated
corporations, controls, directly or indirectly, 10% or more of the voting stock
of Reed International, (iii) is a holder whose holding of ADSs is not
effectively connected with a permanent establishment in the United Kingdom
through which such U.S. Holder carries on business or with a fixed base in the
United Kingdom from which such U.S. Holder performs independent personal
services, (iv) under certain circumstances, is not a company 25% or more of the
capital of which is owned, directly or indirectly, by persons that are not
individuals resident in, and are not nationals of, the United States, (v) under
certain circumstances, is not exempt from federal income tax on dividend income
in the United States and (vi) under certain circumstances, does not own 10% or
more of the Reed International Ordinary Shares.

26
<PAGE>

Dividends paid in respect of the Reed International Ordinary Shares
(including any related U.K. tax credit) will constitute dividends for U.S.
federal income tax purposes to the extent paid out of current or accumulated
earnings and profits of Reed International, as determined under U.S. federal
income tax principles. The amount of dividend income for a U.S. Holder will be
the dollar value of the dividend payment, on the date of receipt by the
Depositary, regardless of whether the dividend is converted into dollars.
Foreign currency exchange gain or loss, if any, realised on a sale or other
disposition of pounds, will be ordinary income or loss to the U.S. Holder.
Dividends paid by Reed International will not be eligible for the dividends
received deduction allowed to corporations under the Code.

Subject to certain limitations, the U.K. withholding tax equal to the
amount of the U.K. tax credit may be claimed as a credit against the U.S.
federal income tax liability of the Eligible U.S. Holder. The overall limitation
on foreign taxes eligible for credit is calculated separately with respect to
specific classes, or "baskets" of income. For this purpose, dividends
distributed by Reed International will be treated as income from sources outside
the United States and generally will constitute "passive income" or, in the case
of certain U.S. Holders, "financial services income". Foreign tax credits
allowable with respect to each income basket cannot exceed the U.S. federal
income tax otherwise payable with respect to such income.

Under section 812 of the United Kingdom Income and Corporation Taxes Act
1988, the United Kingdom Treasury has power to deny payment of Tax Credit
Amounts under the United Kingdom's income tax conventions to certain
corporations if they or an associated company (as defined in the said section
812) has a qualifying presence in a state in the United States which operates a
unitary system of corporate taxation. These provisions come into force only if
the United Kingdom Treasury so determines by statutory instrument. No such
instrument is currently in force.

Taxation of Capital Gains

A U.S. Holder that is not resident (and, in addition, in the case of an
individual, not ordinarily resident) in the United Kingdom for U.K. tax purposes
will not ordinarily be liable for U.K. taxation on capital gains realised on the
disposal of such holder's Reed International ADSs unless at the time of the
disposal such U.S. Holder carries on a trade, profession or vocation in the
United Kingdom through a branch or agency and such Reed International ADSs are
or have been used, held or acquired for the purposes of such trade (or
profession or vocation), branch or agency.

A U.S. Holder who is an individual and who has on or after March 17, 1998
ceased to be resident or ordinarily resident for tax purposes in the United
Kingdom and continues not to be resident or ordinarily resident in the United
Kingdom for a period of less than five years of assessment and who disposes of
Reed International ADSs during that period may also be liable on his return to
the United Kingdom to U.K. tax on capital gains, subject to any available
exemption or relief, notwithstanding that he or she is not resident or
ordinarily resident in the United Kingdom at the time of the disposal.

A U.S. Holder will, upon the sale or exchange of a Reed International ADS,
generally recognise gain or loss for U.S. federal income tax purposes in an
amount equal to the difference between the dollar amount realised for the Reed
International ADS and the U.S. Holder's tax basis in the ADS. Such gain or loss
will be capital gain or loss and will be long term capital gain or loss if the
Reed International ADS has been held for more than one year on the date of the
sale or exchange. Capital gains of individuals derived with respect to capital
assets held for more than one year are eligible for reduced rates of taxation.
The deductibility of capital losses is subject to limitations. Any gain or loss
recognised by a U.S. Holder will generally be treated as U.S. source gain or
loss.

Although capital gains of corporations currently are taxed at the same
rates as ordinary income, the distinction between capital gain and ordinary
income or loss is relevant for purposes of, among other things, limitations on
the deductibility of capital losses. Individuals and certain other non-corporate
taxpayers are taxed at a lower rate on net long-term capital gains than on items
of ordinary income.

Information Reporting and Backup Withholding

In general, information reporting requirements will apply to dividends paid
in respect of the Reed International ADSs or the proceeds received on the sale,
exchange, or redemption of the Reed International ADSs within the United States
by non-corporate U.S. Holders, and a 31% backup withholding may apply to such
amounts if the U.S. Holder fails to provide an accurate taxpayer identification
number or to report interest and dividends required to be shown on its federal
income tax returns. The amount of any backup withholding from a payment to a
U.S. Holder will be allowed as a credit against the U.S. Holder's U.S. federal
income tax liability.

27
<PAGE>

Estate and Gift Tax and U.K. Inheritance Tax

Reed International ADSs evidenced by ADRs held by an individual U.S. Holder
whose domicile is determined to be the United States for purposes of the U.K.
Estate Tax Treaty between the United States and the United Kingdom (the "U.K.
Estate Tax Treaty") and who is not a national of the United Kingdom will not be
subject to U.K. inheritance tax on such individual's death or on a lifetime
transfer of the ADSs except in certain cases where the ADSs (i) are part of the
business property of a U.K. permanent establishment of an enterprise, (ii)
pertain to a U.K. fixed base of an individual used for the performance of
independent personal services, or (iii) are comprised in a settlement (unless at
the time of the settlement the settlor was domiciled in the United States and
was not a national of the United Kingdom). The U.K. Estate Tax Treaty generally
provides a credit against U.S. federal estate or gift tax liability for the
amount of any U.K. inheritance tax paid in the United Kingdom in a case where
the ADSs are subject to both U.K. inheritance tax and to U.S. federal estate or
gift tax.

U.K. Stamp Duty and Stamp Duty Reserve Tax

U.K. Stamp Duty and U.K. Stamp Duty Reserve Tax ("SDRT") is payable upon
the transfer or issue to the Depositary of Reed International Ordinary Shares in
exchange for Reed International ADSs evidenced by ADRs. For this purpose, the
current rate of Stamp Duty and SDRT is 1.5% applied, in each case, to the amount
or value of the consideration or, in some circumstances, to the value of the
Ordinary Shares. The Stamp Duty or SDRT will be payable by the Depositary. In
accordance with the terms of the Deposit Agreement, holders of ADRs must pay an
amount in respect of such stamp duty or SDRT to the Depositary except in
connection with the initial issuance and deposit of the Reed International
Ordinary Shares.

Provided that the instrument of transfer is not executed in the United
Kingdom and remains at all subsequent times outside the United Kingdom, no U.K.
Stamp Duty will be payable on the acquisition or subsequent transfer of Reed
International ADRs. Agreement to transfer Reed International ADRs will not give
rise to a liability to SDRT.

A transfer of Reed International Ordinary Shares by the Depositary or its
nominee to the relative ADR holder where there is no transfer of beneficial
ownership will give rise to U.K. Stamp Duty at the rate of (pound)5.00 per
transfer (prior to October 1, 1999, 50 pence per transfer).

Purchases of Reed International Ordinary Shares, as opposed to ADSs, may
give rise to a charge to U.K. Stamp Duty or SDRT at the rate of 0.5% of the
price payable for the Reed International Ordinary Shares at the time of the
transfer or agreement to transfer. SDRT is generally the liability of the
purchaser and U.K. Stamp Duty is also usually paid by the purchaser. Where such
Reed International Ordinary Shares are later transferred to the Depositary,
further U.K. Stamp Duty or SDRT will normally be payable as described above.

28
<PAGE>

ELSEVIER

The following is a summary of all material United States federal and Dutch
tax consequences of the acquisition, ownership and disposition of Elsevier ADSs.
The discussion is applicable to U.S. Holders (as defined below) (i) who are
residents of the United States for purposes of the United States/Netherlands
Double Taxation Convention of December 18, 1992 (the "Dutch Tax Treaty of 1992")
and (ii) whose ADSs are not, for purposes of the Dutch Tax Treaty of 1992,
effectively connected with a permanent establishment and/or permanent
representative in the Netherlands.

The statements regarding U.S. and Dutch tax laws (including the Dutch Tax
Treaty of 1992) set forth below are based (i) on those laws as in force and as
applied in practice on the date of this Annual Report and are subject to changes
to those laws and/or changes in practice subsequent to the date of this Annual
Report that may affect the tax consequences described herein (some of which may
have retroactive effect), and (ii) in part on representations of the Depositary
and assume that each obligation in the Elsevier Deposit Agreement (as defined
below) and any related agreement will be performed in accordance with its terms.
This summary is not exhaustive of all possible tax considerations and
prospective purchasers are advised to satisfy themselves as to the overall tax
consequences, including specifically the applicability of the Dutch Tax Treaty
of 1992 to U.S. Holders of Elsevier ADSs and the consequences under U.S. state
and local and other laws, of the acquisition, ownership and disposition of
Elsevier ADSs by consulting their own tax advisers. As used herein, a "U.S.
Holder" of an Elsevier ADS means a holder that is a citizen or resident of the
United States, a corporation, partnership or other entity created or organised
in or under the laws of the United States or any political subdivision thereof,
or an estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source.

U.S. Tax considerations

This discussion is intended only as a descriptive summary and does not
purport to be a complete analysis or listing of all possible U.S. tax
considerations. The discussion deals only with Elsevier ADSs held as capital
assets and does not address any special tax consequences that may be applicable
to U.S. Holders that are subject to special treatment under the Code, such as
dealers in securities, financial institutions, life insurance companies, persons
holding Elsevier ADSs as part of a hedging or conversion transaction or a
straddle or persons whose functional currency is not the U.S. dollar.

In general, for United States federal income tax purposes, U.S. Holders of
Elsevier ADSs will be treated as the owners of the underlying Elsevier Ordinary
Shares that are represented by such Elsevier ADSs. Deposits or withdrawals of
Elsevier Ordinary Shares by U.S. Holders for Elsevier ADSs generally will not be
subject to U.S. federal income tax.

Taxation of Dividends

The gross amount of dividends paid to U.S. Holders of Elsevier ADSs
(including amounts withheld to reflect Dutch withholding taxes) will be treated
as dividend income to such U.S. Holders, to the extent paid out of current or
accumulated earnings and profits, as determined under U.S. federal income tax
principles. Such income will be includable in the gross income of a U.S. Holder
as ordinary income on the day received by the Depositary. Such dividends will
not be eligible for the dividends received deduction allowed to corporations
under the Code.

The amount of any dividend paid in euro will equal the U.S. dollar value of
the euro received calculated by reference to the exchange rate in effect on the
date the dividend is received by the Depositary, regardless of whether the euro
are converted into U.S. dollars. If the dividend is not converted into U.S.
dollars on the date of receipt, a U.S. Holder will have a basis in the euro
equal to the U.S. dollar value on the date of receipt. Any gain or loss realised
on a subsequent conversion or other disposition of the euro will be treated as
ordinary income or loss.

Generally the maximum rate of withholding tax on dividends paid to a U.S.
Holder pursuant to the Dutch Tax Treaty of 1992 is 15%. Subject to certain
conditions and limitations, Dutch withholding taxes will be treated as foreign
taxes eligible for credit against a U.S. Holder's U.S. federal income tax
liability. The overall limitation on foreign taxes eligible for credit is
calculated separately with respect to specific classes or "baskets" of income.
For this purpose, dividends paid by Elsevier will be treated as income from
sources outside of the United States and generally will constitute "passive
income" or, in the case of certain U.S. Holders, "financial services income".
Foreign tax credits allowable with respect to each income basket, cannot exceed
the U.S. federal income tax otherwise payable with respect to such income.

29
<PAGE>

Taxation of Capital Gains

For U.S. federal income tax purposes, a U.S. Holder will recognise taxable
gain or loss on any sale or exchange of an Elsevier ADS in an amount equal to
the difference between the amount realised for the Elsevier ADS and the U.S.
Holder's basis in the Elsevier ADS. Such gain or loss will be capital gain or
loss and will be long-term capital gain or loss if the Elsevier ADS has been
held for more than one year on the date of the sale or exchange. Capital gains
of individuals derived with respect to capital assets held for more than one
year are eligible for reduced rates of taxation. The deductibility of capital
losses is subject to limitations. Any gain or loss recognised by a U.S. Holder
will generally be treated as U.S. source gain or loss.

Information Reporting and Backup Withholding

In general, information reporting requirements will apply to dividends paid
in respect of the Elsevier ADSs or the proceeds received on the sale, exchange,
or redemption of the Elsevier ADSs within the United States by non-corporate
U.S. Holders, and a 31% backup withholding may apply to such amounts if the U.S.
Holder fails to provide an accurate taxpayer identification number or to report
interest and dividends required to be shown on its federal income tax returns.
The amount of any backup withholding from a payment to a U.S. Holder will be
allowed as a credit against the U.S. Holder's United States federal income tax
liability.

Dutch Tax Considerations

This discussion summarises the principal Dutch tax considerations under
current law and practice to U.S. Holders, as interpreted under officially
published case law. This summary generally does not address the tax consequences
to a U.S. Holder that is resident (or, in the case of an individual, ordinarily
resident) in the Netherlands for Dutch tax purposes.

Taxation of Dividends

Dividends, distributed by Elsevier are, pursuant to Dutch national law,
subject to 25% dividend withholding tax. Dividends include dividends in cash or
in kind, constructive dividends and liquidation proceeds in excess of recognised
(for Dutch tax purposes) paid-in capital. Distribution of stock dividends is
subject to dividend withholding tax unless distributed out of recognised (for
Dutch tax purposes) paid-in share premium.

Under the application of the Dutch Tax Treaty of 1992, dividends paid by
Elsevier to a beneficial owner resident in the United States are generally
eligible for a reduction in the rate of withholding to 15% of the gross amount
of the dividends.

In case the beneficial owner is a company, which holds directly at least
10% of the voting power of Elsevier, the rate of withholding will be further
reduced to 5% of the gross amount of the dividends.

Elsevier is not a "beleggingsinstelling" in the sense of Article 28 of the
Netherlands Corporation Tax Act (Wet op de vennootschapsbelasting 1969). (A
"beleggingsinstelling" is a specific investment fund referred to in Article 28
of the Netherlands Corporate Income Tax Act, the sole purpose of which is to
invest funds and to distribute its revenues to its shareholders within eight
months after the end of its fiscal year. Under a number of conditions, the
beleggingsinstelling is not subject to Dutch corporate income tax.)

The term "dividends" as used in this convention means income from shares or
other rights participating in profits, as well as income from other corporate
rights which is subjected to the same taxation treatment as income from shares
by the laws of the Netherlands. For the purposes of this paragraph, the term
"dividends" also includes, in the case of the Netherlands, income from profit
sharing bonds ("winstdelende obligaties").

A beneficial owner of dividends, who holds depositary rights evidencing
beneficial ownership of the shares in lieu of the shares themselves in Elsevier
may claim the benefits of the Dutch Tax Treaty of 1992.

The above provisions shall not apply if the beneficial owner of the
dividends, being a resident of the United States, carries on business in the
Netherlands, through a permanent establishment situated therein, or performs
independent personal services from a fixed base situated therein, and the
holding in respect of which the dividends are paid forms part of the business
property of such permanent establishment or pertains to such fixed base.

30
<PAGE>

A trust, company or other organisation that is a resident of the United
States and that is operated exclusively for religious, charitable, scientific,
educational, or public purposes shall be exempt from Dutch withholding tax if
and to the extent that: (a) such trust, company or other organisation is exempt
from tax in the United States, and: (b) such trust, company or other
organisation would be exempt from tax in the Netherlands in respect of such
items of income if it were organised, and carried on all its activities, in the
Netherlands, unless the income is derived from carrying on a trade or business
or from a related person other than a person referred to above.

Dividend income derived by a trust, company or other organisation
constituted and operated exclusively to administer or provide benefits under one
or more funds or plans established to provide pension, retirement or other
employee benefits shall in principle be exempt from Dutch withholding tax if it
is a resident of the United States and its income is generally exempt from tax,
unless the income is derived from carrying on a trade or business or from a
related person other than a person referred to above. However, if the ownership
of the dividend is separated from the ownership of the ADS, the exemption from
Dutch withholding tax may be challenged.

Taxation of Capital Gains

Gains derived by a resident of the United States from the disposition of
Elsevier ADSs generally will not be taxable in the Netherlands. If, however, the
ADSs would form part of the business property of a permanent establishment which
an enterprise of the United States has in the Netherlands or of personal
property pertaining to a fixed base, available to a resident of the United
States, in the Netherlands for the purpose of performing independent personal
services, such gains, including those from the alienation of such permanent
establishment (alone or with the whole enterprise) or of such fixed base, may be
taxed in the Netherlands.

The provisions of the Dutch Tax Treaty of 1992 shall not affect the right
of the Netherlands to levy according to its own law a tax on gains from the
alienation of Elsevier ADSs derived by an individual who is a resident of the
United States and who: (a) has, at any time during the five year period
preceding the alienation, been a resident of the Netherlands, and (b) at the
time of the alienation owns, either alone or together with related individuals,
at least 25% of any class of shares in Elsevier. For the purposes of the Dutch
Tax Treaty of 1992, the term "related individuals" means the alienator's spouse
and his relatives by blood or marriage in the direct line (ancestors and lineal
descendants) and his relatives (by whole or half blood or by marriage) in the
second degree in the collateral line (siblings of their spouses). In case the
individuals would not be married, the term "related individuals" means the
alienator, his/her partner and their relatives by blood or marriage in the
direct line.

A resident of the United States may be subject to Dutch personal income tax
on (part of) the gains derived from the alienation of Elsevier ADSs if (a) the
resident has moved his residence from the Netherlands to the United States at
any time during the ten year period preceding the alienation of the ADSs and (b)
at the time of emigration owned, either alone or together with related
individuals, at least 5% of any class of shares in Elsevier. For the purposes of
this paragraph, the term "related individuals" means the alienator's spouse and
their relatives by blood or marriage in the direct line (ancestors and lineal
descendants). In case the resident would not be married, the term "related
individuals" means the alienator, his/her partner and their relatives by blood
or marriage in the direct line.

Estate, Gift and Transfer (recht van overgang) Tax

A gift or inheritance of Elsevier ADSs from a U.S. Holder of ADSs will not
be subject to Dutch inheritance, gift and transfer (recht van overgang) tax,
provided that: (a) the holder does not carry on a business in the Netherlands
through a permanent establishment or a permanent representative to which or to
whom the ADSs are attributable; (b) the holder has not been a resident of the
Netherlands at any time during the ten years preceding the time of the gift or
death, or, in the event he or she has been a resident of the Netherlands in that
period, the holder is not a Dutch citizen at the time of the gift or death; and
(c) for purposes of the tax on gifts, the holder has not been a resident of the
Netherlands at any time during the twelve months preceding the time of the gift.

31
<PAGE>

ITEM 8: SELECTED FINANCIAL DATA

REED ELSEVIER

The selected combined financial data for Reed Elsevier should be read in
conjunction with, and is qualified by, the Combined Financial Statements
included in this Annual Report. In addition, as separate legal entities, Reed
International and Elsevier prepare separate financial statements which reflect
their respective shares in the Combined Businesses accounted for on,
respectively, a gross equity and an equity basis.

All of the selected financial data for Reed Elsevier set out below has been
extracted or derived from the Combined Financial Statements which have been
audited by Deloitte & Touche, London and Deloitte & Touche, Amsterdam.

Combined Profit and Loss Account Data
<TABLE>
<CAPTION>
Year ended December 31,(1)(3)
---------------------------------------------------------------------------
1995 1996 1997 1998 1999 1999(2)
----- ----- ----- ----- ----- -------
(in millions)
Amounts in accordance with U.K. and Dutch GAAP:
<S> <C> <C> <C> <C> <C> <C>
Turnover(4)
Continuing operations ......................... (pound)2,724 (pound)2,897 (pound)2,987 (pound)3,163 (pound)3,390 $5,475
Discontinued operations ....................... 925 484 430 28 -- --
----- ----- ----- ----- ----- ------
3,649 3,381 3,417 3,191 3,390 5,475
Adjusted operating profit
(including joint ventures)(4)(5)(7)
Continuing operations ....................... 700 787 812 813 792 1,279
Discontinued operations ..................... 128 69 73 -- -- --
Amortisation of goodwill and intangible assets(3)
(including joint ventures) .................... (255) (250) (289) (332) (373) (602)
Exceptional items charged to operating income(6) -- -- (502) (79) (239) (386)

Operating profit (including joint ventures) ..... 573 606 94 402 180 291
Non-operating exceptional items(6) .............. 403 24 54 682 7 11
----- ----- ----- ----- ----- ------
Profit before interest and taxes ................ 976 630 148 1,084 187 302
Net interest expense ............................ (105) (51) (62) (40) (82) (132)
----- ----- ----- ----- ----- ------
Profit before taxes and minority interests ...... 871 579 86 1,044 105 170
Taxes ........................................... (185) (212) (99) (271) (167) (270)
Minority interests .............................. (1) (1) (1) (1) (1) (2)
----- ----- ----- ----- ----- ------
Profit/(loss) attributable ...................... 685 366 (14) 772 (63) (102)

Amounts in accordance with U.S. GAAP:
Continuing operations(4)
Operating income .............................. 542 711 107 13 109 176
Net income/(loss) from continuing operations .. 270 450 3 (122) (73) (118)

Discontinued operations(4)
Net income from trading operations ............ 70 43 40 (1) -- --
Gain on sales net of provisions ............... 353 -- -- 521 -- --
----- ----- ----- ----- ----- ------
Net income from discontinued operations ....... 423 43 40 520 -- --

Net income/(loss) ............................... 693 493 43 398 (73) (118)
</TABLE>

32
<PAGE>

Combined Balance Sheet Data

<TABLE>
<CAPTION>
At December 31,(1)(3)
---------------------------------------------------------------------------
1995 1996 1997 1998 1999 1999(2)
----- ----- ----- ----- ----- -------
(in millions)
Amounts in accordance with U.K. and Dutch GAAP:
<S> <C> <C> <C> <C> <C> <C>
Total assets .................................... (pound)5,573 (pound)5,176 (pound)5,211 (pound)5,760 (pound)5,272 $8,514
Long term obligations less current portion(8) ... (930) (717) (689) (520) (377) (609)
Net borrowings(9) ............................... (680) (196) (630) (962) (1,066) (1,721)
Combined shareholders' funds .................... 2,139 2,063 1,692 2,130 1,855 2,995

Amounts in accordance with U.S. GAAP:
Total assets .................................... 6,483 6,107 6,139 6,443 5,896 9,522
Long term obligations less current portion(8) ... (1,256) (993) (1,291) (1,122) (772) (1,247)
Combined shareholders' funds .................... 3,084 3,075 2,774 2,833 2,423 3,913
</TABLE>

(1) The Combined Financial Statements are prepared in accordance with
accounting policies that are in conformity with U.K. and Dutch GAAP, which
differ in certain significant respects from U.S. GAAP. The differences
between U.K. and Dutch GAAP and U.S. GAAP which are relevant to the
Combined Businesses are set out in note 29 to the Combined Financial
Statements.

(2) For the convenience of the reader, pounds sterling amounts for the 1999
financial year have been translated into U.S. dollars using the Noon Buying
Rate on December 31, 1999 of $1.615 per (pound)1.00.

(3) Amounts presented for the financial years 1995, 1996 and 1997, have been
restated on introduction of U.K. accounting standard FRS10: Goodwill and
Intangible Assets, which was first applicable for the 1998 financial year,
to include retrospective capitalisation and amortisation of acquired
goodwill and intangible assets.

(4) Under U.K. and Dutch GAAP, discontinued operations only comprise those
businesses where sales transactions or closures have been completed. Under
U.S. GAAP all businesses are treated as discontinued operations once the
formal commitment to sell or close is made. Under U.S. GAAP net income from
discontinued operations includes net income from the trading activities of
discontinued operations and the gain or loss on sale of discontinued
operations. Under U.K. and Dutch GAAP operating results from discontinued
operations are included within operating profit and the gain or loss on
sale is included as an exceptional item. Under U.K. and Dutch GAAP and
under U.S. GAAP, discontinued operations comprise those consumer publishing
businesses divested in 1995 and IPC Magazines and the consumer book
publishing operations, which were the final elements of the Consumer
segment sold in 1998.

(5) U.K. and Dutch GAAP allow the presentation of alternative earnings
measures. Adjusted operating profit is presented as an additional
performance measure and is shown before amortisation of goodwill and
intangible assets and exceptional items. U.S. GAAP does not permit the
presentation of alternative earnings measures.

(6) Exceptional items are significant items within Reed Elsevier's ordinary
activities which, under U.K. and Dutch GAAP, need to be disclosed
separately by virtue of their size or incidence. The items do not qualify
as extraordinary under U.S. GAAP and are considered a part of operating
results. Exceptional items charged to operating profit, under U.K. and
Dutch GAAP, are:

(i) in 1999 (pound)161 million in respect of reorganisation costs;
and (pound)78 million in respect of Year 2000 compliance and
acquisition related integration;

(ii) in 1998 (pound)79 million in respect of Year 2000 compliance and
acquisition related integration;

(iii) in 1997 (pound)230 million in respect of the cost of programmes to
recompense advertisers in relation to irregularities in circulation
claims for certain Reed Travel Group publications together with
related expenses and reorganisation costs; (pound)250 million in
respect of a non-cash write-down of intangible assets related to
Reed Travel Group; and (pound)22 million in respect of Year 2000
compliance and acquisition related integration.

Non-operating exceptional items arise primarily from the net profit on
disposal of IPC Magazines in 1998 and, in other years, from the disposal of
other businesses including the other consumer publishing businesses
divested. For further details see note 6 to the Combined Financial
Statements.

(7) The SSAP 24 credit in respect of the main U.K. pension scheme included in
operating profit is (pound)3 million in the 1999 financial year, (1998
(pound)4 million; 1997 (pound)1 million; 1996 (pound)7 million; 1995
(pound)6 million); see note 27 to the Combined Financial Statements. The
SSAP 24 credit comprises a regular cost offset by amortisation of the net
actuarial surplus calculated in accordance with the provisions of the U.K.
accounting standard SSAP 24: Accounting for Pension Costs.

(8) Long term obligations comprise long term borrowings and finance lease
obligations which become due after more than one year. Reed Elsevier has
revolving credit facilities expiring in over one year with a number of
banks which are available to support commercial paper and other short term
borrowings. Under U.S. GAAP the borrowings backed by available credit
facilities, which amount to (pound)395 million at December 31, 1999 (1998
(pound)602 million; 1997 (pound)602 million; 1996 (pound)276 million; 1995
(pound)326 million), are included as long term obligations.

(9) Net borrowings comprise total borrowings less cash and short term
investments.

33
<PAGE>

REED INTERNATIONAL

The selected financial data for Reed International should be read in
conjunction with, and is qualified by, the consolidated financial statements of
Reed International included in this Annual Report. The results and financial
position of Reed International reflect its 52.9% economic interest in the
Combined Businesses, which takes into account its 5.8% indirect interest in
Elsevier, accounted for on a gross equity basis.

All of the selected consolidated financial data for Reed International set
out below has been extracted or derived from the financial statements of Reed
International, which have been audited by Deloitte & Touche, London.

<TABLE>
<CAPTION>
Year ended December 31,(1)(3)(4)
-------------------------------------------------------------------------
1995 1996 1997 1998 1999 1999(2)
---- ---- ---- ---- ---- -------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Amounts in accordance with U.K. GAAP:
Share of adjusted profit before tax(5)(6) ......... (pound)382 (pound)426 (pound)435 (pound)409 (pound)376 $607
Share of amortisation(4)(5) ....................... (134) (132) (153) (176) (197) (318)
Share of exceptional items before tax(5)(7) ....... 213 13 (237) 319 (122) (197)

Elsevier's share of U.K. tax credit on
distributed earnings ............................ (16) (18) (20) (12) (6) (10)

Profit on ordinary activities before tax .......... 445 289 25 540 51 82

Tax on profit on ordinary activities .............. (99) (113) (52) (144) (90) (145)

Profit/(loss) attributable to ordinary shareholders 346 176 (27) 396 (39) (63)

Basic earnings/(loss) per Reed International
Ordinary Share(8)(9) ............................ 30.7p 15.5p (2.4p) 34.7p (3.4p) (0.05)
Diluted earnings/(loss) per Reed International
Ordinary Share(8)(9) ............................ 30.5p 15.4p (2.4p) 34.6p (3.4p) (0.05)
Gross dividends per Reed International
Ordinary Share(8)(10) ........................... 15.3p 17.0p 18.25p 17.3p 11.1p 0.18
Total assets ...................................... 1,274 1,247 1,056 1,292 1,090 1,760
Long term obligations ............................. (36) (36) (36) (36) (36) (58)
Shareholders' funds(11) ........................... 1,132 1,091 895 1,127 981 1,584

Amounts in accordance with U.S. GAAP:
Net income/(loss)(5) .............................. 352 244 4 191 (47) (76)
Basic earnings/(loss) per Reed International
Ordinary Share(8)(9) ............................ 30.9p 21.4p 0.4p 16.7p (4.1p) (0.07)
Diluted earnings/(loss) per Reed International
Ordinary Share(8)(9) ............................ 30.7p 21.4p 0.4p 16.7p (4.1p) (0.07)
Total assets ...................................... 1,677 1,673 1,511 1,544 1,328 2,145
Long term obligations ............................. (36) (36) (36) (36) (36) (58)
Shareholders' funds(11) ........................... 1,631 1,627 1,467 1,499 1,282 2,070
</TABLE>

(1) The consolidated financial statements of Reed International are prepared in
accordance with accounting policies that are in conformity with U.K. GAAP,
which differs incertain significant respects from U.S. GAAP. The
differences between U.K. GAAP and U.S. GAAP which are relevant to Reed
International are set out in note 17 the financial statements of Reed
International.

(2) For the convenience of the reader, pounds sterling and pence amounts for
the 1999 financial year have been translated into U.S. dollars using the
Noon Buying Rate on December 31, 1999 of $1.615 per (pound)1.00.

(3) Under the U.K. accounting standard FRS 9: Associates and Joint Ventures,
which was first applicable for the 1998 financial year, Reed
International's interest in theCombined Businesses, previously treated as
an associate, now falls to be treated as an interest in joint ventures.
Reported net assets and net income are unaffected.

34
<PAGE>

(4) Under the U.K. accounting standard FRS 10: Goodwill and Intangible Assets,
which was first applicable for the 1998 financial year, the results of the
Combined Businesses for the financial years 1995, 1996 and 1997 have been
restated to include retrospective capitalisation and amortisation of
acquired goodwill and intangible assets. The amounts presented for Reed
International were restated accordingly.

(5) The share of profit from joint ventures is based on the 52.9% economic
interest in the Combined Businesses attributable to Reed International
shareholders. The statutory net income of Reed International includes the
impact of sharing the U.K. tax credit on distributed earnings with Elsevier
NV as a reduction in reported profit attributable.

(6) U.K. GAAP allows the presentation of alternative earnings measures.
Adjusted operating profit is presented as an additional performance measure
and is shownbeforeamortisation of goodwill and intangible assets and
exceptional items. U.S. GAAP does not permit the presentation of
alternative earnings measures.

(7) Share of exceptional items before tax includes Reed International's share
of the Combined Businesses' exceptional items:

(i) in 1999 exceptional items principally relate to the costs of a
major programme of reorganisation across Reed Elsevier businesses,
commenced in 1999. Costs include employee severance, surplus
leasehold property obligations and fixed asset write-offs. Basic
earnings per Reed International Ordinary Share include 7.3p (loss)
in respect of these items.

(ii) In 1998 exceptional items principally relate to the gain on disposal
of IPC Magazines. Basic earnings per Reed International Ordinary
Share under, respectively, U.S. GAAP and U.K. GAAP includes 24.1p
and 27.4p in respect of this item. In addition, under U.S. GAAP, the
Combined Businesses' goodwill and intangible asset lives were
re-evaluated and are amortised over shorter periods resulting, in
1998, in a significantly higher amortisation charge; see Note 29
to the Combined Financial Statements. Basic earnings per Reed
International Ordinary Share includes 12.3p (loss) under U.S. GAAP
in respect of the non recurring element of the incremental charge
arising from this re-evaluation.

(iii) in 1997 exceptional items principally relate to the cost of
programmes to recompense advertisers in relation to irregularities
in circulation claims for certain Reed Travel Group publications
together with related expenses and reorganisation costs together with
the non-cash writedown of Reed Travel Group intangible assets. Basic
earnings per Reed International Ordinary Share under, respectively,
U.S. GAAP and U.K. GAAP includes 21.6p (loss) and 18.3p (loss) in
respect of these items.

(iv) in 1995 exceptional items principally relate to the net gain on sale
of certain consumer publishing businesses. Basic earnings per Reed
International Ordinary Share under, respectively, U.S. GAAP and U.K.
GAAP includes 16.4p and 18.8p in respect of such net gain on sale.

(8) Earnings per Reed International Ordinary Share and gross dividends per Reed
International Ordinary Share for all relevant periods have been restated to
give effect to the two for one share split in respect of Reed International
Ordinary Shares, which became effective on May 2, 1997.

(9) In accordance with the U.K. financial reporting standard FRS14: Earnings
per Share, which was first applicable in the 1998 financial year, both
basic earnings per share and diluted earnings per share are presented.
Under U.K. and U.S. GAAP, the calculation of basic earnings per share is
based only on ordinary shares in issue. Diluted earnings per share amounts
take account of the effects of additional ordinary shares that would be in
issue if outstanding dilutive potential shares had been exercised.

(10) The amount of gross dividends per Reed International Ordinary Share shown
includes the U.K. tax credit available to certain Reed International
shareholders, including beneficial owners of Reed International ADSs who
are residents of the U.S. for the purposes of the U.K. Tax Treaty but do
not include any deduction on account of U.K. withholding taxes, currently
at the rate of 15% of the sum of the dividend and the related tax credit in
most cases; see "Taxation -- Reed International -- Taxation of dividends".

(11) Shareholders' funds for 1999 includes a (pound)4 million capital redemption
reserve which is non-distributable.

35
<PAGE>

ELSEVIER

The selected financial data for Elsevier should be read in conjunction
with, and is qualified by, the financial statements of Elsevier included in this
Annual Report. The results and financial position of Elsevier reflect its 50%
interest in the Combined Businesses, accounted for on an equity basis.

All of the selected financial data for Elsevier set out below has been
extracted or derived from the financial statements of Elsevier, which have been
audited by Deloitte & Touche, Amsterdam.

<TABLE>
<CAPTION>
Year ended December 31,(1)(3)
-------------------------------------------------------------
1995 1996 1997 1998 1999 1999(2)
---- ---- ---- ---- ---- -------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Amounts in accordance with Dutch GAAP:

Share of adjusted profit before tax(4)(5) .......................... e415 e480 e595 e575 e540 $ 576
Share of amortisation(4) ........................................... (147) (149) (209) (247) (284) (303)
Share of exceptional items before tax(4)(6) ........................ 231 14 (324) 449 (176) (188)
Taxation ........................................................... (106) (127) (72) (203) (128) (136)

Profit/(loss) attributable to ordinary shareholders ................ 393 218 (10) 574 (48) (51)
Basic earnings/(loss) per Elsevier Ordinary Share(7) ............... 0.56 0.31 (0.01) 0.81 (0.07) (0.07)
Diluted earnings/(loss) per Elsevier Ordinary Share ................ 0.56 0.31 (0.01) 0.81 (0.07) (0.07)
Gross dividends per Elsevier Ordinary Share ........................ 0.27 0.34 0.43 0.39 0.27 0.29
Total assets ....................................................... 1,371 1,607 1,535 1,736 1,639 1,747
Long term borrowings, less current portion ......................... (9) (10) (11) (11) (8) (8)
Shareholders' funds ................................................ 1,199 1,385 1,282 1,512 1,493 1,592

Amounts in accordance with U.S. GAAP:

Net income/(loss)(4) ............................................... 415 314 58 326 (46) (49)
Basic earnings/(loss) per Elsevier Ordinary Share(7) ............... 0.59 0.44 0.08 0.46 (0.06) (0.06)
Total assets ....................................................... 1,777 2,118 2,156 2,057 1,997 2,129
Long term borrowings, less current portion ......................... (9) (10) (11) (11) (8) (8)
Shareholders' funds ................................................ 1,728 2,065 2,102 2,012 1,951 2,080
</TABLE>

(1) The financial statements of Elsevier are prepared in accordance with
accounting policies that are in conformity with Dutch GAAP, which differs
in certain significantrespects from U.S. GAAP. The difference between Dutch
GAAP and U.S. GAAP which are relevant to Elsevier are set out in note 12 to
the financial statements of Elsevier.

(2) For the convenience of the reader, euro amounts for the 1999 financial year
have been translated into U.S. dollars using the Noon Buying Rate on
December 31, 1999 of U.S.$1.066 per e1.00.

(3) Under the U.K. accounting standard FRS 10: Goodwill and Intangible Assets,
which was first applicable for the 1998 financial year, the results of the
Combined Businesses for the financial years 1995, 1996 and 1997 have been
restated to include retrospective capitalisation and amortisation of
acquired goodwill and intangible assets. The amounts presented for Elsevier
were restated accordingly.

(4) The share of profit from joint ventures is based upon the 50% share of the
Combined Businesses attributable to Elsevier shareholders.

(5) Dutch GAAP allows the presentation of alternative earnings measures.
Adjusted operating profit is presented as an additional performance measure
and is shown before amortisation of goodwill and intangible assets and
exceptional items. U.S. GAAP does not permit the presentation of
alternative earnings measures.

(6) Share of exceptional items before tax includes Elsevier's share of the
Combined Businesses' exceptional items:

(i) in 1999 exceptional items principally relate to the costs of a
major programme of reorganisation across Reed Elsevier businesses,
commenced in 1999. Costs include employee severance, surplus
leasehold property obligations and fixed asset write-offs. Basic
earnings per Elsevier Ordinary Share include e0.18 (loss) in respect
of these items.

(ii) Share in 1998 exceptional items principally relate to the gain on
disposal of IPC Magazines. Basic earnings per Elsevier Ordinary Share
under, respectively, U.S. GAAP and U.K. GAAP includes e0.55 (profit)
and e0.62 (profit) in respect of this item. In addition, under U.S.
GAAP, the Combined Businesses' goodwill and intangible asset lives
were re-evaluated and are amortised over shorter periods resulting,
in 1998, in a significantly higher amortisation charge; see Note 29
to the Combined Financial Statements. Basic earnings per Elsevier
Ordinary includes e0.28 (loss) under U.S. GAAP in respect of the non
recurring element of the incremental charge arising from this
re-evaluation.

(iii) in 1997 exceptional items principally relate to the cost of
programmes to recompense advertisers in relation to irregularities
in circulation claims for certain Reed Travel Group publications
together with related expenses and reorganisation costs together with
the non-cash writedown of Reed Travel Group intangible assets. Basic
earnings per Elsevier Ordinary Share under, respectively, U.S. GAAP
and U.K. GAAP includes e0.48 (loss) and e0.40 (loss) in respect of
these items.

(iv) in 1995 exceptional items principally relate to the net gain on sale
of certain consumer publishing businesses. Basic earnings per
Elsevier Ordinary Share under, respectively, U.S. GAAP and U.K. GAAP
includes e0.29 and e0.33 in respect of such net gain on sale.

(7) Under Dutch and U.S. GAAP the calculation of basic earnings per share is
based only on ordinary shares in issue. Diluted earnings per Elsevier
Ordinary Share amounts take account of the effects of additional ordinary
shares that would be in issue if outstanding dilutive potential shares had
been exercised.

36
<PAGE>

Exchange Rates

The following table illustrates, for the periods and dates indicated,
certain information for pounds sterling expressed in U.S. dollars per
(pound)1.00. Noon Buying Rates have not been used in the preparation of the Reed
Elsevier Combined Financial Statements or the Reed International financial
statements. For a discussion of the impact of currency fluctuations on Reed
Elsevier's combined results of operations and combined financial position, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Reed Elsevier".

U.S. dollars per (pound)1.00

Period
----------------------------------
Year ended December 31, End Average(1) High Low
- ----------------------- ---- ---------- ---- ----
1995 ...................................... 1.55 1.60 1.67 1.55
1996 ...................................... 1.71 1.56 1.71 1.49
1997 ...................................... 1.64 1.64 1.70 1.58
1998 ...................................... 1.66 1.66 1.71 1.61
1999 ...................................... 1.62 1.62 1.68 1.55
2000 (through February 23, 2000) .......... 1.60 1.62 1.65 1.59

(1) The average of the Noon Buying Rates on the last day of each month during
the relevant period.

The following table illustrates, for the periods and dates indicated,
certain information concerning the Noon Buying Rate for the euro expressed in
U.S. dollars per e1.00. Noon Buying Rates have not been used by Elsevier in the
preparation of its financial statements included in this Annual Report.

U.S. dollars per e1.00(1)

Period
----------------------------------
Year ended December 31, End Average(2) High Low
- ----------------------- ---- ---------- ---- ----
1995 ...................................... 1.36 1.36 1.45 1.26
1996 ...................................... 1.28 1.30 1.37 1.26
1997 ...................................... 1.08 1.12 1.28 1.03
1998 ...................................... 1.17 1.10 1.21 1.06
1999 ...................................... 1.01 1.07 1.18 1.00
2000 (through February 23, 2000) .......... 1.00 1.00 1.03 0.97

(1) e rates for periods prior to the 1999 financial year have been stated using
the relevant Dutch guilder rates, translated at the Official Conversion
Rate of Dfl2.20371 per e1.00, which was fixed as at January 1, 1999.

(2) The average of the Noon Buying Rates on the last day of each month during
the relevant period.

37
<PAGE>

Dividends

The following table illustrates, for the periods indicated, a summary of
the dividends paid per Reed International Ordinary Share. Dividends per Reed
International Ordinary Share have been calculated to give effect to the two for
one share split of Reed International Ordinary Shares which became effective on
May 2, 1997. For the convenience of the reader, the pence amounts have been
translated at the Noon Buying Rate prevailing at each payment date.

Year ended December 31,
----------------------------------
1995 1996 1997 1998 1999
---- ---- ----- ----- ----
Interim -- pence ........................ 3.75 4.13 4.40 4.60 4.60
Interim -- $ ............................ 0.06 0.06 0.07 0.08 0.08
Final (1997 Second interim) -- pence .... 8.50 9.48 10.20 10.40 5.40
Final (1997 Second interim) -- $ ........ 0.13 0.15 0.17 0.17 0.09(1)

The following table illustrates, for the periods indicated, a summary of
the dividends paid per Elsevier Ordinary Share. For the convenience of the
reader the euro amounts have been translated at the Noon Buying Rate prevailing
at each payment date.

Year ended December 31,
----------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Interim -- e(2) ......................... 0.08 0.09 0.13 0.13 0.12
Interim -- $ ............................ 0.11 0.12 0.15 0.16 0.11
Final (1997 Second interim) -- e(2) ..... 0.19 0.25 0.30 0.26 0.15
Final (1997 Second interim) -- $ ........ 0.24 0.29 0.33 0.29 0.15(1)

(1) The final dividend for the year ended December 31, 1999 is payable on May
22, 2000 (May 30, 2000 to holders of Reed International and Elsevier ADSs).
The rate prevailing at the payment date has yet to be determined; the rate
used is the Noon Buying Rate on February 23, 2000.

(2) During 1999 Elsevier Ordinary Shares were redenominated in e. Accordingly
dividends per Elsevier Ordinary Share have been presented in e for all
periods. e amounts for periods prior to the 1999 financial year have been
stated using the relevant Dutch guilder rates, translated at the Official
Conversion Rate of Dfl2.20371 per e1.00, which was fixed as at January 1,
1999.

38
<PAGE>

ITEM 9: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS

REED ELSEVIER

The following discussion is based on the Combined Financial Statements
which have been prepared in accordance with U.K. and Dutch GAAP which differ in
certain significant respects from U.S. GAAP as set out in note 29 to the
Combined Financial Statements. In addition to the figures required to be
reported by U.K. and Dutch GAAP, adjusted profit and operating cash flow figures
have been presented in the Combined Financial Statements as additional
performance measures. Adjusted profit is shown before the amortisation of
goodwill and intangible assets and exceptional items, and provides a basis for
performance comparison that is not dependent on the choice of adoption method of
FRS 10 on accounting for goodwill and intangible assets. Adjusted operating cash
flow is measured after dividends from joint ventures, tangible fixed asset spend
and proceeds from the sale of fixed assets, but before exceptional payments and
proceeds. A reconciliation of reported figures to the adjusted figures for each
of the three years in the period ended December 31, 1999, is set out in note 10
to the Combined Financial Statements included in this Annual Report. As
discussed in note 29 to the Combined Financial Statements, U.S. GAAP does not
permit the presentation of alternative income measures.

The following combined financial information of Reed Elsevier should be
read in conjunction with, and is qualified by reference to, the Combined
Financial Statements. Unless otherwise stated, identified amounts relate to the
total results of the Reed Elsevier combined businesses, including the results of
discontinued operations.

General

Reed Elsevier derives its turnover principally from subscription sales,
circulation and copy sales, advertising sales and exhibition fees. In the year
ended December 31, 1999, subscriptions comprised 39% of turnover; circulation
and copy sales comprised 18%; advertising sales comprised 24%; exhibition fees
comprised 9%; and the other turnover comprised 10%. Subscription sales are
defined as turnover derived from the periodic distribution or update of a
product which is usually prepaid, while circulation and copy sales include all
other turnover from the distribution of a product, usually on cash or credit
terms. The level of publishing-related advertising sales has historically been
tied closely to the economic cycle with changes in the profit performance of
advertisers, business confidence and other economic factors having a high
correlation with changes in the size of the market. Subscription sales and
circulation and copy sales have tended to be more stable than advertising sales
through economic cycles.

Reed Elsevier's principal geographic markets are North America, the United
Kingdom and the Netherlands. In the year ended December 31, 1999, these
geographical markets accounted for 77% of total turnover from continuing
operations. The largest geographical market is North America, where the
proportion of turnover from continuing operations over these periods has grown
from 53% in the year ended December 31, 1997 to 55% in the year ended December
31, 1998 and 56% in the year ended December 31, 1999. The increase in the
relative importance of the North American market to Reed Elsevier largely
reflects the impact of acquisitions. The most recent acquisitions with
significant sales in North America were Matthew Bender and the remaining 50%
interest in Shepard's, both of which were acquired in August 1998. Turnover in
the United Kingdom from the continuing operations accounted for 14%, 15% and 15%
in the three years ended December 31, 1999, 1998 and 1997 respectively, while
turnover from continuing operations in the Netherlands has remained at 7%.
Turnover in the rest of continental Europe from the continuing operations
accounted for 13% in each of the three years ended December 31, 1999. Turnover
from continuing operations in the rest of the world accounted for 10%, 10% and
12% in the three years ended December 31, 1999, 1998 and 1997 respectively.

The cost profile of individual businesses within Reed Elsevier varies
widely and costs are controlled on an individual business unit basis. The most
significant cost item for Reed Elsevier as a whole is labour costs, which
includes all employment costs of employees as well as of temporary or contracted
staff. In the years ended December 31, 1999, December 31, 1998 and December 31,
1997, labour costs represented 44%, 42% and 41%, respectively, of Reed
Elsevier's total costs, before amortisation of goodwill and intangible assets
and exceptional items, of the continuing operations.

Following the introduction of FRS 10 in the 1998 financial year, acquired
goodwill and intangible assets are capitalised and systematically amortised over
a maximum period of 20 years, with retrospective application.

Reed Elsevier's operating profit during each of the three years ended
December 31, 1999 included net pension credits of (pound)3 million in 1999,
(pound)4 million in 1998 and (pound)1 million in 1997, arising almost entirely
from an actuarial surplus in its main U.K. pension plan.

Strategy Review and Reorganisation Costs

During 1999 Reed Elsevier undertook a detailed strategy review to realise
the growth potential of the Combined Businesses.

The strategy review concluded that the creation of value should be driven
by an acceleration of revenue growth. Accordingly Reed Elsevier has budgeted a
spend of approximately (pound)260 million in 2000 on new development
initiatives. This level of investment is expected to continue, with a total
three year investment spend reaching approximately (pound)750 million.

In December 1999 Reed Elsevier announced that, as a result of the strategy
review and to finance this substantial investment, a wide ranging cost review
was to be carried out across the Combined Businesses, primarily directed at
non-revenue generating costs, such as support staff, production, infrastructure
and Head Office costs. The cost review will give rise to exceptional
restructuring charges of not more than (pound)250 million of which (pound)161
million was charged in 1999, as an exceptional cost. The 1999 charge included
costs in relation to employee severance, surplus leasehold property obligations
and fixed asset write offs in respect of specific reorganisation projects
commenced in 1999. Of this charge approximately (pound)39 million represented
exceptional cash outflows in 1999.

In addition Reed Elsevier has announced an adjustment of Reed
International's and Elsevier's dividend policy, to support this investment
programme, through a reduction by one third of the equalised Reed International
and Elsevier dividend from the 1998 level. This has been implemented immediately
through a proposed reduction in the 1999 final dividend. To restore normal
proportions between the interim and final dividends in 2000, the 2000 interim
dividend will be reduced by one-third and the final dividend adjusted upwards
accordingly. Reed Elsevier expects to maintain over the longer term adjusted
earnings cover for the Reed International and Elsevier dividends of at least two
times.

Reed Elsevier plans to exit businesses that do not fit directly with its
strategy. Reed Elsevier expects to exit a number of businesses, which in 1999
contributed approximately (pound)200 million revenue and (pound)33 million
operating profit. These will include OAG Worldwide and Springhouse.

39
<PAGE>

Effect of Currency Translation

The Combined Financial Statements are expressed in pounds sterling and are
therefore subject to the impact of movements in exchange rates on the
translation of the financial information of individual businesses whose
operational currencies are other than sterling. The principal exposures are the
U.S. dollar and the euro, both of which generally reflect Reed Elsevier's
business exposure to the United States and the Netherlands, its most important
markets outside the United Kingdom. To help protect Reed International's and
Elsevier's shareholders' funds from the effect of currency movements, Reed
Elsevier will, if deemed appropriate, hedge the foreign exchange translation
exposure by borrowing in those currencies where significant translation exposure
exists or by selling forward surplus cash flow into one of the shareholders'
currencies. Hedging of foreign exchange translation exposure is undertaken only
by the regional centralised treasury departments and under policies agreed by
the Audit Committees of Reed International and Elsevier. Borrowing in the
operational currency of individual businesses provides a structural hedge for
the assets in those markets and for the income realised from those assets. The
currencies of Reed Elsevier's borrowings, therefore, reflect two key objectives,
namely to minimise funding costs and to hedge currencies where it has
significant business exposure.

The currency profile of Reed Elsevier's adjusted profit before taxes and
minority interests for the year ended December 31, 1999, taking account of the
currencies of the interest on its borrowings and cash over that period, is set
forth below:

Adjusted profit before taxes in each currency as a percentage
of total adjusted profit before taxes

Pounds U.S.
Sterling Dollars Euro Other Total
-------- ------- ---- ----- -----
30% 36% 28% 6% 100%

Currency translation differences increased Reed Elsevier's turnover by
(pound)34 million and adjusted operating profit by (pound)5 million in the year
ended December 31, 1999 compared to the year ended December 31, 1998.

Individual businesses within Reed Elsevier plc and ERF are subject to
foreign exchange transaction exposures caused by the effect of exchange rate
movements on their turnover and operating costs, to the extent that such
turnover and costs are not denominated in their operating currencies. Individual
businesses are encouraged to hedge their exposures internally at market rates
with the centralised treasury department within ERF. To minimise hedging costs,
these exposures are matched whenever possible with offsetting exposures existing
in other individual businesses. When opportunities for such matching of
exposures internally do not exist, exposures may instead be hedged externally
with third parties. Hedging of foreign exchange transaction exposure is the only
hedging activity undertaken by the individual businesses. For further details
see note 21 to the Combined Financial Statements.

The following table shows turnover and adjusted operating profit of Reed
Elsevier among its business segments, in each of the three years ended December
31, 1999, together with the percentage change in 1999 and 1998 at both actual
and constant exchange rates:

<TABLE>
<CAPTION>
Turnover
Year ended December 31,
-------------------------------------------------------------------------------------
1997 1998 % change 1999 % change
------------- ------------- ----------------- ------------- -----------------
(pound) (pound) Actual Constant (pound) Actual Constant
Business Segment million % million % rates rates(1) million % rates rates(2)
- ---------------- ------- --- ------- --- ------ -------- ------- --- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Scientific ....................... 571 17 622 19 9 11 652 19 5 5
Legal(3) ......................... 1,033 30 1,107 35 7 10 1,268 37 15 13
Business ......................... 1,383 40 1,434 45 4 5 1,470 44 3 2
Continuing Operations ............ 2,987 87 3,163 99 6 8 3,390 100 7 6
Discontinued Operations(4) ....... 430 13 28 1 -- -- -- -- -- --
----- --- ----- --- --- --- ----- --- --- ---
Total ............................ 3,417 100 3,191 100 (7) (5) 3,390 100 6 5
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Adjusted Operating Profit(5)(6)
Year ended December 31,
-------------------------------------------------------------------------------------
1997 1998 % change 1999 % change
------------- ------------- ----------------- ------------- -----------------
(pound) (pound) Actual Constant (pound) Actual Constant
Business Segment million % million % rates rates(1) million % rates rates(2)
- ---------------- ------- --- ------- --- ------ -------- ------- --- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Scientific ....................... 230 26 223 27 (3) (1) 231 29 4 5
Legal(3) ......................... 289 33 322 40 11 14 316 40 (2) (4)
Business ......................... 293 33 268 33 (9) (8) 245 31 (9) (9)
Continuing Operations ............ 812 92 813 100 -- 2 792 100 -- (3)
Discontinued Operations(4) ....... 73 8 -- 100 -- -- -- -- (3) (3)
--- --- --- --- --- --- --- --- --- ---
Total ............................ 885 100 813 100 (8) (7) 792 100 (3) (3)
</TABLE>

(1) Represents percentage change over 1997 at constant rates of exchange, which
have been calculated using the average exchange rates for the 1997
financial year.

(2) Represents percentage change over 1998 at constant rates of exchange, which
have been calculated using the average exchange rates for the 1998
financial year.

(3) The Professional segment has been renamed Legal to reflect the principal
markets of this segment. The Legal and Business segments have also been
re-stated to reflect the transfer of management and development
responsibilities for Elsevier Tuition to Elsevier Business Information.

(4) Discontinued operations, are presented in accordance with U.K. and Dutch
GAAP, and comprise IPC Magazines and the consumer book publishing
operations, which were the final elements of the Consumer segment, sold in
1998.

(5) Adjusted operating profit is shown before the amortisation of goodwill and
intangible assets and exceptional items. Reed Elsevier businesses focus on
adjusted profit as an additional performance measure. See note 1 to the
Combined Financial Statements.

(6) Exceptional items are significant items within Reed Elsevier's ordinary
activities which, under U.K. and Dutch GAAP, are required to be disclosed
separately due to their size or incidence. Exceptional items before tax
totalled (pound)232 million (loss) in the year ended December 31, 1999,
(pound)603 million (profit) in the year ended December 31, 1998 and
(pound)448 million (loss) in the year ended December 31, 1997. See note 6
to the Combined Financial Statements for a further description of these
items.

40
<PAGE>

Year 2000 Compliance Programme

The Reed Elsevier Year 2000 compliance programme was formally established
in 1997 to address the internal and external risks to Reed Elsevier's business
operations arising from the millennium date change. Where systems do not
correctly recognise and process date information beyond the year 1999, there
could be a material adverse impact on the Combined Businesses' operations.

The programme was implemented in each of the Reed Elsevier businesses by
dedicated project teams and co-ordinated across the Reed Elsevier plc businesses
by the Reed Elsevier Technology Group, which is responsible to the Reed Elsevier
plc Board.

Programme Status

During 1999 all remediation and testing of business critical systems was
completed on a timely basis. In addition, confirmation of Year 2000 conformity
of third party software or products supplied or licensed to Reed Elsevier was
received in respect of all business critical systems.

Year 2000 contingency plans were developed for response in the event that
an essential business process may be disrupted. The contingency plans are
intended to encompass all major categories of IT systems, including databases
and online systems, in use by the Combined Businesses and extend to its
editorial processes, subscription and distribution systems and its physical
facilities. As part of its contingency planning efforts, Reed Elsevier has
identified alternative suppliers, subcontractors and business partners or other
business strategies where necessary if significant exposures arise.

The Year 2000 programme has so far proved effective with negligible
disruption over the millennium date change. Contingency plans remain in place to
enable effective reaction to possible future disruption.

Costs

Compliance costs in 1999 amounted to (pound)50 million (1998: (pound)53
million). The total costs of the programme were (pound)114 million. These costs
represent incremental spending, including redeployed resources, over normal
operations and have been classified as exceptional items. The total cost
estimate does not include potential costs related to any customer or other
claims should systems fail. Reed Elsevier believes that the Year 2000 programme
has not resulted in any material deferrals of product developments.

Risks

Reed Elsevier believes that, with the implementation of new business
systems and completion of the Year 2000 programme as scheduled, the possibility
of significant interruptions to normal operations has been substantially
reduced. This belief is consistent with experience to date following the
millennium date change.

The Year 2000 and other date change issues continue to present a number of
risks and uncertainties that could have a material adverse impact on Reed
Elsevier, including, amongst others, failures of telephone and mail systems and
other public utilities, failures within government agencies and financial and
banking systems around the world and the nature of government responses to Year
2000 issues and similar issues.

European Economic and Monetary Union

On January 1, 1999, the euro was introduced as the de facto currency of the
11 European countries participating in European Economic and Monetary Union
(EMU). The Netherlands is a participant in EMU; the United Kingdom is not.

In 2002, the Dutch guilder, like the currencies of other participants, will
be fully replaced by the euro once euro- denominated notes and coins are
substituted. In the interim, the euro and the participating currencies coexist
and are inextricably linked by fixed conversion rates.

The implications for Reed Elsevier businesses have been initially low
relative to many other multinational European companies. Principally this is
because, with the significant exception of Elsevier Science, which already
publishes global prices, Reed Elsevier's businesses have limited cross border
trade. The most significant issue, therefore, is the timing of euro based
marketing and invoicing and the transfer to euro denominated business and
financial systems. In this respect, Reed Elsevier businesses have developed
plans to accommodate the euro.

The profit and loss expense of moving to a euro currency environment is not
expected to be significant.

While Reed Elsevier will continue to evaluate the impact of the euro
introduction over time, based on currently available information, management
does not believe that the introduction of the euro will have a material adverse
impact on the financial condition or overall trends in results of operations..

41
<PAGE>

Recently Issued Accounting Pronouncements

SFAS 133: Accounting for Derivative Instruments and Hedging Activities, was
issued in June 1998. The standard requires all derivative instruments to be
valued at fair value in the balance sheet and is effective for financial years
beginning after June 15, 2000. Changes in fair value are accounted for through
the income statement or comprehensive income statement depending on whether the
derivative is designated as a hedging instrument and, if appropriate, its
effectiveness as a hedging instrument. The impact of adopting the standard
cannot be reasonably estimated at this time. Under U.K. and Dutch GAAP the fair
value of derivative instruments is a disclosure item and is not accounted for in
the financial statements.

In the U.K. and the Netherlands exposure drafts have been issued for
comment by the relevant accounting standards authorities which propose
amendments to accounting for deferred taxation under U.K. GAAP, and pension
accounting under both U.K. GAAP and Dutch GAAP. The impact of adopting any
resulting accounting standard cannot be reasonably estimated at this time.

Results of Operations for the Year Ended December 31, 1999
Compared to the Year Ended December 31, 1998

General. Total turnover increased by 6% to (pound)3,390 million in 1999,
compared to (pound)3,191 million in 1998. Excluding the remaining consumer
publishing divestments in 1998, turnover of the continuing businesses increased
by 7% in 1999. Currency translation differences had a favourable impact in 1999,
increasing turnover from the continuing businesses by (pound)34 million. At
constant rates of exchange, turnover of the continuing businesses increased by
6% in 1999. Turnover of businesses acquired by Reed Elsevier during 1999, the
most significant of which was Cell Press, Inc., contributed (pound)31 million to
the increase and the full year effect of acquisitions made during 1998 of which
Matthew Bender and Shepard's were the most significant, contributed a further
(pound)103 million at constant exchange rates. The impact of acquisitions in
both years was offset in part by a reduction in turnover as a result of certain
minor non-core disposals. The net effect of acquisitions and disposals in 1998
and 1999 was to increase turnover by (pound)116 million for the continuing
business. Excluding these factors, the percentage increase in turnover from the
continuing businesses at constant exchange rates was 3%.

In 1999, 24% of the continuing businesses' turnover was derived from
advertising and advertising sales increased by 4% in 1999 over 1998 to
(pound)821 million. Subscription sales for the continuing businesses increased
by 15% to (pound)1,305 million in 1999, as compared with (pound)1,138 million in
1998, and accounted for 39% of turnover for continuing businesses for 1999
compared to 36% for the continuing businesses in 1998. The increase in the
relative importance of subscription sales to Reed Elsevier largely reflects the
acquisition of subscription based businesses and further migration of customers
at LEXIS-NEXIS Group from transactional to subscription accounts. As a result of
this and the impact of disposals, turnover from circulation and copy sales for
the continuing businesses was (pound)620 million in 1999 as compared with
(pound)630 million in 1998. Circulation and copy sales represented 18% of
turnover from continuing businesses in 1999, compared to 20% in 1998. The most
significant component of the balance was exhibitions which accounted for 9% of
turnover for continuing businesses in 1999 and 1998, generating turnover of
(pound)307 million in 1999 compared with (pound)278 million in 1998.

Operating profit was (pound)180 million in 1999, compared to (pound)402
million in 1998, a reduction of (pound)222 million. The decline reflects the net
(pound)160 million adverse movement in those exceptional items charged to
operating profit, higher amortisation charges arising from acquisitions in 1998
and 1999, and a weaker trading performance. The movements in the components of
operating profit, being adjusted operating profit, amortisation of goodwill and
intangible assets and exceptional items charged to operating profit are
discussed below. As explained above and in note 1 to the Combined Financial
Statements adjusted operating profit is presented as an additional performance
measure.

Adjusted operating profit fell by 3% to (pound)792 million in 1999,
compared to (pound)813 million in 1998. The consumer publishing divestments had
no impact on adjusted operating profit in 1999. The incremental contribution
from 1999 and 1998 acquisitions, net of disposals, was (pound)40 million and
currency translation increased adjusted operating profit in 1999 by (pound)5
million for the full year against 1998. Excluding these items, adjusted
operating profit from the continuing businesses declined by 7%. Operating margin
before exceptional items and amortisation of goodwill and intangible assets in
1999 fell by 2.1 percentage points over 1998 to 23.4%, principally reflecting
investment in people, products and sales and marketing.

Expenditure on major development projects in the continuing businesses,
principally in respect of new electronic products and services and related
operating systems, increased by approximately (pound)30 million to (pound)110
million in 1999, of which (pound)30 million was capitalised. These amounts do
not include the significant ongoing product renewal and expansion of sales and
marketing, editorial and production activities across the Combined Businesses.

42
<PAGE>

The results for 1999 also included amortisation of goodwill and intangible
assets of (pound)373 million compared to (pound)332 million in 1998. The
increase of (pound)41 million reflects acquisitions made in 1998 and 1999.

The results for 1999 included net exceptional costs of (pound)232 million,
comprising (pound)161 million in respect of the major restructuring projects
across the operating businesses, acquisition related integration costs
((pound)28 million), 1999 costs of the Year 2000 compliance programme ((pound)50
million) and (pound)7 million profit on sale of fixed asset investments. The net
tax credit thereon amounted to (pound)15 million. The results for 1998 included
net exceptional gains of (pound)603 million, comprising the net profit on the
sale of IPC Magazines ((pound)692 million), acquisition related integration
costs ((pound)26 million), 1998 costs of the Year 2000 compliance programme
((pound)53 million) and costs incurred in respect of the abandoned merger with
Wolters Kluwer ((pound)10 million). (pound)70 million was provided in respect of
taxation. Further details are set out in note 6 to the Combined Financial
Statements.

Profit on ordinary activities before interest was (pound)187 million in
1999, compared to (pound)1,084 million in 1998, a reduction of (pound)897
million reflecting in particular the net movement on exceptional items and
amortisation of goodwill and intangible assets. Net interest expense increased
to (pound)82 million in 1999, compared to (pound)40 million in 1998. This
principally reflected the financing of the Matthew Bender and Shepard's
acquisitions completed in the second half of 1998. Net interest cover, the
number of times that adjusted operating profit before interest covers net
interest expense, was 10 times in 1999, which compared to 20 times in 1998.

Profit on ordinary activities before taxation was (pound)105 million in
1999 as compared with (pound)1,044 million in 1998. On an adjusted basis, profit
before tax was (pound)710 million in 1999, compared to (pound)773 million in
1998, a reduction of (pound)63 million or 8%. The adjusted figures exclude the
amortisation of goodwill and intangible assets of, in 1999, (pound)373 million
and, in 1998, (pound)332 million, and net exceptional pre-tax items of, in 1999,
(pound)232 million (loss) and, in 1998, (pound)603 million (profit). Compared
with 1998, on translation of earnings, the strengthening of the dollar against
sterling in particular increased adjusted profit before tax by (pound)3 million.
At constant exchange rates, adjusted profit before tax was (pound)707 million in
1999, a reduction of (pound)66 million or 9%.

The adjusted profit before tax, at reported rates reduced 10% in the first
half of 1999, when compared with the corresponding prior year period, and 6% in
the second half. The second half comparison benefited from stronger underlying
turnover growth, particularly in relation to exhibition cycling and in the
Scientific and LEXIS-NEXIS businesses. This partly reflected weaker economic and
market conditions in the second half of 1998.

The effective tax rate on adjusted operating profit for Reed Elsevier was
slightly lower at 25.6% in 1999. The total tax charge for the year as a
proportion of profit before tax principally reflects non-tax deductible
amortisation, the non- recognition of potential deferred tax assets and taxes
arising on restructuring related business consolidation.

The attributable loss of Reed Elsevier for 1999 was (pound)63 million,
compared to attributable profit of (pound)772 million in 1998. Adjusted
attributable income, excluding the amortisation of goodwill and intangible
assets, exceptional items and related tax effects, was (pound)527 million in
1999, compared to (pound)571 million in 1998, which represents a decrease of
(pound)44 million or 8%. At constant exchange rates the reduction in adjusted
attributable profit was also 8%.

In 1999 U.S. GAAP net loss was (pound)73 million, compared with net income
of (pound)398 million in 1998, a reduction of (pound)471 million, reflecting the
factors discussed above together with the one-off amortisation charge following
the re-evaluation under U.S. GAAP of the useful lives of goodwill and intangible
assets in 1998.

Scientific. Turnover for the Scientific segment was (pound)652 million in
1999, an increase of (pound)30 million or 5% compared to 1998. Currency
translation differences had no material impact on turnover in 1999. Turnover
from acquisitions made during 1999, principally Cell Press and the Anatomical
Chart Company, contributed (pound)14 million to the turnover increase at
constant exchange rates. Excluding 1999 acquisitions and the full year effect of
several acquisitions in 1998, of which Beilstein Database and Engineering
Information Inc. were the most significant, the increase in turnover over 1998
was 2% at constant rates of exchange.

Adjusted operating profit for the Scientific segment increased by (pound)8
million to (pound)231 million in 1999. Excluding currency translation
differences, which reduced operating profit by (pound)3 million, 1999
acquisitions and the full year effect of 1998 acquisitions, the increase in
operating profit over 1998 for the Scientific segment was 2%.

43
<PAGE>

Turnover for scientific publishing increased by 5% at constant rates of
exchange in 1999; excluding acquisitions, the increase was 2%. Adjusted
operating profit for scientific publishing excluding acquisitions increased by
4% at constant rates of exchange in 1999. Turnover growth was adversely affected
by the impact on subscription renewals of currency movements on library budgets,
particularly in Japan and continental Europe. Progress was made during the year
in the roll-out of ScienceDirect, the Internet-based scientific information
service, with approximately 25% of journal subscription revenues now covering
both print journals and the ScienceDirect service.

The medical publishing and communications businesses in 1999 reported
turnover growth of 6% at constant rates of exchange due to acquisitions.
Excluding acquisitions, turnover and adjusted operating profit fell by 1% and
12% respectively, due to some weakness in the sponsored communications business
and in France.

Legal. Turnover for the Legal segment was (pound)1,268 million in 1999, an
increase of (pound)161 million or 15% compared to 1998. Currency translation
differences increased turnover by (pound)22 million. At constant rates of
exchange the increase in turnover over 1998 for the Legal segment was 13%.
Turnover from acquisitions made during 1999, principally two small legal
publishing businesses in Argentina, contributed (pound)7 million to the turnover
increase at constant rates. Excluding 1999 acquisitions, and the full year
effect of acquisitions in 1998 (principally Matthew Bender and the remaining 50%
interest in Shepard's), the increase in turnover was 5% at constant exchange
rates.

Adjusted operating profit for the Legal segment declined by (pound)6
million or 2% to (pound)316 million in 1999, compared to (pound)322 million in
1998. Excluding currency translation differences, which increased operating
profit by (pound)5 million, 1999 acquisitions and the full year effect of 1998
acquisitions, the fall in adjusted operating profit over 1998 for the Legal
segment was 12%.

Turnover at LEXIS-NEXIS Group grew by 13% whereas adjusted operating profit
was down 8% at constant rates of exchange as significant additional investment
was made in new product development and in sales and marketing. The full year
effect of the 1998 acquisition of Matthew Bender and the remaining 50% of
Shepard's added (pound)77 million to the turnover increase. Excluding
acquisitions, the increase in turnover was 2% and adjusted operating profit fell
by 18%. The decline in adjusted operating profit reflected the combination of
low turnover growth and continued investment in new product development and in
sales and marketing. In the U.S. legal market, the LEXIS Publishing businesses
had flat turnover with growth in the large law firm market offset by weaker
revenues in other markets. The print/CD-ROM legal publishing business saw some
loss of turnover principally at Shepard's, due to heavy promotion and
discounting by a competitor as its licence to the Shepard's content expired. The
Martindale-Hubbell legal directory business reported a 12% increase in turnover.
In the online business information market, NEXIS revenues fell by 4%, reflecting
pricing pressures across the industry.

In the Reed Elsevier Legal Division, the increase in adjusted operating
profit in 1999 was 7% at constant rates of exchange, on turnover up 13%, driven
by strong performances in the U.K., France and South East Asia, together with
the impact of small acquisitions in Austria, Argentina, Australia and South
Africa.

The Reed Educational & Professional Publishing business reported an
increase in turnover and adjusted operating profit of 12% and 9% respectively at
constant exchange rates. The U.K. and U.S. Schools businesses both increased
turnover by 15%, driven by additional government funding for literacy materials
and by increased market share. Costs increased faster than turnover as
investment was made in new publishing programmes to capture market demand. The
Butterworth-Heinemann businesses reported a strong front-list in scientific,
technical and medical markets.

Business. Turnover for the Business segment was (pound)1,470 million in
1999, an increase of (pound)36 million or 3% compared to 1998. Currency
translation differences increased turnover by (pound)14 million. At constant
exchange rates, the increase in turnover over 1998 for the Business segment was
2%. Turnover from acquisitions made during 1999, principally several shows and
titles in the U.S. and Continental Europe, contributed (pound)10 million to the
turnover increase at constant exchange rates. Excluding the contribution from
1999 acquisitions, the full year effect of several acquisitions in 1998, the
most significant of which were two shows acquired from the Professional Golfers
Association of America and several computing titles in the United Kingdom, and
the impact of a number of non-core disposals, the increase in turnover was 1% at
constant rates of exchange.

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Adjusted operating profit for the Business segment declined by (pound)23
million or 9% to (pound)245 million in 1999, compared to (pound)268 million in
1998, reflecting low underlying revenue growth, particularly at Cahners, whilst
costs rose. Currency translation differences had no material impact on adjusted
operating profit in 1999. Excluding 1999 acquisitions and the full year effect
of 1998 acquisitions, the fall in adjusted operating profit over 1998 for the
Business segment was 11% at constant rates of exchange.

In U.S. business magazine publishing, Cahners' turnover was flat in 1999 at
constant rates of exchange, before a 1% reduction due to the net effect of
disposals less acquisitions. Adjusted operating profit at constant rates of
exchange declined by 40% due to a 5% increase in costs, largely reflecting the
full year effect of prior year investments made in the organisation, which had
anticipated much stronger revenue growth. Growth in the Entertainment & Media,
Building & Construction and Retail sectors was offset by revenue declines in
Manufacturing, Electronics and Travel. Although the slowdown in turnover growth
began in the second half of 1998, the degree to which this persisted into 1999
was unexpected. A major restructuring of the business took place in the second
half of 1999 to realign the cost base.

In U.K. business magazine publishing, turnover and adjusted operating
profit at Reed Business Information declined by 2% and 6% respectively at
constant exchange rates. Weakness in advertising demand, particularly in high
margin recruitment, in the first half was recovered in the second half as the
U.K. economy strengthened with the exception of the important Computer sector
which saw strong competition both in print and online. Online services
established around the core titles continued to develop in 1999 with growth in
subscriptions and advertising support. The Healthcare, Property and Social
Services sectors performed well. At OAG Worldwide, adjusted operating profit
increased by 18% in 1999 at constant exchange rates, on turnover down 6%. During
1999 good progress was made in stabilising the business with certain activities
terminated to increase profitability, and plans developed to capitalise on the
growing demand for electronic products using OAG Worldwide data. Growth in
electronic turnover was offset by the continued shift of customers from print to
online services. In February 2000 the decision to divest OAG Worldwide was
announced.

In Continental European business magazine publishing, Elsevier Business
Information (excluding Elsevier Tuition activities) increased its turnover and
adjusted operating profit by 3% and 6% respectively in 1999 at constant exchange
rates, before several small acquisitions in both 1999 and 1998, as advertising
demand in Continental Europe picked up during the year. In the Netherlands,
turnover growth was driven by the journal Elsevier and titles in the Human
Resources, General Management and Construction sectors, whilst improvements in
profitability were reported in Spain and France. The tuition activities in the
Netherlands increased turnover and adjusted operating profit by 8% at constant
rates of exchange in 1999, driven by growth from in-company and open training.
During 1999 management and development responsibility for this business was
moved to Elsevier Business Information to provide combined product focus on
targeted customer groups.

Exhibitions reported an 8% increase in turnover and an 11% increase in
adjusted operating profit in 1999 at constant exchange rates, driven by growth
in the annual trade shows, particularly in North America, and the contribution
of the PGA golf equipment and accessories shows acquired in 1998. 30 new shows
were launched in the year in North America, Europe and Asia, adding over 3
percentage points to the growth in turnover. The impact of show cycling, i.e.,
of non-annual shows, and acquisitions was broadly neutral in 1999.

At December 31, 1999 there were no significant outstanding claims under the
recompense programme announced in 1997 in respect of circulation irregularities
in the hotel directories and airline guides businesses. Settlement of agreed
claims, by cash payment or by credit, was largely completed by December 31,
1999.

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Results of Operations for the Year Ended December 31, 1998
Compared to the Year Ended December 31, 1997

General. As a result of the divestment in 1998 of the remaining consumer
publishing businesses, total turnover of Reed Elsevier fell by 7% to
(pound)3,191 million in 1998, compared to (pound)3,417 million in 1997.
Excluding the consumer publishing divestments, turnover of the continuing
businesses increased by 6% in 1998 to (pound)3,163 million. Currency translation
differences had an adverse impact in 1998, reducing turnover from the continuing
businesses by (pound)62 million. At constant rates of exchange, turnover of the
continuing businesses increased by 8% in 1998. Turnover of businesses acquired
by Reed Elsevier during 1998, the most significant of which were Matthew Bender,
the remaining 50% interest in Shepard's, Beilstein Database and Engineering
Information Inc., contributed (pound)108 million to the increase and the full
year effect of acquisitions made during 1997 contributed a further (pound)123
million at constant exchange rates. The impact of acquisitions in both years was
offset in part by a reduction in turnover as a result of certain minor non-core
disposals and the deconsolidation of Utell following its merger in December 1997
with Anasazi, Inc. to form REZsolutions, Inc. in which Reed Elsevier equity
accounts for its 67% interest in the merged business. The net effect of
acquisitions and disposals in 1997 and 1998 and the deconsolidation of Utell was
to increase turnover by (pound)116 million for the continuing businesses.
Excluding these factors, and before taking into account an 8% decline in
turnover of the Travel publishing businesses, the percentage increase in
turnover from the continuing businesses at constant exchange rates was 5%.

In 1998, 25% of the continuing businesses' turnover was derived from
advertising and advertising sales increased by 7% in 1998 over 1997 to
(pound)789 million. Subscription sales for the continuing businesses increased
by 16% to (pound)1,138 million in 1998, as compared with (pound)977 million in
1997, and accounted for 36% of turnover for continuing businesses for 1998
compared to 33% for the continuing businesses in 1997. The increase in the
relative importance of subscription sales to Reed Elsevier largely reflects the
acquisition of subscription based businesses and the migration during the year
of customers at LEXIS-NEXIS Group from transactional to subscription accounts.
As a result of this and the impact of disposals, turnover from circulation and
copy sales for the continuing businesses was (pound)630 million in 1998 as
compared with (pound)666 million in 1997. Circulation and copy sales represented
20% of turnover from continuing businesses in 1998, compared to 22% in 1997. The
most significant component of the balance was exhibitions which accounted for 9%
of turnover for continuing businesses in 1998 and 1997, generating turnover of
(pound)278 million in 1998 compared with (pound)261 million in 1997.

Operating profit was (pound)402 million in 1998, compared to (pound)94
million in 1997, an increase of (pound)308 million. The increase principally
reflects the net movement in exceptional items charged to operating profit. The
movements in the components of operating profit, being adjusted operating
profit, amortisation of goodwill and intangible assets and exceptional items
charged to operating profit are discussed below. As explained above and in note
1 to the Combined Financial Statements adjusted operating profit is presented as
an additional performance measure.

Adjusted operating profit fell by 8% to (pound)813 million in 1998,
compared to (pound)885 million in 1997. Excluding the consumer publishing
divestments, adjusted operating profit was flat compared to 1997. The
incremental contribution from 1997 and 1998 acquisitions, net of disposals, was
(pound)26 million, whereas currency translation reduced adjusted operating
profit in 1998 by (pound)14 million for the full year against 1997. The adjusted
operating profit from the Travel publishing businesses declined by (pound)34
million as a result of an 8% revenue decline and investment in operations to
position these businesses for future growth. Excluding these items, adjusted
operating profit from the continuing businesses grew by 3%. Operating margin
before exceptional items and amortisation of goodwill and intangible assets in
1998 fell by 0.4 percentage points over 1997 to 25.5%. For the continuing
businesses, operating margin before exceptional items and amortisation of
goodwill and intangible assets fell by 1.5 percentage points over 1997 to 25.7%,
due principally to the decline in adjusted operating profit at the Travel
publishing businesses.

Expenditure on major development projects in the continuing businesses,
principally in respect of new electronic products and services and related
operating systems, increased by approximately (pound)15 million to (pound)80
million in 1998, of which (pound)20 million was capitalised. These amounts do
not include the significant ongoing product renewal and expansion of sales and
marketing, editorial and production activities across the businesses.

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The results for 1998 also included amortisation of goodwill and intangible
assets of (pound)332 million, following the introduction of FRS 10 during the
1998 financial year. With retrospective application, the results for 1997 were
re-stated to include amortisation of goodwill and intangible assets of
(pound)289 million and to increase the exceptional profit on the sale of
businesses by (pound)29 million accordingly.

The results for 1998 included net exceptional gains of (pound)603 million,
comprising the net profit on the sale of IPC Magazines ((pound)692 million),
acquisition related integration costs ((pound)26 million), 1998 costs of the
Year 2000 compliance programme ((pound)53 million) and costs incurred in respect
of the abandoned merger with Wolters Kluwer ((pound)10 million). (pound)70
million was provided in respect of taxation. The results for 1997 included net
exceptional charges of (pound)448 million, comprising the cost of the programme
to recompense advertisers in relation to irregularities in circulation claims
for certain Reed Travel Group publications together with related expenses and
reorganisation costs ((pound)230 million), the non-cash write down of intangible
asset values in respect of the Reed Travel Group ((pound)250 million),
acquisition related integration costs ((pound)11 million), 1997 costs of the
Year 2000 compliance programme ((pound)11 million), net profit on the sale of
certain non-core businesses ((pound)57 million) and costs incurred in respect of
the abandoned merger with Wolters Kluwer ((pound)3 million). The net tax credit
thereon amounted to (pound)115 million. Further details are set out in note 6 to
the Combined Financial Statements.

Profit on ordinary activities before interest was (pound)1,084 million in
1998, compared to (pound)148 million in 1997, an increase of (pound)936 million
reflecting the net movement on exceptional items and amortisation of goodwill
and intangible assets. Net interest expense fell to (pound)40 million in 1998,
compared to (pound)62 million in 1997. This reflected the impact of a strong
free cash flow and net exceptional receipts from disposals at the beginning of
the year, offset in part by acquisition spending during the second half of 1998
and exceptional item payments. Net interest cover, the number of times that
adjusted operating profit before interest covers net interest expense, was 20
times in 1998, which compared to 14 times in 1997.

Profit on ordinary activities before taxation was (pound)1,044 million in
1998 as compared with (pound)86 million in 1997. On an adjusted basis, excluding
the effect the amortisation of goodwill and intangible assets and exceptional
items, profit before taxes was (pound)773 million in 1998, compared to
(pound)823 million in 1997, a reduction of (pound)50 million or 6%. The adjusted
figures exclude the amortisation of goodwill and intangible assets of, in 1998,
(pound)332 million and, in 1997, (pound)289 million, and the net exceptional
pre- tax items of, in 1998, (pound)603 million (profit) and, in 1997, (pound)448
million (loss). Compared with 1997, on translation of earnings, the
strengthening of sterling reduced adjusted profit before tax and minority
interests by (pound)14 million. At constant exchange rates adjusted profit
before tax and minority interests was (pound)787 million in 1998, a reduction of
(pound)36 million or 4%.

The adjusted profit before tax, at reported rates reduced 1% in the first
half of 1998, when compared with the corresponding prior year period, and 11% in
the second half. The first half comparison benefited from more favourable
economic and market conditions than in the second half and from phasing,
particularly in relation to exhibition cycling and the timing of investments in
the cost base.

The effective tax rate on adjusted operating profit for Reed Elsevier
remained at 26.0% in 1998. This rate is lower than the standard rates in Reed
Elsevier's major operating territories due mainly to the tax amortisation of
acquired intangible assets (predominantly in the United States) and beneficial
features of the Reed Elsevier legal structure.

Profit attributable to parent companies' shareholders for 1998 was
(pound)772 million, compared to an attributable net loss of (pound)14 million in
1997. Adjusted profit attributable, excluding the amortisation of goodwill and
intangible assets, exceptional items and related tax effects, was (pound)571
million in 1998, compared to (pound)608 million in 1997, which represents a
decrease of (pound)37 million or 6%. At constant exchange rates the reduction in
adjusted profit attributable was 5%.

In 1998, U.S. GAAP net income was (pound)398 million, compared with net
income of (pound)43 million in 1997, an increase of (pound)355 million,
reflecting the factors discussed above together with offset by the one-off
amortisation charge following the re-evaluation under U.S. GAAP of the useful
lives of goodwill and intangible assets in 1998.

Scientific. Turnover for the Scientific segment was (pound)622 million in
1998, an increase of (pound)51 million or 9% compared to 1997. Currency
translation differences reduced turnover by (pound)11 million, giving an
increase in turnover over 1997 of 11% at constant exchange rates. Turnover from
acquisitions made during 1998, principally Beilstein Database and Engineering
Information Inc., contributed (pound)21 million to the turnover increase at
constant exchange rates. Excluding 1998 acquisitions and the full year effect of
several acquisitions in 1997, of which MDL Information Systems was the most
significant, the increase in turnover over 1997 was 5% at constant rates of
exchange.

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<PAGE>

Adjusted operating profit for the Scientific segment declined by (pound)7
million to (pound)223 million in 1998. Excluding currency translation
differences, which reduced operating profit by (pound)4 million, the reduction
in operating profit over 1997 was 1%.

Turnover for scientific publishing increased by 12% at constant rates of
exchange in 1998; excluding acquisitions, the increase was 6%. Adjusted
operating profit for scientific publishing was slightly lower at constant
exchange rates in 1998, driven by a lower rate of underlying revenue growth than
in the prior year as a result of lower journal subscriptions from Asia, due to
the economic crisis in the region, together with continued investment in both
existing and acquired businesses. This included the expansion of the sales and
marketing activities to support the launch of electronic publishing initiatives,
notably ScienceDirect, as well as the cost of the related production systems.
The recently acquired electronic publishing businesses continued their
development activities by expanding their online services and libraries for
specific scientific communities.

The medical publishing and communications businesses in 1998 reported
turnover growth of 5% at constant rates of exchange but no increase in
underlying adjusted operating profit. Good growth in medical publishing in
France and sponsored communications in the U.S. was offset by a more difficult
market for the nursing titles. Adjusted operating profit was down on 1997 due to
relocations and other one-off costs in the Netherlands.

Legal. Turnover for the Legal segment was (pound)1,107 million in 1998, an
increase of (pound)74 million or 7% compared to 1997. Currency translation
differences reduced turnover by (pound)25 million. At constant rates of exchange
the increase in turnover over 1997 for the Legal segment was 10%. Turnover from
acquisitions made during 1998, principally Matthew Bender, a leading publisher
of analytical legal information in the United States, and the remaining 50%
interest in Shepard's, the leading U.S. legal citation service, contributed
(pound)68 million to the turnover increase at constant rates. Excluding 1998
acquisitions, the full year effect of several acquisitions in 1997 (principally
in the U.S. and French legal markets) and the impact of the disposal of
Heinemann English Language Teaching at the end of 1997, the increase in turnover
was 4% at constant exchange rates.

Adjusted operating profit for the Legal segment increased by (pound)33
million or 11% to (pound)322 million in 1998, compared to (pound)289 million in
1997. Excluding currency translation differences, which reduced operating profit
by (pound)6 million, the increase in adjusted operating profit over 1997 for the
Legal segment was 14%.

Turnover and adjusted operating profit at LEXIS-NEXIS Group grew by 13% and
15% respectively at constant exchange rates in 1998. The acquisition of Matthew
Bender and the remaining 50% of Shepard's, acquired in August 1998, added
(pound)60 million to turnover and (pound)22 million to adjusted operating
profit. Excluding these and other acquisitions, the increase in turnover and
adjusted operating profit was 3% and 5% respectively. Strong revenue growth was
reported from the print/CD-ROM legal publishing business, National Register
Publishing, Marquis and LEXIS Document Services. This was partly offset by a
lower rate of growth in the online business, due to stronger competition in both
the U.S. legal and business information markets, the development and launch of
new web-based products, investment in sales and marketing and in the operational
infrastructure of the business, as well as phasing at Martindale-Hubbell.

In the Reed Elsevier Legal Division, the increase in adjusted operating
profit in 1998 was 8% at constant rates of exchange, on turnover up 6% at
constant rates of exchange to (pound)207 million, driven by strong performances
in the U.K., France and Australia. In the U.K., growth in turnover was modest,
reflecting some pressure on subscription renewals. Adjusted operating profit
benefited from the absence of 1997's one-off costs, partly offset by the
development and launch costs of the Butterworths Direct online service.

The Reed Educational & Professional Publishing businesses reported a 5%
decrease in turnover at constant exchange rates, reflecting the disposal of the
Heinemann English Language Teaching business at the end of 1997, and an increase
in adjusted operating profit of 25% at constant rates of exchange. Excluding
acquisitions and disposals, the increases were 8% and 25% respectively. Growth
in the U.K. schools business was driven by the additional government funding for
literacy materials and the removal of one off costs incurred in 1997 in respect
of the transfer to third party distribution arrangements. Rigby and Greenwood
Heinemann in the United States increased adjusted operating profit through new
publishing programmes and sales initiatives.

Business. Turnover for the Business segment was (pound)1,434 million in
1998, an increase of (pound)51 million or 4% compared to 1997. Currency
translation differences reduced turnover by (pound)26 million. At constant
exchange rates, the increase in turnover over 1997 for the Business segment was
5%. Turnover from acquisitions made during 1998, principally two golf equipment
and accessories shows acquired from the Professional Golfers Association of
America ("PGA") and several computing titles purchased from Dennis Publishing in
the United Kingdom, contributed (pound)19 million to the turnover increase at
constant exchange rates. The contribution from 1998 acquisitions and the full
year effect of several acquisitions in 1997, the most significant of which were

48
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the Chilton Business Group and Editions Prat, was offset in part by the impact
of a number of non-core disposals, in particular the U.S. computer titles and
trade shows sold at the end of 1997, and the deconsolidation of Utell.

Adjusted operating profit for the Business segment declined by (pound)25
million to (pound)268 million in 1998 compared to (pound)293 million in 1997.
Excluding currency translation differences, which reduced adjusted operating
profit by (pound)4 million, the reduction in operating profit over 1997 for the
Business segment was 8%.

In U.S. business magazine publishing, Cahners Business Information,
excluding Cahners Travel Group, increased its turnover and adjusted operating
profit by 16% and 10% respectively in 1998 at constant exchange rates. On a
comparable basis, taking into account the Chilton titles on a pro forma basis
for 1997, turnover grew by 6%, driven by growth in sectors such as Broadcasting,
Communications, Printing & Packaging and Manufacturing. Turnover growth slowed
in the second half of 1998 in some other markets, such as Building &
Construction, Electronics and the Bowker directories. Excluding acquisitions and
disposals, adjusted operating profit was flat due to the investments made in the
editorial, production and sales infrastructures. For Cahners Travel Group, which
consists of the hotel directories and travel periodicals of the former Reed
Travel Group, turnover declined by 10%, partly due to moving the hotel
directories to a controlled circulation basis, whilst adjusted operating profit
declined by 68% at constant exchange rates in 1998 as investment was made in the
operational cost base. The recompense programme, provided for in 1997, for
advertisers affected by the circulation irregularities in the hotel directories
neared completion.

In U.K. business magazine publishing, Reed Business Information, excluding
OAG Worldwide, increased its turnover and adjusted operating profit by 6% in
1998 at constant exchange rates. This reflected strong advertising growth across
the U.K. portfolio (particularly in recruitment advertising which accounted for
(pound)59 million of turnover), including the Aerospace, Social Services,
Catering and Property titles, although some slowing was seen in the second half
of the year due to an overall weakening of U.K. economic conditions. For OAG
Worldwide, which consists of the airline guides of the former Reed Travel Group,
turnover and adjusted operating profit declined by 7% and 58% respectively at
constant exchange rates in 1998. Hard copy circulation sales and marketing
connection listing fees were lower and further investment was made in the
operational cost base to address the decline in turnover. The recompense
programme, provided for in 1997, for advertisers affected by the circulation
irregularities in the airline guides neared completion.

In Continental European business magazine publishing, Elsevier Business
Information increased its turnover and adjusted operating profit by 22% and 31%
respectively in 1998 at constant exchange rates, including the acquisition of
Editions Prat in 1997 and several smaller acquisitions in both 1998 and 1997.
Excluding acquisitions, growth in turnover and adjusted operating profit was 9%
and 15% at constant rates of exchange respectively, despite increased investment
in new products and infrastructure, reflecting particularly good growth in the
Netherlands and improved profitability in France and Germany. The tuition
activities in the Netherlands increased turnover and adjusted operating profit,
excluding acquisitions, by 9% and 11% respectively at constant rates of exchange
in 1998, with buoyant demand for training courses and in-company projects.

Exhibitions reported a 9% increase in turnover and an 8% increase in
adjusted operating profit in 1998 at constant exchange rates, driven by growth
from annual shows in North America and Europe and a favourable impact of
cycling, including the biennial Asian Aerospace show. The Asian economic crisis
resulted in lower turnover and adjusted operating profit in that region as shows
were either reduced in size or cancelled. Demand from Asia in shows in Europe
and North America was also affected. The additional contribution to adjusted
operating profit from several acquisitions in 1998, including the PGA golf
equipment and accessories shows in the United States, was offset by the loss of
turnover and operating profit from the disposal of the U.S. computer shows at
the end of 1997.

Consumer-Discontinued operations. Turnover for the discontinued operations
was (pound)28 million in 1998, a reduction from (pound)430 million in 1997,
reflecting the disposal of IPC Magazines at the start of 1998 and of the
remaining consumer book publishing activities.

Liquidity and Capital Resources

Reed Elsevier businesses focus on adjusted operating cash flow as the key
cash flow measure. Reed Elsevier's adjusted operating cash flow in the years
ended December 31, 1999, 1998 and 1997 amounted to (pound)780 million,
(pound)808 million and (pound)862 million. In each of these years the adjusted
operating cash flow conversion was, respectively, 98%, 99% and 97%. Adjusted
operating cash flow is measured after dividends from joint ventures, tangible
fixed asset spend and proceeds from the sale of fixed assets but before
operating exceptional payments and proceeds. Adjusted operating cash flow
conversion expresses adjusted operating cash flow as a percentage of adjusted
operating profit.

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Reed Elsevier generates significant cash flows as its principal businesses
do not require major fixed or working capital investments. Working capital
requirements are negative overall, due to the substantial proportion of revenues
received through subscription and similar advanced receipts, principally for
scientific journals and exhibition fees. Trading working capital amounted to
(pound)394 million net liabilities at December 31, 1999 and (pound)424 million
net liabilities at December 31, 1998. Subscriptions and other revenues in
advance represented (pound)583 million and (pound)570 million, respectively, of
these totals. Capital expenditure principally relates to computer equipment and,
increasingly, investment in systems infrastructure to support electronic
publishing activities. Expenditure amounted to (pound)137 million, (pound)151
million and (pound)121 million in the years ended December 31, 1999, 1998 and
1997, respectively. The lower spend in 1999 in part reflects the completion of
spend on replacement systems ahead of the millennium date change.

During 1999, Reed Elsevier paid a total of (pound)166 million for
acquisitions including net (pound)5 million deferred payments in respect of
acquisitions made in prior years. The largest acquisition in 1999 was Cell
Press, Inc.. All payments were financed by net cash inflow from operating
activities, available cash resources and commercial paper borrowings.
Exceptional net outflows of (pound)61 million were paid in 1999, comprising
amounts paid in respect of reorganisation costs, acquisition integration costs,
Year 2000 compliance and the Reed Travel Group recompense plans less exceptional
tax repayments.

During 1998, Reed Elsevier paid a total of (pound)1,232 million for
acquisitions, including (pound)14 million deferred payments in respect of
acquisitions made in prior years. The largest acquisitions in 1998 were of
Matthew Bender and the remaining 50% interest in Shepard's, for $1.65 billion
((pound)1.0 billion). All payments were financed by net cash inflow from
operating activities, available cash resources and borrowings. Exceptional net
inflows of (pound)647 million were received in 1998, comprising the net proceeds
from the disposal of the remaining consumer publishing businesses, offset by
amounts paid in respect of acquisition integration costs, Year 2000 compliance,
the Reed Travel Group recompense plans and the abandoned merger with Wolters
Kluwer.

At December 31, 1999, Reed Elsevier had short term investments and cash of
(pound)440 million. At that date, Reed Elsevier also had short term borrowings
of (pound)1,129 million and long term borrowings of (pound)377 million. The
short term investments and cash were held mainly in U.S. dollars, sterling and
euro while the short term borrowings were denominated mainly in U.S. dollars and
euro and the long term borrowings were denominated mainly in U.S. dollars. The
level of U.S. dollar borrowings is consistent with Reed Elsevier's policy of
borrowing in those currencies where significant exchange translation exposure
exists and to provide a structural hedge for the income realised from the U.S.
businesses. Significant external borrowings by any of the entities within Reed
Elsevier are generally guaranteed jointly and severally by Reed International
and Elsevier. During 1999 a maturing $200 million ((pound)123 million) Eurobond,
$20 million ((pound)12 million) of maturing privately placed medium term notes,
Dfl125 million ((pound)37 million) of maturing privately placed bonds and Dfl13
million ((pound)4 million) of convertible loan stock were redeemed.

Short term borrowings consist principally of $392 million ((pound)242
million) of short term notes issued under Reed Elsevier Inc.'s U.S. commercial
paper programme, $54 million ((pound)33 million) of short term notes, issued
under Reed Elsevier Inc.'s U.S. extendible commercial notes programme and $805
million ((pound)498 million) and e208 million ((pound)129 million) of short term
notes issued under the euro commercial paper programmes of the ERF subsidiaries,
Elsevier Finance SA and Elsevier Properties SA, all of which are supported by
committed credit facilities and centrally managed cash and short term
investments. The balance of short term borrowings consists of bank borrowings
and loan stock maturing within the next twelve months. As of December 31, 1999,
Reed Elsevier had available committed multicurrency facilities totalling $1
billion ((pound)617 million). Of these facilities $360 million ((pound)222
million) matures within one year and $640 million ((pound)395 million) had a
remaining maturity in excess of 4 years, of which (pound)46 million was utilised
by way of letters of credit which support short term borrowings.

At December 31, 1999, Reed Elsevier plc's subsidiary, Reed Elsevier Inc.,
had the following term debt, jointly and severally guaranteed by Reed
International and Elsevier: $100 million ((pound)62 million) privately placed
notes maturing in 2000, $125 million ((pound)77 million) privately placed notes
maturing in 2003 and $150 million ((pound)93 million) privately placed notes
maturing in 2023. At December 31, 1999, Reed Elsevier plc's subsidiary, Reed
Elsevier Capital, Inc., had outstanding $150 million ((pound)93 million) of
public notes maturing in 2000, $150 million ((pound)93 million) of public notes
maturing in 2005 and $150 million ((pound)93 million) of public debentures
maturing in 2025, all of which debt is fully, unconditionally jointly and
severally guaranteed by Reed International and Elsevier. At December 31, 1999,
the weighted average maturity of Reed Elsevier plc's long term gross debt was 10
years.

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REED INTERNATIONAL

The following discussion is based on the consolidated financial statements
of Reed International for the three years ended December 31, 1999. The
consolidated financial statements have been prepared in accordance with U.K.
GAAP, which differs in certain significant respects from U.S. GAAP. The
differences are set out in note 17 to the consolidated financial statements of
Reed International included in this Annual Report. Per share amounts have been
restated to take account of the two for one share subdivision which became
effective on May 2, 1997.

The loss attributable to ordinary shareholders for Reed International was
(pound)39 million for the year ended December 31, 1999, compared to a profit of
(pound)396 million for the year ended December 31, 1998 and a loss of (pound)27
million for the year ended December 31, 1997. This represents a decrease over
the prior year of (pound)435 million (1998: (pound)423 million increase). The
movement principally reflects Reed International's share of the Combined
Businesses' exceptional items. Basic earnings per Reed International Ordinary
Share for the years ended December 31, 1999, 1998 and 1997 were 3.4 pence
(loss), 34.7 pence and 2.4 pence (loss), respectively. The financial statements
of Reed International reflect Reed International's status as a holding company.
Reed International's 50% direct interest in the Combined Businesses and its 5.8%
indirect interest in Elsevier are accounted for on a gross equity basis. A full
discussion of the operating results of the Combined Businesses is set out under
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations -- Reed Elsevier."

The profit/(loss) attributable to ordinary shareholders for Reed
International for the years ended December 31, 1999, 1998 and 1997 comprises 50%
of the attributable profit/(loss) of the Combined Businesses and 5.8% of
Elsevier's attributable profit/(loss) less a dividend equalisation adjustment.
Under arrangements established at the time of the Merger, dividends paid to Reed
International and Elsevier shareholders are equalised at the gross level,
inclusive of the benefits of the U.K. tax credit received by certain Reed
International shareholders. An adjustment is required in the statutory accounts
of Reed International to equalise the benefit of the tax credit between the two
sets of shareholders of Reed International and of Elsevier in accordance with
the equalisation agreement. This equalisation adjustment arises only on
dividends paid by Reed International to its shareholders and it reduces the
statutory attributable earnings of Reed International by 47.1% of the amount of
the tax credit. In the financial years 1999, 1998 and 1997 this amounted to
(pound)6 million, (pound)12 million and (pound)20 million respectively.

Reed International's consolidated shareholders' funds at December 31, 1999
and December 31, 1998 were (pound)981 million and (pound)1,127 million,
respectively. These amounts principally represent Reed International's 50% share
of shareholders' equity of the Reed Elsevier combined businesses plus the 5.8%
share of Elsevier's shareholders' equity. The decrease in shareholders' equity
at December 31, 1999 principally reflects Reed International's share in the
Combined Businesses' retained loss for the 1999 year.

In respect of the financial years 1999, 1998 and 1997, Reed International
declared a total dividend, net of the associated U.K. tax credit, of 10.0 pence
(including the 5.4 pence final dividend to be proposed at the 2000 Annual
General Meeting in April), 15.0 pence and 14.6 pence, respectively, per Reed
International Ordinary Share. The equivalent gross dividends, including the
associated U.K. tax credit, were 11.1 pence, 17.3 pence and 18.25 pence for the
years ended December 31, 1999, 1998 and 1997, respectively.

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<PAGE>

ELSEVIER

The following discussion is based on the financial statements of Elsevier
for the three years ended December 31, 1999. The financial statements have been
prepared in accordance with Dutch GAAP, which differ in certain significant
respects from U.S. GAAP. The differences are set out in note 12 to the financial
statements of Elsevier included in this Annual Report.

The loss attributable to ordinary shareholders for Elsevier was e48 million
for the year ended December 31, 1999 compared to a profit e574 million for the
year ended December 31, 1998 and a loss of e10 million for the year ended
December 31, 1997. This represents a decrease over the prior year of e622
million (1998: e584 million increase). The movement principally reflects
Elsevier's share of the Combined Businesses' exceptional items. Earnings per
Elsevier Ordinary Share for the years ended December 31, 1999, 1998 and 1997
were e0.07 (loss), e0.81 and e0.01 (loss) respectively.

The profit/(loss) attributable to ordinary shareholders represents
Elsevier's 50% share in the profit/(loss) attributable of the Combined
Businesses, translated into euro at the average rate for 1999 of e1.52 per
(pound)1.00 (1998: e1.488 per (pound)1.00; 1997: e1.45 per (pound)1.00). These
exchange rates are based on the average of the daily closing rates throughout
the year. The financial statements of Elsevier reflect Elsevier's status as a
holding company. Elsevier's 50% interest in the Combined Businesses is accounted
for on an equity basis. A full discussion of the operating results of the
Combined Businesses is set out under "Management's Discussion and Analysis of
Financial Conditions and Results of Operations -- Reed Elsevier".

Elsevier's shareholders' funds at December 31, 1999 and December 31, 1998
were e1,493 million and e1,512 million, respectively. These amounts principally
represent Elsevier's 50% share of the shareholders' equity of the Combined
Businesses, translated into euro at the appropriate period end exchange rates.
These rates were e1.61 per (pound)1.00 at December 31, 1999 (1998: e1.42 per
(pound)1.00). The decrease in shareholders' equity at December 31, 1999 reflects
Elsevier's share of the Combined Businesses' retained loss for the 1999 year
offset by favourable exchange translation differences.

In respect of the financial years 1999, 1998 and 1997, Elsevier declared
dividends payable per Elsevier Ordinary Share of e0.27, e0.39 and e0.43. Under
the terms of an agreement entered into at the time of the Merger, Reed
International and Elsevier both agreed to pay equivalent gross dividends, taking
into account and including, in the case of Reed International, the associated
U.K. tax credit. The 1999 dividend per Elsevier Ordinary Share was, therefore,
equivalent to the Reed International gross dividend on 1.538 of a Reed
International Ordinary Share translated at e1.50 per (pound)1.00 in respect of
the interim dividend and e1.62 per (pound)1.00 in respect of the final dividend,
being the average exchange rates over the period of five business days
commencing with the tenth business day prior to the respective announcements.

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<PAGE>

ITEM 9A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

REED ELSEVIER

Reed Elsevier's primary market risk exposures are to interest rate
fluctuations and to exchange rate movements. Net interest expense is exposed to
interest rate fluctuations on borrowings, cash and short term investments.
Upward fluctuations in interest rates increase the interest cost of floating
rate borrowings whereas downward fluctuations in interest rates decrease the
interest return on floating rate cash deposits and short term investments. Fixed
rate borrowings are protected against upward fluctuations in interest rates but
do not benefit from downward fluctuations. In addition, Reed Elsevier companies
engage in foreign currency denominated transactions and are subject to exchange
rate risk on such transactions.

Reed Elsevier seeks to limit these risks by means of financial instruments,
including interest rate swaps, forward rate agreements and forward foreign
exchange contracts. Reed Elsevier only enters into financial instruments to
hedge (or reduce) the underlying risks described above, and therefore has no net
market risk on financial instruments held at the end of the year. Reed Elsevier
does, however, have a credit risk from the potential non-performance by the
counterparties to these financial instruments, which are unsecured. The amount
of this credit risk is normally restricted to the amount of the hedge gain and
not the principal amount being hedged. This credit risk is controlled by means
of regular credit reviews of these counterparties and of the amounts outstanding
with each of them. Reed Elsevier does not anticipate non-performance by the
counterparties, which are principally licensed commercial banks and investment
banks with strong long term credit ratings.

Reed Elsevier enters into interest rate swaps and forward rate agreements
to hedge the effects of fluctuating interest rates on borrowings, cash and short
term investments. Interest rate swaps and forward rate agreements limit the
risks of fluctuating interest rates by allowing Reed Elsevier to fix the
interest rate on a notional principal amount equal to the principal amount of
the underlying floating rate cash, short term investments or borrowings being
hedged. Since Reed Elsevier has significant borrowings in U.S. dollars, the
substantial majority of the interest rate swaps on which fixed interest is paid
are denominated in U.S. dollars. To hedge the interest exposure associated with
Reed Elsevier's sterling assets, a significant proportion of the interest rate
swaps and forward rate agreements on which fixed interest is received are
denominated in sterling. Reed Elsevier's policy is to fix the interest rates on
its cash, short term investments and borrowings when the combination of Reed
Elsevier's funding profile and interest exposures make such transactions
appropriate.

Forward swaps and forward rate agreements are entered into to hedge
interest rate exposures known to arise at a future date. These exposures may
include new borrowings or cash deposits and short-term investments to be entered
into at a future date or future rollovers of existing borrowings or cash
deposits and short-term investments. Interest exposure arises on future new and
rollover borrowings, cash deposits and short-term investments because interest
rates can fluctuate between the time a decision is made to enter into such
transactions and the time those transactions are actually entered into. The
business purpose of forward swaps and forward rate agreements is to fix the
interest cost on future borrowings or interest return on cash investments at the
time it is known such a transaction will be entered into. The fixed interest
rate, the floating rate index (if applicable) and the time period covered by
forward swaps and forward rate agreements are known at the time the agreements
are entered into. The use of forward swaps and forward rate agreements is
limited to hedging activities; consequently no trading position results from
their use. The impact of forward swaps and forward rate agreements is the same
as interest rate swaps. Similarly, Reed Elsevier utilises forward foreign
exchange contracts to hedge the effects of exchange rate movements on its
foreign currency turnover and operating costs. Financial instruments are
utilised to hedge (or reduce) the risks of interest rate or exchange rate
movements and are not entered into unless such risks exist. Financial
instruments utilised, while appropriate for hedging a particular kind of risk,
are not considered specialised or high-risk and are generally available from
numerous sources.

The following analysis sets out the sensitivity of the fair value of Reed
Elsevier's financial instruments to selected changes in interest rates and
exchange rates. The range of changes represents Reed Elsevier's view of the
changes that are reasonably possible over a one year period. Fair values
represent the present value of forecast future cash flows at the assumed market
rates.

The market values for interest rate and foreign currency risks are
calculated by the use of an "off the shelf" software model which utilises
standard pricing models to determine the present value of the instruments based
on the market conditions being variously interest rates and spot and forward
exchange rates, as of the valuation date.

Reed Elsevier's use of financial instruments and its accounting policies
for financial instruments are described more fully in Note 2 and Note 21 to the
Combined Financial Statements.

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<PAGE>

(a) Interest Rate Risk

The following sensitivity analysis assumes an immediate 100 basis point
change in interest rates for all currencies and maturities from their levels at
December 31, 1999, with all other variables held constant.

Market Value Change
Favourable/(Unfavourable)
------------------------------------------
Fair Value +100 basis -100 basis
Financial Instrument December 31, 1999 points points
- -------------------- ----------------- --------- ---------
(in(pound)millions)
Long term debt
(including current portion) ....... (527) 25 (28)
Short term debt .................... (959) 1 (1)
Interest rate swaps ................ 14 16 (17)
Forward rate agreements ............ -- (1) 1
41 (45)

A 100 basis point change in interest rates would not result in a material
change to the fair value of other financial instruments such as cash, short term
investments or other financial assets and liabilities.

The substantial majority of borrowings are either fixed rate or have been
fixed through the use of interest rate swaps. In addition, a significant
proportion of cash and short term investments is hedged throughout 2000. A 100
basis point reduction in interest rates would result in a decrease in net
interest expense of (pound)3 million, based on the composition of financial
instruments including cash, short term investments, bank loans and commercial
paper borrowings at December 31, 1999. A 100 basis points rise in interest rates
would increase net interest expense by (pound)3 million.

(b) Foreign Currency Exchange Rate Risks

The following sensitivity analysis assumes an immediate 10% change in all
foreign currency exchange rates against sterling from their levels at December
31, 1999, with all other variables held constant. A +10% change indicates a
strengthening of the currency against sterling and a --10% change indicates a
weakening of the currency against sterling.

Market Value Change
Favourable/(Unfavourable)
------------------------------------------
Fair Value +100 basis -100 basis
Financial Instrument December 31, 1999 points points
- -------------------- ----------------- --------- ---------
(in(pound)millions)
Long term debt
(including current portion) ....... (527) (58) 47
Short term debt .................... (959) (107) 88
Cash and short term investments .... 440 25 (20)
Interest rate swaps ................ 14 2 (1)
Forward foreign currency contracts . (7) (22) 17
Other financial assets ............. 39 2 (1)
Other financial liabilities ........ (89) (9) 8
(167) 138

A 10% change in foreign currency exchange rates would not have a material
change to the fair value of other financial instruments such as forward rate
agreements.

54
<PAGE>

ITEM 10: DIRECTORS AND OFFICERS OF REGISTRANTS

REED ELSEVIER

For information with respect to the Board of Directors of Reed Elsevier plc
and the Boards of Elsevier Reed Finance BV, see "Control of Registrants -- Reed
Elsevier".

During 1999 Reed International, Elsevier and Reed Elsevier plc introduced a
unitary management structure of a single non-executive Chairman, a sole Chief
Executive Officer and, so far as practicable, the same directors for all three
companies. This was a logical evolution of the management structure in place
since the Merger, under which the day to day management of the jointly owned
businesses of Reed Elsevier plc had been under the control of an Executive
Committee of the Board of Reed Elsevier plc.

REED INTERNATIONAL

Under the governance arrangements approved by the shareholders of Reed
International and Elsevier, as part of the new unitary management structure
implemented during 1999, there shall be no less than three and no more than five
executive directors, and six non-executive directors. A person may only be
appointed or proposed or recommended for appointment to the board if that person
has been nominated for that appointment by the joint Nominations Committee of
Reed International and Elsevier. Persons nominated by the joint Nominations
Committee will be required to be approved by the Reed International Board, prior
to the appointment to the Reed International Board.

Notwithstanding the provisions outlined above in relation to the
appointment to the board, Reed International shareholders retain their rights
under Reed International's Articles of Association to appoint directors to the
Reed International Board by ordinary resolution. Reed International shareholders
may also by ordinary resolution remove a director from the Board of Reed
International, and in such circumstances that director will also be required to
be removed or resign from the Boards of Elsevier and Reed Elsevier plc (except
in circumstances where there has been a change of control of Reed International
and not Elsevier).

Each director on the Reed International Board is required to retire by
rotation at least every three years.

The Reed International Board has established an Audit Committee, comprising
three non-executive directors. The joint Nominations Committee comprises the
Chairman, the Chief Executive Officer and one non-executive director from each
of Reed International and Elsevier.

ELSEVIER

Under the governance arrangements approved by the shareholders of Reed
International and Elsevier, as part of the new unitary management structure
implemented during 1999, there shall be no less than three and no more than five
members of the Executive Board, and no less than six and no more than eight
members of the Supervisory Board. A person may only be appointed or proposed or
recommended for appointment to the boards if that person has been nominated for
that appointment by the joint Nominations Committee of Reed International and
Elsevier. Persons nominated by the joint Nominations Committee will be required
to be approved by the Elsevier Combined Board prior to appointment to the
Elsevier Executive or Supervisory Board and by Elsevier shareholders.

Notwithstanding the provisions outlined above in relation to the
appointment to the Board, Elsevier shareholders retain their rights under
Elsevier's Articles of Association to appoint directors to the Elsevier Boards
by ordinary resolution if such appointment has been proposed by the Elsevier
Combined Board and, if such appointment has not, by an ordinary resolution of
shareholders requiring a majority of at least two-thirds of the votes cast if
less than one half of Elsevier's issued share capital is represented. Elsevier
shareholders may also by ordinary resolution remove a director from the Board of
Elsevier, and in such circumstances that director will also be required to be
removed or resign from the Boards of Reed International and Reed Elsevier plc
(except in circumstances where there has been a change of control of Elsevier
and not Reed International).

Each director on the Elsevier Executive and Supervisory Boards is required
to retire by rotation at least every three years.

The Elsevier Supervisory Board has established an Audit Committee,
comprising three members of the Elsevier Supervisory Board. The joint
Nominations Committee comprises the Chairman, the Chief Executive Officer and
one non-executive director from each of Reed International and Elsevier.

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<PAGE>

DIRECTORS AND OFFICERS

The directors and executive officers of each of Reed International,
Elsevier, Reed Elsevier plc and Elsevier Reed Finance BV at February 23, 2000
were:

Elsevier Reed
Name (Age) Reed International Elsevier Reed Elsevier plc Finance BV
- ---------- ------------------ -------- ----------------- ----------
<S> <C> <C> <C> <C>
Cornelis Alberti (63) Managing Director

Mark Armour (45) Chief Financial Officer Member of the Executive Chief Financial Member of the
Board and Chief Officer Supervisory Board
Financial Officer

Willem Boellaard (69) Managing Director

John Brock (51) Non-executive Director Member of the Non-executive
Supervisory Board Director(2)(4)

Crispin Davis (50) Chief Executive Member of the Executive Chief Executive
Officer(3) Board and Chief Officer(4)
Executive Officer(3)

Jules Van Dijck (63) Member of the Member of the
Supervisory Board Supervisory Board

Derk Haank (46) Executive Director Executive Director

Otto ter Haar (70) Member of the Member of the
Supervisory Board Supervisory Board

Onno Laman Trip (53) Executive Director

Roelof Nelissen (68) Non-executive Member of the Non-executive Chairman of the
Director(1) Supervisory Board(1) Director(1)(2) Supervisory Board

Steven Perrick (51) Non-executive Director Member of the Non-executive
(1)(3) Supervisory Board(1)(3) Director(1)

Dr. Rolf Stomberg (59) Non-executive Member of the Non-executive
Director(3) Supervisory Board(3) Director(2)

Morris Tabaksblat (62) Non-executive Chairman of the Non-executive
Chairman(3) Supervisory Board(3) Chairman(4)

David Webster (55) Non-executive Member of the Non-executive
Director(1) Supervisory Board(1) Director(1)(4)

Erik Ekker (51) Company Secretary Legal Director
(Continental Europe)

Mark Radcliffe (53) Company Secretary Company Secretary
- ------------
</TABLE>

(1) Member of the Audit Committees of the Boards of Reed International,
Elsevier and Reed Elsevier plc.

(2) Member of the Remuneration Committee of the Board of Reed Elsevier plc.

(3) Member of the joint Nominations Committee of the Boards of Reed
International and Elsevier.

(4) Member of the Strategy Committee of the Board of Reed Elsevier plc.

A person described as a non-executive Director of Reed International or
Reed Elsevier plc or a member of the Supervisory Board of Elsevier is a director
not employed by such company in an executive capacity.

Mr Alberti has been Managing Director of Elsevier Reed Finance BV since the
Merger. He was an executive Director of Reed Elsevier plc from the Merger until
December 1996. He joined Elsevier in 1978 and was a member of the Executive
Board of Elsevier from 1984 until 1999.

Mr Armour was appointed Finance Director of Reed International and Chief
Financial Officer of Reed Elsevier plc in July 1996, having been Deputy Chief
Financial Officer of Reed Elsevier plc since February 1995. He was appointed
Chief Financial Officer of Reed International and Elsevier in April 1999. He

56
<PAGE>

became a member of the Supervisory Board of Elsevier Reed Finance BV in December
1998. He was previously a partner in Price Waterhouse.

Mr Boellaard was appointed a Managing Director of Elsevier Reed Finance BV
in December 1998. He joined Reed International in 1990.

Mr Brock was appointed a non-executive director of Reed Elsevier plc and
Reed International and a member of the Supervisory Board of Elsevier in April
1999. He is a director of Cadbury Schweppes plc and Chief Executive Officer of
its Global Beverages Stream.

Mr Davis became Chief Executive Officer of Reed Elsevier plc, Reed
International and Elsevier in September 1999. He was previously Chief Executive
Officer of Aegis Group plc from 1994 to 1999.

Mr van Dijck has been a member of the Supervisory Board of Elsevier since
1984 and was appointed a member of the Supervisory Board of Elsevier Reed
Finance BV in June 1999. He will retire from these appointments following the
Elsevier Annual General Meeting in April 2000. He is professor of Industrial and
Organisational Sociology at the University of Tilburg. Mr van Dijck is a member
of the Supervisory Boards of ABN AMRO Bank NV, Hoechst Holland NV and Dutch
Philips Industries NV.

Mr Haank was appointed an executive director of Reed Elsevier plc and Reed
International in November 1999. He has been Chief Executive Officer of Elsevier
Science since 1998, and was Chief Executive Officer of Elsevier Business
Information from 1996 to 1998. A resolution will be proposed at the Elsevier
Annual General Meeting in April 2000 to appoint Mr Haank a member of the
Executive Board of Elsevier.

Mr ter Haar has been a member of the Supervisory Board of Elsevier since
1990. He was previously a member of the Executive Board of Elsevier, and was
Chief Executive Officer of Elsevier Science from 1977 to 1987. He was appointed
a member of the Supervisory Board of Elsevier Reed Finance BV in June 1999.

Mr Laman Trip became an executive Director and Director of Corporate Human
Resources of Reed Elsevier plc in September 1997. He was previously president of
BP Nederland and BP Belgium.

Mr Nelissen was appointed a non-executive Director of Reed International
and Reed Elsevier plc in April 1999, having previously been a non-executive
Director of Reed Elsevier plc since the Merger until July 1998. He has been a
member of the Supervisory Board of Elsevier since 1990. Mr Nelissen is also a
member of the Supervisory Board of ABN AMRO Bank NV. He was formerly Chief
Executive Officer of ABN AMRO and Finance and Economics Minister of the
Netherlands.

Mr Perrick was appointed a member of the Supervisory Board of Elsevier in
April 1998, a non-executive director of Reed Elsevier plc in June 1998 and a
non-executive Director of Reed International in April 1999. He was a member of
the Supervisory Board of Elsevier Reed Finance BV from July 1998 until August
1999. Mr Perrick is a partner in the Amsterdam offices of the law firm
Freshfields, Deputy Judge at Arnhem Court of Appeal and Professor at Erasmus
University, Rotterdam.

Dr Stomberg was appointed a non-executive director of Reed International
and Reed Elsevier plc in January 1999 and a member of the Supervisory Board of
Elsevier in April 1999. Dr Stomberg is also Chairman of John Mowlem & Co plc and
visiting professor of Imperial College Management School in London and the
Institut Francais du Petrole in Paris.

Mr Tabaksblat was appointed a member of the Supervisory Board of Elsevier
in April 1998 and a non-executive director of Reed Elsevier plc in June 1998. He
became a non-executive director and Chairman of Reed International in April
1999, when he was also appointed Chairman of the Supervisory Board of Elsevier
and Chairman of Reed Elsevier plc. Mr Tabaksblat is a member of the Supervisory
Boards of Aegon NV, TPG Group NV and VEBA AG, and Chairman of the European Round
Table of Industrialists. He was Chairman and Chief Executive Officer of Unilever
NV from 1994 to 1999.

Mr Webster has been a non-executive Director of Reed Elsevier plc since the
Merger, a non-executive Director of Reed International since 1992 and a member
of the Supervisory Board of Elsevier since April 1999. He was non-executive
Chairman of Reed Elsevier plc from August 1998 until April 1999. He is Chairman
of Safeway plc.

Mr Ekker, a Dutch lawyer, has been Legal Director (Continental Europe) of
Reed Elsevier plc since 1993. He has been Company Secretary of Elsevier since
1989. He joined Elsevier in 1977 as Legal Counsel.

Mr Radcliffe, an English barrister, has been Company Secretary and Director
of Corporate Services of Reed Elsevier plc and Company Secretary of Reed
International since 1995. He joined Reed International in 1986.

A recommendation will be made to the Elsevier Annual General Meeting in
April 2000 to appoint Mrs G J de Boer-Kruyt as a member of the Elsevier
Supervisory Board.

57
<PAGE>

ITEM 11: COMPENSATION OF DIRECTORS AND OFFICERS

Remuneration committee

This report has been prepared by the Remuneration Committee of Reed
Elsevier plc and approved by the boards of Reed International and Elsevier.

The Remuneration Committee, which is chaired by Dr. Rolf Stomberg, consists
wholly of independent non-executive directors: John Brock, Roelof Nelissen and
Rolf Stomberg. The committee is responsible for recommending to the board of
Reed Elsevier plc the remuneration (in all its forms), and the terms of the
service contracts and all the terms and conditions of employment of the
executive directors. The committee also provides advice to the Chief Executive
Officer on major policy issues affecting the remuneration of executives at a
senior level below the board of Reed Elsevier plc. The committee works closely
with the joint Nominations Committee of Reed International and Elsevier, and
draws on external professional advice as necessary in making its
recommendations.

Remuneration of non-executive directors

The remuneration of the non-executive directors is determined by the board
of Reed Elsevier plc with the aid of external professional advice.

The non-executive directors do not participate in any of the company's
share option schemes, longer term incentive arrangements or pension schemes.

Compliance with best practice provisions

In designing its performance-related remuneration policy, the Remuneration
Committee has complied with Schedule A of the Combined Code, issued in June
1998, appended to the Listing Rules of the London Stock Exchange.

In relation to disclosure of directors' remuneration, Reed International, a
U.K. company listed on the London Stock Exchange, has complied with Schedule B
of the Combined Code, issued in June 1998, appended to the Listing Rules of the
London Stock Exchange.

Remuneration policy

In determining its policy on executive directors' remuneration, the
Remuneration Committee's principal objective is to attract, retain and motivate
people of the highest calibre and experience needed to meet the challenges faced
by Reed Elsevier plc group businesses both within its traditional businesses and
in the transition to electronic publishing media.

The Remuneration Committee also has regard to, and balances as far as
practicable, the following objectives:

(i) to ensure that it maintains a competitive package of pay and benefits,
commensurate with comparable packages available within other
multinational companies operating in global markets and, where
appropriate, local practice within the country in which an individual
director is based;

(ii) to ensure that it encourages enhanced performance by directors and
fairly recognises the contribution of individual directors to the
performance of the Reed Elsevier plc group, whilst also encouraging a
team approach which will work towards achieving the long term
strategic objectives of the Reed Elsevier plc group;

(iii) to link reward to individual directors' performance and company
performance so as to align the interests of the directors with the
shareholders of the parent companies.

The remuneration of executive directors consists of the following elements:

-- Base salary, which is set at the median of the market range based on
comparable positions in businesses of similar size and complexity.
Salaries are reviewed annually by the Remuneration Committee.

-- A variable annual cash bonus, based on achievement of specific
realistic but stretching financial and individual performance-related
targets. Targets are set at the beginning of the year by the
Remuneration Committee. The maximum potential bonus for 1999 was 50%
of basic salary.

-- Share options, where the directors and other senior executives are
granted options annually over shares in Reed International or Elsevier
at no less than the market price at the date of grant. The
Remuneration Committee approves the grant of any option and sets
performance conditions attaching to options.

-- Longer-term incentives which have until 1999 comprised the grant of
nil cost options to acquire shares in Reed International, where
exercise is conditional upon the attainment of long-term performance
objectives set at the date of grant by the Remuneration Committee.
Following a review by the Remuneration Committee of longer-term
incentives, the annual grant of nil cost options has ceased, and a
proposal will be submitted to Reed International and Elsevier
shareholders at their forthcoming Annual General Meetings to introduce
a new longer-term incentive arrangement for the executive directors
and other senior executives.

-- Post-retirement benefits, which comprise only pensions, where Reed
Elsevier plc group companies have different retirement schemes which
apply depending on local competitive market practice, length of
service and age of the director. The only element of remuneration
which is pensionable is base salary.

58
<PAGE>

Service contracts

Each of the executive directors has a service contract, the notice periods
of which are described below:

(i) M H Armour was appointed a director on July 1, 1996 and his service
contract provides for a notice period of twenty four months.

(ii) C H L Davis was appointed a director on September 1, 1999 and his
service contract provides initially for a notice period of twenty four
months, reducing to twelve months after September 1, 2000. In the
event of loss of employment on a change of control after September 1,
2000 but before September 1, 2002, twelve months' salary would be
payable to C H L Davis in addition to any other sums payable on
termination.

(iii) O Laman Trip and D J Haank were appointed directors on September 15,
1997 and November 15, 1999 respectively. Their service contracts,
which are subject to Dutch law, provide for six months' notice and, in
the event of termination without cause by Reed Elsevier plc, salary
and the value of the employer's pension contributions for eighteen
months' by way of liquidated damages.

The notice periods in respect of individual directors have been reviewed by
the Remuneration Committee. The Remuneration Committee believes that as a
general rule for future contracts, the initial notice period should be twenty
four months, reducing to twelve months, and that the directors should, subject
to practice within the country in which the director is based, be required to
mitigate their damages in the event of termination. The Remuneration Committee
will, however, have regard to local market conditions so as to ensure that the
terms offered are appropriate to recruit and retain key executives operating in
global business.

The non-executive directors do not have a service contract.

External appointments

Executive directors may, subject to the approval of the Chairman and the
Chief Executive Officer, serve as non-executive directors on the boards of up to
two non-associated companies and may retain remuneration arising from such
non-executive directorships. The Remuneration Committee believes that the Reed
Elsevier plc group benefits from the broader experience gained by executive
directors in such appointments.

Directors' remuneration

The remuneration of the directors of Reed Elsevier plc (including any
entitlement to remuneration from either Reed International, Elsevier or Elsevier
Reed Finance BV) was as follows:

(a) Aggregate remuneration

Year ended December 31,
-----------------------
1999 1998
---- ----
(in(pound)thousands)
Salaries & fees ...................................... 2,505 3,202
Benefits ............................................. 108 111
Annual performance-related bonuses ................... 412 278
Pension contributions ................................ 476 463
Pension to former director ........................... 214 209
One-off bonuses (i) .................................. 277 --
Compensation and payments to former directors (i) .... 3,474 1,424
----- -----
Total ................................................ 7,466 5,687
===== =====
- ----------
(i) See "Compensation and payments to former directors".
(ii) All amounts have been converted at average exchange rates for the year.

<PAGE>

(b) Individual remuneration of executive directors

Salary Benefits Bonuses Total 1998
------ -------- ------- ----- ----
(in(pound))
M H Armour .................... 361,551 18,105 10,847 390,503 387,047
H J Bruggink
(until September 30, 1999) ... 368,131 9,689 147,118 524,938 497,064
G R N Cusworth
(until April 30, 1999) ....... 76,979 7,584 -- 84,563 268,513
C H L Davis
(from September 1, 1999) ..... 250,000 9,158 275,000 534,158 --
D J Haank
(from November 15, 1999) ..... 31,716 1,168 952 33,836 --
O Laman Trip .................. 189,872 10,571 5,673 206,116 207,470
J B Mellon
(until April 30, 1999) ....... 162,155 24,763 -- 186,918 509,550
H P Spruijt
(until November 15, 1999) .... 199,369 9,077 -- 208,446 253,960
N J Stapleton
(until September 30, 1999) ... 450,000 18,495 250,000 718,495 706,868

Taking into account gains of (pound)329,851 on the exercise of share
options, H J Bruggink was the highest paid director in 1999.

The aggregate notional pre-tax gains, based on the mid market share price
on the day of exercise, made by directors on the exercise of Reed International
and Elsevier share options during 1999, was (pound)543,947.

Recruitment of new Chief Executive Officer

C H L Davis was appointed Chief Executive Officer of Reed Elsevier plc,
Reed International and Elsevier, on September 1, 1999. C H L Davis's basic
salary is (pound)750,000 per annum. He was entitled, under his service contract,
to a bonus, in respect of 1999, of (pound)275,000. Potential bonus for 2000 will
be up to 50% of base salary.

On the date of his appointment, C H L Davis was granted nil cost options
over 535,332 ordinary shares in Reed International and 319,250 ordinary shares
in Elsevier. The terms of these options provide that the options shall become
exercisable on or after September 1, 2002, provided he has not voluntarily
terminated, or given notice to terminate, his employment prior to that date.

Options were also granted on 1 September, 1999 under the Reed Elsevier plc
Executive Share Option Scheme over shares in Reed International and Elsevier
with an aggregate option price of four times base salary. Further details of the
number of options, the option price and the exercise period are contained in
"Options to purchase securities from Registrants or Subsidiaries".

Compensation and payments to former directors

As indicated in last years' Annual Report, Reed International and
Elsevier's decision to move to a unitary management structure of a single
non-executive Chairman and a sole Chief Executive Officer for Reed International
and Elsevier and Reed Elsevier plc gave H J Bruggink and N J Stapleton the right
to treat their employment with Reed Elsevier plc as having been terminated
immediately by the company. In order to maintain continuity of senior
management, Messrs Bruggink and Stapleton agreed to defer their right to leave
the company until after the appointment of a single Chief Executive Officer. In
recognition, inter alia, of agreeing to provide continuity of senior management
during the search for a single Chief Executive Officer, a one-off bonus was paid
in 1999 of (pound)136,966 to H J Bruggink, and (pound)140,000 to N J Stapleton.
Because N J Stapleton committed to stay at least until August 31, 1999 and, if
necessary, until December 31, 1999, he also received a credit of one year's
service for pension purposes and a guaranteed annual bonus in 1999 of 20% of
salary. H J Bruggink and N J Stapleton ceased to be directors on September 30,
1999. On termination of their respective employments, H J Bruggink received a
payment representing two years' salary and an amount equal to two years'
employer's pension contributions, the aggregate amount of which was
(pound)1,457,528 and N J Stapleton received a payment of (pound)1,200,000,
representing 2 years' salary, and 2 years' pension augmentation as compensation
for termination of their service agreements. The capital cost of N J Stapleton's
pension augmentation was (pound)830,000. N J Stapleton also received
(pound)103,656 salary and other benefits during the period October to November
1999.

H J Spruijt ceased to be a director on November 15, 1999 and, as
compensation for termination of his service agreement, received a payment
representing two years' salary and an amount equal to two years' employer's
pension contributions plus certain other benefits, the aggregate amount of which
was (pound)656,221. H P Spruijt also received (pound)28,481 salary during the
period November and December 1999.

G R N Cusworth was paid (pound)27,992 in respect of consultancy services
provided during the period May to December 1999.

<PAGE>

(d) Pensions

The Remuneration Committee reviews the pension arrangements for the
executive directors to ensure that the benefits provided are consistent with
those provided by other multinational companies in each of its countries of
operation.

The policy for executive directors based in the U.K. is to provide pension
benefits at a normal retirement age of 60, equivalent to two-thirds of basic
salary in the twelve months prior to retirement, provided they have completed 20
years' service with the Reed Elsevier plc group. The target pension for C H L
Davis at normal retirement age of 60 is 45% of base salary in the 12 months
prior to retirement. The way in which pension benefits are provided will depend
on when the individual director commenced service, and can be either through the
Reed Elsevier Pension Scheme (REPS) or through Inland Revenue unapproved,
unfunded arrangements, or a combination of both. In 1989, the Inland Revenue
introduced a cap on the amount of pension that can be provided from an approved
pension scheme. G R N Cusworth, J B Mellon and N J Stapleton commenced service
prior to the introduction of the cap and so all of their pension benefits will
be provided from the REPS. M H Armour's and C H L Davis' pension benefits will
be provided from a combination of the REPS and Reed Elsevier plc's unapproved,
unfunded pension arrangements.

Directors who are members of the Dutch pension scheme accrue a pension at
normal retirement age of 60, according to length of service and their final
salary. At normal retirement age, the pension entitlements of the directors are
up to 70% of final annual salary.

The pension arrangements for all the directors include life assurance cover
whilst in employment, an entitlement to a pension in the event of ill health or
disability and a spouse's and/or dependants' pension on death.

The increase in transfer value of the directors' pensions, after deduction
of contributions, is shown below:

Increase in Total accrued Transfer value
accrued annual pension increase after
annual pension as at deduction of
during the December 31, directors'
period 1999 contributions
-------------- -------------- --------------
(in (pound))
M H Armour .................... 11,288 59,228 174,793
C H L Davis
(from September 1, 1999) ..... 11,815 11,815 220,994
D J Haank
(from November 15, 1999) ..... 985 66,567 5,970
O Laman Trip .................. 4,765 29,882 45,671

(i) G R N Cusworth retired on April 30, 1999 and received a lump sum of
(pound)420,743 and a reduced pension of (pound)123,536 per annum. This
did not represent an increase in the value of his benefits since the
start of the year.

(ii) J B Mellon retired on April 30, 1999 and received a lump sum of
(pound)875,800 and a reduced pension of (pound)244,269 per annum
(excluding pension provided from AVCs). This did not represent an
increase in the value of his benefits since the start of the year.

(iii) H J Bruggink retired on September 30, 1999 and became entitled to a
deferred pension of (pound)204,420 per annum (excluding pension
provided from AVCs). This represents an increase in the transfer value
of his benefits since the start of the year of (pound)149,253.

(iv) H P Spruijt retired on November 15, 1999 and became entitled to a
deferred pension of (pound)104,317 per annum (excluding pension
provided from AVCs). This represents an increase in the transfer value
of his benefits since the start of the year of (pound)162,985.

(v) N J Stapleton retired on November 30, 1999 and received a lump sum of
(pound)701,794 and a reduced pension of (pound)228,670 per annum
(excluding pension provided from AVCs). This represents an increase in
the transfer value of his benefits since the start of the year of
(pound)697,262.

(vi) The transfer value increase in respect of individual directors
represents a liability in respect of directors' pension entitlement,
and is not an amount paid or payable to the director.

61
<PAGE>

(e) Individual remuneration of non-executive directors

1999 1998
---- ----
(in (pound))
R S Bodman (until April 15, 1999) ....................... 7,708 90,361
J F Brock (from April 15, 1999) ......................... 27,196 --
A A Greener (until December 31, 1998) ................... -- 24,000
Lord Hamlyn (until April 29, 1998) ...................... -- 8,334
Sir Christopher Lewinton (until April 15, 1999) ......... 26,667 80,000
R J Nelissen ............................................ 30,197 30,000
S Perrick (from July 1, 1998) ........................... 43,530 26,666
R W H Stomberg (from January 1, 1999) ................... 35,260 --
M Tabaksblat (from July 1, 1998) ........................ 125,277 26,666
P J Vinken (until April 6, 1999) ........................ 31,731 80,000
L van Vollenhoven (until April 6, 1999) ................. 17,450 52,500
D G C Webster ........................................... 70,260 84,555

(1) R J Nelissen was a member of the Supervisory Board of Elsevier
throughout 1998 and 1999, and a director of Reed Elsevier plc for only
part of 1998 and 1999. His fees above relate to the amounts he
received in respect of each of those capacities.

(2) M Tabaksblat was appointed Chairman of Reed Elsevier plc and Reed
International, and Chairman of the Supervisory Board of Elsevier in
April 1999. Fees in respect of M Tabaksblat were paid to Unilever NV
until May 1999, at which point he retired from Unilever.

(3) The emoluments of D G C Webster include an additional fee payable to
him to reflect the significant additional duties he has undertaken
including those arising from his appointment as non-executive Chairman
of Reed Elsevier plc during the period August 1998 to April 1999.

Compensation of executive officers

The aggregate compensation paid to all executive officers (other than
directors) of Reed Elsevier plc (2 persons during the 1999 fiscal year) as a
group, for services in such capacities for the year ended December 31, 1999 was
(pound)339,741 which included contributions made to the pension plans in respect
of such officers of Reed Elsevier plc of (pound)1,684.

<PAGE>

ITEM 12: OPTIONS TO PURCHASE SECURITIES FROM REGISTRANTS OR SUBSIDIARIES

REED INTERNATIONAL

Share options

The following table sets forth the details of options held by directors
over Reed International Ordinary Shares as at December 31, 1999. Options are
granted under Executive Share Option Schemes or Save As You Earn (SAYE) schemes
which are described below:

<TABLE>
<CAPTION>
Granted Exercised Market
January 1, during the during the price at December Exercisable
1999* year Option price year exercise date 31, 1999 between
----------- ---------- ------------ ---------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
M H Armour
--Executive Scheme ... 189,600 400.75p 130,000 548.50p 59,600 2000-2005
30,000 585.25p 30,000 2000-2006
52,000 565.75p 52,000 2000-2007
66,900 523.00p 66,900 2001-2008
33,600 537.50p 33,600 2002-2009
--SAYE Scheme ........ 3,924 430.00p 3,924 2004
------- ------- ------- -------
Total ................. 338,500 37,524 130,000** 246,024

C H L Davis
--Executive Scheme ... 160,599 467.00p 160,599 2002-2009
80,300 467.00p 80,300 2003-2009
80,300 467.00p 80,300 2004-2009
--Nil cost options ... 535,332 Nil 535,332 2002
------- ------- ------- -------
Total ................. -- 856,531 -- 856,531

D J Haank
--Executive Scheme ... 18,498 677.25p 18,498 2000-2004
18,497 537.50p 18,497 2000-2009
------- ------- ------- -------
Total ................. 36,995 -- -- 36,995
</TABLE>
- ------------
* On date of appointment if after January 1, 1999
** Retained an interest in 2,500 shares

The middle market price of a Reed International ordinary share during the
1999 financial year was in the range of 343.75p to 629.75p and at December 31,
1999 was 463.50p.

Between January 1, 2000 and February 23, 2000 there were no changes to the
options held by directors.

Longer term incentives

A Longer Term Incentive Plan ("the Plan"), which has granted options to
certain executive directors of Reed International since 1991, was discontinued
following the grant in respect of 1999/2001.

Under the Plan, options over Reed International Ordinary Shares are only
exercisable if Reed International achieves significant growth in adjusted EPS
over a three-year period. The maximum number of shares over which options were
granted and the EPS performance targets were approved by the Remuneration
Committee.

No entitlements arose under the 1997/99 Plan, and M H Armour has waived any
entitlement under the Plan in respect of the three year performance periods
1998/2000 and 1999/2001.

During 1999 the Remuneration Committee, in conjunction with external
remuneration consultants, carried out a detailed review of incentive
remuneration arrangements, including longer term incentives, operating within
the Reed Elsevier plc group. The Reed Elsevier management team has been set the
objective of re-building sustainable shareholder value over a three to five year
term, and to re-shape the business to produce long term revenue and profit
growth. To achieve this objective, Reed Elsevier needs to recruit and retain the
very best executive talent. The Remuneration Committee has given very careful
thought to the remuneration structure that will best support the new strategy,
and has concluded that the most appropriate way to achieve these goals is
through the implementation of revised share incentive arrangements. Accordingly,

<PAGE>

a proposal will be submitted to the forthcoming Annual General Meetings of Reed
International and Elsevier, seeking shareholder approval to introduce a new
longer term incentive scheme, which would grant options to executive directors
and executives at a senior level below the Reed Elsevier plc board. Exercise of
the options would be subject to the attainment of highly demanding performance
targets. The main features of the proposed new scheme are:

o Participation in the scheme, together with the level of grants, will
be subject to approval by the Remuneration Committee.

o A one-off grant of options will be made over a basket of Elsevier and
Reed International shares in equal proportion by market value.

o The exercise price will be based on the closing market price of the
shares on the date of grant.

o The face value of the grant will be between ten and thirty times the
salary of the participant.

o The performance target will require the achievement of 20% compound
growth in total shareholder return ("TSR") from the price at the date
of grant, over three years. In the event that the required TSR
performance is not achieved in the initial three-year period, the
growth target will be retested at the end of the fourth or fifth
years. The Reed Elsevier plc board have reserved the right to amend
the performance hurdle in the event of a material change in the share
price between the date of circulation of the notice to shareholders
convening the Annual General Meetings and the date of Annual General
Meetings.

o Subject to attainment of the growth target, options will vest on the
fifth anniversary of date of grant, provided the participant remains
employed within the Reed Elsevier group.

o Options will, as a general rule, be satisfied by the issue of new
shares.

The Remuneration Committee has also recommended the use of options over
restricted shares in Reed International and Elsevier to assist in the
recruitment and retention of senior executives. Options over restricted shares
will be met by the Employee Benefit Trust, from market purchases.

The Remuneration Committee is satisfied that, taken together, the existing
Executive Share Option Schemes and the options over restricted shares, together
with the new longer term incentive scheme, constitute a well-considered overall
plan for the long term remuneration of senior executives.

Share option schemes

Prior to the Merger, Reed International operated a number of share option
schemes under which options over new issue Reed International Ordinary Shares
were granted to its executive directors, executive officers and eligible
employees. The share option schemes which still have options capable of being
exercised are the Reed International U.K. Executive Share Option Scheme and the
Reed International Overseas Executive Share Option Scheme, (the "Reed
International Executive Schemes"). The Reed International Executive Schemes were
established in 1984. Options over new Reed International Ordinary Shares were
granted thereunder until 1993, and no further options may be granted under the
Reed International Executive Schemes. The terms and conditions of the Reed
International Executive Schemes are substantially similar to those of the
corresponding share option schemes of Reed Elsevier plc, which are described
below under "Reed Elsevier plc Executive U.K. and Overseas Share Option
Schemes".

<PAGE>

ELSEVIER

Share options

The following table sets forth details of Elsevier Ordinary Shares on which
options were held by the members of the Supervisory Board and the Executive
Board of Elsevier as at December 31, 1999.

C H L Davis
--Executive Scheme ...... 95,774 e12.00 95,774 2002-2009
47,888 e12.00 47,888 2003-2009
47,888 e12.00 47,888 2004-2009
--Nil cost options ...... 319,250 Nil 319,250 2002
------- ------- ------- -------
Total .................... -- 510,800 -- 510,800

D J Haank
--Executive Scheme ...... 8,500 e7.71 8,500 e11.25
35,000 e11.93 35,000 2000-2001
30,000 e14.11 30,000 2000-2002
30,000 e15.25 30,000 2000-2003
10,926 e17.07 10,926 2000-2004
10,925 e13.55 10,925 2000-2009
--Convertible Debentures. 12,540 e14.36 3,000 9,540 2000-2002
------- ------- ------- -------
Total .................... 137,891 -- 11,500 126,391

O Laman Trip
--Executive Scheme ...... 49,590 e12.50 49,590 2000-2003
11,667 e17.07 11,667 2000-2004
35,001 e13.55 35,001 2000-2009
------- ------- ------- -------
Total .................... 49,590 46,668 -- 96,258
- ----------
</TABLE>

(1) On date of appointment if after January 1999.

The middle market price of an Elsevier Ordinary Share during the 1999
financial year was in the range of e8.95 to e15.25 and at December 31, 1999 was
e11.86. Between January 1, 2000 and February 23, 2000 there were no changes to
the options held by directors.

Share option schemes

Under arrangements operated by Elsevier (the "Elsevier Executive Option
Arrangements"), options to subscribe for Elsevier Ordinary shares have been
granted each year to the members of the Executive Board and to a small number of
other senior executives of Elsevier. Such options give the beneficiary the
right, at any time during periods of either five years or ten years following
the date of the grant, to purchase Elsevier Ordinary Shares. Prior to 1999 all
options granted under the Elsevier Executive Option Arrangements could be
exercised within a five year period from the date of grant, and the options were
granted at an exercise price equal to the market price on the date of grant.
During 1999, options were granted with an exercise period of five years at an
exercise price 26% above the market price at the date of grant, or with an
exercise period of 10 years at an exercise price equal to the market price at
the date of grant, or a combination of both.

In addition, Elsevier has arrangements in place (together with the Elsevier
Executive Option Arrangements the "Elsevier Share Option Arrangements"), which
are open to Dutch employees of the businesses within Reed Elsevier after one
year's service, under which interest bearing debentures of Elsevier may be
purchased for cash for periods of five years, during which time they may be
converted on a prescribed basis into Elsevier Ordinary Shares.

65
<PAGE>

REED ELSEVIER

Share ownership and options

The interests of the directors of Reed Elsevier plc and their families in
the issued share capital of Reed International and Elsevier at the beginning and
end of 1999 are shown below:

Reed International Elsevier
Ordinary Shares Ordinary Shares
------------------------- -------------------------
January 1, December 31, January 1, December 31,
1999* 1999 1999* 1999
----- ----- ----- -----
M H Armour ............. -- 2,500 -- 2,500
J F Brock .............. -- 3,000 -- --
C H L Davis ............ -- -- -- --
D J Haank .............. -- -- 3,380 7,880
O Laman Trip ........... -- -- -- --
R J Nelissen ........... -- -- -- --
S Perrick .............. -- -- -- --
Dr R W H Stomberg ...... -- -- -- --
M Tabaksblat ........... -- -- -- 8,000
D G C Webster .......... 5,000 5,000 -- --
- ----------
* On date of appointment if after January 1, 1999

Any ordinary shares required to fulfil entitlements under current longer
term incentives are provided by the Employee Benefit Trust (EBT) from market
purchases. As beneficiaries under the EBT, the directors are deemed to be
interested in the shares held by the EBT which, at December 31, 1999, amounted
to 618,790 Reed International Ordinary Shares and 320,000 Elsevier Ordinary
Shares.

Shares and options held by executive officers

The following table indicates the total aggregate number of Reed
International Ordinary Shares and Elsevier Ordinary Shares beneficially owned
and the total aggregate number of Reed International Ordinary Shares and
Elsevier Ordinary Shares subject to options beneficially owned by each of the
executive officers (other than directors) of Reed Elsevier plc (2 people) as a
group, as of February 23, 2000:

<TABLE>
<CAPTION>
Reed Reed Ordinary
International International Elsevier Shares
Ordinary Ordinary Shares Ordinary Subject to
Shares Subject to Options Shares(1)(2) Options
------ ------------------ ------------ ----------
<S> <C> <C> <C> <C>
Executive officers
(other than directors)
as a group ............... 29,613 287,965 5,000 162,741
</TABLE>
- --------
(1) The Elsevier Ordinary Shares may be issued in registered or bearer form.

(2) No individual executive officer of Reed Elsevier plc has notified Elsevier
that he holds more than 5% of the issued share capital of Elsevier pursuant
to the Dutch law requirement described under "Control of Registrants --
Elsevier".

The options included in the above table exercisable into Reed International
Ordinary Shares are exercisable at prices ranging from 321.75p to 585.25p per
Share and between the date hereof and 2009. The options included in the above
table exercisable into Elsevier Ordinary Shares are exercisable at prices
ranging from e10.45 to e17.07 per Share and between the date hereof and 2009.

Share option schemes

Following the Merger, Reed Elsevier plc introduced share option schemes
under which options over new issue and over existing Reed International Ordinary
Shares and/or Elsevier Ordinary Shares may be granted to employees of Reed
Elsevier plc and participating companies under its control. The share option
schemes are the Reed Elsevier plc SAYE Share Option Scheme (the "Reed Elsevier
plc SAYE Scheme") and the Reed Elsevier plc Executive U.K. and Overseas Share
Option Schemes (the "Reed Elsevier plc Executive Schemes and, together with the
Reed Elsevier plc SAYE Scheme, the "Reed Elsevier plc Schemes"). The Reed
Elsevier plc Schemes have been approved by shareholders of Reed International
and information concerning the terms and conditions of the Schemes is set out
below.

During 1999 the directors introduced share option schemes (the "Reed
Elsevier plc Executive Share Option Schemes (No.2)") under which options over
only existing Reed International Ordinary Shares and/or Elsevier Ordinary Shares

66
<PAGE>

may be granted to employees. Apart from the fact that options over new issue
shares may not be issued under these schemes, the terms and conditions of these
schemes are identical to the Reed Elsevier plc Executive Schemes.

At February 23, 2000 the total number of Reed International Ordinary Shares
subject to outstanding options under the Reed International Schemes, the Reed
Elsevier plc Schemes and the Reed Elsevier plc Executive Share Option Schemes
(No.2) amounted to 28,836,857 shares, and the options for such shares were
exercisable at option prices ranging between 188.75p to 611.00p per share and
were exercisable between 2000 and 2009. At February 23, 2000 the total number of
Elsevier Ordinary Shares subject to outstanding options under the Elsevier Share
Option Arrangements, the Reed Elsevier plc Schemes and the Reed Elsevier plc
Executive Share Option Schemes (No.2) amounted to 13,883,712 shares, and the
options for such shares were exercisable at option prices ranging between e10.45
to e17.07 per share and were exercisable between 2000 and 2009.

Reed Elsevier plc SAYE Share Option Scheme

The Reed Elsevier plc SAYE Scheme provides for the grant of options over
Reed International Ordinary Shares and/or Elsevier Ordinary Shares to employees
of Reed Elsevier plc and participating companies under its control. Only options
over Reed International Ordinary Shares have been granted under the Reed
Elsevier plc SAYE Scheme to date. The price at which shares may be acquired
under the Reed Elsevier plc SAYE Scheme may not be less that the higher of (i)
80% of the closing middle market price for the relevant share on The London
Stock Exchange three days before invitations to apply for options are issued,
and (ii) if new shares are to be subscribed, their nominal value.

On joining the Reed Elsevier plc SAYE Scheme, a save as you earn contract
(a "Savings Contract") must be entered into with an appropriate savings body,
providing for contributions to be made to such savings body between (pound)5 and
the permitted maximum (currently (pound)250) per month for a period of three or
five years. A bonus is payable under the Savings Contract at the end of the
savings period. The amount of the monthly contributions may be reduced if
applications exceed the number of Reed International Ordinary Shares and/or
Elsevier Ordinary Shares available for the grant of options on that occasion.

The number of Reed International Ordinary Shares and/or Elsevier Ordinary
Shares over which an option may be granted is limited to that number of shares
which may be acquired at the exercise price out of the repayment proceeds
(including any bonus) of the Savings Contract.

All U.K. employees of Reed Elsevier plc and participating companies under
its control in employment on a predetermined date prior to the date of
invitation are entitled to participate in the Reed Elsevier plc SAYE Scheme. In
addition, the directors of Reed Elsevier plc may permit other employees of Reed
Elsevier plc and participating companies under its control to participate.

Invitations to apply for options may normally only be issued within 42 days
after the announcement of the combined results of Reed Elsevier for any period.
No options may be granted more than 10 years after the approval of the scheme.

Options under the Reed Elsevier plc SAYE Scheme may normally only be
exercised for a period of six months after the bonus date under the relevant
Savings Contract. However, options may be exercised earlier than the normal
exercise date in certain specified circumstances, including death, reaching age
60, or on ceasing employment on account of injury, disability, redundancy,
reaching contractual retirement age, or the sale of the business or subsidiary
for which the participant works, or provided the option has been held for at
least three years, on ceasing employment for any other reason. Exercise is
allowed in the event of an amalgamation, reconstruction or take-over of the
company whose shares are under option; alternatively, such options may, with the
agreement of an acquiring company or a company associated with it, be exchanged
for options over shares in the acquiring company or that associated company.
Options may also be exercised in the event of the voluntary winding-up of the
company whose shares are under option. In the event that options are exercised
before the bonus date, the participant may acquire only the number of shares
that can be purchased with the accumulated savings up to the date of exercise,
plus interest (if any).

Options under the Reed Elsevier plc SAYE Scheme are not transferable and
may be exercised only by the persons to whom they are granted or their personal
representatives.

In the event of any capitalisation or rights issue by Reed International or
Elsevier, or of any consolidation, subdivision or reduction of their share
capital, the number of shares subject to any relevant option and/or the exercise
price may be adjusted with the approval of the U.K. Inland Revenue, subject to
the independent auditors of Reed Elsevier plc confirming in writing that such
adjustment is, in their opinion, fair and reasonable.

No more than 168 million new Reed International Ordinary Shares, being
approximately 15% of Reed International's current issued share capital, may be
issued under the Reed Elsevier plc SAYE Scheme. No option may be granted under
the scheme if it would cause the number of Reed International Ordinary Shares
issued or issuable in any 10 year period under the scheme and any other share
option scheme adopted by Reed International or Reed Elsevier plc to exceed in
aggregate 10% of the issued share capital of Reed International from time to

67
<PAGE>

time. The number of Elsevier Ordinary Shares which may be issued or issuable
under the Reed Elsevier plc SAYE scheme will be determined by the Combined
Meeting of Elsevier, but shall not exceed the percentage limits set out above in
relation to Reed International Ordinary Shares. Options may also be granted
under the Reed Elsevier plc SAYE Scheme over existing Reed International
Ordinary Shares or Elsevier Ordinary Shares.

Reed Elsevier plc Executive U.K. and Overseas Share Option Schemes

The Reed Elsevier plc Executive Schemes comprise (i) the Reed Elsevier plc
Executive U.K. Share Option Scheme (the "Reed Elsevier plc U.K. Executive
Scheme"), and (ii) the Reed Elsevier plc Executive Overseas Share Option Scheme
(the "Reed Elsevier plc Overseas Executive Scheme").

Reed Elsevier plc U.K. Executive Scheme: The Reed Elsevier plc U.K.
Executive Scheme provides for the grant of options over Reed International
Ordinary Shares and/or Elsevier Ordinary Shares to the U.K. Employees of Reed
Elsevier plc and participating companies under its control. All directors and
employees of Reed Elsevier plc and participating companies under its control who
are contracted to work for at least 25 hours per week are eligible to be
nominated for participation. The grant of options is administered by a committee
of directors of Reed Elsevier plc, a majority of the members of which are
non-executive directors. No payment is required for the grant of an option under
the Reed Elsevier plc U.K. Executive Scheme.

Under the Reed Elsevier plc U.K. Executive Scheme, the number of options
that a participant may hold at any one time is limited to four times their
remuneration. A proposal will be submitted to the forthcoming Annual General
Meeting of Reed International seeking shareholder approval to amend the rules of
the schemes so as to remove this limit.

Options granted under the Reed Elsevier plc U.K. Executive Scheme may be
exercised within a period of 10 years and entitle the holder to acquire shares
at a price determined by the committee of directors of Reed Elsevier plc, which
may not be less than the higher of (i) in the case of Reed International
Ordinary Shares, the closing middle market price for the relevant share on The
London Stock Exchange at the date of grant, (ii) in the case of an Elsevier
Ordinary Share, the closing market price for the relevant share on The Amsterdam
Stock Exchange at the date of grant and (iii) if new shares are to be
subscribed, their nominal value.

Employees may be granted options under the Reed Elsevier plc U.K. Executive
Scheme to replace those which have been exercised. In granting such replacement
options, the committee of directors of Reed Elsevier plc must satisfy itself
that the grant of such options is justified by the performance of Reed Elsevier
in the previous two to three years.

Options may normally only be granted under the Reed Elsevier plc U.K.
Executive Scheme within 42 days after the announcement of the combined results
of Reed Elsevier for any period. No option may be granted under the Reed
Elsevier plc U.K. Executive Scheme more than 10 years after the approval of the
scheme.

Options granted under the Reed Elsevier plc U.K. Executive Scheme will
normally be exercisable only after the expiration of three years from the date
of their grant and by a person who remains a director or employee of Reed
Elsevier plc and participating companies under its control. Options granted from
1999 onwards are subject to performance criteria. In order for an option to
become exercisable, the compound growth in the average of the Reed International
and Elsevier adjusted EPS (before amortisation of goodwill and intangible
assets, exceptional items and U.K. tax credit equalisation) in a consecutive
three year period after the grant is made, must exceed the compound growth in
the average of the U.K. and Dutch retail price index during the same period by a
minimum of 6%. Early exercise of such options is permitted in substantially
similar circumstances to those set out in relation to the Reed Elsevier plc SAYE
Scheme. The committee of directors of Reed Elsevier plc has discretion to permit
the exercise of options by a participant in certain circumstances where it would
not otherwise be permitted.

Options granted under the Reed Elsevier plc U.K. Executive Scheme are not
transferable and may be exercised only by the persons to whom they are granted
or their personal representatives.

The limits described above on the number of Reed International Ordinary
Shares and Elsevier Ordinary Shares which may be issued under the Reed Elsevier
plc SAYE Scheme also apply to the Reed Elsevier plc U.K. and Overseas Executive
Scheme. In addition, no option may be granted under the scheme if it would cause
the number of Reed International Ordinary Shares issued or issuable in any 10
year period under the scheme or any other executive share option scheme adopted
by Reed International or Reed Elsevier plc to exceed in aggregate 5% of the
issued share capital of Reed International from time to time.

Equivalent limits to those above apply to the number of Elsevier Ordinary
Shares which may be issued or issuable under the scheme.

Options may also be granted under the Reed Elsevier plc U.K. Executive
Scheme over existing Reed International Ordinary Shares or Elsevier Ordinary
Shares.

Reed Elsevier plc Overseas Executive Scheme: The Reed Elsevier plc Overseas
Executive Scheme provides for options to be granted to non-U.K. employees of
Reed Elsevier plc and participating companies under its control. The terms and
conditions of the Reed Elsevier plc Overseas Executive Scheme are substantially
similar to those of the Reed Elsevier plc U.K. Executive Scheme.

<PAGE>

ITEM 13: INTERESTS OF MANAGEMENT IN CERTAIN TRANSACTIONS

REED INTERNATIONAL Not applicable.

ELSEVIER Not applicable.

PART II

ITEM 14: DESCRIPTION OF SECURITIES TO BE REGISTERED

REED INTERNATIONAL Not applicable.

ELSEVIER Not applicable.

PART III

ITEM 15: DEFAULTS UPON SENIOR SECURITIES

REED INTERNATIONAL Not applicable.

ELSEVIER Not applicable.

ITEM 16: CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES

REED INTERNATIONAL Not applicable.

ELSEVIER Not applicable.

PART IV

ITEM 17: FINANCIAL STATEMENTS

The Registrants have responded to Item 18 in lieu of responding to this
Item.

ITEM 18: FINANCIAL STATEMENTS

Reference is made to Item 19 for a list of all financial statements and
schedules filed as part of this Annual Report.

<PAGE>

ITEM 19: FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements filed as part of this Annual Report

The following financial statements and related schedules, together with
reports of independent accountants thereon, are filed as part of this Annual
Report:

Page
----
<S> <C>
Index to Financial Statements F- 1
Reed Elsevier Combined Financial Statements F- 2
Report of Independent Accountants F- 3
Combined Profit and Loss Accounts for the three years ended December 31, 1999 F- 4
Combined Statements of Total Recognised Gains and Losses for the three years ended December 31, 1999 F- 4
Combined Balance Sheets at December 31, 1999 and December 31, 1998 F- 5
Combined Statements of Cash Flows for the three years ended December 31, 1999 F- 6
Statements of Changes in Combined Shareholders' Funds for the three years ended December 31, 1999 F- 7
Notes to the Combined Financial Statements F- 8
Schedule II F-37

Reed International P.L.C. Consolidated Financial Statements F-38
Report of Independent Accountants F-39
Consolidated Profit and Loss Accounts for the three years ended December 31, 1999 F-40
Consolidated Statements of Total Recognised Gains and Losses for the three years ended December 31, 1999 F-41
Consolidated Balance Sheets at December 31, 1999 and December 31, 1998 F-42
Consolidated Statements of Cash Flows for the three years ended December 31, 1999 F-43
Statements of Changes in Consolidated Shareholders' Funds for the three years ended December 31, 1999 F-44
Notes to the Consolidated Financial Statements F-45

Elsevier NV Financial Statements F-53
Report of Independent Accountants F-54
Profit and Loss Accounts for the three years ended December 31, 1999 F-55
Statements of Total Recognised Gains and Losses for the three years ended December 31, 1999 F-55
Balance Sheets at December 31, 1999 and December 31, 1998 F-56
Statements of Cash Flows for the three years ended December 31, 1999 F-57
Statements of Changes in Shareholders' Funds for the three years ended December 31, 1999 F-58
Notes to the Financial Statements F-59
</TABLE>

(b) Exhibits filed as part of this Annual Report

The total amount of long-term debt securities of Reed Elsevier authorised
under any single instrument does not exceed 10% of the combined total assets of
Reed Elsevier. The Registrants hereby agree to furnish to the Commission, upon
its request, a copy of any instrument defining the rights of holders of
long-term debt of Reed Elsevier or any of the combined businesses for which
consolidated or unconsolidated financial statements are required to be filed.

F-1
<PAGE>

REED ELSEVIER

COMBINED FINANCIAL STATEMENTS

F-2

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Reed International P.L.C. and
to the Members of the Supervisory and Executive Boards and the Shareholders of
Elsevier NV.

We have audited the accompanying combined balance sheets of Reed
International P.L.C., Elsevier NV, Reed Elsevier plc and Elsevier Reed Finance
BV and their respective subsidiaries (together "the combined businesses") as of
December 31, 1999 and 1998, and the related combined profit and loss accounts
and statements of total recognised gains and losses, changes in combined
shareholders' equity and cash flows for the three years ended December 31, 1999.
Our audits also included the financial statement schedules of December 31, 1999,
1998 and 1997 listed in the Index at Item 19. These combined financial
statements and the related financial statement schedules are the responsibility
of the management of Reed International P.L.C. and Elsevier NV. Our
responsibility is to express an opinion on these combined financial statements
and the related financial statement schedules based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United Kingdom, the Netherlands and the United States. Those
standards require that we plan and perform the audits 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 presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the aforementioned combined financial statements present
fairly, in all material respects, the financial position of the combined
businesses at December 31, 1999 and 1998 and the results of their operations and
their cash flows for the three years ended December 31, 1999 in conformity with
accounting principles generally accepted in the United Kingdom and the
Netherlands (which differ in certain material respects from generally accepted
accounting principles in the United States -- see note 29). Also, in our
opinion, the financial statement schedules, when considered in relation to the
related combined financial statements taken as a whole, present fairly in all
material respects the information set forth therein.

DELOITTE & TOUCHE DELOITTE & TOUCHE
Chartered Accountants & Registered Auditors Accountants
London, England Amsterdam, The Netherlands
February 23, 2000 February 23, 2000

F-3

<PAGE>

REED ELSEVIER

COMBINED PROFIT AND LOSS ACCOUNTS

<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
Notes 1997 1998 1999
----- -------- -------- --------
(in (pound) millions)
<S> <C> <C> <C> <C>
Turnover
Including share of turnover in joint ventures 3,519 3,271 3,464
Less: share of turnover in joint ventures (102) (80) (74)

3 3,417 3,191 3,390
Cost of sales (1,282) (1,092) (1,185)

Gross profit 2,135 2,099 2,205
Operating expenses (2,057) (1,706) (2,028)
Before amortisation and exceptional items (1,277) (1,304) (1,420)
Amortisation of goodwill and intangible assets (278) (323) (369)
Exceptional items 6 (502) (79) (239)

Operating profit (before joint ventures) 78 393 177
Share of operating profit in joint ventures 16 9 3

Operating profit including joint ventures 3,5 94 402 180
Non-operating items 6 54 682 7

Profit on ordinary activities before interest 148 1,084 187
Net interest expense 7 (62) (40) (82)

Profit on ordinary activities before taxation 86 1,044 105
Tax on profit on ordinary activities 8 (99) (271) (167)

(Loss)/profit on ordinary activities after taxation (13) 773 (62)
Minority interests and preference dividends (1) (1) (1)

(Loss)/profit attributable to parent companies' shareholders (14) 772 (63)

Adjusted Figures
Adjusted operating profit 3,10 885 813 792
Adjusted profit before tax 10 823 773 710
Adjusted profit attributable to parent companies' shareholders 10 608 571 527
</TABLE>

Adjusted figures, which exclude the amortisation of goodwill and intangible
assets, exceptional items and related tax effects are presented as additional
performance measures. See note 1.

The effect of discontinued operations is shown in note 3 and the effect of
acquisitions is shown in note 4.

The historical cost profits and losses are not materially different from
the results disclosed above.

COMBINED STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES

Year ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
(in(pound)millions)
(Loss)/profit attributable to parent
companies' shareholders (14) 772 (63)
Exchange translation differences (13) (3) 17

Total recognised gains and losses for the year (27) 769 (46)

The accompanying notes on pages F-8 to F-36 are an integral part of these
Combined Financial Statements

F-4

<PAGE>

REED ELSEVIER

COMBINED BALANCE SHEETS

At December 31,
---------------------------
Notes 1998 1999
----- ---- ----
(in(pound)millions)
Fixed assets

Goodwill and intangible assets 11 3,598 3,400
Tangible assets 12 399 386
Investments 13 87 119
Investments in joint ventures:
Share of gross assets 107 136
Share of gross liabilities (32) (47)

Share of net assets 75 89
Other investments 12 30

4,084 3,905

Current assets

Stocks 14 101 113
Debtors: amounts falling due within one year 15 731 666
Debtors: amounts falling due after
more than one year 16 136 148
Cash and short term investments 17 708 440

1,676 1,367
Creditors: amounts falling due within one year 18 (2,791) (2,676)

Net current liabilities (1,115) (1,309)

Total assets less current liabilities 2,969 2,596
Creditors: amounts falling due after more
than one year 19 (797) (620)
Provisions for liabilities and charges 23 (36) (113)
Minority interests (6) (8)

Net assets 2,130 1,855

Capital and reserves

Combined share capitals 24 168 168
Combined share premium accounts 353 341
Combined reserves 1,609 1,346

Combined shareholders' funds 2,130 1,855

The accompanying notes on pages F-8 to F-36 are an integral part of these
Combined Financial Statements

F-5
<PAGE>

REED ELSEVIER
COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
Notes 1997 1998 1999
----- ---- ---- ----
(in(pound)millions)
<S> <C> <C> <C> <C>
Operating profit (before joint ventures) 78 393 177
Exceptional charges to operating profit 502 79 239
Operating profit before exceptional items 580 472 416
Amortisation of goodwill and intangible assets
(excluding joint ventures) 278 323 369
Depreciation charges 96 97 117
Net SSAP 24 pension credit 27 (1) (4) (3)
Total non-cash items 373 416 483
Decrease/(increase) in stocks 5 0 (9)
(Increase)/decrease in debtors (25) 17 (8)
Increase in creditors 23 32 16
Movement in working capital 3 49 (1)
Net cash inflow from operating activities before
exceptional items 956 937 898
Payments relating to exceptional items charged
to operating profit 6 (26) (258) (138)
Net cash inflow from operating activities 930 679 760
Dividends received from joint ventures 17 11 4
Interest received 46 61 33
Interest paid (105) (106) (114)
Returns on investments and servicing of finance (59) (45) (81)
Taxation (including(pound)74million (1998:
(pound)nil) exceptional repayments) (180) (144) (99)
Purchase of tangible fixed assets (121) (151) (137)
Proceeds from sale of fixed assets 10 11 15
Exceptional net payments from sale of fixed assets 6 (21) 0 0
Capital expenditure (132) (140) (122)
Acquisitions 28 (726) (1,232) (166)
Payments against acquisition provisions (5) (11) (1)
Exceptional net proceeds from sale of fixed asset
investments and businesses 6,28 104 913 3
Merger expenses 6 (3) (8) 0
Acquisitions and disposals (630) (338) (164)
Equity dividends paid to the shareholders of the
parent companies (336) (362) (339)
Cash outflow before changes in short term
investments and financing (390) (339) (41)
Decrease in short term investments 28 299 63 297
Financing 28 120 192 (197)
Increase/(decrease) in cash 28 29 (84) 59
Adjusted figures
Adjusted operating cash flow 10 862 808 780
Adjusted operating cash flow conversion 97% 99% 98%
</TABLE>

Reed Elsevier businesses focus on adjusted operating cash flow as the key
cash flow measure. Adjusted operating cash flow is measured after dividends from
joint ventures, tangible fixed asset spend and proceeds from the sale of fixed
assets but before operating exceptional payments and proceeds. Adjusted
operating cash flow conversion expresses adjusted operating cash flow as a
percentage of adjusted operating profit. See note 1.

The accompanying notes on pages F-8 to F-36 are an integral part of these
Combined Financial Statements

F-6
<PAGE>

REED ELSEVIER

STATEMENTS OF CHANGES IN COMBINED SHAREHOLDERS' FUNDS

<TABLE>
<CAPTION>
Combined
Combined share Combined
share premium Combined shareholders'
capitals accounts reserves funds
-------- -------- -------- -----
(in(pound)millions)
<S> <C> <C> <C> <C>
Balance at December 31, 1996 169 322 1,572 2,063
Loss attributable to parent companies' shareholders 0 0 (14) (14)
Ordinary dividends 0 0 (365) (365)
Exchange translation differences 0 0 4 4
Issue of Ordinary Shares on exercise of options 1 20 0 21
Adjustment on translation of Elsevier (3) (14) 0 (17)

Balance at December 31, 1997 167 328 1,197 1,692
Profit attributable to parent companies' shareholders 0 0 772 772
Ordinary dividends 0 0 (349) (349)
Exchange translation differences 0 0 (11) (11)
Issue of Ordinary Shares on exercise of options 0 18 0 18
Adjustment on translation of Elsevier 1 7 0 8

Balance at December 31, 1998 168 353 1,609 2,130
Loss attributable to parent companies' shareholders 0 0 (63) (63)
Ordinary dividends 0 0 (234) (234)
Exchange translation differences 0 0 34 34
Issue of Ordinary Shares on exercise of options, less
capital

redemptions (4) 9 0 5
Redomination of Elsevier Ordinary Shares into euros 7 (7) 0 0
Adjustment on translation of Elsevier (3) (14) 0 (17)

Balance at December 31, 1999 168 341 1,346 1,855
</TABLE>

The accumulated exchange translation differences included in combined
reserves are (pound)(148) million (1998 (pound)(182) million; 1997 (pound)(171)
million).

Combined share capitals included non-equity shares of (pound)nil (1998
(pound)4 million; 1997 (pound)4 million); in 1999 combined reserves include a
(pound)4 million (1998 (pound)nil; 1997 (pound)nil) capital redemption reserve
following the redemption of non-equity shares in Reed International in 1999.

The accompanying notes on pages F-8 to F-36 are an integral part of these
Combined Financial Statements

F-7
<PAGE>

REED ELSEVIER

NOTES TO THE COMBINED FINANCIAL STATEMENTS

1. Basis of preparation of financial statements

The equalisation agreement between Reed International and Elsevier has the
effect that their shareholders can be regarded as having the interests of a
single economic group. The Combined Financial Statements represent the combined
interests of both sets of shareholders and encompass the businesses of Reed
Elsevier plc and Elsevier Reed Finance BV and their respective subsidiaries,
associates and joint ventures, together with the parent companies, Reed
International and Elsevier ("the Combined Businesses" or "Reed Elsevier").

The combined financial statements are presented under the historical cost
convention and in accordance with accounting principles generally accepted in
both the United Kingdom and the Netherlands ("U.K. and Dutch GAAP"). These
principles differ in certain significant respects from accounting principles
generally accepted in the United States ("U.S. GAAP"); see note 29. Amounts are
expressed in pounds sterling ("(pound)"). In preparing these financial
statements, certain reclassifications and changes in presentation have been made
to the combined financial statements presented in the Reed Elsevier Annual
Report and Financial Statements 1999 in order to conform more closely with
accounting presentation and disclosure requirements applicable in the United
States.

The combined financial statements include those of all the Combined
Businesses made up to the end of the financial year. The results of businesses
acquired are included from the date of effective acquisition and businesses sold
are included up to the date of disposal.

In addition to the figures required to be reported by U.K. and Dutch
accounting standards, adjusted profit and operating cash flow figures have been
presented as additional performance measures. Adjusted profit is shown before
the amortisation of goodwill and intangible assets and exceptional items and
related tax effects and provides a basis for performance comparison that is not
dependent on the choice of adoption method of FRS 10 on accounting for goodwill
and intangible assets. Adjusted operating cash flow is measured after dividends
from joint ventures, tangible fixed asset spend and proceeds from the sale of
fixed assets, but before exceptional payments and proceeds.

Use of estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent liabilities and assets at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

2. Accounting policies

The significant accounting policies adopted are as follows:

Associates and joint ventures

Investments which are held for the long term and where the Combined
Businesses exercise significant influence or joint control with other parties
represent interests in associates or joint ventures and are accounted for under
the equity and gross equity methods respectively.

Foreign exchange translation

Balance sheet items are translated at year end exchange rates and profit
and loss account items are translated at average exchange rates. Exchange
translation differences on foreign equity investments and the related foreign
currency net borrowings and differences between balance sheet and profit and
loss account rates are taken to reserves.

Transactions entered into in foreign currencies are recorded at the
exchange rates applicable at the time of the transaction. The results of hedging
transactions for profit and loss amounts in foreign currency are accounted for
in the profit and loss account to match the underlying transaction.

Goodwill and intangible assets

On the acquisition of a subsidiary, associate, joint venture or business,
the purchase consideration is allocated between the underlying net tangible and
intangible assets on a fair value basis, with any excess purchase consideration
representing goodwill.

In accordance with FRS 10: Goodwill and Intangible Assets, acquired
goodwill and intangible assets are capitalised and amortised systematically over
their estimated useful lives, up to a maximum period of 20 years, subject to
impairment review. Prior to the adoption of FRS 10 in 1998 goodwill was written
off directly to reserves on acquisition, whereas intangible assets were
capitalised and not amortised. FRS 10 was applied retrospectively and prior year
figures were restated accordingly.
F-8
<PAGE>

2. Accounting policies - (continued)

Intangible assets comprise publishing rights and titles, databases,
exhibition rights and other intangible assets, which are stated at fair value on
acquisition and are not subsequently revalued.

Tangible fixed assets

Tangible fixed assets are stated in the balance sheet at cost less
accumulated depreciation. No depreciation is provided on freehold land.

Freehold buildings and long leases are depreciated over their estimated
future useful lives. Plant and equipment is depreciated on a straight line basis
at rates from 5%-33%. Short leases are written off over the duration of the
lease.

Finance leases

Assets held under leases which confer rights and obligations similar to
those attaching to owned assets, are capitalised as tangible fixed assets and
the corresponding liability to pay rentals is shown net of interest in the
accounts as obligations under finance leases. The capitalised values of the
assets are written off on a straight line basis over the shorter of the periods
of the leases or the useful lives of the assets concerned. The interest element
of the lease payments is allocated so as to produce a constant periodic rate of
charge.

Operating leases

Operating lease rentals are charged to the profit and loss account on a
straight line basis over the periods of the leases.

Stocks

Stocks and work in progress are stated at the lower of cost, including
appropriate attributable overheads and estimated net realisable value.

Investments

Fixed asset and short term investments are stated at the lower of cost and
estimated net realisable value.

Financial instruments

Payments and receipts on interest rate hedges are accounted for on an
accruals basis over the lives of the hedges and included, respectively, within
interest payable and interest receivable in the profit and loss account. Gains
and losses on foreign exchange hedges, other than in relation to net currency
borrowings hedging equity investments, are recognised in the profit and loss
account on maturity of the underlying transaction. Gains and losses on net
currency borrowings hedging equity investments are taken to reserves. Gains and
losses arising on hedging instruments that are closed out due to the cessation
of the underlying exposure are taken directly to the profit and loss account.

Currency swap agreements are valued at exchange rates ruling at the balance
sheet date with net gains and losses being included within short term
investments or borrowings. Interest payable and receivable arising from the swap
is accounted for on an accruals basis over the life of the swap.

Finance costs associated with debt issuances are charged to the profit and
loss account over the life of the related borrowings.

Turnover

Turnover represents the invoiced value of sales on transactions completed
by delivery excluding customer sales taxes and sales between the Combined
Businesses.

Development spend

Development spend incurred on the launch of new products or services is
expensed to the profit and loss account as incurred. The cost of developing
software for use internally may be capitalised as a fixed asset and written off
over its estimated future life.

Taxation

Deferred taxation is provided in full for timing differences using the
liability method. There is no material difference between this full provision
policy and the partial provision method required under U.K. GAAP. No provision
is made for tax which would become payable on the distribution of retained
profits by foreign subsidiaries, associates or joint ventures, unless there is
an intention to distribute such retained earnings giving rise to a charge. The
potential deferred tax has not been quantified.

Pensions

The expected costs of pensions in respect of defined benefit pension
schemes are charged to the profit and loss account so as to spread the cost over
the service lives of employees in the schemes. Actuarial surpluses and deficits
are allocated over the average expected remaining service lives of employees.
Pension costs are assessed in accordance with the advice of qualified actuaries.
For defined contribution schemes, the profit and loss account charge represents
contributions made.

3. Segment information

Details of business segments are provided in Item 1 "Description of
Business". During 1999, management and development responsibilities for the
Elsevier Tuition training businesses have been transferred from the Legal to the
Business segment. Comparative figures have been restated accordingly.

Adjusted operating profit is presented as an additional performance measure
and is shown after share of operating profit in joint ventures and before
amortisation of goodwill and intangible assets and exceptional items. See note 1
and note 10.

Turnover is analysed before the (pound)74 million (1998 (pound)80 million;
1997 (pound)102 million) share of joint ventures' turnover, of which (pound)19
million (1998 (pound)26 million; 1997 (pound)37 million) relates to the Legal
segment, principally to Giuffre and, in 1998 and 1997, Shephard's prior to the
acquisition of the remaining 50% interest on August 1, 1998. (pound)55 million
(1998 (pound)54 million; 1997 (pound)7 million) relates to the Business segment,
principally REZsolutions, Inc.

F-9

<PAGE>

Share of operating profit in joint ventures of (pound)3 million (1998
(pound)9 million; 1997 (pound)16 million) comprises (pound)3 million (1998
(pound)6 million; 1997 (pound)8 million) relating to the Legal segment and
(pound)nil (1998 (pound)3 million; 1997 (pound)5 million) relating to the
Business segment.

Discontinued operations under U.K. and Dutch GAAP comprise IPC Magazines
and the remaining consumer book publishing operations which were the final
element of the Consumer segment sold in 1998. The 1997 share of joint ventures'
turnover and operating profit included (pound)58 million and (pound)3 million
respectively in relation to discontinued operations.

1997 1998 1999
---- ---- ----
By category of activity (in(pound)millions)
Turnover

Scientific 571 622 652
Legal 1,033 1,107 1,268
Business 1,383 1,434 1,470

Continuing operations 2,987 3,163 3,390
Discontinued operations 430 28 --

3,417 3,191 3,390
Operating profit

Scientific 178 126 111
Legal 183 169 77
Business (324) 108 (8)

Continuing operations 37 403 180
Discontinued operations 57 (1) --

94 402 180

Adjusted operating profit

Scientific 230 223 231
Legal 289 322 316
Business 293 268 245

Continuing operations 812 813 792
Discontinued operations 73 -- --

885 813 792

Adjusted operating profit includes amounts in respect of joint ventures
((pound)7 million, (pound)18 million and (pound)27 million for the years ended
December 31, 1999, 1998 and 1997 respectively).

Depreciation

Scientific 11 18 16
Legal 46 49 66
Business 28 30 35

Continuing operations 85 97 117
Discontinued operations 11 -- --

96 97 117

F-10
<PAGE>

3. Segment information - (continued)

1997 1998 1999
---- ---- ----
(in(pound)millions)
Amortisation of goodwill and intangible assets
(including joint ventures)

Scientific 51 89 91
Legal 97 119 151
Business 126 123 131

Continuing operations 274 331 373
Discontinued operations 15 1 --

289 332 373

Amortisation of goodwill and intangible
assets in respect of joint ventures included above 11 9 4

Total assets

Scientific 803 776
Legal 2,889 2,821
Business 1,287 1,235
Corporate 777 440

Continuing operations 5,756 5,272
Discontinued operations 4 --

5,760 5,272

The Corporate segment comprises assets maintained for general purposes,
principally cash balances and short term investments.

Capital expenditure

Scientific 24 20
Legal 75 80
Business 62 48

Continuing operations 161 148
Discontinued operations -- --

161 148

Capital employed

Scientific 338 315
Legal 2,544 2,432
Business 768 668

Continuing operations 3,650 3,415
Discontinued operations (16) --

3,634 3,415

Reconciliation of capital employed to combined
shareholders' funds

Capital employed 3,634 3,415
Taxation (297) (364)
Dividends and net interest (239) (122)
Net borrowings (962) (1,066)
Minority interests (6) (8)

Combined shareholders' funds 2,130 1,855

F-11

<PAGE>

3. Segment information - (continued)

1997 1998 1999
---- ---- ----
By geographic origin (in(pound)millions)
Turnover

North America 1,512 1,663 1,836
U.K 694 692 698
The Netherlands 369 383 391
Rest of Europe 263 293 307
Rest of world 149 132 158

Continuing operations 2,987 3,163 3,390
Discontinued operations 430 28 --

3,417 3,191 3,390

Operating profit

North America (252) 98 (52)
U.K 113 139 86
The Netherlands 110 114 91
Rest of Europe 53 47 51
Rest of world 13 5 4

Continuing operations 37 403 180
Discontinued operations 57 (1) --

94 402 180

Adjusted operating profit

North America 394 390 359
U.K 207 204 191
The Netherlands 123 128 135
Rest of Europe 69 76 87
Rest of world 19 15 20

Continuing operations 812 813 792
Discontinued operations 73 -- --

885 813 792

Total assets

North America 3,581 3,501
U.K 1,406 1,020
The Netherlands 314 319
Rest of Europe 362 324
Rest of world 93 108

Continuing operations 5,756 5,272
Discontinued operations 4 --

5,760 5,272

Capital employed

North America 2,906 2,792
U.K 579 518
The Netherlands (46) (75)
Rest of Europe 173 147
Rest of world 38 33

Continuing operations 3,650 3,415
Discontinued operations (16) --

3,634 3,415

F-12
<PAGE>

3. Segment information - (continued)

1997 1998 1999
---- ---- ----
By geographic market (in(pound)millions)
Turnover

North America 1,582 1,726 1,906
U.K 432 483 484
The Netherlands 208 222 237
Rest of Europe 401 407 418
Rest of world 364 325 345

Continuing operations 2,987 3,163 3,390
Discontinued operations 430 28 --

3,417 3,191 3,390

4. Significant acquisitions

During the three years ended December 31, 1999, Reed Elsevier spent
(pound)2,076 million (including deferred consideration) on the acquisition of
publishing and information businesses.

The principal acquisitions in the three years ended December 31, 1999,
were:

In April, 1997 MDL Information Systems Inc, a provider of scientific
information management systems, for $320 million ((pound)195 million). The fair
value of the net assets acquired, excluding goodwill, was (pound)16 million.

In September, 1997 the Chilton Business Group, a business information
publisher, for $447 million ((pound)273 million). The fair value of the net
assets acquired, after hindsight adjustments in 1998, excluding goodwill, was
(pound)147 million.

In August, 1998 Matthew Bender, a publisher of legal analysis and case law,
and the remaining 50% equity in Shepard's, for $1.65 billion ((pound)994
million). The fair value of the net assets acquired, excluding goodwill, was
(pound)280 million.

Acquisitions are accounted for under the purchase method. The net assets of
the businesses acquired are incorporated at their fair value to the Combined
Businesses. Fair value adjustments include the valuation of intangible assets on
major acquisitions and the restatement of tangible fixed assets and current
assets and liabilities in accordance with Reed Elsevier accounting policies.
Where the purchase price has exceeded the fair value of the net tangible and
intangible assets acquired, the excess is regarded as goodwill. Summaries of
these adjustments and the consideration are set out in the table below:

In the year ended December 31, 1999, acquisitions were made for a total of
(pound)132 million after taking account of (pound)4 million of net cash
acquired. (pound)12 million of the consideration has been deferred to future
years.

The fair value adjustments for acquisitions during the year ended December
31, 1999 are:

<TABLE>
<CAPTION>
Book value
on Fair value
acquisition adjustments Fair value
----------- ----------- ----------
(in(pound)millions)
<S> <C> <C> <C>
Goodwill -- 61 61
Intangible fixed assets -- 77 77
Tangible fixed assets 1 -- 1
Current assets 10 (2) 8
Current liabilities (12) -- (12)
Current tax (3) -- (3)

Net assets acquired (4) 136 132

Consideration (after taking account
of(pound)4 million of net cash acquired) 132
Less : deferred to future years (12)

Net cash flow 120
</TABLE>

Before the amortisation of goodwill and intangible assets and exceptional
acquisition related integration costs, the businesses acquired in 1999
contributed (pound)31 million to turnover, (pound)5 million to operating profit
and (pound)4 million to net cash inflow from operating activities for the part
year under Reed Elsevier ownership.

Finalisation of the fair value exercise in respect of acquisitions in the
previous year, resulted in a decrease in goodwill of (pound)7 million.

F-13
<PAGE>

5. Operating profit (including joint ventures)

1997 1998 1999
---- ---- ----
Operating profit is arrived at after charging: (in(pound)millions)
Hire of plant and machinery 17 10 12
Other operating lease rentals 44 50 60
Depreciation (including(pound)5m
(1998(pound)4 million; 1997(pound)5 million)
in respect of assets held under finance leases) 96 97 117
Amortisation of goodwill and intangible assets 278 323 369
Amortisation of goodwill and intangible assets
in joint ventures 11 9 4

Total amortisation 289 332 373

Auditors' remuneration for audit services 1.6 1.5 1.6
for non audit services ((pound) 0.2 million
relates to UK companies (1998 ((pound)0.7 million)) 1.5 1.5 1.1
Staff costs
Wages and salaries 757 748 859
Social security costs 75 80 86
Pensions (see note 27) 25 22 28

Total 857 850 973

6. Exceptional items

(a) Profit and loss account items 1997 1998 1999
- --------------------------------- ---- ---- ----
(in(pound)millions)
Reorganisation (i) -- -- (161)
Reed Travel Group (ii)
--Provision for customer recompense and
related expenses and reorganisation (230) -- --
--Non-cash write down of intangible assets (250) -- --
Acquisition related integration costs (iii) (11) (26) (28)
Year 2000 compliance costs (iv) (11) (53) (50)
Charged to operating profit (502) (79) (239)
Continuing
--Net profit on sale of businesses (v) 57 -- --
--Merger expenses (vi) (3) (10) --
--Net profit on sale of fixed asset
investments and businesses Discontinued -- -- 7
--Net profit on sale of businesses (vii) -- 692 --
Credited after operating income 54 682 7
Total exceptional items (charge)/credit (448) 603 (232)
Net tax credit/(charge) (viii) 115 (70) 15

F-14

<PAGE>

6. Exceptional items - (continued)

Exceptional items in the three years ended December 31, 1999 comprise the
following:

(i) costs related to a major programme of reorganisation across the
Combined Businesses, commenced in 1999. Costs include employee
severence, surplus leasehold property obligations and fixed asset
write offs;

(ii) in 1997 a provision of (pound)230 million, less tax relief of
(pound)87 million, in respect of the cost of programmes to recompense
advertisers in relation to irregularities in circulation claims for
certain Reed Travel Group publications together with related expenses
and reorganisation costs. A non-cash write down of (pound)250 million
was also made in intangible asset values;

(iii) costs of (pound)28 million (1998 (pound)26 million; 1997 (pound)11
million) relating to the integration of acquisitions, principally
Matthew Bender (acquired 1998) and the Chilton Business Group
(acquired 1997);

(iv) expenditure of(pound)50 million in 1999 (1998(pound)53 million;
1997(pound)11 million) in connection with the Combined Businesses'
Year 2000 compliance programme;

(v) in 1997 the net profit on sale of certain businesses, principally the
Heinemann English Language Teaching business, a portfolio of certain
U.S. computer magazines and trade shows and the Belgian exhibitions
business;

(vi) in 1998 professional fees and other costs incurred of(pound)10 million
(1997(pound)3 million) in respect of the abandoned merger of Reed
Elsevier and Wolters Kluwer;

(vii) in 1998 the net profit on sale of IPC Magazines divested in January
1998;

(viii) in 1999 the net tax credit is stated after taxes arising on business
consolidation in the programme of reorganisation. Potential deferred
tax assets of (pound)32 million in respect of the programme of
reorganisation have not been recognised.

(b) Cash flow items

1997 1998 1999
---- ---- ----
(in(pound)millions)
Reorganisation costs -- -- (39)
Acquisition-related costs (8) (22) (32)
Year 2000 compliance costs (11) (53) (47)
Reed Travel Group customer recompense (7) (183) (20)
Exceptional operating cash outflow (26) (258) (138)
Net proceeds from sale of fixed assets,
fixed asset investments and businesses 83 913 3
Merger costs (3) (8) --
Total exceptional cash inflow/(outflow) 54 647 (135)
Exceptional tax cash inflow -- -- 74

The exceptional tax cash inflow in 1999 includes (pound)58 million of tax
repayments due to prior year exceptional items.

7. Net interest expense

1997 1998 1999
---- ---- ----
(in(pound)millions)
Interest receivable 38 64 32
Interest payable
On loans (59) (51) (46)
On promissory notes and bank loans (40) (52) (67)
On finance leases (1) (1) (1)
Total (62) (40) (82)
Interest cover (times) 14 20 10

Interest cover is calculated as the number of times adjusted operating
profit is greater than the net interest expense.

F-15
<PAGE>

8. Taxes on profit on ordinary activities

(a) Taxes on profit on ordinary activities were as follows:

1997 1998 1999
---- ---- ----
(in(pound)millions)
U.K. taxation
Current 76 68 65
Deferred (3) 1 (3)
Dutch taxation

Current 50 45 50
Deferred -- 4 --
Rest of world taxation
Current 70 5 48
Deferred 12 72 19

Sub-total 205 195 179
Share of tax attributable to joint ventures 9 6 3

Tax on ordinary activities before exceptional items 214 201 182
Net tax (credit)/charge on exceptional items
Current 5 70 (9)
Deferred (120) -- (6)

Total 99 271 167

The total tax charge for 1999 is high as a proportion of profit before tax
principally due to non-tax deductible amortisation, the non-recognition of
potential deferred tax assets and taxes arising on business consolidation in the
programme of reorganisation.

(b) The table below reconciles the local statutory tax rate to the
effective rate obtained by computing the tax charges as a percentage of profit
on ordinary activities before taxes.

1997 1998 1999
---- ---- ----
(in(pound)millions)
Profit before taxation

United Kingdom 224 219 212
The Netherlands 150 149 147
Rest of world 449 405 351
Amortisation of goodwill and
intangible assets (289) (332) (373)
Exceptional items (448) 603 (232)

86 1,044 105

Tax charged at local statutory rates (11) 299 (6)
Net impact of amortisation of goodwill
and intangible assets 95 64 72
Tax credit on dividend from Reed Elsevier
plc to Elsevier NV (2) -- --
Permanent differences and other items 13 18 38
Exceptional items not taxed 4 (110) 63

Actual tax charge 99 271 167

Tax charged at local statutory rates is calculated by reference to the
appropriate statutory tax rate of each jurisdiction in which the Combined
Businesses operate.

F-16
<PAGE>

8. Taxes on profit on ordinary activities - (continued)

The closing balance is analysed as follows:

1998 1999
---- ----
(in(pound)millions)
Deferred tax liabilities
Pension prepayment (37) (36)
Revaluation gains (6) (33)
Other timing differences 2 --
(41) (69)
Deferred tax assets
Excess of tax allowances over amortisation 2 9
Acquisition and other provisions 38 24
Other timing differences -- --
40 33
Total liabilities (1) (36)

Deferred taxation is provided in full for timing differences using the
liability method.

9. Dividends--ordinary

1997 1998 1999
---- ---- ----
(in(pound)millions)
Reed International 167 172 116
Elsevier 198 177 118

Combined 365 349 234

Dividends comprise the total dividend for Reed International of 10.0 pence
per share (1998 15.0 pence per share; 1997 14.6 pence per share after adjusting
for the two for one share subdivision which became effective on May 2, 1997) and
the total dividend for Elsevier of e0.27 per share (1998 e0.39 per share; 1997
e0.43 per share).

Dividends paid to Reed International and Elsevier shareholders are
equalised at the gross level inclusive of the U.K. tax credit received by
certain Reed International shareholders. The cost of funding the Reed
International dividend is, therefore, lower than that of Elsevier.

10. Adjusted figures

Adjusted profit and cash flow figures are used by the Combined Businesses
as additional performance measures (see note 1).

The adjustments in arriving at adjusted figures are detailed below:

1997 1998 1999
---- ---- ----
(in(pound)millions)
Operating profit including joint ventures Adjustments: 94 402 180
Amortisation of goodwill and intangible assets 289 332 373
Reorganisation costs -- -- 161
Reed Travel Group
--provision for customer recompense and
related expenses and reorganization 230 -- --
--non-cash write down of intangible assets 250 -- --
Acquisition related integration costs 11 26 28
Year 2000 compliance costs 11 53 50

Adjusted operating profit 885 813 792

F-17

<PAGE>

10. Adjusted figures - (continued)

1997 1998 1999
---- ---- ----
(in(pound)millions)
Profit before tax 86 1,044 105
Adjustments:
Amortisation of goodwill and intangible assets 289 332 373
Reorganisation costs -- -- 161
Reed Travel Group
- --Provision for customer recompense and
related expenses and reorganization 230 -- --
- --Non-cash write down of intangible assets 250 0 0
Acquisition related integration costs 11 26 28
Year 2000 compliance costs 11 53 50
Net profit on sale of businesses (57) (692) --
Merger expenses 3 10 --
Net profit on sale of fixed asset
investments and businesses -- -- (7)

Adjusted profit before tax 823 773 710

(Loss)/profit attributable to parent
companies' shareholders (14) 772 (63)
Adjustments:
Amortisation of goodwill and intangible
assets 290 332 373
Reorganisation costs -- -- 161
Reed Travel Group
- --Provision for customer recompense and
related expenses and reorganisation 143 -- --
- --Non-cash write down of intangible assets 210 -- --
Acquisition related integration costs 7 16 22
Year 2000 compliance costs 7 33 41
Net profit on sale of businesses (38) (592) --
Merger expenses 3 10 --
Net profit on sale of fixed asset
investments and businesses -- -- (7)

Adjusted profit attributable to parent
companies' shareholders 608 571 527

Net cash inflow from operating activities 930 679 760
Dividends received from joint ventures 17 11 4
Purchase of tangible fixed assets (121) (151) (137)
Proceeds from sale of fixed assets 10 11 15
Payments in relation to exceptional items
charged to operating profit 26 258 138

Adjusted operating cash flow 862 808 780

F-18

<PAGE>

11. Goodwill and intangible assets

Intangible
Goodwill assets Total
-------- ---------- ------
(in(pound)millions)
Cost

At January 1, 1999 2,827 2,973 5,800
Acquisitions 54 77 131
Disposals of businesses (14) -- (14)
Exchange translation differences 32 31 63

At December 31, 1999 2,899 3,081 5,980

Accumulated amortisation

At January 1, 1999 1,008 1,194 2,202
Disposals of businesses (8) -- (8)
Charge for the year 195 174 369
Exchange translation differences 2 15 17

At December 31, 1999 1,197 1,383 2,580

Net book amount

At January 1, 1999 1,819 1,779 3,598
At December 31, 1999 1,702 1,698 3,400

12. Tangible fixed assets

Plant,
equipment
Land and & computer
building systems Total
-------- ------- -----
(in(pound)millions)
Cost

At January 1, 1999 166 679 845
Acquisitions -- 1 1
Capital expenditure 10 138 148
Disposals (6) (75) (81)
Exchange translation differences -- -- --

At December 31, 1999 170 743 913

Accumulated depreciation

At January 1, 1999 42 404 446
Disposals (3) (63) (66)
Charge for the year 6 111 117
Exceptional write down -- 30 30
Exchange translation differences -- -- --

At December 31, 1999 45 482 527

Net book amount

At January 1, 1999 124 275 399
At December 31, 1999 125 261 386

At December 31, 1999 and 1998, all assets were included at cost. No
depreciation has been provided on freehold land ((pound)7 million (1998
(pound)13 million)). The net book amount includes (pound)18 million (1998
(pound)15 million) in respect of assets held under finance leases.

F-19
<PAGE>

13. Fixed asset investments

Investments
in joint Other
ventures investments Total
-------- ----------- -----
Note (in (pound) millions)
At January 1, 1999 75 12 87
Share of attributable profit 4 -- 4
Amortisation of goodwill and
intangible assets (4) -- (4)
Dividends received from joint ventures (4) -- (4)
Additions 19 22 41
Disposals -- (4) (4)
Exchange translation differences (1) 0 (1)

At December, 31 1999 89 30 119

The principal joint ventures at December 31, 1999 are Giuffre (a 40%
shareholding in an Italian legal publisher) and REZsolutions, Inc. (a 67%
shareholding in a hotel reservations and marketing business which is in the
process of being sold).

The cost and net book amount of goodwill and intangible assets in joint
ventures were(pound)74 million and(pound)49 million respectively (1998(pound)58
million and(pound)36 million).

At 31 December, 1999, the Reed Elsevier plc Employee Benefit Trust (EBT)
held 618,790 Reed International ordinary shares and 320,000 Elsevier ordinary
shares with an aggregate market value at that date of (pound)5.1 million (1998
121,374 Reed International ordinary shares; market value (pound)0.5 million).
The EBT purchases Reed International and Elsevier shares which, at the Trustee's
discretion, can be used in respect of the exercise of executive share options.
Further details of these share option schemes is set out in Item 12 "Options to
purchase securities from registrants or subsidiaries".

14. Stocks

1998 1999
---- ----
(in(pound)millions)
Raw materials 17 20
Work in progress 25 29
Finished goods 59 64

Total 101 113

15. Debtors: amounts falling due within one year

1998 1999
---- ----
(in(pound)millions)
Trade debtors 504 530
Amounts owed by joint ventures 1 1
Corporation tax recoverable 56 --
Advance corporation tax 13 --
Other debtors 48 42
Prepayments and accrued income 109 93
--- --

Total 731 666
=== ===

16. Debtors: amounts falling due after more than one year

1998 1999
---- ----
(in(pound)millions)
Trade debtors 10 9
Pension prepayment (see note 27) 124 127
Prepayments and accrued income 2 12

Total 136 148

F-20

<PAGE>

17. Cash and short term investments

1998 1999
---- ----
(in(pound)millions)
Cash at bank and in hand 26 79
Short term investments 682 361

Total 708 440

Short term investments include deposits of under one year if the maturity
or notice period exceeds 24 hours, commercial paper investments and interest
bearing securities that can be realised without significant loss at short
notice.

18. Creditors: amounts falling due within one year

Notes 1998 1999
----- ---- ----
(in(pound)millions)
Borrowings

Other loans 179 158
Promissory notes and bank loans 968 967
Obligations under finance leases 22 3 4

20 1,150 1,129
Trade creditors 148 178
Other creditors 150 145
Taxation 141 120
Proposed dividends 244 127
Accruals and deferred income 958 977

Total 2,791 2,676

19. Creditors: amounts falling due after more than one year
Notes 1998 1999
----- ---- ----
(in(pound)millions)
Other loans repayable:
--Within one to two years 154 3
--Within two to five years 82 81
--After five years 273 279
Promissory notes and bank loans repayable:

--Within one to two years 1 --
Obligations under finance leases 22 10 14

20 520 377
Other creditors 16 14
Taxation 225 208
Accruals and deferred income 36 21

Total 797 620

20. Borrowings

1998 1999
---- ----
(in(pound)millions)
Bank loans, overdrafts and commercial paper
Drawn under facilities expiring in
year to December 31,

1999 53 --
2000 1 65
Commercial paper 915 902

Total 969 967

F-21

<PAGE>

20. Borrowings - (continued)

Year end
interest
Currency rates % 1998 1999
-------- ------- ---- ----
(in(pound)millions)
Other loans and finance leases

Eurobond 1999 U.S. dollar 7.50 121 --
Medium term notes 1999 U.S. dollar 7.66-7.76 12 --
Private placement 1999 Guilders 9.70 42 --
Private placement 2000 U.S. dollar 9.71 60 62
Public notes 2000 U.S. dollar 6.63 90 93
Private placement 2003 U.S. dollar 8.50 76 77
Public notes 2005 U.S. dollar 7.00 90 93
Private placement 2023 U.S. dollar 6.63 90 93
Public debentures 2025 U.S. dollar 7.50 90 93
Finance leases Various Various 13 18
Miscellaneous Euro Various 17 10

Total 701 539

Interest rates disclosed above are those on the underlying borrowings and
do not take account of net interest on interest rate swaps (see note 21).

Bank loans, Other
overdrafts loans
and and
commercial finance
paper leases Total
----- ------ -----
(in(pound)millions)
Analysis by year of repayment

Within 1 year 967 162 1,129
--- --- -----
Within 1 to 2 years -- 7 7
Within 2 to 3 years -- 5 5
Within 3 to 4 years -- 79 79
Within 4 to 5 years -- -- --
Thereafter -- 286 286
--- --- ---
-- 377 377
--- --- ---
Total 967 539 1,506
=== === =====

Expiring Expiring
within 1 after 1
year year Total
---- ---- -----
(in(pound)millions)
Undrawn bank facilities at December 31, 1999
Overdraft 101 -- 101
Uncommitted lines of credit 172 -- 172
Undrawn committed facilities 222 395 617

Of the(pound)395 million undrawn committed facilities expiring after one
year(pound)46 million was utilised by way of letters of credit which support
short term borrowings.

The committed facility is subject to covenants which restrict gross
borrowings and secured borrowings by reference to Reed Elsevier's combined
earnings before exceptional items, interest, tax, depreciation and amortisation.
There is also a covenant restricting the ability to dispose of a substantial
proportion of assets (except for full consideration) if such disposal materially
and adversely affects the Reed Elsevier's combined net assets or combined
attributable profit.

1998 1999
---- ----
Short term loans, overdrafts and commercial paper

Weighted average interest rate during year 5.2% 5.0%
Year end weighted average interest rate 5.2% 5.7%

The weighted average interest rate for the year was computed by dividing
actual interest expense for the year by the average month-end amounts
outstanding for short term bank loans and commercial paper.

F-22
<PAGE>

21. Financial instruments

The use of financial instruments by Reed Elsevier is limited to hedging
activities and no trading positions result from their use; see Item 9A
"Qualitative and Quantitative Disclosures about Market Risk". Consequently, the
impact of interest rate swaps and forward rate agreements is accrued as net
interest income or expense over the life of the agreement. No realised or
unrealised gains or losses on such financial instruments are recognised
separately. Realised or unrealised gains and losses recognised on forward
foreign exchange contracts are offset by complementary realised or unrealised
gains or losses on the underlying transactions hedged through the use of such
contracts. The total net unrealised loss on open forward foreign exchange
contracts was (pound)21 million at December 31, 1999.

The currency and interest profile of the aggregate financial liabilities of
(pound)1,595 million (1998 (pound)1,726 million), after taking account of
interest rate and cross currency interest rate swaps, is set out below:

Fixed rate financial
liabilities
--------------------
Floating Fixed Weighted Weighted
rate rate average average
financial financial interest duration
liabilities liabilities rate (years)
----------------------- ---- -------
(in(pound)millions)
At December 31, 1999

U.S. dollar 500 888 6.9% 7.4
Sterling 1 -- -- --
Euro 58 97 4.7% 1.7
Other currencies 31 20 6.7% 0.7

Total 590 1,005 6.7% 6.7

Fixed rate financial
liabilities
---------------------
Floating Fixed Weighted Weighted
rate rate average average
financial financial interest duration
liabilities liabilities rate (years)
----------- ----------- ---- -------
(in(pound)millions)
At December 31, 1998

U.S. dollar 446 996 7.0% 6.9
Sterling 7 -- -- --
Euro 100 127 5.0% 1.8
Other currencies 34 16 7.3% 1.1

Total 587 1,139 6.8% 6.3

Included within fixed rate financial liabilities as at December 31, 1999,
are (pound)154 million of U.S. dollar term debt that matures within five months
of the year end and (pound)106 million of interest rate swaps denominated
principally in euro that mature within nine months of the year end.

Excluded from the analysis above are cross currency interest rate swaps
hedging the currency exposure on inter affiliate loans of (pound)200 million.
Reed Elsevier pays U.S. dollar interest and receives sterling interest, both at
floating rates. These swaps mature within four months.

F-23
<PAGE>

21. Financial instruments - (continued)

The currency and interest profile of the aggregate financial assets of
(pound)479 million (1998 (pound)727 million), after taking account of interest
rate swaps, is set out below:

At December 31, 1999 At December 31, 1998
-------------------------- -------------------------
Non interest Non interest
Floating rate bearning Floating rate bearing
financial financeial financial financial
assets assets assets assets
------------ ----------- ----------- -----------
(in(pound)millions)
U.S. dollar 67 24 55 15
Sterling 146 15 465 4
Euro 149 0 154 0
Other currencies 78 -- 34 --

Total 440 39 708 19

Floating rate interest rates payable on U.S. commercial paper are based on
U.S. dollar commercial paper rates. Other financial assets and liabilities bear
interest by reference to LIBOR or other national LIBOR equivalent interest
rates.

Included within non interest bearing financial assets are (pound)30 million
(1998 (pound)12 million) of investments denominated principally in sterling and
U.S. dollars, which have no maturity date.

The estimated fair values of Reed Elsevier's financial instruments, both on
and off balance sheet, are as follows:

<TABLE>
<CAPTION>
Book value Fair value Book value Fair value
December 31, December 31, December 31, December 31,
1998 1998 1999 1999
---- ---- ---- ----
(in(pound)millions)
Primary financial instruments
held or issued to finance
operations:
<S> <C> <C> <C> <C>
Investments 12 12 30 30
Cash 26 26 79 79
Short term investments 682 682 361 361
Other financial assets 7 7 9 9
Bank loans, overdrafts and
commercial paper (969) (969) (967) (959)
Other loans (701) (741) (539) (527)
Other financial liabilities (44) (44) (23) (23)
Provisions (16) (16) (66) (66)

(1,003) (1,043) (1,116) (1,096)

Derivative financial
instruments held to manage
interest rate and currency
exposure:

Interest rate swaps -- (12) -- 14
Forward rate agreements -- 2 -- --
Forward foreign exchange
contracts -- 2 -- (7)

-- (8) -- 7

Total financial instruments (1,003) (1,051) (1,116) (1,089)
</TABLE>

The amounts shown as carrying amounts in respect of off-balance sheet
financial instruments represent accruals or deferred income arising from these
financial instruments. For certain instruments, including cash or short term
investments, it has been assumed that the carrying amount approximates fair
value because of the short maturity of these instruments. The fair value of long
term debt has been based on current market rates offered to Reed Elsevier for
debt of the same remaining maturities. The fair values for interest rate swaps
and forward rate agreements represent the replacement cost calculated using
market rates of interest as at December 31, 1999 and 1998. The fair values of
all other items have been calculated by discounting expected future cash flows
at market rates.

F-24
<PAGE>

21. Financial instruments - (continued)

The gross notional amounts of interest rate swaps are as follows:

December 31, New Maturities December 31,
1998 Contracts terminations 1999
---- --------- ------------ ----
(in (pound); millions stated at exchange rates
prevailing at December 31, 1999)
Interest rate swaps
U.S. dollar 370 31 (31) 370
Australian dollar 14 6 -- 20
Canadian dollar 3 -- (3) --
Euro 114 -- (37) 77

501 37 (71) 467

Forward swaps
U.S. dollar -- 247 -- 247
Sterling -- 140 -- 140

-- 387 -- 387

Totals 501 424 (71) 854

Forward swaps are agreements to enter into interest rate swaps at future
dates. The U.S. dollar forward swap agreements commence in 2002 for periods of
five or six years. The sterling forward swap agreements commence in 2000 for
periods of nine to twelve months.

The amounts of future maturities and outstanding notional principal of the
above interest rate swap agreements are as follows:

Maturities Outstanding
in year notional
ending principal
December 31, at December 31,
------------ ---------------
(in(pound)millions)
2000 196 658
2001 118 540
2002 231 309
2003 31 278
Thereafter 278 --
854

The weighted average interest rates on interest rate swap agreements in
existence at December 31, 1999 are shown below:

U.S.$ Sterling Australian$ Euro
----- -------- ----------- -----
Interest Rate Swaps
Pay Fixed 6.13% -- 6.69% 4.45%
Receive Floating 6.04% -- 5.03% 3.12%

Forward swaps
Pay Fixed 6.25% -- -- --
Receive Floating 6.18% -- -- --
Pay Floating -- 6.07% -- --
Receive Fixed -- 5.11% -- --

The fixed rates shown above as payable and receivable under interest rate
swaps are the weighted average fixed rates specified in the swap contracts. The
floating rates shown above as payable and receivable under interest rate swaps
are the weighted average floating rates in effect as of December 31, 1999. The
floating rate portions of the swaps are based on U.S. dollar commercial paper
rates or other national LIBOR equivalent interest rates. The weighted average
floating rates shown above assume these floating interest rates will remain
constant throughout the remaining terms of the swap contracts. However, changes
in any of these floating interest rates would affect the weighted average
floating rates shown.

F-25
<PAGE>

21. Financial instruments - (continued)

At December 31, 1999, the gross notional amount of forward rate agreements
totalled (pound)450 million. The individual agreements, commencing in periods of
up to 12 months from December 31, 1999, covered periods of between 77 days and
four months with periods ending on dates between April 2000 and April 2001. The
agreements are denominated in sterling; the agreements do not run concurrently
and therefore the notional amounts at any one time are less than those indicated
in aggregate.

December 31, New December 31, Average rate
1998 Contracts Maturities 1999 receivable
---- --------- ---------- ---- ----------
(in(pound)millions, stated at exchange rates
prevailing at December 31, 1999)
Sterling 570 450 (570) 450 6.69%
Euro 113 31 (144) --

Total 683 481 (714) 450

At December 31, 1999, the gross notional amount of forward foreign exchange
contracts totalled (pound)951 million (1998 : (pound)898 million) as shown
below:

1998 1999
-------------------- -------------------
Currency Currency Currency Currency
sold bought sold bought
---- ------ ---- ------
(in(pound)millions)
U.S. dollar 356 33 336 49
Euro 63 257 25 178
Sterling 23 144 2 211
Other currencies 6 16 123 27

Total 448 450 486 465

Of the total gross amount, (pound)774 million matures within one year and
(pound)177 million after one year.

At December 31, 1999 the unrecognised and deferred gains and losses on
financial instruments used for hedging purposes were as follows:

Unrecognised Deferred
-------------- ----------------
Gains Losses Gains Losses
----- ------ ----- ------
(in(pound)millions)
On hedges at January 1, 1999 4 (12) -- (5)
Arising in previous years included
in 1999 profit and loss account (4) 5 -- 1
Arising in previous years not
included in 1999 profit and loss account 0 (7) -- (4)
Arising in 1999 not included
in 1999 profit and loss account 22 (8) -- (14)

On hedges at December 31, 1999 22 (15) -- (18)

Of which

Expected to be included in 2000
profit and loss account 4 (3) -- (15)
Expected to be included in 2001
profit and loss account or later 18 (12) -- (3)

F-26
<PAGE>

22. Obligations under finance leases

The future finance lease obligations are:

1998 1999
---- ----
(in(pound)millions)
Repayable
Within one year 3 5
Between one and two years 3 4
Between two and five years 4 4
Over five years 9 10
Less: interest charges allocated to future periods (6) (5)

Total 13 18

Obligations falling due within one year 3 4

Obligations falling due after more than one year 10 14

23. Provisions for liabilities and charges

<TABLE>
<CAPTION>
Surplus Reed Travel Deferred
property Acquisitions Group Taxation Total
-------- ------------ ----- -------- -----
(in (pound) millions)
<S> <C> <C> <C> <C> <C>
At January 1, 1999 -- 3 33 -- 36
Transfers 18 -- -- 9 27
Provided 46 -- -- 28 74
Utilised -- (1) (22) -- (23)
Exchange translation differences -- -- -- (1) (1)

At December 31, 1999 64 2 11 36 113
</TABLE>

The surplus property provision relates to lease obligations for various
periods up to 2012 and represents estimated sub-lease shortfalls in respect of
properties which have been, or are in the process of being, vacated. Where
material, long-term obligations have been discounted.

The Reed Travel Group provision in respect of recompense payments and
credits due to customers. The majority of the remaining provision is expected to
be utilised in 2000.

24. Combined share capitals

Issued and Issued and
Authorised Fully Paid Fully Paid
---------- ---------- ----------
1999 1998 1999
---- ---- ----
(in(pound)millions)
Reed International
Non equity shares -- 4 --
Ordinary shares of 12.5p each 143 143 143
Unclassified shares of 12.5p each 41 -- --

Total 184 147 143

Reed International's preference shares were repaid and cancelled during
1999.

Issued and Issued and
Authorised Fully Paid Fully Paid
---------- ---------- ----------
1999 1998 1999
---- ---- ----
(in(e)millions)
Elsevier
Ordinary shares of e0.06 each 126 30 41

Combined share capitals of (pound)168 million (1998 (pound)168 million)
exclude the R-shares of Elsevier held by a subsidiary of Reed International.

Details of share option schemes separately operated by Reed International
and Elsevier are presented in the notes to their respective financial
statements.

F-27
<PAGE>

25. Leasing commitments

The annual commitments under operating leases at December 31, 1999 are:

Land and
Buildings Other
--------- -----
(in(pound)millions)
<S> <C> <C>
Expiry of operating leases-- falling due within one year 3 1
Expiry of operating leases-- falling due within two to five years 24 2
Expiry of operating leases-- falling due after five years 35 1

Total 62 4
</TABLE>

26. Contingent liabilities

There are contingent liabilities amounting to (pound)23 million (1998
(pound)32 million) in respect of borrowings of former subsidiaries and
(pound)nil (1997 (pound)8 million) in respect of borrowings of joint ventures.

A lawsuit has been filed in the United States against Reed Elsevier Inc. by
Jurisline.com LLC ("Jurisline") seeking declaratory relief relating to
copyrights and trademarks and challenging the validity of subscription
agreements. It also alleges that Reed Elsevier Inc. has engaged in
anti-competitive behaviour and seeks damages and injunctive relief. The lawsuit
is being vigorously defended. In a related lawsuit, the Reed Elsevier
subsidiary, Matthew Bender & Company, Inc. has filed a suit alleging that
Jurisline has fraudulently obtained its products and has sought to use these
products in developing a legal information service in breach of express
contractual restrictions. Reed Elsevier fully expects the courts to reaffirm the
enforceability of its contracts and dismiss the claims filed against Reed
Elsevier Inc. A decision against Reed Elsevier could, however, have significant
consequences across the information industry in relation to the protection of
databases. A lawsuit has also been filed against Reed Elsevier Inc. and the
Thomson Corporation by two practising attorneys in the U.S. Virgin Islands,
alleging anti-competitive behaviour and misuse of copyright, claiming $6 billion
in damages and penalties. The claim is regarded as baseless and Reed Elsevier
expects that it will be successfully defended. No amounts have been provided in
respect of the above claims.

There are a number of other outstanding legal claims against the Combined
Businesses but they are not considered to be material in the context of these
financial statements.

27. Pension schemes

A number of pension schemes are operated around the world. The major
schemes are of the defined benefit type with assets held in separate trustee
administered funds.

The main U.K. scheme, which covers the majority of U.K. employees, was
subject to a valuation by Watson Wyatt Partners, consultants, as at April 5,
1997. The scheme is valued formally every three years, the next valuation being
as at April 2000.

The principal 1997 valuation assumptions were:

Actuarial method -- projected unit method
Annual rate of return on investments -- 8.0%
Annual increase in total pensionable remuneration -- 6.0%
Annual rate of return -- 3.5%
Annual increase in present and future pensions
in payment -- 4.0%

The actuarial value placed on the assets was sufficient to cover 123% of
the benefits that had accrued to members. The actuarial surplus is being spread
as a level amount over the average remaining service lives of current employees,
which has been assessed as eight years. The market value of the scheme's assets
at the date of valuation was (pound)1,293 million, excluding assets held in
respect of members' additional voluntary contributions. On the recommendation of
the actuaries, no company contributions have been made to the scheme since April
1, 1989.

The main non U.K. schemes are in the United States and the Netherlands.
Assessments for accounting purposes have been carried out by external qualified
actuaries using prospective benefit methods with the objective that current and
future charges remain a stable percentage of pensionable payroll. The principal
actuarial assumptions adopted in the assessments of the major schemes assume
that, over the long term, investment returns will marginally exceed the annual
increase in pensionable remuneration and in present and future pensions. The
actuarial value of assets of the schemes approximated to the aggregate benefits
that had accrued to members, after allowing for expected future increases in
pensionable remuneration and pensions in course of payment.

Reed Elsevier companies have no significant health and medical plans
providing post-retirement benefits.

The net pension charge was (pound)28 million (1998 (pound)22 million; 1997
(pound)25 million), including a net (pound)3 million (1998 (pound)4 million;
1997 (pound)1 million) SSAP 24 credit related to the main U.K. scheme. The net
SSAP 24 credit on the main U.K. scheme comprises a regular cost of (pound)16
million (1998 (pound)15 million; 1997 (pound)19 million), offset by amortisation
of the net actuarial surplus of (pound)19 million (1998 (pound)19 million; 1997
(pound)20 million). Pension contributions made in the year amounted to (pound)31
million (1998 (pound)26 million; 1997 (pound)26 million). A prepayment of
(pound)127 million (1998 (pound)124 million; 1997 (pound)133 million) is
included in debtors falling due after more than one year, representing the
excess of the pension credit to the profit and loss account since 1988 over the
amounts funded to the main U.K. scheme.

F-28

<PAGE>

28. Statements of cash flows

1997 1998 1999
---- ---- ----
(in(pound)millions)
Financing
Net movement in promissory notes and bank loans 255 181 (20)
Repayment of other loans (151) (3) (176)
Issuance of other loans 4 2 --
Repayment of finance leases (6) (6) (6)
102 174 (202)
Issue of ordinary shares 21 18 9
Redemption of preference shares -- -- (4)
Redemption of minority interest preference shares (3) -- --

120 192 (197)

The repayment of long term borrowings relates primarily to a U.S.$200
million Eurobond, Dfl125 million Private Placements and US$20 million of medium
term notes which matured during the year. In 1998, (pound)3 million of Dutch
guilder convertible loan stock was repaid on maturity. In 1997 a U.S.$150
million Eurobond and U.S.$80 million of medium term notes were repaid on
maturity.

Short term
Cash investments Borrowings Total
---- ----------- ---------- -----
(in(pound)millions)
Reconciliation of net borrowings
At December 31, 1997 110 734 (1,474) (630)

Decrease in cash (84) -- -- (84)
Decrease in short term investments -- (63) -- (63)
Increase in borrowings -- -- (174) (174)

Change in net borrowings resulting
from cash flows (84) (63) (174) (321)
Inception of finance leases -- -- (10) (10)
Exchange translation differences -- 11 (12) (1)

At December 31, 1998 26 682 (1,670) (962)

Increase in cash 59 -- -- 59
Decrease in short term investments -- (297) -- (297)
Decrease in borrowings -- -- 202 202

Change in net borrowings resulting
from cash flows 59 (297) 202 (36)
Inception of finance leases -- -- (11) (11)
Exchange translation differences (6) (24) (27) (57)

At December 31, 1999 79 361 (1,506) (1,066)

Net borrowings comprise cash and short term investments, loan capital,
finance leases, promissory notes and bank loans and are further analysed in note
20.

Discontinued operations contributed (pound)nil (1998 (pound)nil; 1997
(pound)80 million) to net cash inflow from operating activities.

1997 1998 1999
---- ---- ----
(in(pound)millions)
Acquisitions
Purchase of businesses and subsidiary
undertakings (713) (1,231) (120)
Net payment of deferred consideration
of prior year acquisitions -- -- (5)
Investment in joint ventures (12) -- (19)
Purchase of fixed asset investments (1) (1) (22)

Total (726) (1,232) (166)

In 1997, of the (pound)12 million additions to joint ventures, (pound)10
million represents a cash contribution to the joint venture REZsolutions Inc.,
on its formation.

F-29

<PAGE>

28. Statements of cash flows - (continued)

Exceptional net proceeds from sale/closure of businesses

1997 1998 1999
---- ---- ----
(in(pound)millions)
Goodwill and intangible assets 49 132 6
Net tangible assets -- 72 --
Provision made for losses on
sale of businesses (10) -- --

39 204 6
Net profit 57 692 7

Consideration in respect of sale
of businesses, net of expenses 96 896 13
Deferred consideration received/
(amounts paid) in respect of prior year 10 9 (8)
disposals

106 905 5
Amounts (receivable)/payable (2) 8 (2)

Net cash inflow 104 913 3

29. Summary of principal differences between U.K. and Dutch GAAP and U.S. GAAP

The combined financial statements are prepared in accordance with U.K. and
Dutch GAAP, which differ in certain significant respects from U.S. GAAP. These
differences relate principally to the following items and the effect of material
differences on profit and loss attributable and combined shareholders' funds is
shown in the following tables.

Discontinued operations and sale of businesses

Discontinued operations, as separately categorised in the profit and loss
account under U.K. and Dutch GAAP and U.S. GAAP, may relate only to significant
business segments. Under U.K. and Dutch GAAP, such businesses are separately
segmented as discontinued only when sale transactions or closures have been
completed. Under U.S. GAAP, such businesses are segmented as discontinued once
formal commitment to sale or closure is made.

Under U.S. GAAP net income from discontinued operations includes all
operating results of the discontinued operations and the gain or loss on sale.
Under U.K. and Dutch GAAP operating results from discontinued operations are
disclosed as a separate segment within trading profit and the gain or loss on
sale is disclosed as an exceptional item.

Goodwill and other intangible assets

Under U.K. and Dutch GAAP and under U.S. GAAP, the Combined Businesses
capitalise acquired goodwill and intangible assets which are amortised over
their estimated useful lives up to a maximum period of 20 years.

On adoption of FRS 10: Goodwill and Intangible Assets in the 1998 fiscal
year remaining asset lives under U.S. GAAP were reviewed and determined
consistently with those adopted under U.K. and Dutch GAAP. This re-evaluation
significantly increased the periodic amortisation charge, as the unamortised
value of existing assets, which were previously being amortised over periods up
to 40 years, is amortised over shorter periods.

In the year ended December 31, 1998, this resulted in a non-recurring
amortisation charge of (pound)266 million attributable to goodwill and
intangible assets which were fully written off in the year.

The gross cost under U.S. GAAP, as at December 31, 1999, of goodwill is
(pound)3,042 million (1998 (pound)2,958 million) and of other intangibles
including those held in joint ventures is (pound)3,285 million (1998
(pound)3,161 million). Accumulated amortisation under U.S. GAAP, as at December
31, 1999, of goodwill is (pound)1,180 million (1998 (pound)877 million) and of
other intangibles including those held in joint ventures is (pound)1,174 million
(1998 (pound)994 million).

Deferred taxation

Under Dutch GAAP, deferred taxation is provided in full. Under U.K. GAAP,
deferred taxation is only provided to the extent an asset or liability is
expected to crystallise.

In the combined financial statements deferred tax is provided in full using
the liability method. There is no material difference between this full
provision policy and the partial provision method required under U.K. GAAP.
Under U.S. GAAP, deferred taxation is provided on all temporary differences
under the liability method, subject to a valuation allowance on deferred tax
assets where applicable, in accordance with SFAS 109, Accounting for Income
Taxes. The principal adjustments to apply U.S. GAAP are deferred taxation on
temporary differences arising from amortisation under U.S. GAAP of goodwill and
intangible assets and the recognition of deferred tax assets on other timing
differences.

F-30
<PAGE>

29. Summary of principal differences between U.K. and Dutch GAAP
and U.S. GAAP - (continued)

Acquisition accounting

Prior to the introduction of U.K. financial reporting standard FRS7: Fair
Values In Acquisition Accounting which was effective in respect of 1995 and
subsequent years, under U.K. and Dutch GAAP certain items, such as integration
costs incurred in the Combined Businesses' existing operations and the costs of
commitments and developments in progress, may have been provided as part of the
purchase accounting adjustments on acquisition. Under U.S. GAAP some of these
items are only expensed when the costs are incurred. Under FRS7, provisions for
restructuring and integration costs may no longer be provided as part of
purchase accounting.

Pensions

The Combined Businesses account for pension costs under the rules set out
in SSAP 24. Its objectives and principles are broadly in line with those set out
in the U.S. accounting standard for pensions, SFAS 87, Employers' Accounting for
Pensions. However, SSAP 24 is less prescriptive in the application of the
actuarial method and assumptions to be applied in the calculation of pension
costs.

Under U.S. GAAP plan assets are valued by reference to market-related
values at the date of the financial statements. Liabilities are assessed using
the rate of return obtainable on fixed or inflation-linked bonds. Under U.K.
GAAP pension plan assets and liabilities are based on the results of the latest
actuarial valuation. Pension assets are valued at discounted present value
determined by expected future income. Liabilities are assessed using the
expected rate of return on plan assets.

Short term obligations expected to be refinanced

Under U.S. GAAP, where it is intended to refinance short term obligations
on a long term basis and this is supported by an ability to consummate the
refinancing, such short term obligations should be excluded from current
liabilities and shown as long term obligations. Under U.K. and Dutch GAAP, such
obligations can only be excluded from current liabilities where, additionally,
the debt and the facility are under a single agreement or course of dealing with
the same lender or group of lenders. Short term obligations totalling, as at
December 31, 1999, (pound)395 million (1998 (pound)602 million) would thus be
excluded from current liabilities under U.S. GAAP and shown as long term
obligations.

Sale and lease back transactions of real estate

U.S. GAAP prescribes certain requirements for income recognition on real
estate transactions relating to the consummation of a sale and the sellers'
continuing involvement in a property, which are not found in U.K. and Dutch
GAAP. This results in the profit from certain sale and lease back transactions
being deferred and recorded in different accounting periods under U.S. GAAP.

Ordinary dividends

Under U.K. and Dutch GAAP, dividends are provided for in the year in
respect of which they are proposed by the directors. Under U.S. GAAP, such
dividends would not be provided for until they are formally declared by the
directors.

Exceptional items

Exceptional items are material items within the Combined Businesses'
ordinary activities which under U.K. and Dutch GAAP are required to be disclosed
separately due to their size or incidence. These items do not qualify as
extraordinary under U.S. GAAP and are considered a part of operating results.

Adjusted earnings

In the combined financial statements adjusted profit and cash flow measures
are presented as permitted by U.K. and Dutch GAAP as an additional performance
measure. See note 1 and note 10. U.S. GAAP does not permit the presentation of
alternative earnings measures. Accordingly, adjusted profit is not regarded as
an alternative performance measure under U.S. GAAP.

Stock based compensation

SFAS 123: Accounting for stock based compensation establishes a fair value
based method of accounting for stock based compensation plans and encourages the
recognition of the compensation cost on this basis in the income statement.
Where the cost is not recognised the proforma effect of the valuation method on
net income must be disclosed. Under U.K. and Dutch GAAP the compensation element
is not required to be recognised in net income.

The disclosure only provisions of SFAS 123 have been adopted. If
compensation costs based on fair value at the grant dates had been recognised
net (loss)/income under U.S. GAAP would have been (increased)/reduced by
(pound)5 million in the year ended December 31, 1999 (1998 (pound)2 million).

F-31
<PAGE>

29. Summary of principal differences between U.K. and Dutch GAAP
and U.S. GAAP - (continued)

Recently Issued Accounting Pronouncements

Effects on net income of material differences between U.K. and Dutch GAAP and
U.S. GAAP:

Year ended December 31,
----------------------------
1997 1998 1999
---- ---- ----
(in(pound)millions)
(Loss)/profit attributable income
under U.K. and Dutch GAAP (14) 772 (63)
U.S. GAAP adjustments:
Amortisation of goodwill and other
intangibles 1 (477) (83)
Deferred taxation 32 77 67
Acquisition accounting (1) (10) (1)
Sale and lease back 1 6 --
Pensions 23 30 6
Other items 1 -- 1

Net income/(loss) under U.S. GAAP 43 398 (73)

Analysed:
Continuing operations 3 (122) (73)
Discontinued operations
--income from operations 40 (1) --
--gain on sales -- 521 --

43 398 (73)

Effects on combined shareholders' funds of material differences between
U.K. and Dutch GAAP and U.S. GAAP:

At December 31,
-------------------
1998 1999
---- ----
(in(pound)millions)
Combined shareholders' funds under U.K
and Dutch GAAP 2,130 1,855
U.S. GAAP adjustments:
Goodwill and other intangibles 637 553
Deferred taxation (242) (180)
Acquisition accounting 8 8
Pensions 57 63
Other items (1) (3)
Ordinary dividends not declared in the period 244 127

Combined shareholders' funds under U.S. GAAP 2,833 2,423

Cash Flow Information

Cash flows under U.K. and Dutch GAAP in respect of taxation, returns on
investment, dividends received from joint ventures and servicing of finance
would be included within operating activities under SFAS 95. Under SFAS 95 cash
is aggregated for cash flow statements with cash equivalents, being short term
investments with original maturities of three months or less.

F-32

<PAGE>

29. Summary of principal differences between U.K. and Dutch GAAP
and U.S. GAAP - (continued)

Under U.S. GAAP, the following amounts would be reported:

Year ended December 31,
-------------------------
1997 1998 1999
---- ---- ----
(in(pound)millions)
Net cash provided by operating activities
(including joint ventures) 708 501 584
Net cash used in investing activities (762) (478) (286)
Net cash used in financing activities (244) (428) (341)

Net decrease in cash and cash equivalents (298) (405) (43)

Reconciliation of cash and cash equivalents:

Cash under U.K. and Dutch GAAP 110 26 79
Current asset investments with original
maturity within 3 months 704 394 268

Cash and cash equivalents under U.S. GAAP 814 420 347

Comprehensive Income Information

SFAS 130: Reporting Comprehensive Income, requires that all items that are
required to be recognised as components of comprehensive income under U.S.
accounting standards are reported in a separate financial statement. Under U.S.
GAAP comprehensive (loss)/income for the year ended December 31, 1999 would be
(pound)(46) million (1998 (pound)389 million; 1997 (pound)44 million).
Comprehensive income under U.S. GAAP comprises net income for the financial
year, adjustments to the fair value of marketable securities and exchange
translation differences.

Under U.S. GAAP, the following amounts would be reported:

Year ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
(in(pound)millions)
Net income/(loss) under U.S. GAAP 43 398 (73)
Unrealised gains on marketable securities
--arising in the year -- 11 1
--recognised in net income/(loss) -- (7) (3)
Exchange translation differences 1 (13) 29

Comprehensive income/(loss) under U.S. GAAP 44 389 (46)

Pensions- U.K. Scheme

Reed Elsevier operates a number of pension schemes around the world. The
major schemes are of a defined benefit type with assets held in separate trustee
administered funds.

The most significant scheme is the main U.K. scheme which covers the
majority of U.K. employees. The main U.K. pension scheme is much more
significant than the other Reed Elsevier pension schemes because it includes
substantial numbers of pensioners and deferred pensioners retained when the
manufacturing business of Reed International were divested in the late 1980's.

The scheme is funded to cover future pension liabilities, including
expected future earnings and pension increases, in respect of service up to the
balance sheet date. The net pension costs/(credits) in respect of this scheme
calculated in accordance with SFAS 87 were as follows:

Year ended December 31,
---------------------------
1997 1998 1999
---- ---- ----
(in(pound)millions)
Service costs-- benefits earned
during the year 20 22 34
Interest cost on projected benefit
obligations 78 68 66
Actual return on plan assets (105) (102) (99)
Net amortisation and deferral (18) (21) (6)

Net periodic pension credits (25) (33) (5)

F-33

<PAGE>

29. Summary of principal differences between U.K. and Dutch GAAP
and U.S. GAAP - (continued)

The following table sets forth the funded status under SFAS 87 of the main
U.K. scheme:

Year ended December 31,
-----------------------------
1997 1998 1999
---- ---- ----
(in(pound)millions)
Projected benefit obligation (924) (1,205) (1,301)
Plan assets at fair value 1,462 1,530 1,776

Excess of plan assets 538 325 475
Unrecognised net gain (329) (120) (269)
Unrecognised net transition asset (64) (51) (43)
Unrecognised prior service cost 14 23 19

Prepaid pension cost 159 177 182

Year ended December 31,
-----------------------------
1997 1998 1999
---- ---- ----
(in(pound)millions)
Projected benefit obligation

Balance at January 1 897 924 1,205
Service cost 20 22 34
Interest cost 78 68 66
Prior service cost -- 20 --
Plan amendments -- -- --
Actuarial (loss)/gain (33) 288 55
Contributions 5 4 3
Disbursements (43) (46) (62)
Settlement and curtailment
on disposal of businesses -- (75) --

Balance at December 31 924 1,205 1,301

Year ended December 31,
-----------------------------
1997 1998 1999
---- ---- ----
(in(pound)millions)
Fair value of assets

Balance at January 1 1,277 1,462 1,530
Actual return 223 221 305
Contributions 5 4 3
Disbursements (43) (46) (62)
Settlement and curtailment
on disposal of businesses -- (111) --

Balance at December 31 1,462 1,530 1,776

Year ended December 31,
-----------------------------
1997 1998 1999
---- ---- ----
(in(pound)millions)
Prepaid pension cost

Balance at January 1 134 159 177
Net Periodic Cost 25 33 5
Settlement and curtailment
on disposal of businesses -- (15) --

Balance at December 31 159 177 182

F-34

<PAGE>

29. Summary of principal differences between U.K. and Dutch GAAP
and U.S. GAAP - (continued)

The principal assumptions used were:

1997 1998 1999
---- ---- ----
Discount rate 8% 7% 5.25%
Salary increases 6% 5.5% 5.0%
Investment return 8% 8% 6.5%
Pension increases 4% 3.5% 3.0%

Plan assets are invested primarily in equities, index-linked securities and
liquid assets.

Pensions- U.S. Schemes

The main U.S. pension schemes cover approximately 14,000 of the U.S.
employees. The benefits are based on years of service and the employees'
compensation. The funding policy is to contribute at least the minimum amount
required by law. The net pension costs/(credits) in respect of this scheme
calculated in accordance with SFAS 87 were as follows:

Year ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
(in(pound)millions)
Service costs-- benefits earned
during the year 9 13 18
Interest cost on projected benefit
obligations 10 11 12
Actual return on plan assets (24) (17) (14)
Net amortisation and deferral 14 4 --

Net periodic pension cost 9 11 16

The following table sets forth the funded status under SFAS 87 of the main
U.S. schemes:

Year ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
(in(pound)millions)
Projected benefit obligation (141) (167) (159)
Plan assets at fair value 143 160 175

Excess/(deficit) of plan assets 2 (7) 16
Unrecognised net transition
liability (22) (20) (48)
Unrecognised prior service cost 1 -- (9)

Accrued pension cost (19) (27) (41)

Year ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
(in(pound)millions)
Projected benefit obligation
Balance at January 1 120 141 167
Service cost 9 13 18
Interest cost 10 11 12
Plan amendments -- (6) --
Actuarial gain 8 15 (29)
Disbursements (6) (7) (9)

Balance at December 31 141 167 159

F-35

<PAGE>

29. Summary of principal differences between U.K. and Dutch GAAP
and U.S. GAAP - (continued)

Year ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
(in(pound)millions)
Fair value of assets

Balance at January 1 118 143 160
Actual return 24 17 20
Contributions 7 7 4
Disbursements (6) (7) (9)

Balance at December 31 143 160 175

Year ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
(in(pound)millions)
Accrued pension cost

Balance at January 1 (17) (19) (27)
Additional obligations -- (4) (2)
Net Periodic Cost (9) (11) (16)
Contributions 7 7 4

Balance at December 31 (19) (27) (41)

The principal assumptions used were:

Year ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
(in(pound)millions)
Discount rate 7.50% 6.75% 8.00%
Salary increases 4.0% to 5.0% 4.5% to 5.0% 4.5% to 5.0%
Investment return 9.50% 9.50% 9.25%

Plan assets are invested primarily in listed stocks and U.S. bonds.

F-36

<PAGE>

REED ELSEVIER

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

Balance at
beginning Cost and Other Balance at
of year expenses movements Deductions end of year
------- -------- --------- ---------- -----------
(in (pound) millions)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for doubtful receivables 38 19 (5) (13) 39
Year ended December 31, 1998
Allowance for doubtful receivables 39 18 1 (13) 45
Year ended December 31, 1999
Allowance for doubtful receivables 45 14 -- (13) 46

Year ended December 31, 1997
Provisions against stocks 42 4 (1) (5) 40
Year ended December 31, 1998
Provisions against stocks 40 9 -- (10) 39
Year ended December 31, 1999
Provisions against stocks 39 5 -- (2) 42
</TABLE>

F-37

<PAGE>

REED INTERNATIONAL P.L.C.

CONSOLIDATED FINANCIAL STATEMENTS

F-38

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Reed International P.L.C.

We have audited the accompanying consolidated balance sheets as of December
31, 1999 and 1998, and the related consolidated profit and loss accounts and
statements of total recognised gains and losses, changes in shareholders' funds
and cash flows for the three years ended December 31, 1999. These consolidated
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 Kingdom and the United States. Those standards require
that we plan and perform the audits 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 presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the aforementioned consolidated financial statements
present fairly, in all material respects, the financial position of Reed
International P.L.C. and its subsidiaries at December 31, 1999 and 1998 and the
results of their operations and their cash flows for the three years ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United Kingdom (which differ in certain material respects from generally
accepted accounting principles in the United States -- see note 17).

DELOITTE & TOUCHE
Chartered Accountants & Registered Auditors
London, England
February 23, 2000

F-39

<PAGE>

REED INTERNATIONAL P.L.C.
CONSOLIDATED PROFIT AND LOSS ACCOUNTS

Year ended December 31,
Notes 1997 1998 1999
----- ---- ---- ----
(in(pound)millions except per share amounts)
<S> <C> <C> <C> <C>
Turnover

Share of turnover in joint ventures 1,808 1,688 1,793
Less: share of turnover in joint ventures (1,808) (1,688) (1,793)

-- -- --

Administrative expenses (1) (1) (1)

Operating loss (before joint ventures) (1) (1) (1)

Share of operating profit of joint ventures:

Before exceptional items and amortisation 3 449 419 414
Amortisation of goodwill and intangible assets 3 (153) (176) (197)
Exceptional items 3 (266) (42) (126)

30 201 91

Operating profit including joint ventures 29 200 90

Non-operating exceptional items (1) (5) --
Share of non-operating exceptional items of joint ventures 3 30 366 4

29 361 4

Net interest

Group 5 3 5 3
Share of net interest of joint ventures (36) (26) (46)

(33) (21) (43)

Profit on ordinary activities before taxation 25 540 51
Tax on profit on ordinary activities 6 (52) (144) (90)

(Loss)/profit attributable to ordinary shareholders (27) 396 (39)

Basic (loss)/earnings per ordinary share (pence) 7 (2.4)p 34.7p (3.4)p

Diluted (loss)/earnings per ordinary share (pence) 7 (2.4)p 34.6p (3.4)p
</TABLE>

Administrative expenses include (pound)510,000 (1998: (pound)388,000, 1997:
(pound)529,000) paid in the year to Reed Elsevier plc under a contract for the
services of the directors and administrative support. In 1998 non-operating
exceptional costs of (pound)4,986,000 (1997 : (pound)1,443,000) were paid to
Reed Elsevier plc in respect of professional fees and other expenses relating to
the abandoned merger of Reed International, Elsevier and Wolters Kluwer nv
businesses.

1997 figures were restated on the introduction in 1998 of U.K. accounting
standards to include retrospective amortisation of goodwill and intangible
assets (FRS 10) and additional information in respect of joint ventures (FRS 9).

The above amounts derive from continuing activities. The historical cost
profits and losses are not materially different from the results disclosed
above.

The accompanying notes on pages F-45 to F-52 are an integral part of these
consolidated financial statements

F-40
<PAGE>

REED INTERNATIONAL P.L.C.

CONSOLIDATED STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES

Year ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
(in(pound)millions)
(Loss)/profit attributable to
ordinary shareholders (27) 396 (39)
Exchange translation differences (6) (2) 9

Total recognised gains and
losses for the year (33) 394 (30)

Recognised gains and losses include losses of(pound)37 million (1998 gains
of(pound)396 million; 1997 losses of(pound)(33) million) in respect of joint
ventures.

The accompanying notes on pages F-45 to F-52 are an integral part of these
consolidated financial statements

F-41

<PAGE>

REED INTERNATIONAL P.L.C.

CONSOLIDATED BALANCE SHEETS

At December 31,
---------------
Notes 1998 1999
----- ---- ----
(in(pound)millions)
Fixed assets Investments in
joint ventures:

Share of gross assets 3,081 2,825
Share of gross liabilities (2,015) (1,968)

Share of net assets 9 1,066 857

Current assets

Debtors 10 224 233
Short term investments 2 --

226 233
Creditors: amounts falling
due within one year 11 (129) (73)

Net current assets 97 160

Total assets less current
liabilities 1,163 1,017
Creditors: amounts falling
due after more than one year 12 (36) (36)

Net assets 1,127 981

Capital and reserves

Redeemable preference shares 13 3 --
Non-redeemable preference shares 13 1 --
Called up share capital 13 143 143
Share premium account 229 233
Capital redemption reserve -- 4
Profit and loss reserve 751 601

Shareholders' funds 1,127 981

Contingent liabilities -- See note 14.

The accompanying notes on pages F-45 to F-52 are an integral part of these
consolidated financial statements

F-42

<PAGE>

REED INTERNATIONAL P.L.C.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 31,
-----------------------
Notes 1997 1998 1999
----- ---- ---- ----
(in(pound)millions)
<S> <C> <C> <C> <C>
Operating loss (before joint ventures) (1) (1) (1)
Non-operating exceptional items (1) (5) --
Net movement in debtors and creditors -- 1 (1)

Net cash outflow from operating
activities (2) (5) (2)

Dividends received from Reed Elsevier plc 158 171 172

Interest received 6 5 3
Interest paid (4) -- --

Returns on investments and servicing of
finance 2 5 3

Taxation (1) (1) 7

Equity dividends paid (158) (169) (173)

Net cash (outflow)/inflow before changes
in short term investments and financing (1) 1 7
Decrease in short term investments 15 -- -- 2
Issue of ordinary shares less capital
redemption 15 14 --
Increase in net funding balances to
Reed Elsevier plc group 15 (14) (15) (9)

Financing 1 (1) (9)

Change in cash -- -- --
</TABLE>

The accompanying notes on pages F-45 to F-52 are an integral part of these
consolidated financial statements

F-43

<PAGE>

REED INTERNATIONAL P.L.C.

STATEMENTS OF CHANGES IN CONSOLIDATED SHAREHOLDERS' FUNDS

(pound)1 Preference Shares
12.5p Ordinary Shares
<TABLE>
<CAPTION>
Share Capital Profit and
Non- Share premium redemption loss Shareholders
Redeemable redeemable Number capital account reserve reserve funds
---------- ---------- ------ -------- -------- ---------- ---------- ------------
((pound) ((pound) ((pound) ((pound) ((pound) ((pound) ((pound)
million) million) '000 million) million) million) million) million)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 3 1 1,136,054 142 201 -- 744 1,091
Loss attributable to ordinary
shareholders -- -- -- -- -- -- (27) (27)
Ordinary dividends -- -- -- -- -- -- (167) (167)
Exchange translation
differences and other items -- -- -- -- -- -- (17) (17)
Issue of ordinary shares on
exercise of share options -- -- 4,345 1 14 -- -- 15
Balance at December 31, 1997 3 1 1,140,399 143 215 -- 533 895
Profit attributable to
ordinary shareholders -- -- -- -- -- -- 396 396
Ordinary dividends -- -- -- -- -- -- (172) (172)
Exchange translation
differences and other items -- -- -- -- -- -- (6) (6)
Issue of ordinary shares on
exercise of share options -- -- 4,100 -- 14 -- -- 14
Balance at December 31, 1998 3 1 1,144,499 143 229 -- 751 1,127
Loss attributable to
ordinary shareholders -- -- -- -- -- -- (39) (39)
Ordinary dividends -- -- -- -- -- -- (116) (116)
Exchange translation
differences and other items -- -- -- -- -- -- 9 9
Redemption of preference
share capital (3) (1) -- -- -- 4 (4) (4)
Issue of ordinary shares on
exercise of share options -- -- 1,132 -- 4 -- -- 4
Balance at December 31, 1999 -- -- 1,145,631 143 233 4 601 981
</TABLE>

The accumulated exchange translation differences included in reserves are
(pound)(79) million (December 31, 1998 (pound)(88) million; December 31, 1997
(pound)(86) million).

At December 31, 1999 Reed International's share of the revenue reserves of
the Combined Businesses is (pound)712 million (1998 (pound)851 million; 1997
(pound)633 million).

The accompanying notes on pages F-45 to F-52 are an integral part of these
consolidated financial statements

F-44

<PAGE>

REED INTERNATIONAL P.L.C.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of financial statements

On January 1, 1993 Reed International and Elsevier contributed their
businesses to two companies, Reed Elsevier plc and Elsevier Reed Finance BV.
Reed Elsevier plc, which owns all the publishing and information businesses, is
incorporated in England and Elsevier Reed Finance BV, which owns the financing
and treasury companies, is incorporated in the Netherlands. Reed International
and Elsevier each hold a 50% interest in Reed Elsevier plc. Reed International
holds a 46% interest in Elsevier Reed Finance BV with Elsevier holding a 54%
interest. In addition, Reed International has a 5.8% interest in Elsevier
reflecting the relative market capitalisations of the two companies on which the
financial terms of the Merger.

Under equalisation arrangements entered into at the time of the Merger,
ordinary shareholders of Reed International and Elsevier enjoy substantially
equivalent dividend and capital rights with respect to their Ordinary Shares in
the profit and net assets of the Combined Businesses, comprising the separate
legal entities of Reed International, Elsevier, Reed Elsevier plc and Elsevier
Reed Finance BV and their respective subsidiaries, associates and joint
ventures. These arrangements are such that, with respect to dividend and capital
rights, one Elsevier Ordinary Share is, in broad terms, intended to confer
equivalent economic interests to 1.538 of a Reed International Ordinary Share.
As a result of the equalisation arrangements, Reed International shareholders
have a 52.9% economic interest in the net income of the Combined Businesses.

2. Accounting policies

The significant accounting policies adopted are as follows:

Basis of consolidation

The consolidated financial statements have been prepared under the
historical cost convention in accordance with applicable accounting principles
in the United Kingdom ("U.K. GAAP"). These principles differ in certain
significant respects from accounting principles generally accepted in the United
States ("U.S. GAAP"); see note 17. Amounts in the financial statements are
stated in pounds sterling ("(pound)").

The consolidated financial statements include Reed International's 52.9%
economic interest that shareholders have under the equalisation arrangements in
the Combined Businesses, accounted for on a gross equity basis.

Determination of profit

The Reed International share of the Reed Elsevier combined results has been
calculated on the basis of the 52.9% economic interest of the Reed International
shareholders in the Combined Businesses after taking account of results arising
in Reed International and its subsidiary undertakings. Dividends paid to Reed
International and Elsevier shareholders are equalised at the gross level
inclusive of the benefits of the U.K. tax credit received by certain Reed
International shareholders. In these financial statements, an adjustment is
required to equalise the benefit of the tax credit between the two sets of
shareholders in accordance with the equalisation agreement. This equalisation
adjustment arises only on dividends paid by Reed International to its
shareholders and reduces the attributable earnings of the company by 47.1% of
the total amount of the tax credit.

Basis of valuation of assets and liabilities

Reed International's 52.9% economic interest in the net assets of the
Combined Businesses has been shown on the balance sheet as interests in joint
ventures, net of the assets and liabilities reported as part of Reed
International and its subsidiary undertakings.

Translation of foreign currencies into sterling

Profit and loss items are translated at average exchange rates. In the
consolidated balance sheet, assets and liabilities are translated at rates
ruling at the balance sheet date or contracted rates where applicable. The gains
or losses relating to the re translation of Reed International's 52.9% economic
interest in the net assets of the Combined Businesses are taken directly to
reserves.

Taxation

Deferred taxation is provided in full for timing differences using the
liability method. There is no material difference between this full provision
policy and the partial provision method required under U.K. GAAP. No provision
is made for tax which might become payable on the distribution of retained
profits by foreign subsidiaries or joint ventures, unless there is an intention
to distribute such retained profits giving rise to a charge. The potential
deferred tax has not been quantified.

F-45
<PAGE>

3. Income from interests in joint ventures

1997 1998 1999
---- ---- ----
(in(pound)millions)
Share of operating profit before
amortisation and exceptional items
Reed Elsevier combined results (50%) 443 407 396
Elsevier NV's result (5.8%) 25 23 23
Share of operating profit before
amortisation and exceptional items
(based on 52.9% economic interest
in the Reed Elsevier combined businesses) 468 430 419
Effect of tax credit equalisation on
distributed earnings (note 4) (20) (12) (6)
Items consolidated within Reed
International group 1 1 1
Attributable share 449 419 414

Share of amortisation
Attributable share (153) (176) (197)

Share of exceptional items charged
to operating profit
Attributable share (266) (42) (126)

Share of non operating exceptional items
Reed Elsevier combined results (52.9%) 29 361 4
Items consolidated within Reed
International group 1 5 0

Attributable share 30 366 4

4. Effect of tax credit equalisation on distributed earnings

The equalisation adjustment arises only on dividends paid by Reed
International to its shareholders and reduces the attributable earnings of the
company by 47.1% of the total amount of the tax credit; see note 2.

5. Net interest income/(expense)

1997 1998 1999
---- ---- ----
(in(pound)millions)
Interest payable and similar charges
On loans from Reed Elsevier plc group (4) (4) (4)
Interest receivable and similar income
On loans to Reed Elsevier plc group 7 9 7

Net interest income 3 5 3

F-46

<PAGE>

6. Tax on profit on ordinary activities

1997 1998 1999
---- ---- ----
(in(pound)millions)
U.K. Corporation Tax (1999 30.25%;
1998 31.0%; 1997 31.5%) 1 1 (5)
Share of tax arising in joint ventures:
Before amortisation and exceptional items 112 106 103
On amortisation and exceptional items (61) 37 (8)

52 144 90

The share of tax arising in joint ventures is high as a proportion of the
share of profit before tax due to non-tax deductible amortisation, the
non-recognition of potential deferred tax assets and taxes arising on business
consolidation in the programme of reorganisation within the joint ventures.

7. Basic and diluted earnings per ordinary share

The basic earnings per ordinary share for each financial period is
calculated as follows:

Weighted
average Basic
number of earnings/(loss)
Earnings/(loss) ordinary per ordinary
(in(pound) shares share
(in millions) (in millions) (in pence)
------------- ------------- ----------
Year ended December 31, 1999 (39) 1,145.1 (3.4)p
Year ended December 31, 1998 396 1,142.6 34.7p
Year ended December 31, 1997 (27) 1,138.9 (2.4)p

The diluted earnings per ordinary share for each financial period is
calculated as follows:

Weighted
average Basic
number of earnings/(loss)
Earnings/(loss) ordinary per ordinary
(in(pound) shares share
(in millions) (in millions) (in pence)
------------- ------------- ----------
Year ended December 31, 1999 (39) 1,145.3 (3.4)p
Year ended December 31, 1998 396 1,144.6 34.6p
Year ended December 31, 1997 (27) 1,143.3 (2.4)p

Diluted earnings/(loss) per ordinary share are calculated after taking
account of the effect of share options.

8. Dividends paid and proposed

1997 1998 1999
---- ---- ----
(in(pound)millions except per
share amounts)
First interim 50 52 53
Final (1997 Second Interim) 117 120 63

Total 167 172 116

Per 12.5p Ordinary Share

First interim 4.40p 4.60p 4.60p
Final (1997 Second interim) 10.20p 10.40p 5.40p

Total 14.60p 15.00p 10.00p

Dividends in respect of preference shares of Reed International paid in
1999 amounted to (pound)0.1 million (1998 (pound)0.2 million; 1997 (pound)0.2
million).

F-47

<PAGE>

9. Fixed asset investments

1998 1999
---- ----
Investment in joint
ventures
--------------------
(in(pound)millions)
At January 1, 845 1,066
Share of operating profit 201 91
Share of non operating
exceptional items 366 4
Share of net interest payable (26) (46)

Share of profit before tax 541 49
Share of taxation (143) (95)

Share of profit/(loss) after tax 398 (46)

Dividends received (171) (172)
Exchange translation differences
and other items (6) 9

At December 31, 1,066 857

The investment in joint ventures comprises the group's share at the
following amounts of:

1998 1999
---- ----
(in(pound)millions)
Fixed assets 2,160 2,066
Current assets 921 759
Creditors: amounts falling due
within one year (1,571) (1,576)
Creditors: amounts falling due
after more than one year (422) (328)
Provisions (19) (60)
Minority interests (3) (4)

1,066 857

Included within share of current assets and creditors are cash and short
term investments of (pound)233 million (1998 (pound)374 million) and borrowings
of (pound)797 million (1998 (pound)883 million) respectively.

10. Debtors

1998 1999
---- ----
(in(pound)millions)
Amounts owed by Reed Elsevier plc group 224 233

Amounts falling due after more than one year are (pound)40 million (1998
(pound)40 million), denominated in sterling at a fixed rate of 9.8% (1998 9.8%)
for a duration of eight years (1998 nine years). At December 31, 1999 these
amounts had a fair value of (pound)44 million (1999 (pound)47 million).

11. Creditors: amounts falling due within one year

1998 1999
---- ----
(in(pound)millions)
Proposed dividends 120 63
Taxation 7 9
Other creditors 2 1

Total 129 73

12. Creditors: amounts falling due after more than one year

1998 1999
---- ----
(in(pound)millions)
Amounts owed to Reed Elsevier plc group 36 36

These amounts are denominated in sterling at a fixed rate of 10.5% (1998
10.5%) for a duration of six years (1998 seven years). At December 31, 1999
these amounts had a fair value of (pound)44 million (1998 (pound)47 million).

F-48

<PAGE>

13. Share capital

Issued and Issued and
Fully Paid Fully Paid
1999 1998 1999
---- ---- ----
(in(pound)millions)
Preference shares (cumulative)
of(pound)1.00 each
Redeemable at par at the option
of the company
3.15% -- 2 0
3.85% -- 1 0
Non-redeemable

3.50% 0 0 0
4.90% -- 1 0

Non equity shares -- 4 0
Ordinary shares of 12.5p each 143 143 143
Unclassified shares of 12.5p each 41 0 0

Total 184 147 143

Details of shares issued under share option schemes are set out in note 16.

A reduction of capital was approved at the Annual General Meeting in April
1999, involving the cancellation and repayment of Reed International's entire
non-equity share capital. The reduction became effective on May 14, 1999,
following which 1,500,000 3.15% preference shares of (pound)1 each, 1,200,000
3.85% preference shares of (pound)1 each, 317,766 3.50% preference shares of
(pound)1 each and 1,050,587 4.90% preference shares of (pound)1 each were repaid
at par, plus accrued dividend.

14. Contingent liabilities

There are contingent liabilities in respect of borrowings of the Reed
Elsevier plc group and Elsevier Reed Finance BV group guaranteed by Reed
International as follows:

1998 1999
---- ----
(in(pound)millions)
Borrowings of Reed Elsevier plc
group and Elsevier Reed Finance BV group
Guaranteed jointly and severally with Elsevier 1,616 1,431
Guaranteed solely by Reed International 2 1

Total 1,618 1,432

Financial instrument disclosures in respect of borrowings covered by the
above guarantees are given in note 21 to the Reed Elsevier Combined Financial
Statements.

15. Statements of cash flows

Net
funding
balances
Short term with Reed
asset Elsevier
investments plc group Total
----------- --------- -----
(in (pound) millions)
Reconciliation of net borrowings

At December 31, 1996 2 159 161
Cash flow 0 14 14

At December 31, 1997 2 173 175
Cash flow 0 15 15

At December 31, 1998 2 188 190
Cash flow (2) 9 7

At December 31, 1999 0 197 197

F-49

<PAGE>

16. Share option schemes

Reed Elsevier plc operates a savings related share option scheme which is
open to all U.K. employees of Reed Elsevier plc and participating companies
under its control who are in employment on a predetermined date prior to the
date of invitation. The following options have been granted over Reed
International Ordinary Shares, and may be exercised at the end of the savings
period at a price equivalent to not less than 80% of the market value of the
Reed International Ordinary Shares at the time of grant.

Transactions during the three financial periods ended December 31, 1999,
adjusted for the subdivision of Reed International Ordinary Shares, were:

Number of Exercise
Ordinary price
Shares (pence)
----------- ------------
Outstanding at December 31, 1996 6,561,134
Granted 1,541,679 449.8
Exercised (1,098,407) 199.8-475.8
Lapsed (566,923)

Outstanding at December 31, 1997 6,437,483
Granted 881,830 499.2
Exercised (2,032,556) 263-499.2
Lapsed (1,339,934)

Outstanding at December 31, 1998 3,946,823
Granted 1,251,005 430
Exercised (663,233) 263-499.2
Lapsed (755,857)

Outstanding at December 31, 1999 3,778,738

The above options will be met by the issue of new Reed International
Ordinary Shares. Options outstanding at December 31, 1999 were exercisable by
January 31, 2005. No options had vested at December 31, 1999.

Reed Elsevier plc operates an executive share option scheme and options are
granted to selected full time employees of Reed Elsevier plc. The options are
granted over Reed International Ordinary Shares, and are normally exercisable
after three years and may be exercised up to ten years from the date of grant at
a price equivalent to the market value of the Reed International Ordinary Shares
at the time of grant.

Transactions under the Reed Elsevier plc Executive Schemes and the Reed
International Executive Schemes during the three financial periods ended
December 31, 1999, adjusted for the subdivision of Reed International Ordinary
Shares, were:

Number of Exercise
Ordinary price
Shares (pence)
------ -------
Outstanding at December 31, 1996 12,539,600
Granted 3,140,000 565.75
Exercised (3,246,600) 188.75-585.25
Lapsed (177,000)

Outstanding at December 31, 1997 12,256,000
Granted 1,125,400 523-611
Exercised (2,067,200) 208.75585.25
Lapsed (829,200)

Outstanding at December 31, 1998 10,485,000
Granted 14,522,906 424-537.5
Exercised (468,900) 201-410.25
Lapsed (798,033)

Outstanding at December 31, 1999 23,740,973

Options outstanding at December 31, 1999 were exercisable by 2009.
6,518,400 options had vested at December 31, 1999.

The above outstanding options will, upon exercise, be met by the issue of
new Reed International Ordinary Shares.

Excluded from the above are options granted under the Reed Elsevier plc
Executive Share Option Schemes (No. 2), which, upon exercise, will be met by the
Reed Elsevier Employee Benefit Trust from shares purchased in the market. At
December 31, 1999 there were 2,161,874 options outstanding at exercise prices
ranging between 424p and 537.5p.

F-50
<PAGE>

17. Summary of differences between U.K. GAAP and U.S. GAAP

The consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United Kingdom ("U.K. GAAP"),
which differ in certain significant respects from generally accepted accounting
principles in the United States ("U.S. GAAP"). These differences relate
principally to the following items and the effect of material differences on net
income and shareholders' funds is shown in the following tables.

Impact of U.S. GAAP adjustments to combined financial statements

Reed International accounts for its 52.9% economic interest in the Combined
Businesses, before the effect of tax credit equalisation (see note 4), by the
gross equity method in conformity with U.K. GAAP which is similar to the equity
method used under U.S. GAAP. Using the equity method to present its net income
and shareholders' funds under U.S. GAAP Reed International reflects its 52.9%
share of the effects of differences between U.K. and Dutch GAAP and U.S. GAAP
relating to the Combined Businesses and the effect on tax credit equalisation of
recognising dividends, under U.S. GAAP, only if declared in the period, as a
single reconciling item. The most significant differences relate to U.S. GAAP
requirements in respect of the capitalisation and amortisation of goodwill and
other intangibles, and of deferred taxes. This had a particularly substantial
impact in 1998. In view of the consideration given to the determination of
appropriate prudent asset lives on adoption of FRS 10 under U.K. GAAP by the
Combined Businesses, the remaining asset lives for U.S. GAAP purposes were
reviewed and determined consistently with those adopted for the new U.K. GAAP
treatment. This re-evaluation of asset lives under U.S. GAAP, which was
effective from January 1, 1998, significantly increased the periodic
amortisation charge, as the unamortised value of existing assets, which were
previously amortised over periods up to 40 years, is amortised over shorter
periods. A more complete explanation of the accounting policies used by the
Combined Businesses and the differences between U.K. and Dutch GAAP and U.S.
GAAP is given in the Combined Financial Statements.

Exceptional items

Exceptional items are material items within Reed International's ordinary
activities which under U.K. GAAP are required to be disclosed separately due to
their size or incidence. These items do not qualify as extraordinary under U.S.
GAAP and are considered a part of operating results.

Ordinary dividends

Under U.K. GAAP, dividends are provided for in the year in respect of which
they are proposed by the directors. Under U.S. GAAP, such dividends would not be
provided for until they are formally declared by the directors.

Earnings per share

Under U.K. and U.S. GAAP, the calculation of basic earnings per share is
based only on ordinary shares in issue; fully diluted earnings per Reed
International Ordinary Share amounts take account of the effects of additional
ordinary shares that would be in issue if outstanding dilutive potential shares
had been exercised (see note 7).

Stock based compensation

SFAS 123: Accounting for stock based compensation establishes a fair value
based method of accounting for stock based compensation plans and encourages the
recognition of the compensation cost on this basis in the income statement.
Where the cost is not recognised the proforma effect of the valuation method on
net income must be disclosed. Under U.K. GAAP the compensation element is not
required to be recognised in net income.

The disclosure only provisions of SFAS 123 have been adopted. If Reed
International's share of the Combined Businesses' compensation costs based on
fair value at the grant dates had been recognised in the income statement, net
(loss)/income under U.S. GAAP would have been (increased)/reduced by (pound)2
million in the year ended December 31, 1999 (1998 (pound)1 million). Proforma
basic (loss)/earnings per share, reflecting this cost, would have been,
respectively (4.4p) and 16.6p.

F-51
<PAGE>

17. Summary of differences between U.K. GAAP and U.S. GAAP - (continued)
Effects on net income of material differences between U.K. GAAP and U.S.
GAAP:

Year ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
(in(pound)millions, except
per share amounts)
Net (loss)/income under U.K. GAAP (27) 396 (39)
U.S. GAAP adjustments:
Impact of U.S. GAAP adjustments to
combined financial statements 31 (205) (8)

Net income/(loss) under U.S. GAAP 4 191 (47)

Basic earnings/(loss) per ordinary
share under U.S. GAAP (pence) 0.4p 16.7p (4.1)p

Diluted earnings/(loss) per ordinary
share under U.S. GAAP (pence) 0.4p 16.7p (4.1)p

The basic and diluted earnings/(loss) per ordinary share under U.S. GAAP
have been restated to take into account the two for one share subdivision which
became effective on May 2, 1997.

The basic and diluted earnings/(loss) per ordinary share under U.S. GAAP
include a 52.9% share of the following items:

(i) for 1999, 7.3p (loss) in respect of the costs of a major programme of
reorganisation across the Reed Elsevier businesses;

(ii) for 1998, 24.1p in respect of profit on sale (under U.S. GAAP) of
discontinued businesses and 12.3p (loss) in respect of the
non-recurring element of the incremental amortisation of goodwill and
intangibles arising as a consequence of the re-evaluation of the
Combined Businesses' asset lives; and

(iii) for 1997, 21.6p (loss) in respect of the Reed Travel Group provision
for the cost of programmes to recompense advertisers in relation to
irregularities in circulation claims for certain Reed Travel Group
publications together with related expenses and reorganisation costs
and the non-cash writedown (under U.S. GAAP) of Reed Travel Group
goodwill and intangibles.

Effects on shareholders' funds of material differences between U.K. GAAP and
U.S. GAAP: At December 31,

1998 1999
---- ----
(in(pound)millions)
Shareholders' funds under U.K. GAAP 1,127 981
U.S. GAAP adjustments:
Impact of U.S. GAAP adjustments to
combined financial statements 252 238
Ordinary dividends not declared in
the period 120 63

Shareholders' funds under U.S. GAAP 1,499 1,282

Comprehensive Income Information

SFAS 130: Reporting Comprehensive Income, requires that all items that are
required to be recognised as components of comprehensive income under U.S.
accounting standards are reported in a separate financial statement. Under U.S.
GAAP comprehensive (loss)/income for the year ended December 31, 1999 would be
(pound)(44) million (1998 (pound)187 million; 1997 (pound)(19) million). Under
U.S. GAAP comprehensive (loss)/earnings per share for the year ended December
31, 1999 would be (3.9)p (1998 16.3p; 1997 (1.7)p). Comprehensive income under
U.S. GAAP comprises net income for the financial year, share of the
comprehensive income items arising in the Combined Businesses, equalisation and
exchange translation differences.

F-52

<PAGE>

ELSEVIER NV

FINANCIAL STATEMENTS

F-53

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the members of the Supervisory and Executive Boards and the Shareholders
of Elsevier NV.

We have audited the accompanying balance sheets as of December 31, 1999 and
1998, and the related profit and loss accounts and statements of total
recognised gains and losses, changes in shareholders' funds and cash flows for
the three years 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 Netherlands and the United States. Those standards require that
we plan and perform the audits 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 presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of Elsevier NV at December 31,
1999 and 1998 and the results of its operations and its cash flows for the three
years ended December 31, 1999 in conformity with accounting principles generally
accepted in the Netherlands (which differ in certain material respects from
generally accepted accounting principles in the United States -- see note 12).

DELOITTE & TOUCHE
Accountants
Amsterdam, The Netherlands
February 23, 2000

F-54

<PAGE>

ELSEVIER NV

PROFIT AND LOSS ACCOUNTS

Year ended December 31,
-----------------------
Notes 1997 1998 1999
----- ---- ---- ----
(in e millions, except per share
amounts)
Operating loss (before joint
ventures) (3) (7) (5)
Share of operating profit of
joint ventures:
Before amortisation and
exceptional items 643 612 608
Amortisation of goodwill and
intangible assets (209) (247) (284)
Exceptional items (363) (59) (182)

71 306 142

Operating profit including
joint ventures 68 299 137

Non operating exceptional items (2) (8) --
Share of non-operating exceptional
items of joint ventures 41 516 6

39 508 6

Net interest:
Group 3 4 3
Share of net interest of joint
ventures (48) (34) (66)

(45) (30) (63)

Profit on ordinary activities
before taxation 62 777 80
Tax on profit on ordinary
activities (72) (203) (128)

(Loss)/profit attributable to
ordinary shareholders (10) 574 (48)

Basic (loss)/earnings per
ordinary share (e) 3 (0.01) 0.81 (0.07)

Diluted (loss)/earnings per
ordinary share (e) 3 (0.01) 0.81 (0.07)

STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES

Year ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
(in e millions)
Retained (loss)/profit
taken to reserves (10) 574 (48)
Exchange translation differences 154 (98) 202

Total recognised gains and losses
for the financial year 144 476 154

The accompanying notes on pages F-59 to F-65 are an integral part of these
financial statements.

F-55

<PAGE>

ELSEVIER NV

BALANCE SHEETS

At December 31,
---------------
Notes 1998 1999
----- ---- ----
(in e millions)
Financial fixed assets 5 1,661 1,559

Accounts receivable 6 58 61
Short term investments 17 19

Current assets 75 80
Current liabilities 7 (177) (102)

Net working capital (102) (22)

Long term liabilities 8 (11) (8)
Provisions 9 (36) (36)

Net assets 1,512 1,493

Share capital issued 10 32 43
Paid-in surplus 388 385
Legal reserve 949 847
Other reserves 143 218

Shareholders' funds 1,512 1,493

Contingent liabilities 2,295 2,306

The accompanying notes on pages F-59 to F-65 are an integral part of these
financial statements.

F-56

<PAGE>

ELSEVIER NV

STATEMENTS OF CASH FLOWS

Year ended December 31,
-----------------------
1997 1998 1999
---- ---- ----
(in e millions)
Net cash outflow from operating activities -- (8) (2)
Dividends received from joint ventures 308 324 254
Equity dividends paid (257) (288) (255)

Cash inflow/(outflow) before financing 51 28 (3)

Issue of ordinary shares 10 5 8
Decrease/(increase) in funding balances
to joint ventures 38 (116) (3)
Changes to long term borrowings 1 -- --

Financing 49 (111) 5

Changes in short term investments 100 (83) 2

The accompanying notes on pages F-59 to F-65 are an integral part of these
financial statements.

F-57

<PAGE>

ELSEVIER NV

STATEMENTS OF CHANGES IN SHAREHOLDERS' FUNDS

<TABLE>
<CAPTION>
e0.6 R-Shares e0.06 Ordinary Shares
---------------- ---------------------
Share Share Paid-in Legal Other Share-holders'
Number capital Number capital surplus reserve reserves funds
------ ------- ------- ------- ------- ------- -------- --------------
'000 e million '000 e million e million e million e million e million
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 4,050 2 665,499 30 373 919 62 1,386
Loss attributable -- -- -- -- -- (12) 2 (10)
Ordinary dividends -- -- -- -- -- -- (287) (287)
Issue of shares -- -- 1,215 -- 10 -- -- 10
Dividends of joint
ventures -- -- -- -- -- (307) 307 --
Exchange translation
differences -- -- -- -- -- 154 -- 154
Equalisation -- -- -- -- -- 29 -- 29

Balance at
December 31, 1997 4,050 2 666,714 30 383 783 84 1,282
Profit attributable -- -- -- -- -- 576 (2) 574
Ordinary dividends -- -- -- -- -- -- (263) (263)
Issue of shares -- -- 590 -- 5 -- -- 5
Dividends of joint
ventures -- -- -- -- -- (324) 324 --
Exchange translation
differences -- -- -- -- -- (98) -- (98)
Equalisation -- -- -- -- -- 12 -- 12

Balance at
December 31, 1998 4,050 2 667,304 30 388 949 143 1,512
Loss attributable -- -- -- -- -- (48) -- (48)
Ordinary dividends -- -- -- -- -- -- (179) (179)
Redenomination of
Elsevier Ordinary
Shares into euros -- -- -- 11 (11) -- -- --
Issue of shares -- -- 947 -- 8 -- -- 8
Dividends of joint
ventures -- -- -- -- -- (254) 254 --
Exchange translation
differences -- -- -- -- -- 202 -- 202
Equalisation -- -- -- -- -- (2) -- (2)

Balance at
December 31, 1999 4,050 2 668,251 41 385 847 218 1,493
</TABLE>

The accumulated exchange translation differences included in retained
earnings are e274 million (1998 e72 million; 1997 e170 million) At December 31,
1999, 1998 and 1997 the legal reserve comprised Elsevier's share of the post
acquisition accumulated retained earnings of joint ventures.

The accompanying notes on pages F-59 to F-65 are an integral part of these
financial statements.

F-58
<PAGE>

ELSEVIER NV

NOTES TO THE FINANCIAL STATEMENTS

1. Basis of financial statements

The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the Netherlands ("Dutch GAAP"),
which differ in certain significant respects from accounting principles
generally accepted in the United States ("U.S. GAAP"); see note 12. Amounts in
the financial statements are stated in euro ("e"). Certain disclosures required
to comply with Dutch statutory reporting requirements have been omitted.

2. Accounting policies

The significant accounting policies adopted are as follows:

Basis of consolidation

As a consequence of the Merger the shareholders of Elsevier and Reed
International can be regarded as having the interests of a single economic group
enjoying substantially equivalent ordinary dividend and capital rights in the
earnings and net assets of the Combined Businesses.

Elsevier holds a majority interest in Elsevier Reed Finance BV and is
therefore required to prepare consolidated financial statements. However,
management believes that a better insight into the financial position and
results of Elsevier is provided by looking at the investment in the Combined
Businesses in aggregate, as presented in the Combined Financial Statements.
Therefore, the Combined Financial Statements form part of the notes to
Elsevier's statutory financial statements.

Investments in joint ventures are valued using equity accounting as
adjusted for the effects of the equalisation arrangement between Reed
International and Elsevier. The arrangement lays down the distribution of
dividends and net assets in such a way that Elsevier's share in the profit and
net assets of Reed Elsevier equals 50%. All settlements accruing to shareholders
from the equalisation arrangements are taken directly to reserves.

Bases of determination of income

Under the Merger agreements, Elsevier is entitled to 50% of the Reed
Elsevier combined profit attributable to parent companies' shareholders. In
calculating the euro equivalent of that share of profit, sterling's average
exchange rate for the year is applied. For 1999, this rate was e1.52 (1998
e1.49; 1997 e1.45). e amounts for periods prior to 1999 have been stated using
the relevant Dfl amounts translated at the Official Conversion Rate of
Dfl2.20371 per e1.00 which was fixed at January 1, 1999.

Tax is calculated on profit from Elsevier's own operations, taking into
account profit not subject to tax. The difference between the tax charge and tax
payable in the short term is included in the provision for deferred tax. This
provision is based upon relevant rates, taking into account tax deductible
losses, which can be compensated within the foreseeable future.

Basis of valuation of assets and liabilities

Goodwill and intangible assets are capitalised on acquisition and amortised
over a maximum period of 20 years.

Past service liabilities have been fully funded.

Other assets and liabilities are stated at face value.

Balance sheet amounts expressed in foreign currencies are translated at the
exchange rates effective at the balance sheet date. Currency translation
differences arising from the conversion of investments in joint ventures,
expressed in foreign currencies, are directly credited or charged to
shareholders' funds.

3. Basic earnings per ordinary share

Weighted
average
number
of Ordinary
Shares and Basic
(Loss)/ the R-Shares (loss/earnings)
earnings in issue per Share
------------- ------------ --------------
(in e millions) (in millions) (in e)
Year ended December 31, 1999 (48) 708 (0.07)
Year ended December 31, 1998 574 708 0.81
Year ended December 31, 1997 (10) 707 (0.01)

F-59

<PAGE>

3. Basic earnings per ordinary share - (continued)

Weighted
average
number
of Ordinary
Shares and
the R- Diluted
Earnings/ Shares in earnings/(loss)
(loss) issue per Share
------------- ------------- -------------
(in e millions) (in millions) (in e)
Year ended December 31, 1999 (48) 709 (0.07)
Year ended December 31, 1998 574 709 0.81
Year ended December 31, 1997 (10) 708 (0.01)

4. Proposal for allocation of profit

1997 1998 1999
---- ---- ----
(in e millions)
Interim dividend on Ordinary Shares 87 87 79
Final dividend on Ordinary Shares (1997 Second Interim) 200 176 100
Dividend on R-shares (1998 18,378; 1997 18,378; 1996 18,378) -- -- --
Retained (loss)/profit (297) 311 (227)

(10) 574 (48)

The 1999 final dividend will be paid in euro.

The dividend paid by Elsevier equals the Reed International dividend plus
the U.K. tax credit. As a result Elsevier distributes a higher proportion of the
combined attributable profit than Reed International. Reed International's share
in this difference in dividend is settled with Elsevier and has been credited
directly to retained earnings under equalisation, because this settlement
maintains the contractually agreed balance between the shareholders of Elsevier
and Reed International.

Elsevier can pay a nominal dividend to Reed International on its R-shares
that is lower than the dividend on the Ordinary Shares. Reed International will
be compensated by direct dividend payments by Reed Elsevier plc. Equally,
Elsevier is able to receive dividends direct from Dutch affiliates. The
settlements flowing from these arrangements are also taken direct to retained
earnings under equalisation.

Changes resulting from equalisation are as follows:

1997 1998 1999
---- ---- ----
(in e millions)
U.K. tax credit 28 18 9
R-shares dividend (13) (14) (9)
Proceeds of Ordinary Shares 5 9 (4)
Exchange differences 9 (1) 2

Total 29 12 (2)

F-60

<PAGE>

5. Financial fixed assets

Investments in joint
ventures
--------------------
1998 1999
---- ----
(in e millions)
At January 1 1,393 1,661
Paid-in surplus 102 --
Share in profits/(losses) 576 (48)
Dividends received (324) (254)
Exchange translation differences (98) 202
Equalisation 12 (2)

At December 31 1,661 1,559

The investments in joint ventures at December 31, 1999 are:

Reed Elsevier plc, London (50%)

Elsevier Reed Finance BV, Amsterdam (54%)

In addition, Elsevier holds Dfl0.3 million par value in shares with special
dividend rights in Reed Elsevier Overseas BV and Reed Elsevier Nederland BV,
both with registered offices in Amsterdam. These shares are included in the
amount shown under investment in joint ventures above. They enable Elsevier to
receive dividends from companies within the same tax jurisdiction.

In 1998 Elsevier made an extra capital contribution of 102 million in Reed
Elsevier Overseas BV to finance the acquisitions of Matthew Bender and the
remaining 50% of Shephard's.

6. Accounts receivable

1998 1999
---- ----
(in e millions)
Joint ventures 54 57
Other receivables 4 4

58 61

The accounts receivable from joint ventures bear interest.

7. Current liabilities

1998 1999
---- ----
(in e millions)
Trade liabilities 1 2
Proposed cash dividend 176 100

177 102

8. Long term liabilities

Currency 1998 1999
-------- ---- ----
(in e millions)
Other loans
Convertible debenture loans Guilders 11 8

Convertible debenture loans consist of four convertible personnel debenture
loans with a weighted average interest rate of 5.4%. Depending on the conversion
terms, the surrender of Dfl1,000 par value debenture loans qualifies for the
acquisition of 40 to 60 Elsevier Ordinary Shares.

F-61

<PAGE>

9. Provisions

1998 1999
---- ----
(in e millions)
Deferred tax 35 35
Pensions 1 1

36 36

10. Share capital

Issued and Issued and
Authorised fully paid fully paid
1999 1998 1999
---- ---- ----
(in e millions)
Ordinary Shares of 0.06 each 126 30 41
R-shares of 0.6 each 18 2 2

Total 144 32 43

During the year, the ordinary shares of Dfl0.10 par value were
redenominated as ordinary shares of e0.06 par value. This resulted in an
increase in share capital of e11 million which was transferred from the paid-in
surplus account. The nominal value of R- shares was changed from Dfl1.00 to
e0.6. The equalisation arrangements with Reed International will be unaffected.

The authorised share capital as at December 31, 1999 consists of 2,100
million Ordinary Shares and 30 million registered R- shares. Total issued
ordinary share capital at December 31, 1999 amounts to 668,251,106 shares of
e0.06 par value. In total 4,049,951 R-shares of e0.6 par value have been issued.
The R-shares are held by a subsidiary of Reed International. The R- shares are
convertible at the election of the holder into 10 Ordinary Shares each. They
have otherwise the same rights as the Ordinary Shares, except that Elsevier may
pay a lower dividend on the R-shares (see note 4).

At December 31, 1999 paid-in surplus included an amount of e208 million
(1998 e211 million) which is free of tax.

Details of shares issued under option schemes are set out in note 11.

11. Share option schemes

Reed Elsevier plc operates an Executive Share Option Scheme and options are
granted to selected full time employees of Reed Elsevier. Options granted over
Elsevier Ordinary Shares are normally exercisable after three years and may be
exercised up to ten years from the date of grant at a price equivalent to the
market value of the Elsevier Ordinary Shares at the time of grant. The first
grant of options was during 1998.

Transactions during the two years ended December 31, 1999 were:

Number of
Ordinary
Shares of e
0.06 par Exercise
value price e
----------- ----------
Outstanding at December 31, 1997 --
Granted 1,158,230 15.70
Exercised --
Lapsed (25,870)

Outstanding at December 31, 1998 1,132,360
Granted 9,263,019 10.45-13.55
Exercised --
Lapsed (152,312)

Outstanding at December 31, 1999 10,243,067

The above outstanding options will, upon exercise, be met by the issue of
new Elsevier Ordinary Shares.

Options outstanding at December 31, 1999 were exercisable by 2009. No
options had vested at December 31, 1999.

Excluded from the above are options granted under the Reed Elsevier plc
Executive Share Option Schemes (No. 2) which, upon exercise, will be met by the
Reed Elsevier Employee Benefit Trust from shares purchased in the market. At
December 31, 1999 there were 1,339,019 such options outstanding at exercise
prices ranging between e10.45 and e13.55.

F-62

<PAGE>

11. Share option schemes - (continued)

Options over Elsevier ordinary shares have also been granted to senior
executives of Reed Elsevier plc under the Elsevier share option scheme. The
options are exercisable immediately after granting during a period of 5 or 10
years, after which the options will lapse. The strike price of the options is
the market price of the Elsevier Ordinary Shares at the time the option is
granted, except in the case of 5 year options granted during 1999, where the
strike price was 26% above the market price of an Elsevier Ordinary Share at the
time the option was granted.

Transactions during the three years ended December 31, 1999 were:

Number of
Ordinary
Shares of e
0.06 par Exercise
value price e
----------- ----------
Outstanding at December 31, 1996 2,567,666
Granted 684,078 14.11
Exercised (856,620) 6.65-14.11

Outstanding at December 31, 1997 2,395,124
Granted 727,050 12.50-15.70
Exercised (382,300) 6.65-14.11

Outstanding at December 31, 1998 2,739,874
Granted 233,285 13.55
Exercised (450,580) 6.65-14.11

Outstanding at December 31, 1999 2,522,579

Options outstanding at December 31, 1999 were exercisable by 2009. All
options had vested at December 31, 1999.

The above options will, upon exercise, be met by the issue of new Elsevier
Ordinary Shares.

12. Summary of differences between Dutch GAAP and U.S. GAAP

The financial statements are prepared in accordance with generally accepted
accounting principles in the Netherlands ("Dutch GAAP"), which differ in certain
significant respects from generally accepted accounting principles in the United
States ("U.S. GAAP"). These differences relate principally to the following
items and the effect of material differences on net income and shareholders'
funds is shown in the following tables.

Impact of U.S. GAAP adjustments to combined financial statements

Elsevier accounts for its 50% economic interest in the Combined Businesses
by the equity method in conformity with both Dutch GAAP and U.S. GAAP. Using the
equity method to present its net income and shareholders' funds under U.S. GAAP
Elsevier reflects its 50% share of the effects of differences between U.K. and
Dutch GAAP and U.S. GAAP relating to the Combined Businesses and the effect on
tax credit equalisation of recognising dividends, under U.S. GAAP, only if
declared in the period, as a single reconciling item; see note 4. The most
significant differences relate to U.S. GAAP requirements in respect of the
capitalisation and amortisation of goodwill and other intangibles, and of
deferred taxes. This had a particularly substantial impact in 1998. In view of
the consideration given to the determination of appropriate prudent asset lives
on adoption of FRS 10 under U.K. GAAP by the Combined Businesses, the remaining
asset lives for U.S. GAAP purposes were reviewed and determined consistently
with those adopted for the new U.K. GAAP treatment. This re-evaluation of asset
lives under U.S. GAAP, which was effective from January 1, 1998, significantly
increased the periodic amortisation charge, as the unamortised value of existing
assets, which were previously amortised over periods up to 40 years, is
amortised over shorter periods. A more complete explanation of the accounting
policies used by the Combined Businesses and the differences between U.K. and
Dutch GAAP and U.S. GAAP is given in the Combined Financial Statements.

Exceptional items

Exceptional items are material items within Elsevier's ordinary activities
which under Dutch GAAP are required to be disclosed separately due to their size
or infrequency. These items do not qualify as extraordinary under U.S. GAAP and
are considered a part of operating results.

Ordinary dividends

Under Dutch GAAP, dividends are provided for in the year in respect of
which they are proposed by the directors. Under U.S. GAAP, such dividends would
not be provided for until they are formally declared by the directors.

12. Summary of differences between Dutch GAAP and U.S. GAAP - (continued)
Earnings per share

Under Dutch GAAP, the calculation of basic earnings per share is based only
on ordinary shares in issue. Under U.S. GAAP both basic and fully diluted
earnings per share are required to be presented. Diluted earnings per ordinary
share take account of the effects of additional ordinary shares that would be in
issue if outstanding dilutive potential shares had been exercised (see note 3).

F-63

<PAGE>

Stock based compensation

SFAS 123: Accounting for stock based compensation establishes a fair value
based method of accounting for stock based compensation plans and encourages the
recognition of the compensation cost on this basis in the income statement.
Where the cost is not recognised the proforma effect of the valuation method on
net income must be disclosed. Under Dutch GAAP the compensation element is not
required to be recognised in net income.

The disclosure only provisions of SFAS 123 have been adopted. If Elsevier's
share of the Combined Businesses' compensation costs based on fair value at the
grant dates had been recognised in the income statement, net (loss)/income under
U.S. GAAP would have been (increased)/reduced by e3 million in the year ended
December 31, 1999 (1998 e2 million). Proforma basic (loss)/earnings per share,
reflecting this cost, would have been, respectively, e(0.07) and e0.46.

Effects on net income of material differences between Dutch
GAAP and U.S. GAAP:

Year ended December 31,
-----------------------------
1997 1998 1999
---- ---- ----
(in e millions except per share amount)
Net (loss)/income under Dutch GAAP (10) 574 (48)
U.S. GAAP adjustments
Impact of U.S. GAAP adjustments to
combined financial statements 68 (248) 2

Net income/(loss) under U.S. GAAP 58 326 (46)

Basic earnings/(loss) per ordinary
share under U.S. GAAP () 0.08 0.46 (0.06)

Diluted earnings/(loss) per ordinary
share under U.S. GAAP () 0.08 0.46 (0.06)

The basic and diluted (loss)/earnings per ordinary share under U.S. GAAP
includes a 50% share of the following items:

(i) for 1999 e0.18 (loss) in respect of the costs of a major programme of
reorganisation across the Reed Elsevier businesses;

(ii) for 1998, e0.55 in respect of profit on sale (under U.S. GAAP) of
discontinued businesses and e0.28 (loss) in respect of the
non-recurring element of the incremental amortisation of goodwill and
intangibles arising as a consequence of the re-evaluation of the
Combined Businesses' asset lives; and

(iii) for 1997, e0.48 (loss) in respect of the Reed Travel Group provision
for the cost of programmes to recompense advertisers in relation to
irregularities in circulation claims for certain Reed Travel Group
publications together with related expenses and reorganisation costs
and the non-cash writedown (under U.S. GAAP) of Reed Travel Group
goodwill and intangibles.

Effects on shareholders' funds of material differences between Dutch GAAP and
U.S. GAAP: At December 31,

At December 31,
---------------
1998 1999
---- ----
(in e millions)
Shareholders' funds under Dutch GAAP 1,512 1,493
U.S. GAAP adjustments
U.S. GAAP adjustments to combined financial statements 324 358
Ordinary dividends not declared in the period 176 100

Shareholders' funds under U.S. GAAP 2,012 1,951

Comprehensive Income Information

SFAS 130: Reporting Comprehensive Income, requires that all items that are
required to be recognised as components of comprehensive income under U.S.
accounting standards are reported in a separate financial statement. Under U.S.
GAAP comprehensive (loss)/income for the fiscal year ended December 31, 1999
would be e186 million (1998 e193 million; 1997 e284 million). Under U.S. GAAP
comprehensive income per share for the year ended December 31, 1999 would be
e0.26 (1998 e0.27; 1997 e0.40). Comprehensive income under U.S. GAAP comprises
net income for the financial year, share of the comprehensive income items
arising in the Combined Businesses, equalisation and exchange translation
differences.

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<PAGE>

Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, each of the Registrants certifies that it meets all of the requirements
for filing on Form 20-F and has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereto duly authorised, on February 23, 2000.

REED INTERNATIONAL P.L.C. ELSEVIER NV
Registrant Registrant

By: C H L DAVIS By: C H L DAVIS
Title: C H L Davis Title: C H L Davis
Chief Executive Officer Member, Executive Board & Chief
Executive Officer

By: M H ARMOUR By: M H ARMOUR
Title: M H Armour Title: M H Armour
Chief Financial Officer Member, Executive Board & Chief
Financial Officer

Dated: February 23, 2000 Dated: February 23, 2000

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