NOTES TO THE FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, 2005 AND 2004.

(In thousands of Reais)

1.	OPERATIONS

Elekeiroz, a company controlled by Itausa – Investmentos Itaú S.A., has three industrial units, one in Camaçari, BA, and two in Taubaté and Várzea Paulista, in the state of São Paulo, where it is headquartered.

The Company’s activities comprise the production, import and export of chemicals and petrochemicals, the marketing, of chemicals and petrochemicals produced by third parties, and participation in other companies.

2.	FINANCIAL STATEMENTS PRESENTATION

The financial statements were prepared in conformity with the corporate law and the “CVM – Comissão de Valores Mobiliários” (Brazilian Securities Commission) standards.

3.	SUMMARY OF THE MAIN ACCOUNTING PRACTICES

a) Income Determination

Revenues and expenses are recognized on the accrual basis. The provision for income tax includes the portion relating to fiscal incentives, the reduction resulting therefrom being credited to a specific capital reserve.

b) Short-Term Investments in the Money Market

These investments are stated at cost plus the related earnings up to the balance sheet date, which is lower than market value.

c) Allowance for Doubtful Accounts

This is set up based on an analysis of credit risk, in an amount deemed sufficient to cover possible losses on any such accounts.

d) Inventories

Inventories are stated at the average acquisition or production cost, which does not exceed market value. There are no obsolete inventories.

e) Investments

Investments in controlled companies are evaluated on the equity method, whereas the other investments are shown at the acquisition cost plus monetary correction (recognition of the effects of inflation) up to December 31, 1995 and adjusted to market value, where applicable.

f) Property, Plant and Equipment and Depreciation

The Property, Plant and Equipment items are stated at the acquisition or construction cost plus monetary correction (recognition of the effects of inflation) up to December 31, 1995, including interest accrued during the construction.

Depreciation is calculated on the straight-line method at rates that take into account the useful life of assets. For equipment and facilities directly used in the production process this method is supplemented by that based on the number of units produced.

g) Deferred charges

These comprise the industrial units’ deferred organization and expansion costs, as well as expenses incurred on improvement plans and development of corporate management systems, all amortized at 10% and 20% p.a.

h) Unamortized Premium

This refers to premium on the acquisition of controlled companies, which is amortized in accordance with projected results of the premium-originating businesses.

i) Rights and Obligations

All rights and obligations are restated based on exchange rates and financial charges under contracts in force, so that they reflect amounts incurred up to the balance sheet date.

j) Income Tax and Social Contribution

Income tax is calculated at 15% on taxable income plus 10% surtax, whereas Social Contribution rate is 9% on income book value, duly adjusted. The Company benefits from a partial reduction of Income Tax due on the operating income of its Camaçari – BA production unit, at the following rates: 25% until December 31, 2008 and 12.5% through the end of fiscal 2013.

The deferred Income Tax and Social Contribution are shown under Long-Term Assets (Note 8).

4.	CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements, which include the controlled company Castletown Trading S.A., were prepared in accordance with CVM Instruction 247/96 requiring elimination of:

a) Intercompany assets and liabilities;

b) Shareholding, reserves and retained earnings of controlled companies; and

c) Revenues, expenses and unrealized earnings arising from intercompany transactions.

The financial statements of the controlled company can be summarized as follows:

CASTLETOWN TRADING S.A.	Dec/2005	Dec/2004
ASSETS
Current Assets	1.612	1.873
Total Assets	1.612	1.873
LIABILITIES
Current Liabilities	67	75
Shareholders’ Equity	1.545	1.798
Total Liabilities	1.612	1.873
STATEMENT OF INCOME
Net Operating Revenues (Expenses)	(40)	(50)
Income (Loss) for the Period	(40)	(50)

5.	CASH AND CASH EQUIVALENTS/INVESTMENTS IN THE MONEY MARKET

	PARENT COMPANY		CONSOLIDATED
	Dec/2005	Dec/2004	Dec/2005	Dec/2004
Cash	15	54	15	54
Bank Accounts	2.109	566	2.109	612
Readily Realizable Investments in the Money Market	39.909	20.113	39.909	20.113
Total	42.033	20.733	42.033	20.779

6.	CLIENTS – TRADE RECEIVABLES

	PARENT COMPANY		CONSOLIDATED
	Dec/2005	Dec/2004	Dec/2005	Dec/2004
Local Clients	58.089	65.102	58.089	65.102
Foreign Clients	19.371	33.655	19.373	33.656
Allowance for Doubtful Accounts	(881)	(1.180)	(881)	(1.180)
Total	76.579	97.577	76.581	97.578

7.	INVENTORIES

	PARENT COMPANY/CONSOLIDATED
	Dec/2005	Dec/2004
Finished Products	42.481	33.463
Raw, Auxiliary and Packaging Materials	32.630	36.656
Miscellaneous Materials	10.944	12.341
Total	86.055	82.460

8.	DEFERRED INCOME TAX AND SOCIAL CONTRIBUTION

As stipulated by “CVM” Deliberation no.273 and “CVM” Instruction no.371, the Company recorded R$ 10,194 thousand of deferred tax assets arising from temporary differences under “Long-Term Assets”. The deferred consolidated tax and credits and obligations (Income Tax and Social Contribution) as of December 31, 2005 can be summarized as follows:

	Current Consolidated Balance (Dec/2005)
Temporary Differences represented by:
Allowance for Doubtful Accounts	300
Provision for Labour Contingencies	172
Provision for Tax Contingencies	3.041
Amortized Premium	1.126
Other Provisions	5.555
Total	10.194

Tax Credit Realization – A forecast
2007	2.915
2008	2.395
2009	3.302
2010	1.100
From 2011 onwards	482
Total	10.194

No tax credits have been recognized in connection with tax losses in the amount of R$ 102,045 thousand and negative basis of R$ 69.274 thousand.

9.	INVESTMENTS

Major information on investments evaluated on the EAM (equity accounting method) and cost as of December 31:

	Dec/2005	Dec/2004
a) Evaluated on the Equity Accounting Method
CASTLETOWN Trading S.A.
Shareholders´ Equity	1.545	1.798
Quantity of Shares/Quotas Held (Thousand-Share/Quota Lot)	7.350	7.350
Participation (%)	100	100
Results of Equity Accounting	(253)	(213)
Total Investments evaluated on EAM	1.545	1.798
b) Evaluated at Cost
Other Investments Evaluated at Cost	7.438	5.845
Total	8.984	7.643

10.	PROPERTY, PLANT AND EQUIPMENT

	PARENT COMPANY /CONSOLIDATED
	Dec/2005	Dec/2004
In Operation
Plots of Land	11.141	11.141
Equipment and Facilities	320.564	276.653
Other	12.350	11.397
	344.055	299.191
Accumulated Depreciation	(182.448)	(168.826)
	161.607	130.365
Construction Work in Progress	41.950	31.857
Total	203.557	162.222

11.	DEFERRED CHARGES AND UNAMORTIZED PREMIUM

		PARENT COMPANY/CONSOLIDATED
		Dec/2005	Dec/2004
	DEFERRED CHARGES
	Preoperating expenses :
	Operative Projects	79.852	80.291
	Projects Under Way	13.783	8.327
	Amortization	(72.930)	(70.970)
	Total	20.705	17.648
	UNAMORTIZED PREMIUM
	Premium/Discount – Investment Acquisition	53.072	53.072
	Premium/Discount Amortization	(19.014)	(13.713)
	Total	34.058	39.359
12.	FINANCING

The long-term financing used for funding investment in facilities expansion and modernization

and meeting working capital requirements, can be thus shown:

	Interest Rate %	Index	(*)	Frequency	Maturity Date	Dec/ 2005	Dec/ 2004
FINAME – BNDES Miscellaneous Agents	3,50 - 6,50 p.a.	A	1	Monthly	10/15/06	241	625
POC - BNDES Miscellaneous Agents	3,35 – 5.35 p.a.	A e B	1	Monthly	05/15/09	8.556	11.067
MODERMAQ – FINAME Miscellaneous Agents	10.95 p.a.		5	Monthly	10/15/06	440	-
BNDES Direct Operations	2,625 - 3,85 p.a.	A e B	2,3	Monthly and Half-Yearly	01/15/10	62.097	29.447
EXIM – BNDES	5,20 p.a.	A	1	Monthly	07/27/05	-	5.081
EXIM – FOREIGN CURRENCIES BNDES		C	1	Monthly	07/27/05	-	2.901
CÉDULA CRÉDITO INDUSTRIAL Banco do Nordeste	11.90 p.a.		5	Monthly	12/28/10	13.869	-
WORKING CAPITAL Miscellaneous Agents	0,09 p.m.	D	1	Automatic Settlement		9.863	10.936
						95.066	60.057
Total Parent Company and Consolidated						(21.652)	(28.672)
Current Portions						73.414	31.385
Long-Term Portions						31.385	25.566

(*) Indices:

(A) TJLP; (B) Currency Basket, (C) US$; (D) Reservation of Title.

The long-term financing agreements mature as follows:

	PARENT COMPANY/CONSOLIDATED
	Dec/2005	Dec/2004
2007	22.853	17.098
2008	24.374	4.289
From 2009 onwards	26.187	9.998
Total	73.414	31.385

13	TAXES AND CONTRIBUTIONS AND PROVISION FOR CONTINGENCIES

The Company is challenging the levying of state and federal taxes at both legal and administrative levels, and accordingly, has recorded and updated provisions for the related contingencies, under Long-Term Liabilities.

The Company offset credits granted after winning a legal action that questioned the constitutionality of the decrees-laws 2445 and 2449 of 1988 that modified the “PIS” determination method. The respective provision, in the amount of R$ 27,076 thousand, was maintained and restated under “Long-Term Liabilities”.

Until the end of December 2004, the Company had made judicial deposits in the amount of R$ 16,097 thousand, fully provided for under “Long-Term Liabilities”. These deposits were made in connection with the questioning of a 1% difference in the “COFINS” tax rate and Education Allowances.

Upon acquisition of Ciquine Companhia Petroquímica by Elekeiroz S.A. in May 2002, the new management set up provisions for tax, environmental and labour risks, in an amount deemed sufficient to cover possible losses thereon.

14.	CAPITAL AND INTEREST ON OWN CAPITAL

a) Capital

The authorized capital at December 31, 2005 and 2004 comprises 2,100,000,000 book-entry shares, of which 700,000,000 are common and 1,400,000,000 preferred.

Capital, subscribed and paid up in the amount of R$ 200,000 thousand (2004 – R$ 175,000) comprises 629,703,409 book-entry shares (2004 – 630.293.965) without nominal value, of which 290,363,065 (2004-290.638.065) are common and 339,655,900 (2004 – 339.655.900) are preferred, non-voting shares.

b) Dividends

Below, the rights inherent in preferred, non-voting shares:

a) priority over common shares in statutory dividend distribution;

b) right to dividends always higher than those attributed to common shares;

c) participation in capital increase through reserve and profit capitalization ;

d) priority over common shares in capital reimbursement without premium, in case of liquidation.

e) in the event of disposal of majority shareholding, inclusion in public offer that ensures unit price of 80% of amount paid per voting share included in the majority group;

f) minimum priority dividend of R$ 0.10 per thousand shares, an an annual, non-cumulative basis, subject to adjustment in case of split or unification.

All shareholders are entitled to statutory, minimum dividends in the equivalent to twenty five percent (25%) of the income for the year, adjusted in accordance with Law 6.404/76 art. 202, I “a” and “b” ; II and III.

The dividends were calculated as follows:

	Dec/2005
Net Income for the Year	43.110
(-) Legal Reserve (5%)	(2.155)
(=)Basis of calculation	40.955
Minimum Statutory Dividend (25%)	10.239
Dividends Declared in the Year:
Interest on Own Capital	14.118
(-) Income Tax	(2.118)
(=) Net Remuneration in the Year	12.000

As legally permitted and provided under the Company’s articles of association, the Interest on Own Capital, net of income tax, is being included in the statutory dividends. The gross interest on own capital equals R$ 22.42 per thousand-share lot.

15. Financial Income

The financial income is composed of the following financial revenue and expenses:

	Parent Company		Consolidated
	Dec/2005	Dec/2004	Dec/2005	Dec/2004
Financial Revenues	7.722	5.673	7.722	5.673
Monetary Exchange Variation Receivable	5.046	4.492	5.046	4.492
Total Financial Revenues	12.768	10.165	12.768	10.165
Financial Expenses	(12.188)	(12.967)	(12.188)	(12.967)
Monetary and Exchange Variation Payable	(8.902)	(8.372)	(9.114)	(8.536)
Total Financial Expenses	(21.090)	(21.339)	(21.302)	(21.503)
Net Financial Income	(8.322)	(11.174)	(8.534)	(11.338)

16	FINANCIAL INSTRUMENTS

In compliance with “CVM” Instruction no. 235/95, the Company evaluated its assets and liabilities’ book value against the related market value, having found them adequate, for the following reasons:

Short- and Long-Term Financing – The book value was determined based on the interest rate contracted with financial institutions, which reflect market value, and considering the nature and conditions of these operations as well as the size of the Company.

Below, a summary of the main market risks involving the business:

Credit Risk – the Company’s sales are not highly concentrated, there being no clients accounting for over 5% of net sales. Under the Company’s credit policy, limits and terms are established according to liquidity levels, which in turn are determined by rating instruments. Besides the diversification in the domestic market, a substantial portion of products is intended for foreign markets.

Exchange Risk – Because exports represent a substantial part of its revenues, the Company’s working capital requirements are met by export-linked credit lines, with more attractive rates and conditions than those prevailing in the domestic money market.

Price Risk – The Brazilian chemical sector is highly influenced by the globalized market, with prices heavily affected by international demand and supply conditions. As a consequence, the peaks of both selling prices and raw material purchase prices in this sector occur almost simultaneously, which in turn enables maintenance of an average margin capable of sustaining the business;

Interest Rate Risk – Funding is at fixed interest rates under regular market conditions, with restatement and recording at the amount of settlement at the balance sheet date.

17.	STOCK OPTIONS PLAN AND PENSION PLAN

With a view to integrating managers and employees into the Company’s growth process in the middle- the and long-run, at the Extraordinary General Shareholders’ Meeting of July 31, 2003 it was deliberated to institute a stock option plan to enable these managers and employees to enjoy any benefits from share appreciation that may result from their work and dedication. The stock option plan will be administered by the Elekeiroz Options Committee, to be formed by members elected by the Administrative Council, every year. By the time these financial statements were completed, this plan had had no effects to be reflected therein.

All the Company’s employees are entitled to participate in a definite-contribution plan (“PAI-CD Plan) administered by Fundação Itausa Industrial, a private pension, not-for-profit entity, which is sponsored by Elekeiroz S.A., among others. Given the nature of the plan, there are no actuarial risks, any existing investment risks lying with the participants. Under current regulations, the sponsor is responsible for 50% of the amount contributed by the participants, or R$ 1.600 thousand in fiscal 2005.

18. Statement of EBITDA Calculation

	Parent Company		Consolidated
	2005	2004	2005	2004
Operating Income Before Financial Income, Equity Accounting and Premium Amortization	66.568	109.467	66.527	109.417
(+) Depreciation and Amortization	15.963	16.264	15.963	16.264
(=) EBITDA	82.531	125.731	82.490	125.681

19. Insurance Coverage

Base don the nature of the Company’s assets and the risks inherent therein, the management finds that the insurance coverage is deemed sufficient to cover possible disasters. The insurance coverage of fixed assets and inventories against miscellaneous risks amounts to R$ 328.000 thousand at December 31, 2005. (2004 - R$ 328.000 thousand)