As filed with the Securities and Exchange Commission on March 9, 2005



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 20-F

(Mark One)

|o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934 | 
|- | ---------------------------------------------------------------------------------------------- | 

OR

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 | 
|- | ------------------------------------------------------------------------------------ | 

For the fiscal year ended December 31, 2004

OR

|o | 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: 1-15909

BASF AKTIENGESELLSCHAFT(Exact name of Registrant as specified in its charter)

BASF CORPORATION*(Translation of Registrant's name into English)

Federal Republic of Germany(Jurisdiction of incorporation or organization)

Carl Bosch Strasse 38
Ludwigshafen, GERMANY 67056(Address of principal executive offices)


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

Title of each class

Name of each exchange on which registeredAmerican Depositary Shares representing
BASF ordinary shares of no par value

New York Stock ExchangeBASF ordinary shares of no par value

New York Stock Exchange**


Securities registered or to be registered pursuant to Section 12(g) of the Act:

None
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None
(Title of Class)

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the Annual
Report.

As
of December 31, 2004, there were 540,440,410 BASF ordinary shares of no par value outstanding.

Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 o Item
18 ý



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BASF Aktiengesellschaft is incorporated as a stock corporation organized under the laws of the Federal Republic of Germany. As used in this Annual Report, "BASF Aktiengesellschaft"
refers solely to the ultimate parent company of the BASF Group. "BASF" refers to BASF Aktiengesellschaft and its consolidated subsidiaries.

The
Consolidated Financial Statements of BASF are based on the accounting and valuation principles of the German Commercial Code
(Handelsgesetzbuch), the accounting standards issued by the German Accounting Standards Board (GASB) and the German Stock Corporation Act
(Aktiengesetz), collectively known as "German GAAP."

The
accounting principles conform to International Financial Reporting Standards (IFRS) to the extent permissible under the German Commercial Code. The reconciliation of significant
deviations to U.S. generally accepted accounting principles (U.S. GAAP) is described in Note 3 to the Consolidated Financial Statements included in Item 18.

The
translation of euros into dollars has been made solely for the convenience of the reader at the noon buying rate of the Federal Reserve Bank of New York (the "Noon Buying Rate") on
December 31, 2004, which was U.S. $1.3538 = €1.00. No representation is made that such amounts in euros could have been or could be converted into dollars at that or any
other exchange rate on such date or any other dates.

Forward-Looking Information May Prove Inaccurate

This Annual Report contains certain forward-looking statements and information relating to BASF that are based on the current expectations,
estimates and projections of its management and information currently available to BASF. These statements include, but are not limited to, statements about BASF's strategies, plans, objectives,
expectations, intentions, expenditures, and assumptions and other statements contained in this Annual Report that are not historical facts. When used in this document, the words "anticipate,"
"believe," "estimate," "expect," "intend," "plan" and "project" and other similar expressions are generally intended to identify forward-looking statements.

These
statements reflect the current views of BASF with respect to future events. They are not guarantees of future performance and involve certain risks and uncertainties that are
difficult to predict. In addition, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate.

Many
factors could cause the actual results, performance or achievements of BASF to be materially different from any future results, performance or achievements that may be expressed or
implied by such forward-looking statements. These factors include, among others:



1

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Many
of these factors are macroeconomic in nature and are, therefore, beyond the control of BASF's management. Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected, intended, planned or projected. BASF does not
intend, and
does not assume any obligation, to update the forward-looking statements contained in this Annual Report.

2

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TABLE OF CONTENTS

|         |  |                                                                              |  |     
|-------- |  | ---------------------------------------------------------------------------- |  | ----
|         |  | PART I                                                                       |  |     
|         |  |                                                                              |  | Page
|Item 1.  |  | Identity of Directors, Senior Management and Advisers                        |  | 4   
|Item 2.  |  | Offer Statistics and Expected Timetable                                      |  | 4   
|Item 3.  |  | Key Information                                                              |  | 5   
|Item 4.  |  | Information on the Company                                                   |  | 14  
|         |  | History and Development of the Company                                       |  | 14  
|         |  | Business Overview                                                            |  | 16  
|         |  | Organizational Structure                                                     |  | 51  
|         |  | Description of Property                                                      |  | 51  
|Item 5.  |  | Operating and Financial Review and Prospects                                 |  | 54  
|         |  | Overview                                                                     |  | 54  
|         |  | Basis of Presentation                                                        |  | 54  
|         |  | Results of Operations                                                        |  | 57  
|         |  | Liquidity and Capital Resources                                              |  | 79  
|         |  | Exchange Rate Exposure and Risk Management                                   |  | 85  
|         |  | Research and Development                                                     |  | 86  
|         |  | Commitments                                                                  |  | 87  
|Item 6.  |  | Directors, Senior Management and Employees                                   |  | 88  
|Item 7.  |  | Major Shareholders and Related Party Transactions                            |  | 100 
|Item 8.  |  | Financial Information                                                        |  | 101 
|Item 9.  |  | The Offer and Listing                                                        |  | 104 
|Item 10. |  | Additional Information                                                       |  | 107 
|Item 11. |  | Quantitative and Qualitative Disclosures About Market Risk                   |  | 112 
|Item 12. |  | Description of Securities Other than Equity Securities                       |  | 125 
|         |  | Part II                                                                      |  |     
|Item 13. |  | Defaults, Dividend Arrearages and Delinquencies                              |  | 126 
|Item 14. |  | Material Modifications to the Rights of Security Holders and Use of Proceeds |  | 126 
|Item 15. |  | Controls and Procedures                                                      |  | 127 
|Item 16. |  | A. Audit Committee Financial Expert                                          |  | 128 
|         |  | B. Code of Ethics                                                            |  | 128 
|         |  | C. Principal Accountant Fees and Services                                    |  | 128 
|         |  | D. Exemptions from the Listings Standards for Audit Committees               |  | 129 
|         |  | E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers    |  | 129 
|         |  | Part III                                                                     |  |     
|Item 17. |  | Financial Statements                                                         |  | F-1 
|Item 18. |  | Financial Statements                                                         |  | F-1 
|Item 19. |  | Exhibits                                                                     |  | E-1 

3

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PART I

Item
1.    Identity of Directors, Senior Management and Advisers

Not applicable.

Item
2.    Offer Statistics and Expected Timetable

Not applicable.

4

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Item 3.    Key Information

SELECTED FINANCIAL DATA

The following selected financial data for each of the years in the five-year period ended December 31, 2004 are excerpted from
the Consolidated Financial Statements of BASF, which have been audited by Deloitte & Touche GmbH, independent accountants during this period. These data are set forth in accordance with
generally accepted accounting principles in Germany (German GAAP) and U.S. GAAP for all periods presented.

BASF's
accounting and valuation methods conform to International Financial Reporting Standards to the extent permissible under the German Commercial Code based on the accounting
standards issued by the German Accounting Standards Board (GASB). See Notes 1 and 2 to the Consolidated Financial Statements in Item 18 for further information. The selected financial data presented
below in accordance with U.S. GAAP for the years 2002, 2003 and 2004 have been derived from the Consolidated Financial Statements included in Item 18. The reconciliation of the differences between
German GAAP and U.S. GAAP is described in Note 3 to the Consolidated Financial Statements.

The
translation of euros into U.S. dollars for 2004 has been made solely for the convenience of the reader at the noon buying rate of the Federal Reserve Bank of New York (the "Noon
Buying Rate") on December 31, 2004, which was U.S. $1.3538 = €1.00. No representation is made that such euro amounts could have been or could be converted into dollars at
that or any other exchange rate on such date or any other dates.

5

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|                                                             |                                    
|------------------------------------------------------------ | -----------------------------------
|
|
|Income Statement Data                                        |                                    
|German GAAP                                                  |                                    
|Sales, net of natural gas taxes                              |                                    
|Gross profit on sales                                        |                                    
|Income from operations                                       |                                    
|                                                             | Thereof special items              
|Income from ordinary activities                              |                                    
|Extraordinary income before taxes                            |                                    
|Income before taxes and minority interests                   |                                    
|Income before minority interests                             |                                    
|Net income                                                   |                                    
|Basic earnings per share                                     |                                    
|Balance Sheet Data                                           |                                    
|German GAAP                                                  |                                    
|Fixed assets                                                 |                                    
|Current assets including deferred taxes and prepaid expenses |                                    
|                                                             |                                    
|Total assets                                                 |                                    
|                                                             |                                    
|Stockholders' equity                                         |                                    
|                                                             | Thereof subscribed capital         
|Provisions and Liabilities                                   |                                    
|                                                             | Thereof long-term                  
|                                                             |                                    
|Total stockholders' equity and liabilities                   |                                    
|                                                             |                                    
|Capital Expenditures and Depreciation                        |                                    
|Additions to fixed assets                                    |                                    
|Depreciation and amortization of fixed assets.               |                                    
|U.S. GAAP Reconciliation                                     |                                    
|Net income*                                                  |                                    
|                                                             | Thereof from continuing operations*
|Basic earnings per share*                                    |                                    
|Income from continuing operations per share*.                |                                    
|Diluted earnings per share*                                  |                                    
|Stockholders' equity*                                        |                                    
|Key Ratios                                                   |                                    
|Return on sales (%)(1)                                       |                                    
|Return on assets (%)(2)                                      |                                    
|Return on equity after taxes (%)(3)                          |                                    
|                                                             |                                    

6

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Weighted Average of Shares Outstanding Used in Determining Earnings per Share:

|                          
|--------------------------
|
|Basic earnings per share  
|Diluted earnings per share
|                          

7

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REPORTABLE OPERATING SEGMENT DATA

|                                       |                                          
|-------------------------------------- | -----------------------------------------
|
|
|Chemicals                              |                                          
|Sales                                  |                                          
|Income from operations                 |                                          
|                                       | Thereof special items                    
|Assets                                 |                                          
|Plastics                               |                                          
|Sales                                  |                                          
|Income from operations                 |                                          
|                                       | Thereof special items                    
|Assets                                 |                                          
|Performance Products                   |                                          
|Sales                                  |                                          
|Income from operations                 |                                          
|                                       | Thereof special items                    
|Assets                                 |                                          
|Agricultural Products and Nutrition(1) |                                          
|                                       | Thereof Agricultural Products            
|Sales                                  |                                          
|Income from operations                 |                                          
|                                       | Thereof special items                    
|Assets                                 |                                          
|                                       | Fine Chemicals                           
|Sales                                  |                                          
|Income from operations                 |                                          
|                                       | Thereof special items                    
|Assets                                 |                                          
|                                       | Pharmaceuticals  discontinued operations
|Sales                                  |                                          
|Income from operations                 |                                          
|                                       | Thereof special items                    
|Assets                                 |                                          
|Oil & Gas                              |                                          
|Sales                                  |                                          
|Income from operations                 |                                          
|                                       | Thereof special items                    
|Assets                                 |                                          
|Others                                 |                                          
|Sales                                  |                                          
|Income from operations                 |                                          
|Assets                                 |                                          
|BASF Group                             |                                          
|Sales                                  |                                          
|Income from operations                 |                                          
|                                       | Thereof special items                    
|Assets                                 |                                          
|                                       |                                          

8

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Dividends

The Board of Executive Directors and the Supervisory Board of BASF Aktiengesellschaft propose dividends based on BASF Aktiengesellschaft's
year-end unconsolidated financial statements. The proposal is then voted on at BASF's Annual Meeting, which is usually held at the end of April of the following year. Official invitation
to the Annual Meeting is issued about six weeks in advance.

Since
all BASF Shares are in bearer form, dividends are either remitted to the custodian bank on behalf of the stockholder, generally within two business days following the Annual
Meeting, or, in the case of stockholders personally possessing certificates, available immediately following the Annual Meeting upon submission of the dividend coupon at the offices of BASF
Aktiengesellschaft in Ludwigshafen, Germany, or the offices of BASF Aktiengesellschaft's appointed paying agents. On the dividend record date, record holders of BASF's American Depositary Receipts
(ADRs) will be entitled to receive payment in full of the declared dividend in respect of the year for which it is declared. Cash dividends payable to ADR holders will be paid to The Bank of New York,
as depositary, in euros and, subject to certain exceptions, will be converted by the depositary into U.S. dollars. The amount of dividends received by holders of ADRs may be affected by fluctuations
in exchange rates. See "Exchange Rate Information" for further information.

The
following table lists the annual dividends payable per BASF Share in euros and the U.S. dollar equivalent for each of the years indicated. The table also discloses the dividend
amount per BASF Share for 2004 proposed by the Supervisory Board and the Board of Executive Directors for approval at the Annual Meeting to be held on April 28, 2005. The table does not reflect
the related tax credits available to eligible taxpayers. See "Item 10. Additional Information  Taxation of Dividends" for further information.

|     |  | Dividend Paid For Each
BASF Share
|---- |  | ---------------------------------
|
|2004 |  | 1.70                             
|2003 |  | 1.40                             
|2002 |  | 1.40                             
|2001 |  | 1.30                             
|2000 |  | 2.00                             
|    

The euro dividend amounts are translated solely for the convenience of the reader into U.S. dollars (rounded to the nearest cent) at the Noon
Buying Rate on the dividend payment date. For the dividend proposed to be paid in 2005 for the year ended December 31, 2004, the euro amount is translated into U.S. dollars (rounded to the
nearest cent) on the basis of the Noon Buying Rate on December 31, 2004 of $1.3538 = €1.00.

Exchange Rate Information

On January 1, 2002, the euro became the sole legal tender for business transactions in Germany and the other eleven countries participating
in the European Monetary Union.

Since
January 4, 1999, BASF Shares have been quoted in euros on the Frankfurt Stock Exchange. Fluctuations in the exchange rate between the euro and the U.S. dollar will affect,
among other things, the U.S. dollar amount received by holders of BASF's ADRs upon conversion by the depositary of any cash dividends paid in euros on BASF Shares. It will also affect the U.S. dollar
equivalent of the euro price of BASF Shares on the Frankfurt Stock Exchange, which will affect the market price of the ADRs on the New York Stock Exchange.

9

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The table below sets forth, for the periods and dates indicated, the high, low, period-average and period-end Noon Buying Rates for euros expressed in U.S. dollars for one
euro. No representation is made that the euro or U.S. dollar amounts referred to herein could have been or could be converted into U.S. dollars or euros, as the case may be, at any particular rate.

|     |  | U.S. Dollar For One Euro
|---- |  | ------------------------
|
|2004 |  | 1.3625                  
|2003 |  | 1.2597                  
|2002 |  | 1.0485                  
|2001 |  | 0.9520                  
|2000 |  | 1.0335                  
|    

The high and low exchange rates for the euro for each month during the previous six months is set forth below:

|                |  | U.S. Dollar For One Euro
|--------------- |  | ------------------------
|
|February, 2005  |  | 1.3274                  
|January, 2005   |  | 1.3476                  
|December, 2004  |  | 1.3625                  
|November, 2004  |  | 1.3288                  
|October, 2004   |  | 1.2783                  
|September, 2004 |  | 1.2417                  
|               

The Noon Buying Rate for the euro on March 1, 2005 was quoted by the Federal Reserve Bank of New York at 1.3189 U.S. dollars for one euro.

As
of January 4, 1999, the commencement date of euro trading, the Noon Buying Rate for the euro was quoted at $1.1812 = €1.00.

Because
a substantial portion of the BASF Group's revenues and expenses are denominated in currencies other than the euro, results of operations and cash flows may be materially affected
by movements in the exchange rate between the euro and the respective currencies to which the Group is exposed. For a discussion of the effect exchange rate fluctuations have on the BASF Group's
business and operations and also the hedging techniques used to manage the Group's exposure to such fluctuations, see "Item 5. Operating and Financial Review and Prospects 
Exchange Rate Exposure and Risk Management" and "Item 11. Quantitative and Qualitative Disclosures about Market Risk."

Risk Factors

BASF's business, financial condition or results of operations could suffer adverse material effects due to any of the following risks. While all
the risks considered material are described below, these are not the only risks BASF faces. Additional risks not known by BASF or not presently considered material might also impair BASF's business
operations.

Certain developments in the global economy generally may adversely affect BASF's sales and earnings

Four major economic factors may pose risks affecting BASF's sales and earnings: 1. Oil price developments could be different from estimated tendency to decline,
2. The U.S. dollar may further

10

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devaluate
against the euro and Asian currencies, 3. China's economy might experience a significantly reduced growth rate compared with expectations, and 4. U.S. interest rates could increase faster or
more drastically than anticipated.

Decreasing
demand for chemical products in the United States and Asia, as well as ongoing economic weakness in Europe, could consequently have an adverse effect on both sales and
earnings. Those areas that are subject to commoditization, such as BASF's basic inorganic chemicals, petrochemicals, intermediates and plastics operations are particularly vulnerable, whereas BASF's
agricultural, nutrition and cosmetics operations and natural gas trading are less likely to suffer. BASF is also regionally diversified, and therefore less likely to suffer from weakness in a specific
region.

Changes in regulatory controls could reduce the profitability of BASF's current products and could delay BASF's introduction of new products

BASF must comply with a broad range of regulatory controls on the testing, manufacturing and marketing of many of its products. BASF expects that regulatory
controls worldwide, and especially in the European Union (E.U.), will become increasingly more demanding. The proposed new E.U. chemicals policy (REACH) could require a significant increase in testing
for chemical products. These tests could be very cost intensive and time consuming, and could lead to increased costs and reduced operating margins for BASF's chemical products. The new legislation is
not expected to be in force before 2007 in the respective countries in Europe.

Under
the E.U. Directive on Emission Trading, governments have to impose total CO2 (carbon dioxide) caps on specific energy intensive installations. These caps aim to enable
E.U. member states to meet their Kyoto targets. The National Allocation Plans (NAPs) have been assigned in 2004 for the first period from 2005 until 2007. BASF expects to comply with these targets
during the next years. BASF does not anticipate specific capital expenditure exceeding the general administration and adjustment costs that the European industry is facing. Significant capital
expenditure and possible limitations of BASF's growth strategy could occur, if the allocation situation changes dramatically after 2007.

BASF is exposed to foreign currency and interest rate risks

BASF conducts a significant portion of its operations outside of Europe and is therefore exposed to risks associated with the fluctuations of foreign currencies.
BASF is subject to interest rate risks in the ordinary course of its business.

Risk
management is centralized at BASF Aktiengesellschaft and BASF Group companies designated for that purpose. BASF hedges against financial risks through derivative instruments such as
forward exchange contracts, currency options, interest rate and currency swaps and combined instruments. There can be no assurance, however, that BASF's hedging strategy will be effective and that
foreign currency and interest rate fluctuations will not adversely affect BASF's results of operations. See "Item 11. Quantitative and Qualitative Disclosures About Market Risk" and Note 27 to
the Consolidated Financial Statements for additional information about the nominal value and market value of BASF's financial instruments.

BASF
is also subject to credit risks to the extent that counterparties to transactions may not be able to perform their contractual obligations. Although BASF aims to limit the risk of
default by entering into transactions only with top-rated financial institutions and by adhering to fixed limits, defaults with respect to significant contracts may adversely affect BASF's
operating results.

Significant variations in the cost and availability of raw materials, energy, precursors and intermediates may adversely affect BASF's operating results

BASF uses significant amounts of raw materials and energy in manufacturing a wide variety of products. Significant variations in the cost and availability of raw
materials, energy, precursors and intermediates may

11

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adversely
affect BASF's operating results. To control these price and supply risks, BASF purchases raw materials through negotiated long-term contracts, with prices that periodically
float. Additionally required purchases on spot markets are made using optimized procedures. Supply contracts for the most strategically important raw materials are negotiated and concluded centrally
for the BASF Group. For more information, see "Item 4. Information on the Company  Supplies and Raw Materials."

BASF's
individual business units constantly monitor changes in their relevant supply markets and take action to minimize their risks accordingly.

Cyclicality may adversely affect BASF's operating margins

The results of BASF's Chemicals, Plastics and Performance Products segments are affected by cyclicality and migration of various industries in which they operate,
including the automotive, construction, electrical and electronics as well as the textile industries. BASF's strategy to deal with these risks is to constantly expand its cyclically resilient
businesses, such as agrochemicals, active ingredients for pharmaceuticals and nutrition, and trading and transmission of natural gas. In cyclical businesses, BASF seeks to maintain cost leadership.
BASF strives to anticipate customer migration tendencies and adjusts to customer industries by continued investment activities in emerging growth markets.

The results of BASF's crop protection business are dependent on weather conditions and can be affected by local and regional economic circumstances

Sales volumes of BASF's crop protection products are subject to the agricultural sector's dependency on weather conditions. Adverse weather conditions in a
particular growing region could materially negatively affect the results of operations of BASF's crop protection business. Demand for crop protection products is further influenced by the agricultural
policies of governments and multinational organizations. In addition, BASF's crop protection products are typically sold pursuant to contracts with long payment terms. These extended payment periods
make BASF's crop protection business susceptible to losses from receivables during local or regional economic crises and may adversely affect BASF's operating results.

Exploration risk may adversely affect the business of BASF's Oil & Gas segment

The future growth of the exploration and production unit of our Oil & Gas segment is dependent on successful findings. The search for new oil and natural
gas reserves involves certain geological risks that relate to the availability of hydrocarbon products and the quality thereof. The exploration and production industries are experienced in dealing
with these risks diligently. We diversify our risks through a balanced exploration portfolio.

Failure to develop new products and production technologies may harm BASF's competitive position and operating results

BASF's operating results depend on the development of commercially viable new products and production technologies. BASF devotes substantial resources to research
and development. Because of the lengthy development process, technological challenges and intense competition, there can be no assurance that any of the products BASF is currently developing, or may
begin to develop in the future, will become market-ready and achieve substantial commercial success.

Negative developments in equity and bond markets may make extraordinary contributions to pension funds necessary

The fund assets required to cover future pension obligations are actuarially determined using assumptions concerning the expected return on plan assets. The plan
assets are partially comprised of equity investments. Declining returns on equity and bond markets could trigger additional contributions to

12

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the
pension plans to cover future pension obligations. The amortization of additional contributions that are deferred as prepaid pension assets increase future pension expenses.

BASF is dependent upon hiring and retaining highly qualified management and technical personnel

Competition for highly qualified management and technical personnel is intense in the industries in which BASF operates. BASF's future success depends in part on
its continued ability to hire, integrate and retain highly skilled employees.

BASF is subject to the risks associated with the use of information technology

BASF is dependent upon technology for the distribution of information within the BASF Group and to customers and suppliers. This information technology is subject
to risks associated with defects, errors, failures and computer viruses. To control potential risks relating to information technology, BASF uses the latest hardware and software and has integrated
uniform information technology infrastructures, backup systems, replicated databases, virus and access protection, encoding systems and a high degree of internal networking. There can be no assurance,
however, that BASF's information technology systems will not fail and cause material disruptions to BASF's business.

BASF is subject to security risks

Assessing security risks on a worldwide basis and determining their potential impact on BASF has become an extremely difficult undertaking since the terrorist
attacks in the United States. BASF's corporate security is in close contact with local security offices through its group-wide network, and takes controlled precautionary steps with the
help of constantly updated security
measures and recommendations (e.g., travel restrictions, tighter access controls for production plants, up-dating of rescue and evacuation plans, emergency services, etc.) to protect the
company and its employees.

Litigation could harm BASF's operating results and cash flows

For further information see "Item 8. Financial Information  Legal Proceedings" and Note 25 to the Consolidated Financial Statements.

13

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Item 4.    Information on the Company

HISTORY AND DEVELOPMENT OF THE COMPANY

BASF Aktiengesellschaft was incorporated as a stock corporation under the laws of the Federal Republic of Germany on January 30, 1952 under
the name "Badische Anilin- und Soda-Fabrik AG." In 1973, the company changed its name to BASF Aktiengesellschaft. BASF Aktiengesellschaft's headquarters are located in Ludwigshafen,
Germany; its registered office is located at Carl Bosch Strasse 38, 67056 Ludwigshafen, Federal Republic of Germany, telephone 011-49-621-60-0. The
company's agent for U.S. federal securities law purposes is BASF Corporation, located at 100 Campus Drive, Florham Park, New Jersey 07932, telephone (973) 245-6000.

Major
recent acquisitions and divestitures include the following: BASF divested the printing systems business to CVC Capital Partners on November 30, 2004. On July 20,
2004, BASF divested the 30% share in DyStar to Platinum Equity. In 2003, BASF purchased the worldwide engineering plastics business from and sold its worldwide nylon fibers business to Honeywell
International. BASF also acquired the insecticide fipronil, and certain fungicides for seed treatment from Bayer CropScience in 2003.

14

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Major recent capital expenditures included:

|Segment              |  | Location           |  | Project                                             |  | Projected Annual Capacity at Completion of Project (metric tons) |     | Start-Up/Projected Start-Up of Operations
|-------------------- |  | ------------------ |  | --------------------------------------------------- |  | ---------------------------------------------------------------- | --- | -----------------------------------------
|Chemicals            |  | Caojing, China     |  | Tetrahydrofuran / polytetrahydrofuran               |  | 80,000 / 60,000                                                  |     | 2005                                     
|                    
|                     |  | Nanjing, China     |  | Integrated production site; major products include: |  |                                                                  | (1) | 2005                                     
|                     |  |                    |  | /*/                                                 |  | ethylene                                                         |     | 600,000                                  
|                     |  |                    |  |                                                    
|                     |  |                    |  | /*/                                                 |  | ethylene glycol                                                  |     | 300,000                                  
|                     |  |                    |  |                                                    
|                     |  |                    |  | /*/                                                 |  | aromatics                                                        |     | 300,000                                  
|                     |  |                    |  |                                                    
|                     |  |                    |  | /*/                                                 |  | oxo alcohols                                                     |     | 250,000                                  
|                     |  |                    |  |                                                    
|                     |  |                    |  | /*/                                                 |  | organic acids                                                    |     | 80,000                                   
|                     |  |                   
|                     |  | Port Arthur, Texas |  | Butadiene                                           |  | 410,000                                                          | (2) | 2004                                     
|                    
|Plastics             |  | Altamira, Mexico   |  | EPS expansion                                       |  | 150,000                                                          | (3) | 2005                                     
|                     |  |                   
|                     |  | Antwerp, Belgium   |  | Terluran (ABS)                                      |  | 200,000                                                          |     | 2004                                     
|                     |  |                   
|                     |  | Antwerp, Belgium   |  | Propylene oxide                                     |  | 300,000                                                          | (4) | 2008                                     
|                     |  |                   
|                     |  | Antwerp, Belgium   |  | Hydrogen peroxide                                   |  | 200,000                                                          | (5) | 2008                                     
|                     |  |                   
|                     |  | Caojing, China     |  | MDI (diphenylmethane diisocyanate)                  |  | 240,000                                                          | (6) | 2006                                     
|                     |  |                   
|                     |  | Caojing, China     |  | TDI (toluene diisocyanate)                          |  | 160,000                                                          | (7) | 2006                                     
|                     |  |                   
|                     |  | Kuantan, Malaysia  |  | Ultradur (PBT)                                      |  | 60,000                                                           | (8) | 2006                                     
|                     |  |                   
|                     |  | Pudong, China      |  | Polyurethanes specialties                           |  |                                                                 |     | 2007                                     
|                    
|Performance Products |  | Nanjing, China     |  | Acrylic monomers                                    |  | 160,000                                                          | (1) | 2005                                     
|                    

15

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BUSINESS OVERVIEW

Introduction

BASF is a transnational chemical company that comprises the parent company, BASF Aktiengesellschaft of Ludwigshafen, Germany, and 159 consolidated
subsidiaries. The company has customers in more than 160 countries and operates production sites in 41 countries.

For
the year ended December 31, 2004, BASF reported sales of €37,537 million, income from operations of €4,856 million, and net
income after taxes and minority interests of €1,883 million. Based on customer location, BASF's activities in Europe accounted for 55.9% of BASF's total sales in 2004; North
America (which includes the United States, Mexico and Canada) accounted for 21.8% of sales; the Asia, Pacific Area, Africa region accounted for 16.8% of sales; and South America accounted for 5.5% of
sales.

Structure

BASF has five separate business segments: Chemicals, Plastics, Performance Products, Agricultural Products & Nutrition and Oil &
Gas. These business segments encompass BASF's 12 operating divisions. For financial reporting purposes, the two operating divisions of BASF's Agricultural Products & Nutrition business segment
are separate reportable operating segments: Agricultural Products and Fine Chemicals.

BASF's
operations are linked with what is referred to as the "Verbund" structure. Verbund loosely translates as "integration", but the meaning encompasses far more than what is
traditionally associated with backward or forward integration. In production processes, BASF does not simply look forward and backward to find potential efficiencies, but rather examines every input
and every output of these processes. At Verbund sites, BASF uses byproducts of chemical reactions that might otherwise have to be disposed of as raw materials for other processes. In addition, many
chemical processes release heat energy, which BASF converts into steam and then uses to drive other processes within a Verbund site. This allows our Verbund sites to consume less fossil fuel than
would otherwise be required. The closely linked plants at a Verbund site also allow the use of pipelines to transport intermediate products, instead of railcars, barges or trucks, thus resulting in
further savings. By reusing byproducts and residual materials, using energy and other raw materials efficiently, and keeping the distances that substances need to be transported to a minimum, BASF
reduces the impact on the environment and saves money. This concept of benefiting from interconnectivity is applied to other areas as well, such as R&D, purchasing and managing customer relationships,
where globally interactive teams maximize BASF's productivity.

Group Strategy

Chemistry offers enormous opportunities. It is the key to a future that we actively shape. We help our customers to be more successful with a
variety of products, applications and intelligent system solutions. Our business activities are governed by innovation and sustainability  to ensure that we will still be the
world's leading chemical company in 2015 and beyond.

We
are concentrating on and expanding our strengths in our chemical businesses, in agricultural products and nutrition, and in oil and gas. In doing so, we aim to make our portfolio more
resilient toward cyclicality and oil price fluctuations.

In
addition, we are consistently utilizing technological change to create advantages for BASF. We are using the opportunities provided by biotechnology, nanomaterials, material sciences
and energy-management technologies to offer our customers products and system solutions with cutting-edge properties. In doing so, we open up attractive business opportunities for them and us.

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Four guidelines for our future

Four strategic guidelines describe BASF's path to the future:



Earn a premium on our cost of capital

We earn a premium on our cost of capital to increase the value of BASF. To achieve this goal, we have been expanding on our value-based management strategy since
2003. EBIT (earnings before interest and taxes) after cost of capital is now the key performance and management indicator for our operating divisions and business units. We measure every business
decision and our performance on the basis of how it influences earnings after cost of capital in the short and long term. As a result, all of our
employees help us to improve cost structures, to use our capital more economically and to grow profitably.

The
BASF Group must achieve an EBIT of 10% on its operating assets to satisfy the returns expected by providers of equity and debt, and to cover tax expenses. The cost of capital
percentage before interest and taxes of 10% corresponds to a weighted average cost of capital (WACC) of approximately 6% after taxes.

The
WACC calculation is an internationally recognized method of determining a company's cost of capital. The return desired by shareholders and the interest rates on debt capital are
determined and weighted according to their share of total capital. We calculate our cost of equity on the basis of the market value of BASF shares. The cost of capital percentage is reviewed annually.
EBIT after cost of capital is calculated by subtracting income taxes for oil production that are noncompensable with German taxes (see Note 8 of Item 18) and the cost of capital from
BASF Group's EBIT. Finally, EBIT for activities not assigned to the segments is added, since this is already provided for in the cost of capital percentage.

We
achieve profitable growth through long-term value-adding investments, but above all through innovation. These include successful new products as well as more competitive
processes. They are generated by an efficient innovation process in an environment that supports creativity and entrepreneurship. To obtain the best results from our funds, BASF is concentrating its
resources even more closely on those business areas that show the greatest potential for profitable growth.

Help our customers to be more successful

We are there wherever our customers are. We invested in good time in growth markets, and are now active in all important markets worldwide. In order to grow
profitably, we aim to focus even more closely on our customers' needs in the future, and develop and apply the best business models for our customers and for us. Our goal is to increase the benefit of
our products and system solutions throughout the value-adding chain. We are therefore looking harder at what our customers, markets and consumers want. In a close dialogue, we also aim to identify
requirements that offer our customers and ourselves potential for growth as well as unique selling propositions. The systematic dialogue with our customers plays an important role in this effort: In
joint teams, we look at how we can use our entire knowledge more efficiently to create intelligent solutions that will support our customers' success. To do this, we want to develop innovative
business models that are oriented to the needs of our customers and their markets.

Through
our Marketing & Sales Academy, we are working to increase the enthusiasm and expertise of our employees worldwide, and thus sharpen the customer focus. By supporting this
process with networks to enhance knowledge transfer, we will also become more attractive for the best management trainees.

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Form the best team in industry

Our highly qualified, motivated and committed team of employees are crucial for BASF's success in the global market. Attracting and developing the best talent
therefore has top priority at our company.

We
aim to enhance our employee's opportunities for self-learning and learning on the job. In doing so, we utilize novel integrated training concepts as well as new personnel
development and qualification systems. To be an attractive employer, we have long used performance-related pay to encourage entrepreneurial thinking and acting. In the future, we will increasingly
link pay at all levels to individual performance and the success of the company.

We
are taking steps to broaden the international nature of our management team and also develop more women for management positions. By becoming more diverse, we will increase mutual
understanding and our ability to tackle problems faster and more creatively. In the area of executive and professional development, we are paying greater attention to specific leadership skills in
addition to technical ability. The Leadership Compass we published in 2004 clearly states what our senior executives undertake to achieve: clarity and a sense of reality, performance and speed,
enthusiasm and inspiration, as well as strategic and operational leadership.

Ensure sustainable development

For BASF, sustainable development means combining long-term economic success with environmental protection and social responsibility. This is how we
understand our contribution to ensure a better future for us and coming generations. The strategies needed to achieve this are developed and monitored by BASF's Sustainability Council and implemented
with the support of regional networks in Asia, the Americas and Europe. In our view, our social responsibility lies in offering our employees performance-related compensation, investing in their
education and life-long learning, and providing flexible, family-oriented arrangements for working hours.

The
most important sustainability tools for our customers are our eco-efficiency analysis and our Expert Services Sustainability. The eco-efficiency analysis
helps customers to decide which products and processes are best suited to their specific application from both economic and environmental viewpoints. Our Expert Services Sustainability combines our
know-how in the fields of Responsible Care and sustainability to provide applications for our customers. Together with marketing and sales, we can thus offer services as well as products.
As a result, sustainability pays off in the form of a better market position for our customers and BASF.

CHEMICALS

Segment Overview

The Chemicals segment produces a wide range of products, from basic petrochemicals and inorganic chemicals to higher-value intermediates, allowing
BASF to exploit fully the benefits of its Verbund approach to integration. The segment is further organized into the Inorganics, Petrochemicals, and Intermediates divisions. Key information is
provided in the following table:

|                               |  | 2004  |  | 2003  |  | 2002 
|------------------------------ |  | ----- |  | ----- |  | -----
|
|Sales to third parties         |  | 7,020 |  | 5,752 |  | 5,317
|Percentage of total BASF sales |  | 19%   |  | 17%   |  | 17%  
|Intersegmental transfers       |  | 3,395 |  | 2,680 |  | 2,598
|Income from operations         |  | 1,241 |  | 393   |  | 635  
|Capital expenditures           |  | 555   |  | 527   |  | 495  
|                              

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The Chemicals segment produces a wide variety of chemicals that are sold to a multitude of industries including the chemical, construction,
automotive, electrical, electronics, detergents, colorants, coatings, health and nutrition industries.

The
Chemicals segment forms the basis of BASF's Verbund because its divisions both intensively consume and manufacture products along the company's core value-adding chains. Virtually
all products that the segment sells to external customers are produced within this integrated network. Although most of the segment's sales are to external customers, 32.6% of the segment's total
sales are intersegmental transfers to other BASF operations for the manufacture of higher-value products. The products manufactured for captive use include many basic and intermediate chemicals.

The
principal raw materials used in the Chemicals segment are sulfur, salt, propane, butane, naphtha and natural gas. The segment purchases approximately 5% of its raw materials from
other BASF operations. Natural gas, a key raw material for the Chemicals segment, is acquired both through BASF's joint venture WINGAS GmbH, and from external sources. All other principal raw
materials are purchased from external sources. BASF does not rely on any dominant supplier for the raw materials of its Chemicals segment.

Segment Strategy

The Chemicals segment focuses on the supply of cost-efficient standard chemicals for internal demand and on offering a broad range of
intermediate and higher-value products for external customers. Success factors for the chemicals segment in a competitive environment are cost leadership, including competitively priced raw materials,
economies of scale, leading technology and efficient production processes. The high and steady internal demand for the basic chemical building blocks produced by the Chemicals segment ensures a high
capacity utilization of BASF's world-scale plants, e.g., steam crackers, ammonia plants, etc. BASF's capital expenditures and research and
development efforts are focused on building world-scale plants, as well as on developing new technologies, improved processes and new products.

The
Chemicals segment's global strategy is to maintain its leading market position in Europe, improve its cost structure and market position in North America, and expand its operations
in Asia. In Europe, BASF modernized production plants and reduced fixed costs, such as changing over part of the chlorine plant in Ludwigshafen to the more cost-efficient membrane process
in 2003.

In
North America, the Chemicals segment operates one of the world's largest naphtha steam crackers in Port Arthur, Texas, in conjunction with its 40% partner, Total Petrochemicals USA,
Inc., Texas. This steam cracker supplies propylene, ethylene and other products to BASF's Verbund sites in Geismar, Louisiana, and Freeport, Texas. In 2004, the C4 complex that is
integrated into the steam cracker in Port Arthur, Texas started operation. It includes an extraction unit for butadiene and an inalkylation unit owned jointly by BASF and its partners Shell and Total
Petrochemicals as well as a metathesis unit owned by our joint venture with Total Petrochemicals. The latter will produce an additional 300,000 tons of propylene per year. In 2004, BASF acquired the
plasticizer business of Sunoco, Inc., within North America to strengthen BASF's market position in this region.

In
Asia, BASF has a number of major projects underway. These include the expansion of the Verbund site in Kuantan, Malaysia with our joint venture partner PETRONAS. The new butanediole
complex in Kuantan, Malaysia started operation in 2004. The output of this plant will also be a precursor for our new polybutyleneterephthalate (PBT) plant, which we are constructing with our joint
venture partner Toray, Japan. BASF is also constructing a new Verbund site in Nanjing, China with its joint venture partner SINOPEC. BASF expects all plants at the Nanjing site to be operational in
2005. In addition, in 2003 BASF started the construction of a new plant for tetrahydrofuran (THF) and polytetrahydrofuran (PolyTHF®) in Caojing, China, which will also start operations in
2005.

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Research and Development

In 2004, the Chemicals segment invested approximately €104 million in research and development. Research activities are
focused on the development of improved or new production processes as well as on the development of innovative products.

Within
the process development area, we aim to develop improved synthesis of organic and inorganic intermediates and industrial chemicals to strengthen our value-adding production
chains. One example of this is BASF's new and proprietary technology for the synthesis of THF and subsequently
PolyTHF®. Our new plant for THF and PolyTHF® that will start operations in 2005 will use this new technology, which eliminates the intermediary step of
1,4-Butanediol (BDO) that was previously necessary, thereby saving energy and reducing costs.

Within
the product development area, we are concentrating on extending our product range with new, customer-oriented products and applications. We must understand our customers' products
and processes and find the best solutions for their problems. A recent example in this area comes from the wood products industry. In 2004, we developed a new impregnating resin that reduces the
electrostatic charging of a person walking on laminate flooring, thus lowering the risk of sparks, such as when touching a door handle. This product is currently being introduced into the market.
Another example of the Chemicals segment's product innovations is our portfolio of ionic liquids. In 2004, BASF gained the process innovation award from European Chemical News for the first commercial
application of this new and versatile product class.

Products

The Chemicals segment has the following major product lines:

Inorganic Specialties and Electronic Grade Chemicals (Inorganics division)

BASF offers a wide range of inorganic specialties which includes carbonyl iron powder, hydroxylamine free base, hydroxylammonium sulfate, boron specialties and
BASF's innovative Catamold® line of products for powder injection molding of metal and ceramic components. The Catamold® line is especially suited for manufacturing tiny,
intricate devices such as watch casings and orthodontic appliances. BASF sells these products globally to manufacturers in the automotive, construction and medical sectors, among other industries.
BASF also produces some inorganic specialties in electronic grade, such as hydroxylamine free base for use in manufacturing semiconductors, light-emitting diodes, and flat and plasma screen displays.

Inorganic Chemicals (Inorganics division)

BASF produces inorganic chemicals through value-adding chains of production based on nitrogen, sulfur and sodium chloride. Some of these are starting materials
for superabsorbers, fertilizers, and other high-value chemicals. The products range from basic chemicals such as chlorine, sodium hydroxide, nitric acid and sulfuric acid to inorganic
salts such as sodium and potassium alcoholates to ammonium salts. More than half of these products are for captive use within BASF's Verbund. The remaining products are sold primarily to other
chemical companies.

Glues and Impregnating Resins (Inorganics division)

BASF offers a wide variety of tailor-made adhesives for the wood products industry. These adhesives are used to bind together the particles, fibers
and strands found in all types of particleboards, and are also used for surface bonding of wooden components. In addition, BASF produces impregnating resins, which are used to manufacture decorative
paper and laminated flooring. BASF is also a producer of glues and impregnating resin raw materials such as ammonia, formaldehyde, methanol, urea and melamine. Europe is the primary market for this
group of products.

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Cracker Products (Petrochemicals division)

BASF produces the entire range of cracker products from ethylene and propylene to benzene and C4 cuts. Of these, propylene is the most important
starting product for BASF's value-adding chains, especially acrylic monomers, oxo alcohols and propylene oxide. Benzene is used captively, while the residues from benzene extraction are sold as
gasoline components. Butadiene is used captively to produce dispersions and ABS (acrylonitrile-butadiene-styrene) and is also sold in the merchant market. Isobutene (a
C4 hydrocarbon) serves as the starting material for the polyisobutene value-adding chain of gasoline additives as well as the basic building block in vitamin synthesis. In Europe,
all n-butenes are used in the synthesis of plasticizers and detergent alcohols. Higher olefins are marketed to the adhesives industry.

Alkylene Oxides and Glycols (Petrochemicals division)

Ethylene oxide derived from ethylene is used mainly to produce surfactants, ethanolamines, glycols and glycol ethers. Ethylene glycol is a product used in
antifreeze by the automotive industry. BASF also supplies ethylene glycol to polyester manufacturers for the production of fibers, films and PET (polyethylene terephthalate) plastic bottles. Propylene
oxide is synthesized from propylene and serves as a base for a wide variety of products, including surfactants, hydraulic fluids, solvents and propylene glycol.

Solvents (Petrochemicals division)

BASF offers a wide range of oxygenated, halogen-free solvents that are used to dissolve other chemicals and facilitate chemical reactions. BASF is the
world's largest producer of oxo alcohols and is also a major producer of acetates, glycol ethers and glycol ether acetates, as well as the specialty solvents such as cyclohexanone. BASF sells most of
these products globally, primarily to the coatings, pharmaceuticals and cosmetics industries.

Plasticizers and Plasticizer Raw Materials (Petrochemicals division)

BASF manufactures standard and specialty plasticizers, which are used in chemical processes to make rigid plastics flexible. BASF also sells the plasticizer
precursor phthalic anhydride for use in dyestuffs and unsaturated polyester resins, and markets plasticizers based on higher alcohols. With our new specialty plasticizer Hexamoll DINCH, we offer an
innovative alternative to our customers; this product was especially developed for sensitive human-contact applications like medical devices, toys, or food contact applications.

Amines (Intermediates division)

BASF is among the world's top three producers of amines, which are principally used to make detergents and cleaning products, process chemicals and agricultural
products as well as pharmaceuticals. BASF offers approximately 140 different amines worldwide. Key products include ethanolamines, ethyleneamines, alkylamines, alkylalkanolamines and several specialty
and aromatic amines.

Butanediol and its derivatives (Intermediates division)

BASF produces and sells these products globally: BASF is the world's largest manufacturer of 1,4-butanediol, which is a chemical building block for
products such as polyesters and polyurethanes. Its derivatives are used to produce products ranging from fibers to paints, and include tetrahydrofuran, PolyTHF®, gamma-butyrolactone and
N-methylpyrrolidone.

Polyalcohols and Specialties (Intermediates division)

The polyalcohols such as 1,6-hexanediol and neopentylglycol (Neol®) are mainly used as raw materials for a wide range of coatings. In
addition, BASF offers specialties like carbonates and various special acetylenics such as vinylmonomers and alkylpyrrolidones.

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Acids and Specialty Intermediates (Intermediates division)

This product group comprises both commodity acid products and specialty intermediate products. Carbon acids such as formic acid, propionic acid and
2-ethylhexanoic acid can be used to manufacture preservatives for the feed and food industries, as well as auxiliaries for textile and leather applications. Specialty intermediates, such
as derivatives of phosgene like acid chlorides and chloroformates, glyoxal and its derivatives, glutaraldehyde and various other chemicals such as formamide, triphenylphosphine and several chiral
intermediates are often used in the manufacture of paper, polymers, textiles and leather products, and are of increasing importance for pharmaceuticals and agricultural products.

Division Information

Inorganics

BASF's Inorganics division sells about 750 products of which approximately 55% are allocated for captive use. These internal transfers include
large amounts of chlorine, sodium hydroxide, ammonia, formaldehyde, methanol and nitric acid as precursors to create higher-value products. The remaining amount is sold to external customers worldwide
in a broad range of industries.

In
2004, the Inorganics division's sales to third parties were €844 million. Thereof, Europe accounted for 76%; the Asia, Pacific Area, Africa region for 13%;
North America (NAFTA) for 9%; and South America for 2%.

The
most important production site for the Inorganics division is BASF's Verbund site in Ludwigshafen, Germany, where the division produces the majority of its product range. The
division also produces basic inorganic chemicals such as ammonia, formaldehyde, nitric acid and sulfuric acid at the company's Verbund site in Antwerp, Belgium.

The
Inorganics division's portfolio includes high margin inorganic specialties such as alcoholates as well as boron and potassium specialties, with customers in the important
non-cyclical life science markets. Offering customers inorganic specialties and innovative products, especially in the areas of electronic grade chemicals, catalysts and powder injection
molding products, allows BASF to maintain a competitive edge and thus contributes to the division's profitability. BASF aims to expand its business in inorganic specialties and catalysts for which the
company can obtain higher margins.

The
Inorganics division competes on the basis of strong customer relationships, comprehensive product service and price. In the market for specialty products, the division also competes
based on its ability to offer innovative products, such as catalysts. The Inorganics division sells its products primarily through BASF's own sales force.

The
Inorganics division's main competitors include Arkema, Norsk Hydro and Gentek. In the market for catalysts, the division's main competitors include
Süd-Chemie, Criterion Catalyst & Technology Company and Procatalyse, while in the market for glues and impregnating resins, Nordkemi and Arkema are among BASF's
competitors.

Petrochemicals

The Petrochemicals division sells more than 200 products and represents the first step in BASF's Verbund approach to integration for the company's
petrochemical-based, high-value products.

In
2004, the Petrochemicals division's sales to third parties were €4,189 million. Thereof, North America (NAFTA) accounted for 49%; Europe for 44%; the Asia,
Pacific Area, Africa region for 6%; and South America for 1%.

The
Petrochemicals division's principal products include the basic building blocks of petrochemicals, which are produced primarily in steam crackers. In a steam cracker, steam is used to
crack naphtha mainly into ethylene and propylene. Other materials produced in this process include aromatics such as benzene, and C4 cuts (a mixture of C4
hydrocarbons)  a source of butadiene, isobutene and n-butenes.

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In Europe, BASF operates steam crackers in Ludwigshafen, Germany and Antwerp, Belgium. In the NAFTA region, it operates a steam cracker in Port Arthur, Texas with its 40% partner Total
Petrochemicals USA, Inc., Texas. Although the steam crackers mainly supply products for captive use within the company, BASF maintains positions in the merchant markets for ethylene to ensure
high capacity utilization. In Nanjing, China, a steam cracker and several downstream production facilities are expected to start operations in 2005.

The
division's products, which are used both internally in BASF's value-adding chains of production and are also sold to external customers, include large amounts of ethylene, propylene,
butadiene, benzene, oxo alcohols, phthalic anhydride, plasticizers, ethylene oxide, ethylene glycols, propylene oxide, propylene glycol and industrial gases.

The
Petrochemicals division sells products through BASF's own sales force as well as through wholesalers. Specialty chemical and other chemical companies are the primary external
customers of this division, and some of the customers are also competitors of BASF. Approximately 40% of the division's sales are to other BASF divisions. The remaining amount is sold to approximately
2,200 customers worldwide.

The
Petrochemicals division produces commodities that are subject to strong cyclicality in pricing. Changes in the costs of raw materials have an almost immediate effect on the
division's financial performance. Competition in the market is based on strong customer relationships, comprehensive product services and price.

BASF
considers Shell Chemicals and BP Chemicals, Eastman Chemicals, Exxon Chemicals Company, Dow, SABIC EuroPetrochemicals, SINOPEC, and European Oxo to be the main competitors in its
Petrochemicals division.

Intermediates

The Intermediates division manufactures approximately 600 products that are sold to around 3,000 customers worldwide. These customers typically
purchase the division's chemical products as precursors for their higher-value chemicals. Customers of the Intermediates division are largely active in
the manufacture of plastics, polyurethanes, textile fibers, resins, paints, surfactants, colorants, coatings, pharmaceuticals and agricultural products.

In
2004, the Intermediates division's sales to third parties were €1,987 million. Thereof, Europe accounted for 51%; the Asia, Pacific Area, Africa region for 31%;
North America (NAFTA) for 15%; and South America for 3%.

Many
of the Intermediates division's products are more resilient to economic cycles than products in the Chemicals segment's other divisions, and many are the result of
multi-step production processes within BASF before intermediates are sold to external customers. The division additionally satisfies high demand within BASF for cost-efficient
precursors for the production of agricultural products, pharmaceuticals, paint resins, plastics, adhesives, dyes, pigments and process chemicals for the textile, leather and paper industries. Internal
transfers to other BASF operations, in particular of amines, account for approximately 25% of the division's total sales.

The
keys to the Intermediates division's success are achieving technological and cost leadership, offering customized products and, increasingly, developing a global production presence.
Currently, we are building wholly owned plants for tetrahydrofuran and polytetrahydrofuran (PolyTHF®) in Caojing, China. The plants will be started up in 2005 and will utilize BASF's newly
developed proprietary technology to convert butane directly to tetrahydrofuran and subsequently to PolyTHF®.

BASF
sells this division's products through its own sales force as well as through distributors. BASF is among the top three producers worldwide in the main products of its four
strategic intermediates' business units. In the amines markets, BASF considers its main competitors to be Air Products, Dow and Huntsman.

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In
BASF's activities of butanediol and derivatives, the company's major competitors are ISP, Invista, Lyondell, Dairen, Mitsubishi Chemicals and new entrants from China. Eastman Chemical and Ube
Industries are considered to be the main competitors for polyalcohols and specialties. Finally, the main competitors in BASF's acids and specialty intermediates business are Kemira and BP Amoco.

PLASTICS

Segment Overview

BASF is one of the world's leading plastics manufacturers, and offers one of the industry's most comprehensive product ranges. The segment is
organized into three divisions: Styrenics, Performance Polymers, and Polyurethanes. Key information is provided in the following table:

|                               |  | 2004   |  | 2003  |  | 2002 
|------------------------------ |  | ------ |  | ----- |  | -----
|
|Sales to third parties         |  | 10,532 |  | 8,787 |  | 8,477
|Percentage of total BASF sales |  | 28%    |  | 26%   |  | 26%  
|Intersegmental transfers       |  | 677    |  | 541   |  | 436  
|Income from operations         |  | 669    |  | 296   |  | 582  
|Capital expenditures           |  | 454    |  | 539   |  | 636  
|                              

The Plastics segment purchases over two-thirds of its raw materials from external suppliers. The principal raw materials are benzene,
toluene, ethylene, propylene, butadiene, acrylonitrile, cyclohexane, and ammonia. BASF has a policy of maintaining multiple suppliers for raw materials of its Plastics segment, so that it is not
dependent on any dominant supplier. However, it cannot be guaranteed that short-term tightness in the supply for a particular raw material will not occur.

Segment Strategy

BASF's Plastics segment seeks to strengthen its position in the styrenics, nylon and polyurethane value-adding chains of chemistry through the
following strategies:



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Research and Development

In 2004, the Plastics segment spent approximately €138 million on research and development activities. We consider R&D to
be a key element in ensuring the long-term success of our Plastics segment. Our R&D activities are focused in two areas: the manufacturing processes, and product development.

Within
the process development area, we seek to improve existing manufacturing processes, and also to develop new cost-effective manufacturing alternatives. A good example of
this is the new hydrogen peroxide to propylene oxide (HPPO) technology. Together with Dow, we developed this innovative process, which generates nothing but the end product propylene oxide (PO),
avoiding co-products. This process is the most cost-effective method to produce PO, and plants using this technology require a significantly lower investment compared to
conventional PO productions processes. The construction of a world scale plant using this process is scheduled to begin in 2006 at our Antwerp Verbund site.

Within
the product development area, we seek to work together with customers in order to develop innovative new products and improvements to our existing products. By working with
customers from the start, we can ensure that the results of our efforts are marketable. For example, our Ultradur® High Speed that allows our customers in the automotive and electronics
industry to reduce their manufacturing costs thanks to shorter production times, has been well received by the market. This decisive benefit is due to the material's radically improved melt flow,
which is achieved by adding finely distributed nanoparticles. Innovative products like this help make our customers more successful and solidify BASF's position as the partner of choice.

Products

The Plastics segment contains the following significant product lines:

PS (Polystyrene) (Styrenics division)

BASF's polystyrene products range from rigid and transparent general-purpose plastics to high impact-resistant grades that customers shape using injection
molding, extrusion and blow molding. Primary applications include packaging and household appliances.

EPS (Expandable Polystyrene) (Styrenics division)

BASF sells expandable polystyrene under the brand names Styropor® and Neopor®. Expandable polystyrene's advantages include heat
insulation, high compressive strength, shock absorption, low weight, and moisture resistance. Primary applications include building insulation and packaging.

XPS (Extruded Polystyrene) (Styrenics division)

BASF sells extruded polystyrene under the brand name Styrodur®. It is a green, extruded, rigid polystyrene foam that is made using environmentally
friendly carbon dioxide as a blowing agent. Styrodur® offers heat insulation, low water absorption, and compressive strength. The primary application is building insulation.

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SAN (Styrene-Acrylonitrile Copolymers) (Styrenics division)

Luran® is BASF's trade name for SAN plastic. It is transparent, chemical and dishwasher resistant, and offers a high degree of stiffness and
resistance to temperature change. Primary applications include household and toiletry items, and packaging.

ABS (Acrylonitrile-Butadiene-Styrene Copolymers) (Styrenics division)

Terluran® is the trade name for BASF's top styrene copolymer plastic. It offers superior surface quality, mechanical properties and chemical
resistance. Primary applications include electrical and electronic equipment, and automotive components.

ASA (Acrylonitrile-Styrene-Acrylate Copolymers) (Styrenics division)

Luran® S is the trade name for BASF's styrene copolymer plastic modified with rubber to make it resistant to weathering, aging and chemicals. Primary
applications include exterior automotive components, electrical and electronic equipment.

MABS (Methacrylate-Acrylonitrile-Butadiene-Styrene Copolymer) (Styrenics division)

Terlux® is the trade name for BASF's MABS plastic. It offers transparency, luster, toughness and resistance to chemicals. Primary applications include
hygiene and cosmetic product containers as well as medical equipment housings.

MF (Melamine Resin Foam) (Styrenics division)

BASF sells melamine resin foam under the brand name Basotect®. It is a flexible foam material that absorbs sound and offers high heat resistance and
good flame retardant attributes. Primary applications include automotive components and soundproofing materials.

PA (Polyamide) and Intermediates (Performance Polymers division)

Ultramid® and Capron® are the trade names for BASF's engineering plastics based on nylon 6, nylon 6,6 and other copolymers. They offer
toughness and strength as well as both heat and chemical resistance. Primary applications include automotive engine intake manifolds and flame retardant plastics for electrical components such as
switches.

Ultramid®
is also the trade name for BASF's base resin of nylon 6 and 6,6 sold in the fibers and extrusion market. Primary applications include carpets and textiles as well
as films for food packaging.

Intermediates
include caprolactam for nylon 6 and adipic acid and hexamethylenediamin for nylon 6,6.

PBT (Polybutylene Terephthalate) (Performance Polymers division)

Ultradur® is the trade name for BASF's engineering plastic based on PBT. It features high stiffness, strength, dimensional stability and heat and
aging resistance. Primary applications include electrical connectors, and automotive components.

POM (Polyoxymethylene) (Performance Polymers division)

Ultraform® is the trade name for BASF's POM plastic. It offers high stiffness and strength, resilience and low wear. Primary applications include
clips and fasteners, and mechanical and precision engineering devices such as shafts and gears.

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PES (Polyethersulfone) and PSU (Polysulfone) (Performance Polymers division)

Ultrason® S and E are the trade names for BASF's PES and PSU plastics. The most important features of Ultrason are stiffness, and resistance to water
and oily substances even at high temperatures. Other important features include electrical insulation properties and dimensional stability.
Primary applications include automobile oil circulation systems, headlight reflectors, microwave dishes, and medical equipment.

MDI (Diphenylmethane Diisocyanate) (Polyurethanes division)

MDI is a versatile isocyanate that can be used to make flexible foams as well as semi-rigid and rigid polyurethane plastics. Primary applications
include furniture interiors, automotive components, and shoe soles.

TDI (Toluene Diisocyanate) (Polyurethanes division)

TDI is an isocyanate used primarily in the manufacture of flexible foams. Primary applications include foam cushions for furniture, and automotive components.

Polyether Polyols (Polyurethanes division)

Polyether Polyols are combined with isocyanates to make virtually all polyurethane products, other than those made with polyester polyols. Primary applications
include rigid and flexible foams.

Polyester Polyols (Polyurethanes division)

Polyester Polyols are combined with isocyanates to make primarily semi-rigid polyurethane plastics. Primary applications include cable sheathing and
shoe soles.

Polyurethane Systems (Polyurethanes division)

BASF's worldwide polyurethane systems group offers tailor-made polyurethane products for a wide variety of applications. BASF develops
ready-to-use polyurethane systems for customers, fulfilling customers' specific engineering requirements at its system houses around the world. Automotive OEM (original
equipment manufacturer) suppliers comprise a significant customer group for polyurethane systems. OEM suppliers make seats, steering wheels, fenders and dashboards using BASF's polyurethane systems.

TPU (Thermoplastic Polyurethane Elastomers) (Polyurethanes division)

TPU is sold under the trade name Elastollan® and is based on both polyether polyols and polyester polyols. It is supplied in granular form to
customers who use it primarily to make flexible plastic cable coverings. Customers for these products are primarily in the automotive and cable and wire industries.

Cellular Elastomers (Polyurethanes division)

Cellular Elastomers are sold under the names Cellasto®, Elastocell® as well as Emdicell® and are shock-absorbing, rigid
plastics. Microcellular polyurethane parts for antivibration applications are sold, for example, as molded end products for use as shock absorbers and buffers in the automotive industry.

Division Information

Styrenics

BASF is one of a small number of global producers of styrenics, supplying customers in all major geographic markets worldwide. BASF continues to
fine-tune Verbund structures at its production sites and to carry out backward integration where appropriate.

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In
2004, the Styrenics division's sales to third parties were €4,450 million. Thereof, Europe accounted for 44%; the Asia, Pacific Area, Africa region for 32%;
North America (NAFTA) for 19%; and South America for 5%.

BASF
believes that cost-efficient business processes with an appropriate number of products manufactured in highly competitive world-scale plants are crucial to ensuring the
continued competitiveness of its styrenics products. In the second quarter of 2004, the new ABS (Acrylonitrile-Butadiene-Styrene Copolymers) plant in Antwerp, Belgium started its production primarily
for the European market. Together with its world scale plants in Ulsan, South Korea and Altamira, Mexico, BASF is now serving its customers with standard ABS globally out of three plants. As a
consequence of our continuous process of restructuring, the EPS (expandable polystyrene) production in South Brunswick, New Jersey, will cease at the beginning of 2005. The extended plant in Altamira,
Mexico will then supply the North American (NAFTA) area.

BASF
continues to realign its business models for the standard products PS, ABS and EPS by streamlining the respective product portfolios and the specific business processes. Rising
volatility of raw material prices and pricing pressure from low cost producers especially in Asia are leading to reduced margins. As a consequence, cost leadership in production and efficient business
processes are crucial for these standard products. We therefore optimize our business models for standard products to meet the demands of our customers  consistent quality, reliable
supply and competitive prices.

In
contrast, BASF is targeting its specialties for profitable growth by focusing on market as well as application development and increased global sales. Starting in 2005, BASF is
concentrating specialties in a newly established global business organization.

The
Styrenics division sells products primarily through its own regional sales force, supported by BASF technical and marketing experts. The Styrenics division is increasingly relying on
e-commerce (BASF's PlasticsPortal, EDI and VMI) for distributing its products.

The
market for styrenics is global and characterized by intense price competition. Demand for styrenics continues to rise due to overall economic growth in both industrial and emerging
markets.

The
principal global competitors of the Styrenics division are Dow and Total. The division also competes in North America with Nova and in Europe with Enichem. In Asia, BASF competes
with other regional competitors, such as Chi Mei, Loyal, and LG Chem.

Performance Polymers

BASF is one of the world's leading producers of engineering plastics, extrusion products and fiber intermediates. In 2003, BASF purchased the
engineering plastics business from Honeywell International and acquired the nylon 6,6 business of Ticona. In 2004, both businesses were successfully integrated into the division's engineering plastics
activities.

In
2004, the Performance Polymers division's sales to third parties were €2,587 million. Thereof, Europe accounted for 49%; North America (NAFTA) for 28%; the
Asia, Pacific Area, Africa region for 22%; and South America for 1%.

Performance
Polymers products are sold to more than 2,000 customers worldwide, more than 85% of which are engineering plastics customers. This customer base consists largely of
high-performance plastic molders and plastics component manufacturers in the automotive, consumer electronics, electrical equipment and packaging industries. These customers often rate
product performance and customer support as important, but prices are becoming increasingly critical to customers in choosing a supplier.

To
compete effectively in this market, the Performance Polymers division seeks to increase its preferred supplier status with global customers, many of whom demand collaboration in
developing specific plastics applications. The division works with suppliers to automotive manufacturers to develop specific applications for parts such as engine components, airbag housings and
electronic connectors.

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The
division's customers for engineering plastics, particularly in the automotive industry, are primarily global companies that demand uniform worldwide standards for products and
services in all major markets. BASF sells engineering plastics products primarily through its own regional sales force supported by BASF's technical centers in Germany, the United States and Japan.
These centers not only help customers to develop applications, but also independently research new markets and applications in which plastics can replace more conventional materials such as metal. In
Asia, the division is expanding its sales force to build on its solid position in the market.

The
large-volume markets for caprolactam and other fiber intermediate products are characterized by cyclicality, price competition and commodity pricing. Growth rates are usually low
compared to the engineering plastics and extrusion market. The markets for extrusion grades, particularly films for food packaging, are gaining importance as they are less cyclic and show high growth
rates, particularly in China.

The
Performance Polymers division is increasingly relying on e-commerce as a channel for distributing its products, and operates its own website, PlasticsPortal.

Major
global competitors are Bayer, Celanese, Lanxess, DuPont, General Electric, DSM, UBE, Solutia and Rhodia.

Polyurethanes

BASF's Polyurethanes division is one of the world's three largest producers of polyurethanes; important specialty plastics used to produce a wide
spectrum of rigid, flexible, foamed and compact components for consumer products.

In
2004, the Polyurethanes division's sales to third parties were €3,495 million. Thereof, Europe accounted for 39%; North America (NAFTA) for 29%; the Asia,
Pacific Area, Africa region for 29%; and South America for 3%.

BASF
offers over 3,500 customized polyurethane solutions. These products are used to make a variety of automotive parts, including bumpers, steering wheels and instrument panels. BASF's
polyurethanes can also be found in household goods, such as mattresses and upholstery, and in sports equipment, such as in-line skates and athletic shoes. The fashion industry is
increasingly using BASF's polyurethanes, particularly to manufacture synthetic leathers.

The
Polyurethanes division's products are broken down into three basic categories; polyurethane basic materials, polyurethane systems, and special elastomers. The Polyurethanes division
sells the vast majority of its products to external customers.

To
build on its strong relationships with customers, the Polyurethanes division is expanding its regional activities, focusing above all on the Asian market. In Yeosu, South Korea, a new
plant for the production of TDI (Toluene Diisocyanate) based on new technology went onstream in 2003. For the support of our growth in Asia, the
expansion of the existing MDI plant (Diphenylmethane Diisocyanate) was completed in the third quarter of 2004. In Caojing, China, BASF commenced
construction of an integrated manufacturing facility for MDI and TDI with its local and international joint venture partners that is scheduled to come onstream in 2006.

For
polyurethane systems and special elastomers, strong relationships with leading industry customers are crucial because of the highly individualized nature of these products. To
strengthen its relationships with customers, BASF has established a global network of system houses. System houses are production sites that work closely with customers to provide specially formulated
products for individual needs. The Polyurethanes division currently has 27 system houses around the world in locations near customers. BASF will continue to establish or acquire more.

Global
demand for all polyurethane products is expected to continue growing as the global economy continues to expand. The market for polyurethane basic materials is less cyclical than
the market for most

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other
standard plastics, primarily because polyurethane basic materials are relatively specialized. Competition in the market for basic materials is based primarily on price, although product quality
and technical application assistance are also important to customers.

The
markets for polyurethane systems and special elastomers are even less cyclical than those for polyurethane basic materials. Competition in the market for polyurethane systems and
special elastomers is based primarily on a supplier's ability to satisfy customers' technical application needs by providing tailor-made formulations of isocyanates and polyols and also on
a supplier's ability to accommodate customers' just-in-time manufacturing by delivering customized products quickly and at the appropriate time.

The
main competitors of the Polyurethanes division are Bayer, Dow, Huntsman, Lyondell and Shell Chemicals.

PERFORMANCE PRODUCTS

Segment Overview

BASF is a leading global producer of performance chemicals, coatings and functional polymers through its Performance Products segment. This
segment produces a broad range of high-value chemicals, formulations and integrated chemical systems solutions that it sells to many global companies in the automotive, coatings, oil,
paper, packaging, textile, leather, detergent, sanitary care, construction, and chemical industries. BASF divested the printing systems business to CVC Capital Partners on November 30, 2004.
Key information is provided in the following table:

|                               |  | 2004  |  | 2003  |  | 2002 
|------------------------------ |  | ----- |  | ----- |  | -----
|
|Sales to third parties         |  | 8,005 |  | 7,633 |  | 8,014
|Percentage of total BASF sales |  | 21%   |  | 23%   |  | 25%  
|Intersegmental transfers       |  | 291   |  | 301   |  | 326  
|Income from operations         |  | 1,068 |  | 478   |  | 646  
|Capital expenditures           |  | 286   |  | 236   |  | 288  
|                              

The Performance Products segment purchases approximately 50% of its raw materials from other BASF operations and does not rely on a dominant
external supplier. The segment's principal raw materials are propylene, oxo alcohols, butadiene, styrene, ethylene oxide, propylene oxide, naphthalene, aliphatic alcohols, pigments, solvents and
resins. The segment's products often represent the final stages in many value-adding chains within BASF's Verbund approach to integration.

Segment Strategy

The key elements of the segment's success are:



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Research and Development

In 2004, the segment spent €221 million on research and development activities. The main focus of the segment's research
and development is on innovative and eco-efficient system solutions that are tailor-made for the processes and technologies of our customers. The target is to help customers to
operate more successfully in their markets and to open growth potential for them and us. Therefore, close cooperation with customers holding leading market positions is of great importance in order to
fully exploit the research resources and reduce the time to market. In addition, state-of-the-art application centers and pilot plants, for instance for coatings,
paper making, or pressure-sensitive adhesives, are a key success factor, and serve to deepen our understanding of the customers' processes and assess new chemical systems under real application
conditions.

Recent
examples of successful innovations and system solutions are:



Products

The Performance Products segment contains the following significant product lines:

Pigments and Resins for Coatings and Plastics (Performance Chemicals division)

The Performance Chemicals division offers organic and inorganic pigments, pigment preparations, non-textile dyes, process chemicals and resins. Resins
are film-forming components used in UV (ultraviolet) curing coatings, urethane systems, and melamine based coatings. Pigments are insoluble dry coloring materials for paints, plastics,
inks and other special applications. BASF's pigments and resins are used primarily in automotive, decorative, and industrial paint applications, as well as in the plastics industry.

Isobutene Derivative Chemistry (Performance Chemicals division)

Isobutene is the starting material for polyisobutene, the most important component for BASF's branded fuel additives. Through its highly reactive polyisobutenes,
BASF has established a new standard in the fuel and lubricant additives market. BASF is the only industry supplier with a product portfolio spanning low to ultra-high molecular
polyisobutenes, and also manufactures polyisobutene derivatives such as polyisobuteneamine.

Surfactants (Performance Chemicals division)

BASF produces a wide range of nonionic surfactants based on aliphatic alcohols, ethylene oxide and propylene oxide. Such products are used in detergents and
cleaners, textile and leather auxiliaries.

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Hydrocyanic Acid Derivative Chemistry (Performance Chemicals division)

BASF produces several chelating agents based on hydrocyanic acid, which serve as process chemicals in various industries. Applications include pulp manufacturing,
electroplating, laundry detergents, cleaners and photographic chemicals.

Performance Chemicals for Textiles (Performance Chemicals division)

BASF offers textile and dyeing auxiliaries, pigment preparations for textile printing as well as inks for ink-jet printing technology. BASF's product
range covers a wide spectrum of textile applications.

Leather Dyes and Chemicals (Performance Chemicals division)

BASF is one of the world's leading producers of leather chemicals and dyes, producing a full range of products for nearly every aspect of the leather production
process.

Automotive OEM (Original Equipment Manufacturer) Coatings Solutions

BASF offers complete coatings solutions to coat car bodies and components as well as extensive technical support to major vehicle manufacturers. All of the
world's leading automobile manufacturers are long-standing customers of BASF.

Automotive Refinish / Commercial Transport Coatings Solutions

For the refinishing of automobiles and coatings for commercial vehicles, BASF offers topcoat and undercoat materials through coating systems under the
well-known brand names Glasurit®, R-M® and Salcomix®. Most of these systems, which are sold to paint distributors and automotive repair and
body shops, increasingly use solvent-reducing waterborne coatings as well as high-solid systems.

Industrial Coatings Solutions

BASF offers environmentally efficient systems for coating industrial products. Application technologies include precoatings, powder, electro-deposition and liquid
coatings that are used on household appliances, commercial vehicles, industrial buildings and radiator components. BASF is the second largest coil coatings producer.

Decorative Paints (Coatings division)

BASF is the leading producer of decorative paints for interior and exterior use in the South American market. BASF's dispersion and building paints are marketed
under the Suvinil® trademark and enjoy a high level of customer recognition.

Acrylic Monomers (Functional Polymers division)

BASF is the world's largest producer of acrylic monomers, which are sold directly to internal and external customers in the form of acrylic acid, acrylic esters
and special acrylics. Acrylic monomers are used as precursors to manufacture dispersions, superabsorbents, detergents, flocculants and fibers for a wide range of industries.

Polymer Dispersions for the Adhesives and Construction Industries (Functional Polymers division)

BASF's polymers products consist mainly of polymer dispersions for the manufacture of adhesives, paints and finishes, as well as non-woven materials
and chemicals for the construction industry. BASF is

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especially
strong in its technical expertise and technology for adhesive raw materials, as well as in dispersions for paints and other coating materials.

Paper Chemicals (Functional Polymers division)

BASF offers the paper industry a comprehensive range of chemical products for many aspects of the paper production process, including the manufacture of untreated
paper, paper finishing and wastewater treatment. The Functional Polymers division's product range of paper chemicals consists of paper-processing chemicals, paper dyes and dispersions for paper
coating.

Superabsorbents (Functional Polymers division)

BASF sells superabsorbents globally to the personal hygiene industry, which uses these products to manufacture diapers and other sanitary care products.

Division Information

Performance Chemicals

BASF is one of the world's largest manufacturers of high-value performance chemicals, which the company sells to a broad range of
customers worldwide in a wide variety of industries including the plastics, coatings, construction, detergent, automotive, oil, leather and textile industries.

BASF's
strength is its Verbund approach: this gives the Performance Chemicals division an advantage over small and medium-sized companies that lack the cost advantages of integration.
The Performance Chemicals division sells roughly 90% of its products to external customers.

In
2004, the Performance Chemicals division's sales to third parties were €3,228 million. Thereof, Europe accounted for 59%; the Asia, Pacific Area, Africa region
for 21%; North America (NAFTA) for 15%; and South America for 5%.

The
Performance Chemicals division comprises five different businesses: Performance Chemicals for Coatings, Plastics and Specialties, for Automotive and Oil Industry, for Detergents and
Formulators, for Textiles and for Leather. Each business follows its own strategy, focusing on innovative products and systems solutions for growing markets. The division sells its products globally.
BASF's own regional sales network sells most of the Performance Chemicals division's products. Distributors sell the balance of products, primarily to smaller customers. In the Asia Pacific region, we
are increasing our sales activities to meet the needs of the growing markets especially for the textile and leather industries, which are continuing to relocate their activities from Europe and North
America (NAFTA) to Asia.

BASF
views the detergents industry as one of the division's most important markets. The company is one of the largest producers of nonionic surfactants. Surfactants enhance cleansing
efficiency and are used, for example in household detergents and dishwashing agents as well as in industrial and institutional cleaning applications. The business unit Performance Chemicals for
Coatings, Plastics and Specialties has been increasing its competitiveness by restructuring and consolidating production sites. The printing systems business (process pigments, printing inks, printing
plates) of the Performance Chemicals division was divested as of November 30, 2004.

The
Performance Chemicals division's principal competitors vary according to industry, however, the most significant competitors for the division are Ciba, Clariant, Shell, Sasol, Dow,
Akzo Nobel and Bayer.

Coatings

BASF offers innovative and environmentally friendly products for the automotive industry, including both finishes and refinishes, and for
particular segments of the industrial coatings market. BASF also sells decorative paints in South America for interior and exterior use in residential and commercial buildings.

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In
2004, the Coatings division's sales to third parties were €2,022 million. Thereof, Europe accounted for 50%; North America (NAFTA) for 27%; South America for
14%; and the Asia, Pacific Area, Africa region for 9%.

BASF's
Coatings division provides customers with innovative high-solid, waterborne and powder coating systems that reduce or eliminate solvent emissions and are considered
environmentally and economically efficient. For example, BASF sees significant growth opportunities for its "Integrated Process II" for automotive OEM coatings, which is in the market introduction
phase. This innovative system simplifies the conventional process to require fewer coating layers, thus offering substantial cost saving potential while reducing the environmental impact of auto body
painting, with limited investment.

The
key to the division's success is maintaining preferred supplier status with major customers by working together with them to develop system solutions, which are
tailor-made products and services. These system solutions help the division to differentiate its product offerings from those of its competitors and foster lasting relationships with
customers.

In
addition, customers that use automotive and industrial coatings require quick delivery of coatings at specified times to accommodate their just-in-time
manufacturing. To satisfy these needs, BASF's Coatings division locates its operations near its customers' production sites.

BASF
sells products of the Coatings division to customers, particularly those in the automotive industry, primarily through its own sales force. Third-party distributors also sell
products of the automotive refinish coatings, industrial coatings and South American decorative paint businesses. The Coatings division sells all of its products to external customers.

The
Coatings division also uses e-commerce as an important distribution channel, in particular for its automotive refinish coatings. In North America, customers of BASF's
automotive refinish
technologies business can order products online at bodyshopmall.com. For customers in Europe, the division has established similar e-commerce portals to sell its Glasurit® and
R-M® brands.

Although
price is important to the division's customers, competition is also based on the ability of coatings suppliers to collaborate with customers and quickly deliver
tailor-made products and applications, particularly to vehicle manufacturers using just-in-time manufacturing. BASF's Suvinil® line of decorative paints
competes in South America primarily on the basis of brand recognition, product quality and price.

BASF
considers DuPont, PPG Industries and Akzo Nobel to be the primary global competitors of the Coatings division, while Nippon Paint Company and Kansai Paint Company are considered to
be the division's competitors in Asia.

Functional Polymers

BASF's Functional Polymers division is one of the largest producers of acrylic acid and its downstream products, which are mainly superabsorbents
and dispersions. In a dispersion, submicron polymer particles are suspended in water. Dispersions are used in a multitude of industries, including the manufacture of paper, decorative paints,
adhesives, construction chemicals, non-woven materials, carpets, fibers and plastics. The Functional Polymers division also manufactures wet-end chemicals for paper production.
The most important customers of the Functional Polymers division are the paper, construction, adhesive, sanitary care, coatings, and chemicals industries.

In
2004, the Functional Polymers division's sales to third parties were €2,755 million. Thereof, Europe accounted for 50%; North America (NAFTA) for 25%; the Asia,
Pacific Area, Africa region for 20%; and South America for 5%.

The
Functional Polymers division's strategic goal is to achieve long-term profitable growth in all regions and to increase market share in the rapidly growing markets in
Asia.

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BASF manufactures most of these products at cost-effective Verbund plants. However, for certain products, such as dispersions, which contain up to 50% water, manufacturing is
done locally to minimize transportation costs. The largest plants are located at BASF's Verbund sites in Ludwigshafen, Germany; Antwerp, Belgium; Freeport, Texas; Kuantan, Malaysia; and from 2005,
Nanjing, China.

The
Functional Polymers division continues to strengthen its position in Asia, the fastest-growing market worldwide. BASF is constructing its second Asian Verbund site in Nanjing, China,
where the division will start the production of acrylic acid and its esters beginning 2005. In Indonesia, additional capacities for dispersions production went onstream in 2004.

The
division sells approximately 90% of its products to external customers. The vast majority of the division's products are primarily sold through BASF's own regional sales network.
Some smaller customers purchase products through distributors.

The
Functional Polymers division continues to develop e-commerce as a distribution channel for its products. The division is increasingly selling its products through Elemica
Holding Ltd., an independent business-to-business e-commerce company. The division's participation in WorldAccount, BASF's integrated global extranet
platform, is targeted at its customers in the adhesive, construction and paper industries.

Acrylic
monomers are predominantly commodities and can therefore be affected by cyclicality. Other products, particularly dispersions for adhesives, paints and non-wovens;
superabsorbents, and paper process chemicals, are relatively resilient to economic cycles and compete primarily on the basis of product innovation and quality.

BASF's
main competitor in acrylic monomers and dispersions is Rohm & Haas. Dow and Hercules are BASF's main competitors in paper chemicals. In the superabsorbents business, BASF's
main global competitors are Degussa and Nippon Shokubai.

AGRICULTURAL PRODUCTS & NUTRITION

Segment Overview

This segment consists of the Agricultural Products and Fine Chemicals divisions, which are treated as separate reportable operating units. The
segment offers opportunities for high returns and is typically more resilient to economic cycles. In addition, the segment includes the activities of BASF Plant Science. Key financial information is
provided in the following table:

|                               |  | 2004  |  | 2003  |  | 2002  |  
|------------------------------ |  | ----- |  | ----- |  | ----- | -
|
|Agricultural Products          |  |       |  |       |  |       |  
|Sales to third parties         |  | 3,354 |  | 3,176 |  | 2,954 |  
|Percentage of total BASF sales |  | 9%    |  | 10%   |  | 9%    |  
|Intersegmental transfers       |  | 26    |  | 24    |  | 21    |  
|Income from operations         |  | 492   |  | 234   |  | 61    |  
|Capital expenditures           |  | 95    |  | 1,133 |  | 88    |  
|Fine Chemicals                 |  |       |  |       |  |       |  
|Sales to third parties         |  | 1,793 |  | 1,845 |  | 1,970 |  
|Percentage of total BASF sales |  | 5%    |  | 6%    |  | 6%    |  
|Intersegmental transfers       |  | 30    |  | 20    |  | 36    |  
|Income from operations         |  | 48    |  | 125   |  | (6    | )
|Capital expenditures           |  | 137   |  | 140   |  | 157   |  
|                               | 

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BASF Plant Science

BASF Plant Science has the goal of becoming a leading competitor in the plant biotechnology market and a major supplier to the agricultural and
nutritional industry. The activities of BASF Plant Science are concentrated in developing more efficient agriculture, improved nutrition and the use of plants as "green factories." These include for
example plants with a higher level of vitamins or with omega-3 fatty acids that can prevent cardiovascular diseases.

BASF
Plant Science coordinates an international research and technology platform with seven sites in four countries in Europe and North America with a staff of about 400. In addition,
BASF Plant Science has established numerous complementary cooperations with research institutes, universities and biotechnology companies in Europe and North America.

Agricultural Products

Overview

The Agricultural Products division is a leading innovator and supplier of fungicides, insecticides and herbicides. The division's products are
used by farmers to improve crop yields and crop quality and by other customers for uses in non-crop areas such as in public health, structural/urban pest control, turf and ornamental
plants, vegetation management and forestry.

Capital
expenditures in the Agricultural Products division included mainly optimization measures at several sites.

Strategy

The Agricultural Products division directs major resources at meeting the needs of the high-value agricultural markets in Western and
Central Europe, North America, Brazil and Japan. The division aims to sustain its role as a leading innovator by continuing significant research and development activities focusing on fungicides,
insecticides and selected herbicides, where it expects further market growth and high demand for innovations. Profitability of the Agricultural Products division is driven by:



The
division believes itself to be well positioned for continued profitable growth; building on a significant presence in core markets, a strong late stage R&D pipeline, a high share of
patent-protected products and high customer satisfaction.

BASF
aims to grow profitably especially with new fungicides and insecticides and in specific applications such as seed treatment. Products recently launched from the research pipeline
are the fungicides F 500®, dimoxystrobin and boscalid. In 2003, BASF acquired the insecticide fipronil and certain fungicides for seed treatment from Bayer CropScience. As part of the
acquisition, the fipronil manufacturing site in Elbeuf, France, entered into the ownership of BASF effective February 14, 2004.

The
division continues to implement cost and asset optimization measures in mature or non-core segments. In 2004, it divested its phenoxy herbicide business
(2,4-D, MCPA, Mecoprop-P, Mecoprop, Dichlorprop-P and Dichlorprop) and changed its marketing presence in Australia, establishing a distribution agreement with a
third party. Production of imidazolinones was concentrated in Hannibal, Missouri; therefore, one manufacturing plant at its site in Manati, Puerto Rico, was closed down. BASF has announced the exit
from the manufacturing site of Resende, Brazil through an employee buyout.

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Major Products

F 500® (pyraclostrobin)

F 500® (pyraclostrobin) is a major new fungicidal active ingredient of the strobilurin class of chemistry, highly effective, safe for crops and
has a favorable toxicological and ecotoxicity profile. At the end of 2004, F 500® has been approved in more than 40 countries for over 100 crops in over 70 indications. Products
containing F 500® have been launched successfully in all regions. Therefore, BASF has updated the sales target for products containing F 500® from
€300 million to €400 million.

Boscalid

Boscalid is one of the most recent active ingredients from our research and is highly effective for controlling fungal diseases especially in fruits and
vegetables. With its broad spectrum of activity and crop uses, boscalid will become the backbone of our specialty crop business and will complement our strobilurines and other molecules. Launched for
the 2003/04 season, it has received registrations in over 20 countries for over 100 crops in over 100 indications by the end of 2004.

Fipronil

Fipronil is an active ingredient of a new class of insecticide chemistry and was acquired from Bayer CropScience effective March 21, 2003. It plays a
strategic role in BASF's insecticides portfolio. Fipronil puts the Agricultural Products division in a position to strongly participate in ongoing and future shifts in demand towards more modern
insecticides. Furthermore, it strengthens BASF's position in other attractive market segments, such as structural/urban pest control, turf and ornamental plants. BASF expects to create synergies
between fipronil and its current portfolio, especially in fungicides.

The CLEARFIELD® Production System

The CLEARFIELD® Production System combines herbicide-resistant seeds developed using enhanced plant breeding methods with custom-designed herbicide
solutions. CLEARFIELD® crops currently being marketed include canola, sunflower, corn, rice and wheat. Because the CLEARFIELD® technology does not involve the introduction of
genetic material from other sources, it is characterized as non-GMO (genetically modified organisms), offering advantages to the growers for certain markets.

Research and Development

BASF's research and development activities in Agricultural Products cover all three areas of crop protection: fungicides, insecticides and
herbicides. Agrochemical research activities are directed to the discovery of active ingredients with economic, biological and ecological advantages. BASF Plant Science conducts research in the area
of agronomic traits for the division. Development activities are primarily focused on high-value segments in core markets and for core active ingredients.

In
2004, research and development spending in the Agricultural Products division was approximately 8% of the division's sales to third parties.

BASF
is currently working on developing six new active ingredients, on a new herbicide tolerance project and on numerous products to protect seeds with active ingredients that have
already been launched. These product innovations will be ready for market and have a peak sales potential of €700 million. A further seven crop protection active ingredients
with a peak sales potential of €1 billion are currently being introduced to the market. Of these, F 500® and boscalid in particular have developed better than
expected and in 2004 have helped us achieve approximately 60% of the peak sales potential planned with the active ingredients in market launch.

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|                                                            
|------------------------------------------------------------
|
|Projects in market launch                                   
|3 fungicides                                                
|3 herbicides                                                
|1 insecticide                                               
|                                                            
|Projects in development (launch targeted
for 2005 and later)
|3 fungicides                                                
|2 herbicides                                                
|1 herbicide tolerance                                       
|1 insecticide                                               
|Total                                                       
|                                                            

Markets and Distribution

In 2004, the Agricultural Products division's sales to third parties were €3,354 million. Thereof, Europe accounted for
44%; North America (NAFTA) for 26%; South America for 21%; and the Asia, Pacific Area, Africa region for 9%.

The
Agricultural Products division markets its products globally, focusing on high-value markets. The following table shows sales by product group:

|                                            
|--------------------------------------------
|
|
|Fungicides                                  
|Insecticides and other agrochemical products
|Herbicides                                  
|Agricultural Products                       
|                                            

The Agricultural Products division delivers high performance products and competes primarily on innovation, product quality and service. BASF
directs marketing and sales efforts through multi-staged marketing channels, which include wholesalers and commercial distributors.

The
global market for agricultural products is seasonal, since the main markets for these products are in the Northern Hemisphere. Sales are higher in the first and second quarters of
the year, when the growing season in North America and Europe is underway. Sales during the second half of the year, driven primarily by the main growing season in South America, are lower.

BASF
considers the main competitors of the Agricultural Products division to be Syngenta, Bayer CropScience, Monsanto, Dow and DuPont.

Governmental Regulation

In most countries, crop protection products (including genetically modified plants) must obtain government regulatory approval prior to marketing.
The regulatory framework for crop protection and environmental health products is directed at ensuring the protection of the consumer, the applicator and the environment. The strictest standards are
applied in the United States, Japan and Western Europe.

It
generally takes five to seven years from discovery of a new active ingredient until the dossier is submitted to the appropriate regulatory agency for product approval. The standard
time frame for registration of an agricultural product is typically 30 to 36 months.

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Fine Chemicals

Overview

BASF's Fine Chemicals division develops, manufactures and sells more than 1,000 different products to approximately 8,000 customers. The Fine
Chemicals division serves steadily growing markets driven by a growing world population with increasing needs in healthcare and lifestyle by being a leading supplier
of vitamins; carotenoids; pharmaceutical active ingredients and advanced intermediates; polymers for the pharmaceuticals, cosmetics and human nutrition industries; aroma chemicals; UV (ultraviolet
light) filters; amino acids; enzymes; non-antibiotic growth promoters; and organic acids for the animal nutrition industry. In all of the division's main product groups except amino acids,
BASF is one of the top two suppliers. With the start of our feed enzyme production planned for late 2005, we will strengthen our leading position in the animal nutrition business. Virtually all of the
division's products are sold to external customers.

About
60% of the division's raw material purchases are bulk commodities from external and internal sources, such as nutrients for vitamin premixes; sugar and molasses for lysine and
pseudoephedrine production; and urea and acetanhydride for purines. There are currently no restrictions in supply for these commodity products. No single product accounts for more than 4% of our total
external purchases of specialty (non-commodity) raw materials.

Strategy

The Fine Chemicals division aims to achieve superior growth and leading positions in the markets it serves by leveraging chemical expertise,
global presence, reliability of technical service and product quality. The division is focused on delivering innovative products and customized solutions to the markets it serves. New production
technologies are continuously being developed and applied to reduce costs. The division envisages strong growth in its exclusive synthesis business for the pharmaceuticals industry, which is still in
its emerging stages.

Products

Vitamins

BASF is the second largest vitamins producer worldwide, and vitamins account for approximately one third of sales in the Fine Chemicals division. BASF markets all
of the 13 naturally occurring vitamins. In six of these vitamins, which include the five most significant vitamins; C, E, A, B2 and Calpan, BASF has a production position. The Fine
Chemicals division sells vitamins mainly to the human and animal nutrition industries, with a growing presence in the cosmetics industry.

Carotenoids

These are nature-identical products that provide certain health benefits and are also used to color foods. This product line includes beta-carotene,
canthaxanthine and astaxanthine for the food, feed and nutritional supplement industries for human and animal nutrition.

Active Ingredients and Advanced Intermediates

The main products in this category are caffeine, pseudoephedrine, theophylline, ibuprofen and povidone iodine and our new isotretinoin. Beverage manufacturers
account for approximately 80% of the caffeine demand, and pharmaceutical applications consume the remaining share. Theophylline and pseudoephedrine are used to treat respiratory diseases. Ibuprofen is
used in a variety of over-the-counter and prescription products to treat mild to moderate pain and isotretinoin is the standard for systemic acne therapy.

39

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Contract Manufacturing

BASF offers a range of customized manufacturing and formulation capabilities to the worldwide pharmaceuticals industry. These activities are complemented by
flexible, multi-product cGMP plants, in particular at the Minden site in Germany, and BASF's chemical and biotechnological R&D skills.

Polymers

The Fine Chemicals division sells highly functional polymers for such diverse uses as binders, disintegrants, coatings and solvents for pharmaceutical industry,
filtration aids for beverages, or in hair care products such as hairsprays, styling mousses, gels and hair conditioners for the cosmetics industry.

Amino Acids

Amino acids, such as lysine, are feed additives that serve as an efficient protein source for animal nutrition.

Enzymes

Enzymes, which are proteins that function as biochemical catalysts, are used for animal nutrition to improve feed absorption. BASF's enzyme product line includes
Natuphos®, Natustarch®, and Natugrain®.

Organic Acids

These are used as preservatives for grains and compound feeds and more recently as growth-enhancing agents. BASF offers a wide range of organic acid products that
suppress the growth of molds and bacteria. BASF is the leading supplier of standard and tailor-made organic acids for the feed industry in Europe and Asia. With Formi®, BASF
offers the first non-antibiotic growth enhancer, an alternative to antibiotics that are to be banned in animal breeding in Europe as of 2006.

Cosmetics Ingredients

These are raw materials for personal care products with the major applications being hair, skin, sun and oral care. The Fine Chemicals division is the world
market leader in UV absorbers for cosmetic applications and offers the full range of UVA and UVB absorbers.

Aroma Chemicals

These are raw materials for flavor and fragrance compounds that are used in many consumer products industries such as the food, personal care, and the fabrics and
home care industries.

Research and Development

The Fine Chemicals division's research and development activities focus on constantly generating a flow of new products like the new UV absorber
Uvinul A+ and improving BASF's cost position, e.g., by combining the vitamins and citral value chains, supported by BASF's new 40 Kt world scale citral plant. In 2004, the Fine Chemicals division
spent approximately 5% of its sales to third parties on research and development activities (2003: 4%). Variable production costs of biotechnological production processes are reduced through
continuous improvement in the bacteria strains and fermentation processes for the amino acid lysine, vitamin B2 and precursors of vitamin C.

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Markets and Distribution

In 2004, the Fine Chemicals division's sales to third parties were €1,793 million. Thereof, Europe accounted for 45%; North
America (NAFTA) for 25%; the Asia, Pacific Area, Africa region for 24%; and South America for 6%.

The
main customers of the Fine Chemicals division are global players in the animal nutrition, human nutrition, pharmaceuticals, personal care, and flavors and fragrances industries. A
significant percentage of the division's products are sold in small, specialty volumes and are often tailor-made to meet specific customer specifications.

BASF
sells the majority of its fine chemical products through its own sales force. Key account managers are assigned to major customers. Through its sales and marketing departments, BASF
works closely with customers to develop systems and solutions as well as new products. BASF also sells its fine chemical products through its global e-commerce platform, WorldAccount.

BASF's
competitive position depends to a large extent on its ability to compete on price, product quality and customer service. BASF expects the trend toward globalization and
consolidation for both the manufacturing and the consumer industries to continue. The trend toward commoditization for certain fine chemicals, such as vitamins, is also continuing.

BASF
considers its main competitors in the animal nutrition area to be DSM, Archer Daniels Midland, Novo Nordisk, Adisseo Group, Rhodia, Eisai and new entrants from China. In the human
nutrition area,
BASF's main competitors are DSM of the Netherlands and several Asian companies. In pharmaceutical active ingredients, BASF considers Albemarle Corporation, International Specialty Products and FMC
Corporation to be its main competitors, as well as a number of Chinese and Indian suppliers. In cosmetics and aroma chemicals, LC United, International Specialty Products, Millennium Specialty
Chemicals, National Starch & Chemical, Givaudan, Symrise and Kuraray are BASF's main competitors.

Governmental Regulation

BASF's various Fine Chemicals products are subject to regulation by government agencies throughout the world. The primary emphasis of these
requirements is to assure the safety and effectiveness of BASF's products. Of particular importance in the United States is the Food and Drug Administration (FDA), which regulates many of BASF's Fine
Chemicals products. The FDA oversees the marketing, manufacturing and labeling of cosmetics (e.g., sunscreen agents), pharmaceuticals (e.g., pharmaceutical active ingredients), foods (e.g., dietary
supplements, including vitamins) and feeds (e.g., vitamins, carotenoids). The Federal Trade Commission regulates claims made in the advertising of dietary supplements. Animal health products are also
regulated in the United States by the United States Department of Agriculture and the Environmental Protection Agency.

In
the E.U., similar regulatory systems are established on the national level of different member states as well as on the pan-European government level. Positive lists and
negative lists in Europe regulate the usage of various substances in order to ensure consumer safety. Before the substances are added to these lists, they are subject to a rigorous approval procedure.

In
countries other than the United States and those of the E.U. in which BASF conducts business, BASF is subject to regulatory and legislative environments that are similar to or
sometimes even more restrictive than those described above.

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OIL & GAS

Segment Overview

BASF conducts the activities of its Oil & Gas segment through its 100% subsidiary Wintershall AG. Wintershall and its affiliated companies
are active in two sectors:

Oil and Natural Gas Exploration and Production

Wintershall explores for and produces oil and natural gas in five selected core regions. The company markets its crude oil production predominantly through its
wholly owned subsidiary Wintershall Oil AG of Zug, Switzerland.

Natural Gas Distribution and Trading

Wintershall conducts natural gas distribution and trading activities through two joint ventures  WINGAS GmbH (WINGAS) and Wintershall Erdgas
Handelshaus GmbH & Co. KG (WIEH)  in partnership with Gazprom. WIEH also markets Russian natural gas in Central Europe through its Swiss subsidiary Wintershall Erdgas
Handelshaus Zug AG (WIEE), Switzerland.

The
Oil and Gas segment sells all of the oil and most of the natural gas it produces to third parties, however WINGAS also supplies BASF with natural gas consumed at BASF's Verbund site
in
Ludwigshafen, Germany, and at other BASF companies in Europe. Key information is provided in the table below:

|                                                        
|--------------------------------------------------------
|
|
|Sales to third parties, net of natural gas taxes        
|Percentage of total BASF sales                          
|Intersegmental transfers                                
|Sales including intersegmental transfers                
|Royalties                                               
|Sales including intersegmental transfers, less royalties
|Income from operations*                                 
|Capital expenditures                                    
|                                                        

Segment Strategy

In Europe, the segment strategy is predominantly characterized by integration of the Exploration and Production sector and the Natural Gas
Distribution and Trading sector in a comprehensive "Gas for Europe" concept. This concept takes into account the increasing demand for natural gas imports into Western Europe. Thus, upstream
activities will focus on exploration for, development and production of gas resources in and around Europe with our midstream business bringing the gas to market.

In
the Oil and Natural Gas Exploration and Production sector, we have realized a production increase of 36% compared to 1999. In future years, growth will continue, thus further
strengthening Wintershall's hydrocarbon hedge function within the BASF group. BASF's goal is to maintain a robust ratio of proved reserves to production and a balanced portfolio of assets operated
both by Wintershall and by third parties. To ensure the company's ongoing competitiveness and efficiency, Wintershall focuses geographically on a limited number of hydrocarbon provinces. In addition
to our existing core regions Europe, North Africa and South America (Southern Cone), we are currently developing Russia and the Caspian Sea to become pillars of our business. Completing our strategy
of regional focus, we concentrate on core technologies that

42

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especially
include shallow water expertise, desert operations, field development in ecologically sensitive areas, enhanced oil recovery and extended reach and horizontal drilling technology.

Specific
measures pursued are:



Additionally,
in Argentina Wintershall intends to increase its production of gas from existing and new fields in order to meet long-term growing demand for natural gas in the
Southern Cone region.

As
part of the "Gas for Europe" concept, the Natural Gas Distribution and Trading strategy is based on a strong infrastructural backbone including pipeline and storage facilities. It is
strategically located for gas imports to, and distribution within, Germany as well as for transit to other European countries. The modern infrastructure, in combination with a strong purchase
portfolio, enables us to optimize logistics to efficiently supply the German and European gas market. Accordingly, marketing activities are regionally focused on Germany and increasingly Western
Europe. Combined with a dynamic and lean sales and marketing organization, the company's strategy should provide profitable sales growth exceeding that of the market.

This
strategy takes into account the ongoing liberalization of the European natural gas market, which creates growth opportunities. As well as making use of third-party access to
transport natural gas through its competitors' transmission networks, the company also markets its free transport capacity  both of which contribute to an optimal utilization of
our infrastructure.

Specific
measures pursued are:



Research
and development expenses in the Oil and Gas segment are confined to exploration activities.

Oil and Natural Gas Exploration and Production

Wintershall is the operator of most of the significant exploration and production projects in which it has an interest. In projects where it is not the operator,
Wintershall participates in operating decisions pursuant to agreements with top tier operators. Wintershall is active in five selected core regions.

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Reserves

The Oil & Gas segment's most significant oil reserves are in Libya and Germany. The most significant natural gas reserves are in Argentina, Germany and the
Netherlands. The Oil & Gas segment's proved oil and gas reserves and proved developed oil and gas reserves by geographic area were as follows:

|                            
|----------------------------
|
|At December 31, 2004        
|Oil (millions of barrels)   
|Proved reserves             
|Proved developed reserves   
|Gas (billions of cubic feet)
|Proved reserves             
|Proved developed reserves   
|At December 31, 2003        
|Oil (millions of barrels)   
|Proved reserves             
|Proved developed reserves   
|Gas (billions of cubic feet)
|Proved reserves             
|Proved developed reserves   
|At December 31, 2002        
|Oil (millions of barrels)   
|Proved reserves             
|Proved developed reserves   
|Gas (billions of cubic feet)
|Proved reserves             
|Proved developed reserves   
|                            

At
2004 levels of production, proved oil reserves would last approximately eight years, and proved gas reserves would last approximately ten years. For additional information on
reserves, please see "Supplementary information concerning oil and gas producing activities (unaudited)" included in Item 18.

Exploration and Production

The net quantities of oil and gas produced as well as the average sales price and production cost (lifting cost) per unit of oil and gas produced in each of the
last three years were as follows:

|                                                                
|----------------------------------------------------------------
|
|Oil                                                             
|Net quantities produced (millions of barrels)                   
|Average sales price less royalties (per barrel)                 
|Average production cost (lifting cost) (per barrel)             
|Gas                                                             
|Net quantities produced (billions of cubic feet)                
|Average sales price less royalties (per thousand cubic feet)    
|Average production cost (lifting cost) (per thousand cubic feet)
|                                                                

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Wintershall's
total gross and net productive wells, total gross and net developed acres and total gross and net undeveloped acres (both leases and concessions) as of December 31,
2004, were as follows:

|                                         |  | Germany |  | Libya |  | Argentina |  | The Netherlands |  | Rest of
World(1) |  | Total    |  | Rest of World
(at equity)
|---------------------------------------- |  | ------- |  | ----- |  | --------- |  | --------------- |  | ---------------- |  | -------- |  | -------------------------
|Oil                                      |  |         |  |       |  |           |  |                 |  |                  |  |          |  |                          
|Total gross productive wells             |  | 506.0   |  | 65.0  |  | 60.0      |  | 7.0             |  | 239.0            |  | 877.0    |  | 11.0                     
|Total net productive wells               |  | 234.7   |  | 59.8  |  | 19.3      |  | 7.0             |  | 11.9             |  | 332.7    |  | 5.5                      
|Gas                                      |  |         |  |       |  |           |  |                 |  |                  |  |          |  |                          
|Total gross productive wells             |  | 140.0   |  | 0.0   |  | 163.0     |  | 121.0           |  | 2.0              |  | 426.0    |  |                         
|Total net productive wells               |  | 67.6    |  | 0.0   |  | 40.1      |  | 19.7            |  | 0.6              |  | 128.0    |  |                         
|Oil and Gas Acreages (thousand of acres) |  |         |  |       |  |           |  |                 |  |                 
|Total gross developed acres              |  | 187.3   |  | 41.1  |  | 256.2     |  | 107.0           |  | 68.3             |  | 659.9    |  | 2.5                      
|Total net developed acres                |  | 66.2    |  | 38.7  |  | 60.4      |  | 18.0            |  | 3.7              |  | 187.0    |  | 1.2                      
|Total gross undeveloped acres            |  | 3,252.3 |  | 996.3 |  | 9,154.2   |  | 3,022.2         |  | 15,075.9         |  | 31,500.9 |  | 5,163.8                  
|Total net undeveloped acres              |  | 1,254.7 |  | 408.0 |  | 3,917.1   |  | 812.1           |  | 5,647.8          |  | 12,039.7 |  | 2,581.9                  
|                                        

In 2004, Wintershall spent €415 million for exploration, acquisition and investment, compared with €385 million in
2003. Thereof, €189 million was spent in Europe (2003: €151 million), €125 million in North Africa/Middle East (2003:
€147 million), €76 million in South America (2003: €67 million) and €25 million in Russia/Caspian Sea (2003:
€20 million).

Either
directly or through its subsidiaries, Wintershall was involved in the drilling and completion of 24 exploration and appraisal wells, which resulted in 10 successful wells. As of
December 31, 2004, Wintershall had begun drilling four additional exploratory wells.



In Germany, the offshore field Mittelplate with approximately 200 million barrels of proved initial reserves is the country's largest known oil reservoir.
Wintershall and its 50% partner RWE DEA AG, Germany, have decided to connect the offshore production platform by pipeline to the onshore facilities, thus increasing the export capacity and production
of the field. This project is scheduled for 2005. In the
German North Sea, Wintershall operates the first natural gas offshore field on the German continental shelf with a production capacity of 45 billion cubic feet per year. Wintershall has a
49.95% participation interest.

In
2004, Wintershall significantly increased its production of natural gas in the Netherlands. The additional production stems from two gas fields, which came onstream by end of 2003,
and one new gas field in 2004. Two other gas discoveries are under development. Wintershall is the third largest gas producer in the Netherlands and operates a total of 23 offshore platforms in the
North Sea. In the UK Southern North Sea, Wintershall was granted nine exploration blocks in 2004, located at the border with the Dutch North Sea. In the Danish North Sea sector, a farm-in
was accomplished into an exploration block, which is adjacent to the Wintershall operated concessions in the German North Sea. To maximize operational efficiency, the above-mentioned activities are
coordinated from our Dutch office, which is specialized in shallow water operations.

In
Romania, Wintershall is active in gas exploration and production. A gas field in central Romania started production at the beginning of 2004.



In 2004, approximately 69% of the Oil & Gas segment's oil reserves and production activities were in Libya, where the segment operates several onshore oil
fields and produces associated natural gas for local

45

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consumption.
Offshore Libya, Wintershall holds a 12.5% interest in the Al Jurf oil field, which started production in September 2003 and reached its targeted plateau production in 2004.

In
2004, Wintershall became engaged in exploration partnerships in the Atlantic margin region offshore Morocco and Mauretania which consist of participation in three blocks. In Dubai,
Wintershall holds an interest of 5% in an offshore oil concession with exploration and production activities, and in Qatar, Wintershall explores for oil and gas.



Wintershall produces substantial volumes of its natural gas in Argentina. In the Carina and Aries gas fields off the coast of Tierra del Fuego, the offshore
installation of two production platforms and pipelines has been finalized in 2004. Production start-up is planned for the second quarter of 2005. The two fields will deliver a substantial
contribution to meet the country's rising gas demand in time for the coming winter season. In the Aguada Pichana field, ten production wells were drilled in 2004 to maintain high gas production
levels. Wintershall successfully optimized its exploration portfolio by partially farming out interest to established partners in three exploration blocks with previous participation of up to 100%.
Offshore Brazil, Wintershall is exploring for oil and gas.



BASF has a cooperation agreement with Gazprom that provides a legal and commercial framework for field development projects. Wintershall and Gazprom are
specifically planning to cooperate in the development of large gas/condensate fields in Western Siberia. For the development of the Achimov formation in a part of the Urengoy gas field, the joint
venture company Achimgaz was established in July 2003. Partners are OOO Urengoygazprom, a subsidiary of Gazprom, and Wintershall with 50% interest each. In 2004, the partners approved the first
phase of the field development with a total investment of $125 million. This phase includes the drilling of six production wells and the installation of processing facilities starting in 2005.
After verification of the reservoir performance, the full field development is planned starting in 2008.

In
the Volga region, the joint venture company Wolgodeminoil with its partners Wintershall and Lukoil continued oil exploration and production activities.

In
the offshore region of Dagestan, geological and geophysical evaluation in the exploration block Tyuleni is continuing.

In
general, oil and gas exploration and production activities require high levels of investment and entail special economic risks and opportunities. These activities tend to be highly
regulated, and companies engaging in these activities generally may face intervention by governments in matters such as:



Crude
oil prices are subject to international supply and demand and other factors that are beyond an oil company's control. Such factors can also affect the price of natural gas sold
under long-term contracts because, under long-term contracts in Germany and in many other countries, natural gas pricing typically is tied to prices of refined products
pursuant to a specified time lag. Crude oil prices are generally set in U.S. dollars, while costs may be incurred in a variety of currencies. Fluctuations in exchange rates therefore can give rise to
foreign exchange exposures.

46

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As
with most international oil and gas companies, substantial portions of the oil and gas reserves of Wintershall are located in countries which can be considered politically and
economically less stable than the OECD countries. To date, political risks have not significantly affected the Oil & Gas segment or had a material adverse effect on BASF's financial condition
or results of operations.

Wherever
possible, Wintershall arranges capital investment guarantees by the German government to protect its investments. German government guarantees currently cover a total investment
volume by Wintershall of approximately €624 million, including inventory of raw materials and supplies.

General
uncertainties are inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures. The accuracy of any
reserve estimate is a function of the quality of available data, reservoir engineering, as well as geological interpretation and judgment. Results of drilling, testing and production after the date of
the estimate may require substantial upward or downward revisions. In addition, changes in oil and natural gas prices could have an effect on the economically recoverable reserves. Accordingly,
reserve estimates could be materially different from the quantities of oil and natural gas that are ultimately recovered. To reduce uncertainties, Wintershall has for some years used independent
internationally recognized auditors to perform reserves audits of its major oil and gas fields.

Natural Gas Distribution and Trading

BASF conducts its natural gas distribution and trading activities pursuant to an extensive agreement with OOO Gazexport, a subsidiary of Gazprom. To promote the
joint marketing of mainly Russian, as well as Western European natural gas in Germany and Europe, Wintershall and OAO Gazprom established two joint ventures:



WINGAS
owns and operates a large pipeline system in Germany that is more than 2,000 kilometers in length. It enables WINGAS to supply the German gas market and to transit gas to other
European countries. The company also owns and operates the largest underground natural gas storage site in Western Europe with a working gas capacity of 157 billion cubic feet.

WINGAS
currently is the third largest natural gas transmission and distribution company in Germany. So far, WINGAS has invested more than €3.0 billion. Capital
expenditures in 2004 totaled €57 million. The main project was the extension of the STEGAL, which connects the WINGAS pipeline system with Czech and Slovakian pipeline systems
as well as the Polish network via JAGAL. It is therefore a significant milestone to increase transport capacity for Russian natural gas to Western Europe, thus supporting our Gas for Europe concept.
The project will be completed in 2006. Consequently, WINGAS has secured its gas supplies by extending its main contracts for Russian gas with OOO Gazexport until 2030. In addition, WINGAS concluded a
long-term purchase
agreement with ENI, Italy under which natural gas will be supplied at the transfer point at Eynatten on the Belgian-German border.

For
supplying the British gas market, WINGAS established HydroWingas Ltd., a joint venture with Norsk Hydro in 2004. At the end of the year, WINGAS acquired
"Saltfleetby"  the largest onshore natural gas field in Great Britain  from Australian Roc Oil Company Limited. WINGAS plans to use Saltfleetby as a future gas
storage facility to enhance storage capacity in Great Britain. In the medium term, a part of WINGAS' supplies to Great Britain will be shipped through the new cross-border pipeline via the
Netherlands, Bacton-Balgzand-Leiding (BBL). In 2003, WINGAS took a 25% stake in HubCo. In 2004, Gastransport Services, the network operator of N.V. Nederlandse Gasunie, joined HubCo resulting in a
reduction of the WINGAS share to 16.7%. The company's name was changed to EuroHub GmbH. EuroHub offers international gas traders a fully integrated hub service at the trading point in Bunde/Emden,
Germany.

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WIEH
exclusively acts as a trading company, purchasing Russian natural gas and marketing it to WINGAS and Verbundnetz Gas AG (VNG), a transmission and distribution company in Eastern
Germany in which Wintershall has a 15.8% share. WIEH also markets Russian natural gas in Central Europe through its wholly owned Swiss subsidiary WIEE.

The
natural gas distribution and trading business generates stable margins and represents a source of non-cyclical income for BASF. In addition, this business ensures a
reliable and cost-efficient source of natural gas for BASF's Verbund site in Ludwigshafen, Germany, and for other BASF companies in Europe.

In
2004, WINGAS entered into new supply contracts with municipalities, industrial companies and in the forward market. In addition, pursuant to our Gas for Europe concept, WINGAS
acquired additional industrial customers in Belgium, France, Great Britain (via our British HydroWingas joint venture) and Austria. In total, the WINGAS sales volume increased from 559 billion
cubic feet to 646 billion cubic feet in 2004. This growth was due to the enhanced activities at the trading hubs, new customers and the increase in sales volumes of existing contracts. The
sales volume of WINGAS, WIEH and WIEE totaled 1,037 billion cubic feet compared with 978 billion cubic feet for 2003. The BASF consolidated sales volume in 2004 was 717 billion
cubic feet, representing an 11% increase over the previous year's sales volume of 647 billion cubic feet.

WINGAS's
biggest customer is BASF's own Verbund site in Ludwigshafen. In 2004, BASF purchased approximately 95 billion cubic feet for its Ludwigshafen site and other sites in
Germany and Belgium. Approximately 20 billion cubic feet was sold to other BASF companies in Germany and Great Britain; 193 billion cubic feet to transmission companies;
112 billion cubic feet to regional distributors,
municipalities and industrial companies, and 216 billion cubic feet was sold in foreign markets of which the main part was sold at trading hubs.

In
2004, WINGAS purchased 515 billion cubic feet of natural gas directly or via WIEH from Gazexport. WINGAS also bought 109 billion cubic feet from North Sea suppliers,
72 billion cubic feet in the forward market and 12 billion cubic feet from Wintershall.

ENVIRONMENTAL MATTERS

BASF is subject to extensive, evolving and increasingly stringent international and local environmental laws and regulations concerning: the
production, distribution, the handling and storage of our products, the disposal of materials, the practices and procedures applicable to construction and operation of sites, the exploration and
production of oil and gas, as well as the maintenance of safe conditions in the workplace.

These
Environmental protection and remediation laws and regulations govern primarily:



Although
BASF believes that its production sites and operations currently fully comply with all applicable laws and regulations, these laws and regulations have required, and in the
future could require, BASF to take action to remediate the effects on the environment of the prior disposal or release of chemicals or petroleum substances or waste. Such laws and regulations have
applied, and in the future could apply,
to various sites, including BASF's chemical plants, oil fields, waste disposal sites, chemical warehouses and natural gas storage sites. In addition, such laws and regulations have required, and in
the future could require, BASF to install additional controls for certain emission sources, undertake changes in its operations in future years and remediate soil or groundwater contamination at
current and/or former sites and facilities.

BASF's
operating costs for environmental protection totaled €624 million in 2004. These costs are recurring or one-time costs associated with sites or
measures that are incurred in the avoidance, reduction or

48

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elimination
of deleterious effects on the environment. They include the costs of disposal sites, such as wastewater treatment plants and residue incinerators. They also comprise different levies such
as effluent levies and water levies, costs for disposal services by third parties, monitoring, analyses and surveillance carried out by mobile and stationary units as well as research and development
costs for reducing the incidence of residues. BASF spent approximately €115 million in 2004 on capital expenditures for pollution control devices and equipment.

BASF
also incurs costs to remediate the impact of the past disposal as well as the release of chemicals or petroleum substances or waste, both at its own sites and at third-party sites
to which BASF has sent waste for disposal. Worldwide, BASF had established provisions of €257 million for anticipated investigation and clean-up costs at such sites
as of December 31, 2004, and €248 million as of December 31, 2003.

In
the United States, liability for remediation of contamination is imposed generally pursuant to the federal Comprehensive Environmental Response Compensation and Liability Act
(Superfund) and analogous state laws. Although such U.S. laws generally allow the recovery of the total cost of cleanup from any single responsible party, cleanup costs typically are shared among
several responsible parties at third-party sites where multiple parties sent waste to the site for disposal, and sometimes at owned or operated sites where a predecessor or other third-party disposed
of waste on-site. BASF has been notified that it may be a potentially responsible party at such sites. The proceedings related to these sites are in various stages. The cleanup process has
not been completed at most sites; the number, potential liability and financial viability of other parties are typically not fully resolved and the status of the insurance coverage for most of these
proceedings is uncertain. Consequently, BASF cannot accurately determine the ultimate liability for investigation or cleanup costs at these sites. As events progress at each site for which BASF has
been named a potentially responsible party or is otherwise involved in remediation of contamination, BASF accrues, as appropriate, a liability for site cleanup. Such liabilities include all costs that
are probable and can be reasonably estimated. In establishing these liabilities, BASF considers its shipments of waste to a site and its percentage of total waste shipped to the site (in the case of
third-party sites); the types of waste involved; the conclusions of any studies; the magnitude of any remedial actions which may be necessary; and the number and viability of other potentially
responsible parties. Although the ultimate liability may differ from estimates, BASF routinely reviews liabilities and revised estimates, as appropriate, based on the most current information
available.

BASF
has established and continues to establish provisions for environmental remediation liabilities where the amount of such liability can be reasonably estimated. The provisions made
are considered to be in accordance with U.S. GAAP. BASF sets up or adjusts accruals as new remediation commitments arise or additional information becomes available. For further information, see
Note 22 to the Consolidated Financial Statements.

BASF
establishes provisions for currently known potential soil contamination at BASF sites that are still in operation, or in case of the accidental release of chemicals around the
world. In general, investigations into potential contamination and subsequent cleanups are only required when a site is closed and the existing production facilities dismantled. Taking into account
BASF's experience to date regarding environmental matters and facts currently known, BASF believes that capital expenditures and remedial actions necessary to comply with existing laws and conditions
governing environmental protection will not have a material effect on BASF's consolidated financial condition or results of operations.

In
connection with the onshore and offshore oil and gas activities conducted by BASF's subsidiary, Wintershall, BASF is subject to an increasing number of international and national
laws, regulations and directives governing the protection of the environment. In connection with the exploration, drilling, production, storage, transportation and distribution of oil and gas, these
regulations may, among other things:

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Wintershall
performs environmental impact studies where new oil and gas activities are planned and complies with environmental protection principles when onshore and offshore sites are
abandoned. Environmental laws and regulations have an increasing impact on the oil and gas industries, and therefore on Wintershall. It is impossible to predict accurately the effect of future
developments in such laws and regulations on Wintershall's future earnings and operations. BASF can make no assurance that Wintershall will not incur material costs and liabilities relating to
environmental matters.

In
recent years, the operations of all chemical companies have become subject to increasingly stringent legislation and regulations related to occupational safety and health, product
registration and environmental protection. Such legislation and regulations are complex and constantly changing, and there can be no assurance that future changes in laws or regulations would not
require BASF to install additional controls for certain of its emission sources, to undertake changes in its manufacturing processes or to investigate possible soil or groundwater contamination and
remediate proven contamination at sites where such cleanup is not currently required.

Regarding
emissions trading, for all its sites in Germany, the BASF Group has been assigned certificates for 2.2 million metric tons of CO2/year for the first trading
period (2005-2007). Assignments for other sites in Europe are not yet available. In the second trading period (2008-2012), conditions are expected to be stricter due to higher
reduction targets in all EU countries, the complete inclusion of chemical plants and the extension of the legislation to further climate gases.

The
European Union is currently preparing new legislation on chemicals (REACH) that will alter the registration, evaluation and approval of chemical substances. The new legislation is
not expected to come into force before 2007 in the respective countries in Europe. It is not yet possible to place a final figure on the associated costs.

SUPPLIES AND RAW MATERIALS

Raw materials procurement

The major raw materials that feed BASF's Verbund production sites are hydrocarbon-based raw materials such as naphtha and LPG (liquefied petroleum
gas). These materials are used as feedstock for the steam crackers that are operated in Ludwigshafen, Germany; Antwerp, Belgium; and Port Arthur, Texas. BASF monitors the market for naphtha, and
actively hedges its exposure by using swaps and options. Other important hydrocarbon-based raw materials are natural gas, benzene and propylene. BASF primarily sources its natural gas from Russia by
means of long-term natural gas supply contracts. Other important materials at BASF include cyclohexane, ammonia, titanium dioxide and methanol.

BASF
utilizes e-commerce to continuously improve efficiency of procurement processes. This has a positive impact on process times and process quality. For procuring technical
goods and services, BASF uses the electronic marketplace cc-hubwoo, in which BASF owns a stake. In our purchasing processes for raw materials, we have integrated the marketplace Elemica.
It is used as a trading platform for chemical products by 180 customers and suppliers.

BASF
has a policy of maintaining, when possible, multiple sources of supply for materials and is not dependent on a limited number of suppliers for essential raw materials. BASF has not
experienced any difficulty in obtaining sufficient supplies of raw materials in recent years and believes it will generally be able to obtain them at competitive market prices in the future. However,
BASF cannot give any assurance that

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unforeseen
developments will not adversely affect its ability to obtain sufficient, competitively priced raw materials in the future.

ORGANIZATIONAL STRUCTURE

BASF Aktiengesellschaft is the ultimate parent company of the BASF Group. The Group operates in five separate business segments, which encompass
BASF's 12 operating divisions. The business segments are reportable segments except for the business segment Agricultural Products & Nutrition, which is treated as two reportable segments,
disclosing separately the Agricultural Products and Fine Chemicals divisions.

Business
operations are run by 55 regional and global business units, organized along business or product lines. As profit centers, they are responsible for all business
operations  from production to marketing and sales  and their processes are customer-oriented.

In
addition to its operating divisions and business units, BASF has three corporate divisions that support the Board of Executive Directors in directing the company's activities, and
eight competence centers that oversee strategic activities and set global standards. The corporate divisions are Legal, Taxes & Insurance; Planning & Controlling; and Finance. The
competence centers are Global Procurement and Logistics; Information Services; Human Resources; Environment, Safety & Energy; Corporate Engineering; Chemicals Research & Engineering;
Specialty Chemicals Research; and Polymer Research.

The
following table sets forth significant subsidiaries owned, directly or indirectly, by BASF Aktiengesellschaft:

|                                             
|---------------------------------------------
|
|BASF Coatings AG, Münster-Hiltrup, Germany   
|                                             
|BASF Schwarzheide GmbH, Schwarzheide, Germany
|                                             
|Elastogran GmbH, Lemförde, Germany           
|                                             
|Wintershall AG, Kassel, Germany              
|                                             
|BASF Antwerpen N.V., Antwerp, Belgium        
|                                             
|BASF Española S.A., Tarragona, Spain         
|                                             
|BASF Corporation, Florham Park, New Jersey   
|                                             
|BASF S.A., São Bernardo do Campo, Brazil     
|                                             
|BASF Company Ltd., Seoul, South Korea        
|                                             

DESCRIPTION OF PROPERTY

BASF owns and operates numerous production and manufacturing sites throughout the world. The principal offices of BASF Aktiengesellschaft are
located in Ludwigshafen, Germany. In addition, BASF operates regional headquarters, sales offices, distribution centers and research and development facilities worldwide. We believe that our
production sites are well aligned with both our present capacity requirements, and our future growth strategy. We are constantly evaluating the location, efficiency and capacity of our plants, and
taking action where appropriate.

At
the heart of BASF's integration strategy are its Verbund production sites, which produce a wide range of products. BASF produces approximately 8,000 products, which can vary
significantly in quantity produced and sales price. The following is a description of our operational Verbund sites and production capacities of certain significant products. Capacities are listed in
metric tons per year unless otherwise noted. An additional Verbund site is currently under construction in Nanjing, China, with the joint venture partner SINOPEC.

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|                     | 
|-------------------- | 
|
|
|
|
|Chemicals            | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|Plastics             | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|Plastics/ Chemicals  | 
|                     | 
|Performance Products | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 
|                     | 

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See "Item 4. Information on the Company  Environmental Matters" for information on environmental issues related to BASF's
properties. Additional information regarding BASF's property, plant and equipment is contained in Note 12 to the Consolidated Financial Statements included in Item 18.

For
information on BASF's oil and natural gas exploration and production activities, see "Item 4. Information on the Company  Oil & Gas" and
"Supplementary information concerning oil and gas producing activities (unaudited)" in Item 18.

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Item 5.    Operating and Financial Review and Prospects

OVERVIEW

BASF is a transnational chemical company that aims to increase its corporate value through growth and innovation. The company's product range
includes high-performance products, including chemicals, plastics, coatings systems, dispersions, agricultural products, fine chemicals as well as crude oil and natural gas.

BASF
comprises the parent company, BASF Aktiengesellschaft of Ludwigshafen, Germany, and 159 consolidated subsidiaries and affiliated companies. The company has customers in more than
160 countries and operates production sites in 41 countries.

BASF
conducts its worldwide operations through 12 operating divisions, which have been aggregated into five business segments based on the nature of the products and production
processes, type of customers, channels of distribution and nature of the regulatory environment. The business segments are reportable segments, with the exception of Agricultural Products &
Nutrition, which is treated as two reportable segments, Agricultural Products and Fine Chemicals, respectively.

The
reportable operating segments are:



BASIS OF PRESENTATION

Overview

The Consolidated Financial Statements of BASF included in Item 18 of this report have been prepared based on BASF's accounting and valuation
principles in accordance with German GAAP as required by the German Commercial Code (Handelsgesetzbuch), the standards of the German Accounting
Standards Committee (GASC) and the German Stock Corporation Act (Aktiengesetz). Due to the conversion to International Financial Reporting Standards
(IFRS) mandated by the European Union for the 2005 reporting year, the IFRS have been followed in the 2004 reporting year to the greatest extent allowable under German GAAP.

There
are certain differences relating to accounting and valuation methods that are required under U.S. GAAP but are not allowed under German GAAP. The reconciliation of the differences
between German GAAP and U.S. GAAP for the years ended December 31, 2004, 2003 and 2002 are described in Note 3 to the Consolidated Financial Statements included in Item 18.

Outlook for 2005

After the strong recovery in 2004, which followed three difficult years of only moderate growth, we continue to see favorable mid-term
prospects. The precondition for this is that political trouble spots do not

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flare
up and that there is no sudden downturn in the economic environment. We have based our business planning for 2005 on the following scenario:



For
the global economy, we expect average gross domestic product to rise 3.2%, with 3.0% per year forecast for the midterm. Europe, however, is likely to continue to show slower growth
in spite of its
eastward expansion. This is due to offshoring of production, the strong euro compared with the U.S. dollar, and weak consumer spending as a result of structural changes to social security systems.

In
the following descriptions of results of operations in the segments, we make forecasts for sales and earnings in 2005. These forecasts are based on the assumption of the
above-described scenario.

Critical Accounting Policies

Critical accounting policies are those that are most important to the portrayal of the company's financial condition and results of operations.
These policies require management's difficult, subjective and complex judgments in the preparation of the financial statements and accompanying notes. Management makes estimates and assumptions about
the effect of matters that are inherently uncertain, relating to the reporting of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. The company's most
critical accounting policies are discussed below.



Obligations arising from company pension plans are based on actuarial computations made by external actuaries according to the projected unit credit method.
Accordingly, assumptions must be made with regard to discount factors, salary and pension trends, and, in the case of externally financed obligations, with regard to the growth and return on the fund
assets used to finance future obligations.

These
assumptions are redefined as of each balance sheet date, taking account of current circumstances. Discount factors are based on returns for securities or bonds with high credit
ratings. The expected return on fund assets is based on long-term developments as observed in the capital markets as well as the respective portfolio structures. If the actual developments
deviate from the assumptions made, the resulting actuarial profits or losses beyond a given limit are distributed over the future years of service of employees.

See
Note 21 to the Consolidated Financial Statements for further details with regard to the change in pension obligations and financing status.



The evaluation of risks associated with claims for damages and litigation and the determination of the amounts of related provisions are subject to considerable
judgment. In particular, this relates to pending regulatory proceedings and claims for damages associated with antitrust violations in the vitamins business.

It
is currently not possible to estimate the full consequences of litigations. Corresponding provisions are established to the extent that they are considered probable and the amount can
be reasonably estimated. The level of provisions also considers the outcomes of similar cases and legal opinions, taking into account the current circumstances. The actual outcome of legal proceedings
may differ considerably from these estimates. See also Note 25 to the Consolidated Financial Statements for further information with regard to litigation and claims.

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Tax loss carryforwards are primarily related to restructuring measures at subsidiaries in the North American (NAFTA) region. In countries in the NAFTA region,
these carryforwards may be set against future taxable income for up to 20 years.

The
realization of deferred tax assets on these carryforwards is dependent upon the economic development of our subsidiaries in the NAFTA region. An evaluation is affected by
difficulties in predicting long-term economic developments. Significant valuation allowances were not made to deferred tax assets on tax loss carryforwards in 2004 in view of the long
carryforward period and in expectation of stable economic developments in the NAFTA region.

See
also Note 8 to the Consolidated Financial Statements for further information on deferred taxes.



From 2002 onward, goodwill is no longer to be amortized under U.S. GAAP. Instead, goodwill is written off only if the carrying value of goodwill is impaired. The
value of goodwill has to be reviewed at least once per year at the reporting unit level. An impairment exists if the book value of the goodwill at the reporting unit exceeds the fair value, generally
determined based upon the discounted value of expected future cash flows.

To
review the value of goodwill, however, it is necessary to make assumptions with regard to the long-term profitability of the operating units against the background of
macroeconomic developments. To a significant extent, goodwill is associated with the acquisition of the insecticide fipronil from Bayer CropScience in March 2003 and of the crop protection
business of American Home Products Corporation in 2000. The value of these goodwills is subject to the long-term development of the global market for crop protection products and the
continued profitability of this business.

Significant
write-offs due to impairment were not necessary in 2004. As a result, the amortization expenses recorded in accordance with German GAAP are reversed in the
reconciliation to U.S. GAAP (see Note 3 to the Consolidated Financial Statements).



The company records liabilities for environmental issues in the accounting period in which its responsibility is established and the cost can be reasonably
estimated. At environmental sites in which more than one potentially responsible party has been identified, the company records a liability for its allocable share of costs related to its involvement
with the site, as well as an allocable share of costs related to insolvent parties or unidentified shares. At environmental sites in which the company is the only potentially responsible party, a
liability is recorded for the total estimated costs of remediation before consideration of recovery from insurers or other third parties. The process of estimating environmental liabilities is complex
and dependent on physical and scientific data at the site, uncertainties as to remedies and technologies to be used and the outcome of discussions with regulatory agencies.

See
also Note 22 to the Consolidated Financial Statements for further explanations with regard to the accrual of provisions for environmental protection measures and site
remediation.



Impairment tests of long-lived assets are made when conditions indicate a possible loss. Impairment tests are based on a comparison of undiscounted
cash flows to the recorded value of the asset. The estimate of the cash flows is based on information available at that time including factors such as: expected sales, customer trends, operating
efficiencies, material and energy prices, etc. If an impairment is indicated, the asset value is written down to its fair value based upon market prices or, if not available, upon discounted cash
flows. The assumptions used in the cash flow projections reflect the market conditions at the time an impairment becomes known.

56

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New U.S. GAAP accounting standards not yet adopted

The standards adopted in 2004  SFAS 151 "Inventory Costs," SFAS 152 "Accounting for Real Estate
Time-Sharing Transactions," SFAS 153 "Exchange of Nonmonetary Assets," and EITF 03-1 "The Meaning of Other Than Temporary Impairment and its Application to Certain
Investments"  were examined to determine their effect on the BASF Group financial statements. According to SFAS 151, certain abnormal costs for the production of inventories
are to be charged against income in the period they occur, rather than being capitalized as production costs. SFAS 152 covers the accounting treatment of timesharing of property and property
rights. SFAS 153 states that the exchange of nonmonetary assets are generally to be valued at fair value. EITF 03-1 provides guidance regarding the impairment of certain investments and the
related disclosures. In September 2004, the Emerging Issues Task Force issued EITF Issue 4-10 "Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative
Thresholds"("EITF 4-10"), which addresses the criteria for aggregating operating segments. We have reviewed our segment reporting and have determined that our aggregation of segments is
consistent with the guidance in EITF Issue No. 4-10. These new standards have no effect on the financial statements of the BASF Group.

RESULTS OF OPERATIONS

BASF Group

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Consolidated
Financial Statements and the Notes to the Consolidated Financial Statements included in Item 18.

Income
from operations rose significantly in a positive global economic environment, driven by economic growth in the United States and Asia. Production and sales volumes grew
substantially and sales prices were increased. In addition, our restructuring measures had a positive effect, enabling us to reduce our fixed costs considerably. The Chemicals, Plastics and
Performance Products segments more than doubled their earnings. At €4,856 million, income from operations in 2004 was €2,198 million higher than in the
previous year, and as a ratio of sales was 12.9% compared with 8.0% in 2003.

The
financial result declined compared with 2003, in particular due to the write-down on our stakes in Basell and in Svalöf Weibull. Net income, however, more
than doubled thanks to very strong income from operations compared with 2003.

57

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The
following table sets forth sales and income for BASF. Sales are net of natural gas taxes.

Sales and Earnings

|                                                    |                                | 2004     |         | % Change
From Previous Year |      | 2003     |         | % Change
From Previous Year |       | 2002     |        
|--------------------------------------------------- | ------------------------------ | -------- | ------- | --------------------------- | ---- | -------- | ------- | --------------------------- | ----- | -------- | -------
|
|Sales                                               |                                | 37,536.6 |         | 12.5                        |      | 33,361.2 |         | 3.6                         |       | 32,215.5 |        
|Income from operations                              |                                | 4,855.6  |         | 82.7                        |      | 2,658.2  |         | 0.7                         |       | 2,640.7  |        
|Income from operations as a percentage of sales (%) |                                | 12.9     |         | 61.3                        |      | 8.0      |         | (2.4                        | )     | 8.2      |        
|Special items                                       |                                | (37      | )       | 89.0                        |      | (335.0   | )       | (39.9                       | )     | (239.5   | )      
|Financial Result                                    |                                | (836.5   | )       | (70.6                       | )    | (490.2   | )       |                            |       | 0.2      |        
|Income before taxes and minority interests          |                                | 4,019.1  |         | 85.4                        |      | 2,168.0  |         | (17.9                       | )     | 2,640.9  |        
|Net income                                          |                                | 1,883.0  |         | 106.9                       |      | 910.2    |         | (39.5                       | )     | 1,504.4  |        
|Net income as a percentage of sales (%)             |                                | 5.0      |         | 85.2                        |      | 2.7      |         | (42.6                       | )     | 4.7      |        
|Basic earnings per share                            |                                | 3.43     |         | 111.7                       |      | 1.62     |         | (37.7                       | )     | 2.60     |        
|Amounts in accordance with U.S. GAAP                |                                |          |         |                             |      |          |         |                             |       |          |        
|                                                    | Net income                     |          | 1,862.8 |                             | 41.2 |          | 1,319.7 |                             | (23.1 | )        | 1,716.2
|                                                    | /*/ from continuing operations |          | 1,862.8 |                             | 41.2 |          | 1,319.7 |                             | (23.1 | )        | 1,716.2
|                                                    | Basic earnings per share       |          | 3.39    |                             | 44.3 |          | 2.35    |                             | (20.6 | )        | 2.96   
|                                                    | /*/ from continuing operations |          | 3.39    |                             | 44.3 |          | 2.35    |                             | (20.6 | )        | 2.96   
|                                                    | /*/ diluted earnings per share |          | 3.39    |                             | 44.3 |          | 2.35    |                             | (20.6 | )        | 2.96   
|                                                    |                               

Income
from operations in 2004 contains net special charges of €37 million, compared with €335 million in the previous year. The decline was
primarily due to the gain from the sale of the printing systems business. €277 million was incurred for restructuring measures related to steps to increase efficiency as part of
the Ludwigshafen Site Project, the further development of our organization in Europe, as well as restructuring in North America (NAFTA). Special items also arose due to portfolio measures and
litigation. The financial result contains a write-down on our 50% stake in Basell and on our stake in Svalöf Weibull.

Income
from operations in 2003 contains special charges of €335 million. This amount includes €305 million for restructuring measures taken
to increase efficiency as part of the Ludwigshafen Site Project and to reorganize our service divisions in North America (NAFTA). The proceeds from the sale of the soil improvement products business
in December offset most of the costs of integrating the fipronil business acquired by the Agricultural Products division.

Income
from operations in 2002 included special charges of €240 million. This was €836 million less than in the previous year. Charges of
€124 million were incurred as a result of restructuring measures. These were due to the closure of ethylene oxide and glycol plants in the Chemicals segment in Geismar,
Louisiana; various optimization and restructuring measures in the Agricultural Products & Nutrition segment; and measures to improve efficiency associated with the Site Concept at the
Ludwigshafen production site. Further special charges of €116 million resulted primarily from the €100 million provision for claims for damages related to
the vitamins business. The financial result included special income of €301 million related in particular to the sale of marketable securities and of a lease financing company.

58

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2004 Compared with 2003



Sales in 2004 rose €4,176 million compared with the previous year to €37,537 million. The change in sales was due to
the following factors:

|                                                     |  | 2004   |  
|---------------------------------------------------- |  | ------ | -
|
|Volumes                                              |  | 3,147  |  
|Prices                                               |  | 2,197  |  
|Currencies                                           |  | (1,470 | )
|Acquisitions and additions to scope of consolidation |  | 549    |  
|Divestitures                                         |  | (247   | )
|Total                                                |  | 4,176  |  

---

Higher
sales volumes were achieved mainly in the Chemicals and Plastics segments. Moreover, we were able to pass on higher raw materials costs to the market in the course of the year for
many products in our portfolio.

Despite
the weakness of the U.S. dollar and currencies in South America and Asia that are tied to the dollar, we increased sales in euros in all regions. In local currency terms, our
sales increased by 24.5% in North America (NAFTA) and by 28.0% in Asia.

Acquisitions
increased sales by €505 million. This was mainly due to the purchase of the plasticizers business of Sunoco, United States, and the first
full-year's sales from the
fipronil business from Bayer CropScience, and from Honeywell's engineering plastics business, both of which were acquired in 2003. Additions to the scope of consolidation contributed
€44 million to sales.

Divestitures
reduced comparable sales by €247 million. This was primarily due to the sale of our printing systems business to CVC Capital Partners, the sale of our
nylon fibers business to Honeywell in 2003, and to streamlining of the portfolio in the Agricultural Products division.



At €4,856 million, income from operations in 2004 was €2,198 million higher than in the previous year, and as a
ratio of sales was 12.9% compared with 8.0% in 2003. This increase was primarily due to higher capacity utilization of our plants as well as fixed cost reductions associated with restructuring
measures. The Chemicals, Plastics and Performance Products segments more than doubled their earnings.



Compared with 2003, income before taxes rose by €1,851 million in 2004 to €4,019 million. This increase was due to
the substantial improvement in income from operations. In 2004, the return on assets as a percentage of income before taxes plus interest expenses increased to 12.9%, compared with 7.4% in the
previous year (see Note 7 to the Consolidated Financial Statements in Item 18).



Income before taxes and minority interests was €4,019 million and the tax expense was €2,005 million or 50%. After
deducting these taxes and minority interests of €131 million, net income was €1,883 million in 2004. In comparison with 2003, net income more than
doubled, increasing by €973 million. The tax rate declined by 5 percentage points compared with the previous year. In 2003, a tax refund claim of
€124 million

59

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had
to be written off because of a change in German tax law. In 2004, higher tax-free earnings from the sale of our printing systems business were offset by
non-tax-deductible write-downs on participating interests.

Noncompensable
foreign income taxes on oil production rose by €163 million to €668 million due to higher oil prices.

Earnings
per share in 2004 were €3.43 compared with €1.62 in the previous year. Our income in accordance with U.S. GAAP was
€1,863 million or €3.39 per share in 2004, compared with €1,320 million or €2.35 per share in 2003.



The sales and earnings of the BASF Group are to some extent heavily dependent on the volatility of the U.S. dollar and currencies that are tied to it, and on oil
price volatility. In the Agricultural Products and Fine Chemicals divisions and in the Performance Products segment especially, a weaker U.S. dollar may result in negative currency translation
effects.

Our
planning for 2005 is based on an average euro/dollar exchange rate of $1.30 per euro and an average oil price of $35/barrel Brent. We further anticipate that the global economy will
not cool off substantially. The precondition for this is that political trouble spots do not flare up and that there is no sudden downturn in the economic environment. We will continue to implement
our restructuring, cost reduction and portfolio optimization measures.

These
are the prerequisites for business to remain strong. In 2005, we expect to achieve slightly higher sales and  on a comparable basis  income
from operations to follow on from the strong 2004 overall level.

2003 Compared with 2002



Sales in 2003 rose €1,145 million compared with the previous year to €33,361 million. The following factors
contributed to the change in sales:

|                                                     |  | 2003   |  
|---------------------------------------------------- |  | ------ | -
|
|Volumes                                              |  | 2,421  |  
|Prices                                               |  | 692    |  
|Currencies                                           |  | (2,345 | )
|Acquisitions and additions to scope of consolidation |  | 638    |  
|Divestitures                                         |  | (261   | )
|Total                                                |  | 1,145  |  

---

We
achieved higher sales volumes primarily in the Chemicals, Plastics and Oil & Gas segments. Some divisions were able to impose price increases to compensate somewhat for the
increase in raw materials costs.

The
weakness of the U.S. dollar caused sales to decline considerably in euro terms in North America (NAFTA), South America and Asia. In local currency terms, however, sales rose by 10%
in North America (NAFTA), by 13% in South America and by 25% in Asia.

Acquisitions
increased sales by €633 million, primarily due to the acquisition of the global fipronil business from Bayer CropScience and the purchase of
Honeywell's engineering plastics. Additions to the scope of consolidation contributed €5 million to sales.

60

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Divestitures
reduced comparable sales by €261 million, primarily due to the sale of our nylon fibers business to Honeywell.



Income from operations was slightly higher than in 2002. Improvements in the Agricultural Products & Nutrition, Oil & Gas and Other segments offset
the decline in Chemicals, Plastics and Performance Products. At €2,658 million, income from operations in 2003 was €17 million higher than in the previous
year and as a ratio of sales was 8.0%, compared with 8.2% in 2002.



Compared with 2002, income before taxes declined €473 million to €2,168 million in 2003. This decline is due to the
almost identical decline in the financial result by €490 million. In 2002, the financial result contained gains from the sale of securities. In 2003, income from financial
assets also declined and certain financial assets had to be written down (see Note 7 to the Consolidated Financial Statements in Item 18).



Income before taxes and minority interests was €2,168 million and the tax expense was €1,192 million or 55%. After
deducting these taxes and minority interests of €66 million, net income in 2003 was €910 million, or €594 million lower than in
2002. This decline was due to lower income before taxes and minority interests as well as tax expenses that were €149 million higher than in the previous year. In 2003, a tax
refund claim of €124 million that was accounted as tax receivable in 2002 had to be written off, resulting in an increase in tax expense of €248 million
compared with the previous year. This write-off of the tax refund claim for a reduction in corporate income tax associated with paid dividends was incurred due to changes in German tax law
in 2003. In addition, foreign income taxes on oil production rose, primarily due to the production of higher volumes of oil.

Earnings
per share in 2003 were €1.62, compared with €2.60 in the previous year. In accordance with U.S. GAAP, we posted net income of
€1,320 million or €2.35 per share in 2003 compared with €1,716 million or €2.96 per share in 2002.

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Chemicals

Segment Data
(Million €)

|                                                       |                    | 2004   |     | % Change
From
Previous
Year |      | 2003  |     | % Change
From
Previous
Year |     | 2002  |    
|------------------------------------------------------ | ------------------ | ------ | --- | --------------------------- | ---- | ----- | --- | --------------------------- | --- | ----- | ---
|Sales to third parties                                 |                    | 7,020  |     | 22.0                        |      | 5,752 |     | 8.2                         |     | 5,317 |    
|                                                       | Thereof Inorganics |        | 844 |                             | 14.4 |       | 738 |                             | 6.2 |       | 695
|Petrochemicals                                         |                    | 4,189  |     | 28.3                        |      | 3,264 |     | 12.5                        |     | 2,902 |    
|Intermediates                                          |                    | 1,987  |     | 13.5                        |      | 1,750 |     | 1.7                         |     | 1,720 |    
|Intersegmental transfers                               |                    | 3,395  |     | 26.7                        |      | 2,680 |     | 3.2                         |     | 2,598 |    
|Sales including intersegmental transfers               |                    | 10,415 |     | 23.5                        |      | 8,432 |     | 6.5                         |     | 7,915 |    
|Income from operations                                 |                    | 1,241  |     | 215.8                       |      | 393   |     | (38.1                       | )   | 635   |    
|Special items                                          |                    | (93    | )   | 13.1                        |      | (107  | )   |                            |     | (41   | )  
|Operating margin (%)                                   |                    | 17.7   |     | 160.3                       |      | 6.8   |     | (42.9                       | )   | 11.9  |    
|Assets                                                 |                    | 5,008  |     | 6.1                         |      | 4,720 |     | (5.5                        | )   | 4,997 |    
|Return on operational assets (%)                       |                    | 25.5   |     | 214.8                       |      | 8.1   |     | (37.2                       | )   | 12.9  |    
|Research and development expenses                      |                    | 104    |     | (3.7                        | )    | 108   |     | 10.2                        |     | 98    |    
|Capital expenditures in tangible and intangible assets |                    | 555    |     | 5.3                         |      | 527   |     | 6.5                         |     | 495   |    
|                                                       |                   

The
Chemicals segment comprises the Inorganics, Petrochemicals and Intermediates divisions.

2004 Compared with 2003



In 2004, we increased sales to third parties by €1,268 million compared with the previous year to €7,020 million
(volumes 13%, portfolio 4%, prices 10%, currencies -5%). All three divisions contributed to higher sales.

All
three divisions contributed also to the increase in income from operations, which rose by €848 million to €1,241 million. Strong demand
made it possible to pass on higher raw materials prices to customers in many product lines. Together with productivity gains resulting from continued rationalization, this led to an improvement in
margins compared with the weak previous year.

At
€5,008 million, assets were €288 million higher than in 2003. We strengthened our business with plasticizers in the United States by
acquiring the plasticizer activities of Sunoco, United States. In Port Arthur, Texas, we started up a C4 complex together with our partners Total Petrochemicals, United States, and
Shell, United States. This complex will help to supply BASF in North America (NAFTA) with the important raw materials butadiene and propylene, and is closely linked with the cracker that we operate at
the same site together with Total Petrochemicals.

In
2004, we also started operations at the new butanediol plant at our site in Kuantan, Malaysia. In the future, it will also supply the new PBT (polybutylene terephthalate) plant we are
building at this site with our joint venture partner Toray, Japan.

In
the Petrochemicals and Intermediates divisions, investment projects at the new Verbund site in Nanjing, China, and in Caojing, China, are moving ahead as scheduled. In 2005, a number
of world-scale plants will start operations at these sites, making a substantial contribution to our production in the high-growth Asian region.

62

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In
2005, we expect sales at the previous year's level. While we anticipate demand to remain strong, we expect a decline in crude oil prices and a weaker U.S. dollar. Startup costs for
the new plants in Nanjing and Caojing are likely to negatively impact income from operations. We nevertheless expect to achieve income from operations at the previous year's level.



In 2004, we increased sales to third parties by €106 million to €844 million (volumes 12%, portfolio 3%, prices 1%,
currencies -2%).

The
sales growth was due primarily to strong volume demand, which was aided by a marked upturn in key customer industries such as electronics and the wood products industries. As a
result of the increase in sales, we significantly improved income from operations, which was negatively impacted by the need to convert part of the chlorine facilities to a membrane technology in
2003. All business units in the division contributed to the improvement in earnings in 2004. The persistent weakness of the U.S. dollar had a negative impact on earnings in 2004.

The
integration of the inorganic specialties business in Evans City, Pennsylvania, which was acquired from the Mine Safety Appliances Company, United States, was successfully completed
in the second quarter of 2004. With this acquisition, we expanded our portfolio of profitable and fast-growing specialties based on boron and potassium, which are mainly used in the
production of pharmaceuticals and herbicides. In addition, there are a number of further applications, for example in the electronics and automotive industries.

Another
example of successful implementation of our customer-oriented specialty strategy is our market leadership in carbonyl iron powder, an important product for making diamond tools
and electronic components.

In
2005, we expect sales to remain unchanged compared with 2004. We expect income from operations to decline from the strong level posted in 2004 due to narrower margins. We intend to
continue to expand profitable business areas in innovative specialties such as catalysts, electronic grade chemicals and powder injection molding technology.



In 2004, we significantly increased sales to third parties by €925 million to €4,189 million (volumes 15%, portfolio
5%, prices 14%, currencies -6%). This was mainly due to higher sales of cracker products in Europe and North America (NAFTA) as well as growth in alkylene oxides and glycols. The
plasticizers and solvents product lines also posted significantly stronger sales.

Income
from operations improved considerably compared with 2003 because of strong business growth and high availability of production capacity. The prices of some raw materials were much
higher and very volatile, and prices of crude oil and naphtha reached record levels. We were largely able to pass these changes on to customers in the form of price increases. In addition, high
capacity utilization resulted in margin improvements and led to strong earnings growth.

Our
investment projects were completed as scheduled. In Port Arthur, Texas, we completed and started up a C4 complex. This complex consists of a butadiene extraction and
inalkylation facility as part of our SABINA joint venture with our partners Shell, United States, and Total Petrochemicals, United States, as well as an OCU (olefins conversion unit; metathesis) as
part of our cracker joint venture with Total Petrochemicals.

The
acquisition of the plasticizers business of Sunoco, United States, in January 2004 enabled us to substantially improve our market position in North America (NAFTA).

In
addition, we are investing together with our partner SINOPEC, China, in the new Verbund site in Nanjing, China, which will start operations in 2005.

63

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In
2005, we expect sales at the same level as in 2004. The effects of lower crude oil prices and the additional business from our new plants in Nanjing, China, will probably offset one
another. The startup costs at this new site are likely to negatively impact income from operations. Nevertheless, we anticipate margins to improve and earnings to match the very strong level achieved
in 2004.



In 2004, we increased net sales to third parties by €237 million to €1,987 million (volumes 10%, portfolio 3%,
prices 5%, currencies -4%). We particularly increased sales volumes in Asia. All product areas contributed to global sales growth.

We
significantly increased income from operations compared with 2003. Strong demand in Asia reduced import pressures on margins and market share in Europe. In almost all product lines,
we increased prices globally to improve our margins. Income from operations also improved due to the reduction of fixed costs, especially in production in Ludwigshafen, and due to a consistent focus
on adding value rather than increasing volumes.

Capital
expenditures were at the previous year's level, and investments again concentrated on Asia: We are building integrated production plants for tetrahydrofuran (THF) and
PolyTHF® in Caojing, China, and plants for methylamine, dimethylformamide and formic acid, and propionic acid in Nanjing, China. In early 2004, we started operations at the butanediol
plant of BASF PETRONAS Chemicals (BASF share: 60%) in Kuantan, Malaysia.

On
a comparable basis, we expect higher sales in 2005, again mainly in Asia. Because of the startup costs for plants in Nanjing and Caojing, China, we do not expect to quite match the
2004 level of income from operations.

2003 Compared with 2002



In 2003, we increased sales to third parties by €435 million compared with the previous year to €5,752 million
(volumes 12%, portfolio 1%, prices 5%, currencies -10%). Higher sales volumes made a major contribution to growth in all three divisions, in particular in the Petrochemicals division.

Income
from operations declined by €242 million to €393 million. All three divisions where affected. This was due mainly to the weak U.S.
dollar, continuing overcapacities for a number of products, and increasing pressure on margins. Modernization measures, scheduled plant maintenance and startup costs for our investment projects in
Asia also had a negative impact on income from operations.

Compared
with 2002, assets declined by €277 million to €4,720 million. We further optimized production structures in Europe and North
America (NAFTA) by closing unprofitable plants and investing in new, profitable ones. In the Petrochemicals and Intermediates divisions, the capital expenditure projects at the new Verbund site in
Nanjing, China, and in Caojing, China, continued on schedule. A number of world-scale plants will make a substantial contribution to our production in the growing Asian market from 2005 onward. In the
Petrochemicals division, we constructed a C4 complex in Port Arthur, Texas, with our partners Total Petrochemicals, United States, and Shell, United States. This plant is scheduled to
start operations in 2004 and is linked with our steam cracker.



We increased sales to third parties in 2003 by €43 million to €738 million (volumes 3%; acquisition of Callery
Chemical 3%, prices 3%, currencies -3%).

Income
from operations decreased in comparison with the previous year. This was due to a decline in margins for basic inorganic chemicals, inorganic specialties and electronic grade
chemicals as a result of

64

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negative
price and currency effects. These effects could not be fully offset by higher sales volumes of glues, impregnating resins and catalysts. The conversion of part of the chlorine production
facilities to an energy-efficient membrane technology as well as other modernization measures at the Ludwigshafen site had a negative impact on income from operations but will lead to an improvement
in income from 2004 onward.

The
acquisition of Callery Chemical from the Mine Safety Appliances Company (MSA) completed in mid-September 2003, has expanded our profitable and
fast-growing business with inorganic specialties. With this acquisition we have expanded our range of alcoholates and boron compounds and have added potassium specialties to our portfolio.



In 2003, we increased sales to third parties by €362 million to €3,264 million (volumes 16%, portfolio 1%, prices
8%, currencies -12%). Cracker products in Europe were an important factor in this increase. Sales of alkylene oxides and glycols also rose. We maintained the previous year's level of sales
for plasticizers and solvents.

Income
from operations remained below the previous year's level despite the increase in sales. Prices for raw materials, especially crude oil and naphtha, were very volatile and rose
over the course of the year, as was the case for natural gas and energy. We were unable to increase our sales prices sufficiently and quickly enough, and margins therefore declined. The cost of plant
shutdowns for scheduled maintenance and technical problems at our steam cracker in Port Arthur, Texas, also had a negative impact on income from operations.

Capital
expenditures increased slightly compared with the previous year. In Port Arthur, Texas, together with our partners Total Petrochemicals and Shell, we built a C4
complex for metathesis, inalkylation and butadiene extraction that is scheduled to start operations in 2004. Together with our partner SINOPEC, Beijing, China, we invested in our new Verbund site in
Nanjing, China, which is scheduled to begin operations in 2005.



In 2003, sales to third parties increased by €30 million to €1,750 million (volumes 9%, prices 1%, currencies
-8%). We increased volumes of amines, diols and polyalcohols in particular.

Income
from operations was well below the previous year's level and was negatively impacted by significantly higher raw materials prices, in particular for natural gas and butadiene. The
increasing weakness of the U.S. dollar intensified competitive pressure from the U.S. dollar zone in all regions. European competitors lowered prices because of insufficient capacity utilization. This
resulted in a decline in margins for our products. Income from operations also contains startup costs for investment projects in Asia as well as impairment charges for production plants.

The
higher level of capital expenditures compared with the previous year related primarily to the construction of the integrated production plants for THF and PolyTHF® in
Caojing and plants for methylamine, dimethylformamide, formic acid and propionic acid in Nanjing, China.

65

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Plastics

Segment Data
(Million €)

|                                                       |                   | 2004   |       | % Change
From
Previous
Year |      | 2003  |       | % Change
From
Previous
Year |     | 2002  |      
|------------------------------------------------------ | ----------------- | ------ | ----- | --------------------------- | ---- | ----- | ----- | --------------------------- | --- | ----- | -----
|Sales to third parties                                 |                   | 10,532 |       | 19.9                        |      | 8,787 |       | 3.7                         |     | 8,477 |      
|                                                       | Thereof Styrenics |        | 4,450 |                             | 22.7 |       | 3,626 |                             | 7.1 |       | 3,387
|Performance Polymers                                   |                   | 2,587  |       | 15.5                        |      | 2,239 |       | (1.4                        | )   | 2,270 |      
|Polyurethane                                           |                   | 3,495  |       | 19.6                        |      | 2,922 |       | 3.6                         |     | 2,820 |      
|Intersegmental transfers                               |                   | 677    |       | 25.1                        |      | 541   |       | 24.1                        |     | 436   |      
|Sales including intersegmental transfers               |                   | 11,209 |       | 20.2                        |      | 9,328 |       | 4.7                         |     | 8,913 |      
|Income from operations                                 |                   | 669    |       | 126.0                       |      | 296   |       | (49.1                       | )   | 582   |      
|Special items                                          |                   | (58    | )     | 13.4                        |      | (67   | )     |                            |     | (11   | )    
|Operating margin (%)                                   |                   | 6.4    |       | 88.2                        |      | 3.4   |       | (50.7                       | )   | 6.9   |      
|Assets                                                 |                   | 6,044  |       | 8.0                         |      | 5,598 |       | (9.3                        | )   | 6,174 |      
|Return on operational assets (%)                       |                   | 11.5   |       | 130.0                       |      | 5.0   |       | (46.2                       | )   | 9.3   |      
|Research and development expenses                      |                   | 138    |       | (2.8                        | )    | 142   |       | 2.9                         |     | 138   |      
|Capital expenditures in tangible and intangible assets |                   | 454    |       | (15.8                       | )    | 539   |       | (15.3                       | )   | 636   |      
|                                                       |                  

The Plastics segment comprises the Styrenics, Performance Polymers and Polyurethanes divisions. On May 1, 2003 BASF took over the worldwide
engineering plastics business of Honeywell International, Morris Township, New Jersey, and transferred its worldwide nylon fibers business to Honeywell. At the same time the segment was renamed
Plastics.

2004 Compared with 2003



Sales to third parties rose by €1,745 million to €10,532 million in 2004 (volumes 9%, portfolio 1%, prices 15%,
currencies -5%).

Income
from operations rose by €373 million to €669 million compared with the weak level in 2003. We improved sales and earnings in all
divisions. The segment's income from operations increased mainly due to higher volumes and lower fixed costs as a result of restructuring measures. In the Performance Polymers division in particular,
earnings improved significantly compared with the previous year's very weak performance.

We
increased prices considerably during the year to pass on the significantly higher costs of raw materials. However, margins remain less than satisfactory because it was not possible to
fully offset the increase in raw materials costs.

Earnings
were negatively impacted by charges for restructuring measures, as well as write-offs.

We
reduced capital expenditures in 2004. The segment's assets increased, with inventories and receivables rising substantially because of much higher sales volumes and prices compared
with 2003.

In
2004, we continued to reposition our plastics business. Key issues were the implementation of product and industry-specific business models and the long-term optimization
of our regional portfolio. We have significantly expanded our position in Asia using new plants. In Europe, we continued to optimize our structures, and in North America (NAFTA) and South America, we
further consolidated our production structures.

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For
2005, we expect sales to remain at the high level of 2004 and a further improvement in income from operations.



In the Styrenics division, sales to third parties in 2004 rose by €824 million to €4,450 million compared with the
previous year (volumes 4%, prices 25%, currencies -6%). The strong rise in raw materials prices since the start of the year could be passed on to customers only after some delay, resulting
in significant sales growth in the second half of the year.

Income
from operations exceeded the previous year's weak level. The rapid rise in raw materials prices depressed margins significantly, especially in the first half of the year. We
reduced fixed costs as part of the reorientation of our business model and  in the second half of the year  passed on higher raw material costs to some extent
to our customers. These measures resulted in income from operations that was higher than the previous year in all four quarters, but which is still not satisfactory.

We
continued to consolidate activities in 2004. We are producing and marketing standard products to a greater extent using a commodity business model. Standard products are being
separated from specialties, and the streamlined product range will be manufactured and sold at lower costs and prices. With the startup of the new ABS plant in Antwerp, Belgium, we are concentrating
our ABS offering in Europe on standard products. We want to produce fewer than ten products at our three world-scale plants. Specialties will be marketed globally in order to achieve additional growth
and better earnings with new applications and innovative products.

In
2005, we expect sales to decline slightly. Income from operations is expected to be at the previous year's level due to the continued optimization of our structures.



In 2004, sales to third parties rose by €348 million to €2,587 million (volumes 11%, prices 10%, currencies
-5%). Sales were higher in all regions.

Income
from operations improved significantly despite the substantial rise in raw materials prices. This was due mainly to the further reduction of fixed costs as well as higher sales
volumes and the resulting increase in capacity utilization to almost maximum levels.

For
intermediate products and extrusion grades in particular, higher raw materials prices were largely passed on to customers; this was only partially possible for engineering plastics
used in injection molding, however. The reduction of fixed costs is primarily due to our successful measures in North America (NAFTA). In this region, we have further improved cost structures by
divesting the fibers business, acquiring Honeywell's engineering plastics, and continuing restructuring measures.

The
successful integration of the businesses acquired from Honeywell, United States, and Ticona, United States, has strengthened our global market position in engineering plastics. As
part of this strategy, we are expanding our production capacities in the Asian growth market. We are building a production plant for PBT in Kuantan, Malaysia, as part of the joint venture with Toray,
Japan, that we founded in early 2004. To extend our capacities for compounding engineering plastics, we want to significantly expand our plant in Pasir Gudang, Malaysia, in 2005 and build a new plant
in Pudong, China, by 2006.

In
2005, we are expecting moderately higher sales and a slight improvement in income from operations on the basis of continuing strong volume demand and further fixed cost reductions.

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Sales to third parties in 2004 rose by €573 million to €3,495 million (volumes 15%, portfolio 2%, prices 8%,
currencies -5%). Sales volumes grew strongest in Asia, where we expanded production capacity, but also increased in North America (NAFTA) and in Europe.

Income
from operations increased compared with 2003 despite very high raw materials costs. This was due mainly to significantly higher sales volumes at unchanged fixed costs.

Our
capital expenditures were again focused on Asia. At our production site in Yeosu, South Korea, we increased the output of our MDI plant. This expanded facility will enable us to
achieve an even greater share of growth in the Asian markets. In Caojing, China, construction of the new production site is progressing. Working with our joint venture partners, we want to complete an
additional integrated production facility for MDI and TDI by 2006. This facility will provide the necessary starting materials for the production of specialties in Pudong, China, which is scheduled to
start in 2007.

In
2005, we are expecting a slight increase in sales and an improvement in income from operations as a result of strong growth in the global polyurethanes market as well as improved
margins resulting from higher raw materials costs being passed on to customers to some extent.

2003 Compared with 2002



Sales to third parties rose by €310 million to €8,787 million in 2003 (volumes 9%, portfolio -1%, prices
5%, currencies -9%).

Compared
with the previous year, income from operations fell by €286 million to €296 million. The Styrenics and Performance Polymers
divisions posted significantly lower income from operations; the Polyurethanes division increased its income slightly. Income from operations in this segment mainly declined due to higher raw
materials costs and the significant loss incurred in fiber intermediates.

Assets
and capital expenditures were reduced in 2003. We lowered inventories and receivables. In 2004, we will continue to reposition our plastics business. As of December 31,
2003, we acquired the nylon 6,6 business of Ticona, United States. This is part of the expansion of our engineering plastics business. The planned transfer of Styropor® production from
South Brunswick, New Jersey, to our joint venture Polioles S.A. de C.V. in Altamira, Mexico, and the expansion of capacity there will improve our cost position in styrenics.



Sales to third parties in 2003 rose by €239 million to €3,626 million (volumes 7%, prices 10%, currencies
-10%). In particular, higher sales volumes of styrene monomers contributed to the increase in sales.

Income
from operations declined significantly compared with the previous year. We significantly increased prices for polymers but were not able to pass on higher raw materials costs to
our customers to a sufficient extent. This was due mainly to excess capacity and the resulting pressure on margins.

In
2003, we continued to improve our production structures: At the end of the year, we started operations at a world-scale Styrolux® plant in Altamira, Mexico. Since the
European market is supplied entirely from the Styrolux® plant in Antwerp, we were able to shut down the Styrolux® plant in Ludwigshafen. We took the first steps toward our exit
from the polystyrene compounds business in Europe. In addition, we have decided to transfer Styropor® production at our site in South Brunswick, New Jersey, to Altamira, Mexico, where we
already operate a Styropor® plant in a joint venture.

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In 2003, sales to third parties declined slightly by €31 million to €2,239 million (volumes 5%, portfolio
-2%, prices 3%, currencies -7%).

Despite
a substantial reduction of fixed costs, income from operations was negative. The drastic rise in raw materials costs in 2003 could not be passed on to our customers to a
sufficient extent because they were affected by the weak economy. Moreover, the decline in the value of the U.S. dollar led to a lower earnings contribution from our exports to Asia out of Europe.
Income from operations was severely affected by completely unsatisfactory margins for nylon fiber intermediates, sales of which are largely to the cyclical carpet and textile industries. On the other
hand, despite weak demand for automobiles, we successfully expanded our nylon engineering plastics business, mainly through the acquisition of the injection molding and extrusion business of
Honeywell, United States, in April 2003.

Together
with our joint venture partner Toray, Japan, we plan to build a production facility for polybutylene terephthalate in Kuantan, Malaysia, to strengthen our business with
engineering plastics, particularly in Asia. Effective December 31, 2003, we acquired nylon 6,6 business of Ticona, United States.



In 2003, sales to third parties rose by €102 million to €2,922 million (volumes 15%, portfolio -1%,
currencies -10%). Sales volumes of our products increased especially in Asia and Europe.

We
increased income from operations compared with 2002 despite very high raw materials costs and persistently unsatisfactory margins. This was due primarily to higher sales volumes of
our products as well as increased productivity.

Capital
expenditures were lower than in 2002 and mainly focused on Asia. At our integrated production site in Yeosu, South Korea, we built a world-scale production plant for TDI that
operates using an improved process and which started operation in the third quarter of 2003. We have begun expanding the existing MDI facility in Yeosu, South Korea. This expanded facility will enable
us to achieve an even greater share of growth in the Asian markets. At the end of 2003, we began the construction of a new production site in Caojing, China. Working with our joint venture partners,
we want to complete an additional integrated production facility for MDI and TDI within three years.

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Performance Products

Segment Data
(Million €)

|                                                       |                               | 2004  |       | % Change
From
Previous
Year |     | 2003  |       | % Change
From
Previous
Year |      | 2002  |      
|------------------------------------------------------ | ----------------------------- | ----- | ----- | --------------------------- | --- | ----- | ----- | --------------------------- | ---- | ----- | -----
|Sales to third parties                                 |                               | 8,005 |       | 4.9                         |     | 7,633 |       | (4.8                        | )    | 8,014 |      
|                                                       | Thereof Performance Chemicals |       | 3,228 |                             | 2.6 |       | 3,147 |                             | (5.9 | )     | 3,343
|Coatings                                               |                               | 2,022 |       | 0.3                         |     | 2,015 |       | (5.7                        | )    | 2,137 |      
|Functional Polymers                                    |                               | 2,755 |       | 11.5                        |     | 2,471 |       | (2.5                        | )    | 2,534 |      
|Intersegmental transfers                               |                               | 291   |       | (3.3                        | )   | 301   |       | (7.7                        | )    | 326   |      
|Sales including intersegmental transfers               |                               | 8,296 |       | 4.6                         |     | 7,934 |       | (4.9                        | )    | 8,340 |      
|Income from operations                                 |                               | 1,068 |       | 123.4                       |     | 478   |       | (26.0                       | )    | 646   |      
|Special items                                          |                               | 278   |       |                            |     | (90   | )     |                            |      | (7    | )    
|Operating margin (%)                                   |                               | 13.3  |       | 111.1                       |     | 6.3   |       | (22.2                       | )    | 8.1   |      
|Assets                                                 |                               | 4,426 |       | (4.9                        | )   | 4,656 |       | (10.8                       | )    | 5,218 |      
|Return on operational assets (%)                       |                               | 23.5  |       | 142.3                       |     | 9.7   |       | (15.7                       | )    | 11.5  |      
|Research and development expenses                      |                               | 221   |       | (7.9                        | )   | 240   |       | 8.1                         |      | 222   |      
|Capital expenditures in tangible and intangible assets |                               | 286   |       | 21.2                        |     | 236   |       | (18.1                       | )    | 288   |      
|                                                       |                              

Performance Products segment consists of the Performance Chemicals, Coatings and Functional Polymers divisions.

2004 Compared with 2003



Thanks to strong demand for our products, sales to third parties rose by €372 million compared with 2003 to
€8,005 million (volumes 8%, prices 1%, currencies -4%). Demand was especially strong for products from the acrylic acid value-adding chain.

Income
from operations rose considerably by €590 million to €1,068 million as a result of higher capacity utilization and the reduction of
fixed costs in all divisions. Income from operations contains the gain from the sale of the printing systems business.

We
significantly reduced the segment's assets from €4,656 million in 2003 to €4,426 million as a result of the divestiture of the printing
systems business. Capital expenditures increased by €50 million to €286 million.

In
2005, we anticipate a slight rise in sales and income from operations on a comparable basis.



At €3,228 million, sales to third parties rose by €81 million in 2004 compared with the previous year (volumes 8%,
portfolio -1%, prices -1%, currencies -3%).

In
particular, performance chemicals for detergents and formulators significantly exceeded the previous year's sales.

We
improved income from operations in all product groups, in particular by lowering fixed costs. The significant increase in raw materials costs could not be passed on to our customers
in the form of price increases, and so margins declined slightly overall.

70

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The
gain from the sale of our printing systems business additionally increased earnings.

We
again significantly reduced inventories and receivables on average for the year.

In
2005, we expect that the positive sales trend will continue and that we will further improve income from operations on a comparable basis.



Sales to third parties in 2004 rose slightly by €7 million to €2,022 million (volumes 4%, portfolio 1%, prices
-2%, currencies -3%). Ignoring currency translation effects, all regions contributed to the increase in sales.

We
considerably increased income from operations compared with 2003, despite significantly higher raw materials prices and negative currency effects. All product lines contributed to
higher earnings; in particular, industrial coatings improved significantly. The restructuring measures in this area have been very successful. As part of these measures, we optimized our portfolio by
exchanging our window and exterior door coatings business for the agricultural and construction machinery paints business of Akzo Nobel, the Netherlands.

In
automobile coatings, we benefited from our increased market share in the European market. This was aided by our system supplier concept, which we use to optimize the overall costs of
coating processes for our customers. The impact of stagnation in the automobile industry was felt in North America (NAFTA).

In
refinish coatings, we posted an increase in sales and earnings. In the architectural coatings business in South America, we maintained market leadership with our Suvinil®
brand and improved earnings.

In
2005, we intend to further increase sales and income from operations. We are expanding our presence in the growth markets of Eastern Europe and China. In addition, we are
restructuring our industrial coatings business and continuing measures to increase efficiency in all regions and business units.



At €2,755 million, sales to third parties in 2004 were up €284 million and were significantly higher than in 2003
(volumes 10%, prices 6%, currencies -4%). We were able to improve sales in all regions due to higher sales volumes. Acrylic monomers were the key growth drivers, but demand was also strong
for dispersions for architectural coatings, adhesives, fiber bonding and paper finishing. Our strategy of focusing on key customers with above-average growth potential made a solid contribution to the
positive sales trend.

Income
from operations was significantly higher than in 2003. All product groups contributed to this growth operating at high capacity utilization. In addition, the restructuring
measures implemented in previous years enabled us to reduce fixed costs significantly. Higher raw materials prices could largely be passed on to customers in the form of price increases in most
product groups.

In
Nanjing, China, we continued the construction of our second Verbund site in the high-growth Asian region as planned. Production of acrylic acid and acrylic esters at this
site is scheduled to start in 2005.

As
a result of continued good volume demand, we expect sales in 2005 to remain at the previous year's level. Income from operations is likely to decline slightly due to the startup costs
for our plants at the site in Nanjing, China.

2003 Compared with 2002



Compared with 2002, sales to third parties declined €381 million to €7,633 million (volumes 2%, currencies
-7%). All divisions were affected by the decline in sales, which was primarily due to negative

71

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currency
effects and a difficult business environment in some customer industries. In addition, persistent pressure on prices reduced sales in the Performance Chemicals and Coatings divisions.

Income
from operations fell €168 million to €478 million. This was predominantly caused by the weak U.S. dollar and higher raw materials
costs, which could not be offset fully by price increases. Restructuring measures also reduced income from operations. The implementation of cost-reduction measures and our focus on more
profitable products were unable to offset the negative effects on income.

In
2003, the segment's assets fell by €562 million to €4,656 million. Capital expenditures were considerably lower than the level of
depreciation and amortization. We significantly reduced inventories and receivables.



At €3,147 million, sales to third parties were €196 million lower than in 2002 due to currency translation effects
(portfolio 1%, prices -1%, currencies -6%).

Income
from operations fell short of the previous year's strong level, both overall and in all business areas with the exception of printing systems. Demand for our products remained
generally unsatisfactory due to the difficult economic situation. Because of the decline in the value of the U.S. dollar, our exports to North America (NAFTA) and South America resulted in much lower
income in euro terms. Asian currency weakness likewise led to a decline in income from operations, even though we increased sales volumes in the region, especially for textile and leather chemicals.

In
May 2003, we acquired the medium molecular weight polyisobutylenes business  substances employed in chewing gum, adhesives, sealants and
films  from ExxonMobil Chemical, United States. Through this acquisition, we have expanded our product range and increased capacity utilization by being able to supply new
customers.

We
reduced inventories and receivables.



Sales to third parties in 2003 fell by €122 million to €2,015 million (volumes 5%, prices -2%,
currencies -9%). The negative currency effect was due to the devaluation of the U.S. dollar, South American currencies and the Japanese yen.

We
increased income from operations compared with the previous year despite the difficult economic situation and the cost of restructuring measures we have initiated, in particular for
our industrial coatings business in Europe. We improved our income from automotive coatings despite a decline in automobile production in Europe, North America (NAFTA) and Japan. We achieved this
success through effective service concepts, which enable us to optimize total coating process costs for our customers and to increase our profits. In refinish coatings, we achieved stable, adequate
margins in a stagnating market. In South America, we strengthened our market leadership in decorative paints with our Suvinil® brand.



At €2,471 million, sales to third parties in 2003 were €63 million lower than in 2002 (prices 3%, currencies
-6%). The weak U.S. dollar reduced sales in euro terms, in particular in North America (NAFTA) and in South America. In Europe, on the other hand, we posted higher sales.

Income
from operations declined compared with the previous year due primarily to unsatisfactory earnings in the first half of 2003. It was not possible to pass on higher raw material
costs quickly and to the full extent by increasing prices. Income declined in particular in our superabsorbents and paper chemicals businesses. Our market development and cost reduction efforts could
not offset the decline in income.

In
Nanjing, China, we continued the construction of our second Verbund site in the Asian growth region. Production of acrylic acid and acrylic esters at this site is scheduled to start
in 2005.

We
reduced inventories and receivables.

72

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Agricultural Products & Nutrition

The Agricultural Products & Nutrition segment comprises the Agricultural Products division and the Fine Chemicals division. For reporting
purposes each division is considered a reportable segment. The following data relate to the divisions.

Agricultural Products

Segment Data
(Million €)

|                                                       |  | 2004  |   | % Change
From
Previous
Year |   | 2003  |   | % Change
From
Previous
Year |   | 2002  |  
|------------------------------------------------------ |  | ----- | - | --------------------------- | - | ----- | - | --------------------------- | - | ----- | -
|Sales to third parties                                 |  | 3,354 |   | 5.6                         |   | 3,176 |   | 7.5                         |   | 2,954 |  
|Intersegmental transfers                               |  | 26    |   | 8.3                         |   | 24    |   | 14.3                        |   | 21    |  
|Sales including intersegmental transfers               |  | 3,380 |   | 5.6                         |   | 3,200 |   | 7.6                         |   | 2,975 |  
|Income from operations                                 |  | 492   |   | 110.3                       |   | 234   |   | 283.6                       |   | 61    |  
|Special items                                          |  | (64   | ) | (6.7                        | ) | (60   | ) | (57.9                       | ) | (38   | )
|Operating margin (%)                                   |  | 14.7  |   | 98.6                        |   | 7.4   |   | 252.4                       |   | 2.1   |  
|Assets                                                 |  | 4,849 |   | (12.2                       | ) | 5,523 |   | 8.5                         |   | 5,092 |  
|Return on operational assets (%)                       |  | 9.5   |   | 115.9                       |   | 4.4   |   | 300.0                       |   | 1.1   |  
|Research and development expenses                      |  | 273   |   | 14.2                        |   | 239   |   | (16.1                       | ) | 285   |  
|Capital expenditures in tangible and intangible assets |  | 95    |   | (91.6)                      |   | 1,133 |   |                            |   | 88    |  
|                                                       | 

2004 Compared with 2003

Sales in 2004 rose by €178 million to €3,354 million (volumes 9%, portfolio 1%, currencies -4%). The
launch of new products, increased prices for a higher-value product range and portfolio measures to focus our activities on attractive markets all contributed to the sales growth. Sales rose as a
result of fipronil insecticide and selected fungicides business acquired from Bayer CropScience in March 2003. Conversely, sales were reduced by the sale of the soil improvement products
business to Kanesho Soil Treatment, Belgium, in December 2003 and the sale of our phenoxy herbicide business to Nufarm, Australia, in March 2004. The weak U.S. dollar had a negative
effect on sales.

Higher
demand for our products positively affected business in all regions. In Europe, sales by location of company rose by 3% to €1,559 million. In North America
(NAFTA), sales increased in local currency terms, but declined by 2% to €869 million as a result of the weaker U.S. dollar. In South America, we increased sales by 36% to
€683 million with new products, despite negative currency effects. Our fungicide Opera®, which contains the active ingredient F 500®, has achieved market
leadership in South America in only two years. Operra is successfully used to combat Asian soybean rust, a fungal disease that can severely threaten soybean yields, in particular in Brazil.
Opera® also helps to increase crop yields by improving general plant health. In Asia, sales declined by 12% to €243 million because of portfolio measures and
currency effects.

We
increased income from operations by €258 million to €492 million. Positive effects on earnings resulting from higher demand 
in particular for our high-value, innovative products  outweighed negative currency effects. Special charges were primarily related to expenses for lawsuits in the United
States (see Note 25 to the Consolidated Financial Statements) and provisions for restructuring. They were partially offset by the net gain from the sale of phenoxy herbicides to Nufarm,
Australia. We surpassed our medium-term goal of an EBITDA return on sales before special items of 25% sooner than expected by achieving 27% in 2004 (see note at the end of this section).

73

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We
optimized total assets by €674 million to €4,849 million, in particular by further reducing current assets. We delivered to our customers
closer to the application period, thereby optimizing our inventory and receivables management.

We
increased research and development expenses by €34 million to €273 million. Research into active ingredients for insecticides and
fungicides has been intensified. Research spending also increased due to the reclassification of plant biotechnology expenses. As a percentage of sales, research and development expenses amounted to
8.1%, compared with 7.5% in 2003.

Our
researchers are currently working to develop six new crop protection active ingredients, on a new herbicide tolerance project and on numerous products to protect seeds with active
ingredients that have already been launched. These product innovations will be ready for market in the coming years and have a peak sales potential of €700 million. A further
seven crop protection active ingredients with a peak sales potential of €1 billion are currently being introduced to the market. Of these, F 500® and boscalid in
particular developed better than expected and in 2004 helped us achieve approximately 60% of the peak sales potential planned with the active ingredients in market launch.

In
2005, we expect sales at the previous year's level based on a normal agricultural season. We anticipate income from operations to improve in a market that continues to be intensely
competitive. The growing proportion of high-value, innovative products will likely contribute to this achievement, as will measures to optimize our operational processes.

Please note that the presentation of EBITDA before special items is not intended to replace income from operations and is not a measure of performance as
determined in accordance with generally accepted accounting principles in the United States. Special items are one-time costs or one-time payments that significantly affect the
earnings of the Agricultural Products division. In 2004, depreciation and amortization related to a plant closure in Manati, Puerto Rico was reported as a special item. Other special items include
primarily expenses for lawsuits in the United States as well as provisions for restructuring measures for several sites. They were partially offset by the net gain from the sale of phenoxy herbicides
to Nufarm, Australia.

The following table reconciles EBITDA before special items to the comparable financial measure calculated in accordance with U.S. GAAP.

|                                                        | 
|------------------------------------------------------- | 
|
|
|EBITDA before special items                             | 
|Depreciation, amortization (non special items)          | 
|Depreciation and amortization reported as special items | 
|Other special items                                     | 
|Income from operations                                  | 
|                                                        | 

2003 Compared with 2002

Sales in 2003 rose €222 million to €3,176 million (volumes 6%, portfolio 10%, prices 1%, currencies
-9%). This increase was due to the successful market introduction of our new fungicide F 500®, the products acquired in March 2003 from Bayer CropScience 
comprising the insecticide fipronil and selected fungicides  as well as the improved economic environment in South America. These influences offset negative currency effects from the
appreciation of the euro against the U.S. dollar and other currencies.

In
Europe, sales climbed 10% to €1,447 million. We achieved higher sales in local currencies in North America (NAFTA)  primarily due to the successful
launch of new products -, however, sales declined 6% to €892 million because of the stronger euro. In South America, despite negative currency effects, we increased sales 55% to
€520 million thanks to new products and an improved market environment. In Asia, sales decreased 11% to €317 million.

74

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In
2003, we improved income from operations by €173 million to €234 million. Special items of €60 million from the
integration of the business acquired from Bayer CropScience had a negative effect on income. These special items were basically related to the use of inventory stepped-up to higher market
values. Other special charges were offset by the sale of our soil improvement products business to Kanesho Soil Treatment BVBA, Belgium, for €65 million.

Assets
rose by €431 million to €5,523 million  primarily due to the acquisition of the insecticide fipronil and selected
fungicides from Bayer CropScience for €1,185 million (including inventories).

Research
and development expenses were reduced by €46 million to €239 million. We achieved this mainly by realizing synergies from the
integration of the crop protection business that we acquired in 2000 from American Home Products, United States, for example by closing research sites. As a percentage of sales, research expenses
declined to 7.5% from 9.6% in 2002. We have further strengthened our active ingredient research for insecticides and fungicides and have reduced our herbicide research activities because we see fewer
opportunities in this market.

Fine Chemicals

Segment Data
(Million €)

|                                                       |  | 2004  |   | % Change
From
Previous
Year |   | 2003  |   | % Change
From
Previous
Year |   | 2002  |  
|------------------------------------------------------ |  | ----- | - | --------------------------- | - | ----- | - | --------------------------- | - | ----- | -
|Sales to third parties                                 |  | 1,793 |   | (2.8                        | ) | 1,845 |   | (6.3                        | ) | 1,970 |  
|Intersegmental transfers                               |  | 30    |   | 50.0                        |   | 20    |   | (44.4                       | ) | 36    |  
|Sales including intersegmental transfers               |  | 1,823 |   | (2.3                        | ) | 1,865 |   | (7.0                        | ) | 2,006 |  
|Income from operations                                 |  | 48    |   | (61.6                       | ) | 125   |   |                            |   | (6    | )
|Special items                                          |  | (41   | ) | (412.5                      | ) | (8    | ) | 93.5                        |   | (124  | )
|Operating margin (%)                                   |  | 2.7   |   | (60.3                       | ) | 6.8   |   |                            |   | *     |  
|Assets                                                 |  | 1,269 |   | (2.6                        | ) | 1,303 |   | (6.4                        | ) | 1,392 |  
|Return on operational assets (%)                       |  | 3.7   |   | (60.2                       | ) | 9.3   |   |                            |   | *     |  
|Research and development expenses                      |  | 92    |   | 31.4                        |   | 70    |   | (14.6                       | ) | 82    |  
|Capital expenditures in tangible and intangible assets |  | 137   |   | (2.1                        | ) | 140   |   | (10.8                       | ) | 157   |  
|                                                       | 

2004 Compared with 2003

Sales to third parties declined by €52 million to €1,793 million in 2004 (volumes 6%, prices -4%,
currencies -4%). For many products, we experienced further volume growth as prices declined, in part as a result of currency effects. The human nutrition business was affected by
significant declines in sales of water-soluble vitamins, mainly due to a fall in prices for vitamin C and the exit from unprofitable businesses. The pharmaceutical solutions product lines all
performed well, as did UV absorbers, aroma chemicals and organic acids. In the animal nutrition business, lysine prices and sales increased on average over the course of the year even though they have
declined significantly recently; the prices of most vitamins fell in euro terms.

Income
from operations was impacted by the weakness of the U.S. dollar and declining prices, which we were able to offset partially by reducing our fixed costs. Moreover, earnings were
affected by the reclassification of certain research costs for plant biotechnology. Please see Note 4 of Item 18 for more information.

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Following
the dissolution of our long-term cooperation with DSM, the Netherlands, we are pursuing business with the feed enzyme phytase independently. We plan to complete a
production plant for this enzyme in Ludwigshafen in 2005.

Compared
with 2003, we reduced the assets of the Fine Chemicals division by €34 million in 2004 to €1,269 million. We reduced inventories
and receivables as scheduled. Tangible assets grew as the result of capacity expansion for vitamin E and new plants for vitamin B2 and citral.

In
2005, we expect a slight decline in sales and a moderate increase in income from operations.

2003 Compared with 2002

Sales to third parties fell €125 million to €1,845 million in 2003 (volumes 3%, currencies -9%). We
increased sales of products for animal nutrition (lysine, carotenoids and organic acids) and of water-soluble vitamins for human nutrition, especially vitamin C. Sales of fat-soluble
vitamins for animal and human nutrition declined. We achieved higher sales of cosmetic raw materials, while North American (NAFTA) sales to the pharmaceuticals industry decreased because of the weak
U.S. dollar. In Asia, we were able to increase sales slightly despite negative currency effects.

Income
from operations improved €131 million to €125 million due to a lower level of special charges, which declined from
€124 million in 2002 to €8 million in 2003. Higher sales volumes, higher sales prices for lysine and vitamin C, and cost savings from rationalizations in
vitamin production and the restructuring of our business in North America (NAFTA) also had a positive effect on income from operations.

Following
the dissolution of our long-term cooperation with DSM N.V., the Netherlands, we will pursue business with the feed enzyme phytase independently in the future and
plan to build a production plant for this enzyme.

In
2003, the assets of the Fine Chemicals division declined €89 million to €1,303 million. We reduced inventories and receivables.
Amortization of intangible assets continued as planned. Tangible assets grew as a result of capacity expansion for vitamin E and new plants for vitamin B2 and citral.

Oil & Gas

Segment Data
(Million €)

|                                                       |                             | 2004  |       | % Change
From
Previous
Year |      | 2003  |       | % Change
From
Previous
Year |      | 2002 
|------------------------------------------------------ | --------------------------- | ----- | ----- | --------------------------- | ---- | ----- | ----- | --------------------------- | ---- | -----
|Sales to third parties                                 |                             | 5,263 |       | 9.9                         |      | 4,791 |       | 14.1                        |      | 4,199
|                                                       | Thereof natural gas trading |       | 2,781 |                             | 5.9  |       | 2,627 |                             | 20.9 |      
|Intersegmental transfers                               |                             | 546   |       | 9.6                         |      | 498   |       | 37.2                        |      | 363  
|Sales including intersegmental transfers               |                             | 5,809 |       | 9.8                         |      | 5,289 |       | 15.9                        |      | 4,562
|Royalties                                              |                             | 243   |       | (3.2                        | )    | 251   |       | 19.5                        |      | 210  
|Sales incl. intersegmental transfers, less royalties   |                             | 5,566 |       | 10.5                        |      | 5,038 |       | 15.8                        |      | 4,352
|Income from operations*                                |                             | 1,637 |       | 19.9                        |      | 1,365 |       | 12.8                        |      | 1,210
|                                                       | Thereof natural gas trading |       | 342   |                             | 10.0 |       | 311   |                             | 3.3  |      
|Special items                                          |                             | (10   | )     |                            |      | 0     |       |                            |      | 0    
|Operating margin (%)                                   |                             | 31.1  |       | 9.1                         |      | 28.5  |       | (1.0                        | )    | 28.8 
|Assets                                                 |                             | 3,876 |       | 4.4                         |      | 3,711 |       | 1.7                         |      | 3,648
|Return on operational assets (%)                       |                             | 43.2  |       | 16.4                        |      | 37.1  |       | 4.2                         |      | 35.6 
|Research and development expenses                      |                             | 198   |       | 61.0                        |      | 123   |       | 8.8                         |      | 113  
|Capital expenditures in tangible and intangible assets |                             | 374   |       | 15.8                        |      | 323   |       | (64.9                       | )    | 920  
|                                                      

76

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2004 Compared with 2003

Sales to third parties in 2004 rose by €472 million to €5,263 million (volumes 7%, prices 6%, currencies
-4%). The considerable rise in crude oil prices and the renewed expansion of business activities more than offset the negative effects of the further decline of the U.S. dollar against the
euro.

In
2004, sales to third parties in our natural gas trading business sector rose €154 million to €2,781 million as a result of increased
volumes. Gas volume sales from all gas trading companies increased 6.1% to 304.1 billion kilowatt-hours. On a consolidated basis, gas sales volumes rose from 189.4 billion kilowatt-hours
in 2003 to 210.2 billion kilowatt-hours in 2004. Sales by WINGAS (BASF share: 65%) on the domestic market again grew much
faster than the market. We have successfully expanded our foreign business, in particular in Belgium and the United Kingdom.

In
the exploration and production business sector, sales to third parties increased by €318 million to €2,482 million. The average price of
crude oil (Brent) rose compared with the previous year by $9/barrel to $38/barrel. Because of the weak U.S. dollar, the price of oil on a euro basis rose by only €5/barrel to
€31/barrel. Crude oil and natural gas production rose by 4.2% to 109 million barrels of oil equivalent. This was mainly due to the increase in natural gas volumes in the
Netherlands and Argentina. Crude oil production remained slightly below the level achieved in 2003.

Income
from operations climbed €272 million to €1,637 million. Income from operations from natural gas trading, which is included in this
amount, rose by €31 million to €342 million due to higher volumes. Earnings were negatively impacted by declining margins.

In
the exploration and production business sector, income from operations increased by €241 million to €1,295 million in 2004, mainly as a
result of higher prices. Income taxes on oil production in North Africa and the Middle East that are noncompensable with German corporate income tax in the amount of
€668 million (2003: €505 million) are not deducted from income from operations but are reported as income taxes (see Note 8 to the Consolidated
Financial Statements).

Assets
in the Oil & Gas segment rose €165 million to €3,876 million. Additions to tangible assets mainly involved exploration and
production for projects in the Netherlands, Libya, Germany and Argentina. The search for new reserves continued intensively. In 2004, 10 of 24 exploratory and expansion holes were successfully
completed.

At
68 million metric tons, proved reserves of crude oil at the end of 2004 were 11% below the volumes at the same time in 2003. The reserve-to-production
ratio was eight years, compared with nine years in 2003. Proved natural gas reserves declined slightly by 2% to 66 billion cubic meters. Due to higher production, the
reserve-to-production ratio declined by one year to 10 years.

The
Achimgaz joint venture with Gazprom was founded to produce natural gas and condensate from the Achimov deposit of the Urengoy gas field in western Siberia. In 2004, the foundations
were laid for the start of the project in 2005. The goal of this first phase is to confirm the feasibility of developing the natural gas and condensate deposit. The development of the entire field is
scheduled to begin in 2008. At the end of 2004, we signed an agreement with Gazexport, a subsidiary of Gazprom, to extend the long-term gas supply agreements until 2030 ahead of schedule.
At the same time, WINGAS signed a long-term supply agreement to supply natural gas until 2019 with Eni,
Italy. Furthermore, WINGAS acquired the largest onshore natural gas field in the United Kingdom, Saltfleetby, which will be used in the future for natural gas storage.

In
2005, we expect average prices for crude oil to decline compared with 2004, but to remain well above the long-term average. As a result of the planned expansion of crude
oil and natural gas production and a further increase in volumes in the natural gas trading business, we anticipate that the Oil & Gas segment will again make an important contribution to BASF
Group's sales and income from operations in 2005. Earnings, however, are not expected to reach the high level seen in 2004 due to lower oil prices in euros.

77

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2003 Compared with 2002

Sales to third parties rose €592 million in 2003 to €4,791 million (volumes 13%, portfolio 2%, currencies
-1%). The significant increase in sales volumes and higher prices for crude oil more than offset the negative effects of the weaker U.S. dollar.

In
2003, sales to third parties in our natural gas trading business rose €454 million compared with the previous year to €2,627 million due
mainly to increased volumes. Gas sales volumes from all gas trading companies increased by 20.1% to 286.5 billion kilowatt-hours. On a consolidated basis, gas sales volumes rose to
189.4 billion kilowatt-hours from 153.4 billion in 2002. WINGAS GmbH (BASF share: 65%) again posted growth in Germany that exceeded the market average. Substantial increases were also
achieved in Belgium and Great Britain.

In
the future, we plan to expand these activities in cooperation with OAO Gazprom, Russian Federation. Over the medium term, the importance of Russian natural gas for Central and Western
Europe will continue to increase because of declining production volumes from the North Sea and projected higher natural gas consumption. We founded subsidiaries in Belgium in 2003 to strengthen our
Western European activities, and plan to create a gas marketing company in Great Britain in 2004 together with Norsk Hydro ASA, Norway.

Exploration
and production increased sales to third parties by €138 million compared with 2002 to €2,164 million in 2003. The average price
of crude oil (Brent) rose compared with the previous year by $4/barrel to $29/barrel. As a result of the severe weakening of the U.S. dollar against the euro, the price of oil on a euro basis fell by
about 3%. We expanded our crude oil and natural gas production by 11.6% to 104 million barrels of oil equivalent. This includes 5.4 million barrels from Clyde Netherlands B.V., the
Netherlands, which we acquired in November 2002 and which was included for the full year for the first time in 2003. We began operating three new fields in the
Netherlands and North Africa and expanded production in North Africa following the withdrawal of OPEC production limits. In July 2003, we founded the Achimgaz joint venture with Gazprom. This
company will produce natural gas and condensate from the Achimov horizon of the Urengoy field in western Siberia and plans to spend a total of up to $700 million on the project. This will
expand our long-standing and established partnership with Gazprom for natural gas trading into exploration and production activities. In October 2003, we acquired a 70% interest in
the exploration company OOO Megatron N.V.K., Russian Federation, which owns a block with very promising geological structures in the Caspian region of Russia.

Income
from operations improved by €155 million to €1,365 million in 2003. At €311 million, natural gas trading again
reached the strong level of the year 2002, which benefited from unusually good margins, in particular in the first few months of the year. In exploration and production, the expansion of oil and gas
production resulted in an increase income of €145 million to €1,054 million in 2003. Income taxes on oil production in North Africa and the Middle East
are not deducted from income from operations, but are reported as income taxes (see Note 8 to the Consolidated Financial Statements).

Assets
in the Oil & Gas segment rose €63 million to €3,711 million compared with 2002 due to the continued expansion of our business.
Additions to tangible assets mainly involved exploration and production for projects in North Africa, the Netherlands, Argentina and Germany. Exploration activities were conducted at the previous
level and were successful at seven of 17 exploratory and expansion holes in 2003.

In
2003, proved reserves of crude oil remained constant at 76 million metric tons. Due to higher production of crude oil, the reserve-to-production ratio
declined to nine years compared with 10 years in 2002. Proved reserves of natural gas increased 2% in 2003 to 65 billion cubic meters. Due to higher production of natural gas, the
reserve-to-production ratio declined from 12 years in 2002 to 11 years in 2003.

78

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LIQUIDITY AND CAPITAL RESOURCES

The following table sets forth the summarized cash flows of BASF in each of the last three fiscal years:

|                                                  | 
|------------------------------------------------- | 
|
|
|Net income                                        | 
|Depreciation of fixed assets                      | 
|Changes in net current assets                     | 
|Miscellaneous items                               | 
|                                                  | 
|Cash provided by operating activities             | 
|                                                  | 
|Additions to tangible and intangible fixed assets | 
|Acquisitions and divestitures, net                | 
|Financial investments and other items             | 
|                                                  | 
|Cash provided by investing activities             | 
|                                                  | 
|Proceeds from capital increases                   | 
|Changes in financial indebtedness                 | 
|Dividends paid                                    | 
|                                                  | 
|Cash provided by financing activities             | 
|                                                  | 
|Changes in cash assets affecting liquidity        | 
|Initial cash assets and other changes             | 
|                                                  | 
|Cash and cash equivalents at year end             | 
|                                                  | 
|Marketable securities                             | 
|Liquid funds                                      | 
|                                                  | 

2004 Compared with 2003



In 2004, cash provided by operating activities was again high at €4,511 million. This was due primarily to the increase in earnings.
Despite the considerable expansion in business, it was possible to maintain net working capital at a low level. In 2003, substantial funds were released, mainly through inventory reductions and
shortened payment terms. "Miscellaneous items" primarily reflects the reclassification of gains from divestitures, which are included as part of cash inflows in cash used in investing activities.



Cash used in investing activities amounted to €(1,110) million. The significant decline was due primarily to cash inflows from portfolio measures,
whereas in the previous year there was a cash outflow for the acquisition of the fipronil business.

We
spent €1,934 million on additions to tangible and intangible assets. We again reduced spending compared with the previous year, bringing it significantly below
the level of depreciation and amortization.

Expenditures
for acquisitions totaled €104 million, and proceeds from divestitures amounted to €674 million. Important transactions included
the acquisition of the plasticizer business from Sunoco, United States. Cash inflows from divestitures were mainly related to the sale of the printing systems business.

79

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Changes
in financial assets, marketable securities and financial receivables resulted in an outflow of €204 million. The sale and disposal of fixed assets and
securities from current assets generated proceeds of €458 million.

On
a regional basis, capital expenditures on tangible and intangible fixed assets were as follows:

|                          
|--------------------------
|
|Europe                    
|North America (NAFTA)     
|South America             
|Asia, Pacific Area, Africa
|Total                     
|                          

In theChemicals segment, investments and acquisitions in 2004 rose by 5.3% compared with 2003 to
€555 million. Major projects included:



In
thePlastics segment, we spent €454 million on capital expenditures and acquisitions in 2004. This was a decline
of 15.8% compared with the previous year. Among the important projects were:



In
thePerformance Products segment, investments increased by 21.2% in 2004 to €286 million. The most important
investment project was the construction of plants for acrylic acid and acrylates at the new Verbund site in Nanjing, China.

In
theAgricultural Products and Nutrition segment, we spent €232 million on capital expenditures and acquisitions
in 2004 compared with €1,273 million in 2003. Acquisitions in 2003 primarily included the purchase of the fungicide fipronil and selected fungicides from Bayer CropScience.

The
Agricultural Products division invested €95 million, mainly in optimization measures at various sites.

The
Fine Chemicals division spent €137 million on capital expenditures in 2004. Major projects included:



80

---





In
theOil & Gas segment, we invested €374 million in 2004 compared with
€323 million in 2003. Most capital expenditures were in the exploration and production business sector. Key projects were:





Cash used in financing activities was €1,836 million in 2004. We spent a total of €726 million to buy back
16.2 million shares at an average price of €44.79 per share.

We
paid out €852 million in dividends and profit transfers in 2004. Of this amount, €774 million, or €1.40 per share, was
for dividend payments to shareholders of BASF Aktiengesellschaft for fiscal year 2003. €78 million in profits was paid or transferred to shareholders of fully or proportionately
consolidated companies.

Financial
indebtedness declined compared with 2003 and amounted to €3,303 million. At €1,054 million, net debt was significantly lower
because of the increase in liquid assets. Financial indebtedness is discussed in detail in Note 23 to the Consolidated Financial Statements in Item 18.



Liquid funds at the end of 2004 increased significantly to €2,249 million. Their proportion of total assets increased to 6.6%.



In 2005, we are planning capital expenditures of €1.7 billion. Of this amount, 57% is scheduled to be invested in Europe, 14% in North
America (NAFTA), 4% in South America and 25% in the Asia, Pacific Area, Africa region. Major projects are as follows:



81

---









2003 Compared with 2002



In 2003, cash provided by operating activities was €2,565 million higher than in 2002, despite significantly lower net income. This was due
to cash released from current assets because we significantly reduced inventories and reduced payment terms. In addition, there was an increase in expenses that did not lead to cash outflows, such as
depreciation and amortization and additions to provisions. By contrast, in 2002, provisions were reduced through payments and contributions were made to pension funds in the United States.



We spent €2,071 million on additions to tangible and intangible assets. As planned, we reduced them compared with 2002, bringing them
significantly below the level of amortization and depreciation on tangible and intangible fixed assets.

Expenditures
for acquisitions totaled €1,480 million. Proceeds from divestures amounted to €86 million. In particular, acquisitions involved
the acquisition of the fipronil business from Bayer CropScience and the purchase of Honeywell's engineering plastics business.

We
spent €191 million on financial assets, marketable securities and financial receivables. The sale and disposal of fixed assets and securities of current assets
generated proceeds of €396 million. Cash used in investing activities amounted to €3,260 million.

On
a regional basis, capital expenditures on tangible and intangible fixed assets were as follows:

|                          
|--------------------------
|
|Europe                    
|North America (NAFTA)     
|South America             
|Asia, Pacific Area, Africa
|Total                     
|                          

82

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In theChemicals segment,capital expenditures and acquisitions increased 6.5% compared with the
previous year to €527 million in 2003. Major projects included:



In
thePlastics segment,capital expenditures and acquisitions in 2003 totaled €539 million. This was a decline of
15.3% compared with the previous year. The largest projects were as follows:



In
thePerformance Products segment,capital expenditures and acquisitions in 2003 declined 18.1% to €236 million.
The most important investment projects were as follows:



In
theAgricultural Products & Nutrition segment, we spent €1,273 million on capital expenditures and
acquisitions in 2003 compared with €245 million in 2002. Mayor projects incuded:



In
theOil & Gas segment,we invested €323 million in 2003. The majority of the investments were made in
exploration and production. Key projects were:



Cash used in financing activities in 2003 was €1,359 million. We bought back 13.7 million shares for
€500 million at an average price of €36.55 per share.

We
paid out a total of €857 million in dividends and profit transfers in 2003. Dividend payments to shareholders of BASF Aktiengesellschaft for fiscal year 2002
totaled €789 million or €1.40 per share.

83

---



€68 million
in profits was paid or transferred to shareholders of fully or proportionally consolidated companies.

Financial
indebtedness decreased to €3,507 million due to currency translation effects. We issued a €1 billion Euro Benchmark Bond maturing
in 2010, taking advantage of the favorable capital market situation to refinance a portion of our short-term debt. Financial indebtedness is discussed in detail in Note 23 to the
Consolidated Financial Statements of Item 18.



Total liquid funds at the end of 2003 amounted to €628 million, or 1.9% in terms of total assets.



In 2004, BASF is planning capital expenditures of €1.9 billion, e.g., below the level of depreciation. Of this amount, 57% is scheduled to
be invested in Europe; 10% in North America (NAFTA); 4% in South America; and 29% in the Asia, Pacific Area, Africa region. Major projects by segment include:









84

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EXCHANGE RATE EXPOSURE AND RISK MANAGEMENT

BASF conducts its business in many currencies other than the euro. About 56% of BASF's 2004 sales, 57% of 2003 sales and 55% of 2002 sales were to
customers in Europe, about 44% of 2004 sales, 43% of 2003 sales and 45% of 2002 sales were to customers outside Europe. Moreover, about 40% of BASF's 2004 sales, 39% of BASF's 2003 sales and 41% of
2002 sales were attributable to BASF operations conducted outside Europe.

As
a result of BASF's foreign currency exposure, exchange rate fluctuations have a significant impact in the form of both translation risk and transaction risk on BASF's Consolidated
Financial Statements. Translation risk is the risk that BASF's Consolidated Financial Statements expressed in euros for a particular period or as of a certain date may be affected by changes in the
prevailing rates of the various currencies of the reporting subsidiaries against the euro. Transaction risk arises when the currency structure of BASF's costs and liabilities deviates to some extent
from the currency structure of BASF's sales proceeds and assets.

The
effect of exchange rate fluctuations on BASF's income from operations for 2004, 2003 and 2002 is shown in BASF's Consolidated Financial Statements under the line items "Other
operating income" and "Other operating expense." See Notes 5 and 6 to the Consolidated Financial Statements for further information. The net effect of exchange rate fluctuations on BASF's income from
operations amounted to a net loss of €18.8 million in 2004, a net loss of €31.5 million in 2003 and a net loss of €132.5 million in
2002. The variance between 2003 and 2002 was primarily due to the weakening of the U.S. dollar and of currencies dependent on the U.S. dollar in Asia, South America and, in particular, in the NAFTA
region.

In
2004, foreign currency translation adjustments had a negative effect of €153.5 million on stockholders' equity primarily due to the weakening of the U.S. dollar
and of currencies dependent on the U.S. dollar in Asia, South America and, in particular, in the NAFTA region. In addition, a change in the functional currency from the euro to the U.S. dollar for two
of BASF's Asian subsidiaries resulted in a €99.4 million reduction in the translation adjustment. In 2003, foreign currency translation adjustments had a negative effect of
€642.2 million on stockholders' equity also primarily due to the weakening of the U.S. dollar and of currencies dependent on the U.S. dollar in Asia, South America and, in
particular, in the NAFTA region. In 2002, foreign currency translation adjustments had a negative effect of €862.0 million on stockholders' equity due to the weakening of the
U.S. dollar and the devaluation of the Brazilian real.

Exchange
rate risk management is centralized at BASF Aktiengesellschaft. BASF bases its foreign exchange risk management generally on exposures derived from receivables and payables on
the balance sheet. Future sales revenues or expenses are only considered if such transactions have a high probability of occurrence. Receivables and payables in a particular currency are netted.
Normally at BASF, receivables generated from export sales exceed payables from raw material purchases resulting
in substantial net exposures in U.S. dollar and relatively small exposures in the British pound and the Japanese yen.

To
mitigate the impact of currency exchange rate fluctuations, the exposure to currency risk is assessed on a daily basis. BASF applies a selective hedging strategy 
a varying portion of the exposure in each currency is hedged, based on forecasts of the exchange rate development versus the euro.

In
2004, BASF's hedging transactions have been aimed primarily at minimizing exchange rate risks against the U.S. dollar, the Canadian dollar, the Australian dollar, the British pound,
the Mexican peso, the Japanese yen, the Korean won and the Brazilian real. See "Item 11. Quantitative and Qualitative Disclosure About Market Risk" and Note 27 to the Consolidated Financial
Statements for further information.

85

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RESEARCH AND DEVELOPMENT

BASF's research and development activities aim to develop new and improved products, find new applications for existing products and develop more
cost-efficient and environmentally sound manufacturing processes.

BASF
spent €1,173 million on research and development activities in 2004 compared with €1,105 million in 2003 and
€1,135 million in 2002. Of the total R&D expenditures the Chemical segment spent 8.9%, Plastics 11.8%, Performance Products 18.8%, Agricultural Products 23.3%, Fine Chemicals
7.8%, Oil & Gas 16.9%, and Others 12.5%. Excluding Oil and Gas, BASF spent 87% of its annual research budget in Germany, 6% in other European countries, 6% in North America and 1% in Asia and
South America.

BASF
employs about 7,000 people worldwide in various research and development activities. About 5,000 employees are involved in research and development work in Ludwigshafen, making the
facility one of the world's largest research centers in the chemical industry.

The
center in Ludwigshafen, and a number of decentralized research and development sites worldwide, form an efficient network that makes an important contribution to BASF's Verbund
approach to
integration. BASF has three main research and development platforms in Ludwigshafen that support the company's global activities. In addition, BASF conducts research activities through almost 1,200
cooperative agreements with universities, research institutes and industrial partners in many countries worldwide and through various research joint ventures. Product and market-related development
worldwide is conducted in close cooperation with customers and joint-venture partners.

The
biggest share of BASF's research spending is devoted to the area of agriculture and nutrition. The Limburgerhof Agricultural Center in Germany and the research center in Research
Triangle Park (RTP) in Raleigh, North Carolina, develop agricultural products using our network of experimental and research stations around the world. BASF conducts its own plant biotechnology
research and is also involved in various biotechnology research joint ventures. The activities are concentrated in BASF Plant Science GmbH, which currently employs about 400 people worldwide.

In
April 2001, BASF Future Business GmbH, a 100% subsidiary of BASF Aktiengesellschaft, was founded with the goal of developing specific new business areas more quickly together
with partners both inside and outside the BASF Group. Additionally BASF Venture Capital GmbH, a wholly owned subsidiary of BASF Future Business GmbH, was established in April 2001. Both
companies focus on high-growth markets and future challenges, especially in the field of material sciences.

BASF
puts great emphasis on obtaining patents, trademarks, copyrights and designs to protect its investment in research and development and the developed intellectual property. The
company seeks the optimum protection for significant product and process developments.

86

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COMMITMENTS

Off-Balance Sheet Arrangements

Our unconsolidated entities are not considered variable interest entities and do not constitute other off-balance sheet arrangements.

Contractual Obligations and Commercial Commitments

The table below summarizes BASF's contractual and commercial obligations as of December 31, 2004.

|Contractual Obligations                                           |  | Total    |  | Under One Year |  | One Year To
Less Than Five Years |  | After Five
Years
|----------------------------------------------------------------- |  | -------- |  | -------------- |  | -------------------------------- |  | ----------------
|
|Financial debt                                                    |  | 3,303.3  |  | 1,452.2        |  | 94.1                             |  | 1,757.0         
|Miscellaneous liabilities                                         |  | 2,167.4  |  | 1,474.9        |  | 234.7                            |  | 457.8           
|Commitments from long-term rental and operating leasing contracts |  | 812.4    |  | 171.0          |  | 367.7                            |  | 273.7           
|Purchase commitments for raw materials and natural gas            |  | 49,324.0 |  | 7,447.0        |  | 12,585.0                         |  | 29,292.0        
|Total                                                             |  | 55,607.1 |  | 10,545.1       |  | 13,281.5                         |  | 31,780.5        
|                                                                 

"Contractual
obligations" are obligations to make payments or transfer assets under existing contracts. "Financial debt" comprises future principal and interest payments that we need to
make to settle our financial liabilities with original maturities of more than one year. This includes primarily bonds, liabilities to credit institutions and commercial papers. See also
Note 23 to our Consolidated Financial Statements. "Miscellaneous liabilities" comprise advances received on accounts of orders, non-trade liabilities of our joint ventures to
partners, tax, social security and payroll liabilities as well as various other items as set forth in Note 23 to the Consolidated Financial Statements. "Commitments from long-term
rental and leasing contracts" encompass the total minimum undiscounted future payments for leasing and other long-term rental contracts. "Purchase commitments for raw materials and natural
gas" contain obligations from the respective long-term purchase contracts.

Additionally,
remaining costs of construction in progress include obligations arising from future investments in property, plant and equipment. They amount to
€1,700.7 million as of December 31, 2004. Purchase commitments thereof amount to €378.6 million. Furthermore, there are obligations resulting from
capital contribution in the amount of €15.9 million as of December 31, 2004.

Please
see Note 21 of Item 18 for further information regarding pension commitments.

87

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Item 6.    Directors, Senior Management and Employees

In
accordance with the German Stock Corporation Act (Aktiengesetz), BASF Aktiengesellschaft has a Board of Executive Directors
(Vorstand) and a Supervisory Board (Aufsichtsrat). The two Boards are separate, and no individual is
simultaneously a member of both Boards.

The
Board of Executive Directors is responsible for managing the business of BASF Aktiengesellschaft in accordance with the German Stock Corporation Act and BASF Aktiengesellschaft's
Articles of Association. The Board of Executive Directors also represents the company in its dealings with third parties and in court.

The
principal function of the Supervisory Board is to appoint and supervise the Board of Executive Directors. The Supervisory Board may not make management decisions, but BASF's Articles
of Association or the Supervisory Board itself may require the prior consent of the Supervisory Board for certain types of transactions.

Members
of both the Board of Executive Directors and the Supervisory Board owe a duty of loyalty and care to BASF Aktiengesellschaft. In exercising these duties, the applicable standard
of care is that of a diligent and prudent business person. Members of both Boards must take into account a broad range of considerations when making decisions, foremost the interests of BASF
Aktiengesellschaft, including its shareholders, employees and creditors and, to a certain extent, the interests of society. The members of the Board of Executive Directors and the Supervisory Board
are personally liable to BASF Aktiengesellschaft for breaches of their duties of loyalty and care.

BOARD OF EXECUTIVE DIRECTORS

The number of members of the Board of Executive Directors is determined by the Supervisory Board, subject to a minimum of two members. As of
December 31, 2004, BASF Aktiengesellschaft's Board of Executive Directors had eight members.

Pursuant
to the Memorandum and Articles of Association of BASF Aktiengesellschaft, any two members of the Board of Executive Directors or one member and the holder of a special power of
attorney (Prokura) may bind the company.

The
Board of Executive Directors must report regularly to the Supervisory Board on the current business of BASF Aktiengesellschaft, on the company's business policies and other
fundamental matters regarding the future conduct of the company's business, on the company's profitability, particularly on its return on equity, on the risk exposure of the company and the risk
management, as well as on any exceptional matters that may arise from time to time. The Supervisory Board is also entitled to request special reports at any time.

The
Supervisory Board appoints members to the Board of Executive Directors for a maximum term of five years. Members of the Board of Executive Directors may be re-appointed
or have their terms extended for one or more terms of no more than five years.

Under
certain circumstances, such as a serious breach of duty or a bona fide vote of no confidence by a majority of votes at a shareholders' meeting, a member of the Board of Executive
Directors may be removed by the Supervisory Board prior to the expiration of her or his term. A member of the Board of Executive Directors may not deal with or vote on matters relating to proposals,
arrangements or contracts between that member and the company.

The
Articles of Association of BASF Aktiengesellschaft require decisions of the Board of Executive Directors to be made by a simple majority unless the law requires a larger majority. In
case of a tie, the vote of the chairman of the Board is decisive.

88

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The
following table lists the current members of the Board of Executive Directors, their ages as of December 31, 2004, the years in which they were first appointed to the Board
and in which their running term ends and their outside directorships:

Dr. Jürgen Hambrecht

|Age: 58 |  | First year appointed: 1997 |  | Year term expires: 2007
|------- |  | -------------------------- |  | -----------------------

|    
|----
|
|1976
|    
|1985
|    
|1990
|    
|1995
|    
|1997
|    
|2002
|    

Position & Main Areas of Responsibility

Chairman of the Board of Executive Directors  Legal, Taxes & Insurance, Planning & Controlling, Corporate Communications,
Investor Relations, Executive Management & Development.

Memberships on Supervisory Boards

Bilfinger Berger AG, Mannheim, Germany

Eggert Voscherau

|Age: 61 |  | First year appointed: 1996 |  | Year term expires: 2006
|------- |  | -------------------------- |  | -----------------------

|    
|----
|
|1969
|    
|1981
|    
|1984
|    
|1987
|    
|1991
|    
|1996
|    
|1997
|    
|2002
|    

89

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Position & Main Areas of Responsibility:

Vice Chairman of the Board of Executive Directors and Industrial Relations Director  Human Resources and Environment, Safety & Energy,
Occupational Medicine & Health Protection, Ludwigshafen Verbund Site, Antwerp Verbund Site, BASF Schwarzheide GmbH, Europe.

Memberships on Supervisory Boards

Haftpflichtverband der Deutschen Industrie VVaG, Hannover, Germany (German Industry Liability Association)

Talanx
AG, Hannover, Germany

Basell
N.V., Hoofddorp, the Netherlands

Dr. Kurt Bock

|Age: 46 |  | First year appointed: 2003 |  | Year term expires: 2007
|------- |  | -------------------------- |  | -----------------------

|    
|----
|
|1985
|    
|1987
|    
|1991
|    
|1992
|    
|1994
|    
|1996
|    
|1998
|    
|2000
|    
|2002
|    

Position & Main Areas of Responsibility

Executive Director and Chief Financial Officer  Finance, Global Procurement & Logistics, Information Services, Corporate Audit, South America.

Memberships on Supervisory Boards

Basell N.V., Hoofddorp, the Netherlands

90

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Dr. John Feldmann

|Age: 55 |  | First year appointed: 2000 |  | Year term expires: 2009
|------- |  | -------------------------- |  | -----------------------

|    
|----
|
|1988
|    
|1990
|    
|1993
|    
|1996
|    
|1999
|    
|2000
|    

Position & Main Areas of Responsibility

Executive Director  Styrenics, Performance Polymers, Polyurethanes, Oil & Gas, Polymer Research.

Memberships on Supervisory Boards

Basell N.V., Hoofddorp, the Netherlands

Dr. Andreas Kreimeyer

|Age: 49 |  | First year appointed: 2003 |  | Year term expires: 2007
|------- |  | -------------------------- |  | -----------------------

|    
|----
|
|1986
|    
|1989
|    
|1991
|    
|1993
|    
|1995
|    
|1998
|    
|2000
|    
|2003
|    

Position & Main Areas of Responsibility

Executive Director  Performance Chemicals, Functional Polymers, Asia.

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Klaus Peter Löbbe

|Age: 58 |  | First year appointed: 2002 |  | Year term expires: 2006
|------- |  | -------------------------- |  | -----------------------

|    
|----
|
|1966
|    
|1975
|    
|1987
|    
|1990
|    
|1993
|    
|1996
|    
|2002
|    

Position & Main Areas of Responsibility

Executive Director  Coatings, NAFTA.

Dr. Stefan Marcinowski

|Age: 51 |  | First year appointed: 1997 |  | Year term expires: 2007
|------- |  | -------------------------- |  | -----------------------

|    
|----
|
|1979
|    
|1986
|    
|1988
|    
|1992
|    
|1995
|    
|1997
|    

Position & Main Areas of Responsibility

Executive Director and Research Executive Director  Inorganics, Petrochemicals, Intermediates, Chemical Research & Engineering, Corporate
Engineering, University Relations & Research Planning, BASF Future Business GmbH.

92

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Peter Oakley

|Age: 51 |  | First year appointed: 1998 |  | Year term expires: 2008
|------- |  | -------------------------- |  | -----------------------

|    
|----
|
|1977
|    
|1980
|    
|1984
|    
|1991
|    
|1995
|    
|1998
|    

Position & Main Areas of Responsibility:

Executive Director  Agricultural Products, Fine Chemicals, Specialty Chemicals Research, BASF Plant Science GmbH.

SUPERVISORY BOARD

The Supervisory Board consists of 20 members, 10 of whom are elected by shareholders at BASF Aktiengesellschaft's Annual Meeting and 10 of whom
are elected by employees as required by the German Codetermination Act (Mitbestimmungsgesetz). Any Supervisory Board member elected by the shareholders
at BASF Aktiengesellschaft's Annual Meeting may be removed by a majority of the votes cast at a subsequent meeting of shareholders. Any Board member elected by the employees may be removed by
three-quarters of the votes cast by the class of employees that the member represents.

Except
for Hans Dieter Pötsch, all current shareholder representatives on the Supervisory Board were elected at the Annual Shareholders Meeting on May 6, 2003. Hans
Dieter Pötsch was appointed by the
district court of Ludwigshafen with effect as of March 2, 2004, as successor of Helmut Werner who passed away on February 6, 2004. The members of the Supervisory Board representing the
Company's employees were elected on February 25, 2003, except for Ralf Sikorski who was appointed by the district court of Ludwigshafen on August 7, 2003, as a replacement for Gerhard
Zibell. Michael Vassiliadis became member of the Supervisory Board on August 1, 2004, after Jürgen Walter had resigned from his membership in the Supervisory Board with effect as
of July 31, 2004. Michael Vassiliadis had already been elected by the Company's employees on February 25, 2003, as substitute for Jürgen Walter.

The
Supervisory Board appoints a chairman and a deputy chairman from among its members. The chairman of the Supervisory Board must be elected by a majority of two-thirds of
the Board members. If a majority is not reached in the first vote, the members of the Supervisory Board, who were elected by the shareholders, elect the chairman.

At
least half of the total required number of members of the Supervisory Board must be present or participate in decision-making to constitute a quorum. Unless otherwise provided for by
law or BASF Aktiengesellschaft's Articles of Association, resolutions are passed by a simple majority of the votes cast. In the event of a tie, a second vote is held, and the chairman may cast a
deciding vote.

Supervisory
Board members are elected to terms of approximately five years. The terms expire at the end of the Annual Meeting after the fourth fiscal year following the year in which the
members were elected. The current terms of all Supervisory Board members expire at the end of the Annual Meeting in 2008. Compensation for Supervisory Board members is determined by BASF
Aktiengesellschaft's Articles of Association.

93

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The
following table lists the current members of BASF Aktiengesellschaft's Supervisory Board, their respective ages as of December 31, 2004, their principal occupation and the
year in which they were first elected or appointed to the Supervisory Board:

|Name                             |  | Age |  | Principal Occupation                                                                                                                                    |  | Year First
Elected/Appointed
|-------------------------------- |  | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------
|                                 |  |     |  |                                                                                                                                                         |  |                             
|DR. JÜRGEN F. STRUBE Chairman    |  | 65  |  | Chairman of the Supervisory Board of BASF Aktiengesellschaft
Retired Chairman of the Board of Executive Directors of BASF Aktiengesellschaft            |  | 2003                        
|                                
|ROBERT OSWALD(1) Deputy Chairman |  | 49  |  | Chairman of the works council of the Ludwigshafen site of BASF Aktiengesellschaft
Chairman of the works council of BASF Group                           |  | 2000                        
|                                
|RALF-GERD BASTIAN(1)             |  | 47  |  | Member of the works council of the Ludwigshafen site of BASF Aktiengesellschaft                                                                         |  | 2003                        
|                                
|WOLFGANG DANIEL(1)               |  | 47  |  | Deputy Chairman of the works council of the Ludwigshafen site of BASF Aktiengesellschaft                                                                |  | 1996                        
|                                
|DR. FRANCOIS DIEDERICH           |  | 52  |  | Professor at Zürich Technical University                                                                                                                |  | 1998                        
|                                
|MICHAEL DIEKMANN                 |  | 50  |  | Chairman of the Board of Executive Directors of Allianz AG                                                                                              |  | 2003                        
|                                
|DR. TESSEN VON HEYDEBRECK        |  | 59  |  | Member of the Board of Executive Directors of Deutsche Bank AG                                                                                          |  | 1998                        
|                                
|ARTHUR L. KELLY                  |  | 67  |  | Chief Executive Officer of KEL Enterprises L.P., Chicago, Illinois                                                                                      |  | 2000                        
|                                
|ROLF KLEFFMANN(1)                |  | 55  |  | Chairman of the works council of Wintershall AG's Barnstorf oil plant                                                                                   |  | 1998                        
|                                
|MAX DIETRICH KLEY                |  | 64  |  | Attorney at law
Retired Deputy Chairman of the Board of Executive Directors of BASF Aktiengesellschaft                                                  |  | 2003                        
|                                
|DR. RENATE KÖCHER                |  | 52  |  | Managing Director of the Institut für Demoskopie Allensbach, Gesellschaft zum Studium der öffentlichen Meinung mbH                                      |  | 2003                        
|                                
|EVA KRAUT(1)                     |  | 48  |  | Chairwoman of the works council of BASF IT Services GmbH                                                                                                |  | 2002                        
|                                
|ULRICH KÜPPERS(1)                |  | 49  |  | Regional Manager of the Mining, Chemical and Energy Industries Union (Industriegewerkschaft, Bergbau, Chemie, Energie) Rhineland Palatinate/Saar region |  | 1994                        
|                                
|KONRAD MANTEUFFEL(1)             |  | 52  |  | Member of the works council of the Ludwigshafen site of BASF Aktiengesellschaft                                                                         |  | 1999                        
|                                
|DR. KARLHEINZ MESSMER(1)         |  | 60  |  | Plant Manager at the Ludwigshafen site of BASF Aktiengesellschaft                                                                                       |  | 1993                        
|                                

94

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|Name                   |  | Age |  | Principal Occupation                                                                                                                                    |  | Year First
Elected/Appointed
|---------------------- |  | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------
|                       |  |     |  |                                                                                                                                                         |  |                             
|HANS DIETER PÖTSCH     |  | 53  |  | Member of the Board of Executive Directors of Volkswagen AG                                                                                             |  | 2004                        
|                      
|DR. HERMANN SCHOLL     |  | 69  |  | Chairman of Supervisory Board of Robert Bosch GmbH
Managing Partner of Robert Bosch Industrietreuhand AG                                                |  | 1998                        
|                      
|RALF SIKORSKI(1)       |  | 43  |  | Manager of the Ludwigshafen branch of the Mining, Chemical and Energy Industries Union (Industriegewerkschaft Bergbau, Chemie, Energie)                 |  | 2003                        
|                      
|ROBERT STUDER          |  | 66  |  | Retired Chairman of Union Bank of Switzerland                                                                                                           |  | 1993                        
|                      
|MICHAEL VASSILIADIS(1) |  | 40  |  | Member of the Central Board of Executive Directors of the Mining, Chemical and Energy Industries Union (Industriegewerkschaft Bergbau, Chemie, Energie) |  | 2004                        
|                      

The Supervisory Board has established three committees: the committee for the personal affairs of the members of the Board of Directors
(Personalausschuss), the Audit Committee (Prüfungsausschuss) and the Mediation Committee.

The
"Personalausschuss" performs the tasks of a nominating and compensation committee. The committee determines the terms and conditions of employment of the members of the Board of
Executive Directors including the level and structure of their remuneration. In addition, the committee makes proposals regarding the appointment of members of the Board of Executive Directors. As of
December 31, 2004, the members of this committee are Dr. Jürgen F. Strube, Robert Oswald, Dr. Tessen von Heydebreck and Michael Vassiliadis.

The
Audit Committee was established by a resolution of the Supervisory Board in July 2003. The Audit Committee oversees the Company's accounting processes. Based on the
independent auditor's report, it reviews the Company's annual financial statements and reports to the Supervisory Board for an informed decision of the Supervisory Board whether or not to approve the
annual financial statements. The Audit Committee is responsible for dealing with the independent auditors of the Company. In particular, it awards the audit contract to the independent auditor elected
at the Annual Shareholders' Meeting, determines the focal points of the audit, as well as the auditor's compensation, and approves non-audit services rendered by the independent auditor.
As of December 31, 2004, the members of the Audit Committee are Max Dietrich Kley, Dr. Karlheinz Messmer, Hans Dieter Pötsch and Michael Vassiliadis. The Supervisory Board
has determined that the Audit Committee currently includes two Audit Committee financial experts: Max Dietrich Kley and Hans Dieter Pötsch.

The
Mediation Committee comprises two members of the Supervisory Board elected by the Shareholders' Meeting and two members of the Supervisory Board elected by the employees. As of
December 31, 2004, the members of this committee are Dr. Jürgen F. Strube, Robert Oswald, Dr. Tessen von Heydebreck and Michael Vassiliadis. In the event the
Supervisory Board cannot reach the two-third majority required to appoint a member of the Board of Executive Directors, the Mediation Committee submits a proposal for the appointment to
the Supervisory Board.

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Compensation of Directors and Officers

The aggregate amount of compensation paid by BASF Aktiengesellschaft and its subsidiaries during the year ended December 31, 2004, to all
members of the Board of Executive Directors and the Supervisory Board, as a group, was €16.7 million. Of this amount, members of the Board of Executive Directors received
€14.0 million and members of the Supervisory Board received €2.7 million. The amount of compensation of the Board of Executive Directors includes accrued
performance-related bonuses for 2004 of €9.2 million. Additionally, the pro rata value of stock options granted to the members of the Board of Executive Directors in 2004
amounted to €3.9 million.

The
total compensation paid by BASF Aktiengesellschaft and its subsidiaries during the year ended December 31, 2004, to former members of the Board of Executive Directors and
their beneficiaries was €6.0 million. As of December 31, 2004, provision of pensions and similar benefits to former members of the Board of Executive Directors and their
beneficiaries totaled €69.9 million. No loans were extended to the members of the Supervisory Board or the Board of Executive Directors.

Pursuant
to its Articles of Association, BASF Aktiengesellschaft grants each Supervisory Board member a fixed annual payment of €25,000 and additional compensation based
on dividends paid to BASF Aktiengesellschaft shareholders. This latter amount is €3,500 for each €0.05 by which the dividend paid to the shareholders by BASF
Aktiengesellschaft exceeds €0.30. For the year ended December 31, 2004, the additional compensation based on the dividends amount is €98,000. The chairman of the
Supervisory Board receives a payment of twice and a deputy chairman receives a payment of 1.5 times these amounts. BASF Aktiengesellschaft further grants the members of the Supervisory Board a fee of
€500 for attending a meeting of the Supervisory Board or one of its committees to which they belong and reimburses each Supervisory Board member for applicable
out-of-pocket expenses and value added tax. Each member of the Audit Committee further receives a fixed annual payment of €25,000 for such membership. The
chairman of the Audit Committee receives twice and a deputy chairman receives 1.5 times this further amount.

Pursuant
to BASF's stock option program, each member of the Board of Executive Directors is entitled to receive options on BASF Shares corresponding to 10 to 30% of the Board member's
individual performance-related bonus. See "Item 6. Directors, Senior Management and Employees  BASF Stock Option Program (BOP)" for further details on the number of options granted
and on the terms and conditions of the options' rights.

Directors'
service contracts with BASF or with any of its subsidiaries do not include benefits which are provided upon termination of employment.

Share Ownership by Members of the Board of Executive Directors and the Supervisory Board

No member of the Board of Executive Directors or the Supervisory Board beneficially owns 1% or more of the outstanding BASF Shares.

EMPLOYEES

As of December 31, 2004, BASF employed a workforce of 81,955 worldwide, which represents a reduction of approximately 6.0% from the end of
2003, largely related to the implementation of restructuring programs and the divestiture of the printing systems business. This transaction led to a reduction of the number of employees worldwide by
about 2,000, thereof almost 1,900 in Europe and roughly 750 from the BASF Drucksysteme GmbH Stuttgart, Germany. Following the completion of the sale of our carpet fibers business in 2003 to Honeywell,
United States, approximately 1,200 employees transferred to Honeywell in 2004.

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About 56.9% of the workforce is based in Germany. Expenditures for salaries and wages totaled €4,579 million in 2004, down from
€4,654 million in 2003. For further information, see Note 10 to the Consolidated Financial Statements included in Item 18.

The
following table details BASF's workforce on a regional basis as of December 31, 2004, 2003 and 2002.

|                          
|--------------------------
|
|Europe                    
|                          
|North America             
|South America             
|Asia, Pacific Area, Africa
|Total                     
|                          

As of December 31, 2004, BASF Aktiengesellschaft employed 35,303 people mainly at its headquarters in Ludwigshafen, Germany, compared with
37,054 people as of December 31, 2003.

A
number of BASF's employees who are not considered management are members of labor unions. The main part of these union members belong to the Mining, Chemical and Energy Industries
Union (Industriegewerkschaft Bergbau, Chemie, Energie). None of BASF's sites in Germany is operated on a "closed shop" basis, meaning that employees are
not required to join a union. In Germany, collective bargaining agreements for employees below management level are generally negotiated between the association of employers within a particular
industry and the respective unions.

In
addition, under German law, employees elect a works council (Betriebsrat) that participates in determining company site policy,
especially with regard to certain voluntary compensation matters and benefits.

The
most recent collective bargaining agreement for employees in Germany represented by labor unions, which covers most of BASF's employees in Germany, was signed in May 2004 with
a term of 13 months.

BASF
considers its labor relations to be positive and anticipates reaching future agreements with its labor unions on terms satisfactory to all parties. There can be no assurances,
however, that new agreements will be reached without a work stoppage or strike or on terms satisfactory to BASF. A prolonged work stoppage or strike at any of BASF's major manufacturing sites could
have a material adverse effect on the company's results of operations. BASF has not experienced any material strike for more than 10 years.

Agreements at the Ludwigshafen site and restructuring at BASF Corporation

In November 2004, management and employee representatives signed an agreement that provides clear perspectives for Ludwigshafen, the BASF
Group's largest site. Under the terms of the "Stability through Change" agreement, the number of employees of BASF Aktiengesellschaft will be approximately 32,000 by the end of 2007. Although this
agreement remains in force until 2010, the target headcount can be adjusted dependent on natural fluctuation. Enforced redundancies will be avoided. The precondition for this agreement is that the
site is not impaired by economic factors or negative circumstances that endanger BASF Aktiengesellschaft's competitiveness to such an extent that specific structural measures are necessary. The
viability of the agreement will be reviewed and discussed with employee representatives each year. A number of measures  voluntary severance offers to employees whose jobs
have become redundant, voluntary retirement incentives such as part-time contracts for those approaching retirement, increased job-market
flexibility  will help to reduce the workforce without enforced redundancies while at the same

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time
allowing younger people to be hired. In 2004, provisions of €102 million were made to cover severance payments (2003: €146 million).

We
are applying a two-phase restructuring program to our North American business with the aim of reducing annual costs by at least $250 million by 2006. Phase I of the
program focuses on improving the efficiency and effectiveness of our service and functional units. Functions such as Information Technology, Communications, Human Resources, Finance, Legal and Taxes
have already been restructured; the optimization of the remaining service units is proceeding according to plan and is scheduled for completion in 2005. In the course of these restructuring measures,
the workforce is being reduced by approximately 1,100 positions (Phase I). A further workforce reduction is scheduled in the second phase of restructuring.

BASF Stock Option Program (BOP)

The BASF Stock Option Program (BOP) is offered to the Board of Executive Directors and currently approximately 1,000 of BASF's Senior Executives.
More than 78% of the eligible Senior Executives opted to participate in the program. The program became effective on April 30, 1999, after BASF's shareholders approved a conditional capital
increase for the program at the Annual Meeting on April 29, 1999. At the Annual Meeting on April 26, 2001, the shareholders approved a new conditional capital increase to incorporate
certain changes to the BOP effective as of 2001.

The
participation in BOP requires a participant's personal investment. The Executive has to introduce a specific number of BASF Shares into the program and to hold these shares (the "BOP
Shares") for at least two years following the Option Grant Date. The range (minimum/maximum) for the number of BOP Shares is calculated on the basis of 10% to 30% of the Executive's annual variable
compensation (in euros) and the relevant "market price" of BASF Shares, which is the volume weighted average of the prices quoted in the Xetra® electronic trading system of Deutsche
Börse AG on the first trading day of the German Stock Exchange in Frankfurt following the Annual Shareholders' Meeting (the "BOP Basic Price"). An Executive participating in the BOP
receives four option rights for each BOP Share. In 2004, the BOP Basic Price was €42.73 (2003: €38.94, 2002: €46.70.) The annual variable compensation
for a member of the Board of Executive Directors is determined by the Supervisory Board pursuant to the terms of the Board Member's contractual agreement with BASF. Annual variable compensation for
any other Senior Executive is determined by such Senior Executive's supervisors pursuant to Group-wide rules established by the Board of Executive Directors, and is based on BASF's
performance and individual's target achievements.

The
BOP Shares have to be held for two years following the grant date. Option rights granted in 1999 and 2000 had a three-year vesting period. They expire 15 days
after the sixth Annual Meeting of BASF Aktiengesellschaft following the grant date. Option rights granted since 2001 may not be exercised prior to July 1, two years after the granting. Option
rights granted in 2001 expire 15 days after the eighth Annual Meeting of BASF Aktiengesellschaft following the grant date. Option rights granted in 20022004 expire on
June 30, eight years after the granting.

The
option rights are as a matter of principle paid in cash. BASF reserves the right to deliver shares instead of the cash settlement, if this is advisable for legal, economic or other
reasons.

Each
of these option rights entitles the holder to two subscription rights. The first subscription right permits participants to a cash settlement, based on the difference between the
BASF Share Price on the exercise date and the BOP Basic Price, provided that the market price of BASF Shares on the exercise date is more than 30% higher than the BOP Basic Price. The second
subscription right permits participants to a cash settlement, provided that the BASF Share outperforms the benchmark index. For options granted in 1999 and 2000, the benchmark index is the Dow Jones
EURO STOXXSM Total Return Index and for options granted since 2001, it is the Dow Jones Global Chemicals Total Return Index. The cash settlement amount is equal to the relevant BOP Basic
Price multiplied by twice the percentage by which BASF Shares have outperformed the benchmark index since the date of issue of the relevant right.

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An
option right may be exercised if the exercise criteria for one or both of the underlying subscription rights have been satisfied. If an option right is exercised based on the
exercisability of only one subscription right, then the other unexercisable subscription right is forfeited. The monetary benefit
resulting from the exercise of option rights being granted for one BOP Share may not exceed 10 times the personal investment.

For
details about the number of stock options granted see the table below:

|                                           
|-------------------------------------------
|
|Stock options outstanding as of January 1  
|Stock options granted                      
|                                           
|Option rights lapsed(1)                    
|Option rights exercised                    
|Stock options outstanding as of December 31
|                                           

Employee Stock Purchase Program

In 1999, BASF Aktiengesellschaft and several other German subsidiaries of BASF launched a stock purchase program for those employees who are not
entitled to participate in BOP. At present, various European and Mexican subsidiaries participate in the program. The program allows an employee to purchase BASF Shares at market prices by using all
or part of the annual variable salary that the employee receives from the employing company. For every block of 10 BASF Shares so purchased, the employee will be granted one additional BASF Share
after one, three, five, seven and 10 years without further payment, provided that the BASF Shares purchased under the program are still held by the employee.

In
2002, most companies improved the employee share purchase program. The first block of 10 shares purchased in any year now attracts one free incentive share in each of the following
10 years. In addition, all employees with permanent contracts were offered five free shares (which must be held for ten years). As a result, 75.9% of the eligible employees currently hold
shares in the company.

|                                                              
|--------------------------------------------------------------
|
|Number of BASF Shares held under the program as of January 1  
|Number of BASF Shares purchased under the program             
|Maximum amount of free shares granted                         
|Shares expired                                                
|Number of BASF Shares held under the program as of December 31
|                                                              

In mid-2000, BASF Corporation implemented an Employee Stock Purchase Program (ESPP) for employees that are not eligible to participate
in the BASF Stock Option Program. The program allows an employee to purchase units in a common fund, which is invested primarily in BASF American Depository Receipts that are traded on the New York
Stock Exchange. Units in the ESPP fund are purchased each pay day through voluntary payroll deductions. For every block of 10 BASF Share equivalents so purchased, the employee is granted a
proportionate number of Company Discount units, which vest on December 1 of the second calendar year following the purchase year. In addition, BASF grants Company Bonus units on
December 1 of the second, fifth and eighth years following the purchase year, provided that the ESPP units purchased under the program are still held by the employee.

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Item 7.    Major Shareholders and Related Party Transactions

MAJOR SHAREHOLDERS

The capital stock of BASF Aktiengesellschaft consists of ordinary shares with no par value
(Stückaktien) that are issued only in bearer form ("BASF Shares"). As of December 31, 2004, BASF Aktiengesellschaft had an
aggregate of 541,240,410 ordinary shares outstanding. Thereof 800,000 are repurchased shares intended to be cancelled. The outstanding number of shares as disclosed in the financial statements is
540,440,410. Because the holders of BASF Shares are not registered with BASF Aktiengesellschaft or any other organization, BASF Aktiengesellschaft generally cannot determine who its shareholders are
or how many shares a particular shareholder owns. Notwithstanding the foregoing, based on its most recent survey, BASF Aktiengesellschaft believes that, as of the beginning of 2004, approximately 14%
of the BASF Shares were held by shareholders in the United States.

Allianz
Aktiengesellschaft has notified BASF that on August 12, 2003, the share of the BASF Shares directly or indirectly held by Allianz Aktiengesellschaft has fallen below the
limit of 5%.

To
its knowledge, BASF Aktiengesellschaft is not owned or controlled directly or indirectly by any corporation, foreign government or any person, jointly or severally.

RELATED PARTY TRANSACTIONS

The existing loans between BASF and affiliated and associated companies and participating interests as of December 31, 2004 are shown in
Note 13 to the Consolidated Financial Statements included in Item
18. There are no loans outstanding to members of the Supervisory Board or the Board of Executive Directors.

Certain
members of the Supervisory Board and the Board of Executive Directors are members of supervisory or executive boards of financial institutions with which BASF engages in certain
transactions in the ordinary course of business. These transactions are executed at prevailing market rates and terms at the time of the transaction.

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Item 8.    Financial Information

CONSOLIDATED FINANCIAL STATEMENTS

See "Item 18. Financial Statements."

EXPORT SALES

BASF manufactures products mainly in Europe (primarily Germany), North America and Asia. BASF's products are then sold in markets worldwide.
Therefore, a large share of BASF's products are manufactured in Germany and exported for sale in Asia and to a lesser extent in South America. The following table sets forth BASF's primary exports:

|                           |                
|-------------------------- | ---------------
|
|
|Europe                     |                
|                           | Thereof Germany
|North America              |                
|South America              |                
|Asia, Pacific Area, Africa |                
|Total                      |                
|                           |                

LEGAL PROCEEDINGS

Antitrust Claims Relating to Vitamins

In 1999 and in 2000, BASF Aktiengesellschaft as well as BASF Australia Ltd. entered into agreements with the United States Department of
Justice, the Canadian Competition Bureau and the Australian Department of Justice by which BASF Aktiengesellschaft and BASF Australia Ltd. agreed to plead guilty to certain violations of
antitrust laws relating to the sale of vitamin products in the respective countries. The relevant courts accepted the guilty pleas. On November 21, 2001, the European Commission imposed a fine
of €296.2 million against BASF Aktiengesellschaft. BASF has appealed against this decision. Further proceedings are still pending in Brazil and Australia. On December 9,
2004, the European Commission imposed an additional fine of €35 million for violations of certain antitrust laws relating to the sale of vitamin B4 (choline
chloride) in the mid-nineties. BASF intends to appeal against this decision.

All
lawsuits in the U.S. in connection with said antitrust law violations filed by direct customers that purchased vitamins in the U.S. have been settled.

State
court class actions on behalf of indirect purchasers have been filed separately in approximately 28 U.S. states. In October 2000, class actions in 24 of these states,
as well as related claims by various state government entities, were settled. Certain of indirect purchasers plaintiffs who did not wish to participate in these settlements or were not eligible to do
so have filed suits. Nearly all of those suits have been settled. Further claims for damages are pending in France and Australia.

For
these proceedings, the company has established provisions for the costs that it anticipates to be sufficient.

BASF
Aktiengesellschaft has been named as a defendant in Empagran S.A. v. F. Hoffmann-LaRoche, Ltd, et al., a federal class action filed in the United States District Court for
the District of Columbia purportedly on behalf of all persons who purchased vitamins from the defendants outside the United States between January 1, 1988 and February 1999. The Empagran
complaint alleges that the plaintiffs were

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overcharged
on their vitamins purchases as the result of a worldwide conspiracy among the defendants to fix vitamin prices. By decision dated June 7, 2001, the District Court for the District
of Columbia dismissed the Empagran complaint for lack of subject matter jurisdiction. On January 17, 2003, a divided panel of the United States Court of Appeals for the District of Columbia
Circuit reversed the District Court's ruling. The Court of Appeals held that the United States antitrust laws permit the assertion of federal subject matter jurisdiction over claims by foreign
purchasers based on purchases made and purported damages felt outside the United States. BASF Aktiengesellschaft and the other defendants petitioned for a writ of certiorari to the United States
Supreme Court. The Supreme Court granted the petition, and on June 14, 2004, vacated the Court of Appeals' ruling and remanded the case to the Court of Appeals by a 80 decision,
which now will decide an issue that the Supreme Court did not address: whether the nature of the alleged link between foreign injury and domestic effects is legally sufficient to trigger application
of the FTAIA's domestic-injury exception. The Court of Appeals issued a briefing schedule for the appeal on remand, with oral argument scheduled for April 20, 2005.

If
the Court of Appeals affirms the District Court's dismissal of the action, the proceedings would be terminated and the case dismissed. If, on the other hand, the Court of Appeals does
not affirm the dismissal of the action, then BASF Aktiengesellschaft will vigorously defend the case at each stage of the proceedings, including but not limited to personal jurisdiction, venue,
attempted certification of a world wide class, a number of liability issues and purported damages in various countries. An ultimate finding against BASF Aktiengesellschaft could cause considerable
financial charges.

Synthroid®-Related Claims

This proceeding concerned class action lawsuits against Knoll Pharmaceutical Company (KPC) of BASF's Pharmaceutical business, discontinued in
2001. The lawsuits challenged Knoll's delaying the publication of a study comparing Synthroid® to certain branded and generic products. Final approval of a proposed settlement of 1997 was
not granted. KPC subsequently negotiated a new proposed settlement with consumers and third-party payors providing for a payment of $25.5 million in addition to the $98 million paid into
escrow in late 1997 (plus the accrued interest thereon). The United States District Court of Chicago granted final approval of the new proposed settlement on August 4, 2000. A number of appeals
have been filed. On August 31, 2001, the United States Court of Appeals granted final confirmation of the settlement. The only issue outstanding before payment can be made is the possible
appeal of consumer class counsels' litigation costs and expenses.

Meridia® Class Actions against BASF Corporation and BASF Aktiengesellschaft

In various class actions in the U.S., KPC and BASF Corporation (and in two cases BASF Aktiengesellschaft) as well as Abbott
Laboratories, Inc. and Glaxo Wellcome are being sued for an unknown amount of damages as well as for the reimbursement of costs for preventive medical check-ups. The claims are
based on the possible hazardousness, alleged insufficient trials, and failures during the admission procedure of Meridia® (trade name of the obesity drug sibutramine). The legal
proceedings are still at a very early stage. Both actions against BASF Aktiengesellschaft have been dropped or dismissed. BASF Corporation processed the drug for KPC by way of toll manufacture. Beyond
this, BASF Corporation has no relationship with the product. The mere fact that BASF Corporation held the interest in KPC does not provide a sufficient basis for compensation claims. The overall
material risk for BASF can be considered as rather low.

Additional Proceedings

The Supreme Court of Minnesota in its decision dated February 19, 2004, upheld the verdict of the appellate court against BASF Corporation
regarding payment of damages in an amount of $52 million. The court held that the sale of the plant protection products Poast® and Poast Plus® at different sales prices
violated consumer protection laws. BASF believes that different sales prices are justified because the products are based on different patents and product registrations. BASF has filed a petition for
a writ of

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certiorari
seeking review by the United States Supreme Court. That petition is currently pending before the Court.

In
2001, class action lawsuits against BASF Aktiengesellschaft and some of its affiliates had been filed at United States courts. It was alleged that sales of automotive refinish
coatings had violated antitrust laws. The vast majority of these claims have been settled with favorable terms.

DIVIDEND POLICY

The Board of Executive Directors and the Supervisory Board of BASF Aktiengesellschaft propose dividends based on BASF Aktiengesellschaft's
year-end unconsolidated financial
statements. The proposal is then voted on at BASF's Annual Meeting. The Annual Meeting is usually convened during the second quarter of each year.

Since
all BASF Shares are in bearer form, dividends are either remitted to the custodian bank on behalf of the stockholder, generally within two days following the Annual Meeting, or, in
the case of stockholders personally possessing certificates, available immediately following the Annual Meeting upon submission of the dividend coupon therefore at the offices of BASF
Aktiengesellschaft in Ludwigshafen, Germany, or the offices of BASF Aktiengesellschaft's appointed paying agents. Record holders of BASF's American Depositary Receipts (ADRs) on the dividend record
date will be entitled to receive payment of the dividend less withholding tax of 15% in respect of the year for which it is declared. See "Item 10. Additional Information" for further information.
Cash dividends payable to ADR holders will be paid to the Bank of New York, as depositary, in euros and, subject to certain exceptions, will be converted by the depositary into U.S. dollars. The
amount of dividends received by holders of ADRs may be affected by fluctuations in exchange rates. See "Item 3. Exchange Rate Information" for further information.

BASF
Aktiengesellschaft expects to continue to pay dividends, although there can be no assurance as to the particular amounts that would be paid from year to year. The payment of future
dividends will depend on BASF's financial condition. See "Item 5. Operating and Financial Review and Prospects."

SIGNIFICANT CHANGES

Except as otherwise disclosed in this Annual Report, there has been no material change in the financial position of BASF Aktiengesellschaft since
December 31, 2004.

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Item 9.    The Offer and Listing

LISTING DETAILS

Principal Market for BASF Shares

The principal trading market for BASF Shares is the Frankfurt Stock Exchange. BASF Shares are also traded on the other German stock exchanges,
namely Berlin, Bremen, Düsseldorf, Hamburg, Hannover, Munich and Stuttgart. In addition, BASF Shares are traded on the London, Paris and Swiss stock exchanges.

Since
June 7, 2000, American Depositary Receipts (ADRs), each representing one BASF Share, have been traded on the New York Stock Exchange (NYSE) under the trade symbol "BF."

Options
on BASF Shares are traded on Eurex, the German-Swiss derivatives market jointly owned and operated by Deutsche Börse AG and the Swiss Stock Exchange.

Share Price History

The table below shows for the periods indicated the high and low official daily quotation for BASF Shares on the Frankfurt Stock Exchange as
reported by Deutsche Börse AG and also the high and low of the DAX. See "Item 3. Exchange Rate Information" for information on exchange rates between the U.S. dollar and the euro during
the periods in this table.

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|                        
|------------------------
|
|
|Quarterly Highs and Lows
|2000                    
|First Quarter           
|Second Quarter          
|Third Quarter           
|Fourth Quarter          
|2001                    
|First Quarter           
|Second Quarter          
|Third Quarter           
|Fourth Quarter          
|2002                    
|First Quarter           
|Second Quarter          
|Third Quarter           
|Fourth Quarter          
|2003                    
|First Quarter           
|Second Quarter          
|Third Quarter           
|Fourth Quarter          
|2004                    
|First Quarter           
|Second Quarter          
|Third Quarter           
|Fourth Quarter          
|                        

|                                                
|------------------------------------------------
|
|Monthly Highs and Lows of the Last Six Months(1)
|2004                                            
|September                                       
|October                                         
|November                                        
|December                                        
|2005                                            
|January                                         
|February                                        
|                                                

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Trading on the New York Stock Exchange

The following table sets forth, for the period indicated, the high and low sales price per BASF ADR, as reported on the New York Stock Exchange
Composite Tape.

|         
|---------
|
|2004     
|September
|October  
|November 
|December 
|2005     
|January  
|February 
|         

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Item 10.    Additional Information

ARTICLES OF ASSOCIATION

BASF incorporates herein all information regarding its Articles of Association by reference to its Registration Statement on
Form 20-F (File No. 1-15909), as filed with the Securities and Exchange Commission on May 25, 2000.

Acquisition of BASF Shares by BASF Aktiengesellschaft

Under the German Stock Corporation Act, a stock corporation may acquire its own shares in a limited number of exceptional cases, including if so
authorized by a shareholder resolution adopted at a General Shareholders' Meeting. At the Annual Meetings of BASF Aktiengesellschaft held on May 6, 2003 and April 29, 2004, the
shareholders authorized the Board of Executive Directors to buy back BASF Shares representing up to 10% of BASF Aktiengesellschaft's outstanding share capital. The Board of Executive Directors may
either cancel the repurchased shares, reducing the company's outstanding share capital, reissue the shares subject to a further resolution adopted at an Annual Meeting, use the shares to service
option rights granted to participants of the BASF Stock Option Program, or with the approval of the Supervisory Board, use the shares for the acquisition of companies, parts of companies or holdings
in companies in return for the transfer of BASF shares. In 2004, BASF Aktiengesellschaft had bought 16,203,000 BASF Shares, or approximately 3.0% of the then outstanding BASF Shares. The Board of
Executive Directors has cancelled 15,403,000 of these repurchased BASF Shares, thus reducing the company's outstanding share capital.

EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

There are, except in limited embargo circumstances pursuant to resolutions adopted by the United Nations or the European Union, no legal
restrictions in Germany on international capital movements and foreign exchange transactions.

For
statistical purposes only, every individual or corporation residing in Germany (a "Resident") must report to the German Central Bank (Deutsche
Bundesbank), subject only to certain immaterial exceptions, any payment received from or made to or on account of an individual or corporation residing outside Germany (a
"Nonresident") if such payment exceeds €12,500 or the equivalent in a foreign currency. In addition, Residents must report any claims against or any liabilities payable to Nonresidents
if such claims or liabilities in the aggregate exceed €5,000,000 or the equivalent in a foreign currency during any one month.

Neither
German Law nor the Articles of Association (Satzung) of BASF Aktiengesellschaft impose any limitations on the rights of
Nonresident or foreign owners to hold or vote BASF Shares, including those represented by American Depositary Receipts (ADRs).

TAXATION

The following is a summary of material U.S. federal income and German tax considerations relating to the ownership of American Depositary Shares
(ADSs) or BASF Shares by an Eligible U.S. Holder (as defined below).

The
discussion is based on tax laws of the United States and Germany as in effect on the date of this Annual Report, including the Convention between the United States of America and the
Federal Republic of Germany for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital and to Certain Other Taxes (the "Income Tax Treaty"),
and the Convention between the United States of America and the Federal Republic of Germany for the Avoidance of Double Taxation with respect to Taxes on Estates, Inheritances, and Gifts (the "Estate
Tax Treaty"). All such laws are subject to change, possibly with retroactive effect, and are subject to different interpretations. The discussion is also

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based
in part upon the representations of the depositary and the assumption that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms.

The
discussion does not purport to be a comprehensive description of all the tax considerations that may be relevant to the ownership of ADSs or BASF Shares. In particular, it does not
address any aspect of U.S. federal tax law other than income taxation, or any aspect of German tax law other than income, gift, inheritance and wealth taxation, and it does not cover the tax laws of
any state or municipality, or any jurisdiction outside the United States and Germany. Moreover, the discussion does not consider any specific facts or circumstances that may apply to a particular
Eligible U.S. Holder, and does not take into account any special tax rules to which certain holders (including, without limitation, tax-exempt organizations, persons subject to the
alternative minimum tax, securities broker-dealers, financial institutions, persons holding ADSs or BASF Shares in a hedging transaction or as part of a straddle or conversion transaction, persons
having a functional currency other than the U.S. dollar, persons that own, or that are treated as owning, 10% or more of the voting power of our stock and persons that received ADSs or BASF Shares
pursuant to the exercise of employee stock options or otherwise as compensation) may be subject.

Owners
of ADSs or BASF Shares are urged to consult their tax advisers regarding the U.S. federal, state, local, German and other tax consequences of owning and disposing of ADSs or BASF
Shares. In particular, owners of ADSs or BASF Shares are urged to consult their tax advisers to confirm their status as Eligible U.S. Holders and the consequence to them if they do not so qualify.

For
purposes of the discussion that follows, an "Eligible U.S. Holder" is any beneficial owner of ADSs or BASF Shares who or which (i) is a resident of the United States for the
purposes of the Income Tax Treaty, such as a U.S. citizen or U.S. corporation, (ii) is not also a resident of the Federal Republic of Germany for the purposes of the Income Tax Treaty,
(iii) owns the ADSs or BASF Shares as capital assets, (iv) does not hold ADSs or BASF Shares as part of the business property of a permanent establishment located in Germany or as part
of a fixed base of an individual located in Germany and used for the performance of independent personal services, (v) is entitled to benefits under the Income Tax Treaty with respect to income
and gain derived in connection with the ADSs or BASF Shares, and (vi) if not an individual, is not subject to the limitation on benefits restrictions in the Income Tax Treaty.

In
general, for U.S. federal income tax purposes, holders of ADRs evidencing ADSs will be treated as the owners of the BASF Shares represented by those ADSs.

Taxation of Dividends

Under U.S. federal income tax law, Eligible U.S. Holders are generally required to include in their gross income, as dividend income from a
qualified foreign corporation, the gross amount of any distribution paid from the current or accumulated earnings and profits of BASF (as determined under U.S. federal income tax principles). The
amount of dividend income for U.S. federal income tax purposes is not reduced by German taxes withheld from a dividend distribution in respect of the ADSs or BASF Shares. Beginning in 2003, Eligible
U.S. holders are entitled to treat the income from such distributions as
"qualified dividend income" that would increase their net capital gain. Eligible U.S. Holders that are corporations will not be entitled to the dividends-received deduction with respect to such
distributions.

As
a German corporation, BASF is required to withhold taxes on dividends paid to German resident and nonresident stockholders. The required withholding rate applicable to BASF dividends
is 20% plus a solidarity surcharge of 5.5% thereon, equal to 1.1% of the gross dividend (i.e., 5.5% of the 20% tax). Accordingly, a total German withholding tax of 21.1% of the gross dividend is
required.

An
Eligible U.S. Holder is entitled to a refund of a portion of the withholding tax, reducing the net German tax rate to that permitted under the Income Tax Treaty, i.e., 15% of the
gross dividend.

The
portion of the German income tax withheld that cannot be refunded under the Income Tax Treaty may be claimed either as a foreign tax credit against the U.S. federal income tax
liability of an Eligible U.S.

108

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Holder
or as a deduction in computing taxable income. For U.S. foreign tax credit purposes, dividends received in respect of the ADSs or BASF Shares generally will be treated as passive income (or, in
some circumstances, financial services income) derived from sources outside the United States. The rules and limitations relating to foreign tax credits are complex, and Eligible U.S. holders should
consult their own tax advisers regarding the availability of foreign tax credits and the application of the foreign tax credit limitations to their particular situations. Beginning in 2003,
adjustments to these calculations may be required in the case of dividend income treated as "qualified dividend income."

To
illustrate the foregoing, for each $100 gross amount of dividend paid by BASF in 2004 to an Eligible U.S. Holder, $21.10 of German tax would be withheld, of which $6.10 would be
refundable. For U.S. federal income tax purposes, the U.S. Holder would report dividend income of $100 (to the extent paid out of current and accumulated earnings and profits) and foreign taxes paid
of $15, for purposes of calculating the Foreign Tax Credit or the deduction for taxes paid.

For
U.S. federal income tax purposes, dividends paid by BASF in euros are included in the gross income of an Eligible U.S. Holder in a U.S. dollar amount calculated by reference to the
exchange rate in effect on the date the dividends (including the deemed refund of German corporate tax) are received by such Eligible U.S. Holder or, in the case of ADSs, by the depositary. If a
dividend paid in euros is converted into U.S. dollars on the date received, Eligible U.S. Holders generally should not be required to recognize foreign currency gain or loss in respect of the
dividend.

General Refund Procedures Regarding German Withholding Tax

Pursuant to administrative procedures, claims for refunds under the Income Tax Treaty generally must be submitted to the German Federal Tax
Authority (Bundesamt für Finanzen) either individually by an Eligible U.S. Holder, or collectively (introduced on a trial basis) by the
depositary (or a custodian as its designated agent) on behalf of all Eligible U.S. Holders owning ADSs. Claims must be filed within four years of the end of the calendar year in which the dividend was
received.

The
collective refund procedure may not be available for Eligible U.S. Holders entitled to refunds in excess of €150 for the calendar year. In such event, those holders
must file separate claims or may qualify for the simplified refund procedure described below. Details of the collective refund procedure will be available from the depositary.

Individual
claims for refund have to be made on a special German claim form that must be filed with the German Federal Tax Authority at Bundesamt für Finanzen,
Friedhofstrasse 1, 53225 Bonn, Germany. The German claim-for-refund form may be obtained from the German Federal Tax Authority at the same address where applications are filed,
or from the Embassy of the Federal Republic of Germany at 4645 Reservoir Road, N.W., Washington, D.C. 20007-1998. Forms can also be obtained from the Office of the Assistant Commissioner
(International), Internal Revenue Service, 950 L'Enfant Plaza South, SW, Washington, D.C. 20024, Attention: Taxpayer Service Division.

As
part of the individual refund claim, an Eligible U.S. Holder must submit to the German Federal Tax Authority the original bank voucher (or certified copy thereof) issued by the paying
entity documenting the tax withheld, and an official certification on IRS Form 6166 of such Eligible U.S. Holder's last filed U.S. federal income tax return. IRS Form 6166 may be
obtained by sending a request to the Internal Revenue Service Center, Foreign Certification Request, P.O. Box 16347, Philadelphia, P.A. 19114-0447. Requests for certification are to
be made in writing and must include the Eligible U.S. Holder's name, mailing address and social security or employer identification number, the form number for the relevant U.S. federal income tax
return and the tax period for which the certification is requested.

The
Internal Revenue Service will send the certification directly to the German Federal Tax Authority if requested by the Eligible U.S. Holder. If no such request is made, the Internal
Revenue Service will send a certificate on IRS Form 6166 to the Eligible U.S. Holder, which then must submit the certification with the

109

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Eligible
U.S. Holder's claim for refund. The Internal Revenue Service certification is valid for three years and need only be resubmitted in a fourth year in the event of a subsequent application for
refund.

Simplified Refund Procedure regarding German Withholding Tax in respect of ADSs or BASF Shares Deposited with The Depository Trust Company in New York

As of May 7, 1999, Eligible U.S. Holders may make applications for refunds payable under the Income Tax Treaty by using a simplified refund
procedure instead of the general refund procedures described above. Eligible U.S. Holders may use the simplified refund procedure only with respect to taxes withheld on dividends in respect of ADSs or
BASF Shares deposited with The Depository Trust Company in New York. Under the simplified refund procedure, refund applications will be filed in a special (simplified) collective procedure with the
aid of the "Elective Dividend Service" (the "EDS") installed at The Depository Trust Company.

In
the EDS system, the participants maintaining accounts at The Depository Trust Company report the positions held by them at the relevant cutoff date that qualify for share dividends
subject to withholding tax at the appropriate rates under the Income Tax Treaty. The reports of the individual participants will be compiled by The Depository Trust Company into a collective
application and submitted to the German Federal Tax Authority for conditional refund. After initially checking only arithmetical correctness, the German Federal Tax Authority will make a refund as
required to The Depository Trust Company. The refund will be made at the earliest on the due date of the withholding tax pursuant to German tax law.

The
Depository Trust Company will distribute the refund amounts in accordance with EDS data to the participants to be passed on to the beneficial owners.

Taxation of Capital Gains

Upon a sale or other taxable disposition of ADSs or BASF Shares, an Eligible U.S. Holder will recognize a gain or loss for U.S. federal income tax
purposes in an amount equal to the difference between the amount realized from the sale or other disposition, and the Eligible U.S. Holder's tax basis in the ADSs or BASF Shares. Such gain or loss
generally will be treated as a capital gain or loss derived from U.S. sources, and will be a long-term capital gain or loss if the Eligible U.S. Holder's holding period for the ADSs or
BASF Shares exceeds one year. In the case of certain Eligible U.S. Holders (including individuals), long-term capital gains are taxable at preferential U.S. federal income tax rates. The
deduction of capital losses is subject to certain limitations under U.S. federal income tax law.

Deposits
and withdrawals of BASF Shares in exchange for ADSs generally will not be considered a taxable event for U.S. federal income tax purposes.

Under
the Income Tax Treaty, an Eligible U.S. Holder will not be liable for German tax on capital gains realized or accrued on the sale or other disposition of ADSs or BASF Shares.

Gift and Inheritance Taxes  German Taxation

An Eligible U.S. Holder who is an individual and whose domicile is determined to be in the United States for purposes of the Estate Tax Treaty
will not be subject to German inheritance and gift tax (the equivalent of the U.S. federal estate and gift tax) upon the individual's death or upon the making of a gift unless the ADSs or BASF Shares
(i) are part of the business property of a permanent establishment located in Germany or (ii) are part of the assets of a fixed base of an individual located in Germany and used for the
performance of independent personal services. An individual's domicile in the United States, however, does not prevent imposition of German inheritance and gift tax with respect to an heir, donee, or
other beneficiary who is domiciled in Germany at the time the individual died or the gift was made.

110

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The
Estate Tax Treaty also provides a credit against U.S. federal estate and gift tax liability for the amount of inheritance and gift tax paid to Germany, subject to certain
limitations, in a case where the ADSs or BASF Shares are subject to German inheritance or gift tax and U.S. federal estate or gift tax.

Other German Taxes

There are no German transfer, stamp or other similar taxes that would apply to Eligible U.S. Holders that purchase or sell ADSs or BASF Shares.
The wealth tax is no longer levied in respect of any taxation periods that start on or after January 1, 1997. For collection periods from 1998 on, the trade capital tax has been abrogated.

INFORMATION REPORTING AND BACKUP WITHHOLDING

Dividends on ADSs or BASF Shares, and payments of the proceeds of a sale of ADSs or BASF Shares, paid within the United States or through certain
U.S.-related intermediaries are subject to Internal
Revenue Service information reporting, and may be subject to backup withholding at a 28% rate unless the holder (i) is a corporation or other exempt recipient or (ii) provides a correct
taxpayer identification number, certifies that no loss of exemption from backup withholding has occurred and otherwise complies with the backup withholding requirements.

DOCUMENTS ON DISPLAY

BASF is subject to the informational requirements of the Securities Exchange Act of 1934, as amended. In accordance with these requirements, BASF
files reports and other information with the Securities and Exchange Commission. These materials, including this Annual Report and the exhibits thereto, may be inspected and copied at the Commission's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at 175 W. Jackson Boulevard, Suite 900, Chicago, Illinois 60604, and 233 Broadway, New
York, N.Y. 10279. Copies of the materials may be obtained from the Public Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The public may obtain
information on the operation of the Commission's Public Reference Room by calling the Commission in the United States at 1-800-SEC-0330. The Commission also
maintains a web site at www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the Commission. BASF's Annual Report and some of
the other information submitted by BASF to the Commission may be accessed through this web site. In addition, material filed by BASF can be inspected at the offices of the New York Stock Exchange at
20 Broad Street, New York, N.Y. 10005.

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Item 11.    Quantitative and Qualitative Disclosures About Market Risk

BASF
is exposed to foreign currency, interest rate and price risks in the normal course of business. In cases where BASF intends to hedge against these risks, derivatives are used,
including forward exchange contracts, currency options, interest rate/currency swaps, combined instruments or commodity derivatives. In addition, financial derivative instruments are used to replace
transactions in original financial instruments, such as shares or fixed-income securities.

Exclusive
use is made of commonly used instruments with sufficient market liquidity. Derivative instruments are only used if they have corresponding underlying positions arising from the
operating business, cash investments and financing. The leverage effect that can be achieved with derivatives is deliberately not used. The derivative instruments held by BASF are solely held for
purposes other than trading.

Where
derivatives have a positive market value, BASF is exposed to credit risks in the event of non-performance by their counterparties. The credit risk is minimized by
exclusively trading contracts with major creditworthy counterparties.

To
ensure efficient risk management, market risks are centralized at BASF Aktiengesellschaft and BASF Group companies designated for this purpose. BASF has developed and implemented
internal guidelines based on the principles of separation of the placement function from the settlement function for derivative instruments.

The
risks arising from changes in exchange rates, interest rates and prices as a result of the underlying transactions and the derivative transactions concluded to hedge them are
monitored constantly. For this purpose, market quotations or computer or mathematical models are used to determine the current market values not only of the underlying transactions but also of the
derivative transactions and these are compared with each other. Where derivative instruments were entered into as replacement for original financial instruments, market trends are also monitored
constantly.

INTEREST RATE RISK MANAGEMENT

BASF employs interest-rate sensitive financial instruments to manage the liquidity and cash needs of its operations. Financial
liabilities consist of bank loans (24% of financial liabilities), which BASF Group companies worldwide took from numerous local banks in their various local currencies. Additionally, BASF has two
fixed-rate euro bonds outstanding (68% of financial liabilities), as well as a number of variable and fixed-rate U.S. dollar-bonds denominated infrastructure and environmental
bonds with a preferred tax status in the United States (8% of financial liabilities). The remaining debt consists of a number of other bonds or commercial paper (less than 1% of financial
liabilities). BASF has entered into a number of interest rate derivatives in order to limit fluctuations in its future financing costs.

In
addition to the interest rate risk exposure resulting from financial liabilities described above, BASF entered into a number of combined interest/currency derivatives. In most cases,
BASF is obliged to pay a fixed rate in a foreign currency and receives a variable rate in euros. Such swaps were concluded to optimize the internal financing of group companies worldwide and to offer
the internal parties the desired credit terms and cash flows.

The
following information on debt is presented in euro equivalents, which is BASF's reporting currency.

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Principal (Notional) Amount Interest Rate  December 31, 2003

|                                                 
|-------------------------------------------------
|
|
|Debt, including current portion U.S. dollar (USD)
|Fixed rate                                       
|Weighted avg. interest rate (fixed)              
|Variable rate                                    
|Interest rate (variable)                         
|                                                 
|Subtotal                                         
|                                                 
|Euro (EUR)                                       
|Fixed rate                                       
|Weighted avg. interest rate (fixed).             
|Variable rate                                    
|Interest rate (variable)                         
|                                                 
|Subtotal                                         
|                                                 
|Chinese renminbi (CNY)                           
|Fixed rate                                       
|Weighted avg. interest rate (fixed).             
|Variable rate                                    
|Interest rate (variable)                         
|                                                 
|Subtotal                                         
|                                                 
|Other currencies                                 
|Fixed rate                                       
|Weighted avg. interest rate (fixed).             
|Variable rate                                    
|Interest rate (variable)                         
|                                                 
|Subtotal                                         
|                                                 
|Total                                            
|                                                 

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Principal (Notional) Amount Interest Rate  December 31, 2004

|                                                 
|-------------------------------------------------
|
|
|Debt, including current portion U.S. dollar (USD)
|Fixed rate                                       
|Weighted avg. interest rate (fixed)              
|Variable rate                                    
|Interest rate (variable)                         
|                                                 
|Subtotal                                         
|                                                 
|Euro (EUR)                                       
|Fixed rate                                       
|Weighted avg. interest rate (fixed).             
|Variable rate                                    
|Interest rate (variable)                         
|                                                 
|Subtotal                                         
|                                                 
|Chinese renminbi (CNY)                           
|Fixed rate                                       
|Weighted avg. interest rate (fixed).             
|Variable rate                                    
|Interest rate (variable)                         
|                                                 
|Subtotal                                         
|                                                 
|Other currencies                                 
|Fixed rate                                       
|Weighted avg. interest rate (fixed)              
|Variable rate                                    
|Interest rate (variable)                         
|                                                 
|Subtotal                                         
|                                                 
|Total                                            
|                                                 

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The following information on derivatives is presented in euro equivalents, which is BASF's reporting currency. The instruments' actual cash flows
are denominated in the currencies noted parenthetically.

Interest Rate Swaps  December 31, 2003

|                                         | 
|---------------------------------------- | 
|
|
|Euro (EUR)                               | 
|Payer swap                               | 
|Weighted average pay rate (fixed)        | 
|Weighted average receive rate (variable) | 
|U.S. dollar (USD)                        | 
|Payer swap                               | 
|Weighted average pay rate (fixed)        | 
|Weighted average receive rate (variable) | 
|                                         | 

Interest Rate Swaps  December 31, 2004

|                                         | 
|---------------------------------------- | 
|
|
|Euro (EUR)                               | 
|Payer swap                               | 
|Weighted average pay rate (fixed).       | 
|Weighted average receive rate (variable) | 
|U.S. dollar (USD)                        | 
|Payer swap                               | 
|Weighted average pay rate (fixed).       | 
|Weighted average receive rate (variable) | 
|                                         | 

The
total volume of interest-rate swaps increased from €105 million in 2003 to €909 million in 2004, due to additional
transactions in Asia and Europe. The total fair value of the interest-rate swaps decreased from €(8.20) million to €(43.82) million.

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Combined Interest Rate and Cross Currency Swaps  December 31, 2003

|                                              | 
|--------------------------------------------- | 
|
|
|U.S. dollar (USD)/euro (EUR)                  | 
|Amount payable on maturity (USD)              | 
|Amount receivable on maturity (EUR)           | 
|Weighted average pay rate (variable, USD)     | 
|Weighted average receive rate (variable, EUR) | 
|Amount payable on maturity (USD)              | 
|Amount receivable on maturity (EUR)           | 
|Weighted average pay rate (fixed, USD)        | 
|Weighted average receive rate (variable, EUR) | 
|Japanese yen (JPY)/euro (EUR)                 | 
|Amount payable on maturity (JPY)              | 
|Amount receivable on maturity (EUR)           | 
|Weighted average pay rate (fixed, JPY)        | 
|Weighted average receive rate (variable, EUR) | 
|Amount payable on maturity (JPY)              | 
|Amount receivable on maturity (EUR)           | 
|Weighted average pay rate (fixed, JPY)        | 
|Weighted average receive rate (fixed, EUR)    | 
|U.S. dollar (USD)/Korean won (KRW)            | 
|Amount payable on maturity (KRW)              | 
|Amount receivable on maturity (USD)           | 
|Weighted average pay rate (fixed, KRW)        | 
|Weighted average receive rate (variable, USD) | 
|Amount payable on maturity (KRW)              | 
|Amount receivable on maturity (USD)           | 
|Weighted average pay rate (fixed, KRW)        | 
|Weighted average receive rate (fixed, USD)    | 
|                                              | 

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Combined Interest Rate and Cross Currency Swaps  December 31, 2004

|                                              | 
|--------------------------------------------- | 
|
|
|U.S. dollar (USD)/euro (EUR)                  | 
|Amount payable on maturity (USD)              | 
|Amount receivable on maturity (EUR)           | 
|Weighted average pay rate (variable, USD)     | 
|Weighted average receive rate (variable, EUR) | 
|Amount payable on maturity (USD)              | 
|Amount receivable on maturity (EUR)           | 
|Weighted average pay rate (fixed, USD)        | 
|Weighted average receive rate (variable, EUR) | 
|Singapore dollar (SGD)/euro (EUR)             | 
|Amount payable on maturity (SGD)              | 
|Amount receivable on maturity (EUR)           | 
|Weighted average pay rate (fixed, SGD)        | 
|Weighted average receive rate (fixed, EUR)    | 
|Japanese yen (JPY)/euro (EUR)                 | 
|Amount payable on maturity (JPY)              | 
|Amount receivable on maturity (EUR)           | 
|Weighted average pay rate (fixed, JPY)        | 
|Weighted average receive rate (fixed, EUR)    | 
|U.S. dollar (USD)/Korean won (KRW)            | 
|Amount payable on maturity (KRW)              | 
|Amount receivable on maturity (USD)           | 
|Weighted average pay rate (fixed, KRW)        | 
|Weighted average receive rate (variable, USD) | 
|                                              | 

The total volume of the combined interest-rate and cross-currency swaps decreased from €2,596 million in 2003
to €2,108 million as of December 31, 2004, due to expiring transactions. The total fair value of the swaps changed from €292 million in 2003 to
€309 million as of December 31, 2004, mainly due to the decline in the exchange rate of the USD dollar and the expiration of transactions with negative market values.

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Other Derivatives  December 31, 2003

|                                         | 
|---------------------------------------- | 
|
|
|Equity index swaps(1)                    | 
|Weighted average pay rate (variable)     | 
|Weighted average receive rate (variable) | 
|                                         | 

Other Derivatives  December 31, 2004

|                                           | 
|------------------------------------------ | 
|
|
|Equity forward sales                       | 
|Weighted average share priceel
(EUR/share) | 
|                                           | 

The
total volume of other derivatives decreased from €500 million in 2003 to €26 million as of December 31, 2004, mainly due to the
offsetting of equity index swaps prior to maturity.

FOREIGN EXCHANGE RISK MANAGEMENT

The principal derivative financial instruments used by BASF to hedge foreign currency exposures resulting from product sales, purchases of raw
materials and commercial paper denominated in foreign currency are forward foreign exchange contracts and currency options. In 2004, transactions in these hedging instruments were primarily aimed at
hedging the exchange rate risk arising from the U.S. dollar, the Canadian dollar, the South African rand, the British pound, the Mexican peso, the Japanese yen, the Korean won and the Brazilian real.

Intercompany
loans within the BASF Group must frequently be denominated in a currency which is foreign to the intercompany borrower or the intercompany lender or both. The foreign
currency risks inherent in such loans are hedged by forward foreign exchange contracts or foreign currency borrowings from third parties in such cases where the loan has a short-term or a
variable
maturity. Longer-term intercompany loans with fixed maturity schedules are hedged primarily with forward foreign exchange contracts and cross-currency swaps.

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The tables below provide information about significant derivative financial instruments which are sensitive to changes in foreign currency exchange rates.

Foreign Currency Forward Contracts  December 31, 2003(1)

|                                  | 
|--------------------------------- | 
|
|Euro (EUR)                        | 
|Purchase Australian dollar (AUD)  | 
|Purchase Canadian dollar (CAD)    | 
|Purchase Hong Kong dollar (HKD)   | 
|Purchase Hungarian forint (HUF)   | 
|Purchase Norwegian krone (NOK)    | 
|Purchase Polish zlotys (PLN)      | 
|Purchase South African rand (ZAR) | 
|Purchase Swiss francs (CHF)       | 
|Purchase U.S. dollar (USD)        | 
|Sale Australian dollar (AUD)      | 
|Sale British pound (GBP)          | 
|Sale Czech koruna (CZK)           | 
|Sale Danish krone (DKK)           | 
|Sale Hong Kong dollar (HKD)       | 
|Sale Hungarian forint (HUF)       | 
|Sale Japanese yen (JPY)           | 
|Sale Kroatien kuna (HRK)          | 
|Sale Malaysian ringgit (MYR)      | 
|Sale New Zealand dollar (NZD)     | 
|Sale Pakistan rupee (PKR)         | 
|Sale Polish zlotys (PLN)          | 
|Sale Singapore dollar (SGD)       | 
|Sale Slovak koruna (SKK)          | 
|Sale South African rand (ZAR)     | 
|Sale Swedish krona (SEK)          | 
|Sale Thai baht (THB)              | 
|Sale U.S. dollar (USD)            | 
|U.S. dollar (USD)                 | 
|Purchase Malaysian ringgit (MYR)  | 
|Purchase Singapore dollar (SGD)   | 
|Purchase South African rand (ZAR) | 
|Sale Brazilian real (BRL)         | 
|Sale Indian rupee (INR)           | 
|Sale Japanese yen (JPY)           | 
|Sale Malaysian ringgit (MYR)      | 
|Sale Mexican peso (MXP)           | 
|Sale Pakistan rupee (PKR)         | 
|Sale Philippine peso (PhP)        | 
|Sale South African rand (ZAR)     | 
|Sale Taiwan dollar (TWD)          | 
|Sale Thai baht (THB)              | 
|Malaysian ringgit (MYR)           | 
|Purchase Australian dollar (AUD)  | 
|Purchase Singapore dollar (SGD)   | 
|Sale Australian dollar (AUD)      | 
|Sale Japanese yen (JPY)           | 

---

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Foreign Currency Forward Contracts  December 31, 2004(1)

|                                  | 
|--------------------------------- | 
|
|Euro (EUR)                        | 
|Purchase Australian dollar (AUD)  | 
|Purchase Thai baht (THB)          | 
|Purchase Hong Kong dollar (HKD)   | 
|Purchase Norwegian krone (NOK)    | 
|Purchase Polish zlotys (PLN)      | 
|Purchase South African rand (ZAR) | 
|Purchase Swiss francs (CHF)       | 
|Purchase U.S. dollar (USD)        | 
|Purchase British pound (GBP)      | 
|Sale Australian dollar (AUD)      | 
|Sale British pound (GBP)          | 
|Sale Czech koruna (CZK)           | 
|Sale Danish krone (DKK)           | 
|Sale Hungarian forint (HUF)       | 
|Sale Japanese yen (JPY)           | 
|Sale Kroatien kuna (HRK)          | 
|Sale New Zealand dollar (NZD)     | 
|Sale Pakistan rupee (PKR)         | 
|Sale Polish zlotys (PLN)          | 
|Sale Slovak koruna (SKK)          | 
|Sale South African rand (ZAR)     | 
|Sale Swedish krona (SEK)          | 
|Sale Thai baht (THB)              | 
|Sale U.S. dollar (USD)            | 
|Sale Canadian dollar (CAD)        | 
|U.S. dollar (USD)                 | 
|Purchase Singapore dollar (SGD)   | 
|Purchase South African rand (ZAR) | 
|Purchase Canadian dollar (CAD)    | 
|Purchase Colombian peso (COP)     | 
|Purchase Korean won (KRW)         | 
|Purchase Mexican peso (MXN)       | 
|Sale Brazilian real (BRL)         | 
|Sale Indian rupee (INR)           | 
|Sale Japanese yen (JPY)           | 
|Sale Malaysian ringgit (MYR)      | 
|Sale Mexican peso (MXN)           | 
|Sale Pakistan rupee (PKR)         | 
|Sale Philippine peso (PhP)        | 
|Sale South African rand (ZAR)     | 
|Sale Taiwan dollar (TWD)          | 
|Sale Thai baht (THB)              | 
|Sale Australian dollar (AUD)      | 
|Sale Canadian dollar (CAD)        | 
|Sale Korean won (KRW)             | 
|Malaysian ringgit (MYR)           | 
|Purchase Singapore dollar (SGD)   | 
|Sale U.S. dollar (USD)            | 
|Sale Australian dollar (AUD)      | 
|Sale Japanese yen (JPY)           | 
|Sale Singapore dollar (SGD)       | 

---

120

---



The total volume of forward currency contracts increased from €5,069 million in 2003 to
€5,265 million as of December 31, 2004, mainly due to new hedges of accounts denominated in foreign currencies. The total fair value of the outstanding forward currency
contracts improved from €367 million as of December 31, 2003, to €541 million as of December 31, 2004, mainly due to the decline in the
exchange rate for the U.S. dollar.

Foreign Currency Options  December 31, 2003

|                                        | 
|--------------------------------------- | 
|
|
|U.S. dollar (USD) Put (long)            | 
|Weighted Average Strike Price
(USD/EUR) | 
|U.S. dollar (USD) Call (short)          | 
|Weighted Average Strike Price
(USD/EUR) | 

---

Foreign Currency Options  December 31, 2004

|                                        | 
|--------------------------------------- | 
|
|
|U.S. dollar (USD) Standard Put (long)   | 
|Weighted Average Strike Price
(USD/EUR) | 
|U.S. dollar (USD) Compound Put (long)   | 
|Weighted Average Strike Price
(USD/EUR) | 
|U.S. dollar (USD) Call (long)           | 
|Weighted Average Strike Price
(USD/EUR) | 
|U.S. dollar (USD) Put (short)           | 
|Weighted Average Strike Price
(USD/EUR) | 
|Japanese yen (JPY) Put (long)           | 
|Weighted Average Strike Price
(JPY/EUR) | 
|Japanese yen (JPY) Call (short)         | 
|Weighted Average Strike Price
(JPY/EUR) | 

---

The total volume of foreign currency options increased from €410 on December 31, 2003, to
€2,122 million on December 31, 2004, due to new hedges of product sales in U.S. dollar. The total fair value of foreign currency options was
€67 million.

121

---



Cross Currency Swaps  December 31, 2003

|                                                       | 
|------------------------------------------------------ | 
|
|
|Payment of U.S. dollar (USD)                           | 
|Notional amount                                        | 
|Average contract rate U.S. dollar (USD) per euro (EUR) | 
|Payment of Japanese yen (JPY)                          | 
|Notional amount                                        | 
|Average contract rate Japanese yen per euro (EUR)      | 
|Payment of Korean won (KRW)                            | 
|Notional amount                                        | 
|Average contract rate Korean won per U.S. dollar (USD) | 

---

122

---



Cross Currency Swaps  December 31, 2004

|                                                       | 
|------------------------------------------------------ | 
|
|
|Payment of U.S. dollar (USD)                           | 
|Notional amount                                        | 
|Average contract rate U.S. dollar (USD) per euro (EUR) | 
|Payment of Japanese yen (JPY)                          | 
|Notional amount                                        | 
|Average contract rate Japanese yen per euro (EUR)      | 
|Payment of (SGD)                                       | 
|Notional amount                                        | 
|Average contract rate Singapore dollar per euro (EUR)  | 
|Payment of Korean won (KRW)                            | 
|Notional amount                                        | 
|Average contract rate Korean won per U.S. dollar (USD) | 

---

The total volume of the combined interest-rate and cross-currency swaps decreased from €2,596 million in 2003
to €2,108 million as of December 31, 2004 due to expiring transactions. The total fair value of the swaps changed from €292 million in 2003 to
€309 million as of December 31, 2004, mainly due to the decline in the exchange rate of the U.S. dollar and the expiration of transactions with negative market values.

MARKETABLE SECURITIES

As of December 31, 2004, BASF owned debt and equity securities which are exposed to price changes. These financial instruments are used as
profitable investments of BASF's cash surplus and are not held for trading purposes. All securities are quoted on stock exchanges, and the funds have readily determinable market prices. The securities
are reflected in the U.S. GAAP reconciliation at their fair value of €204.6 million, which includes unrealized gains of €41.8 million. See
Note 16 to the Consolidated Financial Statements in Item 18 for further information. BASF carefully monitors developments in the financial markets.

A
10% change in overall equity prices would not materially impact BASF's operations, financial position or cash flows.

COMMODITY PRICE RISKS

Certain BASF divisions are exposed to fluctuations in prices for raw materials and commodities. BASF operates in markets where the prices of raw
materials and products are commonly affected by cyclical movements of the economy.

In
order to secure the supply of raw materials, BASF has signed long-term supply contracts and is buying additional quantities on spot markets. Some of the most important raw
materials involved are naphtha, propylene, benzene, titanium dioxide, cyclohexane, methanol and ammonia.

123

---



The
following measures are taken to reduce and manage risks in the purchase of raw materials:



The
following table provides information related to all material contracts as of December 31, 2003:

|                     | 
|-------------------- | 
|
|
|Oil and Oil products | 
|Call Options (Buy)   | 
|Call Options (Sell)  | 
|Put Options (Sell)   | 
|Swaps                | 
|Natural Gas          | 
|Call Options (Buy)   | 
|Swaps                | 
|                     | 

The following table provides information related to all material contracts as of December 31, 2004:

|                     | 
|-------------------- | 
|
|
|Oil and Oil products | 
|Call Options (Buy)   | 
|Put Options (Sell)   | 
|Call Options (Buy)   | 
|Put Options (Sell)   | 
|Swaps                | 
|Swaps                | 
|Swaps                | 
|Natural Gas          | 
|Swaps                | 
|                     | 

124

---





Item 12.    Description of Securities Other Than Equity Securities

Not
applicable.

125

---



PART II

Item
13.    Defaults, Dividend Arrearages and Delinquencies

None.

Item
14.    Material Modifications to the Rights of Security Holders and Use of Proceeds

Not
applicable.

126

---



Item 15.    Controls and Procedures

Within 90 days prior to the date of this report, BASF performed an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures. Disclosure controls and procedures are designed to ensure that the material financial and non-financial information required to be disclosed in
Form 20-F and filed with the Securities and Exchange Commission is recorded, processed, summarized and reported timely. The evaluation was performed under the supervision of BASF's
Chairman of the Board of Executive Directors, Dr. Jürgen Hambrecht, and BASF's Chief Financial Officer, Dr. Kurt Bock. In designing and evaluating the disclosure controls
and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, rather than absolute assurance of achieving the desired
control objectives. Managerial judgement was necessary to evaluate the cost-benefit relationship of possible controls and procedures. Based on the foregoing, the Chairman of the Board of
Executive Directors and the Chief Financial Officer concluded that BASF's disclosure controls and procedures as of December 31, 2004 were effective. In 2004, there have been no significant
changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of the evaluation. Therefore, no corrective actions were taken.

127

---



Item 16A.    Audit Committee Financial Expert

Our Supervisory Board has determined that the Company's Audit Committee currently includes two Audit Committee financial experts: Max Dietrich
Kley and Hans Dieter Pötsch.

Item
16B.    Code of Ethics

The Company has adopted a code of ethics for financial matters that applies to the Board of Executive Directors, including the Chief Executive
Officer, the Chief Financial Officer, and the senior management of financial reporting and controlling, as well as to all of the Company's employees performing similar functions in and outside Germany
and to all other senior financial personnel. The code of ethics for financial matters is available on the Company's website at www.basf.de/corporate_governance.

Item
16C.    Principal Accountant Fees and Services

In January 2003, the U.S. Securities and Exchange Commission adopted rules requiring disclosure of fees billed by a public company's
accountants in each of the company's two most recent fiscal years.

Fees
billed to the Company for professional services by its principal accountant, Deloitte & Touche, during the fiscal years 2003 and 2004 were as follows:

|                  
|------------------
|
|
|
|
|Audit Fees        
|Audit-related Fees
|Tax Fees          
|Other Fees        
|Total             
|                  

In the above table, "audit fees" are the aggregate fees billed by Deloitte & Touche for professional services in connection with the audit
of the Company's consolidated annual financial statements as well as audits of statutory financial statements of BASF AG and its affiliates. Also included in "audit fees" are amounts billed for
attestation services in relation to regulatory filings and other compliance requirements. "Audit-related fees" are fees billed by Deloitte & Touche for due diligence engagements related to
acquisitions or divestitures as well as audit-related attestation regarding compliance with certain agreements and regulatory requirements. "Tax fees" include primarily fees for tax advice on actual
or contemplated transactions, expatriate employee tax services and transfer pricing studies. "Other fees" concern amounts billed in connection with insurance damage claims as well as numerous other
services.

In
accordance with German law, BASF's independent auditors are appointed by the Annual Shareholders' Meeting based on a recommendation of our Supervisory Board. The Audit Committee of
the Supervisory Board prepares the board's recommendation on the selection of the independent auditors. Subsequent to the auditors' appointment, the Audit Committee awards the contract and in its sole
authority approves the terms and scope of the audit and all audit engagement fees as well as monitors the auditors' independence. On April 29, 2004, the Annual Shareholders' Meeting appointed
Deloitte & Touche GmbH, Wirtschaftsprüfungsgesellschaft, to serve as the Company's independent auditors for the 2004 fiscal year.

In
order to assure the integrity of independent audits, BASF's Audit Committee adopted pre-approval policies and procedures pursuant to which the Audit Committee annually
pre-approves certain types of services to be performed by BASF's independent auditors. Under the policies, the Company's independent auditors are not allowed to perform any
non-audit services which may impair the auditors' independence

128

---



under
the rules of the U.S. Securities and Exchange Commission. Furthermore, the Supervisory Board has limited the aggregate amount of non-audit fees payable to Deloitte & Touche
during 2005 to a maximum of €1.5 million for services rendered for BASF Aktiengesellschaft and €5.0 million for services for all other companies of the
BASF Group.

Services
not included in one of the types of pre-approved services covered by the pre-approval policies and procedures require specific authorization of the Audit
Committee. An approval may not be granted if the service falls into a category of services not permitted by applicable law or if it is inconsistent with maintaining auditor independence.

Item
16D.    Exemptions from the Listing Standards for Audit Committee

Not applicable.

Item
16E.    Purchases of Equity Securities by the Issuer and Affiliated Purchasers

BASF Aktiengesellschaft has a stock repurchase program currently in existence. The purchases made in 2004 in accordance with this program are
listed in the table below.

Issuer Purchases of Equity Securities

|                                  |  | (a) Total Number
of Shares
Purchased |  | (b) Average
Price
Paid Per
Share
in € |  | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |  | (d) Maximum
Number of
Shares That
May Yet Be
Purchased
Under the
Plans or
Programs |    
|--------------------------------- |  | ------------------------------------ |  | ------------------------------------- |  | ------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------- | ---
|From January 1 to January 31,     |  |                                      |  |                                       |  |                                                                                      |  | 500,000,000                                                                        | (1)
|From February 1 to February 29,   |  | 640,000                              |  | 42.02                                 |  | 640,000                                                                              |  | 473,099,700                                                                        |    
|From March 1 to March 31,         |  | 2,630,000                            |  | 41.47                                 |  | 2,630,000                                                                            |  | 363,987,550                                                                        |    
|From April 1 to April 30,         |  | 410,000                              |  | 41.34                                 |  | 410,000                                                                              |  | 347,032,350                                                                        |    
|From May 1 to May 31,             |  | 1,880,000                            |  | 40.95                                 |  | 1,880,000                                                                            |  | 270,011,150                                                                        |    
|From June 1 to June 30,           |  | 1,610,000                            |  | 43.40                                 |  | 1,610,000                                                                            |  | 200,120,700                                                                        |    
|From July 1 to July 31,           |  | 2,135,000                            |  | 43.69                                 |  | 2,135,000                                                                            |  | 106,816,870                                                                        |    
|From August 1 to August 31,       |  | 378,000                              |  | 43.74                                 |  | 378,000                                                                              |  | 90,278,580                                                                         |    
|From September 1 to September 30, |  | 1,810,000                            |  | 45.80                                 |  | 1,810,000                                                                            |  | 7,345,630                                                                          |    
|From October 1 to October 31,     |  | 2,020,000                            |  | 47.64                                 |  | 2,020,000                                                                            |  | 411,076,130                                                                        | (2)
|From November 1 to November 30,   |  | 1,120,000                            |  | 50.23                                 |  | 1,120,000                                                                            |  | 354,801,330                                                                        |    
|From December 1 to December 31,   |  | 1,570,000                            |  | 51.44                                 |  | 1,570,000                                                                            |  | 274,018,980                                                                        |    
|Total                             |  | 16,203,000                           |  | 44.79                                 |  | 16,203,000                                                                           |  |                                                                                    |    

---

129

---





PART III

Item
17.    Financial Statements

Not applicable.

Item
18.    Financial Statements

The
following Consolidated Financial Statements, together with the report of Deloitte & Touche GmbH thereon, are filed as part of this Annual Report.

|                                  |                                                                                                      | Page
|--------------------------------- | ---------------------------------------------------------------------------------------------------- | ----
|Report of Independent Accountants |                                                                                                      | F-2 
|Consolidated Financial Statements |                                                                                                      |     
|                                  | Consolidated Statements of Income for the years ended December 31, 2004, 2003
and 2002               |     
|                                  | Consolidated Balance Sheets at December 31, 2004 and 2003                                            |     
|                                  | Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002           |     
|                                  | Consolidated Statements of Stockholders' Equity for the years ended December 31, 2004, 2003 and 2002 |     
|                                  | Notes to the Consolidated Financial Statements                                                       |     

F-1

---





REPORT OF INDEPENDENT ACCOUNTANTS

We have audited the accompanying consolidated balance sheets of BASF Aktiengesellschaft and subsidiaries as of December 31, 2004 and 2003,
and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2004. 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 Germany and the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In
our opinion, such Consolidated Financial Statements present fairly, in all material respects, the financial position of BASF Aktiengesellschaft and its subsidiaries as of
December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting
principles generally accepted in Germany.

As
discussed in Note 2 to the Consolidated Financial Statements, the Company changed its method of accounting for inventories and pensions in 2004.

Application
of accounting principles generally accepted in the United States of America would have affected stockholders' equity as of December 31, 2004 and 2003 and net income
for each of the three years in the period ended December 31, 2004 to the extent summarized by the Company in Note 3 to the Consolidated Financial Statements.

Frankfurt
am Main,

February 23,
2005

Deloitte &
Touche GmbH
Wirtschaftsprüfungsgesellschaft

|                                |  |                            
|------------------------------- |  | ---------------------------
|Dr. Künnemann
Wirtschaftsprüfer |  | Dr. Beine
Wirtschaftsprüfer

F-2

---



BASF GROUP
CONSOLIDATED STATEMENTS OF INCOME
(Million € and Million $, Except Per Share Amounts)

|                                                                                                             | 
|------------------------------------------------------------------------------------------------------------ | 
|
|
|Sales                                                                                                        | 
|Natural gas taxes                                                                                            | 
|                                                                                                             | 
|Sales, net of natural gas taxes                                                                              | 
|                                                                                                             | 
|Cost of sales                                                                                                | 
|                                                                                                             | 
|Gross profit on sales                                                                                        | 
|                                                                                                             | 
|Selling expenses                                                                                             | 
|General administrative expenses                                                                              | 
|Research and development expenses                                                                            | 
|Other operating income                                                                                       | 
|Other operating expenses                                                                                     | 
|                                                                                                             | 
|Income from operations                                                                                       | 
|                                                                                                             | 
|Expense/income from financial assets                                                                         | 
|Write-downs of, and losses from, retirement of financial assets as well as securities held as current assets | 
|Interest result                                                                                              | 
|                                                                                                             | 
|Financial result                                                                                             | 
|                                                                                                             | 
|Income before taxes and minority interests                                                                   | 
|                                                                                                             | 
|Income taxes                                                                                                 | 
|                                                                                                             | 
|Income before minority interests                                                                             | 
|                                                                                                             | 
|Minority interests                                                                                           | 
|                                                                                                             | 
|Net income                                                                                                   | 
|                                                                                                             | 
|Earnings per share                                                                                           | 
|                                                                                                             | 

Solely for the convenience of the reader, the 2004 financial information has been translated into U.S. dollars using the
December 31, 2004 noon buying rate of the Federal Reserve Bank of New York of $1.3538 = €1.00.

The
accompanying Notes are an integral part of these Consolidated Financial Statements.

F-3

---



BASF GROUP
CONSOLIDATED BALANCE SHEETS
(Million € and Million $)

|                                                | 
|----------------------------------------------- | 
|
|
|Assets                                          | 
|Intangible assets                               | 
|Property, plant and equipment                   | 
|Financial assets                                | 
|                                                | 
|Fixed assets                                    | 
|                                                | 
|Inventories                                     | 
|Accounts receivable, trade                      | 
|Receivables from affiliated companies           | 
|Miscellaneous receivables and other assets      | 
|                                                | 
|Receivables and other assets                    | 
|                                                | 
|Marketable securities                           | 
|Cash and cash equivalents                       | 
|                                                | 
|Liquid funds                                    | 
|                                                | 
|Current assets                                  | 
|                                                | 
|Deferred taxes                                  | 
|Prepaid expenses                                | 
|                                                | 
|Total assets                                    | 
|                                                | 
|Stockholders' equity and liabilities            | 
|Subscribed capital                              | 
|Capital surplus                                 | 
|Retained earnings                               | 
|Currency translation adjustment                 | 
|Minority interests                              | 
|                                                | 
|Stockholders' equity                            | 
|                                                | 
|Provisions for pensions and similar obligations | 
|Provisions for taxes                            | 
|Other provisions                                | 
|                                                | 
|Provisions                                      | 
|                                                | 
|Bonds and other liabilities to capital market   | 
|Liabilities to credit institutions              | 
|Accounts payable, trade                         | 
|Liabilities to affiliated companies             | 
|Miscellaneous liabilities                       | 
|                                                | 
|Liabilities                                     | 
|                                                | 
|Deferred income                                 | 
|                                                | 
|Total stockholders' equity and liabilities      | 
|                                                | 

Solely for the convenience of the reader, the 2004 financial information has been translated into U.S. dollars using the
December 31, 2004 noon buying rate of the Federal Reserve Bank of New York of $1.3538 = €1.00.

The
accompanying Notes are an integral part of these Consolidated Financial Statements.

F-4

---



BASF GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS*
(Million € and Million $, Except Per Share Amounts)

|                                                                               |                                           
|------------------------------------------------------------------------------ | ------------------------------------------
|
|Net income                                                                     |                                           
|Depreciation and amortization of fixed assets                                  |                                           
|Changes in inventories                                                         |                                           
|Changes in receivables                                                         |                                           
|Changes in other operating liabilities and provisions                          |                                           
|Changes in pension provisions, prepaid pension assets and other non-cash items |                                           
|Net gains from disposal of fixed assets and marketable securities              |                                           
|                                                                               |                                           
|Cash provided by operating activities                                          |                                           
|                                                                               |                                           
|Payments related to tangible and intangible fixed assets                       |                                           
|Payments related to financial assets and securities                            |                                           
|Payments related to acquisitions                                               |                                           
|Proceeds from divestitures                                                     |                                           
|Proceeds from the disposal of fixed assets and securities                      |                                           
|                                                                               |                                           
|Cash used in investing activities                                              |                                           
|                                                                               |                                           
|Proceeds from capital increases/(reductions)                                   |                                           
|Share repurchase                                                               |                                           
|Proceeds from the addition of financial indebtedness                           |                                           
|Repayment of financial indebtedness                                            |                                           
|Dividends paid                                                                 |                                           
|                                                                               | to shareholders of BASF Aktiengesellschaft
|                                                                               | to minority shareholders                  
|                                                                               |                                           
|Cash used in financing activities                                              |                                           
|                                                                               |                                           
|Net change in cash and cash equivalents                                        |                                           
|                                                                               |                                           
|Effects on cash and cash equivalents                                           |                                           
|                                                                               | from foreign exchange rates               
|                                                                               | from changes in scope of consolidation    
|Cash and cash equivalents as of beginning of year                              |                                           
|                                                                               |                                           
|Cash and cash equivalents as of end of year                                    |                                           
|                                                                               |                                           
|Marketable securities                                                          |                                           
|Liquid funds as shown on the balance sheet                                     |                                           
|                                                                               |                                           

Solely for the convenience of the reader, the 2004 financial information has been translated into U.S. dollars using the
December 31, 2004 noon buying rate of the Federal Reserve Bank of New York of $1.3538 = €1.00.

The accompanying Notes are an integral part of these Consolidated Financial Statements.

F-5

---



BASF GROUP
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Million €)

|                                                                                            | 
|------------------------------------------------------------------------------------------- | 
|
|January 1, 2004                                                                             | 
|Share buy-back and cancellation of own shares including own shares intended to be cancelled | 
|Dividends paid                                                                              | 
|Net income                                                                                  | 
|(Decrease)/increase of foreign currency translation adjustments.                            | 
|Capital payments/repayments other companies                                                 | 
|Change in accounting and valuation methods                                                  | 
|Changes in scope of consolidation and other changes                                         | 
|December 31, 2004                                                                           | 
|                                                                                            | 



|                                                                                            | 
|------------------------------------------------------------------------------------------- | 
|
|January 1, 2003                                                                             | 
|Share buy-back and cancellation of own shares including own shares intended to be cancelled | 
|Dividends paid                                                                              | 
|Net income                                                                                  | 
|(Decrease)/increase of foreign currency translation adjustments                             | 
|Changes in scope of consolidation and other changes                                         | 
|December 31, 2003                                                                           | 
|                                                                                            | 

F-6

---



|                                                                                            | 
|------------------------------------------------------------------------------------------- | 
|
|January 1, 2002                                                                             | 
|Share buy-back and cancellation of own shares including own shares intended to be cancelled | 
|Dividends paid                                                                              | 
|Net income                                                                                  | 
|(Decrease)/increase of foreign currency translation adjustments                             | 
|Capital injection by minority interests.                                                    | 
|Changes in scope of consolidation and other changes                                         | 
|December 31, 2002                                                                           | 
|                                                                                            | 

The accompanying Notes are an integral part of these Consolidated Financial Statements.

F-7

---





BASF GROUP        NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.    Summary of accounting policies

(a)   Basis of presentation

The Consolidated Financial Statements of BASF Aktiengesellschaft ("BASF" or "BASF Aktiengesellschaft") are based on the accounting and valuation
principles of the German Commercial Code (Handelsgesetzbuch) and the German Stock Corporation Act
(Aktiengesetz) as well as the accounting standards of the German Accounting Standards Committee (Deutscher
Standardisierungsrat), collectively German GAAP. Due to the conversion to International Financial Reporting Standards (IFRS) mandated by the European Union for the 2005
reporting year, the IFRS have been followed in the 2004 reporting year to the greatest extent allowable under German GAAP. Reconciliation of net income and shareholders' equity of the differences to
U.S. GAAP is described in Note 3 to these Consolidated Financial Statements.

The
translation of euros into U.S. dollars ($) has been made solely for the convenience of the reader at the noon buying rate of the Federal Reserve Bank of New York on
December 31, 2004, which was $1.3538 = €1.00. No representation is made that such euro amounts could have been or could be converted into dollars at that or any other
exchange rate on such date or any other dates.

(b)  Scope of consolidation

The Consolidated Financial Statements include BASF Aktiengesellschaft, the parent company, and all material subsidiaries in which BASF
Aktiengesellschaft directly or indirectly exercises a majority of the voting rights (collectively, the "Company"). Furthermore, material jointly operated companies are included on a proportional
consolidation basis, with the exception of the joint venture Basell Group, which is accounted for using the equity method. Basell Group operates largely independently and is not included in the
planning and approval processes of BASF.

Consolidated
companies and changes to the scope of consolidation:

|                                      
|--------------------------------------
|
|Consolidated companies as of January 1
|                                      
|First-time consolidations             
|                                      
|Deconsolidations                      
|                                      
|                                      
|Consolidated as of December 31        
|                                      
|                                      

Subsidiaries
and joint ventures, whose impact on the net worth, financial position and results of the Company are individually and in the aggregate immaterial, are excluded from the
scope of consolidation.

Generally,
affiliated companies not consolidated due to immateriality, non-proportionally consolidated jointly owned companies and associated companies are accounted for
using the equity method. Associated

F-8

---



companies
represent those entities where the Company has a participation of at least 20% and exercises a significant influence over the operating and financial policies. Overall, this applies to:

|                          
|--------------------------
|
|Affiliated companies      
|Joint ventures            
|Other associated companies
|Total                     
|                          

Major
changes to the scope of consolidation are as follows:

First-time
consolidations in 2004 comprise:



Deconsolidations
in 2004 included two companies due to their decreasing significance, and five due to corporate restructuring or liquidation. In addition, seven companies were
deconsolidated as a result of the sale of the printing systems business to CVC Capital Partners.

First-time
consolidations in 2003 comprise:



Deconsolidations
in 2003 comprise:



First-time
consolidations in 2002 comprise:



F-9

---





Deconsolidations
in 2002 comprise:



Acquisitions/divestitures

In January 2004, BASF purchased the plasticizer business from Sunoco, United States, for €72 million
($91 million). The transaction includes production plants for phthalic anhydride and oxo alcohols in Pasadena, Texas, as well as various intangible assets and inventories. Divestitures included
primarily the sale of the printing systems business to CVC Capital Partners on November 30, 2004.

In
2003, BASF purchased a package of crop protection products, including the insecticide fipronil and certain seed treatment fungicides, from Bayer CropScience, Germany for approximately
€1.2 billion. In addition, acquisitions in 2003 included the acquisition of the engineering plastics business from Honeywell, United States, for $250 million and the
purchase of the Callery Chemical Division from the Mine Safety Appliance Company, United States, for approximately $65 million. Significant divestitures in 2003 involved, in particular, the
sale of BASF's nylon fibers business to Honeywell, for $160 million.

Changes
in the scope of consolidation, acquisitions and divestitures had the following effects on the sales and the balance sheet of the BASF Group:

|                                     |                                        |                                   |      |        |     |         |       |        |     | 2002   |      
|------------------------------------ | -------------------------------------- | --------------------------------- | ---- | ------ | --- | ------- | ----- | ------ | --- | ------ | -----
|
|
|Sales                                |                                        | 301.3                             |      | 0.9    |     | 377.8   |       | 1.2    |     | (209.5 | )    
|                                     | Thereof:                               |                                   |      |        |     |         |       |        |     |        |      
|                                     |                                        | Acquisitions                      |      | 504.5  |     | 1.5     |       | 633.3  |     | 2.0    |      
|                                     |                                        | Divestitures                      |      | (246.7 | )   | (0.7    | )     | (260.8 | )   | (0.8   | )    
|                                     |                                        | Changes in scope of consolidation |      | 43.5   |     | 0.1     |       | 5.3    |     |       |      
|Fixed assets                         |                                        | (13.2                             | )    | (0.1   | )   | 1,252.8 |       | 6.1    |     | 705.3  |      
|                                     | Thereof property, plant and equipment. |                                   | 30.2 |        | 0.2 |         | 176.0 |        | 1.3 |        | 414.5
|Inventories and receivables          |                                        | (380.1                            | )    | (2.8   | )   | 239.2   |       | 1.7    |     | 49.2   |      
|Liquid funds                         |                                        | 628.0                             |      | 100.1  |     | 0.4     |       | 0.1    |     | 24.1   |      
|                                     |                                        |                                   |      |        |     |         |       |        |     |        |      
|Assets                               |                                        | 234.7                             |      | 0.7    |     | 1,492.4 |       | 4.3    |     | 778.6  |      
|                                     |                                        |                                   |      |        |     |         |       |        |     |        |      
|Stockholders' equity                 |                                        | 398.2                             |      | 2.5    |     | 2.8     |       |       |     | (19.5  | )    
|Financial liabilities                |                                        | 3.6                               |      | 0.1    |     | 1,406.1 |       | 38.9   |     | 285.7  |      
|Other liabilities                    |                                        | (167.1                            | )    | (1.2   | )   | 83.5    |       | 0.6    |     | 512.4  |      
|Stockholders' equity and liabilities |                                        | 234.7                             |      | 0.7    |     | 1,492.4 |       | 4.3    |     | 778.6  |      
|                                     |                                       

Announced acquisitions/divestitures

In January 2005, BASF agreed to acquire the electronic chemicals business of Merck KGaA, Germany, for €270 million.
The transaction includes production and distribution centers for high purity chemicals in Asia and Europe. Merck's sales in this business amounted to approximately €200 million
in 2004. This business will be included in the Inorganics division in the future. The transaction is subject to approval by the relevant antitrust authorities.

BASF
and Shell announced on July 29, 2004 that they are reviewing strategic alternatives regarding their polyolefins joint venture Basell, in which they both hold a 50% equity
interest. The options being reviewed by the shareholders include the sale of their stakes and an equity market transaction.

F-10

---



Proportional consolidation

Condensed financial information relating to the Company's pro rata interest in jointly operated companies accounted for using the proportional
consolidation method is as follows:

Income Statement Information

|                                          
|------------------------------------------
|
|
|
|Sales                                     
|Gross profit                              
|Income from operations                    
|Income before taxes and minority interests
|Net income                                
|                                          

Balance Sheet Information

|                                          
|------------------------------------------
|
|
|
|Fixed assets                              
|                                          
|Inventories and receivables               
|Liquid funds                              
|                                          
|Total assets                              
|                                          
|Stockholders' equity                      
|Provisions                                
|Financial liabilities                     
|Other liabilities                         
|Total liabilities and stockholders' equity
|                                          

Cash Flow Information

|                                                | 
|----------------------------------------------- | 
|
|
|
|Cash provided by operating activities           | 
|Cash used in investing activities               | 
|Cash used in (provided by) financing activities | 
|Net change in cash and cash equivalents         | 
|                                                | 

F-11

---



Summarized financial information for significant associated companies accounted for using the equity method

Condensed financial information of the significant companies accounted for using the equity method, including the Basell Group (BASF's share:
50%), from 2002, the Solvin Group (BASF's share: 25%), Svalöf Weibull Group (BASF's share: 40%) and, until September 2003, DyStar Group (BASF's share: 30%), is as follows:

Income Statement

|                                           |  | Year Ended December 31,
|------------------------------------------ |  | -----------------------
|
|
|Sales                                      |  | 8,052.7                
|Gross profit                               |  | 1,131.7                
|Income from operations                     |  | 296.4                  
|Income before taxes and minority interests |  | 318.3                  
|Net income                                 |  | 222.6                  
|BASF's share of net income                 |  | 93.9                   
|                                          

Balance Sheet Information

|                                           |                                        | As of December 31,
|------------------------------------------ | -------------------------------------- | ------------------
|
|
|Fixed assets                               |                                        | 5,258.4           
|                                           | Thereof property, plant, and equipment |                   
|Inventories and receivables                |                                        | 2,478.4           
|Liquid funds                               |                                        | 8.0               
|                                           |                                        |                   
|Total assets                               |                                        | 7,744.8           
|                                           |                                        |                   
|Stockholders' equity                       |                                        | 3,540.3           
|Provisions                                 |                                        | 819.3             
|Financial liabilities                      |                                        | 1,437.4           
|Other liabilities                          |                                        | 1,947.8           
|Total liabilities and stockholders' equity |                                        | 7,744.8           
|BASF's investment                          |                                        | 1,695.8           
|                                          

List of shares held:A list of companies included in the Consolidated Financial Statements as well as a list
of all companies in which BASF has a participation, has been deposited in the Commercial Register HRB 3000 in Ludwigshafen (Rhine), Germany, as required by the German Commercial Code,
Section 313 (2). The List of Shares Held can be obtained as a separate report from BASF Aktiengesellschaft, and is available on the Internet at www.basf.de/governance_e/reports.

(c)   Summary of significant accounting policies

Balance sheet date:The Consolidated Financial Statements are generally prepared using the individual
financial statements of the companies forming part of the group (hereinafter referred to as "consolidated companies"). Such financial statements are generally prepared as of the balance sheet date of
the Consolidated Financial Statements. In certain cases, interim financial statements or adjusted statements as of the balance sheet date of the Consolidated Financial Statements are prepared and
used.

F-12

---



Uniform valuation:Assets and liabilities of consolidated companies are accounted for and valued
uniformly in accordance with the principles described herein. Where the accounting and valuation methods applied in the financial statements of the consolidated companies differ from these principles,
appropriate adjustments are made to the relevant items. For companies accounted for under the equity method, significant deviations in the valuation methods are adjusted.

Eliminations:Transactions between consolidated companies as well as inter-company profits resulting
from sales between consolidated companies are eliminated in full, and those for jointly operated companies on a pro rata basis. Inter-company profits resulting from sales to companies accounted for
under the equity method, on customary market conditions are eliminated if they are material.

Capital consolidation:Capital consolidation is based on the purchase method. At the time of
acquisition, the acquisition cost of participations is offset against the proportionate share of equity acquired. Differences arising are allocated to the assets or liabilities of the acquired company
up to their fair values or capitalized as intangible fixed assets, if they can be reliably identified and measured. Differences not allocated to individual assets are capitalized as goodwill and
amortized within the expected useful life, within a period of five to 20 years.

Revenue recognition:Revenues from product sales and the performance of services are recognized upon
shipment to customers or performance of services if ownership and risks are transferred to the buyer. Provisions for discounts, sales returns, rebates to customers, estimated future warranty
obligations and other claims are provided for in the same period the related sales are recorded.

Research and Development:Research and development is expensed as incurred.

Advertising:Advertising is expensed as incurred.

Intangible assets:Intangible assets are valued at acquisition cost less scheduled
straight-line amortization. The weighted average amortization period for the intangible assets is 11 years for 2004 and 2003 based on the following expected useful lives:

|                                                  
|--------------------------------------------------
|
|
|Goodwill                                          
|Product rights, and licenses                      
|Marketing, supply and similar rights              
|Know-how and patents                              
|Concessions, exploration rights and similar rights
|Software                                          
|Other rights and values                           
|                                                  

Goodwill
is assigned to reporting units and tested annually for impairment in accordance with U.S. GAAP. There are two steps to the goodwill impairment test. The first step, used to
identify potential impairment, compares the fair value of a reporting unit with its carrying value, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the second
step is performed to measure the amount of impairment loss, if any. The second step compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the
carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. In computing fair value, the Company
utilizes discounted future cash flows, based on long-term earnings forecasts for the reporting units taking into account macroeconomic and business conditions (see also Note 3i).

The
Company evaluates intangible assets whenever significant events or changes in circumstances occur which might impair recovery of recorded asset costs.

F-13

---



Property, plant and equipment:Property, plant and equipment are stated at acquisition or production
cost less scheduled depreciation over their estimated useful lives. Low-value assets are fully depreciated in the year of acquisition and are shown as retirements.

The
cost of self-constructed plants includes direct costs and an appropriate proportion of the overhead cost of units involved in the construction. Financing costs are not
capitalized. Fixed assets, including long-distance natural gas pipelines, are depreciated using the straight-line method. Movable fixed assets put into operation before the end
of 2000 are mostly depreciated by the declining balance method, with a change to straight-line depreciation when this results in higher depreciation amounts.

The
weighted average periods of depreciation are as follows for 2004 and 2003:

|                                                  |  | Estimated Lives (Years)
|------------------------------------------------- |  | -----------------------
|
|Buildings and structural installations            |  | 25                     
|Industrial plant and machinery                    |  | 12                     
|Long-distance natural gas pipelines               |  | 25                     
|Working and office equipment and other facilities |  | 8                      
|                                                 

Property,
plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Measurement of
an impairment loss for long-lived assets that the Company expects to hold and use is based on the fair value of the asset that is usually based on the discounted expected future cash flows
from the use of the asset and its eventual disposition.

The
Company follows the successful efforts method of accounting for its oil and gas operations. Under this method, costs of successful and uncompleted oil and gas drilling operations are
capitalized as tangible assets. Successful drillings are depreciated based on the production and estimated available reserves. Successful drillings of German operations that were completed before the
end of 2000 are depreciated under the declining balance method over the estimated useful lives of eight years (for drilling in old fields) and 15 years. Geophysical expenditures, including
exploratory and dry-hole costs, are charged against income.

Financial assets:Shares in more significant non-consolidated affiliated or associated
companies are accounted for by the equity method. Other shares, participations and securities held as fixed assets are shown at acquisition cost or, where an
other-than-temporary impairment of value occurs, at the appropriate lower values. Investments in affiliated and associated companies accounted for using the equity method are
carried at cost of acquisition, plus the Company's equity in undistributed earnings. Goodwill associated with such investments is amortized over a period of up to 10 years.

Interest-bearing
loans are stated at cost; non-interest-bearing loans or loans at below market interest rates are stated at their present value. Loans are considered impaired
when, based on current information and events, it is probable that the Company will be unable to collect all amounts due. In such circumstances, the Company recognizes an impairment loss based on the
estimated fair value of the loan.

Inventories:Inventories are carried at acquisition costs or production costs. They are valued at
market values if lower than cost. These lower values are calculated using the lower of the average cost method for acquisition or re-production of raw materials and factory supplies and
merchandise, or the expected sales proceeds less costs to be incurred prior to sale.

Production
costs include, in addition to direct costs, an appropriate allocation of overhead cost of production using normal utilization rates of the production plants. In addition,
starting in 2004, pensions, social services, or voluntary social benefits are included, provided they relate to the production process. Financing costs are not included in production costs.

F-14

---



"Construction-in-progress"
relates mainly to chemical plants under construction for third parties. Profits are recognized at finalization of a part of a project.
Expected losses are recognized by write-downs to the lower attributable values.

Receivables and other assets:Receivables are generally carried at their nominal value. Notes
receivable and loans generating no or a low-interest income are discounted to their present values. Lower attributable values due to risks of collectibility and transferability are covered
by appropriate valuation allowances.

Cash and cash equivalents:Cash and cash equivalents comprise marketable securities with original
maturities of three months or less, cash at banks, cash on hand and checks in transit. Marketable securities are valued at cost. They are valued at quoted or market values if lower than cost.

Deferred tax assets:Deferred tax assets are recorded for taxable temporary differences between the
valuation of assets and liabilities in the financial statements of the consolidated companies and the carrying amounts for tax purposes. In addition, deferred taxes are recorded for tax loss
carryforwards. For companies located in Germany a 38% tax rate is applied; for other companies the tax rates applicable in the individual countries are used. Appropriate valuation allowances are made
if expected future earnings of a company make it seem more likely than not that the tax benefits will not be realized.

Provisions:Provisions for pensions are based on actuarial computations made predominantly according
to the projected unit credit method. Similar obligations, especially those arising from commitments made by North American Group companies to pay the healthcare costs and life insurance premiums of
retired staff and their dependents, are included in pension provisions.

Tax
provisions are recognized for German trade income tax and German corporate income tax and similar income taxes in the amount necessary to meet the expected payment obligations, less
any prepayments that have been made. Other than assessed taxes are taken into account appropriately.

Provisions
for deferred taxes are recognized for a net liability from taxable temporary differences between the valuation of assets and liabilities in the financial statements of the
consolidated companies and the carrying amounts for tax purposes, using the tax rates applicable in the individual countries.

Other
provisions are recorded for the expected amounts of contingent liabilities and probable losses from pending transactions. Certain conditions may exist as of the date the financial
statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. If the assessment of a contingency indicates
that it is probable that
a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company's financial statements.

Maintenance
provisions are established to cover omitted maintenance procedures as of the end of the year, and are expected to be incurred within the first three months of the following
year. The amount provided is based on reasonable commercial judgment.

Provisions
are established for environmental protection measures and risks if the measures are necessary to comply with legal or regulatory obligations and do not result in items to be
capitalized as production costs. Liabilities for these expenditures are recorded on an undiscounted basis when environmental assessments or cleanups are probable, the costs can be reasonably estimated
and no future economic benefit is expected. Provisions for required recultivation associated with oil and gas operations, especially the filling of wells and clearance of oil fields, or the operation
of landfill sites are built up over their expected service lives.

In
addition, provisions are accrued for regular shutdowns within prescribed intervals of certain large-scale plants. Provisions are accrued in installments until the next scheduled
shutdown based upon the expected costs to carry out these measures. Provisions are not recorded for the costs to temporarily shut

F-15

---



down
the facilities or for forgone earnings. Provisions for expected severance payments or similar personnel expenses are accrued for restructuring measures that have been decided upon and publicly
announced by management.

Provisions
for long-service and anniversary bonuses are actuarially calculated, predominantly using an interest rate of 3.75%. For pre-retirement
part-time programs, the present value of supplemental (top-up) payments are provided when the employee accepts the offer and the wage and salary payments due during the passive
phase of agreements are accrued through installments and discounted at an interest rate of 3.0%. Provisions are recorded for the expected costs of pre-retirement part-time
programs that are anticipated to be contracted during the term of the collective bargaining agreements, taking into consideration the ceilings provided in the collective agreements.

The
formation of provisions for the BASF stock option program (BOP) and BASF's incentive share program "plus" is described in detail in Note 26.

Conversion of foreign currency items:The cost of assets acquired in foreign currencies and revenues
from sales in foreign currencies are recorded at current rates on transaction dates.
Short-term foreign currency receivables and liabilities are valued at the rate on the balance sheet date. Long-term foreign currency receivables are recorded at the rate
prevailing on the acquisition date or at the lower rate on the balance sheet date. Long-term foreign currency liabilities are recorded at the rate prevailing on the acquisition date or at
the higher rate on the balance sheet date. Foreign-currency receivables or liabilities that are hedged individually are carried at hedge rates.

Derivative financial instruments:Derivative financial instruments are treated as pending
transactions and are not recorded as assets or liabilities. Underlying transactions and hedging measures are combined and valued together, when applicable. Profits from hedging transactions that
cannot be allocated to a particular underlying transaction are recorded in income upon maturity. Unrealized losses from hedging transactions, which cannot be allocated to a particular underlying
transaction, are recognized currently in earnings and included in provisions.

The
use of derivative financial instruments to hedge against foreign currency, interest rate, and price risks is described in detail in Note 27.

Translation of foreign currency financial statements:The translation of foreign currency financial
statements conforms with Statement of Financial Accounting Standard (SFAS) 52. The local currency or the U.S. dollar, is the functional currency of BASF subsidiaries and jointly operated companies in
North America (NAFTA), Japan, Korea, China, Brazil, Malaysia and Singapore. Translation therefore takes place using the current rate method. Balance sheet items are translated to euros at
year-end rates except equity accounts at historical rates. Expenses and income are translated at monthly average rates and accumulated for the year. The effects of rate changes are shown
under "currency translation adjustment" as a separate component of equity and are treated as income or expense only when a company is disposed of.

The
euro is the functional currency for the remaining companies. Remeasurement therefore takes place using the temporal method: fixed assets except loans, and paid-in capital
are translated using historical rates. The other assets, liabilities, and provisions are translated using the year-end rates. Expenses and income are converted at monthly average rates
cumulated to year-end figures, except for those items derived from balance sheet items converted at historical rates, which are also translated at historical rates. Foreign exchange gains
or losses resulting from the remeasurement process are included in other operating expenses or income.

Earnings per share:The calculation of earnings per share is based on the average number of common
shares outstanding during the applicable period and the net income of the period. Repurchased shares are included in the calculation for the period of time that they are in circulation. In the 2004,
2003 and 2002 reporting periods, there was no dilution from the issuance of new stock.

F-16

---



Use of estimates in financial statement preparation:The preparation of financial statements requires
the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods. In the preparation of these Consolidated Financial Statements, estimates and assumptions have been made by management concerning
the selection of useful lives of property, plant and equipment and intangible assets, the measurement of provisions, the carrying value of investments, and other similar evaluations of assets and
obligations. Given the uncertainty regarding the determination of these factors, actual results could differ from these estimates.

2.    Changes in accounting principles

BASF Group is required to present its financial statements in compliance with the International Financial Reporting Standards (IFRS) of the
International Accounting Standards Board (IASB) for the 2005 reporting year due to a mandate by the European Union on July 19, 2002. In order to capture this development in the 2004 reporting
year, IFRS have been followed to the greatest extent allowable under German GAAP.

Adjustments
to IFRS include the accounting for pensions and personnel obligations as well as inventories. The effects of these changes as of January 1, 2004 are netted against the
retained earnings of the BASF Group.

The
accounting treatment of personnel obligations follows IAS 19 "Employee Benefits" starting from January 1, 2004 to the greatest extent allowable under German GAAP. This leads
to a new valuation whereby the funded status as the net amount of pension obligations and pension plan assets is presented in the balance sheet. The elimination of formerly deferred actuarial gains
and losses, considering deferred taxes, has led to a reduction in retained earnings of €290.8 million. Income after taxes is thereby increased by
€55.8 million, compared with the prior valuation method. Pension liabilities and pension-fund assets of the BASF Pensionskasse are not contained in the group figures
in accordance with German GAAP, but rather the company contributions to the BASF Pensionskasse are included under post-retirement expenses. The BASF Pensionskasse will be directly
incorporated in the financial statements following the conversion to IFRS on January 1, 2005.

As
the LIFO method is not allowed under IFRS, inventory valuation has been changed, and converted to the IFRS approved average cost method. The effect, when considering deferred taxes,
has led to an increase in retained earnings of €88.3 million as of January 1, 2004. Net income increased by €113.7 million compared with the former
valuation method.

For
BASF Petronas Chemicals Sdn. Bhd., Malaysia, and BASF South East Asia, Ltd., Singapore, the currency conversion method was changed from the temporal method to the current rate
method, according to the concept of functional currency, due to the increasing business volume from regional production. These businesses will now use the U.S. dollar rather than the euro as their
functional currency. Due to this change, currency conversion differences no longer effect income in the income statement, but rather are presented as part of translation adjustments in equity. A
€99.4 million reduction in the translation adjustment, and a €66.4 million reduction in minority interests resulted from this methodology change on
January 1, 2004.

F-17

---



3.    Reconciliation to U.S. GAAP

The Consolidated Financial Statements comply with IFRS as far as permissible under German GAAP. The differences between German and U.S. GAAP
relate to valuation methods that are required under U.S. GAAP but which are not permissible under German GAAP.

The
following is a summary of the significant adjustments to net income and stockholders' equity that would be required if U.S. GAAP had been fully applied rather than German GAAP.

|                                                                                                             | 
|------------------------------------------------------------------------------------------------------------ | 
|
|
|
|
|Reconciliation of Net Income to U.S. GAAP                                                                    | 
|Net income as reported in the Consolidated Financial Statements of income under German GAAP                  | 
|Adjustments required to conform with U.S. GAAP:                                                              | 
|Capitalization of interest                                                                                   | 
|Capitalization of software developed for internal use                                                        | 
|Accounting for pensions                                                                                      | 
|Accounting for provisions                                                                                    | 
|Accounting for derivatives at fair value and valuation of long-term foreign currency items at year end rates | 
|Valuation of securities at market values                                                                     | 
|Valuation adjustments relating to companies accounted for under the equity method                            | 
|Inventory valuation                                                                                          | 
|Reversal of goodwill amortization and write-offs due to permanent impairment                                 | 
|Other adjustments                                                                                            | 
|Deferred taxes and recognition of tax effects for dividend payments                                          | 
|Minority interests                                                                                           | 
|Net income in accordance with U.S. GAAP                                                                      | 
|                                                                                                             | 

Earnings per share

The calculation of earnings per common share is based on the weighted-average number of common shares outstanding during the applicable period.
The calculation of diluted earnings per common share reflects the effect of all dilutive potential common shares that were outstanding during the respective period. Shares awarded under the BASF
employee participation program "plus" have been included in the computation of diluted earnings per share. Due to a resolution by the Board of Executive Directors and the Supervisory Board in 2002,
settlements of stock options from the BASF stock option program (BOP) for senior management are made in cash, therefore such stock options have no dilutive effect.

F-18

---



The
earnings per share from continuing operations based on income from ordinary activities after taxes were not impacted by any dilutive effect in 2004, 2003 and 2002, because the impact
of potential common shares was anti-dilutive in each year.

|                                                        | 
|------------------------------------------------------- | 
|
|
|
|Net income in accordance with U.S. GAAP                 | 
|                                                        | 
|Number of shares (1,000)                                | 
|Weighted average undiluted number of shares             | 
|Dilutive effect                                         | 
|Weighted average diluted number of shares               | 
|                                                        | 
|Basic earnings per share in accordance with U.S. GAAP   | 
|Dilutive effect                                         | 
|Diluted earnings per share in accordance with U.S. GAAP | 
|                                                        | 

|                                                                                                             | 
|------------------------------------------------------------------------------------------------------------ | 
|
|
|
|Reconciliation of Stockholders' Equity to U.S. GAAP                                                          | 
|Stockholders' equity as reported in the Consolidated Balance Sheets under German GAAP                        | 
|Minority interests                                                                                           | 
|                                                                                                             | 
|Stockholders' equity excluding minority interests                                                            | 
|Adjustments required to conform with U.S. GAAP:                                                              | 
|Capitalization of interest                                                                                   | 
|Capitalization of software developed for internal use                                                        | 
|Accounting for pensions                                                                                      | 
|Accounting for provisions                                                                                    | 
|Accounting for derivatives at fair value and valuation of long-term foreign currency items at year end rates | 
|Valuation of securities at market values                                                                     | 
|Valuation adjustments relating to companies accounted for under the equity method                            | 
|Inventory valuation                                                                                          | 
|Reversal of goodwill amortization and write-offs due to permanent impairment                                 | 
|Other adjustments                                                                                            | 
|Deferred taxes and recognition of tax effects of dividend payments                                           | 
|Minority interests                                                                                           | 
|Stockholders' equity in accordance with U.S. GAAP                                                            | 
|                                                                                                             | 

F-19

---



The following table presents the effect of the change in the inventory costing method:

As Previously
Reported

Change in
Inventory
Costing Method

Restated(Million €, Except Per Share Data)2003Net income

1,337.7

(18.0
)
1,319.7Basic earnings per share

2.38

(0.03
)
2.35Diluted earnings per share

2.38

(0.03
)
2.35Stockholders' equity as of December 31

17,221.8

102.2

17,324.02002Net income

1,716.9

(0.7
)
1,716.2Basic earnings per share

2.96

.

2.96Diluted earnings per share

2.96

.

2.96Stockholders' equity as of December 31

17,919.8

120.2

18,040.0


(a)   Capitalization of interest

For U.S. GAAP purposes, the Company capitalizes interest on borrowings during the active construction period of major capital projects.
Capitalized interest is added to the cost of the underlying assets and is amortized over the useful lives of the assets. The capitalization of interest relating to capital projects is not permissible
under German GAAP. In calculating capitalized interest, the Company has made assumptions with respect to the capitalization rate and the average amount of accumulated expenditures. The Company's
subsidiaries generally use the entity-specific weighted-average borrowing rate as the capitalization rate.

(b)  Capitalization of software developed for internal use

Certain costs incurred for computer software developed or obtained for the Company's internal use are to be capitalized and amortized over the
expected useful life of the software. Such costs have been expensed in these financial statements because the capitalization of self-developed intangible assets is not permissible under
German GAAP.

(c)   Accounting for pensions

Pension benefits under Company pension schemes are partly funded in a legally independent fund "BASF Pensionskasse VVaG" ("BASF Pensionskasse").
Pension liabilities and plan assets of BASF Pensionskasse are not included in BASF Group's balance sheet. However, contributions to the BASF Pensionskasse are included in expenses for pensions and
assistance.

BASF
guarantees the commitments of the BASF Pensionskasse. For U.S. GAAP purposes, BASF Pensionskasse would be classified as a defined benefit plan and therefore included in the
calculation of net periodic benefit cost as well as the projected benefit obligation and plan assets. The valuation of the pension obligations under the projected unit credit method and of the fund
assets of BASF Pensionskasse at market values would result in a prepaid pension asset in accordance with U.S. GAAP that is not recorded in the Consolidated Financial Statements under German GAAP.

Net
periodic benefit cost in accordance with U.S. GAAP would be lower than showing the Company's contribution to the BASF Pensionskasse as expense.

F-20

---



Information about the funded status of the BASF Pensionskasse is provided in the following table:

|                                               
|-----------------------------------------------
|
|
|Plan assets as of December 31,                 
|Projected benefit obligation as of December 31,
|                                               
|Funded status                                  
|Unrecognized actuarial losses                  
|Prepaid pension asset                          
|                                               

The accumulated pension benefit obligation (ABO) in 2004 is €3,725.2 million and in 2003 is
€3,429.8 million.

The
valuation of certain pension plans of foreign subsidiaries, in accordance with SFAS 87 also resulted in prepaid pension assets. After consideration of unrecognized actuarial gains
and losses, €95.1 million in 2004, and €195.6 million in 2003 were included in the reconciliation to U.S. GAAP. In addition, the change in treatment of
pension liabilities explained in Note 2,
and the associated charge of accumulated actuarial gains and losses to shareholders' equity is eliminated for U.S. GAAP as the SFAS 87 accounting treatment is to be continued. In the case of an
additional minimum liability, equity according to U.S. GAAP is reduced.

(d)  Accounting for provisions

The reconciliation item contains the following deviations:



In these financial statements agreed upon top-up payments within the pre-retirement part-time programs are immediately accrued
in their full amount, and discounted at a rate of 3.0% (see note 22). A provision is also recorded for the expected costs for agreements that are anticipated to be concluded during the term of
the collective bargaining agreements, taking into consideration the ceilings on the number of employee participants provided in such collective bargaining agreements. In accordance with U.S. GAAP,
provisions may only be recorded for employees who have accepted an offer, and the supplemental payments are accrued over the employee's remaining service period. This results in a (decrease)/increase
in income under U.S. GAAP of €(22.3) million in 2004, €124.4 million in 2003, and €6.0 million in 2002. Stockholders' equity increased by
€154.7 million in 2004 and €140.0 million in 2003.



German GAAP requires companies to accrue provisions as of the end of the year for expected costs of omitted maintenance procedures expected to take place in the
first three months of the following year. Such costs would be expensed as incurred under U.S. GAAP. The amounts included in the reconciliation of net income related to maintenance provisions were
€(8.3) million in 2004, €(1.7) million in 2003, and €6.4 million in 2002. The amounts in the reconciliation of stockholders' equity were
€23.7 million in 2004, and €32.0 million in 2003.



SFAS 146, "Accounting for Costs Associated with Exit and Disposal Activities" requires expected costs associated with the exit or disposal of business
activities to be accrued only when a liability against a third party exists. This includes severance payments for employees, the cancellation of contracts, the shutdown of production facilities, and
the relocation of employees.

Since
the accruals for restructuring measures under German GAAP are recorded based upon management decisions, the application of SFAS 146 (decreased)/increased net income in
accordance with

F-21

---



U.S.
GAAP by €(20.9) million in 2004 (€23.5 million in 2003), and stockholders' equity by €1.6 million
(€23.3 million in 2003).



In the current financial statement, obligations for recultivation obligations due to oil and gas extraction are accrued. SFAS 143, "Accounting for Asset
Retirement Obligations" addresses financial accounting and reporting for obligations and costs associated with the retirement of tangible long-lived assets. The expected obligations and
costs associated with the demolition of plants and removal of potential damage to the environment have to be accrued as of the start of the production as additional cost for the related plants and are
depreciated over the useful life. This also includes the change of these potential liabilities due to adjustments to the conditions as of the balance sheet date.

In
addition, provisions accrued in 2004 for adaptation obligations in connection with the operation of production plants are not to be taken into consideration according to SOP
96-1, and have therefore been eliminated. Income was thereby increased by €13.9 million in 2004 and €3.8 million in 2003. Equity increased by
€25.8 million in 2004 and €11.4 million in 2003.



Provisions and liabilities are to be shown at nominal value according to German GAAP. According to U.S. GAAP, the values may be discounted if the aggregate amount
of the liability and the timing of payments are reliably determinable. This results in an income effect in 2004 of €38.6 million, which leads to an equity increase in the same
amount.

(e)   Accounting for derivatives at fair value and valuation of long-term foreign currency items

As required by SFAS 133, as amended, derivative contracts are to be accounted for at fair values. Where hedge accounting is not applicable,
changes in the fair values of derivative contracts are to be included in net income, together with foreign exchange gains and losses of the underlying transactions.

Under
German GAAP, long-term receivables and liabilities denominated in a foreign currency are converted into euros at the exchange rates of the date when the transactions
took place or the lower exchange rates at the end of the year for receivables and the higher exchange rates for liabilities. U.S. GAAP requires conversion at the exchange rate at the end of the year.

Under
German GAAP, unrealized gains on swaps and other forward contracts are deferred until settlement or termination while unrealized expected losses from firm commitments are
recognized as of each period end. Under U.S. GAAP, these contracts are marked to market.

Under
German GAAP, hedge accounting is achieved by a combined valuation of underlying hedged transactions and derivatives. Under U.S. GAAP such accounting is not permitted.
SFAS 133 requires that the hedged transaction and the derivative be accounted for separately, and extensive documentation regarding the hedge relationship be provided.

(f)    Valuation of securities

Under U.S. GAAP, available-for-sale securities are recorded at market values on the balance sheet date. If the effect
comes from unrealized profits or temporary decreases in value, the change in valuation is immediately recognized in a separate component of stockholders' equity. Realized profits and losses are
credited or charged to income, as are other than temporary impairments of value. The major part of securities and other investments are considered to be available-for-sale.
Under German GAAP, such securities and other investments are valued at the lower of acquisition cost or market value at the balance sheet date.

F-22

---



(g)  Valuation adjustments relating to companies accounted for under the equity method

For purposes of the reconciliation to U.S. GAAP, the earnings of companies accounted for using the equity method have been determined using
valuation principles prescribed by U.S. GAAP. The write-down of the interests in Basell N.V., the Netherlands, and Svalöf Weibull, Sweden, affected net income under German
GAAP in 2004. This also applies to the catch-up of scheduled amortization of goodwill of these companies under U.S. GAAP that was eliminated according to SFAS 142 (Goodwill and
other Intangible Assets) in the previous years.

(h)   Inventory valuation

In connection with the conversion to IFRS as of January 1, 2005, the current inventory valuation methods are being changed. This
specifically affects the LIFO method, which is not allowed under IFRS. This change requires prior years' amounts to be restated, according to APB 20.27. In the current year there were differences
resulting from the deductions required by German GAAP.

(i)    Reversal of goodwill amortization and write-offs due to permanent impairment

Goodwill is amortized over its useful life in accordance with German GAAP, however, the U.S. GAAP standard SFAS 142 "Goodwill and other
Intangible Assets," requires write-offs only based on annual impairment tests. The recoverability of goodwill is reviewed at the reporting-unit level by comparing the fair
value of the reporting unit determined using discounted future cash flows, to the carrying value. There were no material impairment write-downs required in 2004 or 2003. The regular goodwill
amortization included in these financial statements is reversed and added back to net income.

(j)    Other adjustments

This item primarily includes the adjustment of provisions for stock compensation.

Following
a resolution by the Board of Executive Directors in 2002, stock options are to be settled in cash. Under U.S. GAAP, such obligations are to be accounted for as stock
appreciation rights based on the intrinsic value of the options on the balance sheet date. However, options granted in prior years, for which cash settlement was not foreseen, are to be accounted for
in accordance with SFAS 123 as equity instruments based upon the fair value on the grant date.

In
the present Financial Statements, all obligations resulting from stock options are accounted for based upon the fair value on the balance sheet date. A provision is accrued over the
vesting period of the options. The different accounting methods led to an increase in net income in accordance with U.S. GAAP of €16.1 million in 2004, and
€17.2 million in 2003, and a decrease of €10.7 million in 2002.

In
the present Financial Statements, obligations resulting from stock options are shown as provisions. In accordance with U.S. GAAP, options for which cash settlement was not originally
foreseen are recorded as additions to stockholders' equity.

Overall,
the accounting for stock options resulted in a decrease in stockholders' equity of €9.4 million in 2004, and €14.6 million in 2003.

F-23

---



(k)   Deferred taxes

The adjustments required to conform with U.S. GAAP would result in taxable temporary differences between the valuation of assets and liabilities
in the Consolidated Financial Statements and the carrying amount for tax purposes. Resulting adjustments for deferred taxes primarily relate to the following:

|                                                                                                             | 
|------------------------------------------------------------------------------------------------------------ | 
|
|
|
|Capitalization of interest                                                                                   | 
|Capitalization of software developed for internal use                                                        | 
|Accounting for pensions                                                                                      | 
|Accounting for provisions                                                                                    | 
|Accounting for derivatives at fair value and valuation of long-term foreign currency items at year end rates | 
|Valuation of securities at market values                                                                     | 
|Valuation adjustments relating to companies accounted for under the equity method                            | 
|Inventory valuation                                                                                          | 
|Reversal of goodwill amortization and write-offs due to permanent impairment                                 | 
|Other adjustments                                                                                            | 
|Tax effects of dividend payments                                                                             | 
|                                                                                                             | 

---

The change of the deferred taxes for foreign currency translation adjustments is recognized in other comprehensive income.

In
2004, following a change to the German Corporate Income Tax Act (Section 8b), deferred taxes were, for the first time, accrued for tax effects of future dividend payments from
BASF Group companies, according to the financial plan.

In
2003, capitalized tax credits related to the distribution of retained earnings previously taxed at higher rates had to be written off in the German GAAP financial statements due to a
legal change. In accordance with U.S. GAAP, such tax credits are recognized as a reduction of income tax expenses in the period in which the tax credits are recognized for tax purposes. The resulting
burden on income therefore had to be eliminated in 2003 for U.S. GAAP purposes.

(l)    Minority interests

The share of minority shareholders in the aforementioned reconciliation items to U.S. GAAP of net income and stockholders' equity are reported
separately.

Consolidation of majority-owned subsidiaries:U.S. GAAP requires the consolidation of all controlled
subsidiaries. Under German GAAP, the Company does not consolidate certain subsidiaries if their individual or their combined effect on financial position, results of operations and cash flows is not
material. The effect of non-consolidated subsidiaries for 2004, 2003 and 2002, on total assets, total liabilities, stockholders' equity, net sales and net income was less than 2%.

Additionally,
under German GAAP, the Company accounts on a prospective basis for previous unconsolidated subsidiaries that are added to the scope of consolidation. U.S. GAAP requires
consolidation

F-24

---



for
all periods that a subsidiary is controlled. The effects of adding previously unconsolidated companies to the scope of consolidation on net sales, net income, assets and liabilities was
immaterial.

Proportional consolidation:The Company accounts for its investments in 12 jointly operated companies
(2003: 12, 2002: 11) using the proportional consolidation method, as permitted under German GAAP. Under U.S. GAAP, all investments in jointly operated companies must be accounted for using the
equity method. The differences in accounting treatment between proportional consolidation and the equity method of accounting have no impact on reported stockholders' equity or net income. Rather,
they relate solely to matters of classification and display. The United States Securities and Exchange Commission (SEC) permits the omission of such differences in classification and display in the
reconciliation to U.S. GAAP appearing above.

Balance Sheet presentation:The classification of the balance sheet is as required by German GAAP.
Noncurrent portions of receivables and prepaid expenses are disclosed in Notes 15 and 17. Current portions of provisions and liabilities are disclosed in Notes 22 and 23.

New U.S. GAAP accounting standards not yet adopted

The standards adopted in 2004  SFAS 151 "Inventory Costs," SFAS 152 "Accounting for Real Estate
Time-Sharing Transactions," SFAS 153 "Exchange of Nonmonetary Assets," and EITF 03-1 "The Meaning of Other Than Temporary Impairment and its Application to
Certain Investments"  were examined to determine their effect on the BASF Group financial statements. According to SFAS 151, certain abnormal costs for the production of
inventories are to be charged against income in the period they occur, rather than being capitalized as production costs. SFAS 152 covers the accounting treatment of timesharing of property and
property rights. SFAS 153 states that the exchange of nonmonetary assets are generally to be valued at fair value. EITF 03-1 provides guidance regarding the impairment of certain
investments and the related disclosures. In September 2004, the Emerging Issues Task Force issued EITF Issue 4-10 "Determining Whether to Aggregate Operating Segments That Do Not
Meet the Quantitative Thresholds"("EITF 4-10"), which addresses the criteria for aggregating operating segments. We have reviewed our segment reporting and have determined that our
aggregation of segments is consistent with the guidance in EITF Issue No. 4-10. These new standards have no effect on the financial statements of the BASF Group.

F-25

---



Reporting of comprehensive income

Comprehensive income in accordance with SFAS 130, "Reporting Comprehensive Income," includes the impact of expenses and earnings that are
not included in net income under U.S. GAAP.

|                                                                            |                      
|--------------------------------------------------------------------------- | ---------------------
|
|
|
|Comprehensive income                                                        |                      
|Net income in accordance with U.S. GAAP (before other comprehensive income) |                      
|Change of foreign currency translation adjustments                          |                      
|                                                                            | /*/    Gross         
|                                                                            | /*/    Deferred taxes
|Changes in unrealized holding gains on securities                           |                      
|                                                                            | /*/    Gross         
|                                                                            | /*/    Deferred taxes
|Changes in unrealized losses from cash flow hedges                          |                      
|                                                                            | /*/    Gross         
|                                                                            | /*/    Deferred taxes
|Additional minimum liability for pensions                                   |                      
|                                                                            | /*/    Gross         
|                                                                            | /*/    Deferred taxes
|                                                                            |                      
|Other comprehensive income (loss), net of tax                               |                      
|Comprehensive income, net of tax                                            |                      

---



|                                                                                                |                      
|----------------------------------------------------------------------------------------------- | ---------------------
|
|
|
|Statement of stockholders' equity                                                               |                      
|Stockholders' equity in accordance with U.S. GAAP before accumulated other comprehensive income |                      
|Accumulated other comprehensive income:                                                         |                      
|Translation adjustments                                                                         |                      
|                                                                                                | /*/    Gross         
|                                                                                                | /*/    Deferred taxes
|Unrealized holding gains on securities                                                          |                      
|                                                                                                | /*/    Gross         
|                                                                                                | /*/    Deferred taxes
|Unrealized losses from cash flow hedges                                                         |                      
|                                                                                                | /*/    Gross         
|                                                                                                | /*/    Deferred taxes
|Additional minimum liability for pensions                                                       |                      
|                                                                                                | /*/    Gross         
|                                                                                                | /*/    Deferred taxes
|                                                                                                |                      
|Accumulated other comprehensive income                                                          |                      
|Total stockholders' equity in accordance with U.S. GAAP including comprehensive income          |                      

---

F-26

---



Reconciliation of stockholders' equity under U.S. GAAP

|                                                                              | 
|----------------------------------------------------------------------------- | 
|
|
|
|Stockholders' equity in accordance with U.S. GAAP on January 1                | 
|Comprehensive income, net of tax                                              | 
|Share buyback and cancellation, including own shares intended to be cancelled | 
|Dividend paid (excluding minority interests)                                  | 
|BASF stock option program                                                     | 
|Change in scope of consolidation and other changes                            | 
|Total stockholders' equity in accordance with U.S. GAAP on December 31        | 
|                                                                              | 

4.    Reporting by segment and region

The Company is a worldwide manufacturer and supplier of more than 8,000 products. The Company offers a wide range of products, including
chemicals, plastics, dyes and pigments, dispersions, automotive and industrial coatings, agricultural products, fine chemicals, crude oil and natural gas.

The
Company conducts its worldwide operations through 12 operating divisions, which have been aggregated into five business segments based on the nature of the products and production
processes, the type of customers, the channels of distribution and the nature of the regulatory environment.

The
business segment Chemicals contains the operating divisions Inorganics, Petrochemicals and Intermediates.

The
business segment Plastics includes the operating divisions Styrenics, Performance Polymers and Polyurethanes. The segment was renamed following the divestiture of the nylon fibers
business to Honeywell, United States.

The
business segment Performance Products contains the operating divisions Performance Chemicals, Coatings and Functional Polymers.

The
business segment Agricultural Products & Nutrition includes two reportable segments, Agricultural Products and Fine Chemicals.

The
Oil & Gas segment consists of the operating division Oil & Gas, which conducts oil and gas exploration and production, and trades in natural gas.

Business
activities not allocated to any operating division are shown as "Other" and comprise the sale of feedstock, remaining fertilizers activities, engineering and other services as
well as rental income. For the first time in 2004, land valued at €432.4 million was assigned to the segments' assets and investments in infrastructure totaling
€367.5 million were assigned to "Additions to tangible and intangible fixed assets." The income from operations recorded as "Other" includes mainly costs of exploratory research
and biotechnological research that was not allocated to the segments of €145 million in 2004. In 2004, costs of biotechnological research of €30 million
were allocated to the Agricultural Products & Nutrition segment. The income from operations recorded as "Other" in 2003 includes costs of exploratory and biotechnological research of
€181 million (€197 million in 2002). "Other" also includes net gains or losses from foreign currency transactions that are related to financial
indebtedness as well as from foreign currency positions secured with macro hedges of €(41) million in 2004, €(1) million in 2003, and
€(143) million in 2002.

Transfers
between the reportable segments are generally valued at market-based prices, and the revenues generated by these transfers are shown in the table below as "Intersegmental
transfers."

The
allocation of assets and depreciation to the segments is based on economic ownership. Assets used by more than one segment are allocated based on the percentage of usage.

F-27

---



Segment Data 2004

|                                                    
|----------------------------------------------------
|
|
|
|
|Net sales                                           
|                                                    
|Intersegmental transfers                            
|                                                    
|Sales including transfers                           
|Income from operations                              
|                                                    
|Assets                                              
|Return on operating assets (%)*                     
|Research and development expense                    
|Additions to tangible and intangible fixed assets   
|Depreciation of tangible and intangible fixed assets
|                                                    

Segment Data 2003

|                                                    
|----------------------------------------------------
|
|
|
|
|Net sales                                           
|                                                    
|Intersegmental transfers                            
|                                                    
|Sales including transfers                           
|Income from operations                              
|                                                    
|Assets                                              
|Return on operating assets (%)**                    
|Research and development expense                    
|Additions to tangible and intangible fixed assets   
|Depreciation of tangible and intangible fixed assets
|                                                    

F-28

---



Segment Data 2002

|                                                     |           
|---------------------------------------------------- | ----------
|
|
|
|
|Net sales                                            |           
|                                                     | Change (%)
|Intersegmental transfers                             |           
|                                                     |           
|Sales including transfers                            |           
|Income from operations                               |           
|                                                     | Change (%)
|Assets                                               |           
|Return on operating assets (%)**                     |           
|Research and development expense                     |           
|Additions to tangible and intangible fixed assets    |           
|Depreciation of tangible and intangible fixed assets |           
|                                                     |           

F-29

---



Geographical Segment Data

|                                                        | 
|------------------------------------------------------- | 
|
|
|2004                                                    | 
|Location of customers                                   | 
|Sales                                                   | 
|Change (%)                                              | 
|Share (%)                                               | 
|Location of companies                                   | 
|Sales                                                   | 
|Sales including transfers                               | 
|Income from operations                                  | 
|Assets                                                  | 
|Additions to tangible and intangible fixed fixed assets | 
|Depreciation of tangible and intangible assets          | 
|2003                                                    | 
|Location of customers                                   | 
|Sales                                                   | 
|Change (%)                                              | 
|Share (%)                                               | 
|Location of companies                                   | 
|Sales                                                   | 
|Sales including transfers                               | 
|Income from operations                                  | 
|Assets                                                  | 
|Additions to tangible and intangible fixed assets       | 
|Depreciation of tangible and intangible assets          | 
|2002                                                    | 
|Location of customers                                   | 
|Sales                                                   | 
|Change (%)                                              | 
|Share (%)                                               | 
|Location of companies                                   | 
|Sales                                                   | 
|Sales including transfers                               | 
|Income from operations                                  | 
|Assets                                                  | 
|Additions to tangible and intangible fixed assets       | 
|Depreciation of tangible and intangible fixed assets    | 
|                                                        | 

F-30

---



5.    Other operating income

|                                                       
|-------------------------------------------------------
|
|
|Release and adjustment of provisions                   
|Income from miscellaneous revenue-generating activities
|Gains from foreign currency transactions               
|Gains from foreign currency conversion                 
|Gains from disposal of assets and divestitures         
|Other                                                  
|Total                                                  
|                                                       

Release and adjustment of provisionsrelate principally to sales and purchase provisions,
personnel cost provisions, maintenance provisions and various other items in the normal course of business.

Provision
releases and adjustments arise because present circumstances indicate that they are no longer probable and estimable or that the probable amount has been reduced.

Income from miscellaneous revenue-generating activitiesprimarily represents revenues from energy sales, sales of raw materials, as well
as income from rentals and logistics services.

Gains from foreign currency transactionsinclude realized gains from foreign currency derivatives and the conversion of
short-term receivables and liabilities in foreign currency at year-end rates when these rates are higher in case of receivables or lower in case of liabilities compared to the
rate at first measurement.

Gains from foreign currency conversionincludes gains from currency exposures of financial statements in foreign currency, which are
converted into euros under the temporal method. They are related to a higher net asset exposure or lower net liability exposure after conversion into euros than at the previous balance sheet date.

Gains from the disposal of assets and divestituresin 2004 are primarily related to the sale of the printing systems business in the
Performance Products division. Gains in 2003 are primarily related to the sale of the soil conditioner business in the Agricultural Products & Nutrition segment. Gains in 2002 were related to
the ordinary course of business.

Otherincludes reversal of valuation allowances on receivables, miscellaneous sales and various other sundry items.

6.    Other operating expenses

|                                                                                                                                                      
|------------------------------------------------------------------------------------------------------------------------------------------------------
|
|
|Integration and restructuring measures                                                                                                                
|Environmental protection and safety measures, costs of demolition of fixed assets and costs related to the preparation of capital expenditure projects
|Amortization of intangible assets and depreciation of tangible fixed assets                                                                           
|Costs from miscellaneous revenue-generating activities                                                                                                
|Losses from foreign currency transactions                                                                                                             
|Losses from foreign currency conversion                                                                                                               
|Losses from disposal of assets                                                                                                                        
|Other                                                                                                                                                 
|Total                                                                                                                                                 
|                                                                                                                                                      

F-31

---



Integration and restructuring measuresconcern efficiency improvement measures related to the
Ludwigshafen Site Project and restructuring measures in the NAFTA region, as in the previous year.

Measures
in 2003 additionally included integration costs for the acquired fipronil crop protection business.

Measures
in 2002 additionally included several measures in the Agricultural Products & Nutrition segment.

Environmental protection measuresof €26.0 million in 2004, €9.6 million in 2003, and
€10.3 million in 2002 were accrued. Further expenses are related to the cost of demolition of fixed assets as well as the preparation of capital expenditure projects if these
costs did not fulfill the requirements for capitalization.

Costs from miscellaneous revenue-generating activitiesrepresent costs related to other miscellaneous revenue-generating activities as
shown in Note 5.

Other expensesincludes in 2004 as in the previous year, primarily valuation adjustments in accounts receivable, provisions for litigation
risks, the write-off of no longer usable inventories, and many other items.

In
2002, provisions of €100 million for damage claims associated with antitrust violations in the vitamins business were accrued. Further charges relate in
particular to amortization of intangible assets as well as various other items.

7.    Financial result

|                                                                                                            |                                  
|----------------------------------------------------------------------------------------------------------- | ---------------------------------
|
|
|
|Income from participating interests and similar income                                                      |                                  
|                                                                                                            | Thereof from affiliated companies
|Income from profit transfer agreements                                                                      |                                  
|Losses from loss transfer agreements                                                                        |                                  
|Income (losses) from companies accounted for under the equity method                                        |                                  
|                                                                                                            |                                  
|Net income (loss) from financial assets                                                                     |                                  
|                                                                                                            |                                  
|Write-down of, and losses from, retirement of financial assets as well as securities held as current assets |                                  
|                                                                                                            |                                  
|Income from other securities and financial assets                                                           |                                  
|                                                                                                            | Thereof from affiliated companies
|Other interest, income from sale of marketable securities and similar income                                |                                  
|                                                                                                            | Thereof from affiliated companies
|Interest and similar expenses                                                                               |                                  
|                                                                                                            | Thereof to affiliated companies  
|                                                                                                            |                                  
|Interest result                                                                                             |                                  
|Financial result                                                                                            |                                  
|                                                                                                            |                                  

Income from participating interests and similar income included disbursements from unconsolidated group companies, as well as dividends from
participating interests. Shares in participating interests were sold in 2003 resulting in income from participating interests and similar income of €41.7 million.

In
2002, income from participating interests and similar income included special income of €85.5 million from the sale of BASF Waren- und Anlagenvertriebs- und
-leasing Gesellschaft mbH.

F-32

---



Amortization
of goodwill of companies accounted for under the equity method totaled €50.6 million in 2004, in particular for Basell and the biotechnology
companies. Amortization for amounted to €74.3 million in 2003 (2002: €87.7 million).

Write-down
of, and losses from, retirement of financial assets as well as securities held as current assets in 2004 relate primarily to Basell N.V., the Netherlands, and to a
lesser extent, Svalöf Weibull AB, Sweden, and in 2003 to a write-down for the participation in DyStar Textilfarben GmbH & Co. Deutschland KG and DyStar Textilfarben
GmbH.

The
interest result in 2004 contains an expense of €35.0 million for an interest rate hedge for refinancing financial debts. Expenses from the disposal of
DAX-LIBOR swaps are also included in the interest result. In 2004, valuation of DAX-LIBOR swaps at their fair values produced expenses of €5.6 million,
while in 2003 they produced income of €28.0 million, following a loss of €48.0 million in 2002.

8.    Income taxes

|                                                                                         | 
|---------------------------------------------------------------------------------------- | 
|
|
|German corporate income tax                                                              | 
|German trade income tax                                                                  | 
|Foreign income tax                                                                       | 
|Income taxes on oil-producing operations noncompensable with
German corporate income tax | 
|Taxes for prior years                                                                    | 
|                                                                                         | 
|Current taxes                                                                            | 
|                                                                                         | 
|Deferred taxes                                                                           | 
|                                                                                         | 
|Income taxes                                                                             | 
|                                                                                         | 
|Other taxes                                                                              | 
|Tax expense                                                                              | 

---

"Other taxes" includes real estate taxes and other comparable taxes; they are shown under the appropriate functional costs of the statement of
income.

Income
before taxes and minority interests is broken out as follows between regions.

|       
|-------
|
|
|Germany
|Foreign
|Total  

---

A federal German corporate income tax of 25% plus a 5.5% solidarity surcharge is levied on corporate income. As a result of the German Flood
Victim Solidarity Act, the corporate tax was raised on a one-time basis in 2003 from 25% to 26.5%.

In
addition to corporate income tax, earnings generated in Germany are subject to a trade income tax that varies depending on the municipality in which the company is located. After
accounting for trade income tax, which is a deductible operating expense, BASF has a weighted average trade income tax
rate of 15.3%. Because German trade income tax is deductible, it also reduces the assessment basis for corporate income tax.

Income
from foreign sources is taxed at the income tax rates applicable in the respective countries of domicile.

F-33

---



For German companies, deferred taxes are calculated using a tax rate of 38%. For foreign companies, deferred taxes are calculated using the tax rates applicable in the individual foreign
countries. Such rates averaged 29% in 2004, 33% in 2003, and 30% in 2002.

Income
from dividends is up to 95% exempt from additional German corporate income tax. Income taxes on oil-producing operations in certain regions, which can amount to up to
85%, may be compensated up to the level of the German corporate income tax on this foreign taxable income. The non-compensable amount is shown separately in the reconciliation from the
statutory tax rate in Germany to the effective tax rate.

Reconciliation from the statutory tax rate in Germany to the effective tax rate

|                                                                                         | 
|---------------------------------------------------------------------------------------- | 
|
|
|German corporate income tax according to the scaled rate                                 | 
|Additional corporate tax due to the German Flood Victim Solidarity Act                   | 
|Solidarity surcharge                                                                     | 
|Credit for dividend distribution                                                         | 
|German trade income tax net of corporate income tax                                      | 
|Foreign tax-rate differential                                                            | 
|Non-taxable income                                                                       | 
|Non-deductible expenses, including amortization of goodwill                              | 
|Loss from companies accounted for under the equity method                                | 
|Taxes for previous years                                                                 | 
|Income taxes on oil-producing operations noncompensable with German corporate income tax | 
|Other                                                                                    | 
|Income taxes/effective tax rate                                                          | 
|                                                                                         | 

Deferred tax assets on tax loss carryforwards including those for prior years are recorded. If expected future earnings of a company make it more
likely than not that the future tax benefits will not be realized,

F-34

---



adequate
valuation allowances are established. Deferred taxes result from the following temporary differences between tax and book valuation methodologies:

Deferred tax assets

|                                                |                               
|----------------------------------------------- | ------------------------------
|
|
|Intangible assets                               |                               
|Property, plant and equipment                   |                               
|Financial assets                                |                               
|Inventories and accounts receivable             |                               
|Provisions for pensions and similar obligations |                               
|Other provisions and liabilities                |                               
|Loss carryforwards                              |                               
|Securities and others                           |                               
|Valuation allowances                            |                               
|                                                | Thereof for loss carryforwards
|Total                                           |                               
|                                                | Thereof short-term            
|                                                |                               

Deferred tax liabilities are included in "provisions for taxes" in the Consolidated Balance Sheets.

Deferred tax liabilities

|                             
|-----------------------------
|
|
|Intangible assets            
|Property, plant and equipment
|Other                        
|Total                        
|                             
|                             

The regional distribution of tax loss carryforwards is as follows:

Tax loss carryforwards

|                    
|--------------------
|
|
|German subsidiaries 
|Foreign subsidiaries
|Total               
|                    

German tax losses may be carried forward indefinitely. Foreign loss carryforwards exist primarily in North America (NAFTA). These expire starting
in 2020.

F-35

---



9.  Minority interests

|                             
|-----------------------------
|
|
|Minority interests in profits
|Minority interests in losses 
|Total                        
|                             

Minority interests in profits relate primarily to the Group companies engaged in trading and distribution of natural gas, and to the operating
company for the steam cracker in Port Arthur, Texas.

Minority
interests in losses in 2003 and 2002 are mainly related to BASF SONATRACH PropanChem S.A., Spain.

See
Note 20 for a detailed analysis of consolidated subsidiaries with minority shareholdings.

10.  Other information

Additional information on statements of cash flows

Cash generated from operating activities was derived after net interest payments of €226.6 million in 2004,
€276.3 million in 2003 and €281.8 million in 2002. Income taxes paid totaled €1,543.0 million in 2004,
€1,013.1 million in 2003 and €1,021.2 million in 2002.

Personnel costs

|                                                                      
|----------------------------------------------------------------------
|
|
|Wages and salaries                                                    
|Social security contributions and expenses for pensions and assistance
|                                                                      
|Total                                                                 
|                                                                      

German Group companies incurred costs for employee representatives to comply with statutory regulations of €11.2 million in
2004, €10.5 million in 2003 and €11.3 million in 2002.

Average number of employees

|                          
|--------------------------
|
|
|Europe                    
|                          
|North America (NAFTA)     
|South America             
|Asia, Pacific Area, Africa
|BASF Group                
|                          
|                          
|                          

F-36

---



The number of employees of proportionally consolidated companies is shown above in full. If they are taken into account at 50%, the average number
of personnel for the Company was 85,022 in 2004, 88,167 in 2003 and 90,899 in 2002.

As
a result of the acquisition of Honeywell's business with engineering plastics in 2003, 263 employees transferred to BASF. At the same time, 140 BASF employees transferred to Honeywell
as part of the sale of the fibers business. In 2004, 1,214 additional BASF employees transferred to Honeywell.

As
a result of the printing systems sale, the number of employees was reduced by 2,029 in 2004.

Compensation for the Board of Executive Directors and Supervisory Board of BASF Aktiengesellschaft

|                                                                                                              
|--------------------------------------------------------------------------------------------------------------
|
|
|Board of Executive Directors emoluments                                                                       
|                                                                                                              
|                                                                                                              
|Exercise of option rights by the Board of Executive Directors                                                 
|Supervisory Board emoluments                                                                                  
|                                                                                                              
|                                                                                                              
|Total emoluments of former members of the Board of Executive Directors and their surviving dependents         
|Exercise of option rights by former members of the Board of Executive Directors and their surviving dependents
|Pension provisions for former members of the Board of Executive Directors and their surviving dependents      
|Loans to the Board of Executive Directors and the Supervisory Board                                           
|Contingent liabilities for the benefit of the Board of Executive Directors and the Supervisory Board          
|                                                                                                              

The criterion used to determine the size of performance-related bonuses is the return on assets, which corresponds to income from ordinary
activities plus interest expenses as a percentage of average assets.

In
2004, the members of the Board of Executive Directors were also granted 120,356 options under the BASF stock option program. Together with the options granted in previous years, and
the options already exercised, current and former members of the Board of Executive Directors hold 548,194 options. In 2004, the issue of options resulted in additional personnel costs totaling
€3.9 million. Of this amount, €0.9 million was related to options issued in 2004, and €3.0 million to options issued in 1999
through 2003.

In
2004, the exercising of options granted in 1999 and 2000 resulted in cash payments totaling €0.6 million to members of the Board of Executive Directors and
€1.3 million to previous members or their surviving dependents. The cash payments do not influence personnel costs associated with the issuing of options, as the payments were
charged against provisions established for this purpose in previous years. See Note 26 for further details.

The
Board of Executive Directors and the Supervisory Board of BASF Aktiengesellschaft issued a compliance statement with regard to the German Corporate Governance Code in accordance with
Section 161 of the German Stock Corporations Act. For additional information please see page 137 of the financial report.

The
members of the Board of Executive Directors and the Supervisory Board as well as their memberships on other supervisory boards are shown in "Item 6."

F-37

---



11.  Intangible assets

|                                       |  | Concessions,
Trademarks and
Similar Rights and
Values* |   | Goodwill |   | Advance
Payments |   | Total   |  
|-------------------------------------- |  | ------------------------------------------------------ | - | -------- | - | ---------------- | - | ------- | -
|
|Acquisition costs                      |  |                                                        |   |          |   |                  |   |         |  
|Balance as of January 1, 2004          |  | 3,030.5                                                |   | 2,704.6  |   | 1.6              |   | 5,736.7 |  
|Change in scope of consolidation       |  | 43.1                                                   |   | 2.9      |   |                 |   | 46.0    |  
|Additions                              |  | 77.9                                                   |   | 16.6     |   | 15.7             |   | 110.2   |  
|Disposals                              |  | 127.4                                                  |   | 198.5    |   | 0.1              |   | 326.0   |  
|Transfers**                            |  | (24.4                                                  | ) | (93.2    | ) | (0.5             | ) | (118.1  | )
|                                       |  |                                                        |   |          |   |                  |   |         |  
|Balance as of December 31, 2004        |  | 2,999.7                                                |   | 2,432.4  |   | 16.7             |   | 5,448.8 |  
|                                       |  |                                                        |   |          |   |                  |   |         |  
|Amortization                           |  |                                                        |   |          |   |                  |   |         |  
|Balance as of January 1, 2004          |  | 1,276.1                                                |   | 666.2    |   | 1.2              |   | 1,943.5 |  
|Change in scope of consolidation       |  | 2.7                                                    |   | 1.7      |   |                 |   | 4.4     |  
|Additions                              |  | 359.7                                                  |   | 150.9    |   | 0.1              |   | 510.7   |  
|Disposals                              |  | 122.2                                                  |   | 190.2    |   |                 |   | 312.4   |  
|Transfers**                            |  | (10.7                                                  | ) | (24.8    | ) |                 |   | (35.5   | )
|                                       |  |                                                        |   |          |   |                  |   |         |  
|Balance as of December 31, 2004        |  | 1,505.6                                                |   | 603.8    |   | 1.3              |   | 2,110.7 |  
|Net book value as of December 31, 2004 |  | 1,494.1                                                |   | 1,828.6  |   | 15.4             |   | 3,338.1 |  
|                                       | 
|Acquisition costs                      |  |                                                        |   |          |   |                  |   |         |  
|Balance as of January 1, 2003          |  | 2,458.8                                                |   | 2,949.7  |   | 13.8             |   | 5,422.3 |  
|Change in scope of consolidation       |  | 44.5                                                   |   | (12.8    | ) |                 |   | 31.7    |  
|Additions                              |  | 761.7                                                  |   | 360.4    |   | 0.2              |   | 1,122.3 |  
|Disposals                              |  | 139.0                                                  |   | 319.6    |   |                 |   | 458.6   |  
|Transfers**                            |  | (95.5                                                  | ) | (273.1   | ) | (12.4            | ) | (381.0  | )
|                                       |  |                                                        |   |          |   |                  |   |         |  
|Balance as of December 31, 2003        |  | 3,030.5                                                |   | 2,704.6  |   | 1.6              |   | 5,736.7 |  
|                                       |  |                                                        |   |          |   |                  |   |         |  
|Amortization                           |  |                                                        |   |          |   |                  |   |         |  
|Balance as of January 1, 2003          |  | 1,079.9                                                |   | 876.6    |   | 1.2              |   | 1,957.7 |  
|Change in scope of consolidation       |  |                                                       |   | (2.1     | ) |                 |   | (2.1    | )
|Additions                              |  | 333.4                                                  |   | 167.3    |   |                 |   | 500.7   |  
|Disposals                              |  | 106.6                                                  |   | 305.3    |   |                 |   | 411.9   |  
|Transfers**                            |  | (30.6                                                  | ) | (70.3    | ) |                 |   | (100.9  | )
|                                       |  |                                                        |   |          |   |                  |   |         |  
|Balance as of December 31, 2003        |  | 1,276.1                                                |   | 666.2    |   | 1.2              |   | 1.943.5 |  
|Net book value as of December 31, 2003 |  | 1,754.4                                                |   | 2,038.4  |   | 0.4              |   | 3,793.2 |  
|                                       | 

Additions in 2004 primarily relate to the acquisition of the polyurethane foams business from Foam Enterprises, Inc., United States
(goodwill of €12 million in the Plastics segment). Additions in 2003 primarily relate to the acquisition of the fipronil crop protection business from Bayer CropScience
(goodwill of €302 million in the Agricultural Products segment) and the purchase of the worldwide engineering plastics business from Honeywell, United States (goodwill of
€58 million in the Plastics segment).

Disposals
in 2004 relate mainly to the Phenoxy herbicides business. Net disposals of goodwill of €14 million in 2003 relates to the sale of the soil improvements
products business in the Agricultural Products segment.

On
December 31, 2004, the carrying value of goodwill is allocated primarily to the following reportable segments: Plastics, € 106 million
(2003: €118 million); Performance Products; €213 million (2003: €253 million); Agricultural Products,
€ 1,419 million (2003: €1,567 million); and Oil & Gas, €60 million (2003: €64 million).

F-38

---



12.  Property, plant and equipment

|                                       |  | Land, Land Rights
and Buildings
Including
Buildings on Land
Owned by Others |   | Machinery and
Technical
Equipment |   | Miscellaneous
Equipment and
Fixtures |   | Advance
Payments and
Construction in
Progress |   | Total    |  
|-------------------------------------- |  | --------------------------------------------------------------------------- | - | --------------------------------- | - | ------------------------------------ | - | --------------------------------------------- | - | -------- | -
|
|Acquisition costs                      |  |                                                                             |   |                                   |   |                                      |   |                                               |   |          |  
|Balance as of January 1, 2004          |  | 6,314.2                                                                     |   | 28,458.5                          |   | 2,699.5                              |   | 2,099.9                                       |   | 39,572.1 |  
|Change in scope of consolidation       |  | 26.3                                                                        |   | 92.7                              |   | 11.2                                 |   | 22.8                                          |   | 153.0    |  
|Additions                              |  | 51.9                                                                        |   | 446.9                             |   | 84.9                                 |   | 1,345.6                                       |   | 1,929.3  |  
|Disposals                              |  | 225.6                                                                       |   | 663.2                             |   | 194.3                                |   | 30.4                                          |   | 1,113.5  |  
|Transfers*                             |  | 54.7                                                                        |   | 559.1                             |   | (52.7                                | ) | (1,390.9                                      | ) | (829.8   | )
|                                       |  |                                                                             |   |                                   |   |                                      |   |                                               |   |          |  
|Balance as of December 31, 2004        |  | 6,221.5                                                                     |   | 28,894.0                          |   | 2,548.6                              |   | 2,047.0                                       |   | 39,711.1 |  
|                                       |  |                                                                             |   |                                   |   |                                      |   |                                               |   |          |  
|Depreciation                           |  |                                                                             |   |                                   |   |                                      |   |                                               |   |          |  
|Balance as of January 1, 2004          |  | 3,744.6                                                                     |   | 20,544.6                          |   | 2,205.7                              |   | 7.3                                           |   | 26,502.2 |  
|Change in scope of consolidation       |  | 8.6                                                                         |   | 77.9                              |   | 9.2                                  |   |                                              |   | 95.7     |  
|Additions                              |  | 247.4                                                                       |   | 1,533.2                           |   | 163.6                                |   | 15.2                                          |   | 1,959.4  |  
|Disposals                              |  | 170.5                                                                       |   | 555.5                             |   | 174.3                                |   | 0.3                                           |   | 900.6    |  
|Transfers*                             |  | (40.6                                                                       | ) | (285.7                            | ) | (61.0                                | ) | (2.5                                          | ) | (389.8   | )
|                                       |  |                                                                             |   |                                   |   |                                      |   |                                               |   |          |  
|Balance as of December 31, 2004        |  | 3,789.5                                                                     |   | 21,314.5                          |   | 2,143.2                              |   | 19.7                                          |   | 27,266.9 |  
|Net book value as of December 31, 2004 |  | 2,432.0                                                                     |   | 7,579.5                           |   | 405.4                                |   | 2,027.3                                       |   | 12,444.2 |  
|                                       | 
|Acquisition costs                      |  |                                                                             |   |                                   |   |                                      |   |                                               |   |          |  
|Balance as of January 1, 2003          |  | 6,488.3                                                                     |   | 29,231.7                          |   | 2,780.0                              |   | 2,099.5                                       |   | 40,599.5 |  
|Change in scope of consolidation       |  | (4.5                                                                        | ) | 0.3                               |   | (0.8                                 | ) | 45.9                                          |   | 40.9     |  
|Additions                              |  | 85.8                                                                        |   | 642.1                             |   | 136.9                                |   | 1,428.3                                       |   | 2,293.1  |  
|Disposals                              |  | 171.5                                                                       |   | 1,127.9                           |   | 147.8                                |   | 25.4                                          |   | 1,472.6  |  
|Transfers*                             |  | (83.9                                                                       | ) | (287.7                            | ) | (68.8                                | ) | (1,448.4                                      | ) | (1,888.8 | )
|                                       |  |                                                                             |   |                                   |   |                                      |   |                                               |   |          |  
|Balance as of December 31, 2003        |  | 6,314.2                                                                     |   | 28,458.5                          |   | 2,699.5                              |   | 2,099.9                                       |   | 39,572.1 |  
|                                       |  |                                                                             |   |                                   |   |                                      |   |                                               |   |          |  
|Depreciation                           |  |                                                                             |   |                                   |   |                                      |   |                                               |   |          |  
|Balance as of January 1, 2003          |  | 3,814.2                                                                     |   | 20,782.7                          |   | 2,251.3                              |   | 6.6                                           |   | 26,854.8 |  
|Change in scope of consolidation       |  | (3.8                                                                        | ) |                                  |   | (0.9                                 | ) |                                              |   | (4.7     | )
|Additions                              |  | 174.8                                                                       |   | 1,568.8                           |   | 194.3                                |   | 13.4                                          |   | 1,951.3  |  
|Disposals                              |  | 129.0                                                                       |   | 1,043.0                           |   | 134.0                                |   | 12.7                                          |   | 1,318.7  |  
|Transfers*                             |  | (111.6                                                                      | ) | (763.9                            | ) | (105.0                               | ) | .                                             |   | (980.5   | )
|                                       |  |                                                                             |   |                                   |   |                                      |   |                                               |   |          |  
|Balance as of December 31, 2003        |  | 3,744.6                                                                     |   | 20,544.6                          |   | 2,205.7                              |   | 7.3                                           |   | 26,502.2 |  
|Net book value as of December 31, 2003 |  | 2,569.6                                                                     |   | 7,913.9                           |   | 493.8                                |   | 2,092.6                                       |   | 13,069.9 |  
|                                       | 

Impairment losses in 2004 in the amount of €111.9 million relate to European plants in the Chemicals segment, as well
business restructuring in the North America (NAFTA) region. Impairment losses in 2003 in the amount of €81.8 million relate to various production plants.

F-39

---



13.  Financial assets

|                                       | 
|-------------------------------------- | 
|
|
|Acquisition costs                      | 
|Balance as of January 1, 2004          | 
|Change in scope of consolidation       | 
|Additions                              | 
|Disposals                              | 
|Transfers*                             | 
|                                       | 
|Balance as of December 31, 2004        | 
|                                       | 
|Accumulated depreciation               | 
|Balance as of January 1, 2004          | 
|Change in scope of consolidation       | 
|Additions                              | 
|Disposals                              | 
|Transfers*                             | 
|                                       | 
|Balance as of December 31, 2004        | 
|Net book value as of December 31, 2004 | 
|                                       | 

|                                       | 
|-------------------------------------- | 
|
|
|Acquisition costs                      | 
|Balance as of January 1, 2004          | 
|Change in scope of consolidation       | 
|Additions                              | 
|Disposals                              | 
|Transfers*                             | 
|                                       | 
|Balance as of December 31, 2004        | 
|                                       | 
|Accumulated depreciation               | 
|Balance as of January 1, 2004          | 
|Change in scope of consolidation       | 
|Additions                              | 
|Disposals                              | 
|Transfers*                             | 
|                                       | 
|Balance as of December 31, 2004        | 
|Net book value as of December 31, 2004 | 
|                                       | 

Within "shares in associated companies," write-downs primarily concern Basell N.V. the Netherlands, and Svalöf Weibull AB, Sweden.

F-40

---



|                                       | 
|-------------------------------------- | 
|
|
|Acquisition costs                      | 
|Balance as of January 1, 2003          | 
|Change in scope of consolidation       | 
|Additions                              | 
|Disposals                              | 
|Transfers*                             | 
|                                       | 
|Balance as of December 31, 2003        | 
|                                       | 
|Accumulated depreciation               | 
|Balance as of January 1, 2003          | 
|Change in scope of consolidation       | 
|Additions                              | 
|Disposals                              | 
|Transfers*                             | 
|                                       | 
|Balance as of December 31, 2003        | 
|Net book value as of December 31, 2003 | 
|                                       | 

|                                       | 
|-------------------------------------- | 
|
|
|Acquisition costs                      | 
|Balance as of January 1, 2003          | 
|Change in scope of consolidation       | 
|Additions                              | 
|Disposals                              | 
|Transfers*                             | 
|                                       | 
|Balance as of December 31, 2003        | 
|                                       | 
|Accumulated depreciation               | 
|Balance as of January 1, 2003          | 
|Change in scope of consolidation       | 
|Additions                              | 
|Disposals                              | 
|Transfers*                             | 
|                                       | 
|Balance as of December 31, 2003        | 
|Net book value as of December 31, 2003 | 
|                                       | 

In 2003, disposals of "Shares in affiliated companies" primarily concerned a capital reduction for BASF Future Business GmbH of
€175.0 million. Transfers of "Shares in associated companies" include the participation in the DyStar Group, which was accounted for according to the equity method until
September 2003. The holdings of the DyStar Textilfarben GmbH & Co. Deutschland KG and DyStar Textilfarben GmbH were accounted for as other assets, due to the intent to dispose of the
assets. In 2004 these assets were disposed of.

F-41

---



Other financial assets

The book and market values of available-for-sale "Securities held as fixed assets" and "Shares in participating interests"
is summarized below:

|                                       | 
|-------------------------------------- | 
|
|
|
|Fixed-term interest bearing securities | 
|Mutual funds                           | 
|Other shareholdings and securities     | 
|Total                                  | 

---

The disposal of available-for-sale securities generated a gain of less than €0.1 million in 2004, a
gain of €41.7 in 2003, and neither proceeds nor gains in 2002.

14.  Inventories

|                                               
|-----------------------------------------------
|
|
|Raw materials and factory supplies             
|Work-in-process, finished goods and merchandise
|Construction in progress                       
|Advance payments                               
|Total                                          

---

"Work-in-process"
and "Finished goods and merchandise" are combined into one item due to the production conditions in the chemical industry.

The
acquisition or production cost of raw materials, work-in-process, finished goods, and merchandise, were first valued at average cost in 2004.

F-42

---



15.  Receivables and other assets

|                                          
|------------------------------------------
|
|
|
|Accounts receivable, trade                
|Receivables from affiliated companies     
|Miscellaneous receivables and other assets
|Thereof:                                  
|                                          
|                                          
|Total                                     
|                                          

Composition of other assets

|                                             
|---------------------------------------------
|
|
|Tax refund claims                            
|Loans and interest receivables               
|Deferrals from financial derivatives         
|Receivables from the sale of non-trade assets
|Employee receivables                         
|Rents and deposits                           
|Insurance claims                             
|Receivables with consortium partners         
|Other                                        
|Total                                        
|                                             

Prepaid expenses amounted to €5.2 million in 2004, and €8.2 million in 2003.

Valuation allowances for doubtful accounts

|                                          
|------------------------------------------
|
|
|
|Accounts receivable, trade                
|Miscellaneous receivables and other assets
|Total                                     
|                                          

|                                          
|------------------------------------------
|
|
|
|Accounts receivable, trade                
|Miscellaneous receivables and other assets
|Total                                     
|                                          

F-43

---



|                                          
|------------------------------------------
|
|
|
|Accounts receivable, trade                
|Miscellaneous receivables and other assets
|Total                                     
|                                          

Additions
and releases not affecting income related primarily to changes in scope of consolidation, to translation adjustments and write-offs of receivables previously
written down.

16.  Marketable securities

|                                      
|--------------------------------------
|
|
|
|Fixed-term interest bearing securities
|Shares                                
|Other securities                      
|Total                                 
|                                      

There was no significant disposal of available-for-sale securities in 2004 or in 2003. The disposal of
available-for-sale securities in 2002 generated proceeds of €492.3 million and a tax-free gain of €243 million.

Maturities of fixed-term securities

|                     
|---------------------
|
|
|
|Less than 1 year     
|Between 1 and 5 years
|Total                
|                     

17.  Prepaid expenses

|                    
|--------------------
|
|
|
|Discounts           
|Prepaid benefit cost
|Miscellaneous       
|Total               
|                    

The discounts from the issuance of the 5.75% Euro Bond 2000/2005 and the 3.5% Euro Benchmark Bond 2003/2010 of BASF Aktiengesellschaft are
capitalized and amortized as interest expense over the term of the underlying obligations.

Prepaid
benefit asset in 2003 resulted primarily from contributions to pension funds in North America (NAFTA). In connection with the change in pension accounting in 2004, these items
were charged against equity as of January 1, 2004.

F-44

---



Other
prepaid expenses are related to prepayments of operating costs of €29.3 million in 2004 and €23.5 million in 2003, as well as prepaid
insurance premiums of €23.2 million in 2004, and €11.8 million in 2003.

18.  Capital and reserves

Conditional capital

|                                                                 | 
|---------------------------------------------------------------- | 
|
|
|January 1                                                        | 
|Authorized Capital for the stock option program 1999/2000        | 
|Reduction resulting from exercise or expiration of option rights | 
|December 31                                                      | 

---

Authorized capital

|                                                                                                                                                     
|-----------------------------------------------------------------------------------------------------------------------------------------------------
|
|
|January 1                                                                                                                                            
|Reduction due to cancellation of the prior authorization valid until May 1, 2004 to obtain authorized capital at the annual meeting on April 29, 2004
|Increase due to authorization to obtain authorized capital at the annual meeting on April 29, 2004                                                   
|December 31                                                                                                                                          

---

Subscribed capital

|                                                           
|-----------------------------------------------------------
|
|
|Outstanding shares as of December 31, 2004                 
|Repurchased shares intended to be cancelled                
|Outstanding shares as disclosed in the financial statements

---

A total of 16,203,000 shares were repurchased in 2004, of which 15,403,000 shares were cancelled as of December 31, 2004, and the
subscribed capital was reduced by the resulting attributable amount of €39.4 million. The remaining 800,000 shares were repurchased with the intent to cancel, therefore the
subscribed capital is shown net of these shares.

Share repurchase

The Board of Executive Directors received approval at the Annual Meeting on April 29, 2004, to repurchase BASF's shares to a maximum amount
of 10% of subscribed capital by October 28, 2005. The shares shall be purchased on the stock exchange or through a public purchase offer addressed to all shareholders. If BASF shares are
purchased on a stock exchange, the price paid for the shares may not be higher than the highest market price on the buying day and it may not be lower than 25% of that market price. In the case of a
public purchase offer, the price offered by BASF may be a maximum of 25% higher than the highest market price on the third trading day prior to the publishing of the public purchase offer. This
authorization supersedes the validity of the prior authorizations to repurchase BASF shares.

F-45

---



In
addition, the Board of Executive Directors has been authorized at the Annual Meeting to purchase shares through the use of put and call options. The price paid for options purchased
may not exceed the theoretical value calculated with recognized financial models using the same assumptions, such as strike price, as the options themselves, while the price received for options sold
may not fall beneath this value.

In
2004, a total of 16,203,000 shares, or 2.9% of the issued shares were acquired. The average purchase price was €44.79 per share. Of these shares, a total of 15,403,000
shares were cancelled by December 31, 2004. The remaining 800,000 shares of BASF Aktiengesellschaft were acquired for the purpose of cancellation. Therefore, these shares were not capitalized,
but rather the subscribed capital is shown net of these shares at December 31, 2004. During 2003, BASF purchased a total of 13,673,000 shares, or 2.4% of issued shares, at an average price of
€36.55 per share. These were cancelled in 2003 and 2004.

Aside
from the repurchase of shares on the open market, BASF wrote 2,300,000 put options with an average price of €1.80 per option. These options expired
out-of-the-money in 2004. The option premiums reduced the expense for repurchased shares by €4.1 million.

Conditional capital

Of the conditioned capital, €384.0 million serves to fulfill the exercising of warrants related to option bonds. As of
December 31, 2004, these option bonds had not been issued. The Board
of Executive Directors was authorized at the Annual Meeting on April 26, 2001, to do so up until April 1, 2006. An additional €38.4 million is reserved to fulfill
stock options granted under the BASF Stock Option Program (BOP) 2001/2005 to the members of the Board of Executive Directors and other senior executives of BASF and its subsidiaries; up to
€1.6 million is reserved to fulfill stock options from the Stock Option Program 1999/2000.

Authorized capital

At the Annual Meeting of April 29, 2004, shareholders authorized the Board of Executive Directors, with the approval of the Supervisory
Board, to increase subscribed capital by issuing new shares in an amount of up to €500.0 million against cash or contribution in kind through May 1, 2009. The Board of
Executive Directors is empowered to decide on the exclusion of shareholders' subscription rights, for these new shares.

Capital surplus

Capital surplus includes premiums from the issuance of shares, the fair value of warrants attached to option bonds and negative goodwill from the
capital consolidation resulting from acquisitions of subsidiaries in exchange for issue of BASF shares at par value.

19.  Retained earnings

|                                           
|-------------------------------------------
|
|
|Legal reserves                             
|Other retained earnings and profit retained
|Total                                      
|                                           

F-46

---



The changes in scope of consolidation reduced the legal reserves by less than €0.1 million in 2004, and increased them by €0.1 million in
2003, and reduced them by less than €0.1 million in 2002. Transfers from "Other retained earnings and profit retained" increased legal reserves by
€15.5 million in 2004, €18.5 million in 2003, and by €18.0 million in 2002.

20.  Minority interests

|                                                          
|----------------------------------------------------------
|
|
|
|Company                                                   
|WINGAS GmbH, Kassel, Germany                              
|                                                          
|Yangzi-BASF Styrenics Co. Ltd., Nanjing, China            
|                                                          
|BASF India Ltd., Mumbai, India                            
|                                                          
|BASF PETRONAS Chemicals Sdn. Bhd., Petaling Jaya, Malaysia
|                                                          
|BASF SONATRACH PropanChem S.A., Tarragona, Spain          
|                                                          
|BASF FINA Petrochemicals Ltd., Port Arthur, Texas         
|                                                          
|Shanghai BASF Polyurethane Company, Shanghai, China       
|                                                          
|Others                                                    
|                                                          
|Total                                                     
|                                                          

21.  Provisions for pensions and similar obligations

In addition to governmental pension schemes, most employees are entitled to Company pension benefits from defined contribution or defined benefit
plans. Benefits generally depend on years of service, contribution or compensation and consider the legal, fiscal and economic conditions of the countries where companies are located. For BASF
Aktiengesellschaft and other German subsidiaries, a basic level of benefits is provided by the legally independent funded plan, BASF Pensionskasse VVaG, which is financed by contributions of employees
and the Company and the returns on its assets.

For
German Group subsidiaries, additional company pension commitments are financed primarily by pension provisions. In the case of non-German subsidiaries, pension
entitlements are covered in some cases by pension provisions, but mainly by external insurance companies or pension funds.

The
measurement date for most of the pension plans is December 31 of the reporting period.

F-47

---



Assumptions used to determine the defined benefit obligation (weighted average)

|                                        
|----------------------------------------
|
|
|
|Interest rate                           
|Projected increase of wages and salaries
|Projected pension increase              
|                                        

Assumptions used to determine defined benefit cost (weighted average)

|                                        
|----------------------------------------
|
|
|
|Interest rate                           
|Projected increase of wages and salaries
|Projected pension increase              
|Expected return on plan assets          
|                                        

Similar
obligations refer to commitments by BASF's North American Group companies to provide for the costs of medical and life insurance benefits for employees and eligible dependents
after retirement. They are based upon an actuarial valuation, considering the future cost trend and a discount rate of 5.75%.

The
assumptions regarding the overall expected long-term rate of return are based on forecasts of expected individual asset class returns and the desired portfolio structure.
The forecasts are based on long-term historical average returns and take the current yield level and the inflation trend into consideration.

The
portfolio structure of the pension plan assets including the plan assets of BASF Pensionskasse (see Note 3c) is as follows:

Asset class

|               
|---------------
|
|
|Equities       
|Debt securities
|Real estate    
|Other          
|Total          
|               

The
target asset allocation has been defined with asset liability studies and is reviewed regularly. This ensures that plan assets are aligned with plan liabilities, and that investment
risk and legal requirements are taken into consideration. The current portfolio structure is generally oriented towards the Target Asset Allocation. In addition, current market views are taken into
consideration. In order to mitigate investment risks and to benefit from a large number of return sources, individual investments are broadly globally diversified.

F-48

---



Development of the defined benefit obligation

|                                             | 
|-------------------------------------------- | 
|
|
|Defined benefit obligation as of January 1   | 
|Service cost                                 | 
|Interest cost                                | 
|Benefits paid                                | 
|Participants' contributions                  | 
|Change in actuarial assumptions              | 
|Settlements and other changes                | 
|Exchange rate changes                        | 
|Defined benefit obligation as of December 31 | 
|                                             | 

Development of the plan assets

|                                                       | 
|------------------------------------------------------ | 
|
|
|Plan assets as of January 1                            | 
|Actual return on plan assets                           | 
|Employer contributions                                 | 
|Participants' contributions                            | 
|Benefits paid                                          | 
|Exchange rate changes                                  | 
|Other changes                                          | 
|                                                       | 
|Plan assets as of December 31                          | 
|                                                       | 
|Non-capitalized pre-financing of foreign pension plans | 
|Plan assets as of December 31                          | 
|                                                       | 

The
valuation of the pension fund assets of foreign pension produced the pre-financing shown above.

The
pension funds including BASF Pensionskasse, held securities that were issued by BASF Group companies, whose total market value amounted to €8.6 million on
December 31, 2004
(2003: €7.7 million). No material transactions took place between the pension funds and BASF Group companies, or related companies in 2004.

The
funded status, excluding pre-financing, is as follows:

|                                                                                    | 
|----------------------------------------------------------------------------------- | 
|
|
|Defined benefit obligation as of December 31                                        | 
|Less pension fund assets as of December 31,
excluding non-capitalized pre-financing | 
|                                                                                    | 
|Funded status                                                                       | 
|                                                                                    | 
|Unrecognized amounts                                                                | 
|Capitalized defined benefit asset                                                   | 
|                                                                                    | 
|Provisions for pensions                                                             | 
|                                                                                    | 
|Provisions for similar obligations                                                  | 
|Provisions for pensions and similar obligations                                     | 
|                                                                                    | 

F-49

---



Unrecognized
amounts refer in particular to actuarial gains or losses, and expenses due to prior service costs, which are amortized over the average remaining period of service of the
pension recipients and the average vesting period, respectively. The aggregate accumulated benefit obligation and aggregate fair value of plan assets for plans with an accumulated benefit obligation
(ABO) in excess of plan assets is shown below. Pension liabilities without asset funding relate predominately to pension plans in Germany that are covered by provisions.

|                                                
|------------------------------------------------
|
|
|
|Unfunded pension plans                          
|Partially funded pension plans                  
|                                                
|Total of pension plans that are not fully funded
|                                                
|Fully funded pension plans                      
|Total                                           
|                                                

Due
to rising ABOs, the pension liabilities exceeded plan assets for the first time in 2004 for some pension plans, leading to their inclusion in the partially funded plan category.
Payments for the pension liabilities as of December 31, 2004 have the following maturities:

|                 
|-----------------
|
|2005             
|2006             
|2007             
|2008             
|2009             
|2010 through 2014
|Total            
|                 

Composition of the net periodic benefit cost

|                                        | 
|--------------------------------------- | 
|
|
|Service cost                            | 
|Interest cost                           | 
|Expected return on plan assets          | 
|Amortization of prior service cost      | 
|Other amortization amounts              | 
|Settlement (gains)/losses               | 
|                                        | 
|Expenses for defined benefit plans      | 
|                                        | 
|Expenses for defined contribution plans | 
|Expenses for similar obligations        | 
|Net periodic benefit cost               | 
|                                        | 

The
estimated contribution payments for defined benefit plans including BASF Pensionskasse for 2005 are €97.5 million.

F-50

---



22.  Other provisions

|                                                        
|--------------------------------------------------------
|
|
|
|Oil and gas production                                  
|Environmental protection and remediation costs          
|Personnel costs                                         
|Sales and purchase risks                                
|Integration, shutdown and restructuring costs           
|Legal, damage claims, guarantees and related commitments
|Maintenance and repair costs                            
|Outstanding billings from suppliers                     
|Other                                                   
|Total                                                   
|                                                        

Oil and gas production:Accrued costs for filling of wells and the removal of
production equipment after the end of production are accumulated individually using the unit of production method according to the amount of cumulative production.

Environmental protection and remediation costs:Expected costs for rehabilitating contaminated sites,
water protection, recultivating landfills, removal of environmental contamination at existing production or storage sites and other measures.

Personnel costs:The personnel cost provision includes obligations to grant long-time
service bonuses and anniversary payments, vacation pay, variable compensation including related social security contributions and other accruals as well as provisions for early retirement and
short-working programs for employees nearing retirement. Most German BASF companies have various programs that entitle employees who are at least 55 years old to reduce their working hours to
50% for up to six years. Under such arrangements, employees generally work full time during the first half of the transition
period and leave the Company at the start of the second period. Employees receive a minimum 85% of their net salary throughout the transition period.

Sales and purchase risks:The sales and purchase risks provision includes warranties, product
liability, customer rebates, payment discounts and other price reductions, sales commissions and provisions for expected losses on committed purchases or similar obligations.

Integration, shutdown and restructuring costs:Such provisions include severance payments to
employees as well as specific site shutdown or restructuring costs, including the costs for demolition and similar measures.

F-51

---



The
movement in shutdown and restructuring provisions is as follows:

|                            
|----------------------------
|
|
|Severance                   
|Plant closure and demolition
|Other                       
|Total                       
|                            

|                            
|----------------------------
|
|
|Severance                   
|Plant closure and demolition
|Other                       
|Total                       
|                            

|                            
|----------------------------
|
|
|Severance                   
|Plant closure and demolition
|Other                       
|Total                       
|                            

Additions in 2004 consisted primarily of personnel measures at the Ludwigshafen site, as well as restructuring measures for Europe.

Additions
in 2003 consisted primarily of personnel measures at the Ludwigshafen site, as well as restructuring measures for corporate services in North America (NAFTA).

Additions
in 2002 consisted of personnel measures at the Ludwigshafen site, as well as restructuring measures in the Agricultural Products division.

Amounts
paid in 2004, 2003 and 2002 are related to the realization of restructuring measures initiated in the prior year.

Guarantees, damage claims, legal and related commitments:Provisions are recorded for the expected
cost of outstanding litigation and claims of third parties, including regulatory authorities, other guarantees and warrantees for antitrust proceedings. The significant proceedings are described in
Note 25.

Payments
were made in 2002 for compensation claims of vitamin customers in the United States after finalization of a settlement and for fines of €296.2 million. An
additional €100 million was added to the provision for the settlement of vitamin litigation in 2002 due to the ongoing settlement of indirect vitamin customers' claims in the
United States and the unsettled litigation in some countries.

F-52

---



Maintenance and repair costs:Provisions for maintenance and repair costs cover maintenance
procedures as of the end of the year that are expected to be incurred within the first three months of the following year and certain provisions for the overhauling of large-scale plants within
prescribed intervals required by official agencies.

Provisions
for shutdowns and major maintenance were as follows:

|                                              
|----------------------------------------------
|
|
|Provisions for shutdowns and major maintenance
|                                              



|                                              
|----------------------------------------------
|
|
|Provisions for shutdowns and major maintenance
|                                              



|                                              
|----------------------------------------------
|
|
|Provisions for shutdowns and major maintenance
|                                              

23.  Liabilities

Financial liabilities

|                                                              
|--------------------------------------------------------------
|
|
|5.75% Euro Bond 2000/2005 of BASF Aktiengesellschaft          
|3.50% Euro Benchmark Bond 2003/2010 of BASF Aktiengesellschaft
|Other bonds                                                   
|Commercial paper                                              
|                                                              
|Bonds and other liabilities to the capital market             
|                                                              
|Liabilities to credit institutions                            
|Financial liabilities                                         
|                                                              

Financial liabilities are denominated predominantly in the following currencies:

|                 
|-----------------
|
|
|U.S. dollars     
|Euros            
|Malaysian ringgit
|Korean won       
|Chinese renminbi 
|Other            
|Total            
|                 

F-53

---



The weighted average interest rate on short-term borrowings was 4.2% on December 31, 2004 (2003: 4.4%). Financial liabilities
have the following maturities as of December 31, 2004:

|          
|----------
|
|2005      
|2006      
|2007      
|2008      
|2009      
|Thereafter
|Total     
|          

The 3.5% Euro Benchmark Bond 2003/2010 of BASF Aktiengesellschaft was issued in July 2003 in the amount of
€1,000 million. The 5.75% Euro Bond 2000/2005 of BASF Aktiengesellschaft was issued in July 2000 in the amount of €1,250 million.

"Other
bonds" consist primarily of industrial revenue and pollution control bonds that are used to finance investments in the United States. The weighted average interest rate of these
bonds was 1.5% in 2004, 1.4% in 2003 and 2.1% in 2002.

"Commercial
paper" comprises BASF Aktiengesellschaft's commercial paper program.

Liabilities to credit institutions

Liabilities to credit institutions relate to a large number of different credit institutions in various countries. Liabilities to credit
institutions denominated in ringgit, won und renminbi result from the local financing of investments in Malaysia, Korea and China.

The
Company had committed and unused credit lines with variable interest rates of €3,460.9 million (thereof BASF AG €2,062.4 million) as of
December 31, 2004, and €3,529.0 million (thereof BASF AG €2,107.0 million) as of December 31, 2003.

Miscellaneous liabilities

|                                                         
|---------------------------------------------------------
|
|
|
|Advances received on account of orders                   
|Liabilities on bills                                     
|Liabilities to companies in which participations are held
|Tax liabilities                                          
|Liabilities relating to social security                  
|Non-trade liabilities of joint ventures to partners      
|Other miscellaneous liabilities                          
|                                                         
|Total                                                    
|                                                         
|Deferred income                                          
|Total miscellaneous liabilities and deferred income      
|                                                         

Liabilities to companies in which participations are held include the portion of liabilities that are not eliminated to jointly owned companies
accounted for using the proportional consolidation method of €144.8 million as of December 31, 2004, and €140.1 million as of December 31,
2003. Further liabilities

F-54

---



relating
to associated companies accounted for under the equity or costs method were €13.8 million as of December 31, 2004, and €37.1 million as of
December 31, 2003.

Maturities of liabilities

|                                                         
|---------------------------------------------------------
|
|
|
|Bonds and other liabilities to the capital market        
|Liabilities to credit institutions                       
|Accounts payable, trade                                  
|Liabilities to affiliated companies                      
|Advances received on account of orders                   
|Liabilities on bills                                     
|Liabilities to companies in which participations are held
|Other liabilities                                        
|Total                                                    
|                                                         

Collateralized liabilities

|                                  
|----------------------------------
|
|
|Liabilities to credit institutions
|Miscellaneous liabilities         
|Total                             
|                                  

The above liabilities are collateralized by mortgages or securities. In addition, BASF Aktiengesellschaft has given covenants in favor of BASF
Pensionskasse VVaG with regard to adhering to certain balance sheet ratios and to forgo encumbering property as security for creditors.

24.  Contingent liabilities and other financial obligations

The contingent liabilities listed below are stated at nominal value.

Contingent liabilities

|                                                        
|--------------------------------------------------------
|
|
|Bills of exchange                                       
|                                                        
|Guarantees                                              
|Warranties                                              
|Granting collateral on behalf of third-party liabilities
|Total                                                   
|                                                        

F-55

---



Other financial obligations

|                                                        |                             | 2004    |       | 2003   
|------------------------------------------------------- | --------------------------- | ------- | ----- | -------
|
|Remaining cost of construction in progress              |                             | 1,700.7 |       | 1,853.3
|                                                        | Thereof purchase commitment |         | 378.6 |        
|Commitments from long-term rental and leasing contracts |                             | 812.4   |       | 936.7  
|Capital contribution and loan commitments               |                             | 15.9    |       | 9.1    
|Repurchase commitments                                  |                             |        |       | 247.5  
|Total                                                   |                             | 2,529.0 |       | 3,046.6
|                                                       

BASF had payment commitments in 2004 to the non-consolidated BASF Huntsman Shanghai Isocyanate Investment B.V., Netherlands. BASF had
payment commitments in 2003 to
Shanghai BASF Polyurethane Company, China. In 2002 BASF had payment commitments to BASF Chemicals Company Ltd., China. Repurchase commitments in 2003 related to accounts receivable.

Obligations
from long-term rental and lease contracts are due as follows:

|                    |  | (Million €)
|------------------- |  | -----------
|2005                |  | 171.0      
|2006                |  | 131.2      
|2007                |  | 94.2       
|2008                |  | 77.6       
|2009                |  | 64.7       
|2010 and thereafter |  | 273.7      
|Total               |  | 812.4      
|                   

Purchase commitments for raw materials and natural gas from long-term contracts

The Company has entered into long-term purchase contracts for natural gas, the vast majority of which are coupled with
long-term supply contracts to customers. In addition, the Company purchases raw materials globally, both on the basis of long-term contracts and in spot markets. In general,
such commitments are at prices that are regularly adjusted to market conditions. The fixed and determinable portions of long-term purchase contracts with a remaining term of more than one
year as of December 31, 2004, are as follows:

|                    |  | (Million €)
|------------------- |  | -----------
|2005                |  | 7,447      
|2006                |  | 4,234      
|2007                |  | 3,062      
|2008                |  | 2,740      
|2009                |  | 2,549      
|2010 and thereafter |  | 29,292     
|Total               |  | 49,324     
|                   

The increase in purchase commitments compared with the prior year primarily reflects the premature extensions of the long-term supply
contracts until 2030 with Gazexport, a subsidiary of Gazprom.

F-56

---



25.  Litigation and claims

Antitrust Claims Relating to Vitamins

In 1999 and in 2000, BASF Aktiengesellschaft as well as BASF Australia Ltd. entered into agreements with the United States Department of
Justice, the Canadian Competition Bureau and the Australian Department of Justice by which BASF Aktiengesellschaft and BASF Australia Ltd. agreed to plead guilty to certain violations of
antitrust laws relating to the sale of vitamin products in the respective countries. The relevant courts accepted the guilty pleas. On November 21, 2001, the European Commission imposed a fine
of €296.2 million against BASF Aktiengesellschaft. BASF has appealed against this decision. Further proceedings are still pending in Brazil and Australia. On December 9,
2004, the European Commission imposed an additional fine of €35 million for violations of certain antitrust laws relating to the sale of vitamin B4 (choline
chloride) in the mid nineties. BASF intends to appeal against this decision.

All
lawsuits in the U.S. in connection with said antitrust law violations filed by direct customers that purchased vitamins in the U.S. have been settled.

State
court class actions on behalf of indirect purchasers have been filed separately in approximately 28 U.S. states. In October 2000, class actions in 24 of these states, as
well as related claims by various state government entities, were settled. Certain of indirect purchasers plaintiffs who did not wish to participate in these settlements or were not eligible to do so
have filed suits. Nearly all of those suits have been settled. Further claims for damages are pending in France and Australia.

For
these proceedings the company has established provisions for the costs that it anticipates to be sufficient.

BASF
Aktiengesellschaft has been named as a defendant in Empagran S.A. v. F. Hoffman-LaRoche, Ltd., et al., a federal class action filed in the United States District Court for
the District of Columbia purportedly on behalf of all persons who purchased vitamins from the defendants outside the United States between January 1, 1988 and February 1999. The Empagran
complaint alleges that the plaintiffs were overcharged on their vitamins purchases as the result of a worldwide conspiracy among the defendants to fix vitamin prices. By decision dated June 7,
2001, the District Court for the District of Columbia dismissed the Empagran complaint for lack of subject matter jurisdiction. On January 17, 2003, a divided panel of the United States Court
of Appeals for the District of Columbia Circuit reversed the District Court's ruling. The Court of Appeals held that the United States antitrust laws permit the assertion of federal subject matter
jurisdiction over claims by foreign purchasers based on purchases made and purported damages felt outside the United States. BASF Aktiengesellschaft and the other defendants petitioned for a writ of
certiorari to the United States Supreme Court. The Supreme Court granted the petition, and on June 14, 2004, vacated the Court of Appeals' ruling and remanded the case to the Court of Appeals
by a 8-0 decision, which now will decide an issue that the Supreme Court did not address: whether the nature of the alleged link between foreign injury and domestic effects is legally
sufficient to trigger application of the FTAIA's domestic-injury exception. The Court of Appeals issued a briefing schedule for the appeal on remand, with oral argument scheduled for April 20,
2005.

If
the Court of Appeals affirms the District Court's dismissal of the action, the proceedings would be terminated and the case dismissed. If, on the other hand, the Court of Appeals does
not affirm the dismissal of the action, then BASF Aktiengesellschaft will vigorously defend the case at each stage of the proceedings, including but not limited to personal jurisdiction, venue,
attempted certification of a world wide class, a number of liability issues and purported damages in various countries. An ultimate finding against BASF Aktiengesellschaft could cause considerable
financial charges.

Synthroid®-Related Claims

This proceeding concerned class action lawsuits against Knoll Pharmaceutical Company (KPC) of BASF's Pharmaceutical business, discontinued in
2001. The lawsuits challenged Knoll's delaying the

F-57

---



publication
of a study comparing Synthroid® to certain branded and generic products. Final approval of a proposed settlement of 1997 was not granted. KPC subsequently negotiated a new
proposed settlement with consumers and third-party payors providing for a payment of $25.5 million in addition to the $98 million paid into escrow in late 1997 (plus the accrued interest
thereon). The United States District Court of Chicago granted final approval of the new proposed settlement on August 4, 2000. A number of appeals have been filed. On August 31, 2001,
the United States Court of Appeals granted final confirmation of the settlement. The only issue outstanding before payment can be made is the possible appeal of consumer class counsels' litigation
costs and expenses.

Meridia® Class Actions against BASF Corporation and BASF Aktiengesellschaft

In various class actions in the U.S., KPC and BASF Corporation (and in two cases BASF Aktiengesellschaft) as well as Abbott
Laboratories, Inc. and Glaxo Wellcome are being sued for an unknown amount of damages as well as for the reimbursement of costs for preventive medical check-ups. The claims are
based on the possible hazardousness, alleged insufficient trials, and failures during the admission procedure of Meridia® (trade name of the obesity drug sibutramine). The legal
proceedings are still at a very early stage. Both actions against BASF Aktiengesellschaft have been dropped or dismissed. BASF Corporation processed the drug for KPC by way of toll manufacture. Beyond
this, BASF Corporation has no relationship with the product. The mere fact that BASF Corporation held the interest in KPC does not provide a sufficient basis for compensation claims. The overall
material risk for BASF can be considered as rather low.

Additional Proceedings

The Supreme Court of Minnesota in its decision dated February 19, 2004 upheld the verdict of the appellate court against BASF Corporation
regarding payment of damages in an amount of $52 million. The court held that the sale of the plant protection products Poast® and Poast Plus® at different sales prices
violated consumer protection laws. BASF believes that different sales prices are justified because the products are based on different patents and product registrations. BASF has filed a petition for
a Writ of Certiorari seeking review by the United States Supreme Court. That petition is currently pending before the Court.

In
2001, class action lawsuits against BASF Aktiengesellschaft and some of its affiliates had been filed at United States courts. It was alleged that sales of automotive refinish
coatings had violated antitrust laws. The vast majority of these claims have been settled with favorable terms.

26.  Stock-based compensation

BASF stock option program (BOP):In 2004, BASF continued the BASF stock option program (BOP) for
senior executives of the company worldwide. This program has existed since 1999. Approximately 1,000 senior executives, including the Board of Executive Directors, are currently entitled to
participate in this program.

To
participate in the stock option program, each participant must hold as a personal investment BASF shares in the amount of 10% to 30% of his or her individual variable compensation.
The number of shares is determined by the amount of variable compensation designated by the participant and the weighted average market price quotation for BASF shares on the first business day after
the annual meeting, which was €42.73 on April 30, 2004 (base price).

For
each BASF share of the individual investment, a participant receives four options. Each option consists of two parts, right A and right B, which may be exercised if defined
thresholds have been met: The threshold of right A is met if the price of the BASF share has increased by more than 30% in comparison to the base price (absolute threshold). The value of right A will
be the difference between the market price of BASF shares at the exercise date and the base price; it is limited to 100% of the base price. Right B may be exercised if the cumulative percentage
performance of BASF shares exceeds the percentage performance

F-58

---



of
the Dow Jones Global Chemicals Total Return Index (DJ Chemicals). The value of right B will be the base price of the option multiplied by twice the percentage outperformance of BASF shares compared
to the DJ Chemicals index on the exercise date; the value of right B is limited to the closing price on the date of exercise, minus the calculated nominal value of the BASF share. Shares of the
individual investments must be held for at least two years after the option's grant date.

The
options were granted on July 1, 2004 and can be exercised between July 1, 2006 and June 30, 2012. During the exercise period, it is not possible to exercise
options during certain periods (closed periods). Each option right may only be exercised if the performance targets are achieved and may only be exercised once, meaning that if only one performance
target is met and that option is exercised, the other option right expires. The maximum gain for a participant from the BOP program is limited to 10 times the original individual investment and will
be principally settled in cash.

The
stock option programs BOP 1999 to BOP 2003 were structured in a similar way to the BOP 2004 program. The options may be exercised following a vesting period of two years (BOP
2001 - 2003) or three years (BOP 1999 and 2000).

The
benchmark index used to determine the value of right B for BOP 1999 and 2000 is the Dow Jones EURO STOXXSM Total Return Index (EURO STOXXSM). For BOP
2001, it was replaced by the DJ Chemicals Index, which is considered a more meaningful benchmark as a worldwide index for the chemical sector.

Details
on the fair value and the number of options issued are described below.

Fair value and parameters used as of December 31, 2004*

|                                       
|---------------------------------------
|
|
|Fair value                             
|Dividend yield of BASF shares          
|Risk free interest rate                
|Volatility of BASF shares              
|Volatility of: DJ Chemicals            
|Correlation BASF quotation-DJ Chemicals
|                                       

The fair value at the option grant date was €22.69 (BOP 2004), €16.82 (BOP 2003) and €30.30 (BOP
2002).

|                                               
|-----------------------------------------------
|
|
|Number of options outstanding as of January 1  
|Number of options granted                      
|Number of options lapsed*                      
|Number of options exercised                    
|Number of options outstanding as of December 31
|                                               
|                                               

F-59

---



The weighted average maturity of the outstanding options was 5.70 years on December 31, 2004, 5.92 years on
December 31, 2003 and 5.33 years on December 31, 2002. The base prices were within a range of €38.94 to €47.87 in 2004 and 2003, and
€41.60 to €47.87 in 2002.

In
accordance with a resolution by the Board of Executive Directors and the Supervisory Board in 2002, stock options will be settled in cash instead of delivering shares. Options
outstanding as of December 31, 2002, 2003 and 2004 are valued with the fair value as of the balance sheet date. This amount is accrued as a provision over the respective vesting period. An
amount of €36.4 million was charged to income in 2004, €28.1 million in 2003, and €16.7 million in 2002.

BASF "plus" incentive share program:In 1999, BASF started an incentive share program called "plus"
for all eligible employees except the senior executives entitled to participate in the BOP. Currently, employees of German and of various European and Mexican subsidiaries are entitled to participate
in the program. Each participant must make an individual investment in BASF shares from his or her variable compensation. For each 10 BASF shares purchased in the program, a participant receives one
BASF share at no cost after one, three, five, seven and 10 years of holding the BASF shares. The right to receive free BASF shares expires if a participant sells the individual investment in
BASF shares, if the participant stops working for the Company or one year after retirement.

In
2002, most companies improved the employee share purchase program. The first block of 10 shares purchased in any year now attracts one free incentive share in each of the following
10 years.

Details
on the incentive share program are described below.

|                                                                
|----------------------------------------------------------------
|
|
|Number of shares held as individual investment as of January 1  
|Number of shares added to the individual investment             
|Number of subscription rights lapsed                            
|Number of shares held as individual investment as of December 31
|                                                                

The Company provides for the value of the free shares over the period until the shares are to be issued based on the year-end price of
BASF shares.

Compensation
cost of €13.5 million was recorded in 2004, €10.8 million in 2003, and €5.7 million in 2002.

27.  Financial instruments and derivative instruments

Derivative instruments:The Company is exposed to foreign currency, interest rate and commodity price
risks during the normal course of business. In cases where the Company intends to hedge against these risks, derivatives are used, including forward exchange contracts, currency options, interest
rate/currency swaps or combined instruments, or commodity derivatives. In addition, derivative instruments are used to replace transactions in original financial instruments, such as shares or fixed-
interest securities. Derivative instruments are only used if they have a corresponding underlying position or planned transaction arising from the operating business, cash investments and financing.
The leverage effect that can be achieved with derivatives is deliberately not used. The derivative instruments held by the Company are not held for the purpose of trading.

Where
derivatives have a positive market value, the Company is exposed to credit risks in the event of non-performance of their counterparts. The credit risk is minimized by
exclusively trading contracts with major creditworthy financial institutions and partners.

F-60

---



To ensure efficient risk management, market risks are centralized at BASF Aktiengesellschaft, except when certain subsidiaries have been authorized to close derivative contracts under
the principles mentioned above. The Company has developed and implemented internal guidelines based on the principles of separation of functions for completion and execution of derivative instruments.

The
risks arising from changes in exchange rates, interest rates, and prices as a result of the underlying transactions and the derivative transactions concluded to secure them are
monitored constantly. The same is true of the derivative instruments, which are used to replace transactions in original financial instruments. For this purpose, market quotations or computer or
mathematical models are used to determine the current market values not only of the underlying transactions but also of the derivative transactions and these are compared with each other.

Foreign exchange and interest rate risk management:Foreign currency derivatives are primarily aimed
at hedging the exchange rate risk against the U.S. dollar, the Canadian dollar, the South African rand, the British pound, the Brazilian real, the Japanese yen, the Mexican peso, and the Korean won.
Foreign exchange contracts, or combined interest/currency derivatives were entered into to hedge loans granted to group companies.

Fair value of financial instruments:The fair value of a financial instrument is the price at which
the instrument could be exchanged between willing parties. Fair value amounts are estimated by the Company management based on available market information and appropriate valuation techniques. These
estimates do not necessarily reflect the amount that could be realized or would be paid in the current market.

Book
and estimated fair values of financial instruments, for which it is practicable to estimate the fair value, were as follows:

|                                             
|---------------------------------------------
|
|
|
|Assets                                       
|Financial assets (details, see Note 13)      
|Accounts receivable, trade and other assets  
|Marketable securities (details, see Note 16) 
|Cash and cash equivalents                    
|Liabilities                                  
|Financial liabilities*                       
|Accounts payable, trade and other liabilities
|                                             

Accounts receivable and other assets, accounts payable and other liabilities:For
trade accounts receivable, liquid funds and other assets, trade accounts payable and other liabilities, the book value approximates the fair value. For non-current amounts, the difference
between book value and fair value represents primarily unrecognized gains from foreign currency balances.

The
fair value of financial assets and marketable securities represents market values from securities exchanges at the balance sheet date. The market value of financial liabilities
represents a valuation of bonds at inter-bank rates.

Other
assets in 2003 contained the book value of the DAX-LIBOR swaps in the amount of €54.4 million. The book value of the payment liabilities in 2003
was €56.7 million. In 2004, the DAX-LIBOR swaps were sold.

F-61

---



Breakdown of derivative financial instruments

|                                            | 
|------------------------------------------- | 
|
|
|
|Forward exchange contracts                  | 
|Currency options                            | 
|                                            | 
|Foreign currency derivatives                | 
|                                            | 
|Interest rate swaps                         | 
|Interest rate/cross currency swaps          | 
|                                            | 
|Interest rate derivatives                   | 
|                                            | 
|Commodity derivatives and other derivatives | 
|                                            | 

Forward exchange contracts generally mature within one year.

The
nominal values are the totals of the purchases and sales of the particular derivatives on a gross basis. The fair market values correspond to the difference between the cost and
resale value, which is determined from market quotations or by the use of option pricing models or, in the case of unlisted
contracts, the termination amount in the event of premature cancellation. Offsetting changes in the valuation of the underlying transactions are not taken into account.

Provisions
for probable losses from fluctuations of foreign exchange rates, interest rates or prices amounted to €42.1 million in 2004 and
€2.2 million in 2003. The changes of the fair value of financial instruments and derivative contracts had been recognized as required by U.S. GAAP and the impact on net income
and stockholders' equity in accordance to U.S. GAAP is disclosed in Note 3.

Commodity
derivatives are used to hedge raw material prices, e.g., for naphtha.

28.  Services provided by the external auditor

BASF Group companies have used the following services of Deloitte & Touche:

|                         
|-------------------------
|
|
|Annual audit             
|Audit-related services   
|Tax consultation services
|Other services           
|Total                    
|                         

The annual audit concerned the audit of the annual financial statements of the BASF Group as well as the legally required audit of the financial
statements of BASF Aktiengesellschaft and the consolidated subsidiary companies, and joint ventures.

Audit-related
services concerned billed services for due diligence, confirmation of the conformance to certain contractual obligations as well as examinations relating to documentation
of the internal control systems required by the Sarbanes-Oxley Act.

Tax
consultation services primarily concerned tax consultation services in connection with planned or existing transactions, transfer price analysis, as well as consultation with
employees on foreign delegation assignments.

Other
services concern amounts billed in connection with insurance damage claims as well as numerous other services.

F-62

---



Supplementary information concerning oil and gas producing activities (unaudited)

Oil and gas producing activities

"Additional Petroleum Data" disclosures are presented in accordance with the provisions of SFAS 69, "Disclosure of Oil and Gas Producing
Activities." Accordingly, volumes of reserves and production exclude royalty interests of third parties, and royalty payments are shown as reductions in revenues.

In
2002, Wintershall acquired Clyde Netherlands B.V. from ConocoPhillips, effective November 5, 2002. The respective effects of this acquisition will be described in detail for
each disclosure of this section.

Results of operations from oil and gas producing activities

Results of operations from oil and gas producing activities represent only those revenues and expenses directly associated with Wintershall's oil
and gas production. These amounts do not include any allocation of interest expenses or corporate overheads and are therefore not necessarily indicative of contributions to consolidated net earnings
of the Company. Estimated income taxes were computed by applying the statutory income tax rates to the pretax income from producing activities.

|                     
|---------------------
|
|
|Results of operations
|                     
|                     
|                     
|                     
|Total sales          
|                     
|                     
|                     
|                     
|                     
|                     
|Total costs          
|                     
|Income before taxes  
|                     
|Income after taxes   
|                     

F-63

---



|                     
|---------------------
|
|
|Results of operations
|                     
|                     
|                     
|                     
|Total sales          
|                     
|                     
|                     
|                     
|                     
|                     
|Total costs          
|                     
|Income before taxes  
|                     
|Income after taxes   
|                     

|                     
|---------------------
|
|
|Results of operations
|                     
|                     
|                     
|                     
|Total sales          
|                     
|                     
|                     
|                     
|                     
|                     
|Total costs          
|                     
|Income before taxes  
|                     
|Income after taxes   
|                     

F-64

---



Costs incurred in oil and gas property acquisition, exploration and development activities

Costs incurred represent amounts capitalized or charged against income as incurred in connection with oil and gas property acquisition,
exploration and development activities. Exploration and development costs include applicable depreciation of support equipment and sites used in such activities.

The
major portion of "Costs incurred 2002 resulting from Property acquisitions" shown under "Rest of World" represents the effect from the acquisition of Clyde Netherlands B.V. (purchase
price allocation to assets before taxes).

|                      
|----------------------
|
|
|Costs incurred        
|Property acquisitions:
|                      
|                      
|Exploration           
|Development           
|Total costs           
|                      

|                      
|----------------------
|
|
|Costs incurred        
|Property acquisitions:
|Proved                
|                      
|                      
|Development           
|Total costs           
|                      

|                      
|----------------------
|
|
|Costs incurred        
|Property acquisitions:
|                      
|                      
|Exploration           
|Development           
|Total costs           
|                      

F-65

---



Capitalized costs relating to oil and gas producing activities

Capitalized costs represent total expenditures on proved and unproved oil and gas properties with related accumulated depreciation, depletion and
amortization.

|                                                                           
|---------------------------------------------------------------------------
|
|
|Capitalized costs                                                          
|Gross costs:                                                               
|                                                                           
|                                                                           
|                                                                           
|Accumulated depreciation, depletion, amortization and valuation allowances:
|                                                                           
|                                                                           
|                                                                           
|Total net costs                                                            
|                                                                           

|                                                                           
|---------------------------------------------------------------------------
|
|
|Capitalized costs                                                          
|Gross costs:                                                               
|                                                                           
|                                                                           
|                                                                           
|Accumulated depreciation, depletion, amortization and valuation allowances:
|                                                                           
|                                                                           
|                                                                           
|Total net costs                                                            
|                                                                           

F-66

---



|                                                                           
|---------------------------------------------------------------------------
|
|
|Capitalized costs                                                          
|Gross costs:                                                               
|                                                                           
|                                                                           
|                                                                           
|Accumulated depreciation, depletion, amortization and valuation allowances:
|                                                                           
|                                                                           
|                                                                           
|Total net costs                                                            
|                                                                           

Oil and natural gas reserves

Proved oil and gas reserves are the estimated volumes of crude oil, natural gas and natural gas liquids that are shown by geological and
engineering data with reasonable certainty to be recoverable in future years from known reserves under existing economic and operating conditions, i.e., prices and costs as of the date the estimates
are made. Prices only reflect changes in existing prices resulting from
contractual arrangements, not escalation based on future conditions. Proved reserves exclude royalties and interests of third parties.

Proved
developed reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be
obtained through the application of fluid injection or other improved recovery techniques for supplementing natural forces and mechanisms of primary recovery are included as proved developed reserves
only after testing in the form of a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved.

Numerous
uncertainties are inherent in estimating quantities of proved reserves and in projecting future rates of production and timing development expenditures. The accuracy of any
reserve estimate is a function of the quality of available data and engineering and geological interpretation and judgment. Results of drilling, testing and production after the date of the estimate
may necessitate substantial upward or downward revisions. In addition, changes in oil and natural gas prices could have an effect on the quantities of proved reserves because the estimates of reserves
are based on prices and costs at the date when such estimates are made.

The
tables below show the estimated net quantities, calculated in compliance with Regulation S-X, Rule 4-10(a), as of December 31, 2002, 2003
and 2004 of the Company's proved oil and gas reserves and proved developed oil and gas reserves, as well as changes in estimated proved reserves as a result of production and other factors. The
Company's reserves for 2002, 2003 and 2004 include reserves owned directly by the Company and its consolidated subsidiaries.

F-67

---



The
major portion of additions of reserves 2002 resulting from "Purchase of reserves" shown under "Rest of World" represents the effect from the acquisition of Clyde Netherlands B.V.

|                                                            
|------------------------------------------------------------
|
|
|Estimated proved oil reserves                               
|Proved developed and undeveloped reserves, beginning of year
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|End of year                                                 
|Proved developed reserves, beginning of year                
|End of year                                                 
|Estimated proved gas reserves (BSCF)                        
|Proved developed and undeveloped reserves, beginning of year
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|End of year                                                 
|Proved developed reserves, beginning of year                
|End of year                                                 
|                                                            

F-68

---



|                                                             |                                
|------------------------------------------------------------ | -------------------------------
|
|
|Estimated proved oil reserves                                |                                
|Proved developed and undeveloped reserves, beginning of year |                                
|                                                             | /*/ Revisions and other changes
|                                                             | /*/ Extensions and discoveries 
|                                                             | /*/ Improved recovery          
|                                                             | /*/ Purchase of reserves       
|                                                             | /*/ Sale of reserves           
|                                                             | /*/ Production                 
|                                                             |                                
|End of year                                                  |                                
|Proved developed reserves, beginning of year                 |                                
|End of year                                                  |                                
|Estimated proved gas reserves (BSCF)                         |                                
|Proved developed and undeveloped reserves, beginning of year |                                
|                                                             | /*/ Revisions and other changes
|                                                             | /*/ Extensions and discoveries 
|                                                             | /*/ Improved recovery          
|                                                             | /*/ Purchase of reserves       
|                                                             | /*/ Sale of reserves           
|                                                             | /*/ Production                 
|                                                             |                                
|End of year                                                  |                                
|Proved developed reserves, beginning of year                 |                                
|End of year                                                  |                                
|                                                             |                                

F-69

---



|                                                            
|------------------------------------------------------------
|
|
|Estimated proved oil reserves                               
|Proved developed and undeveloped reserves, beginning of year
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|End of year                                                 
|Proved developed reserves, beginning of year                
|End of year                                                 
|Estimated proved gas reserves (BSCF)                        
|Proved developed and undeveloped reserves, beginning of year
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|                                                            
|End of year                                                 
|Proved developed reserves, beginning of year                
|End of year                                                 
|                                                            

Standardized measure of discounted future net cash flows relating to proved oil and gas reserves

The information presented below has been prepared in accordance with SFAS No. 69, which requires the standardized measure of discounted
future net cash flows to be based on year-end sales prices, costs and statutory income tax rates and a 10% annual discount rate. Because prices used in the calculation are as of December,
the standardized measure could vary significantly from year to year depending on market conditions at that specific date.

The
projection should not be viewed as realistic estimates of future cash flows nor should the "standardized measure" be interpreted as representing current value to the company.
Material revisions of

F-70

---



estimates
of proved reserves may occur in the future, development and production of the reserves may not occur in the period assumed, actual prices realized are expected to vary significantly from
those used and actual costs may also vary. The company's investment and operating decisions are not based on the information presented below, but on a wide range of reserves, and on different price
and cost assumptions from those reflected in this information.

Beyond
the above considerations, the "standardized measure" is also not directly comparable with asset balances appearing elsewhere in the Consolidated Financial Statements because any
such comparison would require a reconciling adjustment.

Standardized measure of discounted future net cash flows relating to proved oil and gas reserves

|                                                
|------------------------------------------------
|
|
|Discounted future net cash flow                 
|Revenues                                        
|Production/development costs                    
|Income taxes                                    
|Future net cash flows                           
|Discounted to present value at a 10% annual rate
|Total                                           
|                                                

|                                                
|------------------------------------------------
|
|
|Discounted future net cash flow                 
|Revenues                                        
|Production/development costs                    
|Income taxes                                    
|Future net cash flows                           
|Discounted to present value at a 10% annual rate
|Total                                           
|                                                

|                                                
|------------------------------------------------
|
|
|Discounted future net cash flow                 
|Revenues                                        
|Production/development costs                    
|Income taxes                                    
|Future net cash flows                           
|Discounted to present value at a 10% annual rate
|Total                                           
|                                                

F-71

---



Summary of changes in standardized measure of discounted future net cash flows relating to proved oil and gas reserves

The major portion of "Changes 2002 resulting from purchases (sales) of reserves in place  net shown" under the Netherlands represents
the effect from the acquisition of Clyde Netherlands B.V.

|                                                                     | 
|-------------------------------------------------------------------- | 
|
|
|Summary of changes                                                   | 
|Balance as of January 1                                              | 
|Sales and transfers of oil and gas produced, net of production costs | 
|Net changes in price and in development and production cost          | 
|Extension, discoveries and improved recovery, less related costs     | 
|Revisions of previous quantity estimates                             | 
|Development costs incurred during the period                         | 
|Changes in estimated future development costs                        | 
|Purchase (sales) of reserves in place  net                          | 
|Accretion of discount                                                | 
|Net changes in income taxes                                          | 
|Other                                                                | 
|Balance as of December 31                                            | 
|                                                                     | 

|                                                                     | 
|-------------------------------------------------------------------- | 
|
|
|Summary of changes                                                   | 
|Balance as of January 1                                              | 
|Sales and transfers of oil and gas produced, net of production costs | 
|Net changes in price and in development and production cost          | 
|Extension, discoveries and improved recovery, less related costs     | 
|Revisions of previous quantity estimates                             | 
|Development costs incurred during the period                         | 
|Changes in estimated future development costs                        | 
|Purchase (sales) of reserves in place  net                          | 
|Accretion of discount                                                | 
|Net changes in income taxes                                          | 
|Other                                                                | 
|Balance as of December 31                                            | 
|                                                                     | 

F-72

---



|                                                                     | 
|-------------------------------------------------------------------- | 
|
|
|Summary of changes                                                   | 
|Balance as of January 1                                              | 
|Sales and transfers of oil and gas produced, net of production costs | 
|Net changes in price and in development and production cost          | 
|Extension, discoveries and improved recovery, less related costs     | 
|Revisions of previous quantity estimates                             | 
|Development costs incurred during the period                         | 
|Changes in estimated future development costs                        | 
|Purchase (sales) of reserves in place  net                          | 
|Accretion of discount                                                | 
|Net changes in income taxes                                          | 
|Other                                                                | 
|Balance as of December 31                                            | 
|                                                                     | 

F-73

---



Item 19.    Exhibits

|     |  |                                                                                                                                                                                                                         
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1  |  | Articles of Association (Satzung) of BASF Aktiengesellschaft as amended to date (previously filed as Exhibit 2.1 to BASF Aktiengesellschaft's Registration Statement on
Form 20-F dated May 25, 2000, File No. 1-15909).
|4.2  |  | List of subsidiaries of BASF Aktiengesellschaft (List of Shares Held 2004).                                                                                                                                             
|12.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                     
|12.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                     
|13.1 |  | Certification Chief Executive Officer pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                        
|13.2 |  | Certification Chief Financial Officer pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                        

E-1

---



SIGNATURES

The
registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual
report on its behalf.

|Date: March 1, 2005 |  | BASF AKTIENGESELLSCHAFT
|------------------- |  | -----------------------
|                    |  | By:                    
|                    |  |                        
|                    |  |                        
|                    |  |                        
|                    |  | By:                    
|                    |  |                        
|                    |  |                        
|                    |  |                        

---



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