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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934



FOR THE YEAR ENDED DECEMBER 31, 1997

Commission file number 1-3433



THE DOW CHEMICAL COMPANY
(Exact name of registrant as specified in its charter)



Delaware 38-1285128
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

2030 DOW CENTER, MIDLAND, MICHIGAN 48674
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: 517-636-1000

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


Name of each exchange
Title of each class on which registered
------------------- ---------------------

Common Stock, par value $2.50 per share Common Stock registered on the
New York, Midwest and Pacific
Stock Exchanges

Debentures, 6.85%, final maturity 2013 Debentures registered on the
New York Stock Exchange

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 [X] No [ ].

The aggregate market value of voting stock held by nonaffiliates
as of January 30, 1998, (based upon the closing price of
$90.00 per common share as quoted on the New York Stock Exchange)
is approximately $20,107 million. For purposes of this
computation, the shares of voting stock held by Directors,
Officers and the Dow Employees' Pension Plan Trust were deemed to
be stock held by affiliates. Nonaffiliated common stock
outstanding at January 30, 1998 numbered 223,413,749 shares. Total
common stock outstanding at January 30, 1998 numbered 225,744,348.

Documents Incorporated by Reference
-----------------------------------

Part III: Proxy Statement for the Annual Meeting of Stockholders
to be held May 14, 1998.


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THE DOW CHEMICAL COMPANY
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

TABLE OF CONTENTS


PART I

Page
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 9


PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 20
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 48

PART III

Item 10. Directors and Executive Officers of the Registrant 48
Item 11. Executive Compensation 48
Item 12. Security Ownership of Certain Beneficial Owners and Management 48
Item 13. Certain Relationships and Related Transactions 48


PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 48
Signatures 51


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PART I

ITEM 1. BUSINESS
THE COMPANY

The Dow Chemical Company was incorporated in 1947 under Delaware
law and is the successor to a Michigan corporation, of the same
name, organized in 1897. The Company is engaged in the
manufacture and sale of chemicals, plastic materials,
agricultural and consumer products and other specialized products
and services. Its principal executive offices are located at 2030
Dow Center, Midland, Michigan 48674, telephone 517-636-1000.
Except as otherwise indicated by the context, the terms "Company"
or "Dow" as used herein mean The Dow Chemical Company and its
consolidated subsidiaries.


BUSINESS AND PRODUCTS

Corporate Profile
The Corporate Profile is an integral part of Note S to the
Financial Statements.
Dow is a diversified, worldwide manufacturer and supplier of
chemicals, plastics and agricultural products.
Performance Plastics
- Adhesives, Sealants and Coatings
- Engineering Plastics
- Epoxy Products and Intermediates
- Fabricated Products
- Insite Technology Licensing
- Polyurethanes
Dow's Performance Plastics businesses provide customers with
high-performance polymers and products. Dow offers the
broadest range of engineering thermoplastic and thermoset
materials of any manufacturer. The Adhesives, Sealants and
Coatings business manufactures products like Betaseal window
adhesives. Engineering Plastics products, like Magnum ABS
resins and Pulse engineering resins, serve such industries as
appliance, automotive and electronics. Dow is the leading
producer globally of allyl chloride and epichlorohydrin, basic
products in the epoxy product chain. Dow's Epoxy Products and
Intermediates are used in a variety of applications, from
protective coatings and electronics to personal care products.
Styrofoam brand plastic foam, used in the building and
construction industry, is the flagship brand for the
Fabricated Products business. Insite technology enables Dow
and Dow's customers to produce a range of plastics that
perform better and are easier to process. Polyurethane
products, like Voranol polyether polyols and isocyanates, are
used by such industries as automotive, furniture, and building
and construction.
Performance Chemicals
- Specialty Chemicals
- Emulsion Polymers
- Dow AgroSciences
Dow's Performance Chemicals businesses provide specialized
products used by customers in a variety of industries,
including automotive, consumer products, food processing, pulp
and paper, and crop protection. The Specialty Chemicals
business includes Drytech superabsorbent polymers, used to
produce thinner, more absorbent disposable diapers, and
Methocel multifunctional food gums, used in formulations to
replace fat and retain moisture. The Emulsion Polymers
business includes latex coatings and binders, used in the
paper, carpet, paint and adhesives industries. Dow is the
largest, most globally diverse of the styrene butadiene latex
suppliers and is the largest supplier of latex to the paper
industry. Dow produces acrylic latex for use in architectural,
industrial and roadmarking paints and for pressure sensitive
adhesives. Dow AgroSciences LLC produces agricultural
products, such as Broadstrike herbicides and Dursban and
Lorsban insecticides, used in crop protection and production
and for industrial pest control. Dow AgroSciences has a
controlling interest in Mycogen Corp., a diversified
agribusiness and biotechnology company.
Plastics
- Polyethylene
- Polyethylene Terephthalate (PET)
- Polystyrene
- Polypropylene
Dow ranks among the largest plastics producers in the world.
The company supplies products to a variety of industries,
including electronics, durable goods, food service, health
care, packaging and recreation. Dow is the leading producer of
polyethylene, such as low-density polyethylene and Dowlex
linear low-density polyethylene. The company is also the
largest global producer of polystyrene, including Styron
polystyrene and Aim advanced styrenic resins. Dow participates
in both the polypropylene and polyethylene terephthalate
businesses, the two fastest growing polymers in the world,
supplying the automotive and packaging industries.


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Chemicals and Metals
Dow's Chemicals and Metals products are used either as
processing aids or as raw materials for a wide variety of
industries, from food processing to automotive. Dow is the
world's largest chlorine and caustic soda manufacturer, with
about twice as much capacity as the next largest producer.
Some uses of chlorine include pharmaceuticals, water
purification and the manufacture of plastics. Caustic soda is
used in detergents, pulp and paper, petroleum refining and the
manufacture of aluminum. Other important products include
chloromethanes, ethylene dichloride, ethylene glycol, ethylene
oxide, magnesium, perchloroethylene, propylene glycol,
propylene oxide, trichloroethylene and vinyl chloride monomer.
Hydrocarbons and Energy
Dow is the world leader in the production of olefins and
styrene. This segment encompasses the procurement of fuels and
crude oil-based raw materials as well as the production of
olefins, aromatics, styrene and cogenerated power and steam
for use in the company's operations.
Diversified Businesses and Unallocated
- DowBrands
- New Businesses
DowBrands, the consumer products business, was sold in early
1998. New Businesses consists of Radian International LLC,
Advanced Materials, technology licensing and new developments.
Radian provides a broad array of environmental and chemical
management services. Advanced Materials develops and markets
electronic and structural materials such as Cyclotene advanced
electronics resins and aluminum nitride powders. Insurance and
Finance, including Dorinco Reinsurance Company, and other Dow
financial companies and holdings, are reported in this
segment. Activities and overhead cost variances not allocated
to other segments are included in Unallocated.
Industry Segments and Geographic Area Results
See Note S to the Financial Statements for a discussion of
sales, operating income and identifiable assets by industry
segment and geographic area.

Raw Materials
The Company operates in an integrated manufacturing environment.
Basic raw materials are processed through many stages to produce
a number of products that are sold as finished goods at various
points in those processes.
The two major raw material streams that feed the integrated
production of the Company's finished goods are chlorine- and
hydrocarbon- based raw materials.
Salt, limestone and natural brine are the base raw materials
used in the production of Chlor-Alkali products and derivatives.
The Company owns salt deposits in Louisiana, Michigan and Texas;
Alberta, Canada; Brazil; and Germany. The Company also owns
natural brine deposits in Michigan and limestone deposits in
Texas.
Hydrocarbon raw materials include liquefied petroleum gases
(LPG), crude oil, naphtha, natural gas, benzene, fuel oil and
coal. These raw materials are used in the production of both
saleable products and energy. Expenditures for these raw
materials accounted for 29% of the Company's operating costs and
expenses for the year ended December 31, 1997. These raw
materials are purchased by the Company both on long-term
contracts and as they become available on a global basis.
Other significant raw materials include ammonia, acrylonitrile,
aniline, bisphenol, cellulose, octene, organic acids, and toluene
diamine. These raw materials are purchased by the Company both on
long-term contracts and as they become available on global basis.
The Company has, and expects to continue to have, adequate
supplies of raw materials during 1998 and subsequent years.

Method of Distribution
All products and services are marketed primarily through the
Company's sales force, although in some instances more emphasis
is placed upon saless through distributors. No significant
portion of the business of any industry segment is dependent upon
a single customer.

Competition
The Company experiences substantial competition in each of its
industry segments. During 1997, the Company was the second
largest chemical company in the United States and in the top five
worldwide, in terms of sales. The chemical industry has been
historically competitive and this condition is expected to
continue. The chemical divisions of the major international oil
companies also provide substantial competition both in the United
States and abroad. The Company competes worldwide on the basis of
quality, price and customer service.


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Patents, Licenses and Trademarks
The Company consistently applies for and obtains United States
and foreign patents. At December 31, 1997 the Company owned
approximately 2,900 active United States patents and
approximately 6,600 active foreign patents, which can be
classified as follows: chemicals, 600 United States and 1,300
foreign; plastics, 1,200 United States and 2,600 foreign;
fabricated products, 350 United States and 1,000 foreign; and new
businesses, 600 United States and 1,500 foreign. Dow's
primary purpose in obtaining patents is to protect the results of
its research for use in operations and licensing. Dow is also
party to a substantial number of patent licenses and other
technology agreements. The Company had patent and technology
royalty income of $47 million in 1997, $26 million in 1996 and
$23 million in 1995, and incurred royalties to others of $5
million in 1997, $5 million in 1996, and $6 million in 1995. Dow
also has a substantial number of trademarks and trademark
registrations in the United States and in other countries,
including the "Dow in Diamond" trademark. Although the Company
considers that, in the aggregate, its patents, licenses and
trademarks constitute a valuable asset, it does not regard its
business as being materially dependent upon any single patent,
license or trademark.

Research and Development
The Company is engaged in a continuous program of basic and
applied research to develop new products and processes, to
improve and refine existing products and processes and to develop
new applications for existing products. Research and Development
expenses were $785 million in 1997 compared to $761 million in
1996 and $808 million in 1995. The Company employs approximately
5,500 people in various research and development activities.

Other Activities
Dow engages in the property and casualty insurance and
reinsurance business through its Liana Limited subsidiaries.

Principal Partly Owned Companies
Principal companies in which Dow owns a 50 percent interest
include DuPont Dow Elastomers L.L.C., which manufactures and
markets thermoset and thermoplastic elastomer products; Dow-
United Technologies Composite Products, Inc., a manufacturer of
composite products; Gurit-Essex, A.G., a Swiss company, which
supplies European automobile manufacturers with proprietary
specialty products; and Dow Corning Corporation, a manufacturer
of silicone and silicone products, which voluntarily filed for
protection under Chapter 11 of the United States Bankruptcy Code
(see Note Q to the Financial Statements). Dow has a 45 percent
interest in Total Raffinaderij Nederland N.V., which provides
feedstocks for Dow's major petrochemical site at Terneuzen, the
Netherlands, and also services the Benelux and nearby markets.
During 1997, Dow completed the acquisition of an 80 percent
interest in Buna Sow Leuna Olefinverbund (BSL), a former East
German integrated chemical complex. Bundesanstalt fuer
vereinigungsbedingte Sonderaufgaben (BvS) will maintain a 20
percent ownership until the end of the restructuring period,
which is expected to be June 2000. The Company expects to include
the financial results of BSL as a nonconsolidated affiliate until
the end of the restructuring period. This acquisition will offer
Dow both new products (e.g. polypropylene, acrylic acid and
synthetic rubber) and expanded geographic reach for core chlorine-
and hydrocarbon-based chemicals and plastics.

Protection of the Environment
Matters pertaining to the environment are discussed in Legal
Proceedings, Management's Discussion and Analysis of Financial
Condition and Results of Operations, and Notes A and Q to the
Financial Statements.

Financial Information About Foreign and Domestic Operations and
Export Sales
In 1997, the Company derived 56 percent of its sales and had 46
percent of its property investment outside the United States.
While the Company's international operations may be subject to a
number of additional risks, such as changes in currency exchange
rates, the Company does not regard its foreign operations, on the
whole, as carrying any greater risk than its operations in the
United States. Information on sales, operating income and
identifiable assets by geographic area for each of the last three
years appears in Note S to the Financial Statements and a
discussion of the Company's risk management program for foreign
exchange and interest rate risk management appears in
Management's Discussion and Analysis of Financial Conditions and
Results of Operations and Note J to the Financial Statements.

Number of Products
Dow manufactures and supplies more than 2,400 product families
and services, and no single one accounted for more than 5 percent
of the Company's consolidated sales in 1997. No significant
portion of the business of any industry segment is dependent upon
a single customer.

Employees
The personnel count at December 31, 1997 was 42,861 versus 40,289
at the end of 1996, and 39,537 at the end of 1995.


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ITEM 2. PROPERTIES

The Company operates 114 manufacturing sites in 33 countries. The
Company considers that its properties are in good operating
condition and that its machinery and equipment have been well
maintained. The Company's Chemicals and
Plastics production facilities and plants operated at
approximately 89 percent of capacity during 1997. The following
are
the major production sites:

United States: Midland, Michigan; Freeport, Texas;
Pittsburg, California; Plaquemine, Louisiana.
Canada: Sarnia, Ontario; Fort Saskatchewan, Alberta.
Germany: Stade; Rheinmuenster.
France: Drusenheim.
The Netherlands: Terneuzen.
Spain: Tarragona.
Argentina: Bahia Blanca.
Brazil: Aratu.

Including the major production facilities, the Company has
plants and holdings in the following geographic areas:

United States: 39 manufacturing locations in 19 states.
Canada: 6 manufacturing locations in 3 provinces.
Europe: 41 manufacturing locations in 16 countries.
Latin America: 14 manufacturing locations in 6 countries.
Pacific: 14 manufacturing locations in 9 countries.

All of the above Dow plants are owned in fee, subject to
certain easements of other persons which, in the opinion of
Management, do not substantially interfere with the continued use
of such properties or materially affect their value.
A summary of properties, classified by type, is contained in
Note G to the Financial Statements.


ITEM 3. LEGAL PROCEEDINGS

Breast Implant Matters
The Company and Corning Incorporated ("Corning") are each 50
percent stockholders in Dow Corning Corporation ("Dow Corning").
Dow Corning, the Company and/or Corning have been sued in a
number of individual and class actions by plaintiffs seeking
damages, punitive damages and injunctive relief in connection
with injuries purportedly resulting from alleged defects in
silicone breast implants. In addition, certain stockholders of
the Company have filed separate consolidated class action
complaints alleging that the Company, Dow Corning or some of
their respective Directors violated duties imposed by the federal
securities laws regarding disclosure of alleged defects in
silicone breast implants. All individual defendants in this case
have been dismissed without prejudice. The Company and one of its
former officers have also been sued in two separate class action
complaints (now consolidated) alleging that the defendants
violated duties imposed by the federal securities laws regarding
disclosure of information material to a reasonable investor's
assessment of the magnitude of the Company's exposure to direct
liability in silicone breast implant litigation.
On May 15, 1995, Dow Corning announced that it had voluntarily
filed for protection under Chapter 11 of the United States
Bankruptcy Code. Under Chapter 11, all claims against Dow
Corning (although not against its co-defendants) are
automatically stayed.
It is impossible to predict the outcome of each of the above
described legal actions. However, it is the opinion of the
Company's management that the possibility that these actions will
have a material adverse impact on the Company's consolidated
financial statements is remote, except as described below.
In January 1994, Dow Corning announced a pretax charge of $640
million ($415 million after tax) for the fourth quarter of 1993.
In January 1995, Dow Corning announced a pretax charge of $241
million ($152 million after tax) for the fourth quarter of 1994.
These charges included Dow Corning's best estimate of its
potential liability for breast implant litigation based on a
global Breast Implant Litigation Settlement Agreement (the
"Settlement Agreement"); litigation and claims outside the
Settlement Agreement; and provisions for legal, administrative
and research costs related to breast implants. The charges for
1993 and 1994 included pretax amounts of $1,240 million and $441
million, respectively, less expected insurance recoveries of $600
million and $200 million, respectively. The 1993 amounts
reported by Dow Corning were determined on a present value basis.
On an undiscounted basis, the estimated liability noted above for
1993 was $2,300 million less expected insurance recoveries of
$1,200 million. As a result of the Dow Corning actions, the
Company recorded its 50 percent share of the charges, net of tax
benefits available to the Company. The impact on the Company's
net income was a charge of $192 million for 1993 and a charge of
$70 million for 1994.


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Breast Implant Matters (Continued)

Dow Corning reported an after-tax net loss of $167 million for
the second quarter of 1995, of which the Company's share amounted
to $83 million. Dow Corning's second quarter loss was a result
of a $221 million after-tax charge taken to reflect a change in
accounting method from the present value basis noted above to an
undiscounted basis resulting from the uncertainties associated
with its Chapter 11 filing. As a result of Dow Corning's 1995
second quarter loss and Chapter 11 filing, the Company recognized
a pretax charge against income of $330 million for the second
quarter of 1995, fully reserved its investment in Dow Corning and
is not recognizing its 50 percent share of equity earnings while
Dow Corning remains in Chapter 11.
On September 1, 1994, Judge Sam C. Pointer, Jr. of the United
States District Court for the Northern District of Alabama
approved the Settlement Agreement pursuant to which plaintiffs
choosing to participate in the Settlement Agreement released the
Company from liability. The Company was not a participant in the
Settlement Agreement nor was it required to contribute to the
settlement. On October 7, 1995, Judge Pointer issued an order
which concluded that the Settlement Agreement was not workable in
its then-current form because the funds committed to it by
industry participants were inadequate. The order provided that
plaintiffs who had previously agreed to participate in the
Settlement Agreement could opt out after November 30, 1995.
The Company's maximum exposure for breast implant product
liability claims asserted against Dow Corning is limited to its
investment in Dow Corning which, after the second quarter charge
noted above, is zero. As a result, any future charges by Dow
Corning related to such claims or as a result of the Chapter 11
proceeding would not have an adverse impact on the Company's
consolidated financial statements.
The Company is separately named as a defendant in over 13,000
breast implant product liability cases. In these situations,
plaintiffs have alleged that the Company should be liable for Dow
Corning's alleged torts based on the Company's 50 percent stock
ownership in Dow Corning and that the Company should be liable by
virtue of alleged "direct participation" by the Company or its
agents in Dow Corning's breast implant business. These latter,
direct participation claims include counts sounding in strict
liability, fraud, aiding and abetting, conspiracy, concert of
action and negligence.
Judge Pointer has been appointed by the Federal Judicial Panel
on Multidistrict Litigation to oversee all of the product
liability cases involving silicone breast implants filed in the
U.S. federal courts. Initially, in a ruling issued on December 1,
1993, Judge Pointer granted the Company's motion for summary
judgment, finding that there was no basis on which a jury could
conclude that the Company was liable for any claimed defects in
the breast implants manufactured by Dow Corning. In an
interlocutory opinion issued on April 25, 1995, Judge Pointer
affirmed his December 1993 ruling as to plaintiffs' corporate
control claims but vacated that ruling as to plaintiffs' direct
participation claims.
In his opinion, Judge Pointer reaffirmed the view he had
expressed in his December 1993 ruling that the Company is a
separate, independent entity from Dow Corning and therefore has
no legal responsibility as a result of its ownership of Dow
Corning stock for Dow Corning's breast implant business. However,
Judge Pointer stated that, under the law of at least some states
(although not necessarily all states), actions allegedly taken by
the Company independent of its role as a stockholder in Dow
Corning could give rise to liability under a negligence theory.
Judge Pointer declined to address plaintiffs' other legal
theories, including strict liability, fraud, aiding and abetting,
conspiracy and concert of action. It is impossible to predict
the outcome or to estimate the cost to the Company of resolving
any of the federal product liability cases. The Company has filed
claims with insurance carriers to recover in the event it is held
liable in the federal (or any other) breast implant litigation.
After Judge Pointer's initial ruling in December 1993, summary
judgment was granted to the Company in approximately 4,000 breast
implant cases pending in state courts in California, Indiana,
Michigan, New Jersey and New York, and over 100 actions in
Pennsylvania were dismissed. Of these rulings, the California
ruling was final and was appealed. On September 25, 1996, the
California Court of Appeals for the 4th District affirmed the
trial court's order granting summary judgment to the Company. On
January 15, 1997, the California Supreme Court granted
plaintiffs' petition for a review of that order. The Michigan
ruling was made final on March 20, 1997. This decision has been
appealed by plaintiffs. The New Jersey ruling has been
reconsidered and all claims were again dismissed, except the
negligence claim. Plaintiffs in New York filed a motion to
reconsider based on Judge Pointer's April 25, 1995 ruling. On
September 22, 1995, Judge Lobis, presiding over the consolidated
New York breast implant litigation, dismissed all counts of all
cases filed against the Company in New York on the ground that no
reasonable jury could find against the Company. On May 28, 1996,
the New York Supreme Court Appellate Division affirmed the lower
court's dismissal of all claims against the Company. New York's
highest court subsequently denied plaintiffs' petition for
review, and the order dismissing all claims against the Company
is now final. Other rulings that are not final decisions are also
subject to reconsideration. On October 20, 1996, in a Louisiana
state court breast implant case styled Spitzfaden v. Dow Corning,
et al., the court entered an order maintaining certification of a
class of Louisiana plaintiffs consisting of recipients of Dow
Corning breast implants who, as of January 15, 1997, (i) are
residents of Louisiana, (ii) are former residents of Louisiana
who are represented by Louisiana counsel, or (iii) received their
implants in Louisiana and are represented by Louisiana counsel,
together with the spouses and children of such plaintiffs, and
representatives of the estates of class members who are deceased.
On August 18, 1997, at the conclusion of the first of four phases
of this case, the jury found in part that the Company had been
negligent in the testing and/or research of silicone, had
misrepresented and concealed unspecified hazards associated with
using silicone in the human body and had conspired with


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Breast Implant Matters (Continued)

Dow Corning to misrepresent or conceal such hazards. The Company
has appealed the jury's verdict. On December 1, 1997, the trial
court decertified the class. Plaintiffs have challenged the
decertification order and are opposing the Company's right to
appeal the Phase I verdict. Both matters are now pending in the
Louisiana Supreme Court. Phase II of the Spitzfaden case will
commence, if at all, only after these matters are resolved. The
Company remains a defendant in other breast implant product
liability cases originally brought in state courts and continues
to be named as a defendant as cases are filed in various courts
which are then transferred to the United States District Court,
Eastern District of Michigan. It is impossible to predict the
outcome or to estimate the cost to the Company of resolving any
of the product liability cases described above.
The Company was also a defendant in ten federal silicone jaw
implant cases involving implants manufactured by Dow Corning.
Federal District Court Judge Paul A. Magnuson has been appointed
by the Federal Judicial Panel on Multidistrict Litigation to
oversee all of the product liability cases involving silicone jaw
implants filed in the U.S. federal courts. On March 31, 1995,
Judge Magnuson granted the Company's motion for summary judgment,
concluding, based on virtually the same arguments that were
presented to Judge Pointer, that no reasonable jury could find in
favor of plaintiffs on any of their claims against the Company.
On June 13, 1995, Judge Magnuson denied plaintiffs' motion to
reconsider his ruling based on Judge Pointer's April 25, 1995
decision, and granted the Company's request to enter a final
judgment in its favor. The United States Court of Appeals for the
Eighth Circuit affirmed the summary judgment in favor of the
Company on May 16, 1997. That judgment is now final.
On November 3, 1994, Judge Michael Schneider, presiding in the
consolidated breast implant cases in Harris County, Texas,
granted in part and denied in part the Company's motion for
summary judgment. Judge Schneider granted the Company's motion as
to (i) all claims based on the Company's stockholder status in
Dow Corning, (ii) the claim that the Company was liable in
negligence for failing to supervise Dow Corning, and (iii)
plaintiffs' licensor-licensee claim. Judge Schneider denied the
Company's motion with regard to plaintiffs' claims sounding in
fraud, aiding and abetting, conspiracy, certain negligence claims
and a claim brought under the Texas Deceptive Trade Practices
Act. As a result, the Company remains a defendant as to such
claims in the Harris County product liability cases. In those
cases (and in cases brought in certain other jurisdictions
including those before Judge Pointer), the Company has filed
cross-claims against Dow Corning on the ground that if the
Company and Dow Corning are found jointly and severally liable,
Dow Corning should bear appropriate responsibility for the
injuries judged to be caused by its product. In certain
jurisdictions, the Company has also filed cross-claims and/or
third party claims against Corning. It is impossible to predict
the outcome or to estimate the cost to the Company of resolving
any of the Harris County product liability cases.
In an order dated December 1, 1994, Judge Frank Andrews,
presiding in the consolidated breast implant cases in Dallas
County, Texas, granted the Company's motion for summary judgment
"in all respects except as to theories of conspiracy and strict
liability as a component supplier." As a result, the Company
remains a defendant as to such claims in the Dallas County
product liability cases. It is impossible to predict the outcome
or to estimate the cost to the Company of resolving any of these
actions.
In addition to the jury findings in the first phase of the
Louisiana state case noted above, three breast implant product
liability cases brought against the Company have now been tried
to judgment. In February 1995, a Harris County jury exonerated
the Company in one case and found the Company jointly and
severally liable with Dow Corning for $5.23 million on a single
count in a second case. After the verdict, however, the Court
overturned the jury's verdict and entered judgment for the
Company. On October 30, 1995 a state court jury in Reno, Nevada
found the Company liable for $4.15 million in compensatory
damages and $10 million in punitive damages. The Company has
appealed the verdict. The Company has filed a claim in Dow
Corning's bankruptcy proceedings to recover from Dow Corning its
share of any monies the Company might pay as a result of the
Nevada verdict or any other adverse decision related to Dow
Corning's products.
On May 13, 1997, United States District Court Judge Denise Page
Hood ordered that all breast implant claims currently pending
against the Company as to which judgment had not been entered,
whether pending in state or federal courts, be transferred to the
United States District Court, Eastern District of Michigan
pursuant to a decision issued by the United States Court of
Appeals for the Sixth Circuit on May 8, 1997. On August 1, 1997,
Judge Hood issued her case management order with respect to the
transferred claims, and ordered that all implant claims later
filed in federal or state courts against the Company should
likewise be transferred. On August 5, 1997, the Tort Committee in
Dow Corning's bankruptcy case filed a petition for a writ of
certiorari with the United States Supreme Court seeking review of
the May 8, 1997 decision of the Sixth Circuit. On November 10,
1997, the Supreme Court denied the Tort Committee's petition.
Judge Hood's May 13 order transferred the Louisiana state court
breast implant case, Spitzfaden v. Dow Corning, et al., to the
United States District Court, Eastern District of Michigan. The
plaintiffs in that case filed an emergency motion to transfer, or
abstain and remand, the case back to the Louisiana state court.
On May 21, 1997, Judge Hood "abstain(ed) from the claims involved
in Phases I and II" of that case resulting in its return to the
Louisiana state court and the resumption of the trial. The
Company has sought review of Judge Hood's May 21 decision by the
United States Court of Appeals for the Sixth Circuit.
It is the opinion of the Company's management that the
possibility is remote that plaintiffs will prevail on the theory
that the Company should be liable in the breast implant
litigation because of its stockholder relationship with Dow
Corning. The Company's management believes that there is no merit
to plaintiffs' claims that the Company is liable for alleged
defects in


--- Page 8 ---


Breast Implant Matters (Continued)

Dow Corning's silicone products because of the Company's alleged
direct participation in the development of those products, and
the Company intends to contest those claims vigorously.
Management believes that the possibility is remote that a
resolution of plaintiffs' direct participation claims, including
the vigorous defense against those claims, will have a material
adverse impact on the Company's financial position or cash flows.
Nevertheless, in light of Judge Pointer's April 25, 1995 ruling,
it is possible that a resolution of plaintiffs' direct
participation claims, including the vigorous defense against
those claims, could have a material adverse impact on the
Company's net income for a particular period, although it is
impossible at this time to estimate the range or amount of any
such impact.

Environmental Matters
On August 11, 1995, the EPA filed an administrative enforcement
action against the Company in connection with the Company's
report of exceedances of its limits for the discharge of
phosphorus and certain other chemicals to the Tittabawassee River
for several months in 1994 and 1995. No demand for monetary
sanctions was made. Based on the same facts, Michigan's Attorney
General and the Michigan Department of Natural Resources filed an
action against the Company on August 18, 1995 in the Circuit
Court for Ingham County, Michigan and on September 23, 1996, the
Company paid a court ordered civil penalty of $100,000. A third
action, also based on the same facts, was filed on August 15,
1995 in the U.S. District Court for the Eastern District of
Michigan by PIRGIM Public Interest Lobby. On December 23, 1997,
the court approved a settlement of this action in which the
Company paid a civil penalty of $100,000 to the United States
Treasury. Separately, the Company has agreed to pay $800,000 to
an escrow fund to be used for environmental projects in the
Saginaw Bay Watershed, and $450,000 in costs and attorney fees.
The Company paid $100,000 to the Michigan Department of
Environmental Quality ("MDEQ") on October 1, 1997, pursuant to an
Administrative Consent Order dated as of July 21, 1997, as
partial reimbursement for MDEQ investigation and oversight costs
related to the Company's operation of its waste water treatment
plant. Two additional payments of $100,000 each are due on
October 1, 1998 and October 1, 1999.
On September 17, 1997, the United States Environmental
Protection Agency filed a complaint against the Company alleging
violations of various sections of the Clean Air Act, the Clean
Water Act, the Emergency Planning and Community Right-to-Know Act
and the Resource Conservation and Recovery Act. On January
9,1998, the Company paid a fine of $288,100 pursuant to a Consent
Agreement/Consent Order in this matter.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the
fourth quarter of 1997.


PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

The principal market for the Company's common stock is the New
York Stock Exchange. On February 12, 1998, the Company declared a
cash dividend of 87 cents per share, payable April 30, 1998, to
stockholders of record on March 31, 1998. This will be the 345th
consecutive quarterly dividend since 1912. There were 95,931
common stockholders of record as of March 16, 1998. The Company
estimates that there were an additional 105,000 stockholders
whose shares were held in nominee names at December 31, 1997.
Quarterly market and dividend information can be found in Part
II, Item 8 (Financial Statements & Supplementary Data) on page
47.


--- Page 9 ---
ITEM 6. SELECTED FINANCIAL DATA

The Dow Chemical Company and Subsidiaries
Five-year Summary of Selected Financial Data

In millions, except as noted Unaudited 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------

Summary of Operations (1)
Net sales $20,018 $20,053 $20,200 $16,742 $15,052
Cost of sales 14,679 14,108 13,337 12,131 11,370
Insurance and finance company operations,
pretax income (113) (78) (61) (40) (98)
Research and development expenses 785 761 808 783 786
Promotion and advertising expenses 371 370 416 411 367
Selling and administrative expenses 1,509 1,766 1,771 1,594 1,485
Amortization of intangibles 61 39 38 43 68
------------------------------------------------
Operating income 2,726 3,087 3,891 1,820 1,074
Investment and sundry income (expense) 511 405 (222) 77 462
Interest expense - net (289) (204) (140) (271) (278)
------------------------------------------------
Income before provision for taxes on
income and minority interests 2,948 3,288 3,529 1,626 1,258
Provision for taxes on income 1,041 1,187 1,442 654 514
Minority interests' share in income 99 194 196 200 171
Preferred stock dividends 6 7 7 7 7
------------------------------------------------
Income from continuing operations 1,802 1,900 1,884 765 566
Discontinued operations net of taxes on income 0 0 187 166 71
---------------------------------------------------------------------------------------------------------
Net income available for common stockholders 1,802 1,900 2,071 931 637
---------------------------------------------------------------------------------------------------------
Per share of common stock (dollars):
Income from continuing operations $7.81 $7.71 $7.03 $2.77 $2.07
Net income available for common stockholders $7.81 $7.71 $7.72 $3.37 $2.33
Income from continuing operations -
assuming dilution $7.70 $7.60 $6.93 $2.75 $2.05
Net income available for common stockholders -
assuming dilution $7.70 $7.60 $7.61 $3.34 $2.31
Cash dividends declared $3.36 $3.00 $2.90 $2.60 $2.60
Cash dividends paid $3.24 $3.00 $2.80 $2.60 $2.60
Weighted-average common shares outstanding 230.6 246.3 268.2 276.1 273.6
Convertible preferred shares outstanding 1.4 1.5 1.5 1.5 1.6
- ----------------------------------------------------------------------------------------------------------
Year-end Financial Position
Total assets $24,040 $24,673 $23,582 $26,545 $25,505
Working capital 1,300 3,826 4,953 2,075 2,001
Property - gross 23,345 23,737 23,218 23,210 21,608
Property - net 8,052 8,484 8,113 8,726 8,580
Long-term obligations and redeemable preferred stock 4,245 4,230 4,733 5,325 5,918
Total debt 6,258 5,468 5,403 6,578 6,944
Net stockholders' equity 7,626 7,954 7,361 8,212 8,034
- ----------------------------------------------------------------------------------------------------------
Financial Ratios
Research and development expenses as percent
of net sales (1) 3.9% 3.8% 4.0% 4.7% 5.2%
Income before provision for taxes and minority
interests as percent of net sales (1) 14.7% 16.4% 17.5% 9.7% 8.4%
Return on stockholders' equity 23.5% 23.8% 26.9% 11.3% 7.9%
Book value per common stock (dollars) $34.04 $33.13 $30.69 $29.71 $29.33
Debt as a percent of total capitalization 42.8% 35.2% 36.3% 38.0% 39.8%
- ----------------------------------------------------------------------------------------------------------
General
Capital expenditures $1,198 $1,344 $1,417 $1,183 $1,397
Depreciation (1) 1,208 1,259 1,369 1,224 1,252
Wages and salaries paid 2,882 2,944 2,734 3,239 3,332
Cost of employee benefits 666 700 696 832 887
Number of employees at year-end (thousands) 42.9 40.3 39.5 53.7 55.4
Number of stockholders of record at year-end
(thousands) (2) 97.2 104.6 111.1 114.5 102.5
- ----------------------------------------------------------------------------------------------------------
(1) Restated for the sale of the pharmaceutical businesses in 1995.
(2) Stockholders of record as reported by the transfer agent. The Company estimates that there were
an additional 105,000 stockholders whose shares were held in nominee names at December 31, 1997.

--- Page 10 ---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Results of Operations
In 1997, Dow's sales were $20.0 billion, down slightly from $20.1
billion in 1996 and from record sales of $20.2 billion in 1995.
Total sales reflected a 4 percent volume gain, offsetting a 4
percent combined negative impact of price and currency (see Sales
Price and Volume table on page 18). The company performed well in
1997, extending its high level of earnings per share for a third
consecutive year. The performance segments experienced strong
demand growth, including a 14 percent volume gain in Performance
Chemicals. Selling prices were down in all segments with the
exception of Hydrocarbons and Energy.
Sales in the United States accounted for 44 percent of total
sales in 1997, 44 percent in 1996 and 45 percent in 1995. Sales
and other data by industry segment and geographic area are
provided in Note S to the Financial Statements.
Dow completed several significant acquisitions in 1997,
including its purchase of an 80 percent stake in Buna Sow Leuna
Olefinverbund (BSL), the remaining 40 percent ownership in
DowElanco (now Dow AgroSciences LLC), and 100 percent of
Sentrachem Limited. In addition, the company completed the sale
of Destec Energy, Inc. and signed agreements for S.C. Johnson &
Son, Inc. to acquire DowBrands. Details for most of these events
are included in the text for the respective industry segments.
The comprehensive restructuring program at BSL calls for the
expansion and renovation of some existing facilities, the
demolition of noncompetitive plants, and the construction of new
facilities for various products, including polyethylene,
polypropylene and acrylic acid. In 1997, BSL completed the
expansion of the ethylene cracker at Boehlen and started operating
a naphtha pipeline from Rostock to Boehlen to ensure a reliable
supply of raw materials from world markets.
Dow expects 1998 to be a challenging year, in part because the
global economic outlook will be affected by the outcome of the
Asia Pacific financial crisis. However, Dow's improved product
mix and continued expense control will help the company make
further progress toward its financial objectives.
This discussion and analysis section covers the current
performance and outlook of the company and each of its industry
segments. The forward-looking statements contained herein involve
risks and uncertainties that may affect the company's operations,
markets, products, services, prices and other factors as
discussed in filings with the Securities and Exchange Commission.
These risks and uncertainties include, but are not limited to,
economic, competitive, governmental and technological factors.

PERFORMANCE PLASTICS
Sales for Performance Plastics were $5.25 billion in 1997, down
slightly from 1996 sales of $5.3 billion and 1995 sales of $5.4
billion. An overall volume gain of 6 percent largely offset a
price decline of 8 percent compared with the previous year. In
1996, the segment showed a 3 percent volume gain and a 4 percent
price decline versus 1995.
Operating income for Performance Plastics was $922 million in
1997, down from a record operating income of $1.2 billion in 1996
and $1.1 billion in 1995.
Sales for Adhesives, Sealants and Coatings grew 8 percent in
1997. Dow is expanding its capabilities for customer tailored
solutions in new markets through the existing Systems House
business, which supplies fully formulated customized polyurethane
systems, and Essex Specialty Products, a wholly owned Dow
subsidiary. In 1997, new Systems House formulation operations
started up in Brazil and Egypt. Essex Specialty Products formed
Sound Alliance LLC with Cascade Engineering, Inc. to provide
automotive acoustical systems.
Engineering Plastics posted 11 percent volume growth in 1997.
Prices softened for ABS, polycarbonate and engineering compounds
during the first half of the year and held at lower levels during
the second half, contributing to reduced profitability compared
with the previous year. In 1998, Dow will almost double its
thermoplastic polyurethane production capacity at LaPorte, Texas,
to meet growing demand in North America and Europe for this high-
margin product.
Epoxy Products and Intermediates recorded volume growth of 9
percent in 1997, offsetting a 7 percent price decline resulting
from competitive pressures in key markets. To meet increasing
global demand, Dow expanded the epichlorohydrin plant in
Freeport, Texas, and the liquid epoxy resins facility in Stade,
Germany.
Fabricated Products continued to experience an intensified
competitive climate in 1997 due to increased local competition in
regional markets and the globalization of competing
manufacturers. A 2 percent volume decline combined with a 7
percent decline in price and currency reduced profitability for
the business in 1997, down from record profits in 1996. These
results reflected the slower pace of residential construction in
some regions, particularly in Japan. However, the business gained
volume in the U.S. commercial and roofing sectors and recorded 12
percent demand growth for building materials in Europe.
In 1997, DuPont Dow Elastomers L.L.C. continued its drive to
combine Insite technology developed by Dow with DuPont's
elastomer business to establish a leadership position in
elastomer technology. Dow's joint development agreement with BP
Chemicals to pursue a technical collaboration between Innovene
gas-phase polyethylene process and Insite technology also
reported progress in 1997.


--- Page 11 ---


PERFORMANCE PLASTICS (Continued)

In 1997, Polyurethanes experienced 7 percent volume growth
offset by weaker prices compared with 1996. In 1996, the business
posted record sales and profits, fueled in part by strong demand
in Latin America. To improve its competitive cost position, Dow
added aniline capacity at Boehlen, Germany, in 1997, and an
additional plant to produce toluene diisocyanate (TDI) will start
up in Freeport, Texas, in 1998.

Outlook for 1998
The Performance Plastics segment expects continued solid
performance in 1998 in the face of continued declining prices for
many products.
Engineering Plastics expects another year of solid volume
growth, with strong growth rates anticipated for polycarbonate
and thermoplastic polyurethanes. Additional industry capacity
will likely place greater pressure on prices in 1998. However,
reduced conversion costs and operating expenses will help offset
price declines.
Epoxy Products and Intermediates anticipates modest volume
growth in 1998. Intensified global competition in key markets and
increased Asia Pacific exports will likely result in continued
pricing pressures. Europe shows promise for demand growth in the
first half of the year with some upward pricing momentum.
Sales volume for Fabricated Products should increase as a
result of continued geographic expansion, especially into
emerging markets. The competitive market environment is expected
to continue into 1998. Demand for Fabricated Products will
continue to be influenced by general economic activity, including
housing starts, demand for durable goods and more stringent
energy insulation standards worldwide.
Polyurethanes anticipates additional volume growth in 1998.
However, continued pricing pressures will likely impact overall
results.

PERFORMANCE CHEMICALS
Sales for Performance Chemicals were up strongly to $4.6 billion
in 1997, compared with $4.3 billion in 1996 and $4.3 billion in
1995. The segment experienced a volume gain of 14 percent,
outweighing a combined unfavorable impact of price and currency
of 8 percent in 1997 compared with a year ago. In 1996, sales
reflected a 4 percent volume gain offset by a 4 percent decline
in prices versus 1995.
Operating income was $635 million in 1997, down from a record
$721 million in 1996. In 1995, operating income was $670 million.
In 1997, Emulsion Polymers posted a 16 percent increase in
volume compared with the previous year, offsetting a 12 percent
decline due to price and currency. In 1996, higher volume was
also offset by lower prices. Demand for styrene butadiene (S/B)
latex was strong, particularly in the coated paper industry.
Prices for S/B latex softened due to lower market prices for
styrene monomer in 1997 and the intense competitive environment
in Europe.
Specialty Chemicals again set global records for sales and
operating income despite declining local prices and the strong
dollar. Sales were $1.7 billion in 1997 as volume increased 9
percent, offsetting a combined unfavorable price and currency
impact of 4 percent. Volume was up due to strong demand for
alkanolamines, chelants, diphenyl oxide, heat transfer fluids,
surfactants, polyglycols and antimicrobials. Prices softened
versus 1996 due to competitive pressures in liquid separations,
oxygenated solvents, superabsorbents and ethyleneamines.
Many of the individual businesses within Specialty Chemicals
set sales and operating income records, including liquid
separations, Methocel cellulose ethers, oxygenated solvents,
polyglycols, chelants, alkanolamines, quaternaries and
ethyleneamines. Dow will invest $30 million during the next three
years to upgrade its chelants manufacturing facility in Freeport,
Texas.
In 1997, Dow strengthened its position in agricultural
products by acquiring Eli Lilly and Company's 40 percent share in
DowElanco. Renamed Dow AgroSciences, the company is now a wholly
owned Dow subsidiary. Sales for agricultural products increased
11 percent in 1997, partly due to the consolidation of Mycogen
after Dow's ownership exceeded 50 percent.
Growth in new technology offerings in 1997 offset increased
competition in older products and the negative impact of
currency. The launch of Tracer and Success insect control
products in the United States and Fortress fungicide in Europe
exceeded expectations.
Dow AgroSciences also increased its focus on biotechnology.
The business increased sales of Mycogen's insect-resistant seeds
and collaborated with partners to develop new crop enhancement
traits. It developed and plans to launch high-oil corn through
Mycogen and through agreements with Indiana-based Seed Genetics,
Inc. and others.
The business will incorporate the agricultural products
business of Sanachem through Dow's acquisition of Sentrachem in
late 1997. Sanachem, the world's third largest manufacturer of
generic crop protection and pest control products, boasts more
than $200 million in annual sales, 500 registrations worldwide
and a product line that includes glyphosate, triazines, mancozeb,
aldicarb, carbofuran and phenoxies.


--- Page 12 ---


PERFORMANCE CHEMICALS (Continued)

Outlook for 1998
Performance Chemicals is expected to post solid results in 1998
with continued volume growth in each of its businesses.
Demand for Emulsion Polymers will likely remain strong in
1998. Overall, prices should stabilize at the low point of the
styrene monomer cycle, but competitive pressures in Europe will
likely continue. Currency effects and tempered growth rates will
have a modest effect on global business performance. Dow's low-
cost position and customers' increasing demand for Dow S/B latex
and solution S/B rubber are expected to bolster the year's
results.
Increased sales demand combined with ongoing productivity
improvements should result in strong performance for Specialty
Chemicals again in 1998. The addition of Hampshire Chemicals
through Dow's acquisition of Sentrachem is expected to further
improve performance.
Dow AgroSciences anticipates continued growth in 1998 through
new technology offerings, increased participation in
biotechnology, and the addition of the generic crop protection
business of Sanachem. The business is also in the process of
launching two new soybean herbicides: FirstRate, with unique
applications in U.S. soybean programs, and Spider, with newly
granted approvals in Brazil and Argentina.

PLASTICS
Plastics reported sales of $4.1 billion in 1997, up 7 percent
from 1996. Volume increased 8 percent versus last year, and
prices stabilized, declining only 1 percent. In 1996, sales were
$3.9 billion, flat with 1995, as a 19 percent price decline
offset a 17 percent volume gain.
Operating income for Plastics increased 6 percent to $845
million in 1997. Operating income was $794 million in 1996 and
$1.5 billion in 1995.
Dow's Polyethylene business reported significant volume growth
and price improvements in 1997. Volume increased 6 percent
compared with the previous year. Prices increased more than 4
percent despite unfavorable currency impacts as delays in new
capacities and plant outages helped maintain prices at levels
higher than anticipated. Growth was particularly robust in Latin
America, where polyethylene sales increased by more than 20
percent versus 1996. Volume growth in Europe was also strong.
Record sales were reported in low and linear low density
polyethylene and Affinity polyolefin plastomers.
In 1997, Dow launched Elite enhanced polyethylene resins,
which deliver unique combinations of enhanced property
performance for a variety of packaging and other applications. So
far, Dow has introduced four commercial grades of Elite resins,
and nine more grades are in market development.
To meet increasing global demand from Dow's polyethylene
customers, two new solution polyethylene plants are scheduled to
start up in 1998. Both facilitiesat Schkopau, Germany, and at
Fort Saskatchewan, Alberta, Canadawill be able to produce both
traditional Dowlex polyethylene resins and resins made using
Insite technology.
Incorporating its 1996 acquisition of Estireno do Nordeste
(EDN) in Brazil, Dow's Polystyrene business recorded 11 percent
volume growth in 1997 in the face of another year of downward
pricing pressure for the polystyrene industry since the 1995
peak. Dow continued with plans to expand its polystyrene business
to maintain a global leadership position, using breakthrough
proprietary technology to improve productivity and gain
incremental capacity expansions as market demand increases.
In Latin America, Dow consolidated its position with EDN to
become the largest polystyrene producer in both Brazil and Latin
America. The business announced plans to improve productivity at
EDN's Guaruja, Brazil, facility. In Asia Pacific, Dow officially
opened a polystyrene facility at Map Ta Phut, Thailand, with its
joint venture partner, The Siam Cement Group.
In 1997, Dow and Cargill, Inc. formed Cargill Dow Polymers
LLC, a 50:50 limited liability company, to develop and market
polylactic acid (PLA) polymers. PLA polymers are a new polymer
family derived from renewable agricultural resources, such as
corn and sugar beets, and are targeted for applications including
cast films, fibers and non-wovens, blown films and rigid
containers.
The global market for polypropylene continues to grow faster
than any other commodity polymer, specifically in packaging and
injection molding applications. Pricing was under pressure in the
second half of the year despite rapid growth, due mainly to new
industry capacity in North America. In 1997, Dow introduced a new
tradename, Inspire polypropylene resins. Dow's first
polypropylene plant is expected to start up in early 1998 at
Schkopau, Germany.
In 1997, the polyethylene terephthalate (PET) business
experienced a volume increase of more than 10 percent versus
1996. Dow's plants were fully utilized during the year. Although
industry prices improved in the first half of the year, average
prices for PET in 1997 were approximately 20 percent lower than
in 1996. Dow's new PET plant at Schkopau, Germany, is expected to
start production in late 1998. INCA International SpA of Italy,
in which Dow owns an 80 percent share, continued to see strong
interest in licenses for its purified terephthalic acid (PTA)
technology.


--- Page 13 ---


PLASTICS (Continued)

Outlook for 1998
The economic indicators for 1998 continue to point to strong
demand for polyethylene. Dow expects to use planned capacity
additions to further extend its presence in emerging markets and
strengthen its leadership position in high performance
polyethylene film applications. Prices will be affected as new
industry capacity comes on line.
Polystyrene sales are expected to be flat in 1998 compared
with the previous year. Volume growth from strong demand will
likely offset price declines due to styrene monomer and
polystyrene industry capacity increases. Dow's productivity
improvement initiatives for polystyrene have positioned the
business well for this pricing environment.
Continued demand growth is expected for polypropylene in 1998.
This growth will likely be balanced with capacity additions. The
competitive environment is also expected to lead to continuing
consolidation among key players, particularly in Europe. Dow's
supply arrangements with Montell Polyolefins have resulted in
significant leverage with existing and new customers in North
America and Europe, supporting Dow's entry into polypropylene
globally.
Demand for PET is expected to remain strong in 1998. The
global imbalance of PET supply and demand will likely continue,
keeping pressure on prices. Further industry consolidation is
also expected.

CHEMICALS AND METALS
Chemicals and Metals posted sales of $2.9 billion in 1997
compared with $3.0 billion in 1996 and $3.2 billion in 1995.
Prices declined 2 percent due to the impact of currency and
heightened competitive pressures. Volume fell 2 percent during
the year. In 1996, prices declined 10 percent while volume rose 4
percent versus 1995.
Operating income for Chemicals and Metals was $629 million in
1997 compared with $737 million a year ago. Operating
difficulties at facilities in North America contributed to higher
costs and constrained volume growth for the segment. Operating
income was $1.1 billion in 1995.
Strong demand in the alumina and pulp and paper industries
coupled with unplanned industry plant outages tightened the
supply of caustic soda. This caused prices to move significantly
higher in the second half of the year, although they were down
substantially for 1997 as a whole.
In addition, strong demand for polyvinyl chloride (PVC) in
North America and Asia Pacific, combined with tight chlorine
supplies, led to higher pricing for vinyl chloride monomer (VCM)
in the first half of 1997. Softer demand and increased supply for
VCM in North America and Asia Pacific, as well as slightly lower
ethylene values in the second half of the year, negatively
impacted year-end price and volume.
In 1997, Dow added chlorine capacity at Freeport, Texas, and
Stade, Germany. The business announced further expansions of
membrane chlorine capacity in Stade, Germany, by the end of 1998
and in Freeport, Texas, by mid-1999. The additional capacity is
planned to meet Dow's increased internal chlorine demand,
supporting derivative businesses.
In Canada, Dow added incremental VCM capacity at Fort
Saskatchewan, Alberta, in 1997 for about half the cost of
building a new facility. This increase enables Dow to meet
customers' growing needs in North America and Asia Pacific.
Propylene Oxide (PO) and Derivatives experienced solid demand
for PO in 1997. Demand in North America and Latin America was
stronger than expected, while demand in Asia Pacific declined
late in the year. Through plant debottlenecking, Dow added PO
capacity in Freeport, Texas; Aratu, Brazil; and Stade, Germany,
in 1997.
In 1997, stable pricing and healthy demand for Chlorinated
Organics combined to produce a strong bottom-line result. As the
leading supplier of chlorinated organic products, Dow continues
to evaluate growth opportunities for chloromethanes in Asia
Pacific.
Ethylene Oxide and Derivatives had an excellent year, with
volume growth and rising prices fueling healthy results. In 1997,
the business divested of its European and North American after-
market coolants businesses.
As part of a strategic business review, the company retained
financial advisers in 1997 to explore strategic options for
maximizing the value of the Magnesium/Fabricated Metals business.
No decisions have been made at this time regarding what option
will be pursued in 1998.

Outlook for 1998
Caustic soda is expected to continue to show strong performance
throughout 1998, with the current tight industry supply position
further enhanced by strong growth. PVC demand and pricing in
Europe will likely improve, while growth is expected to slow in
North America. Price pressures are expected in VCM and PVC
primarily due to lower raw material values.
The PO and Derivatives business expects moderate demand growth
compared with 1997. Pricing is expected to stay soft due to
weaker demand in Asia Pacific. Supply and demand should remain
relatively balanced as no significant PO capacity is anticipated
to come on line in 1998.


--- Page 14 ---


HYDROCARBONS AND ENERGY
Hydrocarbons and Energy sales were $2.2 billion in 1997 compared
with $2.4 billion in 1996 and $2.4 billion in 1995. This segment
experienced a volume decline of 13 percent, due entirely to the
sale of Destec Energy, Inc. in the second quarter of 1997. Prices
rose 2 percent versus the previous year.
Hydrocarbons and Energy, which transfers materials to Dow's
derivative businesses at cost, reported a residual operating loss
of $40 million, compared with operating losses of $57 million and
$83 million in 1996 and 1995, respectively.
Dow managed feedstock acquisition costs in 1997 by maximizing
its flexibility and global sourcing. Ethylene prices remained
stronger than anticipated throughout the year. Industry operating
rates were high at ethylene plants in all geographies due to
continued strong demand for ethylene derivatives and unexpected
industry plant outages.
In the first half of 1997, Dow closed a noncompetitive
ethylene facility in Freeport, Texas. To optimize Dow's low-cost
position in Canada, the ethylene unit in Fort Saskatchewan,
Alberta, is being expanded to meet increased downstream
derivative demand. The additional capacity will come on line in
the fourth quarter of 1998.
Styrene prices were under pressure in 1997, rising only
slightly from the industry low in 1996. Global demand supported
average industry operating rates of around 89 percent, although
Dow plants ran at higher rates. In Thailand, Siam Styrene Monomer
Co., the Dow-Siam Cement joint venture, opened a styrene
production facility to meet long-term demand growth for
derivatives. In 1998, Dow will close an ethylbenzene/styrene
manufacturing facility in Sarnia, Ontario, Canada.
In 1997, Dow sold its 80 percent stake in independent power
producer Destec Energy, Inc. to NGC Acquisition Corporation for
$974 million. The sale of Destec is consistent with the company's
strategy to maximize shareholder value by divesting of assets
that do not fit with its long-term strategic objectives.

Outlook for 1998
Crude oil, energy and feedstock prices are expected to decline in
1998 compared with 1997.
New ethylene capacity may change the supply and demand balance
unfavorably, exerting downward pressure on prices. Declining
feedstock prices will help mitigate potential margin declines.
In 1998, the styrene industry will likely experience a
continued supply and demand imbalance. Capacity additions in Asia
Pacific made during 1997 are expected to reduce average industry
operating rates, keeping global styrene pricing near its present
low level.
Dow's net global purchase positions in ethylene and styrene
are expected to allow continuous full utilization of available
capacity, thus improving the company's relative cost position
versus industry averages.
Dow's market energy costs in 1998 will be lower when compared
to 1997 as a result of the liberalization effects in Europe and a
general lower energy pricing scenario.

DIVERSIFIED BUSINESSES AND UNALLOCATED
Sales for this segment were $962 million, $1.1 billion and $966
million in 1997, 1996 and 1995, respectively. The segment
recorded an operating loss of $265 million compared with losses
of $275 million in 1996 and $363 million in 1995.
The operating results of this segment were comprised primarily
of research and other expenses related to new developmental
activities in New Businesses, severance costs and overhead cost
variances not allocated to other segments. The company's total
severance cost was $200 million, nearly all of which was assigned
to this segment for 1997, compared with $127 million in 1996 and
$181 million in 1995. Segment costs were partially offset by
pretax income from insurance and finance company operations and
improved DowBrands results in 1997 compared with the previous
year.
In 1997, the company signed agreements for S.C. Johnson & Son,
Inc. to acquire DowBrands, Dow's consumer products business. The
transaction, completed in January 1998, includes DowBrands' Home
Food Management and Home Care Products units, whose respective
brands became assets of S.C. Johnson & Son, Inc. Reported sales
for DowBrands were lower in 1997 versus the previous year because
the European consumer products business became part of the
Cofresco joint venture in late 1996.
New Businesses consists of environmental services through
Radian International LLC (Radian); Advanced Materials; technology
licensing; and new developments.
In 1997, Radian faced significant pricing pressure due to weak
demand and ongoing consolidation in the remediation and
construction industry.
Advanced Materials expanded production capacity in Midland,
Michigan, for Cyclotene advanced electronics resins. This will
ensure product availability as chip makers adapt their processes
to use this new material suited for higher chip speeds. In 1997,
the company formed Intarsia Corp., an 80:20 joint venture between
Dow and Flextronics International to produce and sell integrated
passive components. In November 1997, Dow also formed Quixtor
Technologies Corp., a wholly owned subsidiary, to manufacture and
sell ceramic disk substrates to the disk drive industry.
Dow's technology licensing platform also gained momentum in
1997. Several significant licensing agreements were concluded
during the year, resulting in a positive impact on net income of
more than $20 million.


--- Page 15 ---


DIVERSIFIED BUSINESSES AND UNALLOCATED (Continued)

Outlook for 1998
Dow received a total of approximately $1.2 billion for the
DowBrands business as a result of its sale to S.C. Johnson & Son,
Inc. in January 1998.
Radian and the environmental services industry will likely
benefit from the outsourcing trend in process-related industries
despite overall weak demand. In January 1998, Hartford Steam
Boiler Inspection and Insurance Company exercised a put option to
sell its 40 percent stake in Radian to Dow. Dow is currently
evaluating strategic options for managing this business.
Advanced Materials expects to capitalize on new opportunities
for aluminum boron carbide substrates and advanced electronics
materials for high-technology markets.


COMPANY SUMMARY

Operating Income
Operating income was $2.7 billion in 1997, down 12 percent from
$3.1 billion in 1996 and 30 percent from $3.9 billion in 1995.
Gross margin decreased by $606 million versus 1996, primarily the
result of lower selling prices and unfavorable currency. 1996
gross margin decreased by $918 million from 1995, primarily due
to lower selling prices and higher feedstock and energy costs.




Sales Price and Volume
1997 1996 1995
---------------------- ---------------------- ----------------------
Percent change from prior year Price Volume Total Price Volume Total Price Volume Total
- -----------------------------------------------------------------------------------------------------------

Geographic Areas:
United States (1)% 1% - (6)% 3% (3)% 12% - 12%
Europe (8) 5 (3)% (11) 10 (1) 25 8% 33
Rest of World (4) 8 4 (8) 11 3 16 8 24
All Areas (4)% 4% - (8)% 7% (1)% 17% 4% 21%
- -----------------------------------------------------------------------------------------------------------
Industry Segments:
Performance Plastics (8)% 6% (2)% (4)% 3% (1)% 13% 5% 18%
Performance Chemicals (8) 14 6 (4) 4 - 6 9 15
Plastics (1) 8 7 (19) 17 (2) 29 (1) 28
Chemicals and Metals (2) (2) (4) (10) 4 (6) 33 1 34
Hydrocarbons and Energy 2 (13) (11) (6) 9 3 9 7 16
Diversified Businesses and
Unallocated - (10) (10) 5 5 10 - 1 1
All Segments (4)% 4% - (8)% 7% (1)% 17% 4% 21%
- -----------------------------------------------------------------------------------------------------------
Sales price includes the impact of currency.



The ratio of operating income to sales was 14 percent in 1997,
versus 15 percent in 1996 and 19 percent in 1995. The decrease of
$361 million in operating income for 1997 versus 1996 was due to
approximately $825 million in lower sales prices, including the
unfavorable impact of currency, partially offset by improved
sales volume, better product mix and lower expenses. The United
States contributed 38 percent of the total operating income in
1997 compared with 40 percent in 1996 and 41 percent in 1995.
Operating income in Europe was $849 million in 1997 versus $783
million in 1996 and $1.1 billion in 1995. Operating income from
the rest of the world was $854 million in 1997, down from $1.1
billion in 1996 and $1.2 billion in 1995.

Operating Costs and Expenses

Cost Components as a Percent of Total: 1997 1996 1995
- ------------------------------------------------------------
Hydrocarbons and energy 29% 28% 25%
Wages, salaries and employee benefits 21 21 21
Maintenance 4 4 5
Depreciation 7 7 8
- ------------------------------------------------------------
Supplies, services and other raw
materials 39 40 41
- ------------------------------------------------------------
Total 100% 100% 100%


--- Page 16 ---


Operating Income (Continued)

Dow's global plant operating rate was 89 percent of capacity,
unchanged from 1996 and down from 92 percent in 1995. The 1997
sales volume increase of 4 percent over 1996 was achieved through
a mixture of new capacity and sustained growth, particularly in
the company's performance segments. Depreciation expense was $1.2
billion in 1997, $1.3 billion in 1996 and $1.4 billion in 1995.
Operating expenses, which include research and development,
promotion and advertising, and selling and administrative
expenses, were $2.7 billion in 1997, a decrease of $232 million
from $2.9 billion in 1996 and $330 million from $3.0 billion in
1995. The lower expenses in 1997 reflected Dow's ongoing
productivity improvements.
Research and development expenses were $785 million for 1997,
up 3 percent compared with 1996, but down 3 percent compared with
1995 spending.
Promotion and advertising expenses of $371 million were flat
versus 1996 and down 11 percent from $416 million in 1995.
Selling and administrative expenses for 1997 were $1.5
billion, down 15 percent from $1.8 billion in 1996 and 1995.
Selling and administrative expenses represented 8 percent of
sales in 1997 versus 9 percent in 1996 and 1995.
The personnel count was 42,861 at December 31, 1997, 40,289 at
the end of 1996 and 39,537 at the end of 1995. The increase in
1997 over 1996 was caused by the addition of approximately 4,400
employees from the acquisition of Sentrachem. The increase in
1996 over 1995 included the impact of new acquisitions which
increased the personnel census by approximately 3,100. Taking
these two factors into account, the personnel count has shown a
substantial reduction each year due to continuing rationalization
and work process improvements throughout the company. The Company
plans to continue its workforce rationalization in 1998.

Net Income
Net income available for common stockholders in 1997 was $1.8
billion or $7.81 per share compared with $1.9 billion or $7.71
per share in 1996 and $2.1 billion or $7.72 per share in 1995.
The following table summarizes the impact of special items on
earnings per common share.

1997 1996 1995
- ------------------------------------------------------------------------------
Impact of Dow Corning Corporation related charges - - $(1.24)
Discontinued operations - - .69
Impact of sale of Destec Energy, Inc. and other
one-time events $ .23 - -
Other earnings 7.58 $7.71 8.27
- ------------------------------------------------------------------------------
Earnings per common share $7.81 $7.71 $7.72
- ------------------------------------------------------------------------------

Dow's share of the earnings of nonconsolidated affiliates
amounted to $75 million in 1997 compared with $66 million in
1996 and $70 million in 1995. The company has not recorded its
share of equity earnings in Dow Corning since the first quarter
of 1995 due to Dow Corning's filing for protection under Chapter
11 and the write-down of the company's investment. See Note Q to
the Financial Statements for further discussion of Dow Corning's
breast implant litigation.
Interest expense (including capitalized interest) and
amortization of debt discount decreased $23 million to $471
million in 1997, down 5 percent from $494 million in 1996, but up
9 percent from $434 million in 1995.
Interest income and net foreign exchange in 1997 was $194
million, down 32 percent from $286 million in 1996 and 33 percent
from $289 million in 1995. Higher interest income in the previous
two years was primarily attributable to the investment of the
cash received from the sale of the pharmaceutical businesses in
1995. The decline in interest income for 1997 resulted from the
company's use of cash for acquisitions. Acquisitions and
divestitures are discussed in Note C to the Financial Statements.
The loss on investments of $330 million in 1995 was due to the
company's write-down of its investment in Dow Corning as a result
of Dow Corning's decision to file for Chapter 11 (see Note Q to
the Financial Statements).
Sundry income increased to $424 million in 1997 versus $343
million in 1996 and $43 million in 1995. During the last two
years, Dow sold or restructured its interest in a number of
businesses, including Destec Energy, Inc. in 1997 and
Boride Products, Crestar Energy and Cynara in 1996. In addition,
the company realized a pretax gain of $120 million in 1996
through the sale of a portion of its ownership in Oasis Pipeline.
The provision for taxes on income was $1 billion in 1997
versus $1.2 billion in 1996 and $1.4 billion in 1995. Dow's
overall effective tax rate for 1997 was 35.3 percent versus 36.1
percent for 1996 and 40.9 percent for 1995. The underlying
factors affecting Dow's overall effective tax rates are discussed
in Note D to the Financial Statements. U.S. and other tax law and
rate changes during the year did not have a material impact on
Dow.
Minority interests' share of net income in 1997 was $99
million compared with $194 million in 1996 and $196 million in
1995. The decrease in minority interest versus prior years was
the result of the acquisition of the remaining 40 percent share
in DowElanco (now Dow AgroSciences), the divestiture of Destec
Energy, Inc. and the redemption of partners' capital accounts in
DowBrands L.P. (see Notes C and K to the Financial Statements).


--- Page 17 ---


Net Income (Continued)

Discontinued operations accounted for an after tax gain of
$187 million in 1995, $169 million of which resulted from the
sale of Dow's shares of Marion Merrell Dow Inc. to Hoechst A.G.
for $5.1 billion and the sale of the company's Latin American
pharmaceutical businesses to Roussel Uclaf S.A. for $133 million
in the second quarter of 1995. A further $18 million of income
after tax was earned from the operations of the pharmaceutical
businesses in the first quarter of 1995. Provision for taxes
related to discontinued operations was $418 million, $382 million
on the sale and $36 million from operations (see Note C to the
Financial Statements).

Dividends
The Board of Directors has announced a quarterly dividend of 87
cents per share, payable April 30, 1998, to stockholders of
record on March 31, 1998. This will be the 345th consecutive
quarterly dividend since 1912. Dow has maintained or increased
the dividend throughout that time. The company declared dividends
of $3.36 per share in 1997, $3.00 per share in 1996 and $2.90 per
share in 1995.

Environment
Dow's global operations are subject to increasingly stringent
laws and government regulations related to environmental
protection and remediation. Dow's environmental responsibilities
and potential liabilities receive direct and ongoing scrutiny by
management to ensure compliance with these laws and regulations.
Dow's Environmental Management Standard clearly defines the
overall environmental management system, performance objectives
and design requirements needed to minimize the long-term cost of
environmental protection as well as to comply with these laws and
regulations. It is Dow's stated policy that all global operations
and products meet Dow's Environmental Management Standard or
their country's laws and regulations, whichever is more
stringent. Assessments are used by management to continually
measure and report Dow's progress against this standard and its
performance objectives.
Since 1996, the company has received third party certification
at three of its European sites confirming that Dow's
environmental management system meets ISO-14001 and Eco-
Management and Auditing System (EMAS) specifications.
It has been Dow's policy to adhere to a waste management
hierarchy that minimizes the impact of wastes and emissions on
the environment. First, Dow works to eliminate or minimize the
generation of waste and emissions at the source through research,
process design, plant operations and maintenance. Second, Dow
finds ways to reuse and recycle materials. Finally, unusable or
non-recyclable hazardous waste is treated before disposal to
eliminate or reduce the hazardous nature and volume of the waste.
Treatment may include destruction by chemical, physical,
biological or thermal (incineration) means. Disposal of waste
materials in landfills is considered only after all other options
have been thoroughly evaluated. Dow has specific requirements for
wastes that are transferred to non-Dow facilities. Wastes that
are recycled, treated or recovered for energy off-site represent
less than 2 percent of the total amount of wastes reported as
part of the Pollution Prevention Act. Dow's policy of on-site
waste treatment has resulted in less than 10 percent of its total
environmental liability being directed at remediation under
federal or state Superfund statutes.
In 1996, Dow announced a number of voluntary global
environment, health and safety (EH&S) goals for the year 2005.
Included are goals to reduce emissions and wastes by 50 percent
(1994 base year) and EH&S incidents by 90 percent. Most
performance metrics are on or ahead of the goal schedule. The
goals, as well as other performance data, can be found in Dow's
1997 EH&S progress report.
Dow accrues the costs of site remediation for its facilities
based on current law and existing technologies. In the case of a
landfill, Dow accrues the costs over the useful life of the
facility. The nature of such remediation includes the cleanup of
soil contamination and the closure of landfills and other waste
management facilities. The policies adopted to reflect properly
the monetary impacts of environmental matters are discussed in
Note A to the Financial Statements. To assess the impact on the
financial statements, environmental experts review currently
available facts to evaluate the probability and scope of
potential liabilities. Raven Group Ltd., a joint venture
established in 1996, provides strategic management to identify
cost-effective solutions for certain remediation liabilities at
Dow's U.S. manufacturing locations. Inherent uncertainties exist
in such evaluations primarily due to unknown conditions, changing
governmental regulations and legal standards regarding liability,
and evolving technologies for handling site remediation and
restoration. These liabilities are adjusted periodically as
remediation efforts progress or as additional technical or legal
information becomes available.
Dow has been named as a potentially responsible party (PRP)
under federal or state Superfund statutes at approximately 45
sites. Dow readily cooperates in remediation at sites where its
liability is clear, thereby minimizing legal and administrative
costs. However, at several of these Superfund sites, Dow has had
no known involvement and is contesting all liability; at many
others, Dow disputes major liability, believing its
responsibility to be de minimis. Because current law imposes
joint and several liability upon each party at a Superfund site,
Dow has evaluated its potential liability in light of the number
of other companies which have also been named PRPs at each site,
the estimated apportionment of costs among all PRPs and the
financial ability and commitment of each to pay its expected
share.


--- Page 18 ---


Environment (Continued)

Management has estimated that the company's remaining
liability for the remediation of Superfund sites at December 31,
1997, was $11 million, which has been accrued. In addition,
receivables of $19 million for probable third-party recoveries
have been recorded related to Superfund sites. Other recoveries
for past expenditures are possible since Dow has numerous
insurance policies secured from many carriers at various times
that may provide coverage at different levels for environmental
liabilities. The company is currently involved in litigation to
determine the scope and extent of such coverage.
In addition to the Superfund-related liability referenced
above, Dow had an accrued liability of $272 million at December
31, 1997, related to the remediation of current or former Dow-
owned sites. The company had not recorded as a receivable any
third-party recovery related to these sites.
In total, Dow's accrued liability for probable environmental
remediation and restoration costs was $283 million at December
31, 1997, compared with $265 million at the end of 1996. This is
management's best estimate of the costs for remediation and
restoration with respect to environmental matters for which the
company has accrued liabilities, although the ultimate cost with
respect to these particular matters could range up to twice that
amount.
It is the opinion of the company's management that the
possibility is remote that costs in excess of those accrued or
disclosed will have a material adverse impact on the company's
consolidated financial statements.
The amounts charged to income on a pretax basis related to
environmental remediation totaled $90 million in 1997, $60
million in 1996 and $89 million in 1995. The charges for 1997
included future incremental operations, maintenance and
management costs directly related to remediation as a result of
the adoption of a new accounting standard (see Note B to the
Financial Statements). Capital expenditures for environmental
protection were $77 million in 1997, $80 million in 1996 and $80
million in 1995.

Capital Expenditures
Capital spending for the year was $1.2 billion, down 11 percent
from $1.3 billion in 1996 and 15 percent from $1.4 billion in
1995. In 1997, approximately 44 percent of the company's capital
expenditures was directed toward additional capacity for new and
existing products, while about 9 percent was committed to
projects related to environmental protection, safety and loss
prevention, and industrial hygiene. These were up from 34 percent
and 8 percent, respectively, in 1996. The remaining capital was
utilized to maintain the company's existing asset base, including
projects related to productivity improvements, energy
conservation and facilities support.
Major projects underway during 1997 included a new TDI plant
in Freeport, Texas; an expansion of the polyethylene facilities
in Fort Saskatchewan, Alberta, Canada; a new aniline facility in
Boehlen, Germany; an ethylene cracker expansion in Bahia Blanca,
Argentina; and an ethylene expansion in Terneuzen, the
Netherlands. Because the company designs and builds most of its
capital projects in-house, it had no major capital commitments,
other than for the purchase of materials from fabricators.

Liquidity and Capital Resources
Operating activities provided $3.7 billion in cash in 1997,
compared with $3.4 billion in 1996 and $3.3 billion in 1995 (see
the Consolidated Statements of Cash Flows). The items affecting
operating activities are discussed in the operating income and
net income analyses. Investing activities used $3.3 billion in
cash in 1997 and $2.2 billion in 1996, and provided $2.9 billion
in 1995. The increased use of cash during 1997 resulted from the
acquisition of the remaining 40 percent share in DowElanco (now
Dow AgroSciences), the acquisition of Sentrachem, the purchase of
80 percent interest in BSL and the redemption of partners'
capital accounts in DowBrands L.P. (see Notes C and K to the
Financial Statements). Allocation of the purchase price to the
assets acquired and liabilities assumed has not yet been
completed for the DowElanco, Sentrachem and BSL acquisitions.
Final determination of the fair values to be assigned may result
in adjustments to the preliminary values assigned at the dates of
acquisition. Offsetting the use of cash was net cash proceeds of
$907 million generated by the sale of Destec Energy, Inc. in
1997. The swing of $5.1 billion in cash between 1996 and 1995 was
due to the sale of the pharmaceutical businesses in 1995.
Total working capital at year-end was $1.3 billion versus $3.8
billion at the end of 1996. Cash, cash equivalents, marketable
securities and interest-bearing deposits decreased by $1.8
billion primarily due to the aforementioned acquisitions.
Inventories and trade receivables increased $219 million in 1997,
excluding the impact of acquisitions and divestitures. Days-sales-
in-inventory, however, were down three days to 84 days, versus 87
days in 1996 and 90 days in 1995. Days-sales-outstanding-in-
receivables were 47 days, 45 days and 47 days for 1997, 1996 and
1995, respectively. Goodwill at December 31, 1997, was $1.8
billion, an increase of $863 million from year-end 1996,
resulting primarily from the DowElanco and Sentrachem
acquisitions.
Short-term borrowings at December 31, 1997, were $1.7 billion,
an increase of $991 million from year-end 1996. Long-term debt
due within one year decreased $201 million to $406 million at the
end of 1997 compared with $607 million at the end of 1996. Long-
term debt due in 1998 will be funded by operating cash flows.
Accounts payable increased by $371 million to $2.7 billion.


--- Page 19 ---


Liquidity and Capital Resources (Continued)

Long-term debt was $4.2 billion, flat versus year-end 1996.
During the year, $238 million of new long-term debt was incurred
while $273 million was transferred to long-term debt due within
one year. In 1997, $665 million of long-term debt was retired.
Total debt was $6.3 billion, $5.5 billion and $5.4 billion at
December 31, 1997, 1996 and 1995, respectively. Net debt, which
equals total debt less cash, cash equivalents, marketable
securities and interest-bearing deposits, was $5.7 billion, $3.2
billion and $2 billion at December 31, 1997, 1996 and 1995,
respectively. The debt to total capitalization ratio increased
temporarily to 43 percent at year-end 1997 from 35 percent at the
end of 1996 and 36 percent at the end of 1995. This ratio
decreased significantly in early 1998 with the cash receipt of
approximately $1.2 billion from the sale of the DowBrands
business on January 23, 1998.
During the last three years, the company has repurchased 63.7
million shares of its common stock. $1.7 billion worth of common
stock was repurchased in 1997, $1.2 billion in 1996 and $2.1
billion in 1995. Since the beginning of 1995, net shares
outstanding have been reduced by 19 percent (see Note L to the
Financial Statements).
At December 31, 1997, the company had unused and available
credit facilities with various U.S. and foreign banks totaling
$1.8 billion in support of its working capital requirements and
commercial paper borrowings. Additional unused credit facilities
totaling $1.4 billion were available for use by foreign
subsidiaries.
At December 31, 1997, there was a total of $1.4 billion in
available SEC registered debt securities between Dow and Dow
Capital plc., a wholly owned subsidiary, and 50 billion in
available Japanese yen (approximately $385 million) registered
with Japan's Ministry of Finance.
Minority interest in subsidiary companies decreased during the
year from $2.1 billion in 1996 to $676 million at the end of
1997, attributable to the acquisition of the remaining 40 percent
share in DowElanco, the divestiture of Destec Energy, Inc. and
the redemption of minority interests in DowBrands L.P. as
discussed in Notes C and K to the Financial Statements.

Year 2000
Dow has established a plan to address what many call the Year
2000 challenge; specifically, the fact that many computing and
control systems will not accurately interpret dates after
December 31, 1999. Since early 1997, a Year 2000 project team has
been dedicated to making Dow's systems and businesses ready for
the next millennium. The project team's responsibilities include
assessing the potential impact of the Year 2000 issue on the
company's systems and operations, developing action plans to
address the needs and issues identified, ascertaining the
resources required and establishing a time-phased work plan,
which will include systems tests to determine Year 2000
compliance. Year 2000 and the required system modifications are
not expected to materially affect the company's business
operations or consolidated financial statements.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK

Dow's business operations give rise to market risk exposure due
to changes in foreign exchange rates, interest rates, commodity
prices and other market factors such as equity prices. To manage
such risks effectively, the company enters into hedging
transactions, pursuant to established guidelines and policies,
that enable it to mitigate the adverse effects of financial
market risk. A secondary objective is to add value by creating
additional exposure within established limits and policies. The
potential impact of creating such additional exposures is not
material to the company's results.
The global nature of Dow's business requires active
participation in the foreign exchange markets. As a result of
investments, production facilities and other operations on a
global scale, the company has assets, liabilities and cash flows
in currencies other than the U.S. dollar. The primary objective
of the company's foreign exchange risk management is to optimize
the U.S. dollar value of net assets and cash flows, keeping the
adverse impact of currency movements to a minimum. To achieve
this objective, the company hedges on a net exposure basis using
foreign currency forward contracts and over-the-counter option
contracts. Main exposures are related to assets and liabilities
denominated in the currencies of Europe, Asia Pacific and Canada;
bonds denominated in foreign currencies - mainly the Deutsche
mark, Swiss franc and Japanese yen; and economic exposure derived
from the risk that currency fluctuations could affect the dollar
value of future cash flows. The majority of the foreign exchange
exposure is related to the Japanese yen, Deutsche mark, Dutch
guilder and other European currencies.
The main objective of interest rate risk management is to
reduce the total funding cost to the company and to alter the
interest rate exposure to the desired risk profile. Dow uses
interest rate swaps, "swaptions" and exchange traded instruments
to accomplish this objective. The company's primary exposure is
to the U.S. dollar yield curve.
Inherent in Dow's business is exposure to price changes for
several commodities. Some exposures can be hedged effectively
through liquid tradable financial instruments. Chemical
feedstocks and natural gas constitute the main commodity
exposures. Over-the-counter and exchange traded instruments are
used to hedge these risks when feasible. The risk of these
hedging instruments is not material.


--- Page 20 ---



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK (Continued)

As a result of acquisition and divestiture activity, the
company has a portfolio of equity securities. The major part of
this exposure is related to restricted stock warrants. This
exposure is managed in a manner consistent with the company's
market risk policies and procedures.
Dow uses value at risk (VAR) stress testing and scenario
analysis for risk measurement and control purposes. VAR estimates
the potential gain or loss in fair market values, given a certain
move in prices over a certain period of time, using specified
confidence levels. On an ongoing basis, the company estimates the
maximum gain or loss that could arise in one day, given a two
standard deviation move in the respective price levels. These
amounts are relatively insignificant in comparison to the size of
the equity and earnings of the company. The VAR methodology used
by Dow is based primarily on the variance/covariance statistical
model. As an example, the VAR for one day, using a 95 percent
confidence level at December 31, 1997, for foreign exchange,
interest rate and equity exposures, net of hedges was: foreign
exchange - $12 million; interest rate - $23 million; and equity -
$3 million.


--- Page 21 ---


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Dow Chemical Company and Subsidiaries
- ------------------------------------------------------------------------
Responsibility for Financial Statements and Independent Auditors' Report

- ------------------------------------------------------------------------
Management Statement of Responsibility
The management of The Dow Chemical Company and its subsidiaries
prepared the accompanying consolidated financial statements and
has responsibility for their integrity, objectivity and freedom
from material misstatement or error. These statements were
prepared in accordance with generally accepted accounting
principles. The financial statements include amounts that are
based on management's best estimates and judgments. Management
also prepared the other information in this annual report and is
responsible for its accuracy and consistency with the financial
statements. The Board of Directors, through its Audit Committee,
assumes an oversight role with respect to the preparation of the
financial statements.
Management recognizes its responsibility for fostering a strong
ethical climate so that the Company's affairs are conducted
according to the highest standards of personal and corporate
conduct. Management has established and maintains an internal
control structure that provides reasonable assurance as to the
integrity and reliability of the financial statements, the
protection of assets from unauthorized use or disposition, and the
prevention and detection of fraudulent financial reporting.
The internal control structure provides for appropriate division
of responsibility and is documented by written policies and
procedures that are communicated to employees with significant
roles in the financial reporting process and updated as necessary.
Management continually monitors internal controls for compliance.
The Company maintains a strong internal auditing program that
independently assesses the effectiveness of the internal controls
and recommends possible improvements.
Deloitte & Touche LLP, independent auditors, with direct access
to the Board of Directors through its Audit Committee, have
audited the consolidated financial statements prepared by the
Company, and their report follows.
Management has considered recommendations from the internal
auditors and Deloitte & Touche LLP concerning the internal control
structure and has taken actions that are cost-effective in the
circumstances to respond appropriately to these recommendations.
Management further believes the controls are adequate to
accomplish the objectives discussed herein.

- ------------------------------------------------------------------------
Independent Auditors' Report

To the Stockholders and Board of Directors of
The Dow Chemical Company:

We have audited the accompanying consolidated balance sheets of
The Dow Chemical Company and its subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. Our audits also included the
financial statement schedule listed at Item 14(a)2. These
financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of The
Dow Chemical Company and its subsidiaries at December 31, 1997 and
1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information
set forth therein.





DELOITTE & TOUCHE LLP
Midland, Michigan
February 11, 1998


--- Page 22 ---


The Dow Chemical Company and Subsidiaries
Consolidated Statements of Income

In millions, except for per share amounts 1997 1996 1995
- ----------------------------------------------------------------------------------

Net Sales $20,018 $20,053 $20,200
Operating Costs and Expense
Cost of sales 14,679 14,108 13,337
Insurance and finance company operations,
pretax income (113) (78) (61)
Research and development expenses 785 761 808
Promotion and advertising expenses 371 370 416
Selling and administrative expenses 1,509 1,766 1,771
Amortization of intangibles 61 39 38
-------------------------------------------------------------------------------
Total operating costs and expenses 17,292 16,966 16,309
- ----------------------------------------------------------------------------------
Operating Income 2,726 3,087 3,891
- ----------------------------------------------------------------------------------
Other Income (Expense)
Equity in earnings of nonconsolidated affiliates 75 66 70
Interest expense and amortization of debt discount (471) (494) (434)
Interest income and foreign exchange - net 194 286 289
Net loss on investments 0 0 (330)
Sundry income - net 424 343 43
-------------------------------------------------------------------------------
Total other income (expense) 222 201 (362)
- ----------------------------------------------------------------------------------
Income before Provision for Taxes on Income and
Minority Interests 2,948 3,288 3,529
- ----------------------------------------------------------------------------------
Provision for Taxes on Income 1,041 1,187 1,442
- ----------------------------------------------------------------------------------
Minority Interests' Share in Income 99 194 196
- ----------------------------------------------------------------------------------
Preferred Stock Dividends 6 7 7
- ----------------------------------------------------------------------------------
Income from Continuing Operations 1,802 1,900 1,884
- ----------------------------------------------------------------------------------
Discontinued Operations
Income from pharmaceutical businesses, net of taxes
on income 0 0 18
Gain on sale of pharmaceutical businesses, net of
taxes on income 0 0 169
- ----------------------------------------------------------------------------------
Net Income Available for Common Stockholders $1,802 $1,900 $2,071
- ----------------------------------------------------------------------------------
Weighted-average Common Shares Outstanding 230.6 246.3 268.2
- ----------------------------------------------------------------------------------
Per Share Data
Earnings per common share from continuing
operations $7.81 $7.71 $7.03
Earnings per common share 7.81 7.71 7.72
Earnings per common share from continuing
operations - assuming dilution 7.70 7.60 6.93
Earnings per common share - assuming dilution 7.70 7.60 7.61
-------------------------------------------------------------------------------
Common stock dividends declared per share $3.36 $3.00 $2.90
- ----------------------------------------------------------------------------------
See Notes to Financial Statements.


--- Page 23 ---



The Dow Chemical Company and Subsidiaries
Consolidated Balance Sheets

December 31
In millions 1997 1996
- ----------------------------------------------------------------------------------

Assets
- ----------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $235 $1,903
Marketable securities and interest-bearing deposits 302 399
Accounts and notes receivable:
Trade (less allowance for doubtful receivables -
1997, $73; 1996, $71) 3,257 2,985
Other 1,701 1,411
Inventories:
Finished and work in process 2,309 2,267
Materials and supplies 612 548
Deferred income tax assets - current 224 317
-------------------------------------------------------------------------------
Total current assets 8,640 9,830
- ----------------------------------------------------------------------------------
Investments
Capital stock at cost plus equity in accumulated
earnings of nonconsolidated affiliates 1,206 1,387
Other investments 2,529 2,060
Noncurrent receivables 400 437
-------------------------------------------------------------------------------
Total investments 4,135 3,884
- ----------------------------------------------------------------------------------
Property
Property 23,345 23,737
Less accumulated depreciation 15,293 15,253
-------------------------------------------------------------------------------
Net property 8,052 8,484
- ----------------------------------------------------------------------------------
Other Assets
Goodwill (net of accumulated amortization -
1997, $211; 1996, $177) 1,762 899
Deferred income tax assets - noncurrent 452 669
Deferred charges and other assets 999 907
-------------------------------------------------------------------------------
Total other assets 3,213 2,475
- ----------------------------------------------------------------------------------
Total Assets $24,040 $24,673
- ----------------------------------------------------------------------------------
See Notes to Financial Statements.


--- Page 24 ---



The Dow Chemical Company and Subsidiaries
Consolidated Balance Sheets

December 31
In millions, except for share amounts 1997 1996
- ----------------------------------------------------------------------------------

Liabilities and Stockholders' Equity
- ----------------------------------------------------------------------------------
Current Liabilities
Notes payable $1,656 $665
Long-term debt due within one year 406 607
Accounts payable:
Trade 1,731 1,596
Other 960 724
Income taxes payable 521 567
Deferred income tax liabilities - current 100 64
Dividends payable 200 184
Accrued and other current liabilities 1,766 1,597
-------------------------------------------------------------------------------
Total current liabilities 7,340 6,004
- ----------------------------------------------------------------------------------
Long-Term Debt 4,196 4,196
- ----------------------------------------------------------------------------------
Other Noncurrent Liabilities
Deferred income tax liabilities - noncurrent 649 1,005
Pension and other postretirement benefits - noncurrent 1,840 1,896
Other noncurrent obligations 1,664 1,493
-------------------------------------------------------------------------------
Total other noncurrent liabilities 4,153 4,394
- ----------------------------------------------------------------------------------
Minority Interest in Subsidiary Companies 676 2,091
- ----------------------------------------------------------------------------------
Temporary Equity
Temporary equity - other 9 0
Preferred stock (authorized 250,000,000 shares of $1.00
par value each; issued Series A - 1997: 1,438,084;
1996: 1,482,309) at redemption value 124 128
Guaranteed ESOP obligation (84) (94)
-------------------------------------------------------------------------------
Total temporary equity 49 34
- ----------------------------------------------------------------------------------
Stockholders' Equity
Common stock (authorized 500,000,000 shares of $2.50 par
value each; issued 1997 and 1996: 327,125,854 818 818
Additional paid-in capital 532 307
Retained earnings 12,357 11,323
Unrealized gains on investments 316 192
Cumulative translation adjustments (429) (363)
Minimum pension liability (33) (22)
Treasury stock, at cost (shares 1997: 101,658,109;
1996: 85,986,616) (5,935) (4,301)
-------------------------------------------------------------------------------
Net stockholders' equity 7,626 7,954
- ----------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $24,040 $24,673
- ----------------------------------------------------------------------------------
See Notes to Financial Statements.


--- Page 25 ---



The Dow Chemical Company and Subsidiaries
Consolidated Statements of Stockholders' Equity

In millions 1997 1996 1995

- ----------------------------------------------------------------------------------
Common Stock
Balance at beginning and end of year $818 $818 $818
- ----------------------------------------------------------------------------------
Additional Paid-in Capital
Balance at beginning of year 307 315 326
Issuance of treasury stock at more (less) than cost 220 (21) (27)
Proceeds from sales of put options 5 13 16
-------------------------------------------------------------------------------
Balance at end of year 532 307 315
- ----------------------------------------------------------------------------------
Retained Earnings
Balance at beginning of year 11,323 10,159 8,857
Net income 1,808 1,907 2,078
Preferred stock dividends declared (6) (7) (7)
Common stock dividends declared (768) (736) (769)
-------------------------------------------------------------------------------
Balance at end of year 12,357 11,323 10,159
- ----------------------------------------------------------------------------------
Unrealized Gains (Losses) on Investments
Balance at beginning of year 192 62 (21)
Unrealized gains 124 130 83
-------------------------------------------------------------------------------
Balance at end of year 316 192 62
- ----------------------------------------------------------------------------------
Cumulative Translation Adjustments
Balance at beginning of year (363) (349) (330)
Translation adjustments (66) (14) (19)
-------------------------------------------------------------------------------
Balance at end of year (429) (363) (349)
- ----------------------------------------------------------------------------------
Minimum Pension Liability
Balance at beginning of year (22) 0 0
Adjustments (11) (22) 0
-------------------------------------------------------------------------------
Balance at end of year (33) (22) 0
- ----------------------------------------------------------------------------------
Treasury Stock
Balance at beginning of year (4,301) (3,644) (1,438)
Purchases (1,655) (1,243) (2,115)
Reclassification related to put options (9) 313 (313)
Issuance to employees and employee plans 30 273 222
-------------------------------------------------------------------------------
Balance at end of year (5,935) (4,301) (3,644)
- ----------------------------------------------------------------------------------
Net Stockholders' Equity $7,626 $7,954 $7,361
- ----------------------------------------------------------------------------------
See Notes to Financial Statements.


--- Page 26 ---



The Dow Chemical Company and Subsidiaries
Consolidated Statements of Cash Flows

In millions 1997 1996 1995

- ----------------------------------------------------------------------------------
Operating Activities
Income from continuing operations $1,802 $1,900 $1,884
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortizatization 1,287 1,298 1,442
Provision for deferred income tax 150 306 268
Undistributed earnings of nonconsolidated
affiliates (21) 29 (35)
Minority interests' share in income 99 194 196
Net gain on sale of consonsolidated companies (189) 0 0
Net loss on investments 0 0 330
Net gain on sales of property (49) (11) (24)
Other net gain (39) (67) (99)
Changes in assets and liabilities that provided
(used) cash:
Accounts receivable (275) (53) (311)
Inventories 56 123 (369)
Accounts payable 193 (54) 15
Other assets and liabilities 639 (266) (40)
Operating activities related to discontinued
operations 0 0 84
-------------------------------------------------------------------------------
Cash provided by operating activities 3,653 3,399 3,341
- ----------------------------------------------------------------------------------
Investing Activities
Purchases of property (1,198) (1,344) (1,417)
Proceeds from sales of property 117 126 107
Purchases of consolidated companies (1,692) (409) (10)
Proceeds from sales of consolidated companies 907 0 5,060
Purchases from outside investors in limited
partnerships (909) 0 0
Investments in nonconsolidated affiliates (218) (652) (325)
Proceeds from sales of nonconsolidated affiliates 0 209 0
Purchases of investments (2,904) (2,289) (2,260)
Proceeds from sales of investments 2,614 2,160 1,751
Investing activities related to discontinued
operations 0 0 (28)
-------------------------------------------------------------------------------
Cash provided by (used in) investing activities (3,283) (2,199) 2,878
- ----------------------------------------------------------------------------------
Financing Activities
Changes in short-term notes payable 700 50 (390)
Proceeds from issuance of long-term debt 238 298 247
Payments on long-term debt (665) (586) (951)
Purchases of treasury stock (1,655) (1,243) (2,115)
Proceeds from sales of common stock 192 255 158
Distributions to minority interests (72) (155) (155)
Dividends paid to stockholders (758) (749) (766)
Financing activities related to discontinued
operations 0 0 16
-------------------------------------------------------------------------------
Cash used in financing activities (2,020) (2,130) (3,956)
- ----------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash (18) (6) 7
- ----------------------------------------------------------------------------------
Summary
Increase (decrease) in cash and cash equivalents (1,668) (936) 2,270
Cash and cash equivalents at beginning of year 1,903 2,839 569
-------------------------------------------------------------------------------
Cash and cash equivalents at end of year $235 $1,903 $2,839
- ----------------------------------------------------------------------------------
See Notes to Financial Statements.


--- Page 27 ---


The Dow Chemical Company and Subsidiaries
- ----------------------------------------------------------------------
Notes to Financial Statements


In millions, except for share amounts
- ----------------------------------------------------------------------

Table of Contents
Page
A Summary of Significant Accounting Policies 28
B Accounting Change 30
C Acquisitions and Divestitures 31
D Taxes on Income 32
E Inventories 33
F Related Company Transactions 33
G Property 33
H Leased Properties 33
I Notes Payable, Long-Term Debt and Available
Credit Facilities 34
J Financial Instruments 35
K Limited Partnerships 37
L Stockholders' Equity 37
M Stock Compensation Plans 38
N Redeemable Preferred Stock 39
O Pension Plans 40
P Other Postretirement Benefits 41
Q Commitments and Contingent Liabilities 42
R Supplementary Information 44
S Industry Segments and Geographic Areas 45

A Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements of The Dow
Chemical Company and its subsidiaries (the Company) include the
assets, liabilities, revenues and expenses of all majority-owned
subsidiaries over which the Company exercises control, and for
which control is other than temporary. Intercompany transactions
and balances are eliminated in consolidation. Investments in
nonconsolidated affiliates (20%-50% owned companies and majority-
owned subsidiaries over which the Company does not exercise
control) are accounted for on the equity basis.
Certain reclassifications of prior years' amounts have been made
to conform to the presentation adopted for 1997.

Use of Estimates in Financial Statement Preparation
The preparation of financial statements in conformity with
generally accepted accounting principles 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
period. The Company's financial statements include amounts that
are based on management's best estimates and judgments. Actual
results could differ from those estimates.

Earnings per Common Share
The calculation of earnings per common share is based on the
weighted-average number of common shares outstanding during the
applicable period. Earnings per common share assuming dilution
adjusts this calculation to give effect to all dilutive potential
common shares that were outstanding during the respective periods.

Foreign Currency Translation
The local currency has been primarily used as the functional
currency throughout the world. Translation gains and losses of
those operations that use local currency as the functional
currency, and the effects of exchange rate changes on transactions
designated as hedges of net foreign investments, are included as a
separate component of stockholders' equity. Where the U.S. dollar
is used as the functional currency, foreign currency gains and
losses are reflected in income.

Cash and Cash Equivalents
Cash and cash equivalents include time deposits and readily
marketable securities with original maturities of three months or
less.


--- Page 28 ---


The Dow Chemical Company and Subsidiaries
- ----------------------------------------------------------------------
Notes to Financial Statements


In millions, except for share amounts
- ----------------------------------------------------------------------

A Summary of Significant Accounting Policies (Continued)

Financial Instruments
Interest differentials on swaps and forward rate agreements
designated as hedges of exposures to interest rate risk are
recorded as adjustments to expense over the contract periods.
Premiums for early termination of interest derivatives designated
as hedges are amortized as adjustments to expense over the
original contract periods. Interest derivatives not designated as
hedges are marked-to-market at the end of each accounting period.
Forward points on foreign exchange forward contracts designated
as hedges of foreign exchange risk are amortized over the lives of
the contracts. Realized and unrealized gains and losses on foreign
exchange transactions that are designated and effective as hedges
are recognized in the same period as the hedged transaction. The
carrying amounts of foreign currency options and option
combinations are adjusted for changes in fair value at each
balance sheet date. Foreign exchange contracts not designated as
hedges are marked-to-market at the end of each accounting period.
The Company enters into various commodity contracts, including
futures, options and swap agreements to hedge its purchase of
commodity products used in the Company's business. These contracts
are predominantly settled in cash. For those contracts that are
designated and effective as hedges, gains and losses are accounted
for as part of the basis of the related commodity purchases. For
contracts accounted for as hedges that are terminated before their
maturity date, gains and losses are deferred and included in the
basis of the related commodity purchases. Commodity contracts not
accounted for as hedges are marked-to-market at the end of each
accounting period with the related gains and losses recognized in
income.
The Company calculates the fair value of financial instruments
using quoted market prices whenever available. When quoted market
prices are not available for various types of financial
instruments (such as forwards, options and swaps), the Company
uses standard pricing models, which take into account the present
value of estimated future cash flows.

Investments
Investments in debt and marketable equity securities, including
warrants, are classified as either trading, available-for-sale,
or held-to-maturity. Investments classified as trading are
reported at fair value with unrealized gains and losses included
in income. Investments classified as available-for-sale are
reported at fair value with unrealized gains and losses recorded
in a separate component of stockholders' equity. Investments
classified as held-to-maturity are recorded at amortized cost.
The excess of the cost of investments in subsidiaries over the
values assigned to assets and liabilities acquired is shown as
goodwill, which is amortized on a straight-line basis over its
estimated useful life with a maximum of 40 years.
The Company evaluates long-lived assets and certain
identifiable intangibles for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. When it is probable that
undiscounted future cash flows will not be sufficient to recover
an asset's carrying amount, the asset is written down to its fair
value. Long-lived assets to be disposed of are reported at the
lower of carrying amount or fair value less cost to sell.
The cost of investments sold is determined by specific
identification.

Property
Land, buildings and equipment, including property under capital
lease agreements, are carried at cost less accumulated
depreciation. Depreciation is based on the estimated service lives
of depreciable assets and is generally provided using the
declining balance method for assets capitalized through 1996 and
using the straight-line method for assets capitalized beginning
January 1, 1997. Fully depreciated assets are retained in property
and depreciation accounts until they are removed from service. In
the case of disposals, assets and related depreciation are removed
from the accounts and the net amounts, less proceeds from
disposal, are included in income.

Environment
Accruals for environmental matters are recorded when it is
probable that a liability has been incurred and the amount of the
liability can be reasonably estimated, based on current law and
existing technologies. These accruals are adjusted periodically as
assessment and remediation efforts progress or as additional
technical or legal information becomes available. Accruals for
environmental liabilities are generally included in the balance
sheet as "Other noncurrent obligations" at undiscounted amounts.
Accruals for related insurance or other third party recoveries for
environmental liabilities are recorded when it is probable that a
recovery will be realized, and are included in the balance sheet
as "Noncurrent receivables."
Environmental costs are capitalized if the costs extend the life
of the property, increase its capacity, and/or mitigate or prevent
contamination from future operations. Costs related to
environmental contamination treatment and cleanup are charged to
expense. Estimated future incremental operations, maintenance and
management costs directly related to remediation are accrued when
such costs are probable and estimable.


--- Page 29 ---


The Dow Chemical Company and Subsidiaries
- ----------------------------------------------------------------------
Notes to Financial Statements


In millions, except for share amounts
- ----------------------------------------------------------------------

A Summary of Significant Accounting Policies (Continued)

Inventories
Inventories are stated at the lower of cost or market. The method
of determining cost is used consistently from year to year at each
subsidiary and varies among the last-in, first-out (LIFO) method;
the first-in, first-out (FIFO) method; and the average cost
method.

Taxes on Income
The Company accounts for taxes on income using the asset and
liability method under which deferred tax assets and liabilities
are recognized for the future tax consequences of temporary
differences between the carrying amounts and tax bases of assets
and liabilities using enacted rates.
Annual tax provisions include amounts considered sufficient to
pay assessments that may result from examinations of prior year
tax returns; however, the amount ultimately paid upon resolution
of issues raised may differ from the amounts accrued. Provision is
made for taxes on undistributed earnings of foreign subsidiaries
and related companies to the extent that such earnings are not
deemed to be permanently invested.

B Accounting Change

For property released to operations beginning January 1, 1997,
the Company has changed from an accelerated method to the
straight-line method of depreciation. The change reflects
improvements in the Company's engineering and maintenance
practices which result in property not being subject to high
maintenance costs or substantially reduced productivity in the
later years of its useful life. In addition, the change to the
straight-line method conforms to predominant industry practice.
This change did not have a material effect on 1997 income.
In 1997, the Company adopted the American Institute of
Certified Public Accountants' Statement of Position 96-1
(Environmental Remediation Liabilities), which requires the
accrual of future incremental operations, maintenance and
management costs directly related to remediation. The Company's
adoption of Statement of Position 96-1 did not have a material
effect on 1997 income.
In 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128 (Earnings Per Share). Adoption of this
standard had no effect on previously reported earnings per common
share amounts; however, earnings per common share assuming
dilution is now reported for all periods presented.
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 131 (Disclosures about Segments of an Enterprise and
Related Information), which will be effective beginning January
1, 1998. SFAS No. 131 redefines how operating segments are
determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. The
Company has not yet determined what changes, if any, will be made
to its segment structure as a result of this standard. It is
expected that this standard will not be applied to interim
financial reporting for 1998.
In May 1996, the Emerging Issues Task Force of the Financial
Accounting Standards Board reached a consensus on Issue No.
96-11 (Accounting for Forward Contracts and Purchased Options to
Acquire Securities Covered by SFAS No. 115). As a result, the
Company began to account for its warrants to purchase 15 million
shares of Schlumberger Limited stock at fair value as available-
for-sale securities. The impact of adopting this consensus was to
increase the carrying value of the warrants by $136, in the
quarter of adoption, with a corresponding increase in "Unrealized
gains on investments" in stockholders' equity (net of deferred
taxes of $52).


--- Page 30 ---


The Dow Chemical Company and Subsidiaries
- ----------------------------------------------------------------------
Notes to Financial Statements


In millions, except for share amounts
- ----------------------------------------------------------------------

C Acquisitions and Divestitures

In January 1998, the Company completed the sale of the DowBrands
business to S.C. Johnson & Son, Inc. for approximately $1,200.
This transaction is expected to result in a significant gain in
the first quarter of 1998.
In December 1997, Dow acquired 100 percent of Sentrachem
Limited for $487. Sentrachem, a global chemical company based in
South Africa, had annual sales of about 5,000 rand (approximately
$1,000). Its major businesses are specialty and agricultural
chemicals.
In April 1995, the Company signed an agreement with
Bundesanstalt fuer vereinigungsbedingte Sonderaufgaben (BvS) for
the privatization of three state-owned chemical companies in
eastern Germany (Buna Sow Leuna Olefinverbund, referred to herein
as BSL). Economic transfer of business operations to the Company,
through the privatization agreement and various service
agreements, occurred in June 1995. In September 1997, the Company
acquired 80 percent ownership in BSL for an investment of $174.
BvS will maintain a 20 percent ownership until the end of the
restructuring period, which is expected to be June 2000. After
the restructuring period, the Company will have a call option and
BvS a put option for the remaining 20 percent of BSL for an
additional investment of approximately $140. BvS is providing
certain incentives during the restructuring period to cover
portions of the reconstruction program and has retained
environmental cleanup obligations for existing facilities.
Incentives relating to property construction reduce the basis of
such property. Incentives relating to expenses during the
reconstruction period are recognized as such expenses are
incurred. The Company expects to include the financial results of
BSL as a nonconsolidated affiliate until the end of the
restructuring period.
In June 1997, the Company purchased the outstanding 40 percent
share in DowElanco, an agricultural chemicals joint venture, from
Eli Lilly and Company for $900 plus Lilly's share of
undistributed earnings. This transaction resulted in the Company
owning 100 percent of DowElanco (renamed Dow AgroSciences LLC).
Allocation of the purchase price to the assets acquired and
liabilities assumed has not yet been completed for the
Sentrachem, BSL and DowElanco acquisitions. Final determination
of the fair values to be assigned may result in adjustments to
the preliminary values assigned at the dates of acquisition.
In June 1997, the Company completed the sale of its 45 million
shares of Destec Energy, Inc. to NGC Acquisition Corporation for
$974 or $21.65 per share. This transaction resulted in a pretax
gain of $189.
Through the sales of shares in Oasis Pipeline in June and
November 1996, the Company reduced its ownership from 70 percent
to 30 percent, recognizing pretax gains of $43 and $77,
respectively.
In April 1996, Dow and E.I. duPont de Nemours and Company
formed, through the transfer of net assets and existing
businesses, a 50:50 joint venture named DuPont Dow Elastomers
L.L.C. This company focuses on the discovery, development,
production and sale of thermoset and thermoplastic elastomer
products. The book value of the net assets transferred by the
Company was $527.
In January 1996, the Company and The Hartford Steam Boiler
Inspection and Insurance Company (HSB) formed, through the
transfer of net assets and existing businesses, a 60:40 joint
venture named Radian International LLC. This company provides
environmental, information technology and strategic chemical
management services to industries and governments worldwide. The
book value of the net assets transferred by the Company was $33.
In January 1998, the Company purchased HSB's interest for $136.
In January 1996, the Company acquired an 80 percent share in
EniChem's INCA International SpA subsidiary, a producer of
polyethylene terephthalate (PET) resin and its major precursor,
purified terephthalic acid (PTA). The investment by the Company
was $155.
In January 1996, DowElanco entered into agreements with Mycogen
Corporation and the Lubrizol Corporation for transactions through
which DowElanco, for a cash investment of $158, acquired a 47
percent equity stake in Mycogen and Mycogen acquired DowElanco's
United Agriseeds subsidiary. In December 1996, DowElanco
increased its equity stake in Mycogen to more than 50 percent and
now owns 63 percent. Mycogen is a world leader in agricultural
biotechnology.
In December 1995, a Company-controlled consortium acquired the
shares owned by the Argentine government of Petroquimica Bahia
Blanca (PBB) and Indupa for $358. The consortium, in 1996, sold
Indupa and purchased Polisur S.A. This series of transactions
resulted in the consortium owning PBB (a leading ethylene
producer) and Polisur (a polyethylene manufacturer). The net
investment by the Company was approximately $382.
In June 1995, the Company completed the sale of its 197 million
shares of Marion Merrell Dow Inc. to Hoechst A.G. for $5,069 or
$25.75 per share. In addition, subsidiaries of the Company
completed the sale of the Company's Latin American pharmaceutical
business based in Argentina, Brazil and Mexico to Roussel Uclaf
S.A. for $133. These two transactions, net of taxes on income of
$382, increased the Company's second quarter of 1995 earnings by
$169. The Company's consolidated statements of income and cash
flows reflect the pharmaceutical businesses as discontinued
operations. Net sales for the pharmaceutical businesses were $757
for the first quarter of 1995, and provisions for taxes and
interest expense were $36 and $77, respectively.


--- Page 31 ---


The Dow Chemical Company and Subsidiaries
- ----------------------------------------------------------------------
Notes to Financial Statements


In millions, except for share amounts
- ----------------------------------------------------------------------

D Taxes on Income

Operating loss carryforwards at December 31, 1997, amounted to
$811 of which $167 is subject to expiration in the years 1998
through 2002. The remaining balances expire in years beyond 2002
or have an indefinite carryforward period.
Tax credit carryforwards at December 31, 1997, amounted to $16
of which $7 is subject to expiration in the years 1998 through
2002. The remaining balances expire in years beyond 2002 or have
an indefinite carryforward period.
Undistributed earnings of foreign subsidiaries and related
companies which are deemed to be permanently invested amounted to
$3,458, $3,338 and $3,026 at December 31, 1997, 1996 and 1995,
respectively. It is not practicable to calculate the unrecognized
deferred tax liability on those earnings.

Domestic and Foreign Components of Income before Provision for
Taxes on Income and Minority Interests
1997 1996 1995
- ---------------------------------------------------------------------------
Domestic $1,683 $1,996 $1,513
Foreign 1,265 1,292 2,016
- ---------------------------------------------------------------------------
Total $2,948 $3,288 $3,529
- ---------------------------------------------------------------------------

Reconciliation to U.S. Statutory Rate
1997 1996 1995
- ---------------------------------------------------------------------------
Taxes at U.S. statutory rate $1,032 $1,151 $1,235
Write-down of investment - - 124
Adjustment of deferred taxes on basis differences - 64 -
Amortization of nondeductible intangibles 13 17 2
Foreign rates other than 35% 80 45 15
U.S. tax effect of foreign earnings and dividends (83) (75) -
Other - net (1) (15) 66
- ---------------------------------------------------------------------------
Total tax provision $1,041 $1,187 $1,442
- ---------------------------------------------------------------------------
Effective tax rate 35.3% 36.1% 40.9%
- ---------------------------------------------------------------------------



Provision for Taxes on Income
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
Current Deferred Total Current Deferred Total Current Deferred Total
- ---------------------------------------------------------------------------------------------------------

Federal $476 $ 55 $ 531 $499 $127 $ 626 $ 535 $112 $ 647
State and local 13 5 18 35 11 46 76 - 76
Foreign 402 90 492 347 168 515 563 156 719
- ---------------------------------------------------------------------------------------------------------
Total $891 $150 $1,041 $881 $306 $1,187 $1,174 $268 $1,442
- ---------------------------------------------------------------------------------------------------------


Deferred Tax Balances at December 31
1997 1996
- --------------------------------------------------------------------
Property $(893) $(939)
Tax loss and credit carryforwards 229 220
Long-term debt (11) 103
Postretirement benefit obligations 577 527
Other accruals and reserves 228 341
Investments (66) (77)
Inventory 31 (71)
Other - net (77) (94)
- --------------------------------------------------------------------
Subtotal $ 18 $ 10
Valuation allowance (91) (93)
- --------------------------------------------------------------------
Total $ (73) $ (83)
- --------------------------------------------------------------------

--- Page 32 ---


The Dow Chemical Company and Subsidiaries
- ----------------------------------------------------------------------
Notes to Financial Statements


In millions, except for share amounts
- ----------------------------------------------------------------------

E Inventories

The reserves required to reduce inventories from the first-in,
first-out (FIFO) basis to the last-in, first-out (LIFO) basis at
December 31, 1997 and 1996, amounted to $76 and $163,
respectively. The inventories that were valued on a LIFO basis,
principally hydrocarbon and U.S. chemicals and plastics product
inventories, represented 34 and 37 percent of the total
inventories at December 31, 1997 and 1996, respectively.
A reduction of certain inventories resulted in the liquidation
of some quantities of LIFO inventory, which decreased pretax
income by $1 in 1997 and increased pretax income by $40 in 1996
and $8 in 1995.

F Related Company Transactions

In May 1995, Dow Corning Corporation (Dow Corning), in which the
Company is a 50 percent shareholder, filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. As a result, the Company
fully reserved its investment in Dow Corning and is not
recognizing its 50 percent share of equity earnings while Dow
Corning remains in Chapter 11 (see Note Q).
The Company's investments in related companies accounted for by
the equity method at December 31, 1997 and 1996 were $1,206 and
$1,387 and exceeded the Company's equity in the net assets of
these companies by $276 and $295, respectively. The excess of the
Company's investments over its share of the investees' net assets
is considered goodwill and is amortized over the estimated useful
lives.
Dividends received from related companies were $53 in 1997, $95
in 1996 and $33 in 1995. All other transactions with related
companies, and balances due to or from related companies, were
not material.
The Company has various service agreements with BSL. These
include a contract to manage the operations of the sites and
direct reconstruction efforts and the construction of new
facilities; licensing and technological assistance agreements to
provide the Company's expertise to the operations; and a
marketing and sales agreement to market most of the output of
BSL's operations on a commission basis.

G Property
Estimated
Property at December 31 Useful Lives
(Years) 1997 1996
- ---------------------------------------------------------------------
Land -- $ 341 $ 363
Land and waterway improvements 20-25 648 670
Buildings 20-50 2,147 2,198
Machinery and equipment 5-20 16,710 16,837
Utility and supply lines 5-20 1,380 1,357
Other 3-20 1,292 1,388
Construction in progress -- 827 924
- ---------------------------------------------------------------------
Total $23,345 $23,737
- ---------------------------------------------------------------------

Depreciation expense was $1,208 in 1997, $1,259 in 1996 and $1,369
in 1995. Manufacturing maintenance and repair costs were $645 in
1997, $695 in 1996 and $824 in 1995. Capitalized interest was $31
in 1997, $35 in 1996 and $28 in 1995.

H Leased Properties

The Company routinely leases premises for use as sales and
administrative offices, warehouses and tanks for product storage,
motor vehicles, railcars, computers, office machines and equipment
under operating leases. Gas turbines at two U.S. locations are
leased. In addition, a Canadian subsidiary leases an ethylene
plant. The Company has the option to purchase the ethylene plant
and certain other leased equipment and buildings at the
termination of the leases.


--- Page 33 ---


The Dow Chemical Company and Subsidiaries
- ----------------------------------------------------------------------
Notes to Financial Statements


In millions, except for share amounts
- ----------------------------------------------------------------------

H Leased Properties (Continued)

Rental expenses under operating leases were $406, $414 and $433
for 1997, 1996 and 1995, respectively.

Minimum Operating Lease Commitments
- ------------------------------------------------
1998 $ 248
1999 221
2000 259
2001 119
2002 117
2003 and thereafter 960
- ------------------------------------------------
Total minimum lease commitments $1,924
- ------------------------------------------------

I Notes Payable, Long-Term Debt and Available Credit Facilities

Notes payable consists primarily of obligations due to banks with
a variety of interest rates and maturities. The notes payable
outstanding at December 31, 1997 and 1996 were $1,656 and $665,
respectively. The year-end weighted-average interest rates for
these notes payable were 5.80 percent and 4.69 percent,
respectively, excluding the effects of short-term borrowings in
highly inflationary countries. Included in notes payable at
December 31, 1997 and 1996 were commercial paper amounts of $474
and $48, respectively.
The average interest rate on long-term debt was 7.03 percent in
1997 compared to 6.80 percent in 1996. Annual installments on long-
term debt for the next five years are as follows: 1998, $406;
1999, $276; 2000, $179; 2001, $323; 2002, $601.
The Company had unused and available credit facilities at
December 31, 1997, with various U.S. and foreign banks totaling
$1,825 which required the payment of commitment fees. Additional
unused credit facilities totaling $1,435 at December 31, 1997,
were available for use by foreign subsidiaries. These facilities
are available in support of commercial paper borrowings and
working capital requirements.

Promissory Notes and Debentures at December 31

1997 1996
- --------------------------------------------------
5.75%, final maturity 1997 - $197
7.38%, final maturity 2002 $ 145 145
9.35%, final maturity 2002 194 194
6.63%, final maturity 2002 200 -
7.13%, final maturity 2003 148 148
8.63%, final maturity 2006 187 187
8.55%, final maturity 2009 139 139
9.00%, final maturity 2010 91 91
9.20%, final maturity 2010 181 181
6.85%, final maturity 2013 138 138
9.00%, final maturity 2021 219 219
8.85%, final maturity 2021 184 188
8.70%, final maturity 2022 95 95
7.38%, final maturity 2023 150 150
- --------------------------------------------------
Subtotal $ 2,071 $ 2,072
- --------------------------------------------------

Foreign Bonds at December 31
1997 1996
- ---------------------------------------------------------------------
10.87%, final maturity 1997, British pound sterling - $378
4.00%, final maturity 1998, Japanese yen $154 172
5.00%, final maturity 1999, German mark 167 193
4.63%, final maturity 2000, Swiss franc 103 111
6.38%, final maturity 2001, Japanese yen 192 215
- ---------------------------------------------------------------------
Subtotal $616 $1,069
- ---------------------------------------------------------------------

--- Page 34 ---


The Dow Chemical Company and Subsidiaries
- ----------------------------------------------------------------------
Notes to Financial Statements


In millions, except for share amounts
- ----------------------------------------------------------------------

I Notes Payable, Long-Term Debt and Available Credit Facilities
(Continued)

Other Facilities - Various Rates and Maturities at December 31
1997 1996
- -------------------------------------------------------------
U.S. dollar loans $ 400 $ 164
Foreign currency loans 225 240
9.42%, final maturity 2004, Dow ESOP 84 94
Medium-term notes, final maturity 2022 362 370
Pollution control/industrial revenue bonds,
varying maturities 1999-2027 831 806
Unexpended construction funds (2) (4)
Capital lease obligations 16 7
- --------------------------------------------------------------
Subtotal $1,916 $1,677
- --------------------------------------------------------------

Long-Term Debt at December 31
1997 1996
- --------------------------------------------------------------
Promissory notes and debentures $2,071 $2,072
Foreign bonds 616 1,069
Other facilities 1,916 1,677
Unamortized debt discount (1) (15)
Long-term debt due within one year (406) (607)
- --------------------------------------------------------------
Long-term debt $4,196 $4,196
- --------------------------------------------------------------

J Financial Instruments

Investments
The proceeds from sales of available-for-sale securities were
$1,934 and $2,085, and the sales resulted in gross realized gains
of $137 and $129 and losses of $42 and $33 in 1997 and 1996,
respectively.
The Company's investments in marketable securities are primarily
classified as available-for-sale. Maturities for the substantial
majority of debt securities were less than five years at December
31, 1997 and 1996.

Risk Management
The Company's risk management program for both foreign currency
and interest rate risk is based on fundamental, mathematical and
technical models that take into account the implicit cost of
hedging. Risks created by derivative instruments and the mark-to-
market valuations of positions are strictly monitored at all
times. The Company uses value at risk and stress tests to monitor
risk. Because the counterparties to these contracts are major
international financial institutions, credit risk arising from
these contracts is not significant and the Company does not
anticipate any such losses. The net cash requirements arising from
risk management activities are not expected to be material. The
Company's overall financial strategies and impacts from using
derivatives in its risk management program are reviewed
periodically with the Finance Committee of the Company's Board of
Directors and revised as market conditions dictate.
The Company's global orientation in diverse businesses with a
large number of diverse customers and suppliers minimizes
concentrations of credit risk. No significant concentration of
credit risk existed at December 31, 1997.

Foreign Currency Risk Management
The Company's global operations require active participation in
foreign exchange markets. The Company enters into foreign exchange
forward contracts and options to hedge various currency exposures
or create desired exposures. Exposures primarily relate to assets
and liabilities denominated in foreign currency in Europe, Asia
Pacific and Canada; bonds denominated in foreign currency; and
economic exposure derived from the risk that currency fluctuations
could affect the dollar value of future cash flows at the
operating income level. The primary business objective of the
activity is to optimize the U.S. dollar value of the Company's
assets, liabilities and future cash flows with respect to exchange
rate fluctuations. Hedging is done on a net exposure basis, as
assets and liabilities denominated in the same currency are netted
and only the net balance is hedged.


--- Page 35 ---


The Dow Chemical Company and Subsidiaries
- ----------------------------------------------------------------------
Notes to Financial Statements


In millions, except for share amounts
- ----------------------------------------------------------------------

Financial Instruments (Continued)

At December 31, 1997 and 1996, the Company had forward contracts
and options outstanding with various expiration dates (primarily
in January of the next year) to buy, sell or exchange foreign
currencies with a U.S. dollar equivalent of $9,511 and $7,442,
respectively. The unrealized gains on these contracts, based on
the foreign exchange rates at December 31, 1997 and 1996, were $50
and $42, respectively. The effect of foreign exchange derivatives
is primarily recognized in "Interest income and foreign exchange -
net." Hedges of net investments in subsidiaries are recognized in
"Cumulative translation adjustments."
At December 31, 1997 and 1996, the Company had cross-currency
swaps outstanding with notional principal amounts of $50 and
$1,356, respectively, with unrealized losses of $2 in 1997, and $3
in gains and $29 in losses in 1996. These were primarily
recognized in "Interest income and foreign exchange - net" and
offset the gains and losses from the assets and liabilities being
hedged.




Fair Value of Financial Instruments at December 31
1997 1996
- -------------------------------------------------------------------------------------------------------
Cost Gain Loss Fair Value Cost Gain Loss Fair Value
- -------------------------------------------------------------------------------------------------------

Interest-bearing deposits $ 194 - - $ 194 $ 250 - - $ 250
Marketable securities:
Debt securities 1,376 $ 30 $ (12) 1,394 3,012 $ 20 $ (5) 3,027
Equity securities 467 91 (32) 526 319 129 (12) 436
Other 60 672 (150) 582 75 236 (10) 301
- -------------------------------------------------------------------------------------------------------
Total $ 2,097 $793 $(194) $ 2,696 $ 3,656 $385 $(27) $ 4,014
- -------------------------------------------------------------------------------------------------------
Long-term debt including debt
due within one year $(4,602) - $(422) $(5,024) $(4,803) - $(369) $(5,172)
- -------------------------------------------------------------------------------------------------------
Derivatives relating to:
Foreign currency - $135 $ (85) $ 50 - $113 $( 71) $ 42
Interest rates - 5 (21) (16) - 8 (26) (18)
Cross-currency swaps - - (2) (2) - 3 (29) (26)
------------------------------------------------------------------------------------------------------
Cost approximates fair value for all other financial instruments.


Interest Rate Risk Management
The Company enters into various interest rate contracts with the
objective of lowering funding costs, diversifying sources of
funding or altering interest rate exposures related to debt and
lease obligations. In these contracts, the Company agrees with
other parties to exchange, at specified intervals, the difference
between fixed and floating interest amounts calculated on an
agreed-upon notional principal amount.
The notional principal amounts on all types of interest
derivative contracts at December 31, 1997 and 1996, totaled $2,858
and $3,469 with a weighted-average remaining life of 2.9 and 3.0
years, respectively. Interest rate derivatives representing hedges
of debt-related exposures resulted in unrealized gains of $5 and
$7 and losses of $21 and $23 in 1997 and 1996, respectively.

Interest Derivatives at December 31, 1997

Notional Weighted-average Rate
Amount Maturities Receive Pay
- -----------------------------------------------------------------------------
Receive fixed hedge $ 801 1998-2004 6.8% 4.8%
Receive floating hedge 1,030 1998-2005 5.5% 6.9%
Other 1,027 1998-2001 - -
- -----------------------------------------------------------------------------

Interest Derivatives at December 31, 1996

Notional Weighted-average Rate
Amount Maturities Receive Pay
- -----------------------------------------------------------------------------
Receive fixed hedge $1,175 1997-2004 6.5% 5.3%
Receive floating hedge 1,426 1997-2009 5.7% 7.2%
Other 868 1997-2003 - -
- -----------------------------------------------------------------------------

--- Page 36 ---


The Dow Chemical Company and Subsidiaries
- ----------------------------------------------------------------------
Notes to Financial Statements


In millions, except for share amounts
- ----------------------------------------------------------------------

K Limited Partnerships

In December 1991, three wholly owned subsidiaries of the Company
contributed assets with an aggregate market value of $2 billion
to DowBrands L.P., a newly formed Delaware limited partnership.
Outside investors made cash contributions of $45 in December 1991
and $855 in June 1992 in exchange for an aggregate 31 percent
limited partner interest in DowBrands L.P. In July 1997, the
outside investors' limited partnership interests in DowBrands
L.P. were purchased by subsidiaries of the Company for $909.
In April 1993, three wholly owned subsidiaries of the Company
contributed assets with an aggregate fair value of $977 to
Chemtech Royalty Associates L.P. (Chemtech), a newly formed
Delaware limited partnership. In 1993, outside investors acquired
limited partner interests in Chemtech totaling 20 percent in
exchange for $200.
Chemtech is a separate and distinct legal entity from the
Company and its affiliates and has separate assets, liabilities,
business and operations. The partnership has as a general
partner, a wholly owned subsidiary of the Company, which directs
business activities and has fiduciary responsibilities to the
partnership and its other members.
The outside investors in Chemtech receive a cumulative annual
priority return of $14 on their investments and participate in
residual earnings.
Chemtech will not terminate unless a termination or liquidation
event occurs. The outside investors may cause such an event to
occur in the year 2000. In addition, the partnership agreement
provides for various windup provisions wherein subsidiaries of
the Company may purchase at any time the limited partnership
interests of the outside investors. Upon windup, liquidation or
termination, the partners' capital accounts will be redeemed at
current fair values.
For financial reporting purposes, the assets (other than
intercompany loans, which are eliminated), liabilities, results
of operations and cash flows of the partnerships and subsidiaries
are included in the Company's consolidated financial statements,
and outside investors' limited partnership interests are
reflected as minority interests.
Supplemental contractual disclosures required by the Chemtech
partnership agreement are contained within Note R to the
Financial Statements of the Company's December 31, 1993, Form 10-K.

L Stockholders' Equity

In 1997, the Board of Directors authorized, subject to certain
business and market conditions, the purchase of up to 20,000,000
shares of the Company's common stock. At December 31, 1997, the
number of shares purchased under this authorization was 4,352,000.
From time to time, the Company utilizes options as part of its
stock repurchase program. The Company's potential repurchase
obligation related to these options is reclassified from
stockholders' equity to temporary equity.
In 1996, the Board of Directors authorized the purchase of up to
20,000,000 shares of the Company's common stock. In May 1997, the
purchases under this authorization were completed.
The number of treasury shares purchased was 19,538,000 in 1997,
14,926,000 in 1996 and 29,188,000 in 1995. The number of treasury
shares issued to employees under option and purchase programs was
3,875,000 in 1997, 5,108,000 in 1996 and 3,022,000 in 1995. The
number of treasury shares contributed to the U.S. pension plan for
funding future retiree health care benefits, through a 401(h)
account, was 128,000 in 1997.
There are no significant restrictions limiting the Company's
ability to pay dividends.
Gross undistributed earnings of nonconsolidated affiliates
included in retained earnings were $145 and $120 at
December 31, 1997 and 1996, respectively.

Reserved Treasury Stock at December 31

Shares (000) 1997 1996 1995
- ----------------------------------------------------------------
Stock option plans 13,784 14,162 16,735
Employees' stock purchase plan 932 878 1,083
- ----------------------------------------------------------------
Total shares reserved 14,716 15,040 17,818
- ----------------------------------------------------------------

--- Page 37 ---

The Dow Chemical Company and Subsidiaries
- ----------------------------------------------------------------------
Notes to Financial Statements


In millions, except for share amounts
- ----------------------------------------------------------------------

M Stock Compensation Plans

At December 31, 1997, the Company had stock-based compensation
plans under which shares or options could be granted to employees
and outside directors. These plans were approved by the Board of
Directors. The Company measures the compensation cost for these
plans using the intrinsic value method of accounting prescribed
by Accounting Principles Board Opinion No. 25 (Accounting for
Stock Issued to Employees). Given the terms of the Company's
plans, no compensation cost has been recognized for its fixed
stock option plans and its stock purchase plan.
The Company's reported net income and earnings per share would
have been reduced had compensation cost for the Company's stock-
based compensation plans been determined using the fair value
method of accounting as set forth in SFAS No. 123 (Accounting for
Stock-Based Compensation). For purposes of estimating the fair
value disclosures below, the fair value of each stock option has
been estimated on the grant date with a binomial option-pricing
model using the following weighted-average assumptions for 1997:
dividend yield of 4 percent; expected volatility of 18.36
percent; risk-free interest rate of 5.71 percent; and expected
lives of seven years for the fixed stock option plans and 0.83
years for the Stock Purchase Plan. Assumptions for prior years
differed only for expected volatility of 16.12 percent and the
risk-free interest rate of 6.35 percent. The effects of using the
fair value method of accounting are indicated in the pro forma
amounts below:



1997 1996 1995
As Pro As Pro As Pro
Reported forma Reported forma Reported forma

Net income available for
common stockholders $1,802 $1,774 $1,900 $1,873 $2,071 $2,039

Earnings per common share 7.81 7.69 7.71 7.61 7.72 7.60

Earnings per common share -
assuming dilution 7.70 7.58 7.60 7.49 7.61 7.49



Stock Purchase Plan
Annually, the Board of Directors authorizes the Employees' Stock
Purchase Plan. Most employees are eligible to purchase shares of
common stock of the Company valued at up to 10 percent of their
annual base earnings. The value is determined using the plan
price times the number of shares subscribed to by the employee.
The plan price of the stock is approximately
85 percent of the market price. Approximately 40 to 45 percent of
eligible employees participated in the plan in the last three
years.




Stock Purchase Plan
1997 1996 1995
- -------------------------------------------------------------------------------------
Shares Exercise Shares Exercise Shares Exercise
(000) Price* (000) Price* (000) Price*
- -------------------------------------------------------------------------------------

Outstanding at beginning
of year 878 $67.75 1,083 $55.00 894 $54.50
Granted 1,338 69.00 1,229 67.75 1,543 55.00
Exercised (1,261) 68.13 (1,387) 57.79 (1,317) 54.67
Forfeited/Expired (23) 69.00 (47) 67.75 (37) 55.00
- -------------------------------------------------------------------------------------
Outstanding and exercisable
at end of year 932 $69.00 878 $67.75 1,083 $55.00
- -------------------------------------------------------------------------------------
Fair value of options
granted during the year $15.26 $13.53 $10.99
- -------------------------------------------------------------------------------------
*Weighted-average



Fixed Stock Option Plans
Under the 1988 Award and Option Plan, the Company may grant
options or shares of common stock to its employees subject to
certain annual restrictions. Under the 1994 Option Plan, the
Company may grant up to 100,000 options or shares of common stock
to outside directors. Under both plans, the terms are fixed at
the grant date. At December 31, 1997, there were 2,051,872 shares
available for grant under the 1988 Plan and 90,700 shares
available for grant under the 1994 Plan. The exercise price of
each option equals the market price of the Company's stock on the
date of grant, and an option's maximum term is 10 years. Options
under the 1988 Plan vest after one year; those under the 1994
Plan vest after three years.


--- Page 38 ---


The Dow Chemical Company and Subsidiaries
- ----------------------------------------------------------------------
Notes to Financial Statements


In millions, except for share amounts
- ----------------------------------------------------------------------

M Stock Compensation Plans (Continued)



Fixed Options
1997 1996 1995
- -------------------------------------------------------------------------------------
Shares Exercise Shares Exercise Shares Exercise
(000) Price* (000) Price* (000) Price*
- -------------------------------------------------------------------------------------

Outstanding at beginning
of year 11,984 $62.69 15,020 $59.13 14,735 $56.42
Granted 1,704 80.00 1,859 75.38 2,681 67.75
Exercised (3,322) 63.83 (4,682) 57.25 (2,354) 51.93
Forfeited/Expired (18) 63.83 (213) 42.45 (42) 61.21
- -------------------------------------------------------------------------------------
Outstanding at end of year 10,348 $66.49 11,984 $62.69 15,020 $59.13
- -------------------------------------------------------------------------------------
Exercisable at end of year 8,652 $63.84 10,151 $60.42 12,373 $57.31
Fair value of options
granted during the year 14.52 14.19 12.88
- -------------------------------------------------------------------------------------
* Weighted-average


Fixed Stock Options at December 31, 1997
Options Outstanding Options Exercisable
------------------------------------ -------------------
Range of Shares Remaining Exercise Shares Exercise
Exercise Prices (000) Contractual Life* Price* (000) Price*
- ------------------------------------------------------------------------------

$41.00 to $53.00 1,297 4.40 years $49.64 1,297 $49.64
53.01 to 60.00 1,662 3.97 years 57.76 1,662 57.76
60.01 to 67.00 1,990 5.34 years 64.34 1,990 64.34
67.01 to 76.00 3,701 7.53 years 71.28 3,698 71.28
76.01 to 99.00 1,698 9.13 years 80.00 5 98.22
- ------------------------------------------------------------------------------
Total
$41.00 to $99.00 10,348 6.41 years $66.49 8,652 $63.84
-----------------------------------------------------------------------------
* Weighted-average

Deferred Stock Plan
The Company grants deferred stock to certain key employees. The
grants vest either after a designated period of time, generally
five years, or when the Company attains specified earnings
targets. Compensation expense totaled $26, $8 and $7 for 1997,
1996 and 1995, respectively. The number of deferred shares
outstanding was 1,293,000, 1,216,000 and 1,193,000 for 1997, 1996
and 1995, respectively.

N Redeemable Preferred Stock

The Company has an employee stock ownership plan (the ESOP), which
is an integral part of the Salaried Employees Savings Plan.
The ESOP borrowed funds at a 9.42 percent interest rate with a
final maturity in 2004, and used the proceeds to purchase
convertible preferred stock from the Company. The preferred stock
is convertible into the Company's common stock either at a
conversion rate of 1:1 if the fair market value of the Company's
common stock equals or exceeds $86.125 per share, or at the number
of shares of common stock equivalent to $86.125 if common stock
fair market value is less than $86.125 per share, subject to the
conversion conditions of the ESOP. The preferred stock is
redeemable in whole or in part at the option of the Company at any
time after January 1, 2000, at $86.125 per share, plus an amount
equal to all accrued and unpaid dividends. The dividend yield on
the preferred stock is 7.75 percent of the $86.125 redemption
value. If the Company consummates certain merger or consolidation
transactions involving the Company's common stock, the preferred
stock must be redeemed by the Company for cash at a redemption
price equal to 105 percent of the $86.125 per share redemption
value, plus accrued and unpaid dividends.
The convertible preferred stock issued to the ESOP is reported
as temporary equity in the balance sheet. Because the Company has
guaranteed the ESOP's borrowings, the principal amount of the ESOP
loan is reported as long-term debt and a reduction of temporary
equity in the Company's balance sheet.


--- Page 39 ---

The Dow Chemical Company and Subsidiaries
- ----------------------------------------------------------------------
Notes to Financial Statements


In millions, except for share amounts
- ----------------------------------------------------------------------

O Pension Plans

The Company has defined benefit pension plans which cover
employees in the United States and a number of other countries.
The Company's funding policy is to contribute annually, at a rate
that is intended to approximate a level percentage of compensation
for the covered employees, to those plans where pension laws and
economics either require or encourage funding. Plan assets consist
predominantly of equity and fixed income securities of U.S. and
foreign issuers, and include Company common stock with a value of
approximately $139 at December 31, 1997.
The U.S. funded plan covering the parent company is the largest
plan. Its benefits are based on length of service and the
employee's three highest consecutive years of compensation. The
weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present
value of the projected benefit obligations were 7 and 5.5 percent,
for 1997 and 7.25 and 5.5 percent for 1996. The assumed long-term
rate of return on assets was 9.5 percent for 1997 and 9 percent
for 1996. All other pension plans used assumptions in
determining the actuarial present value of the projected benefit
obligations that are consistent with (but not identical to) those
of the U.S. plan.
Defined contribution plans cover employees in some subsidiaries
in the United States and in other countries, including Australia,
France, Spain and the United Kingdom. In addition, U.S. employees
are eligible to participate in defined contribution plans
(Employee Savings Plans) by contributing a portion of their
compensation which is matched by the Company. Contributions
charged to income for defined contribution plans were $90 in 1997,
$77 in 1996 and $75 in 1995.
The net periodic pension cost for all significant defined
benefit plans was as follows:

Net Periodic Pension Cost
1997 1996 1995
- ------------------------------------------------------------------------------
Service cost - benefits earned during the period $ 165 $ 168 $146
Interest cost on projected benefit obligation 397 388 374
Actual (return) on assets (1,136) (864) (1,062)
Amortization and deferred amounts 719 480 686
Employee contributions to the plans (6) (8) (8)
- ------------------------------------------------------------------------------
Net periodic pension cost $ 139 $ 164 $ 136
- ------------------------------------------------------------------------------

The funded status for all significant defined benefit plans was as
follows:




Defined Benefit Plans at December 31
Fully Funded Partially Funded
-------------- -----------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------

Actuarial present value of benefit obligation:
Vested $(5,007) $(4,406) $(452) $(400)
Nonvested (93) (165) (20) (29)
-------------------------------------------------------------------------------------------------------
Accumulated benefit obligation (5,100) (4,571) (472) (429)
Effect of projected compensation increases (554) (793) (140) (116)
- --------------------------------------------------------------------------------------------------------
Projected benefit obligation for services rendered to date (5,654) (5,364) (612) (545)
Plan assets at market value 6,890 5,985 73 54
- --------------------------------------------------------------------------------------------------------
Plan assets in excess of (less than) projected benefit obligation 1,236 621 (539) (491)
Unrecognized transition obligation 12 18 18 23
Unrecognized net (gains) losses (1,018) (511) 107 54
Unrecognized prior service cost 128 178 53 32
Additional minimum liability - - (91) (61)
- --------------------------------------------------------------------------------------------------------
Accrued pension asset (liability) $ 358 $ 306 $(452) $(443)
- --------------------------------------------------------------------------------------------------------



--- Page 40 ---


The Dow Chemical Company and Subsidiaries
- ----------------------------------------------------------------------
Notes to Financial Statements


In millions, except for share amounts
- ----------------------------------------------------------------------

P Other Postretirement Benefits

The Company provides certain health care and life insurance
benefits to retired employees. The Company funds most of the cost
of these health care and life insurance benefits as incurred.
The U.S. plan covering the parent company is the largest plan.
The plan provides health care benefits, including hospital,
physicians' services, drug and major medical expense coverage, and
life insurance benefits. For employees hired before January 1,
1993, the plan provides benefits supplemental to Medicare when
retirees are eligible for these benefits. The cost of these
benefits is shared by the Company and the retiree, with the
Company portion increasing as the retiree has increased years of
credited service. There is a cap on the Company portion. The
Company has the ability to change these benefits at any time.
For 1997, a discount rate of 7 percent and weighted-average
medical cost trend rates starting at 7.78 percent and declining to
5.39 percent in 2004 were assumed. For 1996, the discount rate
assumption was 7.25 percent and the medical cost trend rate
assumption was 7.20 percent declining to 4.60 percent in 2004. The
assumed long-term rate of return on assets was 9.5 percent for
1997 and 9 percent for 1996.
All other postretirement health care and other benefit plans
used assumptions in determining the actuarial present value of
accumulated postretirement benefit obligations that are consistent
with (but not identical to) those of the U.S. parent company plan.
Increasing the assumed medical cost trend rate by one percentage
point in each year would increase the accumulated postretirement
benefit obligation at December 31, 1997, by $40 and the net
periodic postretirement benefit cost for the year by $3.

The net periodic benefit cost for all significant plans was as
follows:

Net Periodic Postretirement Cost
1997 1996 1995
- -----------------------------------------------------------------------------
Service cost - benefits earned during the period $ 19 $ 19 $21
Interest cost on accumulated postretirement
benefit obligation 78 79 86
Actual (return) on assets (26) (15) (16)
Amortization and deferred amounts (38) (43) (36)
- -----------------------------------------------------------------------------
Net periodic postretirement cost $ 33 $ 40 $ 55
- -----------------------------------------------------------------------------

The postretirement benefit obligations for all significant plans
were as follows:

Partially Funded Postretirement Plans at December 31
1997 1996
- -------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $ (713) $ (680)
Fully eligible active plan participants (241) (210)
Other active plan participants (283) (248)
- -------------------------------------------------------------------
Total accumulated postretirement benefit
obligation (1,237) (1,138)
Plan assets at market value, primarily publicly
traded stocks and bonds 161 123
- -------------------------------------------------------------------
Unfunded accumulated postretirement
benefit obligation (1,076) (1,015)
Unrecognized gain from experience favorable
to assumptions (180) (213)
Negative prior service costs (220) (279)
- -------------------------------------------------------------------
Accrued postretirement benefit liability $(1,476) $(1,507)
- -------------------------------------------------------------------

--- Page 41 ---

The Dow Chemical Company and Subsidiaries
- ----------------------------------------------------------------------
Notes to Financial Statements


In millions, except for share amounts
- ----------------------------------------------------------------------

Q Commitments and Contingent Liabilities

In January 1994, Dow Corning Corporation (Dow Corning), in
which the Company is a 50 percent shareholder, announced a
pretax charge of $640 ($415 after tax) for the fourth quarter
of 1993. In January 1995, Dow Corning announced a pretax charge
of $241 ($152 after tax) for the fourth quarter of 1994. These
charges included Dow Corning's best estimate of its potential
liability for breast implant litigation based on a global
Breast Implant Litigation Settlement Agreement (the Settlement
Agreement); litigation and claims outside of the Settlement
Agreement; and provisions for legal, administrative and
research costs related to breast implants. The charges for 1993
and 1994 included pretax amounts of $1,240 and $441, less
expected insurance recoveries of $600 and $200, respectively.
The 1993 amounts reported by Dow Corning were determined on a
present value basis. On an undiscounted basis, the estimated
liability noted above for 1993 was $2,300 less expected
insurance recoveries of $1,200.
As a result of the Dow Corning actions, the Company recorded
its 50 percent share of the charges, net of tax benefits
available to Dow. The impact on net income was a charge of $192
for 1993 and $70 for 1994.
Dow Corning reported an after tax net loss of $167 for the
second quarter of 1995 as a result of a $221 after tax charge
taken to reflect a change in accounting method from the present
value basis noted above to an undiscounted basis resulting from
the uncertainties associated with its voluntary filing for
protection under Chapter 11 of the U.S. Bankruptcy Code on May
15, 1995. As a result of such loss and Chapter 11 filing, the
Company recognized a pretax charge against income of $330 for
the second quarter of 1995, fully reserved its investment in
Dow Corning and is not recognizing its 50 percent share of
equity earnings while Dow Corning remains in Chapter 11.
On September 1, 1994, Judge Sam C. Pointer, Jr. of the U.S.
District Court for the Northern District of Alabama approved
the Settlement Agreement, pursuant to which plaintiffs choosing
to participate in the Settlement Agreement released the Company
from liability. The Company was not a participant in the
Settlement Agreement nor was it required to contribute to the
settlement. On October 7, 1995, Judge Pointer issued an order
which concluded that the Settlement Agreement was not workable
in its then-current form because the funds committed to it by
industry participants were inadequate. The order provided that
plaintiffs who had previously agreed to participate in the
Settlement Agreement could opt out after November 30, 1995.
The Company's maximum exposure for breast implant product
liability claims against Dow Corning is limited to its
investment in Dow Corning which, after the second quarter of
1995 charge noted above, is zero. As a result, any future
charges by Dow Corning related to such claims or as a result of
the Chapter 11 proceeding would not have an adverse impact on
the Company's consolidated financial statements.
The Company is separately named as a defendant in more than
13,000 breast implant product liability cases. In these
situations, plaintiffs have alleged that the Company should be
liable for Dow Corning's alleged torts based on the Company's
50 percent stock ownership in Dow Corning and that the Company
should be liable by virtue of alleged "direct participation" by
the Company or its agents in Dow Corning's breast implant
business. These latter, direct participation claims include
counts sounding in strict liability, fraud, aiding and
abetting, conspiracy, concert of action and negligence.
Judge Pointer was appointed by the Federal Judicial Panel on
Multidistrict Litigation to oversee all of the product
liability cases involving silicone breast implants filed in the
U.S. federal courts. Initially, in a ruling issued on December
1, 1993, Judge Pointer granted the Company's motion for summary
judgment, finding that there was no basis on which a jury could
conclude that the Company was liable for any claimed defects in
the breast implants manufactured by Dow Corning. In an
interlocutory opinion issued on April 25, 1995, Judge Pointer
affirmed his earlier ruling as to plaintiffs' corporate control
claims but vacated that ruling as to plaintiffs' direct
participation claims.
It is the opinion of the Company's management that the
possibility is remote that plaintiffs will prevail on the
theory that the Company should be liable in the breast implant
litigation because of its shareholder relationship with Dow
Corning. The Company's management believes that there is no
merit to plaintiffs' claims that the Company is liable for
alleged defects in Dow Corning's silicone products because of
the Company's alleged direct participation in the development
of those products, and the Company intends to contest those
claims vigorously. Management believes that the possibility is
remote that a resolution of plaintiffs' direct participation
claims, including the vigorous defense against those claims,
would have a material adverse impact on the Company's financial
position or cash flows. Nevertheless, in light of Judge
Pointer's April 25, 1995, ruling, it is possible that a
resolution of plaintiffs' direct participation claims,
including the vigorous defense against those claims, could have
a material adverse impact on the Company's net income for a
particular period, although it is impossible at this time to
estimate the range or amount of any such impact.


--- Page 42 ---


The Dow Chemical Company and Subsidiaries
- ----------------------------------------------------------------------
Notes to Financial Statements


In millions, except for share amounts
- ----------------------------------------------------------------------

Q Commitments and Contingent Liabilities (Continued)

Numerous lawsuits have been brought against the Company and
other chemical companies alleging that the manufacture,
distribution or use of pesticides containing
dibromochloropropane (DBCP) has caused, among other things,
property damage, including contamination of groundwater. To
date, there have been no verdicts or judgments against the
Company in connection with these allegations. It is the opinion
of the Company's management that the possibility is remote that
the resolution of such lawsuits will have a material adverse
impact on the Company's consolidated financial statements.
Accruals for environmental matters are recorded when it is
probable that a liability has been incurred and the amount of
the liability can be reasonably estimated, based on current law
and existing technologies. The Company had accrued $283 at
December 31, 1997, for environmental matters, including $11 for
the remediation of Superfund sites. This is management's best
estimate of the costs for remediation and restoration with
respect to environmental matters for which the Company has
accrued liabilities, although the ultimate cost with respect to
these particular matters could range up to twice that amount.
Inherent uncertainties exist in these estimates primarily due
to unknown conditions, changing governmental regulations and
legal standards regarding liability, and evolving technologies
for handling site remediation and restoration. It is the
opinion of the Company's management that the possibility is
remote that costs in excess of those accrued or disclosed will
have a material adverse impact on the Company's consolidated
financial statements.
In addition to the breast implant, DBCP and environmental
remediation matters, the Company is party to a number of other
claims and lawsuits arising out of the normal course of
business with respect to commercial matters, including product
liability, governmental regulation and other actions. Certain
of these actions purport to be class actions and seek damages
in very large amounts. All such claims are being contested.
Dow has an active risk management program consisting of
numerous insurance policies secured from many carriers at
various times. These policies provide coverage which will be
utilized to minimize the impact, if any, of the contingencies
described above.
Except for the possible effect on the Company's net income
for breast implant litigation described above, it is the
opinion of the Company's management that the possibility is
remote that the aggregate of all claims and lawsuits will have
a material adverse impact on the Company's consolidated
financial statements.
A Canadian subsidiary has entered into two 20-year agreements,
which expire in 1998 and 2004, to purchase ethylene. The purchase
price is determined on a cost-of-service basis which, in addition
to covering all operating expenses and debt service costs,
provides the owner of the manufacturing plants with a specified
return on capital. Total purchases under the agreements were $199,
$221 and $204 in 1997, 1996 and 1995, respectively.
At December 31, 1997, the Company had various outstanding
commitments for take or pay and throughput agreements, including
the Canadian subsidiary's ethylene contracts, for terms extending
from one to 20 years. In general, such commitments were at prices
not in excess of current market prices.

Fixed and Determinable Portion of Take or Pay and
Throughput Obligations
- ------------------------------------------------
1998 $ 215
1999 179
2000 168
2001 157
2002 148
2003 through expiration of contracts 1,270
- ------------------------------------------------
Total $2,137
- ------------------------------------------------

In addition to the take or pay obligations at December 31, 1997,
the Company had outstanding purchase commitments which range from
one to 18 years for steam, electrical power, materials, property,
and other items used in the normal course of business of
approximately $178. In general, such commitments were at prices
not in excess of current market prices. The Company also had
outstanding direct and indirect commitments for construction
performance and lease payment guarantees and other obligations of
$226.


--- Page 43 ---

The Dow Chemical Company and Subsidiaries
- ----------------------------------------------------------------------
Notes to Financial Statements


In millions, except for share amounts
- ----------------------------------------------------------------------

R Supplementary Information



Accrued and Other Current Liabilities at December 31
1997 1996
- ----------------------------------------------------
Accrued payroll $ 334 $ 329
Accrued vacations 188 180
Employee retirement plans 184 147
Interest payable 102 123
Accrued miscellaneous taxes 129 136
Insurance companies' reserves 194 196
Sundry 635 486
- ----------------------------------------------------
Total $1,766 $1,597
- ----------------------------------------------------

Sundry Income (Expense) - Net
1997 1996 1995
- ------------------------------------------------------------
Royalty income $ 47 $ 26 $ 23
Gain on sales of assets and securities 331 249 103
Dividend income 8 25 8
Other - net 38 43 (91)
- ------------------------------------------------------------
Total $424 $343 $ 43
- ------------------------------------------------------------


Other Supplementary Information
1997 1996 1995
- ------------------------------------------------------------
Cash payments for interest $ 504 $ 496 $ 501
Cash payments for taxes on income 1,153 1,364 1,210
Provision for doubtful receivables (10) 29 18
- ------------------------------------------------------------




Earnings Per Share Calculations
Shares in millions 1997 1996 1995
- -----------------------------------------------------------------------------------------------
Assuming Assuming Assuming
Basic Dilution Basic Dilution Basic Dilution
----------------- ----------------- ------------------

Income from continuing
operations $1,802 $1,802 $1,900 $1,900 $1,884 $1,884
Add back preferred stock
dividends - 6 - 7 - 7
- -----------------------------------------------------------------------------------------------
Income from continuing
operations for EPS calculations $1,802 $1,808 $1,900 $1,907 $1,884 $1,891
- -----------------------------------------------------------------------------------------------
Weighted-average common
shares outstanding 230.6 230.6 246.3 246.3 268.2 268.2
Add back effect of dilutive securities
Stock options and awards - 2.8 - 3.0 - 2.9
Converted preferred stock - 1.4 - 1.6 - 1.9
- -----------------------------------------------------------------------------------------------
Weighted-average common
shares for EPS calculations 230.6 234.8 246.3 250.9 268.2 273.0
- -----------------------------------------------------------------------------------------------
Earnings per common share
from continuing operations $ 7.81 $ 7.70 $ 7.71 $ 7.60 $ 7.03 $ 6.93
- -----------------------------------------------------------------------------------------------



--- Page 44 ---


The Dow Chemical Company and Subsidiaries
- ----------------------------------------------------------------------
Notes to Financial Statements


In millions, except for share amounts
- ----------------------------------------------------------------------

S Industry Segments and Geographic Areas

The Company is a diversified, worldwide manufacturer and supplier
of more than 2,400 product families, which are grouped into the
following industry segments: Performance Plastics, Performance
Chemicals, Plastics, Chemicals and Metals, Hydrocarbons and
Energy, and Diversified Businesses and Unallocated. (For a
description of the Industry Segments, see the Corporate Profile in
"Item 1. Business" on page 3, which forms an integral part of the
Financial Statements.)
The Company's wide range of products are used primarily as raw
materials in the manufacture of customer products and services.
Industries served by the Company include aerospace, appliance,
automotive, agriculture, building and construction, chemical
processing, consumer products, electronics, environmental
services, furniture, housewares, insurance and finance,
metalworking, oil and gas, packaging, processed foods, pulp and
paper, utilities and water treatment.
The Company operates 114 manufacturing sites in 33 countries.
The Company conducts its worldwide operations through 15 global
businesses which represent the aggregation of products on the
basis of process technology, end-use markets and channels of
distribution.
Transfers between area and industry segments are generally
valued at cost. The exception is that movements between the
agricultural chemicals and consumer products businesses and the
other businesses are generally valued at market-based prices.
In 1997, the assets of Sentrachem are included in identifiable
assets for Diversified Businesses and Unallocated in Europe
pending integration into the Company's business structure.
Diversified Businesses and Unallocated also includes the
investment in BSL until the end of the restructuring period.


--- Page 45 ---


The Dow Chemical Company and Subsidiaries
- ----------------------------------------------------------------------
Notes to Financial Statements


In millions, except for share amounts
- ----------------------------------------------------------------------

S Industry Segments and Geographic Areas (Continued)




Industry Segment Results

Diversified
Performance Performance Chemicals Hydrocarbons Businesses and Corporate and
Plastics Chemicals Plastics and Metals and Energy Unallocated Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------------------

1997
Sales to unaffiliated
customers $5,251 $4,591 $4,126 $2,924 $2,164 $ 962 - $20,018
Intersegment transfers 30 6 103 718 2,448 - $(3,305) -
Operating income (loss) (1) 922 635 845 629 (40) (265) - 2,726
Identifiable assets 5,141 4,733 3,270 2,658 2,149 3,688 2,401 24,040
Depreciation 292 283 241 216 139 37 - 1,208
Capital expenditures 358 221 156 245 179 39 - 1,198
- ----------------------------------------------------------------------------------------------------------------------------------

1996
Sales to unaffiliated
customers $5,337 $4,313 $3,862 $3,034 $2,442 $1,065 - $20,053
Intersegment transfers 23 15 136 766 2,703 1 $(3,644) -
Operating income (loss)(1) 1,167 721 794 737 (57) (275) - 3,087
Identifiable assets 5,212 4,173 3,437 2,878 3,308 1,474 4,191 24,673
Depreciation 294 284 255 227 153 46 - 1,259
Capital expenditures 266 241 114 319 362 42 - 1,344
- ----------------------------------------------------------------------------------------------------------------------------------
1995
Sales to unaffiliated
customers $5,369 $4,334 $3,932 $3,228 $2,371 $ 966 - $20,200
Intersegment transfers 19 26 106 710 2,247 - $(3,108) -
Operating income (loss)(1) 1,056 670 1,475 1,136 (83) (363) - 3,891
Identifiable assets 4,930 4,049 2,789 2,780 2,517 1,428 5,089 23,582
Depreciation 294 320 327 280 104 44 - 1,369
Capital expenditures 175 274 81 516 342 29 - 1,417
- ----------------------------------------------------------------------------------------------------------------------------------





Geographic Area Results
Rest of
United States Europe World Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------------------

1997
Sales to unaffiliated customers $ 8,747 $6,140 $5,131 - $20,018
Intersegment transfers 1,846 510 509 $(2,865) -
Operating income (1) 1,023 849 854 - 2,726
Identifiable assets 9,745 7,310 6,985 - 24,040
Gross plant properties 12,622 6,817 3,906 - 23,345
Capital expenditures 639 330 229 - 1,198
- ----------------------------------------------------------------------------------------------------------------------------------
1996
Sales to unaffiliated customers $ 8,789 $6,351 $4,913 - $20,053
Intersegment transfers 1,790 421 547 $(2,758) -
Operating income (1) 1,234 783 1,070 - 3,087
Identifiable assets 10,626 6,547 7,500 - 24,673
Gross plant properties 12,667 7,236 3,834 - 23,737
Capital expenditures 785 392 167 - 1,344
- ----------------------------------------------------------------------------------------------------------------------------------
1995
Sales to unaffiliated customers $ 9,035 $6,411 $4,754 - $20,200
Intersegment transfers 1,728 515 454 $(2,697) -
Operating Income (1) 1,603 1,112 1,176 - 3,891
Identifiable assets 10,127 6,914 6,541 - 23,582
Gross plant properties 12,416 7,466 3,336 - 23,218
Capital expenditures 1,008 295 114 - 1,417

(1)The reconciliation between "Operating Income" and "Income before Provision for Taxes on Income and Minority Interests"
consists of "Other Income (Expense)" items and can be found in the Consolidated Statements of Income on page 23.



--- Page 46 ---


The Dow Chemical Company and Subsidiaries
- ---------------------------------------------------------------------------
Quarterly Statistics


In millions, except for per share amounts (Unaudited)
- ---------------------------------------------------------------------------

1997 1st 2nd 3rd 4th Year
- ---------------------------------------------------------------------------
Net sales $4,992 $5,366 $4,857 $4,803 $20,018

Operating income 765 812 670 479 2,726
Income before taxes on income
and minority interests 804 990 660 494 2,948
Net income available for common
stockholders 452 571 422 357 1,802
Earnings per common share 1.90 2.48 1.85 1.58 7.81
Earnings per common share -
assuming dilution 1.88 2.45 1.82 1.55 7.70
Common stock dividends declared
per share 0.75 0.87 0.87 0.87 3.36

Market price range of common
stock:
High 84.75 90.25 95.81 102.63 102.63
Low 75.75 78.13 85.63 84.75 75.75


- ---------------------------------------------------------------------------
1996 1st 2nd 3rd 4th Year
- ---------------------------------------------------------------------------
Net sales $4,982 $5,176 $4,992 $4,903 $20,053

Operating income 868 896 746 577 3,087
Income before taxes on income
and minority interests 883 939 787 679 3,288
Net income available for common
stockholders 476 546 469 409 1,900
Earnings per common share 1.90 2.20 1.92 1.69 7.71
Earnings per common share -
assuming dilution 1.87 2.17 1.89 1.67 7.60
Common stock dividends declared
per share 0.75 0.75 0.75 0.75 3.00

Market price range of common
stock:
High 90.00 92.50 82.75 85.75 92.50
Low 68.25 76.00 69.75 77.25 68.25
----------------------------------------------------------------------

See Notes to Financial Statements


--- Page 47 ---


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

There has been no reported disagreement on any matter of
accounting principles or procedures or financial statement
disclosure in 1997 with the Independent Auditors.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information relating to Directors and executive officers of the
Company is contained in the definitive Proxy Statement for the
Annual Meeting of Stockholders of The Dow Chemical Company to be
held on May 14, 1998, and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Information relating to executive compensation is contained in
the definitive Proxy Statement for the Annual Meeting of
Stockholders of The Dow Chemical Company to be held on May 14,
1998, and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

Information with respect to beneficial ownership of the common
stock as of January 30, 1998, by each Director and all Directors
and officers of the Company as a group is contained in the
definitive Proxy Statement for the Annual Meeting of Stockholders
of The Dow Chemical Company to be on held May 14, 1998, and is
incorporated herein by reference.
Neither the Company nor any of its Directors or officers is
aware of any person who beneficially owns in excess of 5 percent
of the total outstanding shares of Dow common stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

There were no such reportable relationships or related
transactions in 1997.


PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K

(a) The following documents are filed as part of this report:

1. The Company's 1997 Consolidated Financial Statements and
the Independent Auditors' Report are included in Item 8
of Part II.

2. Financial Statement Schedules.

The following Financial Statement Schedule should be read
in conjunction with the Financial Statements included in
Item 8 of this Annual Report on Form 10-K:

Schedule II Valuation and Qualifying Accounts Page 50

Schedules other than the one listed above are omitted because of
the absence of the conditions under which they are required or
because the information called for is included in the Financial
Statements or Notes thereto.


--- Page 48 ---



ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)

3. Exhibits---See the Exhibit Index on pages 52 and 53 of
this Annual Report on Form 10-K for exhibits filed with
this Annual Report on Form 10-K (see below) and for
exhibits incorporated by reference.

The Company will provide a copy of any exhibit upon
receipt of a written request for the particular exhibit or
exhibits desired and upon receipt of payment of an amount
equal to a charge of twenty-five cents for each exhibit
page, with a minimum charge of two dollars per request.
All requests should be addressed to the Vice President and
Controller of the Company at the address of the Company's
principal executive offices.

The following exhibits listed on the Exhibit Index are
filed with this Annual Report on Form 10-K:

3(ii) A copy of the Bylaws of The Dow Chemical
Company, as amended on March 9, 1998,
effective March 1, 1998.

21 Subsidiaries of The Dow Chemical Company.

23 Independent Auditors' Consent.

27.1 - 27.3 Financial Data Schedules.

(b) Reports on Form 8-K:

No reports on Form 8-K were filed during the fourth quarter of 1997.







The following trademarks of The Dow Chemical Company appear in this report:
Affinity, Aim, Calibre, Cyclotene, Dowlex, Drytech, Elite, Insite, Inspire,
Magnum, Methocel, Pulse, Styrofoam, Styron, Voranol.

The following trademark of Essex Specialty Products, Inc., appears in this
report: Betaseal.

The following trademarks of Dow AgroSciences or its affiliates appear in
this report: Broadstrike, Dursban, FirstRate, Fortress, Lorsban, Sentricon,
Spider, Success, Tracer.

The following trademark of BP Chemical appears in this report: Innovene.

The following trademark of Chrysler Corporation appears in this report: Jeep.


--- Page 49 ---



SCHEDULE II
THE DOW CHEMICAL COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31
(In millions)

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Balance Deductions Balance
at Beginning Additions to from at End
Description of Year Reserves Reserves of Year
- ------------------------------------------------------------------------------------------------------------

1997
RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
For doubtful receivables $71 $19 $17(b) $73
Other investments and noncurrent receivables 508 103(a) 25 586
Accumulated goodwill amortization 177 58 24 211
- ------------------------------------------------------------------------------------------------------------
1996
RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
For doubtful receivables $53 $37 $19(b) $71
Other investments and noncurrent receivables 332 190(a) 14 508
Accumulated goodwill amortization 177 28 28 177
- ------------------------------------------------------------------------------------------------------------
1995
RESERVES DEDUCTED FROM ASSETS TO WHICH THEY APPLY:
For doubtful receivables $104 $23 $74(b) $53
Other investments and noncurrent receivables 168 322(a) 158 332
Accumulated goodwill amortization 676 52 551(c) 177
- ------------------------------------------------------------------------------------------------------------




1997 1996 1995
----------------------------------

(a) Additions to reserve represent:
Charges to profit and loss $103 $116 $263
Miscellaneous other 0 74 59
----------------------------------
$103 $190 $322

(b) Deductions represent:
Notes and accounts receivable written off $9 $9 $16
Credits to profit and loss 0 3 2
Miscellaneous other 8 7 1
Sale of Pharmaceutical Businesses 0 0 55
----------------------------------
$17 $19 $74

(c) Includes deduction of $551 due to sale of Pharmaceutical Businesses



--- Page 50 ---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
16th day of March, 1998.

THE DOW CHEMICAL COMPANY

By: G. M. Lynch
-----------------------------
G. M. Lynch, Vice President
and Controller

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed on the 16th day of March, 1998
by the following persons in the capacities indicated:


F. P. Popoff W. D. Davis
- ---------------------------- -----------------------------
F. P. Popoff, Director and W. D. Davis, Director
Chairman of the Board

W. S. Stavropoulos M. L. Dow
- ---------------------------- -----------------------------
W. S. Stavropoulos, Director, M. L. Dow, Director
President and Chief Executive
Officer

J. P. Reinhard J. L. Downey
- ---------------------------- -----------------------------
J. P. Reinhard, Director, J. L. Downey, Director
Executive Vice President and
Chief Financial Officer

G. M. Lynch E. C. Falla
- --------------------------- -----------------------------
G. M. Lynch, Vice President E. C. Falla, Director
and Controller


A. A. Allemang B. H. Franklin
- --------------------------- -----------------------------
A. A. Allemang, Director B. H. Franklin, Director
and Vice President


J. K. Barton A. D. Gilmour
- --------------------------- -----------------------------
J. K. Barton, Director A. D. Gilmour, Director


D. T. Buzzelli M. D. Parker
- --------------------------- -----------------------------
D. T. Buzzelli, Director M. D. Parker, Director and
Executive Vice President


A. J. Carbone H. T. Shapiro
- --------------------------- -----------------------------
A. J. Carbone, Director and H. T. Shapiro, Director
Executive Vice President


F. P. Corson P. G. Stern
- --------------------------- -----------------------------
F. P. Corson, Director and P. G. Stern, Director
Vice President

J. C. Danforth
- ---------------------------
J. C. Danforth, Director


--- Page 51 ---


EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION

3(i) Restated Certificate of Incorporation of The Dow
Chemical Company, incorporated by reference to Exhibit
3(a) to The Dow Chemical Company Annual Report on Form 10-K
for the year ended December 31, 1992.

3(ii) A copy of the Bylaws of The Dow Chemical Company, as
amended on March 9,1998, effective March 1, 1998.

10(a) The Dow Chemical Company Executive Supplemental
Retirement Plan, incorporated by reference to Exhibit 10(a)
to The Dow Chemical Company Annual Report on Form 10-K for the
year ended December 31, 1992.

10(b) The Dow Chemical Company 1972 Option Plan, as amended
through December 31, 1982 (included as a part of and
incorporated by reference to the Prospectus contained in Post-
Effective Amendment No. 13 to The Dow Chemical Company's
Registration Statement on Form S-8, File No. 2-44789, filed
June 23, 1983).

10(c) The Dow Chemical Company 1979 Award and Option Plan, as
amended through May 1983 (included as part of and
incorporated by reference to the Prospectus contained in Post-
Effective Amendment No. 4 to The Dow Chemical Company's
Registration Statement on Form S-8, File No. 2-64560, filed
June 23, 1983), as amended April 12, 1984 (incorporated by
reference to Exhibit 10(ff) to The Dow Chemical Company
Annual Report on Form 10-K for the year ended December 31,
1984), as amended April 18, 1985 (incorporated by reference
to Exhibit 10(fff) to The Dow Chemical Company Annual Report
on Form 10-K for the year ended December 31, 1985), as
amended October 30, 1987 (incorporated by reference to
Exhibit 10(j) to The Dow Chemical Company Annual Report on
Form 10-K for the year ended December 31, 1987).

10(d) The Dow Chemical Company Voluntary Deferred
Compensation Plan for Outside Directors, as amended
effective as of July 1, 1994, incorporated by reference to
Exhibit 10(f) to The Dow Chemical Company Annual Report on
Form 10-K for the year ended December 31, 1994, as amended in
the manner described in the definitive Proxy Statement for
the Annual Meeting of Stockholders of The Dow Chemical Company
to be held on May 14, 1998, incorporated by reference.

10(e) The Dow Chemical Company Executive Post Retirement Life
Insurance Program, incorporated by reference to Exhibit
10(g) to The Dow Chemical Company Annual Report on Form 10-K
for the year ended December 31, 1992.

10(f) The Dow Chemical Company Outside Directors' Pension
Plan, incorporated by reference to Exhibit 10(h) to The Dow
Chemical Company Annual Report on Form 10-K for the year ended
December 31, 1992, as amended in the manner described in
the definitive Proxy Statement for the Annual Meeting of
Stockholders of The Dow Chemical Company to be held on May 14,
1998, incorporated by reference.

10(g) A written description of the Management Achievement
Recognition System adopted on April 8, 1987 (incorporated by
reference to Exhibit 10(k) to The Dow Chemical Company Annual
Report on Form 10-K for the year ended December 31, 1987).

10(h) The Dow Chemical Company Dividend Unit Plan,
incorporated by reference to Exhibit 10(j) to The Dow
Chemical Company Annual Report on Form 10-K for the year ended
December 31, 1992.

10(i) The Dow Chemical Company 1988 Award and Option Plan
(included as part of and incorporated by reference to the
Prospectus contained in The Dow Chemical Company's Registration
Statement on Form S-8, File No. 33-21748, filed May 16,
1988), as amended during 1991 (incorporated by reference to
Exhibit 10(k) to The Dow Chemical Company Annual Report on
Form 10-K for the year ended December 31, 1991), as amended
effective as of January 1, 1997 (incorporated by reference to
Appendix A to the definitive Proxy Statement for the
Annual Meeting of Stockholders of The Dow Chemical Company held
on May 15, 1997).


--- Page 52 ---


EXHIBIT INDEX (Continued)

EXHIBIT NO. DESCRIPTION

10(j) The Dow Chemical Company Executive Award Plan,
incorporated by reference to Exhibit 10(l) to The Dow
Chemical Company Annual Report on Form 10-K for the year ended
December 31, 1992.

10(k) The Dow Chemical Company Executive Split Dollar Life
Insurance Plan Agreement, as amended effective as of
December 19, 1994, incorporated by reference to Exhibit 10(m)
to The Dow Chemical Company Annual Report on Form 10-K for
the year ended December 31, 1995.

10(l) The Dow Chemical Company 1994 Executive Performance
Plan, incorporated by reference to the definitive Proxy
Statement for the Annual Meeting of Stockholders of The Dow
Chemical Company held on May 12, 1994.

10(m) The Dow Chemical Company 1994 Non-Employee Directors'
Stock Plan, incorporated by reference to Exhibit 10(o) to
The Dow Chemical Company Annual Report on Form 10-K for the year
ended December 31, 1994.

10(n) A written description of the one-time grant of shares
of the common stock of The Dow Chemical Company to non-
employee Directors, incorporated by reference to the
definitive Proxy Statement for the Annual Meeting of
Stockholders of The Dow Chemical Company held on May 11, 1995.

10(o) A written description of the 1998 Non-Employee
Directors' Stock Incentive Plan, incorporated by reference to
the definitive Proxy Statement for the Annual Meeting of
Stockholders of The Dow Chemical Company to be held on
May 14, 1998.

21 Subsidiaries of The Dow Chemical Company.

23 Independent Auditors' Consent.

27.1 - 27.3 Financial Data Schedules.


--- 53 ---

EXHIBIT 3(ii)

THE DOW CHEMICAL COMPANY
BYLAWS*

(As re-adopted in full on November 21, 1985, effective December
1, 1985; and as amended February 13, 1986; October 9, 1986; May
14, 1987; November 12, 1987; July 11, 1991; November 12, 1992;
April 8, 1993; February 10, 1994; April 14, 1994; July 14, 1994;
February 8, 1996; February 13, 1997; and March 9, 1998, effective
March 1, 1998.)


Section I
CAPITAL STOCK

Section 1.1. Certificates. Every holder of stock in the
Company shall be entitled to have a certificate signed in the
name of the Company by the Chairman of the Board of Directors or
the President or an Executive Vice President or a Vice President,
and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the Company, representing the number
of shares registered in certificate form. Any or all the
signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Company with
the same effect as if such person were such officer, transfer
agent or registrar at the date of issue. (As amended February 8,
1996.)

Section 1.2. Record Ownership. The certificates of each
class or series of a class of stock shall be numbered
consecutively. A record of the name and address of the holder of
each certificate, the number of shares represented thereby and
the date of issue thereof shall be made on the Company's books.
The Company shall be entitled to treat the holder of record of
any share of stock as the holder in fact thereof, and accordingly
shall not be bound to recognize any equitable or other claim to
or interest in any share on the part of any other person, whether
or not it shall have express or other notice thereof, except as
required by the laws of the State of Delaware.

Section 1.3. Transfer of Record Ownership. Transfers of
stock shall be made on the books of the Company only by direction
of the person named in the certificate or such person's attorney,
lawfully constituted in writing, and only upon the surrender of
the certificate therefor and a written assignment of the shares
evidenced thereby, which certificate shall be canceled before the
new certificate is issued.

Section 1.4. Lost Certificates. Any person claiming a
stock certificate in lieu of one lost, stolen or destroyed shall
give the Company an affidavit as to such person's ownership of
the certificate and of the facts which go to prove its loss,
theft or destruction. Such person shall also, if required by
policies adopted by the Board of Directors, give the Company a
bond, in such form as may be approved by the General Counsel or
his or her staff, sufficient to indemnify the Company against any
claim that may be made against it on account of the alleged loss
of the certificate or the issuance of a new certificate.

Section 1.5. Transfer Agents; Registrars; Rules Respecting
Certificates. The Board of Directors may appoint, or authorize
any officer or officers to appoint, one or more transfer agents
and one or more registrars. The Board of Directors may make such
further rules and regulations as it may deem expedient concerning
the issue, transfer and registration of stock certificates of the
Company.

Section 1.6. Record Date. The Board of Directors may fix
in advance a date, not exceeding sixty days preceding the date of
any meeting of stockholders, payment of dividend or other
distribution, allotment of rights or change, conversion or
exchange of capital stock or for the purpose of any other lawful
action, as the record date for determination of the stockholders
entitled to notice of and to vote at any such meeting and any
adjournment thereof, or to receive any such dividend or other
distribution or allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of capital
stock, or to participate in any such other lawful action, and in
such case such stockholders and only such stockholders as shall
be stockholders of record on the date so fixed shall be entitled
to such notice of and to vote at such meeting and any adjournment
thereof, or to receive such dividend or other distribution or
allotment of rights, or to exercise such rights, or to
participate in any such other lawful action, as the case may be,
notwithstanding any transfer of any stock on the books of the
Company after any such record date fixed as aforesaid.


--- Page 54 ---


Section II
MEETINGS OF STOCKHOLDERS

Section 2.1. Annual. The annual meeting of stockholders
for the election of Directors and the transaction of such other
proper business shall be held during the month of May each year
at a time and place, within or without Delaware, as determined by
the Board of Directors.

Section 2.2. Special. Special meetings of stockholders for
any purpose or purposes may be called only by the Board of
Directors, pursuant to a resolution adopted by a majority of the
entire Board of Directors, either upon motion of a Director or
upon written request by the holders of at least fifty percent of
the voting power of all the shares of capital stock of the
Company then outstanding and entitled to vote generally in the
election of Directors. Any such request by stockholders shall be
delivered to the Secretary and shall set forth (a) the purpose or
purposes of the meeting and a description of each proposed matter
to be approved or addressed at such meeting, including the text
of any proposed amendments to the Certificate of Incorporation or
these Bylaws, (b) the name and record address of the stockholder
or stockholders requesting the special meeting, and (c) the
number of shares of each class of stock of the Company that are
beneficially owned by such stockholders. At any such special
meeting, only such business may be transacted as is related to
the purpose or purposes set forth in the notice of meeting.
Special meetings may be held at any place, within or without
Delaware. (As amended February 13, 1997.)

Section 2.3. Notice. Written notice of each meeting of
stockholders, stating the time, place and purpose thereof, shall
be mailed by the Secretary or an Assistant Secretary not less
than ten days nor more than sixty days before such meeting to
every stockholder entitled to vote thereat.

Section 2.4. List of Stockholders. A complete list of the
stockholders entitled to vote at any meeting of stockholders,
arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of
each stockholder, shall be prepared by the Secretary and shall be
open to the examination of any stockholder, either at a place
within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held, for at
least ten days before the meeting and at the place of the meeting
during the whole time of the meeting.

Section 2.5. Quorum. The holders of at least fifty percent
of the issued and outstanding stock of the Company entitled to
vote with respect to any one of the purposes for which the
meeting is called, present in person or represented by proxy,
shall constitute a quorum, except as otherwise required by the
General Corporation Law of Delaware. In the event of a lack of
quorum, the chairman of the meeting or a majority in interest of
the stockholders present in person or represented by proxy may
adjourn the meeting from time to time without notice other than
announcement at the meeting, until a quorum shall be obtained.
At any such adjourned meeting at which there is a quorum, any
business may be transacted that might have been transacted at the
meeting originally called. (As amended February 10, 1994.)

Section 2.6. Organization. The Chairman of the Board, or,
in the absence of the Chairman of the Board, the President, or,
in the absence of both, any Executive Vice President or Vice
President, shall preside at meetings of stockholders as chairman
of the meeting. The Secretary of the Company shall act as
secretary, but in the absence of the Secretary, the chairman of
the meeting may appoint a secretary. Rules governing the
procedures and conduct of meetings of stockholders shall be
determined by the chairman of the meeting. (As amended March 9,
1998, effective March 1, 1998.)

Section 2.7. Voting. Subject to all of the rights of the
Preferred Stock provided for by resolution or resolutions of the
Board of Directors pursuant to Article IV of the Certificate of
Incorporation or by the General Corporation Law of Delaware, each
stockholder shall be entitled to one vote, in person or by
written proxy, for each voting share held of record by such
stockholder. The votes for the election of Directors and, upon
the demand of any stockholder, the vote upon any matter before
the meeting shall be by written ballot. Except as otherwise
required by the General Corporation Law of Delaware or as
specifically provided for in the Certificate of Incorporation or
these Bylaws, in any question or matter brought before any
meeting of stockholders (other than the election of Directors),
the affirmative vote of the holders of voting shares present in
person or by proxy representing a majority of the votes actually
cast on any such question or matter shall be the act of the
stockholders. Directors shall be elected by a plurality of the
votes of the voting shares present in person or represented by
proxy at the meeting and entitled to vote and actually cast on
the election of Directors. (As amended February 13, 1986,
effective May 8, 1986; and February 10, 1994.)


--- Page 55 ---


Section 2.8. Inspectors of Election. In advance of any
meeting of stockholders, the Board of Directors or the chairman
of the meeting shall appoint one or more inspectors to act at the
meeting and make a written report thereof. The chairman of the
meeting may designate one or more persons as alternate inspectors
to replace any inspector who fails or is unable to act. Each
inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the
best of his or her ability. The inspector(s) shall ascertain the
number of shares outstanding and the voting power of each,
determine the shares represented at the meeting and the validity
of proxies and ballots, count all votes and ballots, determine
and retain for a reasonable period a record of the disposition of
any challenges made to any determination by the inspector(s), and
certify the inspectors' determination of the number of shares
represented at the meeting and the count of all votes and
ballots. The inspector(s) may appoint or retain other persons or
entities to assist the inspector(s) in the performance of the
duties of the inspector(s). (As amended February 8, 1996.)

Section 2.9. Notification of Annual Meeting Business. Any
stockholder entitled to vote at an annual meeting of stockholders
may bring business before such a meeting only if (a) such
business is properly before the meeting pursuant to the laws of
the State of Delaware, and (b) written notification has been
provided to the Secretary at least 45 days prior to such meeting,
either by personal delivery or by United States mail, postage
prepaid. Such notification shall set forth: the name and
address of the stockholder, a representation that the stockholder
is a holder of record of Common Stock of the Company entitled to
vote at such meeting and intends to appear in person or by proxy
at the meeting, any material interest of the stockholder in such
business, a description of the business proposed and the reasons
for conducting such business. (As adopted February 13, 1997.)


Section III
BOARD OF DIRECTORS

Section 3.1. Number and Qualifications. The business and
affairs of the Company shall be managed by or under the direction
of its Board of Directors. The number of Directors constituting
the entire Board of Directors shall be not less than six nor more
than twenty-one, as authorized from time to time exclusively by a
vote of a majority of the entire Board of Directors. As used in
these Bylaws,* the term "entire Board of Directors" means the
total authorized number of Directors that the Company would have
if there were no vacancies. Each Director shall at all times be
a holder of Common Stock of the Company. (As amended February
13, 1997.)

Section 3.2. Resignation. A Director may resign at any
time by giving written notice to the Chairman of the Board, to
the President or the Secretary. Unless otherwise stated in such
notice of resignation, the acceptance thereof shall not be
necessary to make it effective; and such resignation shall take
effect at the time specified therein or, in the absence of such
specification, it shall take effect upon the receipt thereof.

Section 3.3. Regular Meetings. Regular meetings of the
Board of Directors may be held without further notice at such
time and place as shall from time to time be determined by the
Board of Directors. A meeting of the Board of Directors for the
election of officers and the transaction of such other business
as may come before it may be held without notice immediately
following the annual meeting of stockholders.

Section 3.4. Special Meetings. Special meetings of the
Board of Directors may be called by the Chairman of the Board or
the President or at the request in writing of one-third of the
Directors then in office.

Section 3.5. Notice of Special Meetings. Notice of the
time and place of each special meeting shall be mailed to each
Director at least two days before the meeting or telegraphed or
telecopied to such Director at least one day before the meeting.
The notice need not state the purposes of the special meeting.

Section 3.6. Place of Meetings. The Directors may hold
their meetings and have an office or offices outside of Delaware.

Section 3.7 Quorum. A majority of the total number of
Directors then holding office shall constitute a quorum. In the
event of lack of a quorum, a majority of the Directors present
may adjourn the meeting from time to time without notice, other
than announcement at the meeting, until a quorum shall be
obtained.


--- Page 56 ---


Section 3.8. Organization. The Chairman of the Board, or,
in the absence of the Chairman of the Board, the President, or,
in the absence of both, a member of the Board selected by the
members present, shall preside at meetings of the Board. The
Secretary or an Assistant Secretary of the Company shall act as
secretary, but in the absence of the Secretary or an Assistant
Secretary, the presiding officer may appoint a secretary. (As
amended February 13, 1997.)

Section 3.9. Compensation of Directors. Directors shall
receive such compensation for their services as the Compensation
Committee may determine pursuant to Section 4.4(a) of these
Bylaws,* or as the Board of Directors may determine. Any
Director may serve the Company in any other capacity and receive
compensation therefor. (As amended July 14, 1994.)

Section 3.10. Notification of Nominations. Nominations
for the election of Directors may be made by the Board of
Directors or by any stockholder entitled to vote for the
election of Directors. Any stockholder entitled to vote for
the election of Directors at a meeting may nominate persons
for election as Directors only if written notice of such
stockholder's intent to make such nomination is given, either
by personal delivery or by United States mail, postage
prepaid, to the Secretary of the Company not later than (i)
with respect to an election to be held at an annual meeting of
stockholders, 90 days in advance of such meeting, and (ii)
with respect to an election to be held at a special meeting of
stockholders for election of Directors, the close of business
on the seventh day following the date on which notice of such
meeting is first given to stockholders. Each such notice
shall set forth: (a) the name and address of the stockholder
who intends to make the nomination and of the person or
persons to be nominated, (b) a representation that such
stockholder is a holder of record of Common Stock of the
Company entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or
persons specified in the notice, (c) a description of all
arrangements or understandings between such stockholder and
each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder, (d) such other
information regarding each nominee proposed by such
stockholder as would have been required to be included in a
proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had each nominee been
nominated, or intended to be nominated, by the Board of
Directors, and (e) the consent of each nominee to serve as a
Director of the Company if elected. The person presiding at
any meeting of stockholders may refuse to acknowledge the
nomination of any person not made in full compliance with the
foregoing procedure. (As adopted February 10, 1994, and
amended February 13, 1997.)


Section IV
COMMITTEES OF THE BOARD

Section 4.1. Creation and Organization. The standing
committees of the Board of Directors shall be an Executive
Committee; an Audit Committee; a Compensation Committee; a
Committee on Directors; an Environment, Health, Safety and Public
Policy Committee; a Finance Committee; and an Investment Policy
Committee, having the respective duties assigned to each in this
Section IV and any other duties assigned to such committee by
resolution passed by a majority of the entire Board of Directors
from time to time. Each such standing committee shall consist of
one or more Directors and such other ex officio members as the
Board of Directors shall from time to time determine. The
chairman of each standing committee shall be one of such
committee's members who shall be designated as that committee's
chairman by a majority of the entire Board of Directors. Members
of each standing committee shall be elected by a majority of the
entire Board of Directors. Vacancies in any standing committee
shall be filled by a majority vote of the entire Board of
Directors. The Board of Directors may appoint management
employees of the Company or its subsidiaries to be ex officio
members of any standing committee except the Executive Committee.
Ex officio members of standing committees shall be entitled to be
present at all meetings of their respective committees and to
participate in committee discussions, but shall not be entitled
to vote or be counted for quorum purposes. Each standing
committee shall fix its own rules of procedure and shall meet
where and as provided by such rules, but the presence of a
majority of its members shall be necessary to constitute a
quorum. The Board of Directors may from time to time appoint
such special committees with such powers and such members as it
may designate in a resolution or resolutions adopted by a
majority of the entire Board of Directors. (As amended February
8, 1996, and March 9, 1998, effective March 1, 1998.)

Section 4.2. Executive Committee. During the intervals
between the meetings of the Board of Directors, the Executive
Committee shall possess and may exercise all the powers of the
Board of Directors in the management and direction of the
business and affairs of the Company to the fullest extent allowed
by the General Corporation Law of Delaware, including the power
and authority:

(a) To authorize the issuance of stock;


--- Page 57 ---


(b) To the extent authorized in a resolution or resolutions
providing for the issuance of shares of Preferred Stock
adopted by the Board of Directors, to fix the designations
and any of the preferences or rights of such shares relating
to dividends, redemption, dissolution, any distribution of
assets of the Company or the conversion into, or the
exchange of such shares for, shares of any other class or
any other series of any class of stock of the Company, to
fix the number of shares of any series of Preferred Stock or
to authorize the increase or decrease of the shares of any
series of Preferred Stock; (c) To declare dividends on
stock; and

(d) To adopt a certificate of ownership and merger in
accordance with the General Corporation Law of Delaware.

The Executive Committee shall consist of the officer who
serves as the chief executive officer pursuant to Section 5.17
and not fewer than three other Directors. The Executive
Committee shall keep minutes of its meetings. (As amended April
14, 1994, and February 13, 1997.)

Section 4.3. Audit Committee. The Audit Committee shall:

(a) Prior to each annual meeting of stockholders, submit a
recommendation in writing to the Board of Directors for the
selection of independent auditors to be appointed by the
Board of Directors in advance of the annual meeting of
stockholders and to be submitted for ratification or
rejection at such meeting;

(b) Annually consult with the independent auditors with
regard to the proposed plan of audit and from time to time
consult privately with them and also with the Corporate
Auditor and the Controller with regard to the adequacy of
internal controls; and

(c) Upon completion of the report of audit by the
independent auditors and before the date of the annual
meeting of stockholders, (i) review the financial statements
of the Company, and (ii) meet with the independent auditors
and review with them the results of their audit and any
recommendations made to the management. (As amended April
8, 1993.)

Section 4.4. Compensation Committee. The Compensation
Committee shall consist of two or more members, all of whom shall
be "non-employee Directors" as defined in Rule 16b-3 of the
General Rules and Regulations under the Securities Exchange Act
of 1934, as amended, or any future rule of the Securities and
Exchange Commission with respect to the same subject matter, and
who also comply with the rules for eligibility to serve as
members of the award and option committees hereinafter described.
The Compensation Committee may, with the consent of the Board of
Directors, delegate any portion of its authority to a
subcommittee consisting of two or more of its members.

(a) The Compensation Committee may establish rates of
salary, bonuses, retirement and other compensation for all
Directors and executive officers of the Company for purposes
of the Securities Exchange Act of 1934, as amended, or the
regulations of the Securities and Exchange Commission, and
for such other personnel as the Board of Directors may from
time to time delegate to it; provided, however, that no
member of the Committee may vote upon his or her own rate of
salary or his or her own bonus, retirement or other
compensation except for such items as are applicable to a
group that also includes personnel who are not Directors or
officers, or where his or her participation in such items is
determined by formula; and

(b) The Compensation Committee shall exercise all functions
of the award and option committees under the Company's
incentive and option plans. (As amended July 14, 1994, and
February 13, 1997.)

Section 4.5. Committee on Directors. The Committee on
Directors shall:

(a) Recommend to the Board the individuals to constitute
the nominees of the Board of Directors for election at the
next annual meeting of stockholders and who will be named as
such nominees in the proxy statement used for solicitation
of proxies by the Board;

(b) Recommend and nominate an individual for Director to
fill the unexpired term of any vacancy existing in the Board
of Directors or created by an increase in the size of the
Board;

(c) Conduct continuing studies of the size and composition
of the Board of Directors and from time to time make
recommendations to the Board for enlargement or reduction in
size of the Board; and


--- Page 58 ---


(d) Recommend and nominate individuals for election as
officers and members of Board committees. (As amended
February 13, 1997.)

Section 4.6. Environment, Health, Safety and Public Policy
Committee. The Environment, Health, Safety and Public Policy
Committee shall have the authority and responsibility to assess
all aspects of the Company's environment, health and safety
policies and performance, and to make recommendations to the
Board of Directors and the management of the Company with regard
to promoting and maintaining superior standards of performance.
It shall have the authority to assess any and all aspects of the
Company's decisions to determine their social impact.
Recognizing that positive perceptions of the Company's policies
and actions among its several constituencies are extremely
valuable assets, the Committee will keep itself informed of these
perceptions and will recommend to the Board and management
actions directed at continually enhancing the Company's public
image. (As amended April 8, 1993, and March 9, 1998, effective
March 1, 1998.)

Section 4.7. Finance Committee. The Finance Committee
shall have the responsibility of periodically reviewing the
financial affairs of the Company and making recommendations to
the Board of Directors concerning the financial needs of the
Company and the methods of providing funds for such needs.

Section 4.8. Investment Policy Committee. The Investment
Policy Committee shall have the authority and responsibility to:

(a) Establish investment policy for The Dow Employees'
Pension Plan or any other retirement plan or fund maintained
by the Company for its employees or employees of its
subsidiaries ("Plans");

(b) Employ, replace, discharge and supervise, and review
the performance of trustees and investment advisers acting
pursuant to the Plans;

(c) Enter into, modify, alter, amend or revoke any existing
or future trust agreement or trust relating to the Plans;

(d) Review and advise upon the investment policy of, and
performance of trustees and investment advisers acting
pursuant to or on behalf of, any retirement plan or fund
maintained by any directly or indirectly wholly owned
subsidiary or subsidiaries of the Company for the benefit of
its or their employees or the employees of its or their
subsidiaries; and

(e) Perform similar duties with respect to such other
retirement or investment plan or fund, or on behalf of such
other entities affiliated with the Company, as the Board of
Directors from time to time shall designate. (As amended
November 12, 1992, and February 13, 1997.)

Section 4.9. Powers Reserved to the Board. No committee of
the Board of Directors shall have the power or authority to:

(a) Approve or adopt, or recommend to stockholders, any
action or matter expressly required by the General
Corporation Law of Delaware to be submitted to stockholders
for approval; or

(b) Adopt, amend, or repeal these Bylaws.

No committee of the Board of Directors shall take any action
that is required by these Bylaws,* the Certificate of
Incorporation or the General Corporation Law of Delaware to be
taken by a vote of a specified proportion of the entire Board of
Directors. (As amended February 13, 1997, and renumbered March
9, 1998, effective March 1, 1998.)


Section V
OFFICERS

Section 5.1. Designation. The officers of the Company
shall be a Chairman of the Board, a President, one or more
Executive Vice Presidents, one or more Vice Presidents, a
Treasurer, one or more Assistant Treasurers, a Secretary, one or
more Assistant Secretaries, a Controller, one or more Assistant
Controllers and a General Counsel. The Board of Directors also
may elect or appoint, or provide for the appointment of, such
other officers or agents as may from time to time appear
necessary or advisable in the conduct of the business and affairs
of the Company. (As amended February 13, 1986.)


--- Page 59 ---


Section 5.2. Election and Term. At its first meeting after
each annual meeting of stockholders, the Board of Directors shall
elect the officers. The term of each officer shall be until the
first meeting of the Board of Directors following the next annual
meeting of stockholders and until such officer's successor is
chosen and qualified.

Section 5.3. Resignation. Any officer may resign at any
time by giving written notice to the President or the Secretary.
Unless otherwise stated in such notice of resignation, the
acceptance thereof shall not be necessary to make it effective;
and such resignation shall take effect at the time specified
therein or, in the absence of such specification, it shall take
effect upon the receipt thereof.

Section 5.4. Removal. Except where otherwise expressly
provided in a contract authorized by the Board of Directors, any
officer elected or appointed by the Board of Directors may be
removed at any time with or without cause by the affirmative vote
of a majority of the entire Board of Directors. (As amended
February 13, 1997.)

Section 5.5. Vacancies. A vacancy in any office may be
filled for the unexpired portion of the term by the Board of
Directors.

Section 5.6. Chairman of the Board. The Chairman of the
Board shall preside at all meetings of the Board of Directors and
shall have such other powers and perform such other duties as may
be assigned by the Board of Directors. (As amended May 14, 1987;
November 12, 1987; November 12, 1992, effective December 1, 1992;
and April 14, 1994.)

Section 5.7. President. The President shall have such
other powers and perform such other duties as may be assigned by
the Board of Directors. (As amended May 14, 1987; November 12,
1987; November 12, 1992, effective April 1, 1993; and April 14,
1994.)

Section 5.8. Executive Vice Presidents. The Executive Vice
Presidents shall assist the President in the management of the
business and affairs of the Company and shall perform such other
duties as may be assigned by the President or the Board of
Directors.

Section 5.9. Vice Presidents. Each Vice President shall
have such powers and perform such duties as may be assigned by
the President or the Board of Directors. The Board of Directors
may designate a Financial Vice President and one or more Vice
Presidents as Senior Vice Presidents or Group Vice Presidents.

Section 5.10. Treasurer. The Treasurer shall have charge
of all funds of the Company and shall perform all acts incident
to the position of Treasurer, subject to the control of the Board
of Directors.

Section 5.11. Assistant Treasurers. Each Assistant
Treasurer shall have such powers and perform such duties as may
be assigned by the Treasurer or the Board of Directors.

Section 5.12. Secretary. The Secretary or an Assistant
Secretary shall keep the minutes and give notices of all meetings
of stockholders and Directors and of such committees as directed
by the Board of Directors. The Secretary shall have charge of
such books and papers as the Board of Directors may require. The
Secretary or any Assistant Secretary is authorized to certify
copies of extracts from minutes and of documents in the
Secretary's charge, and anyone may rely on such certified copies
to the same effect as if such copies were originals and may rely
upon any statement of fact concerning the Company certified by
the Secretary or any Assistant Secretary. The Secretary shall
perform all acts incident to the office of Secretary, subject to
the control of the Board of Directors. (As amended February 13,
1997.)

Section 5.13. Assistant Secretaries. Each Assistant
Secretary shall have such powers and perform such duties as may
be assigned by the Secretary or the Board of Directors.

Section 5.14. Controller. The Controller shall be in
charge of the accounts of the Company. The Controller shall have
such other powers and perform such other duties as may be
assigned by the Board of Directors and shall submit such reports
and records to the Board of Directors as it may request.

Section 5.15. Assistant Controllers. Each Assistant
Controller shall have such powers and perform such duties as may
be assigned by the Controller or the Board of Directors. (As
adopted on February 13, 1986.)


--- Page 60 ---

Section 5.16. General Counsel. The General Counsel shall
be in charge of all matters concerning the Company involving
litigation or legal counseling. The General Counsel shall have
such other powers and perform such other duties as may be
assigned by the Board of Directors and shall submit such reports
to the Board of Directors as it may request. (As renumbered on
February 13, 1986.)

Section 5.17. Designation of an Officer as the Chief
Executive Officer. The Board of Directors shall designate one of
the elected officers as the chief executive officer of the
Company. The chief executive officer shall be in general and
active charge of the business and affairs of the Company. (As
adopted April 14, 1994, and amended February 8, 1996.)

Section 5.18. Designation of an Officer as the Chief
Operating Officer. The Board of Directors may designate one of
the elected officers the chief operating officer of the Company
with such powers and duties as may be assigned by the Board of
Directors. (As adopted on April 14, 1994.)

Section 5.19. Compensation of Officers. The officers of
the Company shall receive such compensation for their services as
the Compensation Committee may determine pursuant to Section
4.4(a) of these Bylaws.* (As renumbered on February 13, 1986,
and April 14, 1994.)


Section VI
INDEMNIFICATION

Section 6.1. Mandatory Indemnification of Directors,
Officers and Employees. The Company shall indemnify, to the full
extent permitted by the laws of the State of Delaware, any person
who was or is a defendant or is threatened to be made a defendant
to
any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by
reason of the fact that such person (a) is or was a Director,
officer or employee of the Company, or (b) is or was a Director,
officer or employee of the Company and is or was serving at the
request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such
action, suit or proceeding. Any repeal, amendment or
modification of this Section 6.1 shall not affect any rights or
obligations then existing between the Company and any then
incumbent or former Director, officer or employee with respect to
any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought based in
whole or in part upon such state of facts. (As amended February
13, 1986, effective May 8, 1986; and July 11, 1991.)

Section 6.2. Permitted Indemnification of Directors,
Officers, Employees and Agents. The Company may indemnify, to
the full extent permitted by the laws of the State of Delaware,
any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person (a) is or
was a Director, officer, employee or agent of the Company, or (b)
is or was a Director, officer, employee or agent of the Company
and is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by
such person in connection with such action, suit or proceeding.
(As amended February 13, 1986, effective May 8, 1986.)

Section 6.3. Judicial Determination of Indemnification.
Any incumbent or former Director, officer or employee may apply
to any court of competent jurisdiction in the State of Delaware
to order indemnification to the extent mandated under Section 6.1
above. The basis of such order of indemnification by a court
shall be a determination by such court that indemnification of
the incumbent or former Director, officer or employee is proper
in the circumstances. Notice of any application for
indemnification pursuant to this Section 6.3 shall be given to
the Company promptly upon the filing of such application. (As
amended February 13, 1986, effective May 8, 1986; and July 11,
1991.)

Section 6.4. Expenses Payable in Advance. Expenses
incurred by any Director or officer in defending or investigating
a threatened or pending action, suit or proceeding shall be paid
by the Company in advance of the final disposition of such
action, suit or proceeding, upon receipt of an undertaking by or
on behalf of the Director or officer to repay such amount if it
ultimately shall be determined that the Director or officer is
not entitled to be indemnified by the Company as authorized in
this Section VI. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as
the Board of Directors deems appropriate. (As amended February
13, 1986, effective May 8, 1986; and October 9, 1986.)


--- Page 61 ---


Section 6.5. Nonexclusivity. The indemnification and
advancement of expenses mandated or permitted by, or granted
pursuant to, this Section VI shall not be deemed exclusive of any
other rights to which those seeking indemnification or
advancement of expenses may be entitled under any Bylaw,*
agreement, contract, vote of stockholders or disinterested
Directors or pursuant to the direction (howsoever embodied) of
any court of competent jurisdiction or otherwise both as to
action by the person in an official capacity and as to action in
another capacity while holding such office, it being the policy
of the Company that indemnification of the persons specified in
Sections 6.1 or 6.2 above as defendants shall be made to the
fullest extent permitted by the laws of the State of Delaware.
The provisions of this Section VI shall not be deemed to preclude
the indemnification of any person who is not specified in
Sections 6.1 or 6.2 above, but whom the Company has the power or
obligation to indemnify under the laws of the State of Delaware
or otherwise. (As amended February 13, 1986, effective May 8,
1986; and October 9, 1986.)

Section 6.6. Insurance. The Company may purchase and
maintain insurance on behalf of any person who is or was a
Director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted
against and incurred by such person in any such capacity, or
arising out of the person's status as such, whether or not the
Company would have the power or the obligation to indemnify the
Director, officer, employee or agent of the Company against such
liability under the provisions of this Section VI. (As amended
February 13, 1986, effective May 8, 1986.)

Section 6.7. Definitions. For the purposes of this Section
VI references to "the Company" shall include, in addition to the
resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have
had power and authority to indemnify its directors, officers and
employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is
or was serving at the request of such constituent corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this Section
VI with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if
its separate existence had continued. The term "other
enterprise" as used in this Section VI shall include employee
benefit plans. References to "fines" in this Section VI shall
include excise taxes assessed on a person with respect to an
employee benefit plan. The phrase "serving at the request of the
Company" shall include any service as a Director, officer,
employee or agent of the Company that imposes duties on, or
involves services by, such Director, officer, employee or agent
with respect to any employee benefit plan, its participants or
beneficiaries. (As amended February 13, 1986, effective May 8,
1986.)

Section 6.8. Survival. The indemnification and advancement
of expenses provided by, or granted pursuant to, this Section VI
shall continue as to a person who has ceased to be a Director,
officer, employee or agent of the Company and shall inure to the
benefit of the heirs, executors and administrators of such
person. (As amended October 9, 1986.)


Section VII
MISCELLANEOUS

Section 7.1. Seal. The corporate seal shall have inscribed
upon it the name of the Company, the year "1947" and the words
"Corporate Seal" and "Delaware." The Secretary shall be in
charge of the seal and may authorize a duplicate seal to be kept
and used by any other officer or person.

Section 7.2. Waiver of Notice. Whenever any notice is
required to be given, a waiver thereof in writing, signed by the
person or persons entitled to the notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.

Section 7.3. Voting of Stock Owned by the Company. Powers
of attorney, proxies, waivers of notice of meeting, consents and
other instruments relating to securities owned by the Company may
be executed in the name of and on behalf of the Company by the
President, any Executive Vice President, any Vice President or
the General Counsel. Any such officer may, in the name of and on
behalf of the Company, take all such action as any such officer
may deem advisable to vote in person or by proxy at any meeting
of security holders of any corporation in which the Company may
own securities and at any such meeting shall possess and may
exercise any and all rights and powers incident to the ownership
of such securities and which, as the owner thereof, the Company
might have exercised and possessed if present. The Board of
Directors may from time to time confer like powers upon any other
person or persons.


--- Page 62 ---


Section 7.4. Executive Office. The principal executive
office of the Company shall be located in the City of Midland,
County of Midland, State of Michigan, where the books of account
and records shall be kept. The Company also may have offices at
such other places, both within and without Delaware, as the Board
of Directors from time to time shall determine or the business
and affairs of the Company may require.


Section VIII
AMENDMENT OF BYLAWS*

Section 8.1. The Board of Directors shall have power to
amend, alter, change, adopt and repeal the Bylaws* of the Company
at any regular or special meeting. The stockholders also shall
have power to amend, alter, change, adopt and repeal the Bylaws*
of the Company at any annual or special meeting subject to the
requirements of the Certificate of Incorporation.


* Spelling as amended April 8, 1993.


--- Page 63 ---





EXHIBIT 21
SUBSIDIARIES OF THE DOW CHEMICAL COMPANY
At December 31, 1997
Location of Percent
Incorporation Ownership
or Organization*

The Dow Chemical Company Delaware
Arabian Chemical Company Limited Saudi Arabia 50
Arabian Chemical Company (Latex) Limited Saudi Arabia 50
CD Polymers, Inc. Delaware 100
Centen Ag Inc. Delaware 100
DowElanco LLC (11) Delaware 40
Cetcor, Inc. Michigan 100
Chemars Inc. Delaware 100
DC Partnership Management Inc. Delaware 100
DowBrands L.P. (6) Delaware 45
DCOMCO, Inc. Delaware 100
DCU/LB Trust (1) California 50
Derivados Petroquimicos Soc. De Inversion S.A. Argentina 50
DEXCO Polymers (1) Texas 50
Diamond Capital Management Inc. Delaware 100
Diamond Technology Partnership Company (7) Delaware 88
Chemtech Royalty Associates, L.P. (8) Delaware 81
Chemtech Portfolio Inc. Texas 100
Dofinco, Inc. Delaware 100
Dow Quimica Latin America SA Uruguay 100
Dow Austria Ges. mbH Austria 100
Dow Centroamerica S./A. Costa Rica 100
Dow Centroamerica S/A Guatemala 100
Dow Chemical (Australia) Limited Australia 100
Dow Australia Superannuation Fund A Pty Ltd Australia 100
Dow Australia Superannuation Fund B Pty Ltd Australia 100
Dow Chemical Canada Inc. Canada 100
Dow Capital B.V. Netherlands 100
Dow International Financial Services Ireland 100
Dow Capital Public Limited Company Ireland 100
Dow International Service Center NV Belgium 100
Dow Pipeline Ltd. Canada 100
DowBrands Canada Inc. Canada 100
Fort Saskatchewan Ethylene Storage Limited Partership Canada 50
H-D Tech Inc. (1) Canada 50
1069284 Ontario Inc. Canada 100
Dow Chemical (China) Ltd. Delaware 100
Dow Chemical Company Limited United Kingdom 100
Cromarty Petroleum Company Limited (1) United Kingdom 50
Dow Chemical Delaware Corp. Delaware 100
Dow Chemical (Hong Kong) Limited Hong Kong 100
Dow Chemical International Ltd. Delaware 100
Dow Chemical International Ltd Ecuador Delaware 100
Dow Chemical International Ltd India Branch Delaware 100
Dow Chemical Thailand Limited Thailand 100
Petroquimica-Dow S.A. (Petrodow) Chile 70
Dow Chemical Japan Limited (10) Japan 88
Dow Chemical Korea Limited Korea 100
Dow Chemical (NZ) Limited New Zealand 100

--- Page 64 ---

Location of Percent
Incorporation Ownership
or Organization*

Dow Chemical Pacific Limited Hong Kong 100
Ulsan Pacific Chemical Corporation Korea 80
Dow Chemical (Singapore) Private Limited Singapore 100
Dow Chemical Taiwan Ltd. Taiwan 100
Dow Credit Corporation Delaware 100
Dow Deutschland Inc. Delaware/Germany 100
Dow Chemical Inter-American Limited Delaware 100
Dow Quimica de Colombia S.A. (5) Colombia 10
Dow Deutschland Anlagengesellschaft GmbH Germany 100
Dow Hungary Chemicals Limited Liability Company Hungary 100
Dow Portugal Produtos Quimicos S.A. Portugal 100
Dow Turkiye A.S. (3) Turkey 40
DowBrands GmbH Germany 100
Epoxital S.R.L. (1) Italy 50
Safechem Umwelt Service GmbH Germany 51
Dow Engineering Company Delaware 100
Dow Engineering, Inc. Michigan 100
Dow Environmental Inc. Delaware 100
Radian International LLC Delaware 60
Corporacion Radian, S.A. de C.V. Mexico 100
D-R Holding NV Netherlands 100
Ecobilan SA France 100
Ecoaudit SA France 100
Ecobalance Inc. Delaware 100
Ecobilan S.R.L. Italy 100
Dow Environmental Canada Inc. Canada 100
Radian Environmental GmbH Germany 100
Radian Ceramics Development Corporation Delaware 100
Radian Engineering, Inc. Delaware 100
Radian D-Tech Inc. Delaware 51
Radian International Canada Inc. Canada 100
Radian International Pty Ltd Australia 100
Radian International S.A. Argentina 100
Radian Overseas Management Company Delaware 100
Radian S.E.A. Limited Thailand 100
Radian Systems Corp. Delaware 100
Tecnologias Y Servicios Ambientales, Tesam S.A. Chile 55
Dow Europe Holding N.V. Netherlands 100
BSL Olefinverbund GmbH Germany 80
DowBrands Holding GmbH Germany 100
Dow Belgium Belgium 100
Dow Benelux N.V. Netherlands 100
C&P Botlek International BV Netherlands 100
C&P Botlek International CV (4) Netherlands 10
C&P Botlek International CV (4) Netherlands 90
Polyol Belgium N.V. (12) Belgium 1
Rofan Automation and Information Systems B.V. Netherlands 100
Dow Chemical Iberica S.A. Spain 99
DowBrands Espanola S.A. Spain 100
Transformadora De Estileno S.A. (1) Spain 50
Dow Danmark A/S Denmark 100
Dow France S.A. France 100

--- Page 65 ---

Location of Percent
Incorporation Ownership
or Organization*

DowBrands SA France 100
Dow InterBranch B.V. Netherlands 100
Dow Italia S.p.A. Italy 100
Dow Mideast Systems (2) Egypt 1
Dow Polska Sp.z.o.o. Poland 100
Dow Southern Africa (Pty) Ltd. South Africa 100
Dow Suomi OY Finland 100
Dow Sverige AB Sweden 100
Polyol International B.V. Netherlands 100
Polyol Belgium N.V. (12) Belgium 99
Dow (Europe) S.A. Switzerland 100
Chemtech Royalty Associates, L.P. (8) Delaware 1
Dow Europe S.A., Midland Branch Switzerland 100
Dow Export S.A. Switzerland 100
Dow Mideast Systems (2) Egypt 1
Dow Turkiye A.S. (3) Turkey 1
Dow Factoring Company S.A. Switzerland 100
Dow Financial Holdings Inc. Delaware 100
DowBrands L.P. (6) Delaware 55
Dow Holdings Inc. Delaware 100
Dow Corning Corporation (1) Michigan 50
Dow Hydrocarbons and Resources Inc. Delaware 100
Cayuse Pipeline, Inc. Texas 100
Dow Intrastate Gas Company Louisiana 100
Dow Pipeline Company Texas 100
Midland Pipeline Corp. Delaware 100
Fort Saskatchewan Ethylene Storage Corporation Canada 50
Tier One Properties Inc. Delaware 100
Dow Financial Services Inc. Delaware 100
Dow Hellas A.E. Greece 100
Dow International B.V. Netherlands 100
Dow Investment Argentina S.A. Argentina 100
Petroquimica Bahia Blanca S.A.I.C. Argentina 63
Polisur S.A. Argentina 70
Dow Kakoh Kabushiki Kaisha Japan 65
Dow MidEast Systems (2) Egypt 98
Dow Polyurethanes Japan Limited Japan 100
Dow Quimica Argentina S.A. (9) Argentina 55
Dow Quimica Chilena S.A. Chile 100
Anticorrosivos Industriales Limitada (1) Chile 50
Dow Quimica de Colombia S.A. (5) Colombia 90
Dow Quimica Mexicana S.A. de C.V. Mexico 100
Dow Environmental de Mexico, S.A. de C.V. Mexico 100
Dow Quimica S.A. Brazil 100
Dow Quimica do Nordeste LTDA Brazil 100
EDN-Estireno Do Nordeste S A Brazil 68
EDN-Distribuidora Do Nordeste LTDA Brazil 100
EDN-Poliestireno Do Sul LTDA. Brazil 100
Primera-Industria e Comercio Ltda. Brazil 100
Keytil Sociedad Anonima Uruguay 100
Dow Chemical Pacific (Singapore) Private Limited Singapore 100
Dow Chemical (Guangzhou) Company Ltd. China 100

--- Page 66 ---

Location of Percent
Incorporation Ownership
or Organization*

Dow Financial Holdings Singapore Pte Ltd. Singapore 100
S.H.A. Holdings Pte Ltd Singapore 100
G.Z. Holdings Pte Ltd Singapore 100
Dow South Africa Holdings (Pty.) Ltd South Africa 100
Sentrachem Limited South Africa 93
IFIC Holdings Ltd Virgin Islands 100
Imic Holdings Inc (BVI) Virgin Islands 100
Sentrachem International Holdings Ltd Jersey Channel Islnd 100
Sentrachem US, Inc. Delaware 100
Hampshire Holdings, Inc. Delaware 100
Hampshire Chemical Corp Delaware 100
Hampshire Chemical Ltd United Kingdom 100
Hampshire Chemical GmbH Germany 100
Hampshire Chemical AB Sweden 100
Hampshire Chemical do Brasil Ltda Brazil 100
Hampshire Chemical Finance Corp Delaware 100
Sentrachem International Ltd (BVI) Virgin Islands 100
Sentrachem International Ltd (UK) United Kingdom 100
Imic Chem Trading Inc Panama 100
Swisschem (Jersey) Ltd Jersey Channel Islands 100
Sentraflow Ltd Jersey Channel Islands 100
Seatrade Tankers Ltd (BVI) Virgin Islands 90
Intermaritime Inc Panama 100
Cenchem SA (Switzerland) Switzerland 100
Bonkem Inc. Panama 100
NCP Holdings Ltd Jersey Channel Islands 100
Biocitric (Pty) Ltd Jersey Channel Islands 50
Cairns Chemicals (Pvt) Ltd Panama 100
Sanachem Holdings Inc. Panama 100
Mermaid Containers Ltd Jersey Channel Islands 100
Proteb Limited Jersey Channel Islands 50
Sanachem International Ltd United Kingdom 100
Suchem Ltd Mauritius 100
Agrofarm Israel Ltd Israel 100
LC International (SARL) France 100
Sanachem Austria (GMBH) Austria 100
Sanachem Brazil Commercial Ltda. Brazil 100
Sanachem Italia Spa Italy 100
Sanachem USA, Inc. Delaware 100
Alsan Research Iowa 50
Electrochem Plant Uzbek - Panama Uzbekistan 49
Velsimex SA DE CV Mexico 50
Chemexport Inc Cayman Islands 50
Seetrade Ltd Guernsey Channel Island 100
Seetrade Trading Ltd Guernsey Channel Island 100
Minchem International Inc South Africa 100
Farm-Ag Ltd South Africa 100
Peskor (Pty) Ltd South Africa 100
Sanachem (Pty) Ltd South Africa 50
Sanachem (Pty) Ltd South Africa 50
Agbro (Pty) Ltd South Africa 100
Agroserve (Pty) Ltd South Africa 100

--- Page 67 ---

Location of Percent
Incorporation Ownership
or Organization*

Farmpak (Pty) Ltd South Africa 100
Hyperchemicals (Pty) Ltd South Africa 100
Learstraat Beleggings (Edms) Bpk South Africa 100
World Trading Company (Pty) Ltd South Africa 100
Plant Chemicals (Swaziland) (Pty) Ltd Swaziland 100
Cisvaal (Pty) Ltd South Africa 100
Jakkalsbessie Beleggings (Edms) Bpk South Africa 100
Syntheta (Pty) Ltd South Africa 100
Randjespark Property Holdings (Pty) Ltd South Africa 100
Academy Plastic (Pty) Ltd South Africa 100
Academy Plastic Specialists (Pty) Ltd South Africa 100
International Fruit Container Organisation (Pty) Ltd South Africa 100
Pearlaflex Packaging (Pty) Ltd South Africa 100
Mega Plastics Properties (Pty) Ltd South Africa 100
Agrihold Ltd South Africa 100
Wonder Horticultural Products (Pty) Ltd South Africa 100
Rumevite (Pty) Ltd South Africa 100
ICT 2000 (Pty) Ltd South Africa 100
Investment Facility Company 184 (Pty) Ltd South Africa 100
Investment Facility Company 185 (Pty) Ltd South Africa 100
Investment Facility Company 188 (Pty) Ltd South Africa 100
Investment Facility Company 189 (Pty) Ltd South Africa 100
Sanachem (Pty) Ltd Australia 100
Sentrachem (Pty) Ltd Australia 100
Monomer Distribution (Pty) Ltd South Africa 100
Invesen Finance (Pty) Ltd South Africa 100
Profinans (Edms) Bpk South Africa 50
Fedsen (Pty) Ltd South Africa 50
Nedchem Finance (Pty) Ltd South Africa 50
Spunchem Holdings (Pty) Ltd South Africa 50
Spunbond Africa (Pty) Ltd South Africa 100
Spunchem Africa (Pty) Ltd South Africa 100
Potter & Moore International SA (Pty) Ltd South Africa 100
Cobalt Chemical Corp (Pty) Ltd South Africa 100
Chemotech (Pty) Ltd South Africa 100
National Chemical Products Ltd South Africa 100
NCP Marketing Corporation (Pty) Ltd South Africa 100
PGM Chemicals (Pty) Ltd South Africa 100
PRP Resins (Pty) Ltd South Africa 100
Salt and Chemicals (Pty) Ltd Namibia 100
Walvis Bay Salt Refiners (Pty) Ltd Namibia 100
Singer and Hersch Industrial Development (Pty) Ltd South Africa 100
Dow Trading PRC Inc. Delaware 100
Dow Trading S.A. Switzerland 100
Dow Turkiye A.S. (3) Turkey 59
Dow Venezuela, C.A. Venezuela 100
CV Services Ltd. Cayman Islands 100
Dow-United Technologies Composite Products, Inc. (1) Delaware 50
DowBrands Inc. Delaware 100
El Dorado Terminals Company (1) New Jersey 50
Ensign Equipment Company, Inc. Japan 100
Essex Chemical Corporation New Jersey 100

--- Page 68 ---

Location of Percent
Incorporation Ownership
or Organization*

Pioneer Pharmaceuticals, Inc. New Jersey 100
Essex Specialty Products, Inc. New Jersey 100
Diamond Technology Partnership Company (7) Delaware 12
Essex Specialty Prod, Inc, Canada Canada 100
Expandite-Essex Pty. Limited (1) Australia 50
Gurit-Essex A.G. (1) Switzerland 50
Sound Alliance LLC Delaware 60
Etoxilados del Plata S.A. Argentina 100
FilmTec Corporation Delaware 100
Great Western Pipeline Company, Inc. California 100
HD Polyurethane Company (1) Korea 50
Ifco Inc. Delaware 100
INCA International SpA Italy 80
Intarsia Corporation Delaware 80
Joliet Marine Terminal Trust Estate (1) Illinois 50
Latin American Pharmaceuticals, Inc. Delaware 100
Dow Quimica Argentina S.A. (9) Argentina 45
Lepetit International Inc. Panama 100
Liana Limited Delaware 100
Dorinco Insurance (Ireland) Ltd. Ireland 100
Dorinco Reinsurance Company Michigan 100
Dorintal Reinsurance Limited Bermuda 100
Timber Insurance Limited Bermuda 100
P.T. Dow Polymers Indonesia Indonesia 80
P.T. Pacific Indomas Plastic Indonesia (1) Indonesia 50
Petrochemical Investment Co. Cayman Islands 50
Productos Quimicos Peruanos S/A Peru 100
Quixtor Technologies Corporation Delaware 100
Raven Group Ltd. Delaware 85
Rofan Services Inc. Delaware 100
DH Compounding Company (1) Delaware 50
DowElanco LLC (11) Delaware 60
DERe Insurance Company Vermont 100
Dintec Agrichemicals Indiana 66
DowElanco Agricultural Products Limited Mauritius 100
DE-NOCIL Crop Protection Limited India 51
DowElanco (Barbados) Limited Barbados 100
DowElanco China Ltd. Delaware 100
DowElanco International Ltd. Delaware 100
DowElanco (Thailand) Ltd. Thailand 100
Mycogen Corporation California 57
DowElanco B.V. Netherlands 100
Dintec Agroquimica Produtos Quimicos Lda Portugal 66
Dow Chemical Japan Limited (10) Japan 12
DowElanco Argentina S.A. Argentina 100
DowElanco Asia Pacific Sdn Bhd Malaysia 100
DowElanco Australia Limited Australia 100
DowElanco B.V. - Sede Secondaria in Italia Italy 100
DowElanco Canada Inc. Canada 100
DowElanco Chile S.A. Chile 100
DowElanco Costa Rica S/A Costa Rica 100
DowElanco Danmark A/S Denmark 100

--- Page 69 ---

Location of Percent
Incorporation Ownership
or Organization*

DowElanco de Colombia S.A. Colombia 100
DowElanco Export S.A. France 100
DowElanco GmbH Germany 100
DowElanco Guatemala S/A Guatemala 100
DowElanco Iberica S.A. Spain 100
DowElanco Industrial Ltda. Brazil 100
DowElanco Italia S.r.L. Italy 100
DowElanco Limited United Kingdom 100
DowElanco (Malaysia) Sdn Bhd Malaysia 100
DowElanco Mexicana, S.A. de C.V. Mexico 100
DowElanco (NZ) Limited New Zealand 100
DowElanco Pacific Limited Hong Kong 100
DowElanco Paraguaya S.A. Paraguay 100
DowElanco Pflanzenschutzmittel Vertriebs G.m.b.H. Austria 100
DowElanco Polska Sp. z.o.o. Poland 100
DowElanco S.A. France 100
DowElanco Southern Africa (Pty) Ltd South Africa 100
DowElanco Sverige AB Sweden 100
DowElanco Taiwan Ltd. Taiwan 100
DowElanco Tarim AS Turkey 100
DowElanco Uruguay SA Uruguay 100
DowElanco Venezuela, C.A. Venezuela 100
P.T. Pacific Chemicals Indonesia Indonesia 100
Wenben, Inc. Delaware 100
Dupont Dow Elastomers L.L.C. (1) Delaware 50
Styron Asia Limited (1) Hong Kong 50
Sumitomo Dow Ltd. (1) Japan 50
Yokkaichi MDI Limited Japan 50
Zhejiang Pacific Chemical Corporation (1) China 50


*Primary location of organization is reported for partnerships.

--- Page 70 ---

(1) Separate financial statements for these companies have been
omitted because of the absence of the conditions under which
they are required.
(2) The Dow Chemical Company effective ownership of this company
is 100% of which The Dow Chemical Company owns 98%, Dow
Europe Holding N.V. owns 1% and Dow (Europe) S.A. owns 1%.
(3) The Dow Chemical Company effective ownership of this company
is 100% of which The Dow Chemical Company owns 59%, Dow
Deutschland Inc. owns 40% and Dow (Europe) S.A. owns 1%.
(4) The Dow Chemical Company effective ownership of this company
is 100% of which Dow Benelux N.V. owns 90% and C&P Botlek
International BV owns10%.
(5) The Dow Chemical Company effective ownership of this company
is 100% of which The Dow Chemical Company owns 90% and Dow
Chemical Inter-American Limited owns 10%.
(6) The Dow Chemical Company effective ownership of this company
is 100% of which Dow Financial Holdings Inc. owns 55% and DC
Partnership Management Inc. owns 45%.
(7) The Dow Chemical Company effective ownership of this company
is 100% of which The Dow Chemical Company owns 88.4848% and
Essex Specialty Products owns 11.5152%.
(8) The Dow Chemical Company effective ownership of this company
is 82.1627% of which Diamond Technology Partnership
Company owns 81.0972% and Dow (Europe) S.A. owns 1.0655%.
(9) The Dow Chemical Company effective ownership of this company
is 100% of which The Dow Chemical Company owns 54.75% and Latin
American Pharmaceuticals, Inc. owns 45.25%.
(10) The Dow Chemical Company effective ownership of this company
is 100% of which The Dow Chemical Company
owns 87.5% and DowElanco B.V. owns 12.5%.
(11) The Dow Chemical Company effective ownership of this company
is 100% of which Rofan Services Inc. owns 60%
and Centen Ag Inc. owns 40%.
(12) The Dow Chemical Company effective ownership of this company
is 100% of which Dow Benelux NV owns .5% and Polyol
International BV owns 99.5%.


--- Page 71 ---


EXHIBIT 23



INDEPENDENT AUDITORS' CONSENT



The Dow Chemical Company:

We consent to the incorporation by reference of our report dated
February 11, 1998 appearing in this Annual Report on Form 10-K of
The Dow Chemical Company for the year ended December 31, 1997,
in the following Registration Statements of The Dow Chemical Company:

Form S-3:

Nos. 33-37052
33-44369
33-51673
33-52980

Form S-8:

Nos. 2-44789
2-64560
33-21748
33-37345
33-51453
33-52841
33-56138
33-56140
33-58205
33-61795
333-27377
333-27379
333-27381
333-27383
333-40271




DELOITTE & TOUCHE LLP
Midland, Michigan
March 20, 1998


--- Page 72 ---