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  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 2/01/07  Votorantim Pulp & Paper Inc       20-F        1/31/07   22:906                                    PR Newswire/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F        Annual Report of a Foreign Private Issuer           HTML  1,976K 
 2: EX-4.1.1    Instrument Defining the Rights of Security Holders  HTML  1,011K 
 3: EX-4.1.2    Instrument Defining the Rights of Security Holders  HTML     66K 
 4: EX-4.1.3    Instrument Defining the Rights of Security Holders  HTML     40K 
 5: EX-4.1.3A   Instrument Defining the Rights of Security Holders  HTML    136K 
 6: EX-4.2.1    Instrument Defining the Rights of Security Holders  HTML    101K 
 7: EX-4.2.2    Instrument Defining the Rights of Security Holders  HTML    768K 
 8: EX-4.2.3    Instrument Defining the Rights of Security Holders  HTML     73K 
 9: EX-4.2.4    Instrument Defining the Rights of Security Holders  HTML     92K 
10: EX-4.3.1    Instrument Defining the Rights of Security Holders  HTML    109K 
11: EX-4.3.2    Instrument Defining the Rights of Security Holders  HTML    787K 
12: EX-4.3.3    Instrument Defining the Rights of Security Holders  HTML     70K 
13: EX-4.3.4    Instrument Defining the Rights of Security Holders  HTML     98K 
14: EX-4.4.1    Instrument Defining the Rights of Security Holders  HTML    127K 
15: EX-4.4.2    Instrument Defining the Rights of Security Holders  HTML    748K 
16: EX-4.4.3    Instrument Defining the Rights of Security Holders  HTML     76K 
17: EX-4.4.4    Instrument Defining the Rights of Security Holders  HTML     87K 
18: EX-4.5      Instrument Defining the Rights of Security Holders  HTML    156K 
19: EX-12.1     Statement re: Computation of Ratios                 HTML     16K 
20: EX-12.2     Statement re: Computation of Ratios                 HTML     16K 
21: EX-13.1     Annual or Quarterly Report to Security Holders      HTML     10K 
22: EX-13.2     Annual or Quarterly Report to Security Holders      HTML      9K 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 20-F

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

None

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

None

The number of outstanding shares of each class of stock of Votorantim Celulose e Papel S.A. as of December 31, 2006.

          Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 

          If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. 

          Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

          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.

          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

          Indicate by check mark which financial statement item the registrant has elected to follow.

          If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

TABLE OF CONTENTS

i

INTRODUCTION

          All references in this annual report to:

          As used in this annual report, one hectare equals approximately 2.471 acres and one kilometer equals approximately 0.621 miles.  References in this annual report to nominal production capacity or production capacity mean annual projected capacity for which the facility was designed, with the facility operating under optimal conditions, 24 hours a day, for 365 days a year and subject to reductions in rates of production for scheduled maintenance only.  Actual production capacity will vary depending on operating conditions, the grades of pulp or paper produced and other factors.

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          The commercial selling rate is used in this annual report rather than the noon buying rate in New York City as reported by the Federal Reserve Bank of New York because the noon buying rate was not consistently reported for reais during the periods shown in this annual report.  See “Item 3—Key Information—Selected Financial Data—Exchange Rates” for information regarding exchange rates applicable to the Brazilian currency since 2002.

          We have prepared our consolidated financial statements included in this annual report in conformity with generally accepted accounting principles in the United States, or U.S. GAAP.  Our reporting currency in this annual report for all periods is the U.S. dollar.

          We make statements in this annual report about our competitive position and market share in, and the market size of, the pulp and paper industry.  We have made these statements on the basis of statistics and other information from third-party sources that we believe are reliable.  We derive this third-party information principally from reports published by BRACELPA — Associação Brasileira de Celulose e Papel (the Brazilian Association of Pulp and Paper), and Valois Vision, which is a monthly report on the pulp markets.  Although we have no reason to believe that any of this information or these reports are inaccurate in any material respect, we have not independently verified the competitive position, market share, market size or market growth data provided by third parties or by industry or general publications. 

FORWARD-LOOKING STATEMENTS

          This annual report includes forward-looking statements, principally in “Item 3D—Key Information—Risk Factors,” “Item 4B—Information on VCP—Business Overview” and “Item 5—Operating and Financial Review and Prospects.”  We have based these forward-looking statements largely on our current expectations about future events and financial trends affecting our business.  These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things:

          The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify forward-looking statements.  We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or otherwise.  In light of these risks and uncertainties, the forward-looking information, events and circumstances discussed in this annual report might not occur.  Our actual results and performance could differ substantially from those anticipated in our forward-looking statements.

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  PART I

  ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

          Not applicable.

  ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

          Not applicable.

  ITEM 3.  KEY INFORMATION

A.  Selected Financial Data

          We maintain our books and records in reais, which are the basis for our statutory financial statements, prepared as prescribed under Law No. 6,404/76, as amended, known as the Brazilian corporate law, and used to determine income taxes and mandatory minimum dividend calculations.  The statutory financial statements (not included in this annual report) are prepared in accordance with accounting practices adopted in Brazil, or Brazilian GAAP, which are based on the Brazilian corporate law, the rules and regulations of the CVM, and the accounting standards issued by the Instituto dos Auditores Independentes do Brasil, the Brazilian Institute of Independent Accountants, or IBRACON.  We have also prepared consolidated balance sheets at December 31, 2006 and 2005 and the related consolidated statements of income, cash flows and changes in shareholders’ equity for the years ended December 31, 2006, 2005 and 2004, all stated in U.S. dollars in accordance with U.S. GAAP.  Our U.S. GAAP financial statements are included in this annual report.  The selected financial information at and for the years ended December 31, 2006, 2005, 2004, 2003 and 2002 are derived from our U.S. GAAP financial statements audited by PricewaterhouseCoopers Auditores Independentes, São Paulo, Brazil. 

          The following table presents a summary of our selected financial data at the dates and for each of the periods indicated.  You should read the following information together with our financial statements, including the notes thereto, included elsewhere in this annual report.

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4

5

Exchange Rates

          On March 4, 2005, the National Monetary Council (CMN) of the Brazilian Central Bank issued resolutions 3265 and 3266 setting forth important modifications to the Brazilian exchange market.  Changes turned the Brazilian exchange market into a more flexible one and, consequently, made the Brazilian market more competitive.  The main changes set forth by the two resolutions can be summarized as follows:

          Both Brazilian foreign exchange markets, the floating rate exchange market (Mercado de Câmbio de Taxas Flutuantes) and free rate exchange market (Mercado de Câmbio de Taxas Livres), were unified into a unique exchange market.  The free rate exchange market was used mainly for import and export transactions and foreign investment, while the floating rate exchange market was mainly used for transfers of funds from or to Brazil. 

          Most trade and financial foreign-exchange transactions, including transactions relating to the purchase or sale of preferred shares or the payment of dividends with respect to preferred shares or ADSs, were carried out on the commercial market at the applicable commercial market rate.  Purchase of foreign currencies in the commercial market could only be carried out through a Brazilian bank authorized to buy and sell currency in that market.  In both markets, rates are freely negotiated but could be strongly influenced by intervention by the Brazilian Central Bank, or the Central Bank.

          In 2002, the real depreciated by 34% against the U.S. dollar.  In 2003, 2004, 2005 and 2006 the real appreciated 22%, 9%, 13% and 9%, respectively against the US dollar. Resolution No. 3,265 by the National Monetary Council, dated March 4, 2005, consolidated the foreign exchange markets into one single exchange market, effective as of March 14, 2005.  According to this Resolution, all foreign exchange transactions must be carried out through institutions authorized to operate in the consolidated market and are subjected to registration with the Central Bank’s electronic registration system.  Foreign exchange rates continue to be freely negotiated.  As of December 31, 2006, the commercial market rate for purchasing U.S. dollars was R$ 2.1380 to US$ 1.00.  We cannot assure you that the real will not devalue or appreciate substantially in the near future.  See “Item 5—Operating and Financial Review and Prospects—Overview—Brazilian Economic Environment.”

          The following table shows the commercial selling rate for U.S. dollars for the periods and dates indicated. 

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B.  Capitalization and Indebtedness

          Not applicable.

C.  Reasons for the Offer and Use of Proceeds

          Not applicable.

D.  Risk Factors

          We are subject to various risks resulting from changing competitive, economic, political and social conditions that could harm our business, results of operations or financial condition.  The risks described below are not the only ones we face.

Risks Relating to VCP and the Pulp and Paper Industry

          The market prices for our products are cyclical. 

          The prices we are able to obtain for our products depend on prevailing world prices for market pulp and paper.  World prices have historically been cyclical and subject to significant fluctuations over short periods of time depending on a number of factors, including:

All of these factors are beyond our control.  Over the last three years, bleached eucalyptus kraft pulp (BEKP) or market pulp prices in the United States, Europe and Asia, respectively, have fluctuated from lows of US$ 525, US$ 490, and US$ 440 per ton in the first quarter of 2004, to highs of US$ 715, US$ 680, and US$ 650 per ton at December 30, 2006 in these respective regions. Such price fluctuations occur not only year to year but also within a year as a result of global and regional economic conditions, and supply and demand.  The price of paper products, although less volatile than the price of pulp, also experiences fluctuations in response to global demand and production and fluctuations in pulp prices.  Capacity adjustments have also occurred on the paper side, and in the first half of 2006 we saw paper prices increasing for several grades in the United States and Europe.  For uncoated woodfree papers, international prices climbed 15% in the first six months of 2006 but declined approximately 5% in the last quarter of the year.  For a more detailed discussion of prices of pulp and paper, see Item 4.B “Information on VCP – Business Overview – Cyclical nature of world pulp prices.”

          It is possible that the market prices for pulp and paper will decline in the future, or that there will not be sufficient demand for our products to enable us to operate our production facilities in an economical manner. 

          A slowdown in demand in China may adversely affect our exports. 

          China has been an increasingly important market to us since the expansion of our pulp exports in 2002. According to the Pulp and Paper Products Council (PPPC) the demand for chemical and market pulp in China grew to about 7.5 million tons in 2006, a 10% increase over 2005, and represented 15% of the world pulp demand in 2006, compared to approximately 2% in 1995. China currently represents approximately 15% of our total export volume and 14% of our total sales volume, including the volume originated from Ripasa. There is no assurance that demand by China for pulp will continue its current pace of growth in the future or that China will continue to constitute a significant part of our exports.  A decline in demand by China for our products could adversely affect our exports and, therefore, our financial results.

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          We face significant competition in some of our lines of business, which may adversely affect our market share and profitability. 

          The pulp and paper industry is highly competitive.  Competitive features within the industry include the following:

          Traditionally, imports of pulp and paper have not provided substantial competition for us in Brazil due to, among other factors, logistical costs, tariff rates and exchange rates on those products.  If the Brazilian government decreases import tariffs, we may face a sudden increase in competition in the domestic market by foreign producers. 

          In addition, most markets are served by several suppliers, often from different countries.  Many factors influence our competitive position, including mill efficiency and operating rates and the availability, quality and cost of wood, energy, water, chemicals and labor, and exchange rate fluctuations.  See “Item 3D—Risks Relating to Brazil-- Exchange rate instability may adversely affect our financial condition and results of operations and the market price of our preferred shares and ADSs.”  Some of our competitors have greater financial and marketing resources, larger customer bases and greater breadth of product offerings than we do.  If we are unable to remain competitive with these producers in the future, our market share may be adversely affected.  In addition, downward pressure on the prices of pulp and paper by our competitors may affect our profitability. 

          Delays in the expansion of our facilities or in building new facilities may affect our costs and results of operations. 

          As part of our strategy to increase our international market share and improve our competitiveness through greater economies of scale, we may expand or build one or more production facilities.  The expansion or construction of a production facility involves various risks.  These risks include engineering, construction, regulatory and other significant challenges that may delay or prevent the successful operation of the project or significantly increase our costs.  Our ability to complete successfully any expansion or new construction project on time is also subject to financing and other risks. 

          We may be adversely affected by the imposition and enforcement of more stringent environmental regulations that would require us to spend additional funds. 

          We are subject to stringent environmental laws and regulations in Brazil governing air emissions, effluent discharges, solid wastes, odor and reforestation, and we require permits from governmental agencies for certain of our operations.  Changes in these laws and regulations could adversely affect us.  If we violate or fail to comply with these laws, regulations and permits, we could be fined or otherwise sanctioned by regulators or our permits could be revoked, and our ability to operate could be suspended or otherwise adversely affected.  In addition, noncompliance with these laws, regulations and permits could result in criminal sanctions for us and for our employees.  We could also be responsible for related environmental remediation costs, which could be substantial. 

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          It is possible that governmental agencies or other authorities will pass new laws or impose additional laws and regulations even more stringent than the ones currently in force or will seek a more stringent interpretation of existing laws and regulations that would require us to spend additional funds on environmental compliance or limit our ability to operate as we currently do.  In addition, these actions could increase the costs associated with renewing existing permits or applying for new ones.  There can be no assurance that these additional funds or costs will not be material or that existing permits will be renewed. 

          In addition, environmental laws and regulations in certain countries may be more stringent than the ones we are subject to in Brazil, which may lead to such countries imposing trade related sanctions against Brazil or our industry.  Furthermore, our inability to comply with more stringent foreign environmental laws and regulations may prevent us from seeking lower cost financing from foreign governmental related or multilateral development organizations, which may condition future financing on our compliance with more stringent environmental laws and regulations.

          Our insurance coverage may be insufficient to cover our losses, especially in cases of damage to our forests.

          Our insurance may be insufficient to cover losses that we might incur.  We have comprehensive insurance with leading insurers to cover damages to our mills caused by fire, general third-party liability for accidents and operational risks and international and domestic transportation.  However, we do not maintain insurance coverage against fire, disease and other risks to our forests. The occurrence of losses or other damages not covered by insurance or that exceed our insurance limits could result in significant unexpected additional costs. 

          If we are unable to manage potential problems and risks related to acquisitions and alliances, our business and growth prospects may suffer.  Some of our competitors may be better positioned to acquire other pulp and paper businesses.

          We may, as part of our business strategy, acquire other businesses in Brazil or elsewhere or enter into alliances.  Our management is unable to predict whether or when any prospective acquisitions or alliances will occur, or the likelihood of a material transaction being completed on favorable terms and conditions.  Our ability to continue to expand successfully through acquisitions or alliances depends on many factors, including our ability to identify acquisitions and negotiate, finance and close transactions.  Even if we complete future acquisitions:

          Our failure to integrate new businesses or manage new alliances successfully could adversely affect our business and financial performance.  Furthermore, the world pulp and paper industry is undergoing consolidation, and many companies compete for acquisition and alliance opportunities in our industry.  Some of our competitors have greater financial and other resources than we do.  This may reduce the likelihood that we will be successful in completing acquisitions and alliances necessary for the expansion of our business.  In addition, any major acquisition we consider may be subject to regulatory approval.  We may not be successful in obtaining required regulatory approvals on a timely basis or at all.  See “Item 4A—Information on VCP—History and Development of VCP.”

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          We are controlled by a defined group of individuals who have the power to control all our subsidiaries and us. 

          We are controlled by the Ermírio de Moraes family, which indirectly controls all of our outstanding common voting shares.  Consequently, our controlling shareholders have the power to control us and all of our subsidiaries, including the power to:

          We currently engage in, and expect in the future to engage in, commercial and financial transactions, from time to time, with our controlling shareholders or their affiliates.  Commercial and financial transactions between our affiliates and us create the potential for, or could result in, conflicts of interests.  For a discussion of certain related party transactions, see “Item 7—Major Shareholders and Related Party Transactions—Related Party Transactions.”

          We rely on third parties for some of our technology. 

          We rely on third parties for the technology that we use to make some of our value-added paper products.  For example, Oji Paper of Japan has granted us the right to use its technology to manufacture and sell certain thermal papers in Brazil and to sell these products in some other countries.  If a third-party licensor of technology that we use refused to continue licensing its technology to us, our results of operations could be adversely affected.

          Various other risks could have a material adverse effect on our financial results. 

          Our operations are subject to various other risks affecting our forests and manufacturing processes, including fire, drought, disease, climate changes, strikes, post closings, shipping costs, electrical failures and factory explosions, which could have a material adverse effect on our financial results. 

Risks Relating to Brazil

          Brazilian economic and political conditions and perceptions of these conditions in the international market have a direct impact on our business and the market price of our preferred shares and ADSs. 

          Our operations are conducted in Brazil, and in 2006 we sold approximately 37% of our products in terms of volume to Brazilian customers.  Accordingly, our financial conditions and results of operations are substantially dependent on economic conditions in Brazil.  Brazil’s gross domestic product grew by 4.9% in 2004, 2.3% in 2005 and about 2.8% in 2006, but we cannot assure you that gross domestic product will increase or remain stable in the future. Future developments in the Brazilian economy may affect Brazil’s growth rates and, consequently, the consumption of pulp and paper.  As a result, these developments could impair our business strategies, financial condition or results of operations. 

          In the past, the Brazilian government has intervened in the Brazilian economy and occasionally made drastic changes in policy.  The Brazilian government’s actions to control inflation and affect other policies have included wage and price controls, currency devaluations, capital controls, and limits on imports.  Our business, financial condition and results of operations may be adversely affected by changes in government policies as well as general economic factors, including:

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          Historically, the political scenario has influenced the performance of the Brazilian economy.  In the past, political crises have affected the confidence of investors and the general public, which resulted in economic deceleration and affected the trading prices of common shares issued by companies listed on the stock exchange. In October 2006, elections were held in all states of Brazil and at the federal level to elect new state governors and reelect the President. President Luis Inacio Lula da Silva was reelected. We cannot predict whether the government will continue the policies of the previous administration or will pursue different policies, whether these new policies, if implemented, will be effective, and how investors and the capital markets will react to them.  Any substantial negative reaction to the policies of the Brazilian government could adversely affect our business, financial condition, results of operations or prospects and the market price of our preferred shares and ADSs.

          Inflation and certain governmental measures to combat inflation may contribute significantly to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets. 

          Brazil has, in the past, experienced extremely high rates of inflation.  More recently, according to the Índice Geral de Preços-Disponibilidade Interna, or IGP-DI, a general price inflation index, the Brazilian general price inflation rates were 12%, 1% and 4% in 2004, 2005 and 2006, respectively.  Inflation itself and certain governmental measures to combat inflation in the past have had significant negative effects on the Brazilian economy.  Our cash costs and operating expenses are substantially all in reais and tend to increase with Brazilian inflation because our suppliers and providers generally increase prices to reflect the depreciation of the value of the currency.  If either the rate of Brazilian inflation increases more rapidly than any rate of appreciation of the U.S. dollar, then, as expressed in U.S. dollars, our operating expenses may increase and (assuming constant U.S. dollar sales prices) our profit margins will decrease.  In addition, high inflation generally leads to higher domestic interest rates, and, as a result, our costs of real-denominated debt may increase.  See “Item 5—Operating and Financial Review and Prospects—Overview—Brazilian Economic Environment.”

          Exchange rate instability may adversely affect our financial condition and results of operations and the market price of our preferred shares and ADSs.

          Because a significant portion of our revenues and assets is denominated in reais and we have U.S. dollar-denominated debt and other liabilities, we may be adversely affected by any future devaluations of the real against the U.S. dollar.  The Brazilian currency has been devalued periodically during the last four decades.  See “Item 3—Key Information—Selected Financial Data—Exchange Rates.”

          Our production costs and operating expenses are substantially all in reais and will generally decrease, as expressed in U.S. dollars, as a result of any devaluation of the real.  If either the rate of Brazilian inflation increases more rapidly than the rate of appreciation of the U.S. dollar against the real or the rate of appreciation of the U.S. dollar against the real increases more rapidly then the rate of the Brazilian inflation. then, as expressed in U.S. dollars, our operating expenses may increase and (assuming constant U.S. dollar sales prices) our profit margins will decrease. In addition, any significant devaluation of the real may produce exchange losses on unhedged debt denominated in foreign currency.

          In 2004 the real appreciated an additional 9% against U.S. dollar due to the positive results in the Brazilian trade balance, positive finance inflow (due to high interest rate), lower external vulnerability and the weakness of the U.S. dollar against other currencies.  For the same reasons, we witnessed another 13% appreciation of the real against the U.S. dollar during 2005 and another 9% during 2006.

          The Central Bank has intervened occasionally to control unstable movements in the foreign exchange rate.  We cannot predict whether the Central Bank will continue to let the real float freely.  Accordingly, it is not possible to predict what impact the Brazilian government’s exchange rate policies may have on us.  We cannot assure you that the Brazilian government will not in the future impose a band within which the real/U.S. dollar exchange rate could fluctuate or set a fixed exchange rate, nor can we predict what impact such an event might have on our financial condition or results of operations.

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          Devaluations of the real relative to the U.S. dollar also create additional inflationary pressures in Brazil that may negatively affect us.  They generally curtail access to foreign financial markets and may require government intervention, including recessionary governmental policies.  See “—Inflation and certain governmental measures to combat inflation may contribute significantly to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets.”  Devaluations also reduce the U.S. dollar value of distributions and dividends on our ADSs and the market price of our preferred shares and ADSs.

          Developments in other markets may adversely affect the market price of our preferred shares and ADSs. 

          The market for securities backed by Brazilian companies is influenced by economic and market conditions in Brazil and, to varying degrees, market conditions in other Latin American and emerging market countries.  Although economic conditions in such countries may differ significantly from economic conditions in Brazil, the reaction of investors to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers.  Developments or conditions in other emerging market countries have at times significantly affected the availability of credit in the Brazilian economy and resulted in considerable outflows of funds and declines in the amount of foreign currency invested in Brazil.  Crises in other emerging market countries may hamper investor enthusiasm for securities of Brazilian issuers, including ours.  This could adversely affect the trading price of the ADSs and our preferred shares and could also make it difficult for us to access the capital markets and finance our operations in the future on acceptable terms, or at all.

          In addition, recent speculation about future increases in U.S. interest rates has created volatility in the emerging markets.  Future increases in U.S. interest rates may adversely affect the market price of our preferred shares and ADSs.

Risks Relating to Our Preferred Shares and ADSs

          Exchange controls and restrictions on remittances abroad may adversely affect holders of our ADSs. 

          You may be adversely affected if the Brazilian government imposes restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil and, as it has done in the past, on the conversion of the real into foreign currencies.  These restrictions could hinder or prevent the conversion of dividends, distributions or the proceeds from any sale of preferred shares or ADSs, as the case may be, into U.S. dollars and the remittance of U.S. dollars abroad.  We cannot assure you that the government will not take this type of or similar measures in the future.  Holders of our ADSs could be adversely affected by delays in, or a refusal to grant, any required governmental approval for conversion of real payments and remittances abroad in respect of the preferred shares, including the preferred shares underlying the ADSs.  In such a case, our ADS depositary will distribute reais or hold the reais it cannot convert for the account of the ADS holders who have not been paid. 

          Exchanging ADSs for the underlying preferred shares may have unfavorable consequences.

          The Brazilian custodian for the preferred shares must obtain an electronic certificate of registration from the Central Bank to remit U.S. dollars abroad for payments of dividends, any other cash distributions, or upon the disposition of the preferred shares and sales proceeds related thereto.  If you decide to exchange your ADSs for the underlying preferred shares, you will be entitled to continue to rely, for five business days from the date of exchange, on the ADS depositary’s electronic certificate of registration.  Thereafter, you may not be able to obtain and remit U.S. dollars or other foreign currencies outside Brazil upon the disposition of the preferred shares, or distributions relating to the preferred shares, and you will generally be subject to less favorable tax treatment on gains with respect to the preferred shares, unless you obtain your own electronic certificate of registration with the Central Bank, under Resolution No. 2,689 of January 26, 2000 of the National Monetary Council, which entitles foreign investors to buy and sell on the Brazilian stock exchanges.  If you attempt to obtain your own electronic certificate of registration, you may incur expenses or suffer significant delays in the application process.  Obtaining an electronic certificate of registration involves generating significant documentation, including completing and filing various electronic forms with the Central Bank and the CVM.  In order to complete this process, the investor will need to appoint at least one representative in Brazil with powers to perform certain actions relating to the foreign investment and will usually need to have a consultant or an attorney who has expertise in Central Bank and CVM regulations.  These expenses or delays could adversely impact your ability to receive dividends or distributions relating to the preferred shares or the return of your capital in a timely manner.  If you decide to exchange your preferred shares back into ADSs once you have registered your investment in the preferred shares, you may deposit your preferred shares with the custodian and rely on the ADS depositary’s electronic certificate of registration, subject to certain conditions.  We cannot assure you that the ADS depositary’s electronic certificate of registration or any certificate of foreign capital registration obtained by you may not be affected by future legislative or other regulatory changes, or that additional restrictions applicable to you, the disposition of the underlying preferred shares or the repatriation of the proceeds from disposition could not be imposed in the future.  See “Item 8—Financial Information—Dividend Policy and Dividends—Payment of dividends.”

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          The relative volatility and illiquidity of the Brazilian securities markets may adversely affect holders of our preferred shares or ADSs.

          Investments in securities, such as the preferred shares or the ADSs, of issuers from emerging market countries, including Brazil, involve a higher degree of risk than investing in securities of issuers from more developed countries. 

          The Brazilian securities market is substantially smaller, less liquid, more concentrated and more volatile than major securities markets in the United States.  Accordingly, the ability of the holders to sell the preferred shares underlying the ADSs at a price and time at which holders wish to do so may be substantially limited.  The São Paulo Stock Exchange (Bolsa de Valores de São Paulo), or BOVESPA, the main Brazilian stock exchange, had a market capitalization of approximately US$ 723 billion as of December 31, 2006, and an average daily trading volume of approximately US$ 420 million, US$ 667 million and US$ 1.1 billion in 2004, 2005 and 2006, respectively.  In comparison, the New York Stock Exchange had a market capitalization of approximately US$ 23 trillion as of December 31, 2006, and an average daily trading volume of approximately US$ 46 billion, US$ 56 billion and US$ 87 billion for 2004, 2005 and 2006, respectively.

          There is also significantly greater concentration in the Brazilian securities market than in major securities markets in the United States.  The ten largest companies in terms of market capitalization represented approximately 51% of the aggregate market capitalization of BOVESPA as of December 31, 2006. The top ten stocks in terms of trading volume accounted for approximately 51.3% and 46.1% of all shares traded on BOVESPA, in December 31, 2005 and 2006, respectively.

          Because we are subject to specific rules and regulations as a Brazilian company, holders of our preferred shares or ADSs have fewer and less well defined shareholders’ rights than investors in U.S. companies.

          Our corporate affairs are governed by our by-laws and the Brazilian corporate law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as Delaware or New York, or in certain other jurisdictions outside Brazil.  In addition, your rights or the rights of holders of the preferred shares under the Brazilian corporate law to protect your interests relative to actions taken by our board of directors or the holders of common shares may be fewer and less well defined than under the laws of other jurisdictions outside Brazil. 

          Although Brazilian law imposes restrictions on insider trading and price manipulation, the Brazilian securities markets are not as highly regulated and supervised as the securities markets in the United States or certain other jurisdictions.  In addition, rules and policies against self-dealing and regarding the preservation of shareholder interests may be less well developed and enforced in Brazil than in the United States, potentially disadvantaging holders of our preferred shares and ADSs.  When compared to Delaware general corporation law, the Brazilian corporate law and practice have less detailed and less well established rules and judicial precedents relating to the review of management decisions under duty of care and duty of loyalty standards in the context of corporate restructurings, transactions with related parties and sale-of-business transactions.  In addition, shareholders must hold 5% of the outstanding share capital of a corporation to have standing to bring shareholders’ derivative suits, and shareholders ordinarily do not have standing to bring a class action. 

          Also, in accordance with Brazilian corporate law and our by-laws, holders of our preferred shares, and therefore of our ADSs, are not entitled to vote at meetings of our shareholders except in limited circumstances.  See “Item 10—Additional Information—Memorandum and Articles of Association.”

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