##### Table of Contents

As filed with the Securities and Exchange Commission on June 28, 2004

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



Form 20-F



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



OR



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



For the fiscal year ended December 31, 2003



OR



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



For the transition period from
             to



Commission File Number: 33-99720



---



Celulosa Arauco y Constitución S.A.

(Exact name of Registrant as specified in its charter)



Arauco and Constitution Pulp Inc.

(Translation of Registrants name into English)



---



Republic of Chile

(Jurisdiction of incorporation or organization)



El Golf 150

14thFloor

Santiago, Chile

(Address of principal executive offices)



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



None



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:



|                     
|---------------------
|Title of each class: 
|6.95% Notes due 2005 
|7% Notes due 2007    
|7.20% Notes due 2009 
|8.625% Notes due 2010
|7.75% Notes due 2011 
|5.125% Notes due 2013
|7.50% Notes due 2017 



---



Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period
covered by the annual report: Shares of Common Stock, without par value: 113,152,446.



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 ̈



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



Item 17 ̈Item 18  x



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##### Table of Contents

TABLE OF CONTENTS



|          |  |                                                                                  |  |     
|--------- |  | -------------------------------------------------------------------------------- |  | ----
|          |  |                                                                                  |  | Page
|ITEM 1.   |  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                            |  | 1   
|          |  |                                                                                 
|ITEM 2.   |  | OFFER STATISTICS AND EXPECTED TIMETABLE                                          |  | 1   
|          |  |                                                                                 
|ITEM 3.   |  | KEY INFORMATION                                                                  |  | 1   
|          |  |                                                                                 
|ITEM 4.   |  | INFORMATION ON THE COMPANY                                                       |  | 9   
|          |  |                                                                                 
|ITEM 5.   |  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                     |  | 32  
|          |  |                                                                                 
|ITEM 6.   |  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                       |  | 50  
|          |  |                                                                                 
|ITEM 7.   |  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                |  | 54  
|          |  |                                                                                 
|ITEM 8.   |  | FINANCIAL INFORMATION                                                            |  | 57  
|          |  |                                                                                 
|ITEM 9.   |  | THE OFFER AND LISTING                                                            |  | 57  
|          |  |                                                                                 
|ITEM 10.  |  | ADDITIONAL INFORMATION                                                           |  | 58  
|          |  |                                                                                 
|ITEM 11.  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                       |  | 66  
|          |  |                                                                                 
|ITEM 12.  |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                           |  | 67  
|          |  |                                                                                 
|ITEM 13.  |  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                  |  | 68  
|          |  |                                                                                 
|ITEM 14.  |  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND THE USE OF PROCEEDS |  | 68  
|          |  |                                                                                 
|ITEM 15.  |  | CONTROLS AND PROCEDURES                                                          |  | 68  
|          |  |                                                                                 
|ITEM 16.  |  | [RESERVED]                                                                       |  | 68  
|          |  |                                                                                 
|ITEM 16A. |  | AUDIT COMMITTEE FINANCIAL EXPERT                                                 |  | 68  
|          |  |                                                                                 
|ITEM 16B. |  | CODE OF ETHICS                                                                   |  | 68  
|          |  |                                                                                 
|ITEM 16C. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                           |  | 69  
|          |  |                                                                                 
|ITEM 16D. |  | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                       |  | 69  
|          |  |                                                                                 
|ITEM 16E. |  | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS           |  | 69  
|          |  |                                                                                 
|ITEM 17.  |  | FINANCIAL STATEMENTS                                                             |  | 70  
|          |  |                                                                                 
|ITEM 18.  |  | FINANCIAL STATEMENTS                                                             |  | 70  
|          |  |                                                                                 
|ITEM 19.  |  | EXHIBITS                                                                         |  | 70  



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Celulosa Arauco y Constitución S.A. is a sociedad anónima abierta (a public
corporation) organized under the laws of the Republic of Chile. In this annual report, when we refer to the Company, we mean Celulosa Arauco y Constitución S.A., and when we refer to Arauco, or we, we mean
the Company together with its subsidiaries. When we refer to Chile or the Republic in this annual report we mean the Republic of Chile, and when we refer to the Government we mean the government of the Republic of
Chile. All references to tons are to metric tons (1,000 kilograms), which are equal to 2,204.6 pounds. One hectare equals 10,000 square meters or 2.471 acres. Any discrepancies in any table between totals and the sums of the
amounts listed are due to rounding.



Unless otherwise
specified, all references to $, U.S.$, U.S. dollars and dollars are to United States dollars, references to Chilean pesos or Ch$ are to Chilean pesos, references to
UF are to Unidades de Fomento, a daily indexed Chilean peso-denominated monetary unit that takes into account the effect of the Chilean inflation rate, and references to Argentine pesos are to Argentine pesos.



Item 18 of this annual report includes our audited consolidated financial
statements as of December 31, 2002 and 2003 and for the years ended December 31, 2001, 2002 and 2003, including the notes thereto, which have been prepared in accordance with generally accepted accounting principles in the United States, known as
U.S. GAAP.



For the convenience of the reader, we
have included translations of certain amounts into dollars at a specified rate. Unless otherwise indicated, the U.S. dollar equivalent for information in Chilean pesos is based on the observed exchange rate reported by Banco Central de Chile (the
Central Bank of Chile, which we refer to as the Central Bank) for December 31, 2003, which was Ch$593.8 = U.S.$1.00. The observed exchange rate, known as the dólar observado(the Observed Exchange Rate), is, for
any date, the average exchange rate at which transactions are actually carried out in the Mercado Cambiario Formal (the Formal Exchange Market) on the previous day, as certified by the Central Bank on the following business day.
You should not construe these translations as representations that the Chilean peso amounts actually represent such dollar amounts or could be converted into dollars at the rates indicated or at any other rate. The Observed Exchange Rate on June 22,
2003 was Ch$643.42 = U.S.$1.00. See Item 3. Key InformationExchange Rates for information regarding historical rates of exchange in Chile from January 1, 1999.



The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos.



Unless otherwise specified, references to the devaluation or the appreciation
of the Chilean peso against the U.S. dollar are in nominal terms (without adjusting for inflation), based on the Observed Exchange Rates for the relevant period.



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##### Table of Contents

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.



SELECTED FINANCIAL DATA



The selected financial
information presented below is prepared in U.S. dollars in accordance with U.S. GAAP as of and for the years ended December 31, 1999, 2000, 2001, 2002 and 2003. The selected U.S. GAAP financial information should be read in conjunction with, and is
qualified in its entirety by reference to, Araucos audited consolidated financial statements prepared in accordance with U.S. GAAP included in Item 18. The report of the independent auditors is included in this annual report.



The selected U.S. GAAP financial information as of and for the years ended
December 31, 2001, 2002 and 2003 is derived from Araucos audited consolidated financial statements provided in Item 18.



The financial data in the following table for all periods are expressed in U.S. dollars, the currency in which Arauco publishes its financial statements.
See Note 1(m) to the consolidated financial statements in Item 18.



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##### Table of Contents

|                                                                                             |  |                                                           |             |   |         |       |             |      |  |       |             |   |  |       |             |   |  |       |             |  
|-------------------------------------------------------------------------------------------- |  | --------------------------------------------------------- | ----------- | - | ------- | ----- | ----------- | ---- |  | ----- | ----------- | - |  | ----- | ----------- | - |  | ----- | ----------- | -
|                                                                                             |  | At or for the year ended December 31,                     |            
|                                                                                             |  | 1999(1)                                                   |             |   | 2000(1) |       |             | 2001 |  |       | 2002        |   |  | 2003  |            
|                                                                                             |  | (in thousands of U.S.$, except ratios and per share data) |            
|Income Statement Data                                                                        |  |                                                           |             |   |         |       |             |      |  |       |             |   |  |       |             |   |  |       |             |  
|Sales revenue                                                                                |  | U.S.$                                                     | 1,089,928   |   |         | U.S.$ | 1,260,342   |      |  | U.S.$ | 1,173,826   |   |  | U.S.$ | 1,188,018   |   |  | U.S.$ | 1,458,220   |  
|Cost of sales                                                                                |  |                                                           | (595,086    | ) |         |       | (604,130    | )    |  |       | (689,837    | ) |  |       | (620,464    | ) |  |       | (782,793    | )
|Depreciation                                                                                 |  |                                                           | (105,053    | ) |         |       | (106,576    | )    |  |       | (119,796    | ) |  |       | (103,885    | ) |  |       | (112,636    | )
|Selling and administrative expenses                                                          |  |                                                           | (88,207     | ) |         |       | (102,701    | )    |  |       | (94,047     | ) |  |       | (100,515    | ) |  |       | (105,897    | )
|Income from operations                                                                       |  |                                                           | 301,582     |   |         |       | 446,935     |      |  |       | 270,146     |   |  |       | 363,154     |   |  |       | 456,894     |  
|Interest income                                                                              |  |                                                           | 14,723      |   |         |       | 12,563      |      |  |       | 14,794      |   |  |       | 21,995      |   |  |       | 30,051      |  
|Other income (expense)                                                                       |  |                                                           | 15,493      |   |         |       | 5,151       |      |  |       | (3,871      | ) |  |       | 1,513       |   |  |       | 1,570       |  
|Foreign exchange gains (losses)                                                              |  |                                                           | (2,578      | ) |         |       | (5,070      | )    |  |       | (26,058     | ) |  |       | 11,668      |   |  |       | 52,353      |  
|Interest expenses                                                                            |  |                                                           | (51,526     | ) |         |       | (62,201     | )    |  |       | (62,362     | ) |  |       | (61,692     | ) |  |       | (46,629     | )
|Income before taxes, minority interest and equity from earnings of unconsolidated affiliates |  |                                                           | 277,694     |   |         |       | 397,378     |      |  |       | 192,649     |   |  |       | 336,638     |   |  |       | 494,239     |  
|Provision for income taxes                                                                   |  |                                                           | (6,419      | ) |         |       | (55,552     | )    |  |       | (12,956     | ) |  |       | (52,578     | ) |  |       | (80,574     | )
|Minority interest in consolidated subsidiaries                                               |  |                                                           | (43         | ) |         |       | (2,051      | )    |  |       | (225        | ) |  |       | (267        | ) |  |       | (199        | )
|Equity in earnings of unconsolidated affiliates                                              |  |                                                           | 4,829       |   |         |       | 1,377       |      |  |       | 1,463       |   |  |       | 2,558       |   |  |       | 6,001       |  
|Net income                                                                                   |  |                                                           | 276,061     |   |         |       | 341,152     |      |  |       | 180,931     |   |  |       | 286,351     |   |  |       | 419,467     |  
|Dividends paid                                                                               |  |                                                           | 47,105      |   |         |       | 193,353     |      |  |       | 67,610      |   |  |       | 71,702      |   |  |       | 133,906     |  
|Balance Sheet Data                                                                           |  |                                                           |             |   |         |       |             |      |  |       |             |   |  |       |             |   |  |       |             |  
|Property, plant and equipment (less forests), net                                            |  |                                                           | 1,573,001   |   |         |       | 1,639,293   |      |  |       | 1,653,466   |   |  |       | 1,851,240   |   |  |       | 2,176,701   |  
|Forests                                                                                      |  |                                                           | 1,040,871   |   |         |       | 1,078,394   |      |  |       | 1,167,462   |   |  |       | 1,188,013   |   |  |       | 1,243,638   |  
|Total assets                                                                                 |  |                                                           | 3,347,920   |   |         |       | 3,550,989   |      |  |       | 3,899,257   |   |  |       | 4,110,336   |   |  |       | 4,736,027   |  
|Total long-term liabilities                                                                  |  |                                                           | 1,200,709   |   |         |       | 1,242,645   |      |  |       | 1,711,740   |   |  |       | 1,570,080   |   |  |       | 2,026,365   |  
|Total shareholders equity                                                                   |  |                                                           | 1,707,433   |   |         |       | 1,832,108   |      |  |       | 1,974,785   |   |  |       | 2,157,665   |   |  |       | 2,421,001   |  
|Other Financial Data                                                                         |  |                                                           |             |   |         |       |             |      |  |       |             |   |  |       |             |   |  |       |             |  
|Capital expenditures(2)                                                                      |  |                                                           | 257,202     |   |         |       | 263,588     |      |  |       | 223,831     |   |  |       | 330,804     |   |  |       | 512,939     |  
|Depreciation                                                                                 |  |                                                           | 105,053     |   |         |       | 106,576     |      |  |       | 119,796     |   |  |       | 103,885     |   |  |       | 112,636     |  
|Number of shares                                                                             |  |                                                           | 113,152,446 |   |         |       | 113,152,446 |      |  |       | 113,152,446 |   |  |       | 113,152,446 |   |  |       | 113,152,446 |  
|Net income per share                                                                         |  |                                                           | 2.44        |   |         |       | 3.01        |      |  |       | 1.60        |   |  |       | 2.53        |   |  |       | 3.71        |  
|Dividends per share                                                                          |  |                                                           | 0.42        |   |         |       | 1.71        |      |  |       | 0.60        |   |  |       | 0.63        |   |  |       | 1.18        |  
|Cash Flow Data                                                                               |  |                                                           |             |   |         |       |             |      |  |       |             |   |  |       |             |   |  |       |             |  
|Total operating cash flow                                                                    |  |                                                           | 510,159     |   |         |       | 417,353     |      |  |       | (55,692     | ) |  |       | 481,651     |   |  |       | 346,513     |  
|Total cash flow arising from financing activities                                            |  |                                                           | (231,230    | ) |         |       | 34,268      |      |  |       | 238,453     |   |  |       | (124,566    | ) |  |       | 193,388     |  
|Total cash flow arising from investment activities                                           |  |                                                           | (206,409    | ) |         |       | (405,342    | )    |  |       | (224,154    | ) |  |       | (330,362    | ) |  |       | (561,773    | )

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|(1) | In 2000, the Company acquired 97.5% of the outstanding shares of Forestal Cholguán S.A. Of these shares, 85.8% were acquired from indirect controlling shareholders of the
Company and were treated as an exchange of ownership interests between companies under common control. As such, the financial information presented above for the year 1999 has been adjusted to incorporate the historical value of the assets and
liabilities acquired.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Accrued for the period. See Araucos consolidated financial statements included in Item 18.
|--- | -------------------------------------------------------------------------------------------



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##### Table of Contents

EXCHANGE RATES



The following table sets forth, for the periods and dates indicated, certain information concerning the Observed Exchange
Rate reported by the Central Bank. No representation is made that the Chilean peso or U.S. dollar amounts referred to herein could have been or could be converted into U.S. dollars or Chilean pesos, as the case may be, at the rates indicated or at
any other rate. The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos. On June 22, 2004, the Observed Exchange Rate was Ch$643.42 = U.S.$1.00. See Item 10. Additional Information Exchange
Controls.



|                       |  |                                         |  |         |  |            |  |           
|---------------------- |  | --------------------------------------- |  | ------- |  | ---------- |  | ----------
|                       |  | Observed Exchange Rates (Ch$ per U.S.$)
|Year                   |  | Low(1)                                  |  | High(1) |  | Average(2) |  | Period-End
|1999                   |  | 468.69                                  |  | 550.93  |  | 512.85     |  | 530.07    
|2000                   |  | 501.04                                  |  | 580.37  |  | 533.64     |  | 573.65    
|2001                   |  | 557.13                                  |  | 716.62  |  | 636.00     |  | 654.79    
|2002                   |  | 641.75                                  |  | 756.56  |  | 718.61     |  | 718.61    
|2003                   |  | 593.10                                  |  | 758.21  |  | 686.89     |  | 593.80    
|December               |  | 593.10                                  |  | 617.85  |  | 602.90     |  | 593.80    
|2004 (through June 22) |  | 559.21                                  |  | 649.45  |  | 615.01     |  | 643.42    
|January                |  | 559.21                                  |  | 596.78  |  | 573.64     |  | 591.42    
|February               |  | 571.35                                  |  | 598.60  |  | 584.31     |  | 592.87    
|March                  |  | 588.04                                  |  | 623.21  |  | 603.91     |  | 616.41    
|April                  |  | 596.61                                  |  | 624.84  |  | 608.19     |  | 624.98    
|May                    |  | 622.25                                  |  | 644.42  |  | 635.76     |  | 636.02    
|June (through June 22) |  | 636.02                                  |  | 649.45  |  | 645.20     |  | 643.42    

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Source: Central Bank.

|(1) | Exchange rates are the actual high and low, on a day-by-day basis, for each period.
|--- | -----------------------------------------------------------------------------------

|(2) | For the years 1999 through 2003 and for 2004 through June 22, the average of month-end rates during the period. For the months December 2003 through June 22, 2004, the daily average
rates during the period.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

RISK FACTORS



Arauco is subject to various changing economic, political, social and competitive conditions, particularly in its
principal markets. Any of the following risks, if they actually occur, could materially and adversely affect Araucos business, results of operations, prospects and financial condition.



Risks Relating to Arauco and the Forestry Industry



Fluctuations in market price for Araucos products could adversely affect its
financial condition and results of operations



Prices
for pulp, forestry and wood products, like those of other commodities, can fluctuate significantly. For example, over the last four years, the average price (CIF) on an annual basis, for Norscan bleached softwood kraft market pulp (pulp produced in
Canada and Northern Europe sold to manufacturers of paper products delivered in Northern Europe, or NBSK) ranged from a high of U.S.$681 in 2000 to a low of U.S.$460 in 2002. Araucos financial condition and results of operations
could be materially and adversely affected if the price of pulp or other forestry products were to decline significantly from current levels. The prices that Arauco is able to obtain for pulp products and, to a lesser extent, other forestry products
depend on:



| |  | prevailing world prices, which historically have been subject to significant fluctuations over relatively short periods of time, depending on worldwide demand;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | world production capacity;
| | - | --------------------------



| |  | the business strategies adopted by major integrated forestry, pulp and paper producers and other major producers; and
| | - | ---------------------------------------------------------------------------------------------------------------------



| |  | the availability of substitutes.
| | - | --------------------------------



All of these factors are beyond Araucos control.



Arauco faces substantial competition in each of its markets



Worldwide competition in the markets for Araucos products could adversely affect its business and results of operations. Arauco experiences
substantial worldwide competition in each of its geographical markets and in each of its product lines. Several of Araucos competitors are larger than it and have greater financial and other resources and could use these resources to take
steps that could adversely affect Araucos financial and competitive position. The market pulp industry is sensitive to changes in industry capacity, producer inventories and cyclical changes in the worlds economies, all of which may
significantly affect selling prices and thereby Araucos profitability. Increased competition could materially and adversely affect Araucos business, financial condition and results of operations.



Arauco depends on free international trade as well as economic and other conditions in
its principal export markets



During 2003, export
sales accounted for approximately 84.7% of Araucos total sales revenues. During this period approximately 36.7% of Araucos export sales were to Asia, 27.5% to North America, 19.7% to Europe and 11.5% to Central and South America. As a
result, Araucos results of operations depend to a significant degree on economic, political and regulatory conditions in its principal export markets. Araucos ability to compete effectively in its export markets could be materially and
adversely affected by a number of factors beyond its control including a deterioration in macroeconomic conditions, exchange rate volatility, government subsidies, or the imposition of increased tariffs or other trade barriers. If Araucos
ability to sell its products competitively in one or more of its significant export markets were impaired by any such developments, it might be difficult to re-allocate its products to other markets on equally favorable terms and its financial
condition and results of operations might be adversely affected.



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##### Table of Contents

The application of environmental regulations could adversely affect Araucos ability to accomplish its
development goals and adversely affect its results of operations



Arauco and other Chilean companies are subject to numerous national and local environmental laws concerning, among other things, health, the handling and disposal of wastes and discharges into the air and water.
Chilean environmental regulations have become increasingly stringent in recent years, particularly in connection with the approval of new projects, and this trend is likely to continue. Arauco has made, and expects to continue to make, substantial
expenditures to comply with such environmental requirements.



Chilean environmental legislation to which Arauco is subject includes Ley No. 19,300 Sobre Bases Generales del Medio Ambiente (the Chilean Environmental Law). Under the Chilean Environmental Law, Arauco is required to
conduct environmental impact studies of any future projects or activities that may affect the environment. The regulations also establish procedures for private citizens to object to the plans or studies submitted by project owners. Future
developments in the establishment or implementation of environmental requirements, or in the interpretation of such requirements, could result in substantially increased capital, operating or compliance costs or otherwise adversely affect
Araucos business, financial condition and results of operations.



Our activities in Argentina are subject to Argentine environmental legislation including regulation by municipal, provincial and federal governmental authorities. Our Argentine subsidiary Alto Paraná S.A. (Alto
Paraná) has incurred and expects to continue to incur capital and operating expenditures to comply with applicable environmental requirements. Changes in environmental laws, or the interpretation thereof, may require Alto Paraná
to incur significant unforeseen capital or operating expenditures to comply with such requirements. The occurrence of such events could have an adverse effect on Alto Paranás business, financial condition and results of operations.



Pulp producers and forestry companies around the world are
periodically subject to adverse effects from unfavorable market perceptions of the environmental impact of their operations. Given the possibility of unanticipated regulatory or other developments, including more stringent environmental laws, the
amount and timing of future expenditures which Arauco will be required to make in order to remain in compliance with applicable environmental laws and regulations could vary substantially from their current levels. These changes could limit the
availability of Araucos funds for other purposes.



In
addition to the financial costs of compliance, Arauco is required to conduct environmental impact studies of any future projects or activities that may affect the environment. As a result, application of environmental laws may require Arauco to
change its development plans and, thus, may adversely affect the manner in which Arauco seeks to implement its business strategy and its ability to accomplish its development goals.



Fire or disease could affect Araucos forests and manufacturing processes and in turn adversely affect its financial condition
and results of operations



Our operations are subject
to various risks affecting our forests and manufacturing facilities, including fire and disease. Although in the past the forestry industries in Chile and Argentina have not been affected significantly by certain pests and diseases afflicting
radiata or taeda pine plantations in other parts of the world, such pests or diseases may appear in Chile or Argentina in the future. Araucos operations and, as a result, its financial condition and results of operations could be materially
and adversely affected if any of such risks were to be realized.



Risks
Relating to Chile



Chilean political and economic conditions have a
direct impact on Araucos business and the market price of the Notes



Of Araucos assets and operations, 80.3% are located in Chile and, in 2003, approximately 11.6% of Araucos sales revenue was derived from sales in Chile. Accordingly, Araucos financial condition and
results of



5



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##### Table of Contents

operations are to a considerable extent dependent upon economic conditions prevailing from time to time in Chile. Future
developments in the Chilean economy could adversely affect Araucos financial condition or results of operations and may impair its ability to proceed with its strategic plan of business.



The Chilean government has exercised and continues to exercise a substantial
influence over many aspects of the private sector, and has changed monetary, fiscal, taxation and other policies to influence the course of Chiles economy. Arauco has no control over, and cannot predict, how such intervention and government
policies will affect the Chilean economy and, both directly and indirectly, Araucos operations and revenues. Araucos operations, financial condition and the market price of the Notes (as defined below) may be adversely affected by
changes in policy involving exchange controls, tax and other matters, as well as factors such as:



| |  | fluctuation in exchange rates;
| | - | ------------------------------



| |  | base interest rate fluctuations; and
| | - | ------------------------------------



| |  | other political, diplomatic, social and economic developments in or affecting Chile.
| | - | ------------------------------------------------------------------------------------



Changes in inflation, which was 2.8% in 2002 and 1.1% in 2003 as measured by changes in the official consumer price index and as reported by
the Instituto Nacional de Estadísticas (the Chilean National Institute of Statistics), may also adversely affect Araucos operations, financial condition and the market price of the Notes (as defined below). Future developments in
the Chilean economy and government policies may adversely affect Araucos financial condition and results of operations. In addition, such developments may impact the market price of the Companys 6.95% Notes Due 2005 (the 6.95%
Notes), 7% Notes Due 2007 (the 7% Notes), 7.20% Notes Due 2009 (the 7.20% Notes), 8.625% Notes Due 2010 (the 8.625% Notes), 7.75% Notes Due 2011 (the 7.75% Notes), 5.125% Notes Due 2013 (the
5.125% Notes) and 7.50% Notes Due 2017 (the 7.50% Notes) (together, the Notes).



Risks Relating to Argentina



The economic crisis in Argentina may adversely affect Araucos financial condition and results of operations



As of December 31, 2003, approximately 19.7% of Araucos long-lived
assets were located in Argentina, and during 2003 approximately 13.8% of its net sales were made by Alto Paraná, its Argentine subsidiary. The financial condition and results of Araucos Argentine operations, including Alto
Paranás ability to raise capital, are dependent to a certain extent upon political and economic conditions prevailing in Argentina. Any contraction in the Argentine economy or other adverse economic conditions can be expected to
adversely affect Alto Paranás operations.



Since
late 1998, the Argentine economy has been in an economic recession marked by reduced levels of consumption and investment and an elevated unemployment rate. The Argentine gross domestic product decreased by 3.4% in 1999, 0.8% in 2000, 4.4% in 2001
and 10.9% in 2002. During 2003, economic indicators showed some signs of recovery, and the Argentine gross domestic product increased by 8.7%. However, Arauco cannot provide any assurance that the Argentine economy will continue to recover or that
future economic, social and political developments in Argentina, over which it has no control, will not impair Alto Paranás business, financial condition, or results of operations.



In addition, the Argentine government has exercised, and continues to
exercise, a significant influence over many aspects of the Argentine economy. Accordingly, Argentine government actions, whether taken to address the current economic crisis or otherwise, including with respect to inflation, interest rates, foreign
exchange controls and taxes, have had and may continue to have a material adverse effect on private sector entities, including Alto Paraná.



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Argentine Central Bank restrictions may impose an obstacle to Alto Paranás ability to meet its
obligations and transfer money abroad



The Company
guarantees some of Alto Paranás debt. If Alto Paraná is unable to transfer funds abroad due to Argentine government restrictions, the Company may be obligated to pay under its guarantees.



Beginning in December 2001, the Argentine government has imposed a number of
monetary and currency exchange control measures that included the obligation to repatriate foreign currency earned abroad and tight restrictions on transferring funds abroad, with certain exceptions for authorized transactions. Although current
restrictions have not materially affected Alto Paranás results of operations, there can be no assurance that the Central Bank of Argentina will not reverse its position and once again restrict payments in the future, which could impose
material obstacles to Alto Paranás ability to transfer money abroad and negatively affect its results of operations.



Risks Relating to Other Markets



Araucos business, earnings and prospects may be adversely affected by developments in other countries which are beyond its control



Araucos business and results of operations are to a large extent
dependent on the level of economic activity, government and foreign exchange policies, and political and economic developments in its principal export markets. In 2003, approximately 93.1% of its total pulp sales and approximately 78.6% of its total
forestry, wood products and panels product sales were attributable to exports, principally to customers in Asia, the Americas and Western Europe. Araucos business, earnings and prospects may be materially and adversely affected by developments
in these export markets with respect to inflation, interest rates, currency fluctuations, protectionism, government subsidies, price and wage controls, exchange control regulations, taxation, expropriation, social instability or other political,
economic or diplomatic developments. Arauco has no control over such conditions and developments. Such conditions and developments may adversely affect Araucos financial condition, results of operations or the price of or market for the Notes.



Developments in other emerging markets may adversely affect the market
price of the Notes



The market price of the Notes may
be adversely affected by declines in the international financial markets and world economic conditions. Chilean securities markets are, to varying degrees, influenced by economic and market conditions in other emerging market countries, especially
those in Latin America. Although economic conditions are different in each country, investors reactions to developments in one country can affect the securities markets and the securities of issuers in other countries, including Chile. Since
the fourth quarter of 1997 the international financial markets have experienced volatility. Developments in other countries have also at times adversely affected the market price of Araucos Notes. If the current economic situation in Argentina
deteriorates, or if similar developments occur in the international financial markets in the future, the market price of the Notes could be adversely affected.



Risks Relating to the Notes



The non-payment of funds by Araucos subsidiaries could have a material and adverse effect on the Companys financial condition, results of operations and
ability to service its debt, including the Notes



The
Companys cash flow and its ability to service debt is dependent in part on the cash flow and earnings of its subsidiaries and the payment of funds by those subsidiaries to the Company in the form of loans, interest, dividends or otherwise. The
subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due under the terms of the Notes or to make any funds available for such purpose. Furthermore, claims of creditors of such
subsidiaries, including trade creditors of such subsidiaries, will have priority over the Companys creditors, including holders of the Notes, with respect to the assets and cash flow of such subsidiaries. Any right of the Company to receive
assets of any of its subsidiaries upon their liquidation or reorganization (and the consequent right of the holders of Notes to participate in those assets) will be effectively subordinated to the claims of that subsidiarys creditors.



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Changes in Chilean tax laws could lead to the Company redeeming the Notes



Under current Chilean law and regulations, payments of interest to holders
of debt securities that are not residents of Chile for purposes of Chilean taxation will generally be subject to Chilean withholding tax at a rate of 4.0%. Subject to certain exceptions, the Company will pay Additional Amounts (as defined herein) so
that the amount received by the holder of Notes after Chilean withholding tax will equal the amount that would have been received if no such taxes had been applicable. In the event of certain changes in Chilean tax laws requiring that the Company
pay Additional Amounts which are in excess of the Additional Amounts that it would owe if payments of interest on the Notes were subject only to a 4.0% withholding tax, the Company will have the right to redeem the debt securities.



Forward Looking Statements



This Form 20-F contains words, such as believe,
expect, anticipate and similar expressions, that identify forward-looking statements, which reflect our views about future events and financial performance. Statements that are not historical facts, including statements about
our beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. These forward-looking statements are based on current plans, estimates and projections, and therefore readers should
not place undue reliance on them. Actual results could differ materially from those projected in such forward-looking statements as a result of various factors that may be beyond our control, including but not limited to our ability to service our
debt, fund our working capital requirements and comply with financial covenants in certain of our debt instruments, our ability to fund and implement our capital expenditure programs, the maintenance of relationships with customers, a change in the
control of the Company, the effects on us from competition, future demand for forestry and wood products in the Chilean, Argentine and export markets, international prices for forestry and wood products, the state of the Chilean and world economies
and manufacturing industries and the relative value of the Chilean peso compared to other currencies, inflation, increases in interest rates and changes in our regulatory environment. In any event, these statements speak only as of their dates, and
we do not undertake any obligation to update or revise any of them, whether as a result of new information, future events or otherwise.



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##### Table of Contents

Item 4. Information on the Company.



DESCRIPTION OF BUSINESS



Arauco believes that
it is Chiles largest forest plantation owner, with 552,711 hectares of radiata pine plantations in Chile, and its largest exporter of forestry and wood products in terms of sales revenue based on information for the year ended December 31,
2003.Arauco believes that it was one of the worlds largest producers of bleached and unbleached softwood kraft market pulp in terms of production in 2003, based on information published by Resource Information Systems, Inc.
(RISI), an independent research company for the pulp and paper industry. Based on this information, Arauco believes that in 2003 it had a share of total world production of softwood kraft market bleached pulp of 6.3% and a 15.8% share of
total world production of softwood kraft market unbleached pulp.



Market pulp is pulp sold to manufacturers of paper products as opposed to pulp produced by an integrated paper producer for use in its paper production facilities. Kraft pulp is pulp produced using a chemical
process.



During the year ended December 31, 2003, Arauco
harvested 10.9 million cubic meters of sawlogs and pulplogs and exported 2,445,209 cubic meters of forestry and wood products, including sawlogs, sawn timber (green and kiln dried lumber and remanufactured wood products) and panels (plywood, medium
density fiber board (MDF) and high density fiber board (HB)).



Export sales constituted 84.7% of Araucos sales revenue for the year ended December 31, 2003. Arauco was Chiles largest non-mining exporter in terms of sales revenue for the year ended December 31, 2003.
Araucos principal overseas markets are Asia, Western Europe and the United States.



Arauco believes that it is one of the worlds lowest cost producers of softwood kraft market pulp. Araucos low costs are attributable to the high growth rate and short harvest cycle of radiata pine as
compared to other commercial softwoods, the advanced genetic and silviculture techniques it applies in its forest management, competitive labor costs, economies of scale, modern mill facilities and the proximity of its operations to Pacific coast
ports.



The market pulp industry is highly competitive and is
also sensitive to changes in industry capacity, producer inventories and cyclical changes in the worlds economies, all of which may significantly affect selling prices and thereby Araucos profitability. See Item 5. Operating and
Financial Review and ProspectsManagements Discussion and Analysis of Financial Condition and Results of OperationsOverview and Prices.



As of December 31, 2003, Araucos planted forests consisted of 88.1% radiata and taeda pine with the balance primarily
of eucalyptus. Radiata and taeda pine have a rapid growth rate and a short harvest cycle compared to other commercial softwoods. Radiata and taeda pine are sufficiently versatile for both the production of forestry and wood products as well as the
production of long fiber pulp for sale to manufacturers of paper and packaging.



Arauco seeks to manage its forestry resources in such a way as to ensure that the annual growth of its forest is equal to or higher than the volume harvested each year. In 2003, Arauco planted 37,405 hectares and
harvested 23,827 hectares in Chile and Argentina. Arauco believes that a long-term sustainable equilibrium will be reached in the latter part of this decade with annual harvests of approximately 33,000 hectares.



As of December 31, 2003, Arauco owned and operated three pulp mills in Chile
and one in Argentina, with an aggregate annual production capacity of approximately 1,595,000 metric tons, which produced 1,225,500 metric tons of bleached pulp and 356,665 metric tons of unbleached pulp in 2003. One of Araucos pulp
mills, which we refer to as the Arauco Mill, is located on an industrial site in the center of one group of Araucos radiata pine plantations. The second facility, the Constitución pulp mill (the Constitución
Mill), is located in another of Araucos significant radiata pine plantations. The third facility, the Licancel pulp mill (the Licancel Mill), is located in Licantén, near Constitución.



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During the first quarter of 2004 Arauco completed the construction of its fourth pulp mill in Chile (the
Valdivia Mill), with an annual production capacity of 700,000 metric tons. The facility is located in Valdivia, an area with significant radiata pine and eucalyptus plantations. The mill produces bleached kraft market pulp from both
radiata pine and eucalyptus.



Arauco conducts its pulp
operations in Argentina, through its subsidiary Alto Paraná, which owns and operates a pulp mill (the Alto Paraná Mill) which is located in the province of Misiones and produces bleached softwood kraft market pulp. In 2003,
Alto Paraná produced 345,282 metric tons of pulp. Arauco owns 99.97% of Alto Paraná.



As of December 31, 2003, Arauco owned 12 sawmills, 11 in Chile and one in Argentina, with an aggregate annual production capacity of 2,650,000 cubic
meters of lumber. In January 2004 Arauco purchased from the Argentine company Perez Companc a sawmill with an annual production capacity of 120,000 cubic meters (the Bossetti Sawmill), as part of its purchase of the forestry assets of
Perez Companc.



As of December 31, 2003, Arauco owned six
remanufacturing facilities that reprocess sawn timber into remanufactured wood products, such as moldings, jams and pre-cut pieces that end users require for doors, furniture and door and window frames. These facilities produced 998,162 cubic meters
of remanufactured wood products in 2003.



As of
December 31, 2003, Arauco owned one plywood mill (with two production lines), one HB mill and three MDF mills.



History of Arauco



Celulosa Arauco y Constitución S.A. is a sociedad anónima abierta(a public corporation) organized under the laws of the Republic of Chile. Its principal executive office is located at El Golf 150, 14thFloor, Santiago, Chile, and its telephone number is 56-2-461-7200.



The Company as currently constituted was formed on September 14, 1979 in a
merger between Industrias de Celulosa Arauco S.A. (Industrias Arauco) and Celulosa Constitución S.A. (Celulosa Constitución) in which Celulosa Constitución was the surviving entity. These two predecessor
companies were created in the late 1960s and early 1970s by Corporación de Fomento de la Producción (Corfo), a Chilean government development corporation, in order to develop forest resources, improve soil quality in former
farming areas and promote employment. As part of the Chilean governments privatization program, Corfo sold Industrias Arauco to Compañía de Petróleos de Chile S.A. (Copec), in 1977 and Celulosa
Constitución to Copec in 1979. In October 2003, Copec transferred all of its gasoline- and fuel-related business assets to a new subsidiary, and changed its legal name to Empresas Copec S.A. (Empresas Copec). See Item 7.
Major Shareholders and Related Party TransactionsMajor Shareholders.



At the beginning of the 1980s, Arauco began to expand its operations through purchasing land and plantations in order to ensure its supply of materials and to support its ability to respond to market opportunities
around the world. Later in that decade, as part of a drive to improve its efficiency both on an environmental basis and in terms of production, Arauco modernized many of its operations at the Arauco Mill through the replacement of old machinery and
the introduction of new technology, at a total cost of approximately U.S.$65 million. Arauco also modernized the Constitución Mill for a total cost of approximately U.S.$68 million. At the same time, Arauco reorganized the administration of
its forest holdings. Arauco founded Investigaciones Forestales Bioforest S.A. (Bioforest) in 1990 to conduct applied research in genetic improvement, site productivity, pest and disease control and wood quality, with the goal of
increasing the productivity of Araucos forest resources.



In 1990, Arauco began the construction of a second line at the Arauco Mill. It was completed in 1991 with an annual production capacity of 350,000 metric tons. The second line at the Arauco Mill (Arauco
II), which was built next to the existing line (Arauco I), had a total cost of approximately U.S.$600 million.



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In 1997, Arauco completed a U.S.$120 million capital expenditure program relating to Araucos
existing mills in Chile (the Arauco 21 Project). The Arauco 21 Project included:



| |  | converting Arauco I to produce bleached eucalyptus pulp as well as pine bleached pulp and replacing existing equipment with a new bleaching system that eliminates the use of
chlorine gas;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | expanding the annual production capacity of Arauco II to 500,000 metric tons of bleached softwood kraft pulp and expanding annual production capacity at Arauco I to 250,000 metric
tons of eucalyptus kraft pulp (EKP) and bleached kraft pulp (BKP); and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | installing condensing turbogenerators at each of Araucos then-existing mills, thereby increasing the generation of energy by 30 megawatts in the aggregate at the Arauco Mill
and by 12 megawatts at the Constitución Mill.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Arauco acquired Alto Paraná in Argentina in 1996. At that time, Alto Paraná owned approximately 57,000 hectares of land and a pulp mill with a production capacity of 250,000 metric tons per year of softwood bleached pulp. With
this acquisition, Arauco expanded its market opportunities abroad.



In September 1999, Arauco acquired the Licancel Mill in Chile for approximately U.S.$126 million. The Licancel Mill is a pulp mill with a production capacity of 160,000 metric tons of bleached pulp per year.



In the last quarter of 1999, Arauco completed a project known as the
APSA 300 Project. Through the APSA 300 Project, Alto Paraná raised its production capacity to 300,000 metric tons of pulp per year and implemented modifications in its processes which reduce emissions as well as chemical, fossil
fuel and water consumption. Alto Paraná invested U.S.$2.9 million in new effluent treatment. In the aggregate, the APSA 300 Project cost approximately U.S.$33 million.



In 2000, Arauco acquired 98% of the shares of Forestal Cholguán S.A. (Cholguán) and 50% of
Trupán S.A. (Trupán) for a total purchase price of approximately U.S.$303 million, thus entering the MDF and HB markets. Arauco acquired 72.9% of the shares of Cholguán from a group of investors headed by Mr.
Anacleto Angelini (the Angelini Group). The Angelini Group is also the beneficial owner of 70.2% of the shares of AntarChile S.A. (AntarChile), a Chilean holding company, which in turn is the indirect beneficial owner of
approximately 60.1% of the shares of Arauco. See Item 7. Major Shareholders and Related Party Transactions  Major Shareholders. In 2000, Arauco also built a second plywood production line for a total cost of approximately U.S.$45
million.



In December 2001, Arauco began construction of the
Valdivia Mill. The Valdivia Mill has an annual production capacity of approximately 700,000 metric tons of bleached pulp. The construction was completed during the first quarter of 2004 and required a capital expenditure of U.S.$600 million.



During the third quarter of 2002, Arauco began operations at
two new MDF mills, one in Chile and one in Argentina, with an annual production capacity of 250,000 cubic meters each. These mills were built through an aggregate investment of U.S.$135 million.



During 2003 construction of the first stage of the new Itata
forestry-industrial complex (the Itata Project) began in Chiles Eighth Region, on the banks of the Itata River. This phase includes the construction of a sawmill capable of producing more than 400,000 cubic meters of sawn timber
annually, a plywood mill with a capacity of 210,000 cubic meters annually and a cogeneration plant. The estimated investment cost of the first phase of the Itata Project is U.S.$140 million. As proposed, the completed industrial complex is expected
to also include a pulp mill. The pulp mill has not received final approval from the Companys board of directors, and there can be no assurance that the second phase of the project will be undertaken. If undertaken, the estimated cost for the
second phase is U.S.$800 million.



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Corporate Structure



The Company is substantially wholly-owned by Empresas Copec S.A., formerly Compañía de Petróleos de Chile S.A., a public company
listed on the Santiago Stock Exchange, the Valparaíso Stock Exchange and the Chilean Electronic Stock Exchange. Empresas Copec is a holding company, the principal interests of which are in Arauco, gasoline distribution, retailing,
electricity, gas distribution, and fishing. See Item 7. Major Shareholders and Related Party TransactionsMajor Shareholders.



The Company conducts its corporate, treasury, sales and pulp mill operations directly. The Company conducts its Chilean forestry operations through its
substantially wholly-owned subsidiary Forestal Arauco S.A. (Forestal Arauco). In turn, Forestal Arauco oversees and coordinates the activities of its four substantially wholly-owned forestry subsidiaries: Forestal Celco S.A.
(Forestal Celco), Bosques Arauco S.A. (Bosques Arauco), Cholguán, and Forestal Valdivia S.A. (Forestal Valdivia), each of which owns Araucos forests in a particular geographic region of Chile.



Araucos sawmill operations and its remanufacturing
operations are managed through Aserraderos Arauco S.A. (Aserraderos Arauco).



Araucos subsidiary Paneles Arauco S.A. (Paneles Arauco) was formed in October 1995 to produce plywood from radiata pine and commenced operations in 1997. Paneles Arauco also operates an HB plant and
two of Araucos three MDF mills.



Another of Araucos
subsidiaries, Bioforest, engages in research and development connected with genetic selection, forestry management practices and improvement of site, soil and fiber quality. Bioforest also coordinates Araucos phytosanitary protection of its
forests.



Servicios Logísticos Arauco S.A., formerly
Portuaria Arauco S.A. (Servicios Logísticos Arauco), is a substantially wholly-owned subsidiary that manages port operations for all of Araucos Chilean business units. Arauco also owns a 20.1% equity interest in Puerto de
Lirquén S.A. (Puerto Lirquén), a major Chilean port, and 50% of Puerto de Coronel S.A. (Puerto Coronel), a port facility at Coronel, which lies between Concepción and Arauco.



Arauco Distribución S.A., formerly Centromaderas S.A. (Arauco
Distribución), which is 50% owned by Aserraderos Arauco and 50% owned by Paneles Arauco, was formed in September 1995 and sells the Aserraderos Arauco and Paneles Arauco products to the Chilean market.



Arauco Generación S.A. (Arauco Generación),
originally created in 1988 as Inmobiliaria y Promotora Habitacional Arauco S.A. to construct employee housing, was renamed Arauco Generación in 1994. It is a wholly-owned subsidiary which owns condensing turbogenerators designed to supply
energy to Araucos pulp mills and sell any excess energy into Chiles national electric grid. Arauco Generación commenced electricity generation operations in October 1996. This subsidiary no longer constructs employee housing.



Through Industrias Forestales S.A. (IFSA), Arauco
acquired Alto Paraná in December 1996 and Industrial y Forestal Misiones S.A. (Misiones) in December 1997. Misiones and Alto Paraná were maintained as substantially wholly-owned subsidiaries of Arauco until December 1999,
when Misiones was merged into Alto Paraná. Alto Paraná remains a substantially wholly-owned subsidiary of Arauco. Alto Paraná owns forests in Argentina and owns and operates a pulp mill, a sawmill and an MDF mill in Argentina.
IFSA is a substantially wholly-owned subsidiary that Arauco formed at the end of 1996 for the purpose of conducting Araucos investments in Argentina.



Arauco Wood Products, Inc. (Arauco Wood Products) was incorporated in the United States in June 1995. Its
purpose is to market Araucos products in the North American market.



Southwoods Arauco Lumber LLC was incorporated in the United States in September 2002. Its purpose is to conduct Araucos activities in the sawn timber and related products industry in the United States.



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Arauco Internacional S.A. (previously Inversiones Cholguán S.A.) was incorporated in Chile in
1989. Beginning in 2002, it manages and holds Araucos foreign subsidiaries and holds 90% of IFSA.



The following table sets out our ownership interests in our significant subsidiaries as of December 31, 2003.



|                                                                    |  |                         |  |                    |   |  |                      |   |  |                  |  
|------------------------------------------------------------------- |  | ----------------------- |  | ------------------ | - |  | -------------------- | - |  | ---------------- | -
|                                                                    |  | Country ofincorporation |  | Stock helddirectly |   |  | Stock heldindirectly |   |  | Total stock held |  
|Agenciamiento y Servicios Profesionales S.A.                        |  | Mexico                  |  | 0.0020             | % |  | 99.9965              | % |  | 99.9985          | %
|Alto Paraná S.A.                                                    |  | Argentina               |  | 0.0000             |   |  | 99.9722              |   |  | 99.9722          |  
|Arauco Denmark ApS                                                  |  | Denmark                 |  | 0.0000             |   |  | 99.9310              |   |  | 99.9310          |  
|Arauco do Brasil Ltda.                                              |  | Brazil                  |  | 0.0002             |   |  | 99.9983              |   |  | 99.9985          |  
|Arauco Ecuador S.A.                                                 |  | Ecuador                 |  | 0.1000             |   |  | 99.8985              |   |  | 99.9985          |  
|Arauco Europe S.A.                                                  |  | Switzerland             |  | 0.0100             |   |  | 99.9685              |   |  | 99.9785          |  
|Arauco Forest Products B.V.                                         |  | TheNetherlands          |  | 0.0000             |   |  | 99.9310              |   |  | 99.9310          |  
|Arauco Generación S.A.                                              |  | Chile                   |  | 99.0000            |   |  | 0.9992               |   |  | 99.9992          |  
|Arauco Honduras S. de R.L. de C.V.                                  |  | Honduras                |  | 1.0000             |   |  | 98.9985              |   |  | 99.9985          |  
|Arauco Internacional S.A. (previously Inversiones Cholguán S.A.)    |  | Chile                   |  | 98.0377            |   |  | 1.9608               |   |  | 99.9985          |  
|Araucomex S.A. de C.V.                                              |  | Mexico                  |  | 0.0005             |   |  | 99.9980              |   |  | 99.9985          |  
|Arauco Perú S.A. (previously Cholguán Lima S.A.).                   |  | Peru                    |  | 0.0013             |   |  | 99.9972              |   |  | 99.9985          |  
|Arauco Wood Products, Inc.                                          |  | U.S.A.                  |  | 0.3953             |   |  | 99.6032              |   |  | 99.9985          |  
|Aserraderos Arauco S.A.                                             |  | Chile                   |  | 99.0000            |   |  | 0.9992               |   |  | 99.9992          |  
|Bosques Arauco S.A.                                                 |  | Chile                   |  | 1.0000             |   |  | 98.9256              |   |  | 99.9256          |  
|Controladora de Plagas Forestales S.A.                              |  | Chile                   |  | 0.0000             |   |  | 51.0943              |   |  | 51.0943          |  
|Arauco Distribución S.A.                                            |  | Chile                   |  | 0.0000             |   |  | 99.9992              |   |  | 99.9992          |  
|Forestal Arauco S.A.                                                |  | Chile                   |  | 99.9248            |   |  | 0.0000               |   |  | 99.9248          |  
|Forestal Arauco Costa Rica S.A.                                     |  | Costa Rica              |  | 10.0000            |   |  | 89.9987              |   |  | 99.9987          |  
|Forestal Arauco Guatemala S.A.                                      |  | Guatemala               |  | 0.1515             |   |  | 99.8470              |   |  | 99.9985          |  
|Forestal Celco S.A.                                                 |  | Chile                   |  | 1.0000             |   |  | 98.9256              |   |  | 99.9256          |  
|Forestal Celsur S.A.                                                |  | Chile                   |  | 0.0000             |   |  | 82.1237              |   |  | 82.1237          |  
|Forestal Cholguán S.A.                                              |  | Chile                   |  | 0.0000             |   |  | 97.3143              |   |  | 97.3143          |  
|Forestal Conosur S.A.                                               |  | Uruguay                 |  | 0.0000             |   |  | 99.9985              |   |  | 99.9985          |  
|Forestal Misiones S.A.                                              |  | Argentina               |  | 0.0000             |   |  | 99.9861              |   |  | 99.9861          |  
|Forestal Valdivia S.A.                                              |  | Chile                   |  | 1.0000             |   |  | 98.9256              |   |  | 99.9256          |  
|Industrias Forestales S.A.                                          |  | Argentina               |  | 10.0000            |   |  | 89.9999              |   |  | 99.9999          |  
|Inversiones Celco S.L.                                              |  | Spain                   |  | 14.2720            |   |  | 85.7268              |   |  | 99.9988          |  
|Investigaciones Forestales Bioforest S.A.                           |  | Chile                   |  | 1.0000             |   |  | 98.9256              |   |  | 99.9256          |  
|Paneles Arauco S.A.                                                 |  | Chile                   |  | 99.0000            |   |  | 0.9992               |   |  | 99.9992          |  
|Servicios Logísticos Arauco S.A. (previously Portuaria Arauco S.A.) |  | Chile                   |  | 45.0000            |   |  | 54.9586              |   |  | 99.9586          |  
|Southwoods Arauco Lumber LLC                                        |  | U.S.A.                  |  | 0.0000             |   |  | 99.6110              |   |  | 99.6110          |  
|Trupán Argentina S.A.                                               |  | Argentina               |  | 0.0000             |   |  | 99.9999              |   |  | 99.9999          |  



Business Strategy



Araucos business strategy is to maximize the commercial value of
its plantations by pursuing growth opportunities in its core businesses and expanding into new markets and products. Arauco is implementing its business strategy through the following initiatives:



| |  | implementing a capital expenditure plan designed to increase production capacity for pulp and forestry and wood products and to improve efficiency and productivity;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | improving the growth rate and quality of its plantations and increasing production of higher margin clear wood through advanced forest management techniques; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | expanding its product line in order to penetrate new markets by, among other things, planting eucalyptus trees to provide hardwood pulp.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



Forestry Activity



Radiata pine grows at the fastest rates within a narrow band of latitude and under certain climatic conditions. One of
Chiles principal advantages in the forestry products industry lies in the short growing cycle of its radiata pine plantations. The faster rate of growth of radiata pine trees in Chile allows harvesting of pulplogs and sawlogs 16 to 18 years
after planting and of high quality sawlogs 25 years after planting. For most temperate



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softwood forests in the Northern Hemisphere this range is between 18 to 45 years for pulplogs and 50 to 150 for high
quality sawn timber. Consequently, the Chilean forestry industry is a relatively low cost producer, since a Chilean producer generally requires less time and a smaller area to produce the same volume of pine as its North American or European
competitors, who face lower forest growth rates and higher transportation and investment costs as a result of the larger tracts of forests necessary to produce equivalent yields of softwood. Accordingly, since the mid-1970s, Arauco has focused its
forest management toward the application of advanced genetic and silviculture techniques to increase productivity and the quality of its plantations.



Eucalyptus, which Arauco started planting in 1989, grows well in the forest regions of Chile. Once planted, eucalyptus trees require no further forest
management (other than fire control and reduction of weeds) until harvest. The average harvest cycle of eucalyptus plantations is approximately 12 years. Once cut, eucalyptus regrows and it is only after two additional harvest rotations of
approximately 12 years each that it becomes necessary to replant.



Arauco has adopted environmentally sensitive policies towards its holdings of native forests. In selected areas, Arauco will thin native forests in compliance with applicable laws and regulations, but Arauco does not permit clear cutting of
native forests in areas surrounding rivers and streams, areas of notable environmental interest or areas with particularly fragile soil conditions. See Government Regulation.



All of Araucos forest activities have the environmental certification
ISO 14001. During 2003, Arauco obtained certification in Chile for the National Standard for Sustainable Forest Management (CERTFOR). CERTFOR is seeking membership in Pan European Forest Certification (PEFC), the forestry certification that covers
the largest segment of the world market.



Forest Plantations



The majority of Araucos radiata pine is less
than 15 years old. Araucos planted forests are located in central and southern Chile, most of which are located in close proximity to Araucos major production facilities and to port facilities.



The following table sets out the number of hectares and types of uses of
Araucos land holdings and rights in Chile at December 31, 2003.



|                            |  |                      |  |              |  
|--------------------------- |  | -------------------- |  | ------------ | -
|                            |  | At December 31, 2003 | 
|                            |  | Total(5)             |  | Distribution |  
|                            |  | (in hectares)        |  | (percentage) |  
|Radiata pine plantations(1) |  |                      |  |              |  
|0-5 years                   |  | 138,328              |  | 14.9         | %
|6-10 years                  |  | 132,539              |  | 14.3         |  
|11-15 years                 |  | 117,444              |  | 12.7         |  
|16-20 years                 |  | 103,420              |  | 11.1         |  
|21+ years                   |  | 60,980               |  | 6.6          |  
|Subtotal(2)                 |  | 552,711              |  | 59.5         |  
|                            |  |                      |  |              |  
|Eucalyptus plantations(3)   |  | 75,956               |  | 8.2          |  
|Other species               |  | 3,106                |  | 0.3          |  
|Land for plantations        |  | 31,107               |  | 3.4          |  
|Land for other uses(4)      |  | 265,512              |  | 28.6         |  
|Subtotal                    |  | 375,681              |  | 40.5         |  
|                            |  |                      |  |              |  
|Total                       |  | 928,392              |  | 100.00       | %
|                            |  |                      |  |              |  

---

|(1) | All years are calculated from the date of planting.
|--- | ---------------------------------------------------

|(2) | These figures include 18,846 hectares as to which Arauco has the right to harvest, but does not own.
|--- | ----------------------------------------------------------------------------------------------------

|(3) | Approximately 90% of Araucos eucalyptus plantations are less than 10 years old.
|--- | --------------------------------------------------------------------------------

|(4) | Includes roads, fire breaks, native forests and yards.
|--- | ------------------------------------------------------

|(5) | As of December 31, 2003 Arauco had a 82.12% stake in Forestal Celsur S.A. An additional 17.80% was acquired during January 2004.
|--- | --------------------------------------------------------------------------------------------------------------------------------



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At December 31, 2003, Araucos aggregate radiata pine holdings comprised approximately 36% of the
total Chilean radiata plantations, making Arauco the countrys largest radiata pine plantation owner, according to the Chilean Forestry Institute.



Land Acquisition and Afforestation



Araucos total land assets in Chile have increased from under 170,000 hectares in 1980 to 928,392 hectares at December 31, 2003. That figure includes
18,846 hectares owned by third parties as to which Arauco has harvesting rights. Although Arauco has acquired afforested land, the bulk of the increase in its forest plantations has been through the acquisition of bare land which is subsequently
planted with trees. In the five years ending December 31, 2003, Arauco purchased 77,403 hectares of bare land for plantations and other uses and 104,038 hectares of forested land in Chile.



In December 2002, Alto Paraná won a bid for 60,000 hectares of
forestry land and plantations sold by the Argentine company Perez Companc. Alto Paraná agreed to pay U.S.$40 million for the land, which includes a sawmill with a capacity of 120,000 cubic meters and other related assets, and is located in
Argentina, close to Alto Paranás operations. This transaction was completed in January 2004, after obtaining the approval of the Argentine antitrust authority.



In December 2003, Arauco, through its subsidiary Forestal Celco S.A. (Forestal Celco), acquired a controlling
interest in Forestal Celsur S.A. through the purchase of 82.12% of its shares. Arauco, through Forestal Celco, acquired an additional 17.8% of the shares in January 2004. Arauco paid U.S.$39.3 million in the aggregate for the shares, through which
purchases it acquired 13,590 hectares of land.



In May 2004,
the Companys forestry affiliates entered into an agreement with affiliates of Empresas CMPC S.A. (CMPC) to exchange forestry land held by the CMPC affiliates for land held by the Companys forestry affiliates, as well as
making a cash payment to the CMPC affiliates. Pursuant to the agreement, the Companys forestry affiliates acquired approximately 26,000 hectares of forestry land from, and transferred approximately 9,000 hectares of forestry land and made an
aggregate cash payment of approximately U.S.$55 million to, the CMPC affiliates.



Although Arauco does not currently expect to make significant acquisitions of additional land in Chile, it may nevertheless do so if presented with the opportunity to buy land at a desired price or location. Arauco
anticipates continuing its policy of supplementing its pulplog production with purchases from domestic third parties. Arauco believes that this policy is efficient given the significant quantities of pulpwood available from third parties and
Araucos increasing proportion of sawlogs yielded from its plantations. Arauco believes that the aggregate of its existing plantations in Chile, land currently held by it that Arauco intends to afforest, and the third-party purchases it makes
in the ordinary course of its business will be sufficient to satisfy Araucos anticipated future demand for sawlogs and pulplogs.



Forest Management



The forestry management activities of Arauco (with respect to its radiata pine plantations in Chile) seek to increase sawlogs through advanced genetic
techniques, planting and site preparation procedures, thinning and pruning. Managed forests can produce trees of larger diameter, and, if pruned, a higher proportion of clear wood, which generally commands a higher price than knotted wood. Although
some land is not suitable for the production of pruned logs, over 48.6% of Araucos radiata forests in Chile are actively managed for clear wood production.



In the case of eucalyptus, Arauco aims its forestry management activities at increasing the amount of fiber per hectare
through advanced genetic techniques and planting and site preparation procedures. While eucalyptus is more expensive to plant than radiata pine, thereafter eucalyptus requires minimal forest management, yields more fiber per hectare and has a
shorter growth cycle and greater wood density than radiata pine, resulting in a greater amount of pulp per hectare.



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Arauco has five nurseries. Seedlings are grown both from seeds and from cuttings from genetically
selected trees. In order to achieve higher quality trees and an increased growth rate, Arauco applies strict selection criteria to the trees from which seedlings are produced. Seedlings are planted manually. Depending upon the species of tree to be
planted and the nutrient and physical characteristics of the soil, a certain amount of ground preparation may be undertaken prior to planting. Other principal forest activities are thinning, pruning and harvesting.



Thinning (which consists of the selected culling of inferior trees from the
plantation) occurs in two stages:



| |  | thinning to waste, where some thinned trees are chipped and used in pulp production; thinning to waste occurs after four to six years and results in an average reduction of the
number of trees per hectare from 1,250 to approximately 700; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | commercial thinning, where thinned trees are used in pulp production or, depending on the quality of the particular land, as sawlogs; commercial thinning occurs at 10 to 12 years
and results in an average reduction of the number of trees per hectare from 700 to approximately 450.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



This high level of culling is economical because of the comparatively low cost of planting, the fact that a higher number of young trees provide each
other with natural protection from the elements and because it allows a high degree of selection, leaving only the highest quality trees to be harvested.



Pruning involves removing branches, the source of knots, which are the main defect in sawn timber. Pruning results in a high-quality clearwood sawlog of
5.3 meters from each tree, and is conducted at the time of the first thinning, again two years later when trees are six to eight years old and a final time one year later, when trees are seven to nine years old. Eucalyptus plantations are neither
thinned nor pruned.



Harvesting timber involves felling trees,
removing branches from the logs, cutting the logs into appropriate sections and loading the logs onto trucks for transport to sawmills, pulp mills or ports for direct export. The lower section of the radiata pine tree, comprising the first seven to
12 meters, is used in sawmills and plywood mills or exported as sawlogs. The mid-section of the tree, comprising, on average, the next eight to 13 meters, is destined either for the sawmills or pulp mills, depending on its diameter and quality. The
top section of the tree is used for pulp and MDF production.



Arauco keeps apprised of product demand and its current inventory levels, and matches harvests from sections of its plantations that will provide the optimal yield given its product requirements. This process involves the use of
sophisticated operations research models and continual liaison between different operating areas of Arauco to ensure that correct amounts of timber of the required characteristics are supplied. Arauco replants as soon as practicable after
harvesting, with an average period between harvesting and replanting of one year.



The following table illustrates on a hectare basis the extent of Araucos thinning, pruning and harvesting activities in Chile during the periods indicated.



|           |  |               |  |        |  |        |  |        |  |       
|---------- |  | ------------- |  | ------ |  | ------ |  | ------ |  | ------
|           |  | 1999          |  | 2000   |  | 2001   |  | 2002   |  | 2003  
|           |  | (in hectares)
|Thinning   |  | 30,787        |  | 30,737 |  | 35,039 |  | 33,824 |  | 35,150
|Pruning    |  | 42,061        |  | 50,707 |  | 46,245 |  | 40,377 |  | 44,178
|Harvesting |  | 12,875        |  | 14,821 |  | 17,779 |  | 18,875 |  | 19,533



Arauco manages its
forest activities in Chile, but hires independent contractors to perform the bulk of its operations, including planting, maintenance, thinning, pruning, harvesting, transportation and access road construction. Arauco commenced this practice in 1980
and currently has arrangements with more than 300 independent contractors, which in turn employ over 11,000 workers. Many of these contractors have had long-standing relations with Arauco. A substantial number of these contracts are awarded on the
basis of competitive bids. Arauco believes that its arrangements with independent contractors provide greater flexibility and efficiency than performing such activities on its own.



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The fact that Araucos forest holdings are geographically split by areas of farmland and native
forests provides natural protection against the spread of certain diseases among its plantations. In addition, among its other activities, Bioforest, Araucos research and development subsidiary, has developed techniques to protect
Araucos forests from pests and diseases. The most prevalent pest is the European pine shoot moth, which may damage the tips of the radiata pine resulting in deformations to the tree. Arauco controls this moth with biological methods.
Specifically, Arauco introduced a parasitic wasp, the Orgilus Obscurator, which attacks only the European pine shoot moth. Other methods used to control pests include the mechanical removal of affected tips and the use of low toxicity chemical
products. Other potential diseases and pests include a fungus called Dothistroma, which reduces a trees growth rate, and the Sirex insect, which attacks decaying trees and results in a thinned forest.



Arauco operates an extensive fire control organization, which interacts with
those of other forestry companies, in order to ensure minimum fire damage. The operation consists primarily of a system of spotter towers, manned 24 hours a day during the summer months, from which spotters report the direction of any fire observed
to a central command post, where the fires exact location is determined and an appropriate ground and/or aerial response is formulated. This system has limited fire damage to Araucos forests to an average of 0.22% of the plantations per
year over the last five years. See Description of Property.



Forest Production



Arauco harvested 9.9
million cubic meters of logs in Chile during the year ended December 31, 2003, consisting of 5.7 million cubic meters of sawlogs, 3.1 million cubic meters of radiata pine pulplogs and 1.0 million cubic meters of eucalyptus pulplogs and other logs.
Arauco did not export any pulp logs during 2003, as substantially all of the pulplogs from its forests were used in Araucos pulp mills. During 2003, 5,008,416 cubic meters of sawlogs were used by Araucos sawmills and panel mills and no
sawlogs were exported. Arauco also sold 496,068 cubic meters of sawlogs to unaffiliated domestic sawmills during the same period.



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Domestic and Export Sales



The following table sets out Araucos sales revenue derived from exports and domestic sales for the years indicated.



|                             |  |                         |       |      |   |       |  |   |      
|---------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | -----
|                             |  | Year ended December 31,
|                             |  | 2001                    |       | 2002 |   | 2003 
|                             |  | (in millions of U.S.$) 
|Export Sales                 |  |                         |       |      |   |       |  |   |      
|Bleached pulp                |  | $                       | 518   |      | $ | 466   |  | $ | 520  
|Unbleached pulp              |  |                         | 150   |      |   | 129   |  |   | 140  
|Sawlogs                      |  |                         | 0     |      |   | 3     |  |   | 0    
|Flitches                     |  |                         | 6     |      |   | 6     |  |   | 7    
|Sawn timber                  |  |                         | 117   |      |   | 155   |  |   | 190  
|Remanufactured wood products |  |                         | 99    |      |   | 128   |  |   | 145  
|Plywood and fiber panels     |  |                         | 93    |      |   | 133   |  |   | 221  
|Posts                        |  |                         | 6     |      |   | 7     |  |   | 11   
|Other                        |  |                         | 0     |      |   | 0     |  |   | 0    
|                             |  |                         |       |      |   |       |  |   |      
|Total export sales revenue   |  | $                       | 989   |      | $ | 1,027 |  | $ | 1,236
|                             |  |                         |       |      |   |       |  |   |      
|Domestic Sales               |  |                         |       |      |   |       |  |   |      
|Bleached pulp                |  |                         | 36    |      |   | 33    |  |   | 47   
|Unbleached pulp              |  |                         | 1     |      |   | 2     |  |   | 2    
|Sawlogs                      |  |                         | 16    |      |   | 14    |  |   | 17   
|Pulplogs                     |  |                         | 11    |      |   | 7     |  |   | 5    
|Sawn timber                  |  |                         | 49    |      |   | 44    |  |   | 57   
|Remanufactured wood products |  |                         | 13    |      |   | 9     |  |   | 2    
|Chips                        |  |                         | 1     |      |   | 1     |  |   | 1    
|Electric power               |  |                         | 3     |      |   | 5     |  |   | 8    
|Plywood and fiber panels     |  |                         | 48    |      |   | 45    |  |   | 76   
|Other                        |  |                         | 6     |      |   | 1     |  |   | 9    
|                             |  |                         |       |      |   |       |  |   |      
|Total domestic sales revenue |  | $                       | 185   |      | $ | 161   |  | $ | 222  
|                             |  |                         |       |      |   |       |  |   |      
|Total sales revenue          |  | $                       | 1,174 |      | $ | 1,188 |  | $ | 1,458
|                             |  |                         |       |      |   |       |  |   |      



The following table
sets out a geographic market breakdown of Araucos export sales revenue for the years indicated.



|                          |  |                         |     |      |   |       |  |   |      
|------------------------- |  | ----------------------- | --- | ---- | - | ----- |  | - | -----
|                          |  | Year ended December 31,
|                          |  | 2001                    |     | 2002 |   | 2003 
|                          |  | (in millions of U.S.$) 
|North America             |  | $                       | 188 |      | $ | 317   |  | $ | 340  
|Central and South America |  |                         | 155 |      |   | 162   |  |   | 142  
|Asia                      |  |                         | 442 |      |   | 342   |  |   | 454  
|Europe                    |  |                         | 192 |      |   | 183   |  |   | 244  
|Others                    |  |                         | 11  |      |   | 23    |  |   | 56   
|                          |  |                         |     |      |   |       |  |   |      
|Total                     |  | $                       | 989 |      | $ | 1,027 |  | $ | 1,236
|                          |  |                         |     |      |   |       |  |   |      



Pulp



Arauco believes that it was Chiles largest producer of bleached and
unbleached softwood market pulp in terms of production in 2003. For the year ended December 31, 2003, pulp sales were U.S.$709.8 million, representing 48.7% of Araucos total sales revenue for the period.



Pulp obtained from wood fibers is used in the manufacture of printing and
writing paper, hygienic and sanitary paper, board and packaging. Whether a specific kind of pulp is suitable for a particular end use depends not only on the type of wood, but also on the process used to transform the wood into pulp. Pulp made from
softwoods, such as radiata pine, has long fibers and is used to provide durability and strength to paper products. Bleached pulp



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is used primarily for printing and writing papers and for tissue. Unbleached pulp is used primarily for linerboard (a
packaging material). Pulp made from hardwoods, such as eucalyptus, has short fibers and is used in combination with long fiber in manufacturing paper products.



Arauco uses a chemical process, known as the kraft process, in its four pulp mills in Chile and the pulp mill in Argentina. The raw wood is
in the form of pulplogs and chips, which are combined in the production process to produce pulp. The pulplogs are first debarked and chipped. The chips are then screened, mixed and cooked with chemicals in order to separate the bulk of the lignin
from the wood fibers. After the material is screened and washed, it is then passed to high-density tanks. For bleached pulp, the next step is a five-stage bleaching process using chemicals, primarily chlorine dioxide. At the Arauco II and Licancel
Mills, the bleaching process is preceded by an oxygen delignification stage. The fibers are then subjected to a final stage where the sheets are formed and subsequently dried and baled for transport to customers. The lignin and bark produced during
this process is used to fuel the boilers that produce steam, providing heat and generating electricity for the mill. Araucos bleached pulp is bleached to a 90+ brightness level as measured by the International Standards Organization
(ISO) test procedure, which is one of the industrys measurement methods.



Pulp Mills



During 2003 Arauco owned and operated three pulp mills in Chile, which had an aggregate annual production capacity at December 31, 2003 of approximately 1,245,000 metric tons. During the first quarter of 2004 Arauco completed the
construction of its fourth mill in Chile, the Valdivia Mill, which has an annual capacity of approximately 700,000 metric tons. No seasonal factors affect plant utilization. The pulp mills are kept running at full capacity throughout the year with
eight to ten days of maintenance scheduled every 12 months.



The following table sets out bleached and unbleached kraft pulp production in Chile by plant for each of the years indicated.



|                               |  |                               |     |  |       |  |       |  |       |  |      
|------------------------------ |  | ----------------------------- | --- |  | ----- |  | ----- |  | ----- |  | -----
|                               |  | Year ended December 31       
|                               |  | 1999                          |     |  | 2000  |  | 2001  |  | 2002  |  | 2003 
|                               |  | (in thousands of metric tons)
|Arauco Mill (bleached)         |  |                               |     |  |       |  |       |  |       |  |      
|Arauco I                       |  | 237                           |     |  | 255   |  | 284   |  | 258   |  | 252  
|Arauco II                      |  | 468                           |     |  | 484   |  | 485   |  | 498   |  | 494  
|Constitución Mill (unbleached) |  | 330                           |     |  | 334   |  | 350   |  | 354   |  | 357  
|Licancel Mill (bleached)       |  | 14                            | (1) |  | 118   |  | 110   |  | 113   |  | 134  
|                               |  |                               |     |  |       |  |       |  |       |  |      
|Total                          |  | 1,049                         |     |  | 1,191 |  | 1,229 |  | 1,223 |  | 1,237
|                               |  |                               |     |  |       |  |       |  |       |  |      

---

|(1) | For the period from October 1, 1999, when Arauco began its administration of Licancel Mill, to December 31, 1999.
|--- | -----------------------------------------------------------------------------------------------------------------



Arauco I.Arauco I, which was completed in 1972, is located in the
heart of one group of Araucos radiata pine plantations in the Eighth Region in Chile, approximately 600 kilometers south of Santiago. Arauco I underwent a modernization between 1986 and 1989 which increased its annual capacity to 190,000
metric tons and substantially improved its automation and environmental controls, including the ability to produce elementary chlorine-free (ECF) pulp. Annual capacity increased to 250,000 metric tons of eucalyptus kraft pulp
(EKP) and bleached kraft pulp (BKP) as a result of the Arauco 21 Project. In June 1998, Arauco began producing eucalyptus bleached pulp at Arauco I. It continues to produce pine bleached pulp as well.



Arauco II.Located at the same site as Arauco I, Arauco II was
completed in 1991 with an annual production capacity of 350,000 metric tons. Arauco IIs pulping process is fundamentally the same as that of Arauco I, but includes technological improvements in its production process and environmental design.
Arauco II is equipped to produce ECF pulp, which does not use chlorine gas. ECF pulp is also produced by a significant portion of Araucos competitors in each of the worlds major pulp producing regions. Annual capacity increased to
500,000 metric tons as a result of the Arauco 21 Project.



Constitución Mill.The Constitución Mill is located in the heart of another group of Araucos radiata pine forests in the Seventh Region in Chile, approximately 360 kilometers southwest of Santiago. In 1990 the
plant



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underwent a modernization and expansion that increased its annual production capacity to 265,000 metric tons per year,
making it the largest unbleached softwood market pulp mill in the world, and substantially improved its automation and environmental controls. In the following years, improved operational procedures and minor capital improvements expanded annual
production capacity to approximately 355,000 metric tons.



Licancel Mill.Arauco acquired the Licancel Mill in September 1999 for U.S.$133 million. Licancel is a pulp mill located in Licantén, near Constitución, which is 250 kilometers south of Santiago. The mill has an annual
production capacity of 140,000 metric tons of EKP and pine BKP. Like Arauco I and Arauco II, the Licancel Mill is equipped to produce ECF pulp. Arauco also acquired 29,000 hectares of radiata pine plantations in connection with its purchase of the
Licancel Mill.



Valdivia Mill.Arauco completed
construction of the Valdivia Mill during the first quarter of 2004. The Valdivia Mill is located in the Tenth Region in Chile, an area with significant radiata pine and eucalyptus plantations. The Valdivia Mill has an annual production capacity of
approximately 700,000 metric tons of bleached pulp, consisting of softwood pulp and eucalyptus pulp.



Itata Project. In 2003, Arauco began construction of the first phase of the Itata Project, consisting of a sawmill, a plywood mill and an energy
complex for the supply of steam and energy. As proposed, the completed industrial complex is expected to also include a pulp mill. Construction of the first phase has an estimated investment cost of approximately U.S.$140 million and is expected to
be completed during the first quarter of 2005. The pulp mill has not received final approval from the Companys board of directors, and there can be no assurance that the second phase of the project will be undertaken. If undertaken, the
estimated cost for the second phase is approximately U.S.$800 million. The projected annual production capacity of the pulp mill is approximately 850,000 metric tons of bleached pulp, consisting of softwood pulp and eucalyptus pulp.



Production Costs



Based on information published by RISI, Araucos cash costs for
softwood pulp production are significantly lower than the average costs of market pulp producers in Canada, the United States and Scandinavia, particularly with respect to timber and labor costs. While Araucos modern facilities result in
depreciation exceeding that of such Northern Hemisphere producers, Araucos costs are still significantly lower than those of the average of its Northern Hemisphere competitors on a total delivered cost basis. The following table compares
Araucos costs for the production of bleached softwood kraft market pulp with the average costs of market pulp producers in selected regions in the Northern Hemisphere for the year ended December 31, 2002.



|                     |  |                                                                |  |                      |  |                         |  |                   |  |        |  |        
|-------------------- |  | -------------------------------------------------------------- |  | -------------------- |  | ----------------------- |  | ----------------- |  | ------ |  | -------
|                     |  | Bleached Softwood Kraft Pulp Producers Cost                  
|                     |  | Arauco(3)                                                      |  | BritishColumbiaCoast |  | BritishColumbiaInterior |  | UnitedStatesSouth |  | Sweden |  | Finland
|                     |  | (in U.S.$ per metric ton for the year ended December 31, 2002)
|Wood                 |  | 111                                                            |  | 128                  |  | 103                     |  | 128               |  | 171    |  | 196    
|Total chemicals      |  | 36                                                             |  | 41                   |  | 45                      |  | 39                |  | 38     |  | 34     
|Labor                |  | 10                                                             |  | 52                   |  | 38                      |  | 39                |  | 30     |  | 32     
|Others(1)            |  | 40                                                             |  | 78                   |  | 78                      |  | 69                |  | 27     |  | 16     
|                     |  |                                                                |  |                      |  |                         |  |                   |  |        |  |        
|Total cash cost      |  | 197                                                            |  | 299                  |  | 264                     |  | 275               |  | 266    |  | 278    
|                     |  |                                                                |  |                      |  |                         |  |                   |  |        |  |        
|Depreciation         |  | 44                                                             |  | 48                   |  | 35                      |  | 62                |  | 40     |  | 54     
|                     |  |                                                                |  |                      |  |                         |  |                   |  |        |  |        
|Total mill cost      |  | 241                                                            |  | 347                  |  | 299                     |  | 337               |  | 306    |  | 332    
|                     |  |                                                                |  |                      |  |                         |  |                   |  |        |  |        
|Transportation(2)    |  | 38                                                             |  | 42                   |  | 69                      |  | 58                |  | 21     |  | 25     
|                     |  |                                                                |  |                      |  |                         |  |                   |  |        |  |        
|Total delivered cost |  | 279                                                            |  | 389                  |  | 368                     |  | 395               |  | 327    |  | 357    
|                     |  |                                                                |  |                      |  |                         |  |                   |  |        |  |        

---

|(1) | Includes energy, materials and other production costs.
|--- | ------------------------------------------------------

|(2) | Delivered Northern Europe.
|--- | --------------------------

|(3) | Includes Chilean operations only.
|--- | ---------------------------------

Source: RISI World PULP Annual
Historical Data, March 2004, except Arauco information, which is furnished by Arauco.



20



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##### Table of Contents

Sales



The world market for bleached softwood kraft market pulp during the year ended December 31, 2003 was approximately 19.7 million metric tons. Based on
information published by RISI, Arauco believes that its production represented 6.3% of this market in 2003. During the year ended December 31, 2003, Arauco sold approximately 91.7% of its bleached pulp abroad, principally to customers in Asia and
Western Europe. In the early 1990s, sales were made primarily to Western Europe, but with the expanded capacity provided by Arauco II as it came on line starting in late 1991, Arauco has been able to diversify its customer base, especially in
Asia. The domestic market in Chile is dominated by a single integrated pulp and paper manufacturer so that the Chilean market for bleached market pulp is relatively small.



The world production of unbleached softwood pulp is dominated by integrated manufacturers, leaving non-integrated companies,
such as Arauco, with only a small percentage of total production. With a total world production of unbleached softwood kraft market pulp of 2.3 million metric tons for 2003, according to RISI, Araucos Constitución Mill was the
worlds largest single producer, with 15.8% of the total market in 2003. During the year ended December 31, 2003, approximately 98.7% of Araucos total unbleached market pulp sales consisted of export sales. While for the last five
calendar years Asia has been Araucos principal export market for unbleached market pulp, Arauco continually seeks niche markets for its product in Western Europe and the United States. Historically, Araucos sales in the domestic market
have been less than 5% of its total unbleached pulp sales revenue.



The following table sets out by region the sales volumes of bleached and unbleached pulp for each of the five years from 1999 through 2003, excluding sales from Alto Paraná.



|                        |  |                         |  |         |  |           |  |         |  |        
|----------------------- |  | ----------------------- |  | ------- |  | --------- |  | ------- |  | -------
|                        |  | Year ended December 31,
|                        |  | 1999                    |  | 2000    |  | 2001      |  | 2002    |  | 2003   
|                        |  | (in metric tons)       
|Bleached Pulp           |  |                         |  |         |  |           |  |         |  |        
|North and South America |  | 55,783                  |  | 60,559  |  | 60,933    |  | 82,873  |  | 70,102 
|Europe                  |  | 276,775                 |  | 277,307 |  | 290,980   |  | 322,038 |  | 327,406
|Asia                    |  | 488,352                 |  | 299,890 |  | 635,295   |  | 473,740 |  | 468,495
|Other                   |  |                        |  | 11,935  |  | 15,036    |  | 11,156  |  | 26,240 
|                        |  |                         |  |         |  |           |  |         |  |        
|Total                   |  | 820,910                 |  | 649,691 |  | 1,002,244 |  | 889,807 |  | 892,243
|                        |  |                         |  |         |  |           |  |         |  |        
|Unbleached Pulp         |  |                         |  |         |  |           |  |         |  |        
|North and South America |  | 26,785                  |  | 34,156  |  | 29,521    |  | 24,398  |  | 26,143 
|Europe                  |  | 17,500                  |  | 13,877  |  | 12,598    |  | 13,558  |  | 18,233 
|Asia                    |  | 312,767                 |  | 223,848 |  | 377,897   |  | 311,406 |  | 322,371
|Other                   |  | 1,998                   |  | 9,409   |  | 3,519     |  |        |  |       
|                        |  |                         |  |         |  |           |  |         |  |        
|Total                   |  | 359,050                 |  | 281,290 |  | 423,535   |  | 349,362 |  | 366,747
|                        |  |                         |  |         |  |           |  |         |  |        



While there are many
grades and varieties, pulp is a commodity that is marketed primarily on the basis of price and service. In marketing its pulp, Arauco seeks to establish long-term relationships with non-integrated end users of pulp by providing a
competitively-priced, high-quality, consistent product and excellent service. The consistency of Araucos Chilean pulp derives from its state-of-the-art mills and its use of a single species of tree, in contrast to pulp producers in some of the
worlds major softwood pulp producing regions that use a mix of different species depending on availability and seasonality. Araucos bleached pulp is marketed under the brand names Arauco and its unbleached pulp under the
brand name Celco.



Prices for bleached softwood
kraft market pulp produced from radiata pine generally fluctuate depending on prevailing world prices, which historically have been cyclical. The fluctuations generally depend upon worldwide demand, world production capacity, the business strategies
adopted by major forestry, pulp and paper producers and the availability of substitutes. See Item 5. Operating and Financial Review and ProspectsManagements Discussion and Analysis of Financial Conditions and Results of
OperationsOverview and Prices.



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##### Table of Contents

The following table sets forth Araucos Chilean bleached and unbleached pine pulp prices (CIF) per
metric ton at the indicated dates, during the years set out below.



|                |  |                        |  |      |  |      |  |      |  |     
|--------------- |  | ---------------------- |  | ---- |  | ---- |  | ---- |  | ----
|                |  | 1999                   |  | 2000 |  | 2001 |  | 2002 |  | 2003
|                |  | (U.S.$ per metric ton)
|Bleached Pulp   |  |                        |  |      |  |      |  |      |  |     
|March 31        |  | 419                    |  | 622  |  | 456  |  | 360  |  | 470 
|June 30         |  | 479                    |  | 666  |  | 408  |  | 439  |  | 461 
|September 30    |  | 523                    |  | 684  |  | 365  |  | 448  |  | 470 
|December 31     |  | 596                    |  | 644  |  | 378  |  | 414  |  | 478 
|                |  |                        |  |      | 
|Unbleached Pulp |  |                        |  |      |  |      |  |      |  |     
|March 31        |  | 362                    |  | 537  |  | 361  |  | 348  |  | 418 
|June 30         |  | 403                    |  | 580  |  | 348  |  | 405  |  | 381 
|September 30    |  | 430                    |  | 542  |  | 342  |  | 379  |  | 388 
|December 31     |  | 487                    |  | 426  |  | 370  |  | 361  |  | 392 



In accordance with
customary pulp market practice, Arauco does not have long-term sales contracts with its customers, but rather maintains long-standing relationships with its customers pursuant to which agreement is reached from time to time on specific volumes and
prices. The Company has a diversified customer base located throughout the world, totaling more than 300 clients. The Company employs more than 15 sales agents to represent it in more than 50 countries, but its worldwide sales network is managed
from its Santiago headquarters.



Forestry Products



Araucos forestry products are sawlogs and pulplogs. As a result of
Araucos forest management policies and the increasing maturity of Araucos plantations in Chile, Araucos plantations are yielding increasing volumes of forestry products, particularly clear wood. As the volume of clear wood has
grown, Arauco has broadened its range of forestry products. For the year ended December 31, 2003, sales of forestry products were U.S.$33 million, representing 2.3% of Araucos total sales revenue for the period.



Sawmills



Araucos sawmill products are sawn timber (green and kiln-dried lumber) and remanufactured wood products. For the year
ended December 31, 2003, sales of sawmill products were U.S.$401.6 million, representing 27.5% of Araucos total sales revenues for the period.



As of December 31, 2003, Arauco owned 11 sawmills in Chile and one in Argentina, with an aggregate annual processing capacity at December 31, 2003 of
approximately 5,390,000 cubic meters of sawlogs and an aggregate annual production capacity at December 31, 2003 of approximately 2,650,000 cubic meters of lumber. Araucos 11 sawmills in Chile are operated by contractors, which are not related
to Arauco or to each other. Arauco operates its sawmills in coordination with its forestry and sales operations, since its sawn timber is generally produced in accordance with customer specifications. All of the sawmills are located near
Araucos radiata pine plantations. As of December 31, 2003, Arauco also owned seven remanufacturing facilities that reprocess the sawn timber into remanufactured wood products, with an aggregate annual production capacity of approximately
364,000 cubic meters.



Aserraderos Arauco was established in
June 1993 to centralize management and control production at Araucos sawmill and remanufacturing operations. Prior to that time, Arauco leased its mills to independent third-party operators that could sell into the domestic market any products
that Arauco did not purchase for export. All of Araucos sawmill and remanufacturing facilities are currently run by independent contractors that are paid sawing services fees calculated on a fixed and variable basis depending on productivity,
with price renegotiations in the event of material changes in costs or productivity. Each independent contractor operates exclusively for Arauco and only with respect to one sawmill facility and, at the mills that have adjacent remanufacturing
facilities, one remanufacturing facility. The 11 independent contractors that operate Araucos Chilean sawmills employed 3,408 employees at December 31, 2003 and the five independent contractors that operate Araucos Chilean
remanufacturing facilities employed 1,874 employees at December 31, 2003. Arauco believes that its arrangements with independent contractors provide it with greater flexibility and efficiency than performing such activities on its own.



22



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##### Table of Contents

A log merchandising facility located at the same site as the Horcones I Sawmill described below was
completed in early 1997. This facility cuts and classifies wood destined for the plywood facility, the sawmills, the export market or the pulp mills.



The following is a brief description of Araucos sawmills and remanufacturing facilities as of December 31, 2003 and on the basis of their production
capacity. Processing capacity measures a facilitys input, while production capacity measures its output. Typically, a facilitys production capacity is 45% to 50% smaller than its processing capacity.



Araucana.This sawmill processes logs to produce sawn timber,
including high-grade sawn timber for remanufacturing and flitches. It has an annual production capacity of 130,000 cubic meters of lumber.



Cholguán. This sawmill was acquired in March 2000 and has an annual production capacity of 300,000 meters of lumber, as well as drying kiln
facilities and two remanufacturing facilities with an annual production capacity of 50,000 cubic meters of remanufactured wood products. This sawmill also has a special facility for making laminating beams, with an annual production capacity of
6,000 cubic meters and drying facilities with an annual production capacity of 220,000 cubic meters.



Coelemu.This sawmill was acquired by Arauco in 1991 and has an annual production capacity of 80,000 cubic meters of lumber. Much of the
mills production is sold into the Japanese market for thin and narrow sawn timber.



Colorado.This sawmill, which was expanded in 1995 and has an annual production capacity of 340,000 cubic meters of lumber, produces green sawn timber (or sawn timber that is not kiln dried) for the
Japanese and Middle Eastern markets, as well as the domestic market. It also has drying facilities with an annual production capacity of 170,000 cubic meters.



El Cruce.This sawmill was acquired in March of 1999 and has an annual production capacity of 90,000 cubic meters of
lumber.



Escuadrón.This sawmill was acquired by
Arauco in 1976 and modernized in 1994. Its annual production capacity is 100,000 cubic meters of lumber, and it produces all types of sawn timber. It also has drying kilns with an annual production capacity of 80,000 cubic meters.



Horcones I.This sawmill started production in the third quarter of
1996. It has an annual production capacity of 330,000 cubic meters of lumber. It also has drying kilns with an annual production capacity of 400,000 cubic meters and a remanufacturing facility with an annual production capacity of 110,000 cubic
meters of remanufactured wood products.



Horcones II.This sawmill has an annual production capacity of 240,000 cubic meters of lumber, as well as drying kiln facilities. It commenced operations of its drying kiln facilities in September 1999 and was fully operational by December 1999, with an
annual production capacity of 200,000 cubic meters.



Mariquina.This sawmill started production in the fourth quarter of 1996 and has an annual production capacity of 360,000 cubic meters of lumber. It also has drying facilities with an annual production capacity of 280,000 cubic
meters of remanufactured wood products and a remanufacturing facility with an annual production capacity of 42,000 cubic meters of remanufactured wood products.



Mutrún.This sawmill, which was modernized in 1992, has an annual production capacity of 130,000 cubic meters
of lumber. It is also equipped with drying kilns with an annual production capacity of 80,000 cubic meters.



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##### Table of Contents

Piray (Argentina). Construction of this sawmill, previously known as the Misiones sawmill, was
completed in the first quarter of 2000. It has an estimated annual production capacity of 300,000 cubic meters of lumber. It is also equipped with drying kilns with an annual production capacity of 300,000 cubic meters and a remanufacturing facility
with an annual production capacity of 36,000 cubic meters of remanufactured wood products.



Viñales.This sawmill started production in the second quarter of 1994. It has an annual production capacity of 250,000 cubic meters of
lumber. It is also equipped with drying kilns with an annual production capacity of 200,000 cubic meters and a remanufacturing facility with an annual production capacity of 120,000 cubic meters of remanufactured wood products.



Arauco has acquired or is constructing two additional sawmills, which were
not in operation at December 31, 2003. The following is a brief description of the new sawmills on the basis of their production capacity.



Bossetti (Argentina).This sawmill was acquired by Arauco in 2004, as part of its purchase of the forestry assets of the Argentine company Perez
Companc. It has an annual production capacity of 120,000 cubic meters of lumber. It also has drying facilities with an annual production capacity of 120,000 cubic meters of remanufactured wood products and a remanufacturing facility with an annual
production capacity of 18,000 cubic meters of remanufactured wood products.



Itata.During 2003 Arauco started the construction of the first stage of the Itata Project in Chiles Eighth Region, on the banks of the Itata River. This phase includes the construction of a sawmill
capable of producing more than 400,000 cubic meters of sawn timber. This sawmill is expected to enter into operations during the first quarter of 2005.



Panels



Araucos panel products are plywood and fiber panels. In October 1997, Araucos subsidiary, Paneles Arauco, completed construction of a plywood
facility in the Arauco province at an estimated total cost of U.S.$44 million. The facility reached its projected annual processing capacity of 230,000 cubic meters of logs during the second half of 1998. During 2000, Arauco completed the
construction of a second production line with an annual production capacity of 200,000 cubic meters of plywood, which expanded the annual total production capacity of the facility to 340,000 cubic meters of plywood. This second line had a total cost
of U.S.$30 million. During 2003, the facility produced a total of 331,185 cubic meters of plywood.



Cholguáns subsidiary Maderas Prensadas Cholguán S.A. (Maderas Prensadas), which runs the Cholguán HB Mill (the
Cholguán HB Mill), became a subsidiary of Arauco through Araucos acquisition of Cholguán and a subsequent tender offer for the shares of Maderas Prensadas not previously held by Cholguán. The Cholguán HB
Mill has an annual production capacity of 60,000 cubic meters per year.



During the third quarter of 2002, Arauco began operations at two new MDF mills, one in Chile (Trupán II) and one in Argentina (Piray MDF Mill), with a capacity of 250,000 cubic meters
each. These mills were built at a combined investment of U.S.$135 million.



With the inauguration of these two new mills, Arauco had six panel production facilities, two plywood mills, one HB mill and three MDF mills, with an annual aggregate production capacity exceeding a million cubic
meters, placing it among the main companies in Latin America in the wood panel business.



For the year ended December 31, 2003, sales of panels were U.S.$296.9 million, representing 20.4% of Araucos total sales revenues for the period.



The construction of the first stage of the Itata Project
includes the construction of a plywood mill with projected annual capacity of 210,000 cubic meters. This plywood mill is expected to enter into operation during the first quarter of 2005.



24



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##### Table of Contents

Sales



The following table sets out Araucos forestry and wood products sales to unaffiliated third parties by category for each of the five years
indicated.



|                             |  |                                |  |       |  |       |  |       |  |      
|---------------------------- |  | ------------------------------ |  | ----- |  | ----- |  | ----- |  | -----
|                             |  | Year ended December 31,       
|                             |  | 1999                           |  | 2000  |  | 2001  |  | 2002  |  | 2003 
|                             |  | (in thousands of cubic meters)
|Sawlogs                      |  | 1,252                          |  | 989   |  | 515   |  | 585   |  | 516  
|Pulplogs                     |  | 526                            |  | 516   |  | 451   |  | 419   |  | 256  
|Sawn timber                  |  | 915                            |  | 1,078 |  | 1,190 |  | 1,510 |  | 1,608
|Remanufactured wood products |  | 157                            |  | 185   |  | 273   |  | 248   |  | 299  
|Plywood and fiber panels     |  | 115                            |  | 314   |  | 466   |  | 643   |  | 1,059



Exports accounted for
78.6% of Araucos total sales revenues of panels, forestry and wood products for the year ended December 31, 2003. Arauco sells sawn timber primarily to Asia, the Middle East, the United States and domestically, and remanufactured wood products
primarily to the United States, Europe and Australia.



Alto
Paraná



In December 1996, Arauco acquired a 96.04%
interest in Alto Paraná, a company headquartered in Buenos Aires, Argentina, that manufactures and sells bleached softwood kraft market pulp in Argentina and the export market. In 2003, Alto Paraná produced 345,282 metric tons of pulp,
241,544 cubic meters of panels and 239,200 cubic meters of sawn timber and realized revenues from such sales of approximately U.S.$230.2 million. In December 1997, Arauco acquired a 97.58% interest in Misiones, an Argentine forestry company. Each
such acquisition has been accounted for under the purchase accounting method in accordance with U.S. GAAP. As a result of Araucos subsequent acquisitions of stock in the two companies, immediately prior to the merger of Misiones into Alto
Paraná in December 1999, Arauco held a 99.98% interest in Alto Paraná and a 99.98% interest in Misiones. Alto Paraná remains a 99.98% indirect subsidiary of the Company.



Pulp Mill and Properties



As of December 31, 2003, Alto Paranás principal assets were its
pulp production facility, located on the Paraná River in the Province of Misiones, Argentina, its cultivated forest lands, which serve as a source of raw materials for the production of softwood pulp and wood products, the Piray Sawmill, and
the Piray MDF Mill in Puerto Piray, which began operations during the third quarter of 2002.



Alto Paranás softwood pulp mill is located approximately 1,300 kilometers northwest of Buenos Aires in Puerto Esperanza, in the province of
Misiones, Argentina, a region whose soil and climate are favorable for the rapid growth of pine trees. The Alto Paraná mill, which commenced operations in November 1982, is the only bleached softwood kraft market pulp facility in Argentina.
The mill has a production capacity of 350,000 tons of pulp per year, which currently represents almost all of total bleached softwood pulp production capacity in Argentina. The mill produced:



| |  | 299,628 metric tons in 2001;
| | - | ----------------------------



| |  | 322,770 metric tons in 2002; and
| | - | --------------------------------



| |  | 345,282 metric tons in 2003.
| | - | ----------------------------



Through Alto Paraná, Arauco owned 201,696 hectares of forest and other land in Argentina and Uruguay as of December 31, 2003. Of these, 174,013
were located in the Province of Misiones, Argentina and the balance in Uruguay. Of the total 201,696 hectares, approximately 94,043 hectares are planted with taeda pine as well as elliotti pine (a species of softwood which has a growth rate similar
to that of radiata pine). The balance includes plantations of other species of trees, land to be planted, protected areas and natural forests. The majority of Araucos Argentine pine is under 15 years old.



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##### Table of Contents

In December 2002, Alto Paraná won a bid for 60,000 hectares of forestry land and plantations as
well as a sawmill sold by the Argentine company Perez Companc. Alto Paraná paid U.S.$40 million for the land and the Bossetti Sawmill, which are located in Argentina, close to Alto Paranás operations. The transaction closed in
January 2004 after the approval of the Argentine anti-trust authorities was received. Alto Paraná expects to acquire additional land depending on price and location; however, there can be no assurance that Alto Paraná will be able to
acquire land at its desired price or location.



The following
table sets out the number of hectares and types of uses of Araucos land holdings in Argentina at December 31, 2003.



Araucos Argentine Forest Reserves



|                                     |  |                      |  |              |  
|------------------------------------ |  | -------------------- |  | ------------ | -
|                                     |  | At December 31, 2003 | 
|                                     |  | Total                |  | Distribution |  
|                                     |  | (in hectares)        |  | (percentage) |  
|Taeda & Elliotti Pine Plantations(1) |  |                      |  |              |  
|0-5 years                            |  | 55,126               |  | 27.3         | %
|6-10 years                           |  | 12,533               |  | 6.2          |  
|11-15 years                          |  | 9,623                |  | 4.8          |  
|16-20 years                          |  | 8,171                |  | 4.1          |  
|21+ years                            |  | 8,590                |  | 4.3          |  
|                                     |  |                      |  |              |  
|Subtotal                             |  | 94,043               |  | 46.7         |  
|Araucaria                            |  | 5,340                |  | 2.6          |  
|Eucalyptus                           |  | 3,134                |  | 1.6          |  
|Land for plantations                 |  | 12,650               |  | 6.3          |  
|Land for other uses(2)               |  | 86,529               |  | 42.9         |  
|                                     |  |                      |  |              |  
|Subtotal                             |  | 107,653              |  | 53.4         |  
|                                     |  |                      |  |              |  
|Total                                |  | 201,696              |  | 100.0        | %
|                                     |  |                      |  |              |  

---

|(1) | All years are calculated from the date of planting.
|--- | ---------------------------------------------------

|(2) | Includes roads, fire, breaks, native forests and yards.
|--- | -------------------------------------------------------



As of December 31, 2003, Alto Paraná owned one sawmill, the Piray Sawmill, with an annual production capacity of 300,000 cubic meters of lumber, as
well as the Piray MDF Mill, with an annual production capacity of 250,000 cubic meters. Both are located in Puerto Piray, 50 kilometers south of Puerto Esperanza in the Province of Misiones.



In January 2004 Arauco completed the purchase of the forestry assets of the
Argentine company Perez Companc, obtaining 60,000 hectares of pine plantations and the Bossetti Sawmill, which has an annual production capacity of 120,000 cubic meters of lumber, located in Puerto Bossetti, 30 kilometers north of Puerto Esperanza
in the Province of Misiones.



Costs



Arauco believes that Alto Paraná is a low cost producer of softwood
kraft pulp, due mainly to its low chemical and wood costs. The favorable climate and soil conditions in the province of Misiones, Argentina, enable Alto Paraná to harvest its softwood pine trees in only 16 years, while harvest rotations for
pine trees in the Northern Hemisphere typically range from 18 to 45 years.



Alto Paranás business strategy is to be a low cost producer of high quality bleached softwood kraft market pulp and forestry and wood products with a diversified customer base. It seeks to operate its
production facilities profitably and at a high level of capacity utilization, even during periods of low prices.



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The Argentine peso has been subject to large devaluations in the past, prior to the enactment of the
convertibility law which maintained the Argentine peso pegged to the U.S. dollar during the 1990s, and may be subject to significant fluctuations in the future. In January 2002, the Argentine Congress eliminated the requirements that the U.S.
dollar/Argentine peso exchange rate remain fixed at a one-to-one exchange rate. Since February 11, 2002, the peso has floated freely, although the Argentine Central Bank from time to time enters into the market to minimize fluctuations. As of June
22, 2004, the exchange rate was Ar$2.96 per US$1.00, after reaching a maximum devaluation of Ar$3.86 per US$1.00 on June 25, 2002.



Since most of Alto Paranás fixed costs are Argentine peso-denominated, the devaluation has led to reduced costs, as measured in U.S. dollars.
Given the continuing economic crisis in Argentina and the economic and political uncertainties, it is impossible to predict whether, and to what extent, the value of the Argentine peso may further depreciate against the dollar.



Sales



Alto Paranás operations are equidistant from Buenos Aires, Argentina and São Paulo, Brazil. As a result,
the Company believes that Alto Paraná is well positioned to benefit from future growth in the Mercosur market. Excluding Latin America, Alto Paranás principal markets are in Europe and Asia. The following table sets out by region
the sales of Alto Paraná for the years indicated.



|                                 |  |                                |         |      |   |         |  |      |         |      |   |         |  |   |        
|-------------------------------- |  | ------------------------------ | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                 |  | Year ended December 31,       
|                                 |  | 1999                           |         | 2000 |   | 2001    |  | 2002 |         | 2003
|                                 |  | (in thousands of U.S. dollars)
|Latin America (except Argentina) |  | $                              | 59,929  |      | $ | 85,711  |  | $    | 52,746  |      | $ | 57,478  |  | $ | 72,167 
|Argentina                        |  |                                | 40,574  |      |   | 52,429  |  |      | 40,205  |      |   | 34,912  |  |   | 53,319 
|Europe                           |  |                                | 42,883  |      |   | 49,627  |  |      | 43,690  |      |   | 41,465  |  |   | 48,382 
|Asia                             |  |                                | 936     |      |   | 1,452   |  |      | 8,325   |      |   | 12,515  |  |   | 40,020 
|Other                            |  |                                | 3,354   |      |   | 8,745   |  |      | 6,324   |      |   | 16,593  |  |   | 16,334 
|                                 |  |                                |         |      |   |         |  |      |         |      |   |         |  |   |        
|Total                            |  | $                              | 140,676 |      | $ | 197,964 |  | $    | 151,290 |      | $ | 162,963 |  | $ | 230,222
|                                 |  |                                |         |      |   |         |  |      |         |      |   |         |  |   |        



Alto Paraná
does not have long-term sales contracts with its customers, but rather maintains long-standing relationships with its customers pursuant to which agreement is reached from time to time on specific volumes and prices. In response to the current
Argentine economic crisis, Alto Paraná is increasing the proportion of its sales which are directed to other markets, while continuing to provide products to its long-standing Argentine clients.



Competition



Arauco experiences substantial worldwide competition in each of its geographical markets and in each of its product lines.
Several of its competitors are larger than Arauco and may have greater financial and other resources.



Arauco faces competition in its pulp sales from one other major Chilean producer and from pulp producers in other regions, particularly Canada, the United
States, New Zealand and the Scandinavian countries for soft wood bleached market pulp, Brazil and Indonesia for hardwood bleached market pulp and South Africa, the United States, Portugal and New Zealand for unbleached market pulp. Arauco has been
able to compete successfully because of its reputation for dependable service and its low production costs, which provide it with a competitive price advantage.



Araucos principal competitors in the forestry and wood products markets are the major European, North American, New Zealand and Chilean forestry
companies. Arauco believes that its relatively low cost of wood, its operating efficiencies, such as in transportation, its ability to customize orders, its domestic and off-shore sales and marketing organizations and the versatility of radiata pine
allow it to compete effectively in the world market for forestry and wood products.



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Transportation, Storage and Distribution



In order to remain competitive with pulp suppliers elsewhere in the world,
Arauco ships pulp to various distribution centers around the world from which final delivery to the customer is made. Historically, Arauco and other Chilean pulp and forestry products producers have coordinated their transportation requirements in
order to achieve larger lots to fill specially designed pulp and log ships and thus obtain competitive freight rates.



The Companys subsidiary Servicios Logísticos Arauco manages all of Araucos Chilean port activities. Work is performed by independent
contractors, who receive the pulp and forestry products at the port and prepare shipments. The principal Chilean ports used by Arauco are:



| |  | San Vicente and Talcahuano, which are both state-owned ports in the Concepción area and through which Arauco shipped approximately 25.1% of its aggregate export volume during
2003;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Lirquén, a private port in Concepción in which Arauco has an equity interest of 20.1% and through which Arauco shipped approximately 22.7% of its aggregate export
volume during 2003; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Coronel, a private port located between Concepción and Arauco which opened in July 1996 and which Arauco constructed as part of a consortium with five other companies; Arauco
shipped approximately 49.7% of its aggregate export volume through this port in 2003.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



These ports are approximately 60 kilometers from the Arauco Mill and 300 kilometers from the Constitución Mill. Arauco has a pulp storage warehouse
at the port of Coronel with a capacity of 173,000 metric tons, a pulp storage warehouse at the port of San Vicente which has a capacity of 21,000 metric tons and a pulp storage warehouse at the port of Lirquén with a capacity of 50,000 metric
tons.



Arauco ships pulp to various ports in
Europe, North and South America and Asia and, as is customary in the pulp industry, it stores some stock in those ports. Standard storage terms provide that Arauco is entitled to a certain period of storage free of charge. Arauco seeks to ensure
that such initial period is not exceeded for each shipment. Arauco uses 15 foreign ports that have warehouse facilities available. At December 31, 2003, Arauco had approximately 76,022 metric tons in storage in warehouses at foreign ports.



Arauco believes that its shipping costs are broadly comparable
with those of its international competitors, notwithstanding Chiles greater distance from Europe, because of the proximity of its plantations and mills to the Pacific coast and the economies of scale achieved through its coordinated shipments
with other Chilean producers.



Alto Paranás
finished products generally are marketed on a CIF price basis and transported by common carriers. Timely and economical delivery of finished products to its customers are important factors in Alto Paranás ability to compete effectively.
Most orders are shipped from Alto Paranas pulp mill almost immediately after they are produced, either by truck or railway.



Description of Property



Araucos principal properties consist of land and production plants and facilities, the majority of which are located in Chile. As of December 31,
2003, Arauco owned approximately 928,392 hectares of land in Chile, over 631,773 hectares of which consist of forest plantations, and 201,696 hectares of land in Argentina and Uruguay, of which 102,517 consist of forest plantations. In addition, as
of December 31, 2003, Arauco owned various plants and facilities, including pulp mills, panel mills, sawmills and remanufacturing facilities in Chile and one pulp mill, one sawmill and one MDF mill in Argentina. See Item 4. Information on the
CompanyDescription of Business Pulp, Sawmills and Panels.



Consistent with industry practice, Arauco maintains fire insurance coverage for all its Chilean forest holdings but does not insure against pests or
disease. Its insurance covers timber loss, either at replacement cost or commercial value, depending on the age of the trees affected. Arauco also carries insurance, consistent with industry practice, covering its Chilean production plants,
facilities and equipment. Such insurance includes



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coverage in the event of fire, explosion or natural disaster for 12 months profits (18 months in the case of a
boiler explosion in Araucos Chilean pulp mills). All of Araucos Chilean insurance policies covering its forest holdings and production plants, facilities and equipment have been entered into with Compañía de Seguros
Generales Cruz del Sur S.A. (Cruz del Sur), a related company. See Item 7. Major Shareholders and Related Party TransactionsMajor Shareholders.



Alto Paraná does not maintain fire insurance for its timber assets because the Company believes that the risk of
damage from fire is low because Argentina receives significant amounts of rainfall, particularly during the summer months. Alto Paraná carries insurance covering its mills and its equipment in the event of fire, explosion or natural
disaster.



For a description of environmental issues
that may affect the Companys utilization of its assets, see Item 4. Information on the CompanyGovernment Regulation.



CAPITAL EXPENDITURES



In order to utilize its increasing volumes of forest production, Arauco has continually added on to, expanded and modernized its processing facilities.
Araucos planned capital expenditures include the construction of the Itata Project in the Eighth Region of Chile. Construction of the first phase of the Itata Project started in 2003, including the construction of a sawmill, a plywood mill and
a cogeneration plant. The estimated investment for this first phase is U.S.$140 million. The second stage of the project is expected to include the construction of a pulp mill with an annual production capacity of 850,000 metric tons. The second
stage of the project is estimated to be completed at the end of 2006 at an investment of U.S.$800 million.



This project follows the completion of the Valdivia mill, Araucos largest industrial development. This facility was completed in the first quarter
of 2004 after more than two years of construction. The project required a capital expenditure of U.S.$600 million, funded from a mix of debt and the Companys general cash flows, of which U.S.$508.7 million had been paid as of December 31,
2003.



Aggregate capital expenditures were
U.S.$223.8 million for 2001, consisting primarily of U.S.$110.4 million in investments in the pulp business, U.S.$58.8 million in investments in the wood products business and U.S.$53.3 million in investments in the forestry area.



Aggregate capital expenditures were U.S.$330.8 million for
2002, consisting primarily of U.S.$235.7 million in investments in the pulp business (including the first stage of the Valdivia Mill), U.S.$51.6 million in investments in the wood products business and U.S.$40.5 million in investments in the
forestry area.



Aggregate capital expenditures
were U.S.$512.9 million for 2003, consisting primarily of U.S.$379.1 million in investments in the pulp business (including the construction of the Valdivia Mill), U.S.$43.8 million in investments in the wood products business (including the
construction of the sawmill and the plywood mill in the Itata Project) and U.S.$89.0 million in investments in the forestry area.



In May 2004, the Companys forestry affiliates entered into an agreement with affiliates of CMPC to exchange forestry land held by the CMPC
affiliates for land held by the Companys forestry affiliates, as well as making a cash payment to the CMPC affiliates. Pursuant to the agreement, the Companys forestry affiliates acquired approximately 26,000 hectares of forestry land
from, and transferred approximately 9,000 hectares of forestry land and made an aggregate cash payment of approximately U.S.$55 million to, the CMPC affiliates.



In the wood products sector, Arauco expects to build an average of one sawmill every two years during the next decade, each to have an annual
production capacity of more than 400,000 cubic meters of sawn timber, with total capital expenditures of approximately U.S.$30 million each, to be funded with the Companys general cash flows.



The capital expenditures described above represent amounts accrued for
purposes of Araucos financial statements and do not necessarily represent the cash cost of capital expenditures during the period.



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Arauco believes that cash flow generated by operations, cash balances, borrowings from commercial banks,
export credit agencies and multilateral lending agencies, debt offerings in the domestic and international capital markets, will be sufficient to meet Araucos working capital, debt service and capital expenditure requirements for the
foreseeable future.



GOVERNMENT REGULATION



Environment



Araucos policy is to maintain high standards of environmental performance and to comply with all applicable
environmental laws and regulations. Arauco believes that it is in material compliance with all governmental environmental requirements affecting its facilities and products.



In 2003, Arauco incurred annual operating expenditures of approximately U.S.$4.8 million on environmental management and
improvement programs, in addition to varying amounts of annual capital expenditures for such purposes, which totaled approximately U.S.$15.5 million, including expenses related to the Valdivia Mill. Arauco believes that expenditures on environmental
management and improvement programs can be expected to increase in the future.



Chile. Chilean companies, including Arauco, are subject to numerous national and local environmental laws, regulations, decrees and municipal ordinances concerning, among other things, health, the handling and
disposal of solid and hazardous wastes and discharges into the air and water. Chilean environmental regulations have become increasingly stringent in recent years, particularly for the approval of new projects, and this trend is likely to continue.
Arauco has made and will continue to make substantial expenditures to comply with such environmental laws, regulations, decrees and ordinances.



Chilean legislation to which Arauco is subject include the Chilean Environmental Law, which was enacted in 1994 and entered into effect in April 1997
after publication of the related regulations. The Chilean Environmental Law created theComisión Nacional del Medio Ambiente (the National Environmental Commission or CONAMA) and Comisiones Regionales del Medio
Ambiente (the Regional Environmental Commissions or COREMA), which are agencies of the Ministerio Secretaría General de la Presidencia (the Ministry of the Presidency), having responsibility for, among other
things, coordinating existing environmental regulations and evaluating environmental impact studies. Under this law, Arauco is required to conduct environmental impact studies of any future projects or activities that may effect the environment.
These regulations also establish procedures for private citizens to object to the plans or studies submitted by project owners.



In addition to the evaluation of environmental impact studies, CONAMA and COREMA also oversee the implementation of projects in accordance with their
environmental impact statements. Under the Chilean Environmental Law, affected persons, including private citizens, as well as public agencies and local governmental authorities can sue to enforce environmental compliance. Enforcement remedies
include temporary or permanent closure of facilities and fines. As a result, application of the environmental laws may adversely affect the manner in which Arauco seeks to implement its business strategy and, to a certain extent, Araucos
ability to realize its strategy.



Argentina.Alto
Paraná is subject to Argentine environmental legislation, including regulation by municipal, provincial and federal governmental authorities. Alto Paraná has incurred significant capital and operating expenditures to comply with
applicable environmental laws and regulations. Arauco believes that Alto Paraná is currently in material compliance with all applicable local and national environmental regulations governing all its operations.



Water used or recovered in the production process is treated and purified
before being returned to the Alto Paraná River at the proper temperature. All gaseous emissions are scrubbed to ensure satisfactory levels of waste particle recovery and odor removal. Regular testing of river and air quality is used to
monitor the ultimate impact of the mill on the environment.



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Forestry Regulation



Chile.The management and exploitation of forests in Chile is regulated by the Forests Law of 1931, as amended (the Forests Law), and
Decree-Law No. 701 of 1974, as amended (Decree-Law 701). The Forests Law and Decree-Law 701 impose a variety of restrictions on the management and exploitation of forests. Forestry activities, including thinning, on land which is
designated as preferably suited for forests or which has natural or planted forest, are subject to management plans that require the approval of the Corporación Nacional Forestal (the National Forestry Corporation, or
CONAF). In addition, the Forests Law and Decree-Law 701 impose certain standards for the prevention of forest fires as well as fines for the harvesting or destruction of trees and shrubs in violation of the terms of a forest management
plan. Arauco believes that it is in material compliance with the Forests Law and Decree-Law 701.



Decree-Law No. 701 granted a subsidy to persons who plant forests on lands specifically designated as preferably suited for such purpose pursuant to a
forest management plan approved by CONAF. These benefits expired on December 31, 1995. Law No. 19,561 extended the subsidy provided by Decree-Law 701 for 15 years, but such extension only benefits small landowners and owners of eroded land, and such
extension is only available once for each area of land.



The
Chilean Congress is currently considering a bill which provides for the management and conservation of native tree forests and forest development (the Recuperation Bill). The Recuperation Bill would establish a fund for the conservation
and sustainable management of native forests. Owners of native forests would be able to participate so long as they had a management plan approved by CONAF. Depending on the owners approved plan, as well as other factors, the subsidy provided
by the fund would be between U.S.$200 and U.S.$400 per hectare. The Recuperation Bill would prohibit the harvesting of native trees in certain areas and under certain conditions. The possible effect of this bill on the business of Arauco, if any,
cannot be quantified, but management believes it will not have an adverse effect. Currently Arauco does not perform clear cutting of native forest or any cutting in areas surrounding rivers and streams, areas of notable environmental interest or
areas with particularly fragile soil conditions. See Environment.



All of Araucos forest activities have the environmental certification ISO 14001 and Araucos pulp mills have the certification ISO 9001-2000. During 2003, Arauco obtained the certification in Chile for the
National Standard for Sustainable Forest Management (CERTFOR). CERTFOR is in the process of seeking membership in Pan European Forest Certification (PEFC), the forestry certification that covers the largest segment of the world market.



Argentina.The management and exploitation of forests in Argentina
is regulated by National Law 13,273, National Law 25,080, National Decree 710, Provincial Law No. 854 and other regulations promulgated thereunder, which collectively constitute the Regulatory Framework. The Regulatory Framework imposes
a variety of restrictions on the management and exploitation of forests in Argentina. The Regulatory Framework regulates the replanting of land after harvesting. Alto Paraná believes that it is in material compliance with the Regulatory
Framework.



National Law 25,080 provides, among other benefits,
subsidies to individuals and companies for the recovery of a portion of their costs in planning and managing forest land. However, these subsidies are not material to Alto Paraná, as they are only available with respect to a maximum of 500
hectares per year. The law also establishes that tax charges related to the promoted assets or activities cannot be increased during the 30-year period of the promotion.



In June 2002, Alto Paraná certified its forestry operations under ISO 14001 Certification.



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Item 5. Operating and Financial Review and Prospects.



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS



The following discussion is based on Araucos
consolidated financial statements, including the notes thereto, included elsewhere herein, and should be read in conjunction therewith. The consolidated financial statements are prepared in U.S. dollars in accordance with U.S. GAAP.



Overview



Arauco derives its sales revenue from the sale of bleached and unbleached pulp and forestry and wood products, such as
sawlogs, pulplogs, sawn timber, remanufactured wood products and panels. For 2003, export sales constituted approximately 84.7% of Araucos total sales revenue. Sales of pulp constitute the single largest component of Araucos sales
revenue. As with many commodities, pulp, and accordingly Araucos sales revenue, is subject to cyclical fluctuations in price determined by global supply and demand. World prices for forestry and wood products, which are also generally viewed
as commodities, fluctuate significantly.



Although
prices tend to have the most significant effect on Araucos results of operations, sales volume and product mix, costs, and exchange rate fluctuations also can have a substantial impact on Araucos results.



Araucos business and results of operations are, to a large extent,
dependent on the level of economic activity, government and foreign exchange policies, and political and economic developments in its principal export markets. In 2003 Arauco exported its products to Europe, Asia, North, Central and South America,
and, to a lesser extent, Africa and the Middle East. Approximately 93.1% of Araucos total 2003 pulp sales and approximately 78.6% of its total 2003 forestry, wood products and panels product sales were attributable to exports, principally to
customers in Asia, the Americas and Western Europe. Araucos business, earnings and prospects may be materially and adversely affected by developments in these export markets with respect to inflation, interest rates, currency fluctuations,
protectionism, government subsidies, price and wage controls, exchange control regulations, taxation, expropriation, social instability or other political, economic or diplomatic developments.



At December 31, 2003, approximately 80.3% of Araucos long-lived assets
were located in Chile and approximately 19.7% were located in Argentina. In 2003, approximately 11.6% of Araucos consolidated sales revenue was derived from sales in Chile and approximately 3.7% was derived from sales in Argentina.
Accordingly, Araucos financial condition and results of operations are to a certain extent dependent upon economic conditions in Chile and Argentina.



The Chilean economy grew every year between 1984 and 1998, expanding at a real average annual rate of approximately 7.3%
from 1990 through 1998. Despite its growth, it has remained smaller than the economies of certain other Latin American countries. In 1999, Chilean gross domestic product (GDP) contracted at a real rate of 0.8%. In 2000, GDP grew 4.2% but
its level of growth slowed to 3.1% in 2001 and 2.1% in 2002.Unemployment was high, averaging 9.2% in 2001 and 9.0% during 2002. During 2003, GDP grew 3.3% but unemployment remained high, averaging 8.5% for the year.



There can be no assurance that future developments in the Chilean economy
will not impair Araucos ability to proceed with its strategic plan or its business, financial condition or results of operations.Araucos financial condition and results of operations could also be adversely affected by
changes in economic or other policies of the Chilean government (which has exercised and continues to exercise a substantial influence over many aspects of the private sector) or other political or economic developments in Chile, as well as
regulatory changes or administrative practices of Chilean authorities, over which Arauco has no control.



Since late 1998, the Argentine economy has been in an economic recession marked by reduced levels of consumption and investment and an elevated
unemployment rate. Argentine GDP decreased by 3.4% in 1999, 0.8% in 2000, 4.4% in 2001 and 10.9% in 2002. In December 2001, amid public demonstrations and the resignation of



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the Argentine President, Argentina declared a suspension on payment of its foreign debt. In early 2002, the government
released the Argentine peso from its one-to-one peg to the dollar and allowed the exchange rate to float, resulting in a 49.6% devaluation of the Argentine peso from January 1, 2002 to December 31, 2002. During 2003, economic indicators showed some
signs of recovery, and the Argentine gross domestic product increased by 8.7%. Arauco cannot provide any assurance that the Argentine economy will continue to recover or that future economic, social and political developments in Argentina, over
which it has no control, will not impair Alto Paranás business, financial condition, or results of operations.



Prices



In recent years Araucos sales revenue has been affected by price level volatility in the export market. The prices for each of Araucos pulp products and forestry and wood products depend on the markets in
which they are sold; while prices are generally similar for a given product on a global basis, more regionalized market conditions affect prices in markets such as Asia, Europe and the United States.



Average unit sales prices for Araucos products are set forth in the
table below for the periods indicated.



|                             |  |                            |  |       |  |      
|---------------------------- |  | -------------------------- |  | ----- |  | -----
|                             |  | Year ended December 31,   
|                             |  | 2001                       |  | 2002  |  | 2003 
|                             |  | (U.S.$ per metric ton)(2) 
|Product(1)                   |  |                            |  |       |  |      
|Bleached pulp                |  | 427.8                      |  | 410.1 |  | 461.1
|Unbleached pulp              |  | 355.5                      |  | 373.0 |  | 387.8
|                             | 
|                             |  | (U.S.$ per cubic meter)(2)
|Sawlogs                      |  | 32.3                       |  | 29.0  |  | 32.1 
|Sawn timber                  |  | 139.4                      |  | 132.4 |  | 153.7
|Remanufactured wood products |  | 409.2                      |  | 554.1 |  | 490.5
|Plywood and fiber panels     |  | 302.8                      |  | 277.3 |  | 280.4

---

|(1) | Each category of product contains different grades and types and the shipping terms vary with the product, as well as the customer.
|--- | -----------------------------------------------------------------------------------------------------------------------------------

|(2) | Arauco generally quotes its prices in U.S. dollars for export sales and in Chilean pesos for domestic sales.
|--- | ------------------------------------------------------------------------------------------------------------



Pulp Prices



The prices that Arauco is able to obtain for its pulp products depend on prevailing world prices as well as regional market
conditions. Historically world pulp prices are cyclical, with prices subject to significant fluctuations over relatively short periods of time depending on worldwide demand, world production capacity, the business strategies adopted by major
integrated forestry, pulp and paper producers and other major producers and the availability of substitutes. All of these factors are beyond Araucos control.



Over the last five years, the average price (CIF) on an annual basis for Norscan bleached softwood kraft market pulp (pulp
produced in Canada and Northern Europe sold to manufacturers of paper products delivered in Northern Europe, or NBSK), which is the benchmark for softwood bleached pulp, has ranged from a high of U.S.$680 in 2000 to a low of U.S.$460 in
2002. During 2001 the market price for NBSK fell 29.9%, from U.S.$670 per ton at December 31, 2000 to U.S.$470 per ton at December 31, 2001, largely due to the global recession. Prices continued to decrease in 2002, largely due to the sluggish
global economy, reaching their lowest known level in April 2002 at U.S.$435 per ton. Although prices recovered somewhat in the following months of 2002, reaching a peak of U.S.$490 in August 2002, they began to fall again during the latter half of
the year, ending 2002 at a price of U.S.$440 per ton on December 31, 2002, a 6.4% decrease from December 31, 2001. During the first five months of 2003 prices for NBSK increased, reaching a monthly average of U.S.$560 per ton in May 2003. Due to the
effect of an increase in inventories, countered by higher demand for short fiber pulp, prices fluctuated during the second half of 2003. The price for NBSK was U.S.$560 per ton at December 31, 2003, a 27.3% increase over December 31, 2002. During
the first five months of 2004 prices for NSBK increased 14.5%, to U.S.$641 per ton at May 31, 2004.



Prices for bleached grades of pulp, including eucalyptus, generally follow the same pattern as prices for NBSK. However, each grade follows its own cycle
based on market demand and production capacity. During the last five years, the majority of the new capacity developed has been for hardwood pulp, particularly eucalyptus pulp.



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This has led to a greater spread between the prices for hardwood and for softwood. The price for eucalyptus kraft pulp
delivered in Northern Europe, or BEKP, was U.S.$450 per ton at January 1, 2003, U.S.$10 per ton above the price for NBSK, and was U.S.$500 per ton at December 31, 2003, U.S.$60 per ton below the price for NBSK. During 2001 the market
price for BEKP fell 45.7%, from U.S.$736 per ton at December 31, 2000 to U.S.$400 per ton at December 31, 2001. During 2002 the market price for BEKP rose 15.8%, to U.S.$463 per ton at December 31, 2002. During 2003 the market price for BEKP rose
8.0%, to U.S.$500 per ton at December 31, 2003.



Prices for
unbleached softwood market pulp also follow cyclical patterns related to world-wide demand. Unbleached softwood market pulp represents about 5% of the total wood pulp market. The majority of such pulp is sold in Asia, and its price does not
necessary follow the cycle of prices for NSBK.



During 2001 the
market price for unbleached kraft pulp (UKP) delivered in the United States fell 35%, from U.S.$680 per ton at December 31, 2000 to U.S.$440 per ton at December 31, 2001, largely due to lower export levels, leading to less demand for
export packaging material, and lower prices for UKP substitutes, such as old corrugated containerboard (OCC). During the second and third quarters of 2002 the market price for UKP rose, and then fell again, ending the year at U.S.$430
per ton at December 31, 2002, a 2.3% decrease from December 31, 2001. During the first half of 2003 the market price for UKP rose, and then fluctuated during the second half of the year, rising 23.3% overall, to U.S.$530 per ton at December 31,
2003. During the first quarter of 2004 UKP prices rose to U.S.$570 per ton, a three-year high.



Forestry and Wood Product Prices



Over the last five years, the average prices for our forestry and wood products have fluctuated significantly, as they felt the effect of global economic developments on demand. At the start of 2001, both domestic and
foreign prices were increasing from 2000 levels, as Chiles economy improved and as U.S. demand for housing materials increased, due to higher construction levels and low levels of inventory. European prices, however were not rising, due to the
effect of an excess supply of wood products and unfavourable exchange rates. The economic downturn following the events of September 11, 2001 led to considerable declines in price levels for wood products across North America. Japans poor
economic performance led to prices that were at their lowest levels in 15 years. In China, on the other hand, prices were unaffected by developments in other markets.



Demand for forestry and wood products, including panel and lumber products, rose in the first three months of 2002, leading
to increased sale prices. The increased demand was largely the result of economic growth in the United States, a stronger euro and increased market activity in Asia. During the second and third quarters of 2002, however, prices for forestry products
fell in the United States, Mexico and Brazil, as well as in most of Europe. Prices increased in Asian markets, due in large part to increased economic activity relating to the soccer World Cup, but the overall effect was a decrease in sale prices.
Prices for forestry and wood products continued to decline during the last quarter of 2002, as the United States economy felt the effects of the possible war with Iraq. Prices remained stable in Europe, while MDF prices decreased but prices of
remanufactured products increased in Asia.



The downward trend
in prices continued during the first half of 2003. Plywood and remanufactured products producers were affected by the closing of various plywood mills in the United States. Latin America maintained relatively higher prices for forestry and wood
products. Prices in the Middle East remained high despite the war, as in Asia. During the second half of 2003, forestry and wood product prices increased, reflecting mill closures, a general improvement in the world economy, low inventory levels,
increased transportation costs and the depreciation of the U.S. dollar against several foreign currencies.



There can be no assurance that the prices for Araucos pulp, forestry and wood products will remain stable or that they will not decline in the
future. Araucos results of operations would be materially adversely affected if the price of its products were to decline from current levels.



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Costs



Araucos major costs of sales are costs related to harvesting (forestry works), the cost of timber, the cost of mill processing, freight,
depreciation and maintenance costs. Araucos major administration and selling expenses are wages and salaries and selling expenses.



Araucos cost of timber consists of the cost of growing its own trees, the cost of timber purchased from third parties and the cost of purchasing the
right to harvest plantations owned by third parties (known as stumpage). The cost of its own trees consists of the cost of planting, capitalized direct and indirect interest, cost of forest development and the cost of forestry management
activities (planting and site preparation procedures, thinning and pruning, protection and maintenance) performed in each plantation during the harvest cycle prior to harvesting.



Arauco accounts for the accumulated cost of its own trees on a plantation-by-plantation basis as long-term forest assets.
The cost of each plantation differs depending on the types of forest management activities performed (e.g., pruning and extensive thinning for plantations managed for a high proportion of clear wood production and application of fertilizer in
areas of relatively poor soil quality), as well as the plantations accessibility, so that total inventory cost will depend on the mix of plantations designated for harvest. Such costs are charged to cost of sales at the time of sale.



Araucos property, plant and equipment are depreciated on
a straight-line basis over the remaining useful lives of the underlying assets. However, the amount of such depreciation that relates to Araucos fixed production assets (such as pulp mills and sawmills) is allocated to finished goods held as
inventories and accumulates until charged to cost of sales when the finished goods are sold. Forests and land are not depreciated.



Araucos transportation costs are accounted for as cost of sales and include port costs and freight and other transportation costs. Port costs are
those costs arising from the transportation of products from one of Araucos site storage facilities into the hold of the ship. Freight is the cost of shipping the product to the port of destination. Other transportation costs are primarily
incurred in the transportation of products from the forest to one of Araucos facilities and between such facilities. Selling expenses consist primarily of per ton fees paid by Arauco to its selling agents.



Exchange Rate Fluctuations



The Chilean peso has been subject to devaluation in the past and could be
subject to significant fluctuations in the future. In the period from December 31, 1998 to December 31, 2003 the value of the Chilean peso relative to the U.S. dollar decreased approximately 20.4% in nominal terms and 9.2% in real terms, as compared
to a 9.2% increase in value in real terms in the period from December 31, 1994 to December 31, 1998. During 2003, the value of the Chilean peso relative to the U.S. dollar increased 21.0% in nominal terms and 22.3% in real terms. The Observed
Exchange Rate on June 22, 2004 was Ch$643.42 = U.S.$1.00. See Item 3. Key InformationExchange Rates.



Arauco generally prices its exports in U.S. dollars and domestic sales in Chilean pesos. To the extent that the Chilean peso depreciates against the U.S.
dollar, Araucos domestic sales revenues may be adversely affected as measured in U.S. dollars. Conversely, appreciation of the Chilean peso may have a positive effect on domestic sales revenue as measured in U.S. dollars. The effect of
exchange rate fluctuations is partially offset by the fact that certain of Araucos operating expenses are denominated in U.S. dollars (such as its freight costs and selling expenses in the form of commissions paid to its sales agents abroad)
and a significant part of its indebtedness is denominated in U.S. dollars. As of December 31, 2003, Araucos U.S. dollar-denominated indebtedness was U.S.$1.9 billion. In addition, as the U.S. dollar appreciates against the local currency in
any of Araucos export markets, Arauco must from time to time price its sales in that local currency to compete effectively.



During the first six months of 2003, the value of the Chilean peso relative to the U.S. dollar increased approximately 2.8% in nominal terms and
approximately 4.4% in real terms, in each case based on the observed exchange rates on December 31, 2002 and June 30, 2003. The value of the Chilean peso relative to the U.S. dollar



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continued to increase in the third and fourth quarters of 2003 and as a result, during 2003, the value of the Chilean
peso relative to the U.S. dollar increased approximately 21.0% in nominal terms and 22.3% in real terms, in each case based on the Observed Exchange Rates published by the Central Bank on December 31, 2002 and December 31, 2003.



Critical Accounting Policies



A summary of Araucos significant accounting policies is included in
Note 1 to the consolidated financial statements in Item 18. Management believes that the consistent application of these policies enables Arauco to provide readers of the financial statements with more useful and reliable information about
Araucos operating results and financial condition. The following are the accounting policies that management believes are the most important to the portrayal of Araucos financial condition and results of operations and require
managements most difficult, subjective, or complex judgments.



Property, Plant and Equipment



The key
judgments management must make under the property, plant, and equipment policy include the estimation of the useful lives of Araucos various asset types, the election to utilize primarily the straight-line method for recording depreciation,
managements judgment regarding appropriate capitalization or expensing of costs related to fixed assets, and managements determination that no impairment exists.



Property, plant, and equipment is stated on Araucos balance sheet at cost less accumulated depreciation. Depreciation
of buildings, equipment, and other depreciable assets is determined using primarily the straight-line method. The estimation of useful lives for fixed assets impacts the level of annual depreciation expense recorded. Utilization of the straight-line
method for recording depreciation or any of the other acceptable methods for depreciating assets will result in the same amount of depreciation over the life of an asset; however, the amount of annual depreciation expense and the resulting carrying
amount of net property, plant, and equipment can vary significantly depending on the method elected.



Property, plant, and equipment assets are evaluated for possible impairment on a specific asset basis or in groups of similar assets, as applicable. This
process requires managements estimate of future cash flows generated by each asset or group of assets. For any instance where this evaluation process indicates impairment, the appropriate assets carrying values are written down to net
realizable value and the amount of the write-down is charged against the results of continuing operations.



Expenditures that substantially improve and/or increase the useful life of facilities or equipment are capitalized. Maintenance and repair costs are
expensed as incurred. Managements evaluation of whether an expenditure related to property, plant, and equipment substantially improves and/or increases the useful life of an asset and is appropriately capitalized as an addition to the
assets cost basis or is expensed as normal maintenance and repair expense can significantly affect results of operations for a given period, as well as Araucos financial position.



Forests



Forests are stated at cost of development less the cost of forest harvested. Forest costs consist primarily of purchased
timber, planting, maintenance, protection, and other direct costs related to the plantation of the forest. Direct and indirect interest costs of developing forests are capitalized until the forest is deemed to have reached an exploitable stage.
These capitalized interest costs are included in the historical cost of the forest. Forests do not include any estimated future reforestation costs. The cost of forest harvested is based on the volume of forest harvested in relation to the estimated
volume of forest recoverable. Araucos estimated volume of forest recoverable is based on statistical information and data obtained from physical measurements and other information gathering techniques. Such information gathered and data used
requires, to a certain extent, estimates and judgments in determining the amount of forest recoverable.



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Inventories



Inventories of raw materials, work-in-process and spare parts are stated at the lower of cost or market, primarily using the average cost method. Finished
goods are stated at the lower of average production costs for the period, or market. Inventory costs include materials, labor, transportation, depreciation of fixed assets and production overhead as appropriate. Determination of the net realizable
value of each component of inventory is based on the current invoice price. Work-in-process inventories require estimation of the future cost per unit to complete manufacturing from each stage of processing, using historical manufacturing costs.
These estimates can affect the carrying value for inventories, and any required inventory write-down can affect results of operations in both current and future periods.



Goodwill



Goodwill is the excess of acquisition cost of a business over the fair value of identifiable net assets acquired. Goodwill is deemed to have an indefinite
life and not amortized. However, these indefinite life assets are tested for impairment on an annual basis and when indicators of impairment are determined to exist by applying a fair-value based test. Management must exercise judgment in assessing
goodwill for impairment. Management reviews the recorded value of Araucos goodwill annually or sooner if changes in circumstances indicate that the carrying amount may exceed fair value. Recoverability of the carrying value of the asset is
determined by comparing it to net book value, including goodwill and the estimated future net cash flows of the relevant assets.



Deferred Income Tax



Arauco uses the asset and liability method of accounting for income taxes. Under this method, the provision for income taxes includes amounts currently
payable and amounts deferred as tax assets and liabilities, based on differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities, and is measured using the enacted tax rates that are assumed will
be in effect when the differences reverse. Deferred tax assets are reduced by a valuation allowance which is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In making the determination of the valuation allowance, management considers both positive and negative evidence and makes
certain assumptions, including projections of taxable income. Changes in these assumptions may have a material impact on results.



Allowance for Doubtful Accounts



Arauco provides an allowance for doubtful accounts based on a review of the specific receivable. A 100% provision is applied for those customers for which
collectibility is in doubt. Management must make certain judgments and estimates in determining accounts that are considered to be in doubt.



Changes in Accounting Standards



Effective January 1, 2003, Arauco adopted SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146), which
addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employees Termination Benefits and Other Costs
to Exit an Activity (Including Certain Costs Incurred in a Restructuring). The adoption of SFAS No. 146 did not have a material effect on Araucos consolidated financial position, results of operations or cash flows.



Effective January 1, 2003, Arauco adopted FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires that upon issuance of a guarantee, the Company must disclose and may be
required to recognize a liability for the fair value of the obligation it assumes under that guarantee. The initial recognition and measurement requirement of FIN 45 is effective for guarantees issued or modified after December 31, 2002. The
adoption of FIN 45 did not have a material effect on Araucos consolidated financial position, results of operations or cash flows.



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Effective February 1, 2003, Arauco adopted FASB Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN 46). FIN 46 (an interpretation of ARB 51) has recently introduced a new consolidation model focused on identifying entities for which a controlling financial interest is achieved through means other than
voting rights. Under this interpretation, a variable interest entity must be consolidated if certain consolidation requirements are met. An enterprise should consolidate an entity if that enterprise has a variable interest in the entity that will
absorb a majority of the entitys expected losses, receive a majority of the entitys expected residual returns, or both. FIN 46, as revised by FIN 46R, was effective on February 1, 2003 for new transactions and is effective for reporting
periods after March 15, 2004 for transactions entered into prior to February 1, 2003. The impact of the adoption of FIN 46 did not have a material effect on Araucos consolidated financial position, results of operations or cash flows.



In April 2003, the FASB issued SFAS No. 149, Amendment
of Statement 133 on Derivative Instruments and Hedging Activities. This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Arauco adopted the provision of SFAS No. 149 on July 1, 2003. The adoption did not
have a material effect on Araucos consolidated financial position, results of operations or cash flows.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.
This Statement establishes standards of how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective July 1, 2003. Arauco adopted the provisions of SFAS No. 150 on July 1, 2003.
The adoption did not have a material effect on Araucos consolidated financial position, results of operations or cash flows.



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Results of Operations



The following table provides a breakdown of Araucos sales revenue and volumes, cost of sales and administration and
selling expenses for the last three fiscal years.



|                                          |  |                                                |         |      |        |       |       |   |         |        |  |       |  |   |         |   |  |      
|----------------------------------------- |  | ---------------------------------------------- | ------- | ---- | ------ | ----- | ----- | - | ------- | ------ |  | ----- |  | - | ------- | - |  | -----
|                                          |  | Year ended December 31,                       
|                                          |  | 2001                                           |         | 2002 |        | 2003 
|                                          |  | Sales                                          |         |      | Volume |       | Sales |   |         | Volume |  | Sales |  |   | Volume 
|                                          |  | (in millions of U.S.$, except where indicated)
|Sales Revenue:                            |  |                                                |         |      |        |       |       |   |         |        |  |       |  |   |         |   |  |      
|Bleached pulp(1)                          |  | $                                              | 554.8   |      |        | 1,297 |       | $ | 498.5   |        |  | 1,216 |  | $ | 567.5   |   |  | 1,231
|Unbleached pulp(1)                        |  |                                                | 150.6   |      |        | 424   |       |   | 130.3   |        |  | 349   |  |   | 142.2   |   |  | 367  
|Sawlogs (net)(2)                          |  |                                                | 16.6    |      |        | 515   |       |   | 17.0    |        |  | 585   |  |   | 16.6    |   |  | 516  
|Pulplogs(2)                               |  |                                                | 11.1    |      |        | 451   |       |   | 6.7     |        |  | 419   |  |   | 5.3     |   |  | 256  
|Posts(2)                                  |  |                                                | 5.9     |      |        | 27    |       |   | 7.5     |        |  | 45    |  |   | 11.1    |   |  | 54   
|Sawn timber(2)                            |  |                                                | 165.9   |      |        | 1,190 |       |   | 199.9   |        |  | 1,510 |  |   | 247.2   |   |  | 1,608
|Flitches(2)                               |  |                                                | 5.6     |      |        | 43    |       |   | 6.0     |        |  | 54    |  |   | 7.3     |   |  | 57   
|Remanufactured wood products(2)           |  |                                                | 111.7   |      |        | 273   |       |   | 137.4   |        |  | 248   |  |   | 146.5   |   |  | 299  
|Chips(2)                                  |  |                                                | 1.2     |      |        | 58    |       |   | 0.7     |        |  | 36    |  |   | 0.5     |   |  | 30   
|Plywood and fiberboard panels(2)          |  |                                                | 141.1   |      |        | 466   |       |   | 178.4   |        |  | 643   |  |   | 296.9   |   |  | 1,059
|Other                                     |  |                                                | 9.2     |      |        | NA    |       |   | 5.8     |        |  | NA    |  |   | 17.0    |   |  | NA   
|                                          |  |                                                |         |      |        |       |       |   |         |        |  |       |  |   |         |   |  |      
|Total sales revenue                       |  | $                                              | 1,173.8 |      |        |       |       | $ | 1,188.0 |        |  |       |  | $ | 1,458.2 |   |  |      
|                                          |  |                                                |         |      |        |       |       |   |         |        |  |       |  |   |         |   |  |      
|Cost of Sales:                            |  |                                                |         |      |        |       |       |   |         |        |  |       |  |   |         |   |  |      
|Forestry labor costs                      |  |                                                | 129.8   |      |        |       |       |   | 122.9   |        |  |       |  |   | 135.3   |   |  |      
|Timber                                    |  |                                                | 132.9   |      |        |       |       |   | 110.0   |        |  |       |  |   | 184.0   |   |  |      
|Port costs                                |  |                                                | 11.4    |      |        |       |       |   | 8.5     |        |  |       |  |   | 10.5    |   |  |      
|Freight and other transportation costs    |  |                                                | 157.6   |      |        |       |       |   | 146.3   |        |  |       |  |   | 177.1   |   |  |      
|Other costs of sales                      |  |                                                | 258.1   |      |        |       |       |   | 233.1   |        |  |       |  |   | 275.9   |   |  |      
|                                          |  |                                                |         |      |        |       |       |   |         |        |  |       |  |   |         |   |  |      
|Total cost of sales                       |  | $                                              | 689.8   |      |        |       |       | $ | 620.5   |        |  |       |  | $ | 782.8   |   |  |      
|                                          |  |                                                |         |      |        |       |       |   |         |        |  |       |  |   |         |   |  |      
|Gross margins                             |  |                                                | 41.2    | %    |        |       |       |   | 47.8    | %      |  |       |  |   | 46.3    | % |  |      
|                                          |  |                                                |         |      |        |      
|Depreciation                              |  |                                                | 119.8   |      |        |       |       |   | 103.9   |        |  |       |  |   | 112.6   |   |  |      
|Administration and Selling Expenses:      |  |                                                |         |      |        |       |       |   |         |        |  |       |  |   |         |   |  |      
|Wages and salaries                        |  |                                                | 33.2    |      |        |       |       |   | 27.5    |        |  |       |  |   | 33.0    |   |  |      
|Other administration and selling expenses |  |                                                | 60.8    |      |        |       |       |   | 73.0    |        |  |       |  |   | 72.9    |   |  |      
|                                          |  |                                                |         |      |        |       |       |   |         |        |  |       |  |   |         |   |  |      
|Total selling and administrative expenses |  | $                                              | 94.0    |      |        |       |       | $ | 100.5   |        |  |       |  | $ | 105.9   |   |  |      
|                                          |  |                                                |         |      |        |       |       |   |         |        |  |       |  |   |         |   |  |      
|Total operating costs and expenses        |  | $                                              | 903.7   |      |        |       |       | $ | 824.9   |        |  |       |  | $ | 1,001.3 |   |  |      
|                                          |  |                                                |         |      |        |       |       |   |         |        |  |       |  |   |         |   |  |      
|Operating margin                          |  |                                                | 23.0    | %    |        |       |       |   | 30.6    | %      |  |       |  |   | 31.3    | % |  |      

---

|(1) | Volumes measured in thousands of metric tons.
|--- | ---------------------------------------------

|(2) | Volumes measured in thousands of cubic meters.
|--- | ----------------------------------------------



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Year Ended December 31, 2003 Compared to Year Ended December 31, 2002



Net Sales



Net sales increased 22.7% from U.S.$1,188.0 million in 2002 to U.S.$1,458.2 million in 2003, principally as a result of a
66.4% increase in sales of plywood and fiberboard panels, a 12.9% increase in sales of pulp and a 23.7% increase in sales of sawn timber.



Pulp Sales



Sales revenue of bleached and unbleached pulp increased 12.9% from U.S.$628.8 million in 2002 to U.S.$709.8 million in 2003, reflecting a 10.6% increase
in nominal prices and an increase of 2.1% in sales volume. Sales of bleached pulp increased by 13.9% due to a 12.5% increase in average nominal prices and a 1.2% increase in sales volume of bleached pulp. Sales of unbleached pulp increased by 9.2%
due to a 5.0% increase in sales volume and a 4.0% increase in average nominal prices.



Wood Products Sales



Sales of wood products, including sawn timber, remanufactured wood products and flitches, increased 16.8% from U.S.$344.0 million in 2002 to U.S.$401.6 million in 2003, reflecting an 8.4% increase in sales volume and a 7.8% increase in
nominal prices of wood products. Sawn timber sales revenue increased 23.7% from U.S.$199.9 million in 2002 to U.S.$247.2 million in 2003 due to a 16.1% increase in average nominal prices and a 6.5% increase in sales volume. Sales of remanufactured
wood products increased 6.7% from U.S.$137.4 million in 2002 to U.S.$146.5 million in 2003 due to a 20.5% increase in sales volume, which in turn was largely attributable to improving market conditions. The increase in sales of remanufactured wood
products was partially offset by the effect of an 11.5% decrease in average nominal prices.



Plywood and Fiberboard Panels Sales



Sales of plywood and fiberboard panels increased 66.4% from U.S.$178.4 million in 2002 to U.S.$296.9 million in 2003. This increase was primarily due to a 64.6% increase in sales volume, resulting from the increase in
production due to the first full year of operations at Trupán II and the Piray MDF Mill, as well as a 1.1% increase in average nominal prices.



Forestry Sales



Sales revenue of forestry products increased 7.1% from U.S.$31.1 million in 2002 to U.S.$33.3 million in 2003, reflecting a 34.5% increase in nominal
prices, which was partially offset by the effect of a 21.2% decrease in sales volume. Sales revenue of posts increased 48.8% as the result of a 22.1% increase in average nominal prices and a 21.9% increase in sales volume. This was partially offset
by a 21.0% decrease in sales of pulplogs, largely due to a 38.8% decrease in sales volume, partially offset by a 29.1% increase in average nominal prices. Araucos sales of forestry products are largely domestic. Such sales are subject to
fluctuations in volume and price which are not cyclical in nature.



Cost
of Sales



Cost of sales increased 26.2% from
U.S.$620.5 million for 2002 to U.S.$782.8 million for 2003, primarily due to an increase in sales volume, principally a 64.6% increase in sales volumes of plywood and fiber panels and a 20.5% increase in sales volumes of remanufactured products. The
cost of sales per unit for pulp and wood products remained fairly constant and the cost of sales per unit for plywood and fiber panels decreased 22.7% in 2003 from 2002, principally due to economies of scale resulting from the increase in production
due to the start of operations at the new MDF facilities at the end of 2002.



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##### Table of Contents

Gross Margins



Gross margins decreased from 47.8% for 2002 to 46.3% in 2003, primarily as a result of an increase in cost of sales. This increase was partially offset by
the increase in sales revenue, primarily sales of plywood and fiber panels and remanufactured products.



Depreciation



Depreciation increased 8.4% from U.S.$103.9 million for 2002 to U.S.$112.6 million for 2003, mainly due to a 27.8% increase in the plywood and fiber panel depreciation expense, from U.S.$10.2 million in 2002 to U.S.$13.1 million in 2003,
largely as a result of the commencement of operations at Trupán II and Piray MDF Mill.



Selling and Administrative Expenses



Selling and administrative expenses increased 5.4% from U.S.$100.5 million in 2002 to U.S.$105.9 million in 2003, primarily as a result of a 21.8% increase in wages and salaries and other administrative expenses as
measured in dollars due to the increase in the number of employees as well as the appreciation of the peso against the U.S. dollar during 2003. These factors were partially offset by a decrease in expenses related to research projects. As a
percentage of sales revenue, selling and administrative expenses decreased from 8.5% during 2002 to 7.3% during 2003, primarily as a result of the increase in sales revenues.



Income from Operations



Income from operations increased 25.8% from U.S.$363.2 million in 2002 to U.S.$456.9 million in 2003, principally due to the increase in sales revenues.



Non-Operating Income (Expense)



The Companys total non-operating income (expense) rose from an expense
of U.S.$26.5 million in 2002 to income of U.S.$37.3 million in 2003, primarily due to a 348.7% increase in foreign exchange gains and a 24.4% decrease in interest expense.



Interest Income



Interest income increased 36.6% from U.S.$22.0 million in 2002 to U.S.$30.1 million in 2003, primarily due to an increase in Araucos average cash
and cash equivalent and short-term investments in 2003 as compared to 2002, partially offset by the effect of a decrease in interest rates.



Other Income



Other income remained fairly level, increasing 3.8% from income of U.S.$1.5 million in 2002 to income of U.S.$1.6 million in 2003.



Foreign Exchange Gains



Foreign exchange gains increased 348.7% from U.S.$11.7 million in 2002 to
U.S.$52.4 million in 2003, primarily due to an increase in the value of Araucos euro-denominated investments expressed in U.S. dollars, attributable to the devaluation of the U.S. dollar in relation to the euro during the period. This was
partially offset by an increase in the value of Araucos Chilean peso-denominated current liabilities expressed in U.S. dollars, due to the appreciation of the peso during 2003.



Interest Expense



Interest expense decreased 24.4%, from U.S.$61.7 million in 2002 to
U.S.$46.6 million in 2003, primarily due to Araucos outstanding interest rate swap agreements during 2003, which resulted in a net gain of U.S.$21.2



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##### Table of Contents

million, and an increase in capitalization of interest expense due to the Valdivia Project. This was partially offset by
an increase in interest expense attributable to Araucos issuance in July of U.S.$300 million of notes in a private placement and to its incurrence of a U.S.$150 million syndicated loan in February 2003.



Income Taxes



In 2003, Arauco reported a tax expense of U.S.$80.6 million, as compared to
an expense of U.S.$52.6 million in 2002. This increase was principally due to an increase in pre-tax earnings, attributable to the increase in income from operations and, to a lesser extent, non-operating income. In accordance with Chilean law, the
Company and each of its subsidiaries compute and pay tax on a separate basis and not on a consolidated basis. At December 31, 2003, Araucos consolidated Chilean subsidiaries had tax loss carryforwards of:



| |  | in the case of Forestal Valdivia, U.S.$23.2 million; and
| | - | --------------------------------------------------------



| |  | in the case of Bioforest, U.S.$1.0 million.
| | - | -------------------------------------------



These tax loss carryforwards can be carried forward indefinitely.



In accordance with Argentine law, tax loss carryforwards can be applied to offset taxable income earned by Alto Paraná for five years following
their incurrence. In December 31, 2003, Alto Paraná had U.S.$3.2 million in unutilized tax loss carryforwards expiring in 2007.



Net Income



Araucos net income increased by 46.5% from U.S.$286.4 million in 2002 to U.S.$419.5 million in 2003. This increase was primarily due to the increase
in income from operations and, to a lesser extent, non-operating income, partially offset by the increase in tax expense.



Year Ended December 31, 2002 Compared to Year Ended December 31, 2001



Net Sales



Net sales increased 1.2% from U.S.$1,173.8 million in 2001 to U.S.$1,188.0 million in 2002, principally as a result of a 26.4% increase in sales of
plywood and fiberboard panels and a 20.9% increase in sales of wood products, partially offset by a 10.9% decrease in pulp sales.



Pulp Sales



Sales revenue of bleached and unbleached pulp decreased 10.9% from U.S.$705.4 million in 2001 to U.S.$628.8 million in 2002, reflecting a 9.0% decrease in
sales volume and a decrease of 2.0% in nominal prices for pulp. Sales of bleached pulp decreased by 10.2% due to a 6.3% decrease in sales volume and a 4.1% decrease in the average nominal price of bleached pulp. Sales of unbleached pulp decreased by
13.5% due to a decrease in sales volume of 17.5%, which was partially offset by the effect of a 4.9% increase in the average nominal price of unbleached pulp.



Wood Products Sales



Sales of wood products increased 20.9% from U.S.$284.4 million in 2001 to U.S.$343.9 million in 2002, reflecting an 18.1% increase in sales volume and a
2.4% increase in nominal prices of wood products. Sawn timber sales revenue increased 20.5% from U.S.$165.9 million in 2001 to U.S.$199.9 million in 2002 due to a 26.9% increase in sawn timber sales volume, which was partially offset by the effect
of a 5.0% decrease in nominal prices. Sales of remanufactured wood products increased 23.0% from U.S.$111.7 million in 2001 to U.S.$137.4 million in 2002 due to a 35.4% increase in nominal prices, which was offset by the effect of a 9.2% decrease in
sales volume.



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Plywood and Fiberboard Panels Sales



Sales of plywood and fiberboard panels increased 26.4% from U.S.$141.1 million in 2001 to U.S.$178.4 million in 2002. This
increase was primarily due to a 38.1% increase in sales volume, resulting from the commencement of production at a second MDF mill in Trupán and a new MDF mill in Misiones, Argentina during 2002, which was offset by the effect of an 8.4%
decrease in nominal prices.



Forestry Sales



Sales revenue of forestry products decreased 7.6% from U.S.$33.6 million
in 2001 to U.S.$31.1 million in 2002, reflecting a 12.5% decrease in nominal prices, which was partially offset by the effect of a 5.6% increase in sales volume. Sales revenue of pulplogs decreased 39.7% as the result of a 35.0% decrease in average
nominal prices and a 7.1% decrease in pulplog sales volume. The decrease was partially offset by an increase in post sales revenue of 25.8% due to a 65.0% increase in sales volume, the impact of which was partially offset by a 23.7% decrease in the
nominal price of posts.



Cost of Sales



Cost of sales decreased 10.1% from U.S.$689.8 million for 2001 to U.S.$620.5
million for 2002, primarily due to a 9.0% decrease in sales volume of pulp and a 7.1% decrease in sales volume of pulplogs. These decreases were partially offset by the effects of a 38.1% increase in sales volume of plywood and fiberboard panels and
a 26.9% increase in sales volume of sawn timber.



Gross Margins



Gross margins increased from 41.2% for 2001 to 47.8%
in 2002, primarily as a result of an increase in sales volume and the decrease in cost of sales.



Depreciation



Depreciation decreased 13.3% from U.S.$119.8 million for 2001 to U.S.$103.9 million for 2002, mainly due to a 20.0% decrease in the pulp industry depreciation expense from U.S.$94.3 million in 2001 to U.S.$75.4 million in 2002. This was in
turn primarily due to the fact that the depreciation expense related to the depreciation of the Arauco II mill was substantially completed in 2002.



Selling and Administrative Expenses



Selling and administrative expenses increased 6.9% from U.S.$94.0 million in 2001 to U.S.$100.5 million in 2002, primarily as a result of a 20.1% increase
in other administration and selling expenses, which was, in turn, largely due to an increase in expenses related to research projects. This was partially offset by a 17.3% decrease in wages and salaries expenses during 2002, from U.S.$33.2 million
to U.S.$27.5 million, due primarily to the impact of the devaluation of the Chilean peso on salaries paid in pesos, as measured in dollars. As a percentage of sales revenue, selling and administrative expenses increased from 8.0% during 2001 to 8.5%
during 2002, primarily as a result of the increase in variable administration expenses.



Income from Operations



Income from
operations increased 34.4% from U.S.$270.1 million in 2001 to U.S.$363.2 million in 2002, principally reflecting the 10.1% decrease in cost of sales as well as the 13.3% decrease in depreciation expense and 1.2% increase in net sales, partially
offset by a 6.9% increase in selling and administrative expenses.



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Non-Operating Income (Expense)



The Companys total non-operating expense decreased from U.S.$77.5 million in 2001 to U.S.$26.5 million in 2002,
primarily due to an increase in foreign exchange gains (losses) from a loss of U.S.$26.1 million in 2001 to a gain of U.S.$11.7 million in 2002.



Interest Income



Interest income increased from U.S.$14.8 million in 2001 to U.S.$22.0 million in 2002, primarily due to Araucos higher average cash and equivalent
and short-term investments position in 2002 as compared to 2001.



Other Income (Expense)



Other income increased from an expense of U.S.$3.9 million in 2001 to income of U.S.$1.5 million in 2002, primarily due to a decrease in other non-operating expenses, which was in turn largely due to an increase in forward
contracts.



Foreign Exchange Gains (Losses)



Foreign exchange gains (losses) moved from a loss of
U.S.$26.1 million in 2001 to a gain of U.S.$11.7 million in 2002, primarily due to a gain of U.S.$33 million attributable to investments denominated in euros, as a result of the appreciation of the euro against the dollar.



Interest Expense



Interest expense remained relatively steady at U.S.$62.4 million in 2001 and
U.S.$61.7 million in 2002. There was an increase in interest expense due to an increase in the average debt position of the Company because the 7.75% Notes were issued in September 2001 and so only accrued interest during the last quarter of 2001
compared to the whole year in 2002. At the same time more interest expenses were capitalized in 2002 than in 2001 for the Valdivia Mill Project and forest plantations, in accordance with U.S. GAAP, the effect of which was partially affected by a
gain related to an interest rate swap contract.



Income Taxes



In 2002, Arauco reported a tax
expense of U.S.$52.6 million, as compared to an expense of U.S.$13.0 million in 2001. This increase was principally due to the greater pretax income in 2002. In accordance with Chilean law, the Company and each of its subsidiaries compute and pay
tax on a separate basis and not on a consolidated basis. At December 31, 2002, Araucos consolidated Chilean subsidiaries had tax loss carryforwards of:



| |  | in the case of Forestal Valdivia, U.S.$20.4 million; and
| | - | --------------------------------------------------------



| |  | in the case of Bioforest, U.S.$0.9 million.
| | - | -------------------------------------------



These tax loss carryforwards can be carried forward indefinitely.



In accordance with Argentine law, tax loss carryforwards can be applied to offset taxable income earned by Alto Paraná for five years following
their incurrence. At December 31, 2002, Alto Paraná had U.S.$79.8 million in unutilized tax loss carryforwards expiring from 2005 to 2007.



Net Income



Araucos net income increased by 58.3% from U.S.$180.9 million in 2001 to U.S.$286.4 million in 2002. This increase was primarily due to a higher
operating income and a lower non-operating expense, which were partially offset by higher income taxes.



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##### Table of Contents

LIQUIDITY AND CAPITAL RESOURCES



Araucos primary sources of liquidity are funds from operations, domestic and international borrowings from commercial
and investment banks, and debt offerings in the domestic and international capital markets.



Araucos net cash flow used by operating activities was U.S.$55.7 million during the year ended December 31, 2001, U.S.$481.7 million during the year ended December 31, 2002 and U.S.$346.5 million during
the year ended December 31, 2003. The decrease in cash flow from operating activities in 2003 as compared to 2002 was principally due to an increase in investments in trading securities as well as an increase in receivables and inventories. The
increase in cash flow from operating activities in 2002 as compared to 2001 was principally due to investments and proceeds in trading securities and increases in accounts payable.



In 2003, Araucos main investments were the construction of the Valdivia Mill, with a capital expenditure of
approximately U.S.$318.7 million, and the ongoing construction of the first phase of the Itata Project, with an aggregate expenditure for the period of U.S.$48.0 million, including a sawmill, plywood mill and cogeneration plant.



In January 2003, Arauco made an investment of U.S.$28.5
million in EKA Chile S.A. (EKA Chile). EKA Chile is the result of a joint venture between Arauco and EKA Chemicals, a Swedish chemical company that contributed existing equipment to the joint venture. EKA Chile is 50% controlled by each
party. EKA Chiles operations will be located in Talcahuano, nearby Araucos operations, and will provide chlorate to Araucos mills.



In December 2003, Arauco, through its subsidiary Forestal Celco S.A. (Forestal Celco), acquired a controlling interest in Forestal Celsur S.A.
through the purchase of 82.12% of its shares. Arauco, through Forestal Celco, acquired an additional 17.8% of the shares in January 2004. Arauco paid U.S.$39.3 million in the aggregate for the shares, through which purchases it acquired 13,590
hectares of land.



In 2002, Araucos main investments were
the ongoing construction of the Valdivia Mill, with a capital expenditure of approximately U.S.$173.8 million, and the construction of a second MDF mill in Trupán and a new MDF mill in Misiones, Argentina, with an aggregate capital
expenditure of U.S.$47.0 million.



In 2001, Araucos main
investments were the purchase of an additional 377,485 shares of Cholguán for U.S.$158.8 thousand through its subsidiary Forestal Arauco and the acquisition of 16.7% of Inversiones Puerto Coronel S.A. for U.S.$3.0 million, resulting in
goodwill of U.S.$1.4 million.



For 2003,
Araucos principal financing activities were:



| |  | obtaining a senior unsecured syndicated loan in February, with principal of U.S.$150 million and an interest rate of the London inter-bank offered rate, known as LIBOR, plus 0.85%;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the interest rate swap in May under which the Company swapped its variable interest rate for a fixed interest rate. Under the terms of the contract, which had a notional amount of
U.S.$200 million, the Company pays interest at a fixed rate of 5.506% and receives interest at a floating rate of LIBOR plus 1.79875%. The interest rate swap settles semi-annually, and the contract terminates in 2011;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the issue and private placement in July of U.S.$300 million of Araucos 5.125% Notes due 2013 in the form of 144A Notes with registration rights;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the June settlement of U.S.$30 million of notional amount of two swap agreements, leaving an outstanding notional amount of U.S.$170 million;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  | the August settlement of U.S.$40 million of notional amount of two swap agreements, leaving a remaining notional amount of U.S.$130 million;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  | the November settlement of a tender offer launched in October to exchange the 2013 144A Notes for an equal amount of registered notes with the same interest rate and maturity, in
which 99.98% of the notes were exchanged;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the December repayment of U.S.$0.7 million in aggregate principal amount at maturity of Araucos domestic bonds, which bore interest at the UF rate plus 6.0% (the UF rate is an
interest spread in excess of the indexation of the UF); and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the December repayment at maturity of U.S.$78.5 million of Araucos 6.75% notes.
| | - | --------------------------------------------------------------------------------



For 2002, Araucos principal financing activities were:



| |  | the interest rate swap in May under which the Company swapped its fixed interest rate for a variable interest rate. Under the terms of the contract, which had a notional amount of
U.S.$200 million, the Company pays interest at a floating rate of LIBOR plus 1.79875% and receives interest at a fixed rate of 7.75%, the same rate as its 7.750% Notes. The interest rate swap settles semi-annually, and the contract terminates in
2011;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the repurchase during the last quarter of U.S.$29.5 million of the 8.625% Notes and U.S.$13.0 million of the 7.75% Notes;
| | - | -------------------------------------------------------------------------------------------------------------------------



| |  | the repayment of U.S.$4.4 million in aggregate principal amount at maturity of our domestic bonds which bore interest at a rate of UF plus 6.0% (the UF rate is an interest spread in
excess of the indexation of the UF); and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the repayment of U.S.$37.5 million in aggregate principal amount at maturity of our 1997 syndicated loan which bore interest at LIBOR plus 0.35%.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



For 2001, Araucos principal financing activities were:



| |  | the issue of U.S.$400 million of 7.75% notes due 2011;
| | - | ------------------------------------------------------



| |  | the repayment of U.S.$119.8 million 6.75% notes due 2003;
| | - | ---------------------------------------------------------



| |  | the issue of U.S.$250.0 million floating rate trust notes due 2006 by Alto Paraná through an Argentine financial trust, which trust notes were unconditionally guaranteed by
Arauco;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the repayment of U.S.$4.8 million in aggregate principal amount at maturity of our domestic bonds which bore interest at a rate of UF plus 6.0%;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the repayment of U.S.$6.2 million in aggregate principal amount at maturity of our Export Development Corporation borrowing which bore interest at LIBOR plus 1.25%;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the repayment of U.S.$37.5 million in aggregate principal amount at maturity of our 1997 syndicated loan which bore interest at LIBOR plus 0.35%; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the prepayment of U.S.$200 million in aggregate principal amount of our 1996 syndicated loan which was scheduled to mature on December 2001 and bore interest at LIBOR plus 0.35%.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



At December 31, 2003, the Companys
short-term bank borrowings were U.S.$1.4 million. At December 31, 2002, the Companys short-term bank borrowings were U.S.$32.1 million. At December 31, 2001, the Companys short-term bank borrowings were U.S.$86,600.



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##### Table of Contents

The Companys total long-term bank, export credit agency and multilateral lending agency debt
(including the current portion of such debt) was U.S.$402.6 million at December 31, 2003, of which 100% was U.S. dollar-denominated. At December 31, 2003, the Company also had total capital markets borrowings of U.S.$1,457.5 million, 100% of which
was U.S. dollar-denominated. At December 31, 2003, the weighted average maturity of the Companys foreign currency-denominated debt was 5.9 years. At that date, the average interest rate for the Companys foreign currency-denominated
floating rate debt was 0.77% over LIBOR and the average interest rate for the Companys foreign currency-denominated fixed rate debt was 7.17%. The average rate figures for foreign currency denominated debt do not reflect the effect of the swap
agreements and the subsequent unwinds valid as of December 31, 2003.



The Companys total long-term bank, export credit agency and multilateral lending agency debt (including the current portion of such debt) was U.S.$290.4 million at December 31, 2002, of which 100% was U.S. dollar-denominated. At
December 31, 2002, the Company also had total capital markets borrowings of U.S.$1,240.3 million, 99.8% of which was U.S. dollar-dominated and 0.2% of which was UF-denominated. At December 31, 2002, the weighted average maturity of the
Companys Chilean peso-denominated debt (all of which is expressed in UF) was 0.5 years and the weighted average maturity of the Companys foreign currency-denominated debt was 6.3 years. At that date, the average interest rate for the
Companys UF-denominated debt was 6.0% in excess of UF indices, the average interest rate for the Companys foreign currency-denominated floating rate debt was 0.68% over LIBOR and the average interest rate for the Companys foreign
currency-denominated fixed rate debt was 7.63%. The average rate figures for foreign currency-denominated debt do not reflect the effect of the U.S.$200 million swap of May 2002.



The Companys total long-term bank, export credit agency and
multilateral lending agency debt (including the current portion of such debt) was U.S.$328.4 million at December 31, 2001, of which 100% was U.S. dollar-denominated. At December 31, 2001, the Company also had total capital markets borrowings of
U.S.$1,287.2 million, 99.5% of which was U.S. dollar-dominated and 0.5% of which was UF-denominated. At December 31, 2001, the weighted average maturity of the Companys Chilean peso-denominated debt (all of which is expressed in UF) was 1.4
years and the weighted average maturity of the Companys foreign currency-denominated debt was 7.5 years. At that date, the average interest rate for the Companys UF-denominated debt was 6.0% in excess of UF indices, the average interest
rate for the Companys foreign currency-denominated floating rate debt was 0.66% over LIBOR and the average interest rate for the Companys foreign currency-denominated fixed rate debt was 7.57%.



The instruments and agreements governing the Companys foreign bonds and
syndicated loans set limits on the Companys incurrence of debt and liabilities through the use of financial covenants. The principal financial covenants contained in these agreements are:



| |  | Araucos debt to equity ratio must not exceed the ratio of 1.2:1;
| | - | -----------------------------------------------------------------



| |  | Araucos interest coverage ratio must not be less than 2:1; and
| | - | ---------------------------------------------------------------



| |  | Arauco is required to maintain a minimum consolidated net worth of U.S.$2.5 billion, as measured in accordance with Chilean generally accepted accounting principles known as
Chilean GAAP.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company was in
compliance with these covenants as of December 31, 2003.



On
June 21, 2001, the Company irrevocably and unconditionally guaranteed as primary obligor the issue of U.S.$250,000,000 Floating Rate Trust Notes due 2006 by a financial trustee in the name of Alto Paraná (the APSA Notes) under
Argentine law 24,441, in favor of the holders of the notes and The Chase Manhattan Bank, as financial trustee. The APSA Notes had a stated maturity of June 13, 2006. On January 22, 2004, Alto Paraná completed a restructuring of the APSA
Notes. The terms of the notes and the guaranty were amended as follows:



| |  | the stated maturity was extended to December 12, 2008;
| | - | ------------------------------------------------------



| |  | the interest rate was fixed at LIBOR plus 6.5%; and
| | - | ---------------------------------------------------



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##### Table of Contents

| |  | the irrevocable and unconditional guaranty granted by Arauco in 2001 was terminated and, through an offshore custodial vehicle, Arauco provided the holders of the restructured APSA
notes a new full, irrevocable and unconditional guaranty of the notes, as primary obligor in the event of any failure by Alto Paraná to meet the obligations related to the notes.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Substantially all of our borrowings are denominated in dollars. See
Item 11. Quantitative and Qualitative Disclosures about Market RiskForeign Currency Risk.



The following table sets forth certain contractual obligations as of December 31, 2003, and the period in which the contractual obligations come due.



|                                      |  |                               |         |                 |   |           |  |           |       |                  |   |       |  |   |        
|------------------------------------- |  | ----------------------------- | ------- | --------------- | - | --------- |  | --------- | ----- | ---------------- | - | ----- |  | - | -------
|                                      |  | Payments Due by Period       
|                                      |  | Total                         |         | Less than 1year |   | 1-3 years |  | 3-5 years |       | More than 5years
|                                      |  | (in millions of U.S. dollars)
|Contractual obligation:               |  |                               |         |                 |   |           |  |           |       |                  |   |       |  |   |        
|Long-term debt obligations            |  | $                             | 1,860.1 |                 | $ | 0.6       |  | $         | 285.9 |                  | $ | 391.1 |  | $ | 1,182.5
|Capital (finance) lease obligations   |  |                               |        |                 |   |          |  |           |      |                  |   |      |  |   |       
|Operating lease obligations           |  |                               |        |                 |   |          |  |           |      |                  |   |      |  |   |       
|Purchase obligations(1)               |  |                               | 139.3   |                 |   | 139.3     |  |           |      |                  |   |      |  |   |       
|Registrants balance sheet under GAAP |  |                               |        |                 |   |          |  |           |      |                  |   |      |  |   |       
|                                      |  |                               |         |                 |   |           |  |           |       |                  |   |       |  |   |        
|Total                                 |  | $                             | 1,999.4 |                 | $ | 139.9     |  | $         | 285.9 |                  | $ | 391.1 |  | $ | 1,182.5
|                                      |  |                               |         |                 |   |           |  |           |       |                  |   |       |  |   |        

---

|(1) | Excludes contracts entered into with independent contractors to perform operations on Araucos behalf. Araucos payment obligations under such contracts are not
pre-determined, but rather depend on the performance of certain variables. Accordingly, Arauco cannot quantify its contractual obligations under such contracts.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In accordance with customary practice in the pulp industry, Arauco does not have long-term sales contracts with its
customers, but rather maintains long-standing relationships with its customers pursuant to which agreements are reached from time to time on specific volumes and prices.



Off-Balance Sheet Arrangements



We do not have any off-balance sheet arrangements of the type that we are required to disclose under Item 5.E of Form 20-F.



Treasury Management



The Company manages the treasury activities of all of Araucos Chilean subsidiaries on a centralized basis.
Araucos subsidiaries borrow from or lend money to the Company in accordance with their daily cash requirements or surplus, maintaining their cash balance close to zero (Araucos policy is not to allow its subsidiaries to invest in
financial instruments) and other transactions. Decisions regarding short-term loans, short-term investments, currency transactions and other transactions are made by the Company for Arauco as a whole. Treasury activities are governed by
Araucos cash and deposits policy, which is approved by the board of directors. The main principles of Araucos cash and deposits policy are:



| |  | investments must be in fixed income instruments;
| | - | ------------------------------------------------



| |  | the Company does not invest in stocks;
| | - | --------------------------------------



| |  | investments must be in instruments from the Chilean Central Bank or from internationally recognized financial institutions; and
| | - | -------------------------------------------------------------------------------------------------------------------------------



| |  | transactions must be carried out only with banks or bank subsidiaries.
| | - | ----------------------------------------------------------------------



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##### Table of Contents

Alto Paraná manages its treasury management independent from the Company. Its activities are
governed by a cash and deposit policy that is approved by Alto Paranás chief executive officer. This policy is based on the same principles as those of Arauco.



The Company periodically reviews its exposure to risks arising from fluctuations in foreign exchange rates and interest
rates and makes a determination on a case-by-case basis at its senior management level whether to hedge such risks. As a result, the Company from time to time enters into currency and interest rate swaps with respect to a portion of its borrowings.
See Note 1(k) to the consolidated financial statements in Item 18. The Company has also analyzed its exposure to risks associated with fluctuations in prices of commodities, including pulp, but has thus far not entered into any hedging transactions
with respect to such risks. See Item 11. Quantitative and Qualitative Disclosures About Market Risk.



RESEARCH AND DEVELOPMENT



Arauco spent U.S.$1.5 million in 2001, U.S.$1.6 million in 2002 and U.S.$1.7 million in 2003 on research and development. Arauco conducts its principal research and development programs through its wholly-owned
subsidiary Bioforest, which concentrates its efforts on applying and implementing the advanced technology available in the market to the specific characteristics of Araucos forests and mills.



Alto Paraná is continuously researching and attempting to develop
different strains of long-fiber pine trees in order to improve quality and to shorten the average harvest cycle. Additionally, Alto Paraná maintains close relations with international research institutes, equipment suppliers and the
scientific and engineering community involved with its industry.



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##### Table of Contents

Item 6. Directors, Senior Management and Employees.



DIRECTORS AND EXECUTIVE OFFICERS



The businesses of the Company are managed by a board of directors. The Companys estatutos (by-laws) require that the board of directors consist of nine directors. Directors are not allowed to be executives of the Company. The
entire board is elected every three years and can be re-elected for any number of periods; the current board was elected in April 2002 and their terms will expire in 2005.The board may appoint replacements to fill any vacancies that occur
during periods between elections; however, at the next annual shareholders meeting following any such replacement, an election of the entire board must take place. The Companys executive officers are appointed by the board of directors
and hold office at its discretion. Scheduled meetings of the board of directors are generally held once a month. Extraordinary board meetings are called when summoned by the Chairman or when requested by at least two directors.



The Company does not have an audit committee or compensation committee.



The directors of the Company are listed below.



|                     |  |                  |  |               |  |    
|-------------------- |  | ---------------- |  | ------------- |  | ---
|Name                 |  | Years asDirector |  | Position      |  | Age
|José Tomás Guzmán    |  | 18               |  | Chairman      |  | 75 
|Roberto Angelini(1)  |  | 18               |  | Vice-Chairman |  | 55 
|Jorge Andueza        |  | 10               |  | Director      |  | 55 
|Anacleto Angelini(1) |  | 18               |  | Director      |  | 90 
|Manuel Bezanilla     |  | 18               |  | Director      |  | 59 
|Jorge Bunster        |  | 10               |  | Director      |  | 51 
|Carlos Croxatto      |  | 18               |  | Director      |  | 89 
|Alberto Etchegaray   |  | 10               |  | Director      |  | 55 
|Felipe Lamarca       |  | 19               |  | Director      |  | 53 

---

|(1) | Anacleto Angelini is the uncle of Roberto Angelini.
|--- | ---------------------------------------------------



The principal executive officers of Arauco and the General Managers of each area or department of Arauco are listed below.



|                  |  |                 |  |                                        |  |    
|----------------- |  | --------------- |  | -------------------------------------- |  | ---
|Name              |  | YearswithArauco |  | Position or Area                       |  | Age
|Alejandro Pérez   |  | 14              |  | President and Chief Executive Officer  |  | 54 
|Matías Domeyko(1) |  | 15              |  | Chief Financial Officer                |  | 42 
|Hernán Arriagada  |  | 13              |  | Engineering and Construction Director  |  | 56 
|Franco Bozzalla   |  | 14              |  | Panels Area Managing Director          |  | 41 
|Sergio Desormeaux |  | 8               |  | Systems Director                       |  | 52 
|Jorge Garnham     |  | 27              |  | Woodpulp Area Managing Director        |  | 50 
|Cristián Infante  |  | 9               |  | Alto Paraná Managing Director          |  | 37 
|Charles Kimber    |  | 18              |  | Commercial Director                    |  | 42 
|Antonio Luque     |  | 12              |  | Sawn Timber Area Managing Director     |  | 47 
|Víctor Renner(2)  |  | 16              |  | Valdivia Mill Project Director         |  | 57 
|Alvaro Saavedra   |  | 12              |  | Forestry Area Managing Director        |  | 48 
|Mario Urrutia(3)  |  | 10              |  | Environmental Industrial Area Director |  | 56 

---

|(1) | Matías Domeyko worked at Arauco from 1987 to 1994. He rejoined the Company in 1997.
|--- | -----------------------------------------------------------------------------------

|(2) | Between 1992 and 1994, Víctor Renner acted as an independent consultant, with part-time responsibilities.
|--- | ---------------------------------------------------------------------------------------------------------

|(3) | Mario Urrutia worked at Arauco from 1989 to 1991 and from 1995 to 1998. He rejoined the Company in 2002.
|--- | --------------------------------------------------------------------------------------------------------



Set forth below is a brief biographical description of each of the directors and executive officers of Arauco.



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##### Table of Contents

Directors



José Tomás Guzmán became a Director on April 30, 1986 and became Chairman of the board of directors on April 18, 1991. He is a
partner of the law firm Portaluppi, Guzmán y Bezanilla, is a Vice-Chairman of Empresas Copec and Compañía de Petróleos de Chile COPEC S.A. (COPEC), is Chairman of the board of directors of Forestal Arauco,
Inversiones Siemel S.A. and Cruz del Sur, and serves as a member of the boards of directors of Compañía de Seguros de Vida Cruz del Sur S.A., Alto Paraná, Sigma Servicios Informáticos S.A., Servicios Corporativos Sercor
S.A., AntarChile and Corpesca S.A. Mr. Guzmán holds a law degree from the Catholic University of Chile.



Roberto Angelini became a Director on April 30, 1986 and became Vice-Chairman of the board of directors on April 18, 1991. He serves as Chairman of the
board of directors of Compañía de Seguros de Vida Cruz del Sur S.A., Astilleros Arica S.A. and Servicios Corporativos Sercor S.A. He also serves as a member of the boards of directors of Empresas Copec, COPEC, Forestal Arauco, Alto
Paraná, Empresa Pesquera Eperva S.A., Corpesca S.A., Cruz del Sur, Inversiones Siemel S.A., AntarChile and Sigma Servicios Informáticos S.A. Mr. Angelini holds a degree in civil engineering from the Catholic University of Chile.



Jorge Andueza became a Director on April 11, 1994. He also is
the Chief Executive Officer of AntarChile and serves as a member of the boards of directors of COPEC, Empresa Pesquera Eperva S.A., Corpesca S.A., Cruz del Sur, Compañía de Seguros de Vida Cruz del Sur S.A., Inversiones Siemel S.A.,
Astilleros Arica S.A., Pesquera Iquique-Guanaye S.A., SouthPacific Korp S.A. and Servicios Corporativos Sercor S.A. Mr. Andueza holds a degree in electronic civil engineering from Federico Santa María Technical University, and a masters
degree in business administration from Adolfo Ibáñez University.



Anacleto Angelini became a Director on April 30, 1986. He is also the Chairman of the board of directors of AntarChile and serves as a member of the boards of directors of Empresas Copec and Servicios Corporativos
Sercor S.A.



Manuel Bezanilla became a Director on April 30,
1986. He is also a partner of the law firm Portaluppi, Guzmán y Bezanilla, and serves as a member of the boards of directors of Forestal Arauco, Pesquera Iquique-Guanaye S.A. and Inversiones Siemel S.A. Mr. Bezanilla holds a law degree from
the Catholic University of Chile.



Jorge Bunster became a
Director on April 11, 1994. He is also the Chief Executive Officer of COPEC, and serves as a member of the boards of directors of ABC Comercial Ltda., Inversiones Década S.A., Metrogas S.A., Empresa Eléctrica Guacolda S.A. and Sociedad
Nacional de Oleoductos Limitada (Sonacol). Mr. Bunster holds a degree in commercial engineering and economics from the Catholic University of Chile, and a masters degree in business administration from Navarra University.



Carlos Croxatto became a Director on April 30, 1986. He also serves as a
member of the boards of directors of Empresas Copec, Forestal Arauco, Alto Paraná, Servicios Corporativos Sercor S.A. and Empresa Pesquera Eperva S.A. Mr. Croxatto holds a degree in civil engineering from the University of Chile.



Alberto Etchegaray became a Director on April 11, 1994. He is also a
partner of Domet Ltda., the Chairman of the board of directors of Invesco Internacional S.A., Telepeajes de Chile S.A., Habitaria S.A. and Isapre Consalud S.A., and serves as a member of the boards of directors of Banco del Desarrollo and Empresas
CCT. He was formerly the Chilean Minister of Housing for four years. Mr. Etchegaray holds a degree in civil engineering from the Catholic University of Chile.



Felipe Lamarca became a Director on December 19, 1985. He is also the Chairman of the boards of directors of Empresas Copec, COPEC, Pesquera
Iquique-Guanaye S.A., Abastecedora de Combustibles S.A., SouthPacific Korp S.A., Inversiones Década S.A., ABC Inversiones S.A., ABC Comercial S.A., Corpesca S.A. and Cia. Minera Can-Can S.A. and Vice-Chairman of Compañía
Sudamericana de Vapores S.A. He was formerly the Director of the Chilean Internal Revenue Service. Mr. Lamarca holds a degree in commercial engineering from the Catholic University of Chile, and is licensed in economics and social sciences.



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##### Table of Contents

Executive Officers



Alejandro Pérez is the President and Chief Executive Officer of Arauco and a member of the boards of directors of Empresas Copec, COPEC, EKA Chile
S.A. and Puerto Lirquén. Prior to joining Arauco in 1990, he held the positions of Chief Executive Officer of Soprole S.A. and Chief Executive Officer of Watts Alimentos S.A. Mr. Perez holds a degree in civil engineering from the
University of Chile, and a masters degree in economics from the University of Chicago.



Matías Domeyko is the Chief Financial Officer of Arauco and a member of the boards of directors of Empresa Eléctrica Guacolda S.A. and Cruz del Sur Administradora General de Fondos S.A. He first joined
Arauco in 1987 and served as the Finance Manager until 1994. He rejoined Arauco in 1997. He was formerly the Director of Development of Copec. Mr. Domeyko holds a degree in commercial engineering from the University of Chile.



Hernán Arriagada is the Engineering and Construction Director. He
joined Arauco in 1991. He was previously the Engineering Manager and Engineering and Maintenance Manager of the mills at the Arauco site. Mr. Arriagada holds a degree in mechanical engineering from the University of Santiago.



Franco Bozzalla is the Panels Area Managing Director of Arauco. He joined
Arauco in 1990. He was formerly a sales representative of Forestal Arauco. Mr. Bozzalla holds a degree in civil engineering from the Catholic University of Chile.



Sergio Desormeaux is the Systems Director of Arauco. He joined the Company in 1997 at his current position. He was formerly
the General Manager of Ingenac S.A. He holds a degree in engineering from the University of Chile.



Jorge Garnham is the Woodpulp Area Managing Director of Arauco. He joined Arauco in 1978. He was formerly the Managing Director of Alto Paraná,
Chief Accounting Officer and Manager of Forestry Sales of Arauco and the President of Alto Paraná. Mr. Garnham holds a degree in civil engineering from the Catholic University of Chile.



Cristián Infante is the Managing Director of Alto Paraná S.A.
He joined Arauco in 1996 as a woodpulp sales representative for the Company, where he worked for two years. In 1998, Mr. Infante was appointed sales manager for industrial lumber and remanufactured products of Forestal Arauco, where he worked until
1999, at which time he moved to Centromaderas S.A., where he worked for two years. Mr. Infante holds a degree in civil engineering from the Catholic University of Chile.



Charles Kimber is the Commercial Director of Arauco. He graduated from the Catholic University of Chile with a degree in
Commercial Engineering, and joined Arauco, where he has held several positions in sales, in 1986. He was previously Managing Director of Arauco Wood Products Inc.



Antonio Luque is the Sawn Timber Area Managing Director of Arauco, and has held that position since 1993. Prior to joining
Arauco, he was the General Manager of Cabildo S.A. and a research engineer at Compañía Industrial. Mr. Luque holds a degree in civil engineering from the University of Chile.



Víctor Renner is the Valdivia Mill Project Director. He joined Arauco
in 1988. Previously, he was the Director of Renner Ltda. and the Project Manager of Arauco II. Mr. Renner holds a degree in mining and civil engineering from the University of Chile and a Ph.D. from the University of London.



Alvaro Saavedra is the Forestry Area Managing Director of Arauco. He joined
Arauco in 1991. Previously, he was the Director of Development of Forestal Arauco. He holds a degree in civil engineering from the University of Chile and a MSc from the University of London.



Mario Urrutia is the director of the Environmental Industrial Area of Arauco
as well as a member of the Advisory Board for the Itata Project. He was the Director of Construction for the Arauco II Project from 1989 to 1991 and of the Valdivia Project from 2001 until the start of 2004. Mr. Urrutia holds a degree in civil
engineering from the University of Chile.



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Compensation



For 2003, the aggregate compensation of all directors and executive officers and senior managers of Arauco paid or accrued in that year for services in
all capacities, including salaries and compensation for their service to those executive officers who serve as directors, was approximately U.S.$4.5 million. The Company does not maintain any pension or retirement programs or incentive compensation
plans for its directors or executive officers. The Company also does not maintain any plans providing for benefits upon termination of employment. The following table sets out the compensation of Araucos directors for their services as
directors in the years provided.



|                       |  |            |         |      |   |        
|---------------------- |  | ---------- | ------- | ---- | - | -------
|                       |  | 2002       |         | 2003
|                       |  | (in U.S.$)
|Roberto Angelini R.(1) |  | $          | 144,466 |      | $ | 155,358
|José Tomás Guzmán D.   |  |            | 116,260 |      |   | 124,396
|Carlos Croxatto S.     |  |            | 52,465  |      |   | 56,368 
|Alejandro Pérez R.     |  |            | 43,958  |      |   | 47,135 
|Manuel Bezanilla U.    |  |            | 33,509  |      |   | 35,457 
|Juan Cambiaso P.       |  |            | 16,987  |      |   | 19,901 
|Anacleto Angelini F.   |  |            | 16,755  |      |   | 17,728 
|Felipe Lamarca C.      |  |            | 16,755  |      |   | 17,728 
|Jorge Andueza F.       |  |            | 16,755  |      |   | 17,728 
|Jorge Bunster B.       |  |            | 16,755  |      |   | 17,728 
|Alberto Etchegaray A.  |  |            | 16,755  |      |   | 17,728 
|Eduardo Zañartu B.     |  |            | 6,982   |      |   | 7,415  
|Matías Domeyko C.      |  |            | 6,982   |      |   | 7,415  
|Jorge Garnham          |  |            | 6,982   |      |   | 7,415  
|Antonio Luque          |  |            | 6,982   |      |   | 7,415  
|Felipe Léniz M.        |  |            | 4,658   |      |   |       
|Franco Bozzalla T.     |  |            | 2,861   |      |   | 7,415  
|Charles Kimber W.      |  |            | 4,076   |      |   |       
|Alvaro Saavedra F.     |  |            | 2,324   |      |   | 7,415  
|                       |  |            |         |      |   |        
|Total compensation     |  | $          | 533,267 |      | $ | 571,745
|                       |  |            |         |      |   |        

---

|(1) | Includes all compensation paid to Mr. Angelini.
|--- | -----------------------------------------------



Employees



As of December 31, 2003, Arauco had a total of 3,984 employees, of which 3,114 were employed in Chile and 870 in Argentina by Alto Paraná.
Approximately 15.2% of Araucos employees were unionized as of December 31, 2003, a decrease from 21.3% as of December 31, 2002. Arauco negotiates collective bargaining agreements of two or three years duration with unionized employees.



The Company has had one minor strike in the last five years in
Chile (at the Arauco mills) and considers its relations with its employees to be good. Alto Paraná has, from time to time, experienced strikes and work stoppages at the Puerto Esperanza mill. The strikes and work stoppages have not materially
affected mill operations, and management currently considers relations with its employees to be satisfactory. The following provides a breakdown of Araucos employees by activity.



|                           |  |                    |  |       |  |      
|-------------------------- |  | ------------------ |  | ----- |  | -----
|                           |  | As of December 31,
|                           |  | 2001               |  | 2002  |  | 2003 
|Pulp mill employees        |  | 1,398              |  | 1,409 |  | 1,545
|Other industrial employees |  | 1,303              |  | 1,397 |  | 1,676
|Forestry employees         |  | 371                |  | 357   |  | 438  
|Administrative employees   |  | 257                |  | 268   |  | 325  



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In addition, during 2003, Arauco had contracts with approximately 300 contractors, who employed
approximately 11,000 employees. Araucos 11 sawmills in Chile are operated by contractors, which are not related to Arauco or each other.



Item 7. Major Shareholders and Related Party Transactions.



MAJOR SHAREHOLDERS



The
Companys only outstanding voting securities are shares of common stock of a single series, without nominal (par) value (the Common Stock). The following table sets forth certain information concerning ownership of the Common Stock
as of December 31, 2003 with respect to each shareholder known to the Company to own more than 5% of the outstanding shares of Common Stock and all directors and executive officers of the Company as a group.



|                                                           |  |                       |  |                     |  
|---------------------------------------------------------- |  | --------------------- |  | ------------------- | -
|                                                           |  | Number ofShares Owned |  | PercentageOwnership |  
|Empresas Copec                                             |  | 113,127,452           |  | 99.98               | %
|Directors and executive officers of the Company as a group |  |                      |  |                    |  



Through its ownership
of the Companys Common Stock, Empresas Copec currently has voting control of the Company.



Empresas Copec is a Chilean public company listed on the Santiago Stock Exchange, the Valparaíso Stock Exchange and the Chilean Electronic Stock
Exchange. It is a holding company, the principal interests of which are in Arauco, gasoline distribution, retailing, electricity, gas distribution, and fishing. Prior to October 1, 2003, Empresas Copecs legal name was Compañía de
Petróleos de Chile S.A. As of that date, Compañía de Petróleos de Chile S.A. transferred all its gasoline- and fuel-related business assets to a new subsidiary, Compañía de Petróleos de Chile COPEC
S.A., which we call COPEC, and changed its legal name to Empresas Copec S.A. Empresas Copec is 60.1% owned by AntarChile.



Through its ownership in Empresas Copec, AntarChile beneficially owns 60.1% of the shares of the Company.



AntarChile is in turn 70.2% beneficially owned by the Angelini Group, a group
of investors headed by Mr. Anacleto Angelini. Through their ownership of AntarChile, the Angelini Group beneficially owns 60.1% of the shares of the Company.



The Angelini Group is engaged in a wide range of business activities in Chile, including substantial interests in:



| |  | gasoline and gas distribution, through COPEC, Abastecedora de Combustibles S.A. and Metrogas S.A.;
| | - | --------------------------------------------------------------------------------------------------



| |  | pulp and forestry products, through Arauco;
| | - | -------------------------------------------



| |  | fisheries, through Corpesca S.A., Pesquera Iquique-Guanaye S.A., SouthPacific Korp S.A. and Empresa Pesquera Eperva S.A.;
| | - | -------------------------------------------------------------------------------------------------------------------------



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| |  | insurance, through Cruz del Sur and Compañía de Seguros de Vida Cruz del Sur S.A.;
| | - | ----------------------------------------------------------------------------------



| |  | investment management, through AntarChile and Inversiones Siemel S.A.;
| | - | ----------------------------------------------------------------------



| |  | power generation, through Empresa Eléctrica Guacolda S.A.;
| | - | ----------------------------------------------------------



| |  | retailing, through ABC Comercial Limitada; and
| | - | ----------------------------------------------



| |  | agriculture, through Agrícola Siemel Limitada.
| | - | ----------------------------------------------



Until August 2000, Copec, now Empresas Copec, was 30.05% owned by Inversiones y Desarrollo Los Andes Dos S.A. (Los Andes II), a Chilean
holding company, and 30.05% owned by AntarChile. Los Andes II was 99.99% owned by Inversiones Socoroma S.A. (Socoroma), which in turn was 85.57% owned by AntarChile. On August 31, 2000, Los Andes II and Socoroma were merged into
AntarChile. AntarChile thus became the indirect owner of the 60.1% of shares of the Company held by Copec.



RELATED PARTY TRANSACTIONS



In the ordinary course of its business, Arauco engages in a variety of transactions on an arms-length basis with various of its affiliates,
primarily for the purchase of goods or services, which goods and services may also be provided by other suppliers. Financial information concerning these transactions is set forth in Note 11 to the consolidated financial statements in Item 18.



Among the most significant related party transactions are
purchases from COPEC, another subsidiary of Empresas Copec, Araucos majority shareholder, of fuel for the lime kilns in the pulp mills. Purchases from COPEC and from Compañía de Petróleos de Chile S.A. were U.S.$11.0
million in 2001, U.S.$12.1 million in 2002 and U.S.$14.5 million in 2003. The amount of the outstanding liability to COPEC for these purchases was U.S.$62,000 on December 31, 2003. The outstanding amount was U.S.$37,000 on March 31,
2004.



Arauco made purchases from Puerto de
Lirquén S.A., a 20.1% affiliate of Arauco and a supplier of port services, of U.S.$1.6 million in 2001, U.S.$2.0 million in 2002 and U.S.$2.9 million in 2003. The amount of the related liability to Puerto de Lirquén S.A. was
U.S.$333,000 on December 31, 2003. The outstanding amount was U.S.$364,000 on March 31, 2004.



Arauco made purchases from Compañía Puerto de Coronel S.A., a 50.0% affiliate of Arauco and a supplier of port services, of U.S.$2.6 million
in 2001, U.S.$695,000 in 2002 and U.S.$1.9 million in 2003. The amount of the outstanding liability to Compañía Puerto de Coronel S.A. was U.S.$275,000 on December 31, 2002 and U.S.$539,000 on March 31, 2004.



Arauco obtains insurance from Cruz del Sur, a Chilean insurance company
controlled by the Angelini Group and a supplier of all of Araucos insurance policies covering its forest holdings and production plants, facilities and equipment. Arauco paid direct insurance premiums of U.S.$7.2 million in 2001, U.S.$3.0
million in 2002 and U.S.$10.0 million in 2003. The amount of the outstanding receivables from Cruz del Sur in favor of Arauco was U.S.$1.1 million on December 31, 2003. The outstanding receivables from Cruz del Sur in favor of Arauco was
U.S.$999,000 on March 31, 2004.



Arauco made purchases from EKA
Chile, which is 50% controlled by Arauco and 50% by EKA Chemicals, of U.S.$10.2 million in 2003. Arauco provided EKA Chile with engineering services for payment of U.S.$4.7 million during 2003. EKA Chile, a sodium chlorate supplier, was formed in
January 2003. Arauco had a liability to EKA Chile of U.S.$599,000 on December 31, 2003, and an outstanding receivable from EKA Chile of U.S.$520,000 on March 31, 2004.



On June 21, 2001, the Company irrevocably and unconditionally guaranteed as primary obligor the issue of U.S.$250 million
Floating Rate Trust Notes due 2006 by a financial trustee in the name of Alto Paraná (the APSA



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Notes) under Argentine law 24,441, in favor of the holders of the notes and The Chase Manhattan Bank, as financial
trustee. The APSA Notes were issued by First Trust of New York, National Association (acting though its Oficina de Representación Permanente en Argentina), not in its individual capacity but solely as financial trustee and on behalf of
the financial trust denominated the Argentine Collateral Trust Notes Due 2006 Financial Trust. The APSA Notes had a stated maturity of June 13, 2006. The proceeds of the APSA Notes were used by Alto Paraná to redeem certain of its
shares of preferred stock and for other general corporate purposes.



On January 22, 2004, Alto Paraná completed a restructuring of the APSA Notes. The terms of the notes and the guaranty were amended as follows:



| |  | the stated maturity was extended to December 12, 2008;
| | - | ------------------------------------------------------



| |  | the interest rate was fixed at the LIBOR plus 6.5%; and
| | - | -------------------------------------------------------



| |  | the irrevocable and unconditional guaranty granted by Arauco in 2001 was terminated and, through an offshore custodial vehicle, Arauco provided the holders of the restructured APSA
notes a new full, irrevocable and unconditional guaranty of the notes, as primary obligor in the event of any failure by Alto Paraná to meet the obligations related to the notes.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During 2001, 2002 and 2003, Arauco paid Portaluppi, Guzmán y Bezanilla
an aggregate amount of approximately U.S.$0.7 million, U.S.$0.3 million and U.S.$0.2 million as payment for legal services.



Article 89 of the Chilean Companies Act requires that the Companys transactions with related parties be on a market basis or on terms similar to
those customarily prevailing in the market. Directors and managers of companies that violate Article 89 are liable for losses and damages resulting from such violation.



In addition, Article 44 of the Chilean Companies Act provides that any transaction in which a director has a personal
interest or is acting on behalf of a third party which has an interest in the transaction may be approved only when the board of directors has previously been informed of, and has approved, such transaction, and when the terms of such transaction
are similar to those prevailing in the market.



In cases when
the transaction involves material amounts, the board of directors must previously determine whether the terms of such transaction are similar to those prevailing in the market. If the board determines that it is not possible to determine whether the
terms of the transaction are similar to those prevailing in the market, the board, with the abstention of the interested director, may approve or reject the transaction, or designate two independent appraisers. Any transaction involving material
amounts must be reported to the Superintendencia de Valores y Seguros(the Chilean Securities Commission). Moreover, resolutions approving such transactions must be reported to the Companys shareholders at the next annual
shareholders meeting.



Article 44 presumes that a
director has a personal interest in a transaction when the director, his or her spouse, certain relatives, a company in which such director is also a director or in which such director has a minimum direct or indirect ownership interest of at least
10% are involved in such transaction, or the companies in which any of the above mentioned persons is a director, or a direct or indirect owner of 10% or more of its paid in capital; or the persons for whom such director acts as a representative.
Violation of Article 44 may result in administrative or criminal sanctions and civil liability to shareholders or third parties who suffer losses as a result of such violation, but does not affect the validity of the transaction. The Company
believes that it has complied with the requirements of Article 89 and Article 44 in all transactions with related parties.



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Item 8. Financial Information.



See Item
18Financial Statements.



EXPORT SALES



Export sales constituted approximately 84.7% of
Araucos sales revenue for the year ended December 31, 2003. Araucos total export sales revenue for 2003 was U.S.$1,236 million. See Item 4. Information on the CompanyDescription of BusinessDomestic and Export
Sales.



LEGAL PROCEEDINGS



On March 30, 2004, shortly after the commencement of operations of the
Valdivia Mill, neighbors of the mill filed a judicial action with the Court of Appeals of Valdivia, with a complaint regarding the mills atmospheric emissions. The Company is defending against the action on the basis that it is in compliance
with applicable environmental laws and regulations, which in any event provide the Company with a nine-month period from the commencement of operations to bring its emissions into compliance with the relevant requirements. The action is pending
decision. Management believes that Arauco is likely to prevail on the merits of this action, but if the action were determined adversely to Arauco, management believes that it would not have a material effect on Araucos financial position or
results of operations.



Arauco is subject to certain legal
proceedings arising from the ordinary course of its business. Management does not believe that these proceedings are likely to result in a material adverse effect on Araucos financial position or results of operations either individually or in
the aggregate.



DIVIDEND POLICY



The Companys long-standing dividend policy has been to distribute the
minimum dividend permitted by Chilean law for sociedades anónimas abiertas(public corporations). Chilean law currently requires that, unless otherwise decided by the unanimous vote of its issued and subscribed shares eligible to vote,
public corporations distribute a cash dividend in an amount equal to at least 30% of the corporations consolidated net income for each year on the basis of Chilean GAAP, unless and except to the extent the corporation has unabsorbed prior
years losses. However, on April 25, 2000, the Shareholders Meeting approved a change in the dividend policy, pursuant to which the percentage of the cash dividend was raised to 50% of the Companys consolidated net income for each
year (on a Chilean GAAP basis). On April 18, 2002, the Shareholders Meeting approved another change in the dividend policy, pursuant to which the percentage of the cash dividend was lowered to 40% of the Companys consolidated net income
for each year (on a Chilean GAAP basis).



In accordance
with a resolution adopted by the Companys board of directors, on November 25, 2003, an interim dividend was approved. This dividend was distributed on December 10, 2003 and was equal to 20% of consolidated net income through September 30,
2003. In a meeting held on April 26, 2004, the shareholders approved the final dividend for the fiscal year 2003, which was paid on May 10, 2004. This dividend plus the dividend distributed in December 2003 was equal to 40% of the Companys
consolidated net income for 2003 (on a Chilean GAAP basis). Although the board of directors has no current plans to recommend another change in the Companys dividend policy, no assurance can be given that such policy will not be changed
in the future due to changes in Chilean law, capital requirements, operating results or other factors.



Item 9. The Offer and Listing.



Neither the Companys stock nor the Notes are listed on any stock exchange or other regulated market.



Trading in the Notes takes place primarily in the over-the-counter market; accordingly, Arauco is unable to obtain reliable information on such trading.



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Item 10. Additional Information.



ARTICLES OF INCORPORATION AND BY-LAWS



Organization and
Register



Celulosa Arauco y Constitución S.A. is a
sociedad anónima abierta (a public corporation) organized in Chile under the laws of Chile. The Company was registered on August 18, 1971, by resolution 300-S of the Chilean Securities Commission and recorded in the Santiago Commercial
Register of 1971 on page 6433 under entry number 2994. Notice was published in the Official Gazette on September 4, 1971.



Objects and Purposes



The purpose of the Company as stated in its estatutos(by-laws) includes the manufacture of forestry products, the management of forestry lands and
other activities which are incidental to the forestry industry generally.



Capital



In April 2002, the by-laws were
amended such that, effective January 1, 2002, the Companys capital is denominated in U.S. dollars. The Company and two of its subsidiaries, Aserraderos Arauco and Paneles Arauco, received authorization in March 2002 from the Chilean Internal
Tax Service to prepare their financial statements in U.S. dollars beginning January 1, 2002. In January 1, 2003, Araucos subsidiaries Forestal Arauco, Bosques Arauco, Forestal Valdivia, Forestal Celco and Cholguán obtained the same
permission from the Chilean Tax Service.



Directors



According to the Companys by-laws, the board of directors of the
Company is composed of nine members elected by a general meeting of the Companys shareholders. The directors are not required to be shareholders of the Company. The Companys by-laws state that the amount of compensation to be received by
the directors for their duties shall be fixed by the general shareholders meeting. Directors may be compensated for any non-directorial services rendered to the Company at levels of compensation comparable with compensation commonly paid for
these services, compensation which is compatible with the directors compensation fixed by the general shareholders meeting. The by-laws also state that the board of directors of Arauco has all of the authorities of administration and
disposal that Chilean law or the by-laws do not confer upon the general shareholders meeting. The board of directors has the right to act on behalf of the Company without the need for a special power of attorney, even in cases where a power of
attorney is required by law. In particular, the by-laws provide that the board of directors is empowered to encumber the Companys assets, real and personal property with mortgages, easements or pledges regardless of the value of such property
or the amount of the respective encumbrances and to borrow money paying interest, with or without a guaranty for the loan.



The Companys by-laws provide that the Company may enter into acts or contracts in which one or more directors are interested only if such
directors interest is made known to the board and these acts or contracts are approved by the board, and when the terms of any such act or contract conform to those prevailing in the market. In addition, board resolutions approving such
transactions must be reported at the first general shareholders meeting following the approval of the interested director transaction by the chair of such meeting.



See also Item 6. Directors, Senior Management and Employees for further information about Araucos board of
directors.



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Shareholders



The share capital of the Company consists of ordinary shares of no par value issued in registered form. Record holders of shares are registered in the
Companys share register. Any transfer of shares must be noted in the Companys share register.



Voting Rights



Each share of the Companys stock entitles the holder thereof to one vote at any meeting of shareholders. Resolutions may be taken upon a vote of an absolute majority of the voting shares present or represented. Any resolution relating
to amendments to the Companys by-laws must be approved by an absolute majority of the voting shares issued. Resolutions with regard to the following matters require the affirmative vote of two-thirds of the voting shares issued:



| |  | transformation of the Company, its division or merger with another company;
| | - | ---------------------------------------------------------------------------



| |  | advanced dissolution of the Company;
| | - | ------------------------------------



| |  | change of corporate domicile of the Company;
| | - | --------------------------------------------



| |  | reduction in the Companys equity capital;
| | - | ------------------------------------------



| |  | approval and appraisal of non-cash capital contributions;
| | - | ---------------------------------------------------------



| |  | reduction in the number of members of the board of directors;
| | - | -------------------------------------------------------------



| |  | disposal of the assets and liabilities of the Company or all of the Companys assets; and
| | - | -----------------------------------------------------------------------------------------



| |  | change to the manner in which the Companys corporate dividends are distributed.
| | - | --------------------------------------------------------------------------------



According to the Companys by-laws, holders of the Companys shares also have the right to vote at the general
shareholders meeting for the election of directors. Each shareholder or their representative may accumulate their votes in favor of one candidate or distribute them among various candidates. A vote on the election of directors may be omitted
if an election is proposed by acclamation and none of the shareholders present or represented opposes the motion. The board of directors may also be dismissed by a regular or special general shareholders meeting, though the shareholders may
only vote to dismiss the board as a whole.



Changes to Shareholders
Rights



In order to change the rights of holders of
the Companys shares or create a new series of Company shares, the Company would have to amend its by-laws. In addition, under Chilean law, any public company wishing to issue a new class of shares must register the new class of shares with the
Chilean Securities Commission. Any reduction in the number of the Companys shares would also require a 2/3 majority vote of all holders of the Companys shares under Chilean law. In addition, Chilean law requires that public corporations
distribute a cash dividend in an amount equal to at least 30% of the corporations consolidated net income for each year (on a Chilean GAAP basis) unless otherwise decided by a unanimous vote of the corporations issued and subscribed
shares eligible to vote. Any changes to the corporations dividend policy must be approved by a 2/3 majority of all holders of the corporations shares.



Shareholders Meetings



The Companys by-laws provide that general shareholders meetings shall be called by the board of directors of the Company. Notice of general
shareholders meetings must be made through a prominent notice to be published at least three times on different days in the newspaper of one of the corporate domiciles as determined by a general shareholders meeting, or in the absence of
such determination, in the Official Gazette.



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In order to be entitled to participate and vote at any shareholders meeting, a shareholder must be
registered in the Companys share register five business days before the meeting date. In addition, shareholders may be represented at general meetings by other persons by proxy. Powers of attorney must be given in writing and must be granted
with respect to all of the shares the shareholder is entitled to vote as of the date five days before the general shareholders meeting.



General shareholders meetings may be regular or special meetings. Regular shareholders meetings are held once a year within the first four
months of the year. Among other things, the regular general shareholders meeting is asked to appoint independent external auditors to examine the accounts, inventory, balance sheet and other financial results of the Company. The by-laws
provide that the following matters are to be considered at regular shareholders meetings:



| |  | the review of the Companys results of operations and external auditors reports and the approval or rejection of the annual report, the balance sheet and financial
statements of the Company;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the distribution of profits of each financial period and the distribution of the Companys dividends;
| | - | -----------------------------------------------------------------------------------------------------



| |  | the election or dismissal of the members of the board of directors; and
| | - | -----------------------------------------------------------------------



| |  | any matter of corporate interest that is not transacted at a special general shareholders meeting.
| | - | ---------------------------------------------------------------------------------------------------



Special shareholders meetings may be held at any time required by corporate needs to consider any matter that the law
or the Companys by-laws require to be considered at a general shareholders meeting. The Companys by-laws require that any matters to be discussed at a special shareholders meeting be disclosed in the notice of such meeting.
The by-laws require the following matters to be considered at special shareholders meetings:



| |  | the dissolution of the Company;
| | - | -------------------------------



| |  | the transformation, merger or division of the Company and the amendment of its by-laws;
| | - | ---------------------------------------------------------------------------------------



| |  | the issue of bonds or debentures convertible into shares;
| | - | ---------------------------------------------------------



| |  | the disposal of the fixed assets and liabilities of the Company or of all of the Companys assets;
| | - | --------------------------------------------------------------------------------------------------



| |  | the grant of real or personal guarantees to secure obligations of third parties, unless they are affiliated companies, in which case the approval of the board of directors will be
sufficient; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | any other matters within the competence of general shareholders meetings.
| | - | --------------------------------------------------------------------------



Any act of a general shareholders meeting relating to the dissolution of the Company, the transformation, merger or
division of the Company or the amendment of its by-laws, any disposal of the fixed assets and liabilities of the Company or all of the Companys assets or the issue of bonds convertible into shares or convertible debentures by the Company must
be held before a notary public, who must certify that the minutes of such meeting are the true expression of what occurred and was resolved at the meeting.



Allocation of Net Income and Distribution of Dividends



The Companys by-laws provide that the shareholders at a general shareholders meeting shall determine the annual distribution of the
Companys net profits for each financial period, within the limitations prescribed by law. The shareholders shall also set the date on which any distribution shall be paid, within the time limits prescribed by law. Chilean law prescribes that
distributions shall be paid within 30 days of the general shareholders meeting at which such distribution was determined.



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Regulation of and Restrictions on Foreign Investors



There are no limitations on the rights to hold securities, including rights of non-resident or foreign shareholders to hold
or exercise voting rights on securities.



Disclosure of Shareholder
Ownership



The Company registers the holdings of its
shareholders in its shareholder registry. The Company is required to disclose its shareholder information to the Chilean Securities Commission on a quarterly basis.



Rights of Shareholders



The Companys by-laws provide that in the case of a dispute between shareholders or between shareholders and the Company or its management, the
parties will submit their dispute to a mixed arbitrator, who may determine the procedural rules to be used in the arbitration, but must issue a final judgment in accordance with Chilean law, which judgment shall not be subject to appeal, subject to
limited exceptions. The parties shall appoint the arbitrator by mutual agreement and if no agreement is reached, an arbitrator will be appointed by the civil court system from among present and former associate justices of the Supreme Court of
Justice of Chile.



EXCHANGE CONTROLS



Chile



Prior to 1989, Chilean law permitted the purchase and sale of foreign exchange only in cases explicitly authorized by the
Central Bank. Law No. 18,840, Ley Orgánica Constitucional del Banco Central de Chile (the Organic Law of the Central Bank of Chile, or the Central Bank Act), enacted in 1989, liberalized the rules that govern the ability to
buy and sell foreign exchange. The Central Bank Act empowers the Central Bank to determine which types of foreign exchange operations must be carried out in the Mercado Cambiario Formal (the Formal Exchange Market) rather than the
Mercado Cambiario Informal(the Informal Exchange Market).The Central Bank has ruled that certain foreign exchange transactions (including those attendant to foreign investments) may be effected only in the Formal
Exchange Market. The Central Bank may also impose restrictions on foreign exchange operations that are conducted or are required to be conducted in the Formal Exchange Market. These restrictions may include the requirement of prior authorization
from the Central Bank, the imposition of reserve requirements, and the limitation of foreign exchange operations that may be conducted by the entities which participate in the Formal Exchange Market.



The Formal Exchange Market consists of banks and other entities authorized by
the Central Bank to participate in the Formal Exchange Market. Until the end of 1999 a reference exchange rate known as the dólar acuerdo (the Reference Exchange Rate) was an important element in the operation of the Formal
Exchange Market. The Reference Exchange Rate is determined taking into account a Canasta Referencial de Monedas (a Reference Exchange Basket, or CRM). The CRM is made up primarily of U.S. dollars as well as euros and Japanese Yen.
The Central Bank calculates the Reference Exchange Rate daily, taking into consideration internal and external inflation and in accordance with calculations based on a formula which considers, among other factors, variations in parities among the
U.S. dollar, the Japanese yen and the euro. Prior to the end of 1999, the Formal Exchange Market functioned on the basis of a foreign exchange band which moved in relation to the Reference Exchange Rate.



In September 1999, the Central Bank agreed to suspend its use of the foreign
exchange band. Rather, it established that the Central Bank would only intervene in exceptional cases of volatility, through buying or selling foreign exchange. As a result, most operations in the Formal Exchange Market are now made in accordance
with the spot exchange rate or, for purposes of closing forward operations, the Observed Exchange Rate. The Observed Exchange Rate, known as the dólar observado, is, for any date, the average exchange rate at which transactions are
actually carried out in the Formal Exchange Market on the previous day, as certified by the Central Bank on the following business day. The Reference Exchange Rate is still published, but primarily for reference purposes.



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The Central Bank is also able to buy or sell foreign exchange to banking institutions established in
Chile at the price agreed upon by the parties, in accordance with established instructions.



Purchases and sales of foreign exchange may be effected outside the Formal Exchange Market through the Informal Exchange Market. There are no limits imposed on the fluctuation of the rate of exchange in the Informal
Exchange Market above or below the Observed Exchange Rate. The Company estimates that, since 1991, the year-end rate of exchange for Chilean pesos into dollars on the Informal Exchange Market has fluctuated between approximately 2.0% below and 5.1%
above the Observed Exchange Rate. As of December 31, 2002, the rate of exchange for Chilean pesos into U.S. dollars on the Informal Exchange Market was 0.2% over the Observed Exchange Rate.



The Central Bank, among other things, is responsible for monetary policies
and for exchange controls in Chile. Qualifying Chilean issuers have been authorized to offer bonds in Chile by Chilean Securities Law No. 18,045, and internationally by Chapter XIV of the Compendium of Foreign Exchange Regulations (the
Compendium).



Bonds Denominated in Currencies other than Chilean
Pesos



Prior to April 19, 2001, any international issue of
bonds was subject to approval by the Central Bank after submission of an application to the Central Bank through a bank or other participant in the Formal Exchange Market. Absent the Central Banks authorization, issuers were not able to offer
bonds outside of Chile. On April 19, 2001 the Central Bank issued new foreign exchange regulations effective as of March 1, 2002, which were included in the new Chapter XIV of the Compendium, applicable to bond issues made either from Chile or
through an agency abroad. It must be noted however, that all debt issues made prior to the new regulations remain subject to the regulations existing at the time of the respective issue.



Debt securities issued directly by the Company



In accordance with regulations issued by the Central Bank, which were included in the new Chapter XIV of the Compendium,
effective March 1, 2002, any international issue of bonds in an aggregate amount exceeding U.S.$10,000 must be registered and dated by a bank or other entity authorized by the Central Bank to participate in the Formal Exchange Market before the
proceeds from the issuance can be remitted to Chile and received by the issuer. The issuer must submit forms regarding the offering to the registering entity or directly to the Central Bank, along with a letter of instructions indicating whether it
prefers to receive the proceeds in Chilean pesos or in a foreign currency. The Formal Exchange Market entity must in turn verify that the forms submitted by the issuer are in accordance with the documentation relating to the issue and inform the
Central Bank of the operation no later than 11:00 a.m. on the banking business day following the date on which the proceeds of the issue are transferred to the issuer.



If the issuer opts to receive the proceeds of the issue outside of Chile, it must report this to the Central Bank directly
or through a Formal Exchange Market entity within ten days of the date of receipt of proceeds.



Chapter XIV of the Compendium also states that proceeds from the issue, as well as payment of capital and interest relating to the issue must be received and sent from and through the Formal Exchange Market, but
purchases of U.S. dollars in connection with payments on debt securities issued directly by the Company can be made either in the Formal or in the Informal Exchange Market. There can be no assurance, however, that the Company will be able to
purchase U.S. dollars in the Informal Exchange Market or in the Formal Exchange Market at the time or in the amounts required to pay debt service related to any such debt securities. There can also be no assurance that further Central Bank
regulations or legislative changes to the current foreign exchange control regime in Chile would not restrict or prevent the purchase of U.S. dollars by the Company to make payments under the Notes.



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In the case of debt securities issued directly by the Company prior to the effectiveness of the new
regulations, the registration of such issue with the Central Bank grants the Company access to the Formal Exchange Market for the purchase of U.S. dollars necessary to make payments in respect of any such debt securities, but requires that payments
on such debt securities shall only be made with U.S. dollars purchased in the Formal Exchange Market.



The regulations of Chapter XIV of the Compendium do not make any reference to the one-year mandatory deposit in the Central Bank that was previously
required by the former Chapter XIV. However, the Central Bank is authorized, under the Central Bank Act, to impose such requirement.



Debt securities issued through the Companys Panamanian agency



In December 1996, the Company established a registered agency in Panama. The Company may from time to time issue debt
securities directly or through its Panamanian agency depending on, among other factors, whether or not the Company expects to bring the proceeds thereof into Chile. In such cases, the proceeds of such issuance of the notes may be brought into Chile
or held abroad. In either case, however, in accordance with Chapter VIII of the Compendium, the Company must inform the Central Bank of the issuance of international bonds through its agency within 10 days following the disbursement of funds to the
agency, together with the schedule of payments of the notes.



Purchases of U.S. dollars in connection with payments on debt securities issued through its Panamanian agency (whether prior to or after April 19, 2001) can be made either in the Formal or in the Informal Exchange Market. Although the
Company would need to inform the Central Bank of the issuance of debt securities through its Panamanian agency, such communication to the Central Bank would not give the Company access to the Formal Exchange Market for the purchase of U.S. dollars
necessary to make payments in respect of any such debt securities.



There can be no assurance that the Company will be able to purchase U.S. dollars in the Informal Exchange Market or in the Formal Exchange Market at the time or in the amounts required to pay debt service related to any such debt
securities. There can also be no assurance that further Central Bank regulations or legislative changes to the current foreign exchange control regime in Chile would not restrict or prevent the purchase of U.S. dollars by the Company to make
payments under the Notes from Chile.



TAXATION



General



The following summary contains a description of the principal Chilean and
United States federal income tax consequences of the purchase, ownership and disposition of Notes, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase Notes. This
summary does not describe any tax consequences arising under the laws of any state, locality or taxing jurisdiction other than the United States and Chile.



This summary is based on the tax laws of Chile and the United States as in effect on the date of this Form 20-F, as well as regulations, rulings and
decisions of Chile and the United States available on or before such date and now in effect. All of the foregoing are subject to change, which change could apply retroactively and could affect the continued validity of this summary.



Prospective purchasers of the Notes should consult their own tax advisors as
to the Chilean, United States or other tax consequences of the purchase, ownership and disposition of the Notes, including, in particular, the application to their particular situations of the tax considerations discussed below, as well as the
application of state, local, foreign or other tax laws.



There
is currently no tax treaty between the United States and Chile.



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Chilean Taxation



The following is a general summary of the principal consequences under Chilean tax law, as currently in effect of an investment in the Notes made by a
Foreign Holder. Foreign Holder means either:



| |  | in the case of an individual, a person who is neither a resident nor is domiciled in Chile (for purposes of Chilean taxation, an individual holder is resident or domiciled in Chile
if it has resided or has been domiciled in Chile for more than six months in one calendar year, or a total of more than six months in two consecutive fiscal years); or
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | in the case of a legal entity, a legal entity that is not organized under the laws of Chile, unless the Notes are assigned to a branch or a permanent establishment of such entity in
Chile.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Under Chiles Income Tax Law,
payments of interest made from Chile by the Company in respect of the Notes to a Foreign Holder will generally be subject to a Chilean withholding tax assessed at a rate of 4.0% (the Chilean Interest Withholding Tax).



The Company has agreed, subject to specific exceptions and limitations, to
pay to the Foreign Holders of Notes Additional Amounts in respect of the Chilean Interest Withholding Tax mentioned above in order that the interest the Foreign Holder receives, net of the Chilean Interest Withholding Tax, equals the amount which
would have been received by such Foreign Holder in the absence of such withholding. If the Company pays Additional Amounts in respect of such Chilean Interest Withholding Tax, any refunds of such Additional Amounts will be for the account of the
Company. In the event of certain changes in Chilean tax laws requiring the payment by the Company of Additional Amounts in excess of the Additional Amounts that would be payable were payments of interest on the Notes subject to the Chilean Interest
Withholding Tax at a 4.0% rate, the Company has the right to redeem the Notes.



Under existing Chilean law and regulations, a Foreign Holder will not be subject to any Chilean taxes in respect of payments of principal made by the Company with respect to the Notes. Payments by the Company with
respect to the Notes of amounts not considered principal or interest may be subject to a Chilean withholding tax of up to 35%.



The Chilean Income Tax Law provides that a Foreign Holder is subject to income tax on his Chilean source income. For this purpose, Chilean source income
means earnings from activities performed in Chile or from the sale, disposition or other transactions in connection with assets or goods located in Chile. Therefore, any capital gains realized on the sale or other disposition by a Foreign Holder of
the Notes generally will not be subject to any Chilean taxes provided that such sale or other disposition occurs outside Chile.



A Foreign Holder will not be liable for estate, gift, inheritance or similar taxes with respect to its holdings unless Notes held by a Foreign Holder:



| |  | are located in Chile at the time of such Foreign Holders death or at the time the transfer takes place, or
| | - | -----------------------------------------------------------------------------------------------------------



| |  | were purchased or acquired with monies obtained from Chilean sources.
| | - | ---------------------------------------------------------------------



A Foreign Holder will not be liable for Chilean stamp, registration or similar taxes.



The issue of the Notes was subject to stamp tax, which was paid by the Company.



United States Taxation



This summary of certain United States federal income tax considerations deals principally with United States Holders that
will hold Notes as capital assets and whose functional currency is the United States dollar. It does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular investors decision to
purchase Notes and generally does not address the tax treatment of United States



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Holders that may be subject to special tax rules, such as banks, tax-exempt entities, insurance companies, dealers in
securities or currencies, traders in securities electing to mark to market, persons that will hold Notes as a position in a straddle or conversion transaction, or as part of a synthetic security or other integrated financial
transaction, persons that own (or are deemed to own for United States tax purposes) 10% or more of the voting stock of the Company, or persons that are not United States Holders; nor does it address the tax treatment of United States Holders that
did not acquire Notes as part of the initial distribution. As used under this section United States Taxation, the term United States Holder means a beneficial owner of a Note that is a citizen or resident of the United States
or a United States domestic corporation or that otherwise is subject to United States federal income taxation on a net income basis in respect of the Notes.



Taxation of Interest and Additional Amounts



A United States Holder will treat the gross amount of interest and Additional Amounts (i.e., without reduction for Chilean Interest Withholding
Tax, determined utilizing the 4.0% Chilean Interest Withholding Tax rate applicable to all United States Holders of the Notes) as ordinary interest income in respect of the Notes. Any Chilean Interest Withholding Tax paid will be treated as foreign
income taxes eligible for credit against such United States Holders United States federal income tax liability, subject to generally applicable limitations and conditions, or, at the election of such United States Holder, for deduction in
computing such United States Holders taxable income. Interest and Additional Amounts will constitute income from sources outside the United States for foreign tax credit purposes. Such income generally will constitute passive
income or, in the case of certain United States Holders, financial services income. Foreign tax credits may not be allowed for withholding taxes imposed in respect of arrangements in which a United States Holders expected
economic profit is insubstantial. United States Holders should consult their own advisers concerning the implications of these rules in light of their particular circumstances.



The calculation of foreign tax credits and, in the case of a United States Holder that elects to deduct foreign taxes, the
availability of deductions, involves the application of rules that depend on a United States Holders particular circumstances. United States Holders should consult their own tax advisors regarding the availability of foreign tax credits and
the treatment of Additional Amounts.



A Holder of Notes that
is, with respect to the United States, a foreign corporation or a nonresident alien individual (a Non-U.S. Holder) generally will not be subject to United States federal income or withholding tax on interest income or Additional Amounts
earned in respect of Notes, unless such income is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States.



Taxation of Dispositions



Gain or loss realized by a United States Holder on the sale, redemption or other disposition of Notes generally will be treated as capital gain or loss
and such gain or loss will be long-term capital gain or loss if at the time of the disposition, the Notes have been held for more than one year. The net amount of long-term capital gain realized by a United States Holder that is an individual
generally is taxed at a reduced rate. Gain, if any, realized by a United States Holder generally will be treated as U.S. source income for U.S. foreign tax credit purposes.



A Non-U.S. Holder of Notes will not be subject to United States federal income or withholding tax on gain realized on the
sale or other disposition of Notes unless (i) such gain is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States or (ii) in the case of gain realized by an individual Non-U.S. Holder, the Non-U.S.
Holder is present in the United States for 183 days or more in the taxable year of the sale and certain other conditions are met.



Backup Withholding and Information Reporting



Payments of principal, premium, if any, and interest on the Notes, and payment of the proceeds of any disposition of the Notes, made to certain United
States Holders may be subject to U.S. information reporting requirements. In addition, certain United States Holders may be subject to a U.S. backup withholding tax in respect of such payments if they do not provide their taxpayer identification
numbers to the payor or otherwise establish an



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exemption. Non-U.S. Holders generally are exempt from these withholding and reporting requirements, but may be required
to comply with applicable certification and identification procedures in order to establish their eligibility for such an exemption.



DOCUMENTS ON DISPLAY



The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended. In accordance with these requirements, the
Company files reports and other information with the Securities and Exchange Commission. These materials, including this Annual Report and the exhibits thereto, may be inspected and copied at the Commissions Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of the materials may be obtained from the Public Reference Room at the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The public may obtain information on the operation
of the Commissions Public Reference Room by calling the Commission in the United States at 1-800-SEC-0330.



Item 11. Quantitative and Qualitative Disclosures About Market Risk.



The following discussion about Araucos risk management activities includes forward-looking statements that involve risk and uncertainties. Actual
results could differ materially from those projected in such forward-looking statements.



Arauco is exposed to market risk from changes in interest rates and currency exchange rates. Arauco from time to time assesses its exposure and monitors opportunities to manage these risks, including entering into
derivative contracts. On May 8, 2002, Arauco entered into a swap contract in which U.S.$200 million of its 7.75% Notes were swapped for notes bearing an interest rate of LIBOR plus 1.79875%. On May 23, 2003, Arauco entered into a new swap contract
in which the U.S.$200 million of its notes bearing an interest rate of LIBOR plus 1.79875% were swapped for notes bearing a fixed interest rate of 5.506%. On July 2, 2003, Arauco settled U.S.$30 million of the swap contract and on August 27, 2003,
it settled an additional U.S.$40 million, accounting for the profits from the operations as a non-operating income.



In the normal course of business, Arauco also faces risks that are either non-financial or non-quantifiable. Such risks principally include country risk,
credit risk and legal risk and are not represented in the tables below.



INTEREST RATE RISK



Interest rate risk exists
principally with respect to Araucos indebtedness that bears interest at floating rates. At December 31, 2003, Arauco had outstanding approximately U.S.$1,860.1 million of indebtedness, of which approximately 78.4% bore interest at fixed
interest rates and approximately 21.6% bore interest at floating rates of interest. All of the indebtedness was denominated in U.S. dollars as of that date. The interest rate on Araucos variable rate debt is determined by reference to LIBOR.



The following table summarizes the long-term debt obligations,
including 2004 maturities, held by Arauco at December 31, 2003 that are sensitive to changes in interest rates. The table presents the aggregate principal amount of each category of indebtedness maturing in each year, at the weighted average
interest rate for each category of indebtedness. Average interest rates for liabilities are calculated based on the prevailing interest rate at December 31, 2003, for each loan.



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|                                 |  |                                    |   |                                           |      |              |       |  |       |  |       |  |       |  |             |  |         |  |        
|-------------------------------- |  | ---------------------------------- | - | ----------------------------------------- | ---- | ------------ | ----- |  | ----- |  | ----- |  | ----- |  | ----------- |  | ------- |  | -------
|                                 |  | As of December 31, 2003           
|                                 |  | Expected contractual maturity date |   | Total LongTerm Debt(incl. 2004maturities) |      | FairValue(2)
|                                 |  | Average Interest Rate(1)           |   |                                           | 2004 |              | 2005  |  | 2006  |  | 2007  |  | 2008  |  | There-after |  |        
|                                 |  | (U.S.$ equivalent in millions)    
|Long-Term Interest Bearing Debt: |  |                                    |   |                                           |      |              |       |  |       |  |       |  |       |  |             |  |         |  |        
|Fixed Rate                       |  |                                    |   |                                           |      |              |       |  |       |  |       |  |       |  |             |  |         |  |        
|(Ch$-denominated)                |  |                                   |   |                                           |     |              |      |  |      |  |      |  |      |  |            |  |        |  |       
|Variable Rate                    |  |                                    |   |                                           |      |              |       |  |       |  |       |  |       |  |             |  |         |  |        
|(Ch$-denominated)                |  |                                   |   |                                           |     |              |      |  |      |  |      |  |      |  |            |  |        |  |       
|Fixed Rate                       |  |                                    |   |                                           |      |              |       |  |       |  |       |  |       |  |             |  |         |  |        
|(U.S.$-denominated)              |  | 7.17                               | % |                                           |     |              | 175.0 |  |      |  | 100.0 |  |      |  | 1,182.5     |  | 1,457.5 |  | 1,626.9
|Variable Rate                    |  |                                    |   |                                           |      |              |       |  |       |  |       |  |       |  |             |  |         |  |        
|(U.S.$-denominated)              |  | LIBOR + 0.77                       | % |                                           | 0.6  |              | 0.4   |  | 110.5 |  | 160.6 |  | 130.6 |  |            |  | 402.6   |  | 402.6  
|Other currencies                 |  |                                   |   |                                           |     |              |      |  |      |  |      |  |      |  |            |  |        |  |       

---

|(1) | Average interest rate means, for variable rate debt, the weighted average prevailing interest rate at December 31, 2003, on Araucos variable rate debt, and for fixed rate
debt, the weighted average prevailing interest rate at December 31, 2003, on Araucos fixed rate debt.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | These figures were calculated based on the discounted value of future cash flows expected to be received or paid, considering current discount rates that reflect the different risks
involved. See Note 10 to the consolidated financial statements.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



FOREIGN CURRENCY RISK



Araucos principal exchange rate risk involves changes in the value of the euro, the Chilean peso and, to a lesser extent, the Argentine peso relative to the dollar. Arauco generally believes that its foreign currency exposure is not
material to its net income. In 2003, substantially all of Araucos consolidated revenues were denominated in or indexed to foreign currencies. Arauco estimates that a majority of its consolidated costs and expenses are denominated in dollars.
As of December 31, 2003:



| |  | 83.8% of Araucos accounts receivable were denominated in U.S. dollars;
| | - | -----------------------------------------------------------------------



| |  | 62.6% of Araucos short-term investments were denominated in U.S. dollars and 36.8% were denominated in euros, with the balance in Chilean pesos;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  | substantially all of Araucos indebtedness was denominated in U.S. dollars; and
| | - | -------------------------------------------------------------------------------



| |  | a significant portion of Araucos consolidated total assets were denominated in U.S. dollars, with the balance primarily denominated in Chilean pesos.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------



Substantially all of Araucos foreign currency-denominated revenues,
costs and expenses, receivables and indebtedness are denominated in U.S. dollars. As of December 31, 2003, all of Araucos long-term debt was denominated in U.S. dollars. Accordingly, variations in the value of the Chilean peso relative to the
dollar will not have a significant effect in the cost in dollars of Araucos foreign debt service obligations.



Item 12. Description of Securities Other Than Equity Securities.



Not applicable.



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PART II



Item 13. Defaults, Dividend Arrearages and Delinquencies.



Not applicable.



Item 14. Material Modifications to the Rights of Security Holders and the Use of Proceeds.



Not applicable.



Item 15. Controls and Procedures.



As of December 31, 2003, the Company carried out an evaluation under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding
of the controls and procedures. Accordingly, even effective controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon the Companys evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of December 31, 2003, the disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports the Company files and submits under the U.S.
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported as and when required.



There has been no change in the Companys internal control over financial reporting during 2003 that has materially affected, or is reasonably likely
to materially affect, the Companys internal control over financial reporting.



Item 16. [Reserved]



Item 16A. Audit Committee Financial Expert.



We do not have an audit committee. Our board of directors has determined that Felipe Lamarca qualifies as an audit committee financial expert within the meaning of this Item 16A. For a description of Mr.
Lamarcas professional experience, see Item 6. Directors, Senior Management and EmployeesDirectors and Executive Officers.



Item 16B. Code of Ethics.



We
have adopted a code of ethics, as defined in Item 16B of Form 20-F under the Securities Exchange Act of 1934, as amended. Our code of ethics applies to our chief executive officer, chief financial officer, chief accounting officer and finance
manager. Arauco will provide any person without charge, upon request, a copy of such code of ethics. Requests for a copy of the code of ethics may be made to Celulosa Arauco y Constitución S.A., El Golf 150, 14thFloor, Santiago, Chile, Attn: Gianfranco Truffello, tel. (011-562) 461-7200, fax (011-562) 461-7541. If we amend the
provisions of our code of ethics that apply to our chief executive officer, chief financial officer, chief accounting officer and finance manager, or if we grant any waiver of such provisions, we will disclose such amendment or waiver in our annual
report on Form 20-F.



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Item 16C. Principal Accountant Fees and Services.



Audit and Non-Audit Fees



The following table
sets forth the fees billed to us by our independent auditors, PricewaterhouseCoopers, during the fiscal years ended December 31, 2002 and 2003:



|                   |  |                         |     |      |   |    
|------------------ |  | ----------------------- | --- | ---- | - | ---
|                   |  | Year ended December 31,
|                   |  | 2002                    |     | 2003
|                   |  | (U.S.$ in thousands)   
|Audit fees         |  | $                       | 529 |      | $ | 627
|Audit-related fees |  |                         |    |      |   |   
|Tax fees           |  |                         | 48  |      |   | 53 
|Other fees         |  |                         |    |      |   |   
|                   |  |                         |     |      |   |    
|Total fees         |  | $                       | 577 |      | $ | 680
|                   |  |                         |     |      |   |    



Audit fees in the
above table are the aggregate fees billed by PricewaterhouseCoopers in connection with the audit of our annual financial statements in accordance with Chilean GAAP and U.S. GAAP, as well as the review of other filings.



Tax fees in the above table are fees billed by PricewaterhouseCoopers
associated with the issuance of certificates for tax and legal compliance purposes and consultation on the impact of debt restructured by our subsidiary in Argentina.



Audit Committee Approval Policies and Procedures



Our board of directors has not established pre-approval policies and procedures for the engagement of our independent
auditors for services. Our board of directors expressly approves on a case-by-case basis any engagement of our independent auditors for audit and non-audit services provided to our subsidiaries or to us.



Item 16D. Exemptions from the Listing Standards for Audit Committees.



Not applicable.



Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.



Not applicable.



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PART III



Item 17. Financial Statements.



Not applicable.



Item 18. Financial Statements.



See pages F-1 through F-26, incorporated herein by reference.



Item 19. Exhibits



a. List of Financial
Statements



|                                                                                                     |  |     
|---------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                     |  | Page
|Report of the Independent Auditors                                                                   |  | F-2 
|Consolidated Balance Sheets as of December 31, 2002 and 2003                                         |  | F-3 
|Consolidated Statements of Income for the Years Ended December 31, 2001, 2002 and 2003               |  | F-5 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2002 and 2003           |  | F-6 
|Consolidated Statements of Stockholders Equity for the Years Ended December 31, 2001, 2002 and 2003 |  | F-7 
|Notes to consolidated financial statements For the Years Ended December 31, 2001, 2002 and 2003      |  | F-8 



b. List of Exhibits



Documents filed as exhibits to this annual report:



|     |  |                                                                                                                                                  
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|1.1  |  | English translation of the by-laws (estatutos) of Celulosa Arauco y Constitución S.A., dated as of April 29, 2002*                               
|     | 
|6.1  |  | Calculation of earnings per share data and weighted average number of shares outstanding (in millions of shares)                                 
|     | 
|7.1  |  | Calculation of dividends/interest on capital per share data                                                                                      
|     | 
|8.1  |  | List of subsidiaries                                                                                                                             
|     | 
|12.1 |  | Certification of chief executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|     | 
|12.2 |  | Certification of chief financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|     | 
|13.1 |  | Certification of chief executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|     | 
|13.2 |  | Certification of chief financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|     | 
|14.1 |  | Letter from Celulosa Arauco y Constitución S.A. to the SEC regarding Langton Clarke Auditores Consultores Ltda.*                                 
|     | 
|14.2 |  | Valuation and qualifying accounts                                                                                                                

---

|* | Incorporated by reference to our Annual Report on Form 20-F (file no. 33-99720), originally filed with the Commission on June 26, 2002).
|- | ----------------------------------------------------------------------------------------------------------------------------------------



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Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant
certifies that it meets all the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.



CELULOSA ARAUCO Y CONSTITUCIÓN S.A.By:

/s/ Alejandro PérezAlejandro PérezChief Executive OfficerBy:

/s/ Matías DomeykoMatías DomeykoChief Financial Officer




Date: June 28,
2004



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##### Table of Contents

Index of Exhibits.



Documents filed as exhibits to this annual report:



|     |  |                                                                                                                                                  
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|1.1  |  | English translation of the by-laws (estatutos) of Celulosa Arauco y Constitución S.A., dated as of April 29, 2002*                               
|     | 
|6.1  |  | Calculation of earnings per share data and weighted average number of shares outstanding (in millions of shares)                                 
|     | 
|7.1  |  | Calculation of dividends/interest on capital per share data                                                                                      
|     | 
|8.1  |  | List of subsidiaries                                                                                                                             
|     | 
|12.1 |  | Certification of chief executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|     | 
|12.2 |  | Certification of chief financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|     | 
|13.1 |  | Certification of chief executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|     | 
|13.2 |  | Certification of chief financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|     | 
|14.1 |  | Letter from Celulosa Arauco y Constitución S.A. to the SEC regarding Langton Clarke Auditores Consultores Ltda.*                                 
|     | 
|14.2 |  | Valuation and qualifying accounts                                                                                                                

---

|* | Incorporated by reference to our Annual Report on Form 20-F (file no. 33-99720), originally filed with the Commission on June 26, 2002).
|- | ----------------------------------------------------------------------------------------------------------------------------------------



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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES



Consolidated financial statements



December 31, 2003



ThU.S.$ - Thousands of United States dollars



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##### Table of Contents

LOGO



Report of Independent Auditors



To the Board of Directors and Stockholders of

Celulosa Arauco y Constitución S.A.



In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of stockholders equity and of cash flows present
fairly, in all material respects, the financial position of Celulosa Arauco y Constitución S.A. and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the
period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule included under Exhibit 14.2 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



/s/ PricewaterhouseCoopers



Santiago, Chile

February 20, 2004



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##### Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES



Consolidated Balance Sheets



|                                              |  |                      |           |      |   |          
|--------------------------------------------- |  | -------------------- | --------- | ---- | - | ---------
|                                              |  | At December 31,     
|ASSETS                                        |  | 2003                 |           | 2002
|                                              |  | (U.S.$ in thousands)
|CURRENT ASSETS:                               |  |                      |           |      |   |          
|Cash and cash equivalents 1d)                 |  | $                    | 27,275    |      | $ | 49,147   
|Short-term investments 1e)                    |  |                      | 522,793   |      |   | 350,283  
|Trade receivables  net                       |  |                      | 226,470   |      |   | 186,783  
|Other receivables  net (2)                   |  |                      | 70,255    |      |   | 67,893   
|Inventories 1f), (3)                          |  |                      | 236,163   |      |   | 203,089  
|Prepaid expenses and other current assets (4) |  |                      | 71,795    |      |   | 126,288  
|                                              |  |                      |           |      |   |          
|Total current assets                          |  |                      | 1,154,751 |      |   | 983,483  
|                                              |  |                      |           |      |   |          
|LONG-TERM ASSETS:                             |  |                      |           |      |   |          
|Forest 1g)                                    |  |                      | 1,243,638 |      |   | 1,188,013
|Property, plant and equipment  net 1h), (5)  |  |                      | 2,176,701 |      |   | 1,851,240
|Investments in affiliates                     |  |                      | 59,546    |      |   | 20,768   
|Goodwill, net of amortization 1n)             |  |                      | 23,668    |      |   | 23,668   
|Other long-term assets                        |  |                      | 77,723    |      |   | 43,164   
|                                              |  |                      |           |      |   |          
|Total long-term assets                        |  |                      | 3,581,276 |      |   | 3,126,853
|                                              |  |                      |           |      |   |          
|Total assets                                  |  | $                    | 4,736,027 |      | $ | 4,110,336
|                                              |  |                      |           |      |   |          



See Notes to
Financial Statements.



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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES



Consolidated Balance Sheets



|                                                                           |  |                      |           |      |   |          
|-------------------------------------------------------------------------- |  | -------------------- | --------- | ---- | - | ---------
|                                                                           |  | At December 31,     
|LIABILITIES AND STOCKHOLDERS EQUITY                                       |  | 2003                 |           | 2002
|                                                                           |  | (U.S.$ in thousands)
|CURRENT LIABILITIES:                                                       |  |                      |           |      |   |          
|Short-term debt                                                            |  | $                    | 1,368     |      | $ | 32,125   
|Current portion of long-term notes                                         |  |                      | 629       |      |   | 38,057   
|Current portion of long-term bonds 1p)                                     |  |                      |          |      |   | 82,793   
|Accounts payable (6)                                                       |  |                      | 203,898   |      |   | 162,397  
|Accrued liabilities and other current liabilities (7)                      |  |                      | 69,554    |      |   | 61,092   
|                                                                           |  |                      |           |      |   |          
|Total current liabilities                                                  |  |                      | 275,449   |      |   | 376,464  
|                                                                           |  |                      |           |      |   |          
|LONG-TERM LIABILITIES:                                                     |  |                      |           |      |   |          
|Long-term notes (8)                                                        |  |                      | 402,020   |      |   | 252,363  
|Long-term bonds 1p) (8)                                                    |  |                      | 1,457,500 |      |   | 1,157,500
|Deferred income taxes (9)                                                  |  |                      | 152,805   |      |   | 150,214  
|Other long-term liabilities                                                |  |                      | 14,040    |      |   | 10,003   
|                                                                           |  |                      |           |      |   |          
|Total long-term liabilities                                                |  |                      | 2,026,365 |      |   | 1,570,080
|                                                                           |  |                      |           |      |   |          
|MINORITY INTEREST                                                          |  |                      | 13,212    |      |   | 6,127    
|                                                                           |  |                      |           |      |   |          
|STOCKHOLDERS EQUITY:                                                      |  |                      |           |      |   |          
|Common stock (nominal par value, 113,152,446 shares authorized and issued) |  |                      |          |      |   |         
|Paid-in capital                                                            |  |                      | 363,833   |      |   | 363,833  
|Retained earnings                                                          |  |                      | 2,057,168 |      |   | 1,793,832
|                                                                           |  |                      |           |      |   |          
|Total stockholders equity                                                 |  |                      | 2,421,001 |      |   | 2,157,665
|                                                                           |  |                      |           |      |   |          
|Total liabilities and stockholders equity                                 |  | $                    | 4,736,027 |      | $ | 4,110,336
|                                                                           |  |                      |           |      |   |          



See Notes to
Financial Statements.



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##### Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES



Consolidated Statements of Income



|                                                                                           |  |                         |            |   |      |   |           |      |  |   |           |  
|------------------------------------------------------------------------------------------ |  | ----------------------- | ---------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                                                           |  | Year Ended December 31, |           
|                                                                                           |  | 2003                    |            |   | 2002 |   |           | 2001 | 
|                                                                                           |  | (U.S.$ in thousands)    |           
|Net sales (13)                                                                             |  | $                       | 1,458,220  |   |      | $ | 1,188,018 |      |  | $ | 1,173,826 |  
|Operating costs and expenses:                                                              |  |                         |            |   |      |   |           |      |  |   |           |  
|Cost of sales                                                                              |  |                         | (782,793   | ) |      |   | (620,464  | )    |  |   | (689,837  | )
|Depreciation (13)                                                                          |  |                         | (112,636   | ) |      |   | (103,885  | )    |  |   | (119,796  | )
|Selling and administrative                                                                 |  |                         | (105,897   | ) |      |   | (100,515  | )    |  |   | (94,047   | )
|                                                                                           |  |                         |            |   |      |   |           |      |  |   |           |  
|Total operating costs and expenses                                                         |  |                         | (1,001,326 | ) |      |   | (824,864  | )    |  |   | (903,680  | )
|                                                                                           |  |                         |            |   |      |   |           |      |  |   |           |  
|Income from operations                                                                     |  |                         | 456,894    |   |      |   | 363,154   |      |  |   | 270,146   |  
|                                                                                           |  |                         |            |   |      |   |           |      |  |   |           |  
|Non-operating income (expense):                                                            |  |                         |            |   |      |   |           |      |  |   |           |  
|Interest income                                                                            |  |                         | 30,051     |   |      |   | 21,995    |      |  |   | 14,794    |  
|Other income (expense)                                                                     |  |                         | 1,570      |   |      |   | 1,513     |      |  |   | (3,871    | )
|Foreign exchange gains (losses)                                                            |  |                         | 52,353     |   |      |   | 11,668    |      |  |   | (26,058   | )
|Interest expense                                                                           |  |                         | (46,629    | ) |      |   | (61,692   | )    |  |   | (62,362   | )
|                                                                                           |  |                         |            |   |      |   |           |      |  |   |           |  
|Total non-operating income (expense)                                                       |  |                         | 37,345     |   |      |   | (26,516   | )    |  |   | (77,497   | )
|                                                                                           |  |                         |            |   |      |   |           |      |  |   |           |  
|Income before taxes, minority interest and equity in earnings of unconsolidated affiliates |  |                         | 494,239    |   |      |   | 336,638   |      |  |   | 192,649   |  
|Provision for income taxes (9)                                                             |  |                         | (80,574    | ) |      |   | (52,578   | )    |  |   | (12,956   | )
|Minority interest in consolidated subsidiaries                                             |  |                         | (199       | ) |      |   | (267      | )    |  |   | (225      | )
|Equity in earnings of unconsolidated affiliates                                            |  |                         | 6,001      |   |      |   | 2,558     |      |  |   | 1,463     |  
|                                                                                           |  |                         |            |   |      |   |           |      |  |   |           |  
|Net income                                                                                 |  | $                       | 419,467    |   |      | $ | 286,351   |      |  | $ | 180,931   |  
|                                                                                           |  |                         |            |   |      |   |           |      |  |   |           |  



See Notes to
Financial Statements.



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##### Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES



Consolidated Statements of Cash Flows



|                                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|--------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                  |  | Year Ended December 31, |         
|                                                                                  |  | 2003                    |          |   | 2002 |   |          | 2001 | 
|                                                                                  |  | (U.S.$ in thousands)    |         
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|                                                                                  |  |                         |         
|Net income                                                                        |  | $                       | 419,467  |   |      | $ | 286,351  |      |  | $ | 180,931  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                         |          |   |      |   |          |      |  |   |          |  
|Depreciation and amortization                                                     |  |                         | 114,378  |   |      |   | 107,453  |      |  |   | 123,409  |  
|Minority interest in net income of consolidated subsidiaries                      |  |                         | 199      |   |      |   | 267      |      |  |   | 225      |  
|Earnings of unconsolidated affiliates                                             |  |                         | (6,001   | ) |      |   | (2,558   | )    |  |   | (1,463   | )
|Deferred income taxes                                                             |  |                         | 23,782   |   |      |   | 12,243   |      |  |   | 2,222    |  
|Allowance for doubtful accounts                                                   |  |                         | 4,360    |   |      |   | 1,117    |      |  |   | 728      |  
|(Gain) loss on sale of fixed assets                                               |  |                         | 258      |   |      |   | (446     | )    |  |   | (1,622   | )
|Investments and proceeds in trading securities                                    |  |                         | (172,510 | ) |      |   | 70,142   |      |  |   | (267,090 | )
|Decrease (increase) in receivables                                                |  |                         | (44,759  | ) |      |   | 17,665   |      |  |   | (40,832  | )
|Decrease (increase) in inventories                                                |  |                         | (33,074  | ) |      |   | (9,526   | )    |  |   | 32,821   |  
|Decrease (increase) in other assets                                               |  |                         | 305      |   |      |   | (37,841  | )    |  |   | (17,822  | )
|Increase (decrease) in accounts payable                                           |  |                         | 16,709   |   |      |   | 27,145   |      |  |   | (41,068  | )
|Increase (decrease) other liabilities                                             |  |                         | 23,399   |   |      |   | 9,639    |      |  |   | (26,131  | )
|                                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by operating (used in) activities                               |  |                         | 346,513  |   |      |   | 481,651  |      |  |   | (55,692  | )
|                                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|Additions to property, plant and equipment and forest                             |  |                         | (503,233 | ) |      |   | (324,354 | )    |  |   | (226,277 | )
|Proceeds from sales of property, plant and equipment                              |  |                         | 1,528    |   |      |   | 2,590    |      |  |   | 4,862    |  
|Investment in related companies                                                   |  |                         | (61,169  | ) |      |   | (9,400   | )    |  |   | (3,219   | )
|Dividends received from related companies                                         |  |                         | 1,101    |   |      |   | 802      |      |  |   | 480      |  
|                                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash used in investing activities                                             |  |                         | (561,773 | ) |      |   | (330,362 | )    |  |   | (224,154 | )
|                                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|Bonds issued                                                                      |  |                         | 300,000  |   |      |   |         |      |  |   | 400,000  |  
|Bank borrowings                                                                   |  |                         | 182,291  |   |      |   | 34,522   |      |  |   | 315,787  |  
|Debt issue costs                                                                  |  |                         | (2,411   | ) |      |   |         |      |  |   | (7,770   | )
|Payment of notes and bond principal                                               |  |                         | (152,586 | ) |      |   | (87,386  | )    |  |   | (401,954 | )
|Dividends paid                                                                    |  |                         | (133,906 | ) |      |   | (71,702  | )    |  |   | (67,610  | )
|                                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by (used in) financing activities                               |  |                         | 193,388  |   |      |   | (124,566 | )    |  |   | 238,453  |  
|                                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|Net increase (decrease) in cash and cash equivalents                              |  |                         | (21,872  | ) |      |   | 26,723   |      |  |   | (41,393  | )
|                                                                                  |  |                         |         
|Cash and cash equivalents at beginning of year                                    |  |                         | 49,147   |   |      |   | 22,424   |      |  |   | 63,817   |  
|                                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash and cash equivalents at end of year                                          |  | $                       | 27,275   |   |      | $ | 49,147   |      |  | $ | 22,424   |  
|                                                                                  |  |                         |          |   |      |   |          |      |  |   |          |  



See Notes to
Financial Statements.



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##### Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES



Consolidated Statements of Stockholders Equity



|                                                                                                   |  |                                                        |           |   |      |   |           |      |  |   |           |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------ | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                                                                   |  | Year Ended December 31,                                |          
|                                                                                                   |  | 2003                                                   |           |   | 2002 |   |           | 2001 | 
|                                                                                                   |  | (U.S.$ amounts in thousands, except per share amounts) |          
|Common Stock                                                                                       |  |                                                        |           |   |      |   |           |      |  |   |           |  
|Nominal par value (113,152, 446 shares authorized and issued at December 31, 2003, 2002, and 2001) |  |                                                        |          |   |      |   |          |      |  |   |          |  
|                                                                                                   |  |                                                        |          
|Paid in capital                                                                                    |  |                                                        |           |   |      |   |           |      |  |   |           |  
|Balance at beginning of year                                                                       |  | $                                                      | 363,833   |   |      | $ | 363,833   |      |  | $ | 363,833   |  
|Balance at end of year                                                                             |  |                                                        | 363,833   |   |      |   | 363,833   |      |  |   | 363,833   |  
|                                                                                                   |  |                                                        |           |   |      |   |           |      |  |   |           |  
|Retained earnings                                                                                  |  |                                                        |           |   |      |   |           |      |  |   |           |  
|Balance at beginning of year                                                                       |  |                                                        | 1,793,832 |   |      |   | 1,610,952 |      |  |   | 1,468,275 |  
|Net income                                                                                         |  |                                                        | 419,467   |   |      |   | 286,351   |      |  |   | 180,931   |  
|Dividends                                                                                          |  |                                                        | (156,131  | ) |      |   | (103,471  | )    |  |   | (38,254   | )
|                                                                                                   |  |                                                        |           |   |      |   |           |      |  |   |           |  
|Balance at end of year                                                                             |  |                                                        | 2,057,168 |   |      |   | 1,793,832 |      |  |   | 1,610,952 |  
|                                                                                                   |  |                                                        |           |   |      |   |           |      |  |   |           |  
|Total stockholders equity                                                                         |  | $                                                      | 2,421,001 |   |      | $ | 2,157,665 |      |  | $ | 1,974,785 |  
|                                                                                                   |  |                                                        |           |   |      |   |           |      |  |   |           |  



See Notes to
Financial Statements.



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##### Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES



Notes to the Consolidated Financial Statements



NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



a) Nature of operations



Celulosa Arauco y
Constitución S.A., a Chilean corporation (the Company), and its subsidiaries (the Company, together with its subsidiaries, Arauco) are principally engaged in the production of pulp, forestry and wood products, and the
management of their forestry assets. Arauco owns and operates facilities in Chile, Argentina and Uruguay and has customers throughout the world including Asia, Europe, North America and Central and South America.



b) Use of estimates in the preparation of financial statements



The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires management to make 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. Significant items subject to such estimates and assumptions include the carrying value of property, plant and equipment; recoverable forest;
allowance for doubtful accounts; inventories and deferred income tax assets. Actual results could differ from those estimates.



c) Consolidation



The consolidated financial statements include the accounts of the Company and all majority owned subsidiaries in which the Company has voting control.
Inter-company transactions and accounts are eliminated in consolidation. Investments in affiliates, companies in which the Company owned from 20% to 50% of the shares, (directly or indirectly), are accounted for under the equity method. The
Companys share of earnings of such investments is shown in the income statement under the heading Equity in earnings of unconsolidated affiliates.



d) Cash and cash equivalents



Arauco considers all highly liquid securities with maturities of three months or less at the time of purchase to be cash equivalents. Arauco invests its
excess cash in short-term time deposits with high quality financial institutions. These time deposits are included in cash and cash equivalents at fair value. Arauco generally holds these cash investments until maturity and is therefore not subject
to significant market risk. The Company has accounts with a variety of banks and does not hold significant deposits with any single bank.



e) Short-term investments



Araucos short-term investments consist primarily of investments in mutual fund units which are classified as trading securities. These short-term
investments are recorded at fair value with unrealized holding gains and losses included in earnings. Net unrealized holding gains and losses at period end included in interest income for 2003, 2002 and 2001 were U.S.$6.9 million, U.S.$8.0 million
and U.S.$2.1 million, respectively.



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##### Table of Contents

CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES



Notes to the Consolidated Financial Statements



f) Inventories



Inventories of raw materials, work-in-process and spare parts are stated at the lower of cost or market, primarily using the
average cost method. Finished goods are stated at the lower of average production costs for the period or market. Inventory costs include materials, labor, transportation, depreciation of fixed assets and production overhead as appropriate.



g) Forests



Forests are stated at cost of development less the cost of forest harvested.
Forest costs consist primarily of purchased timber, planting, maintenance, protection, and other direct costs related to planting the forest. Direct and indirect interest costs of developing forests are capitalized until the forest is deemed to have
reached a harvestable stage. These capitalized interest costs are included in the historical cost of the forest. Forests do not include any estimated future reforestation costs. The cost of forest harvested is based on the volume of forest harvested
in relation to the estimated volume of forest recoverable. Araucos estimated volume of forest recoverable is based on statistical information and data obtained from physical measurements and other information gathering techniques.



h) Property, plant and equipment



Property, plant, and equipment are stated at cost less accumulated
depreciation. Depreciation of buildings, equipment, and other depreciable assets is primarily determined using the straight-line method. Expenditures that substantially improve and/or increase the useful life of facilities or equipment are
capitalized. Interest costs associated with financing the construction of property, plant and equipment is capitalized. Maintenance and repair costs are expensed as incurred. Profits and losses on the sale of property, plant and equipment are
accounted for as the difference between the book value and the consideration received.



i) Asset impairments



Arauco reviews
long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Losses are recognized when the book values exceed expected undiscounted future net cash flows from the
use and eventual disposition of the asset. These undiscounted cash flows are based upon managements estimate of future cash inflows and outflows. The key assumptions in estimating these cash flows are future pricing of forest and future
estimates of expenses to be incurred. When impairment is indicated, the book values of the assets are written down to their estimated fair value.



j) Income taxes



Arauco uses the asset and liability method of accounting for income taxes. Under this method, the provision for income taxes includes amounts currently
payable and amounts deferred as tax assets and liabilities, based on differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities, and is measured using the enacted tax rates that are assumed will
be in effect when the differences reverse. Deferred tax assets are reduced by a valuation allowance which is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.



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Notes to the Consolidated Financial Statements



k) Derivative financial instruments



To cover risk of exposure to interest rate differences, Arauco utilizes
interest rate swap derivative financial instruments. It has established procedures for assessing risk and approving, reporting and monitoring derivative financial instrument activities. Contracts are recorded on the balance sheet and measured at
fair value. The interest differential paid or received is recognized in interest expense in the period incurred. Arauco does not use hedge accounting treatment or utilize derivative instruments for trading or speculative purposes.



l) Allowance for doubtful accounts



Arauco provides an allowance for doubtful accounts based on a review of the
specific receivables. As of December 31, 2003 and 2002, no single customer accounted for more than 10% of the outstanding balance of accounts receivable. At December 31, 2003 and 2002, the balance in the allowance account for receivables was
U.S.$8.6 million and U.S.$4.2 million, respectively.



m) Currency
translation



The functional currency of the Company and
its subsidiaries is the U.S. dollar. The Company has subsidiaries that maintain their records in local currencies. Because the U.S. dollar is the functional currency, subsidiaries remeasure their financial statements into U.S. dollars using the
historical exchange rates for non-monetary assets and liabilities and shareholders equity accounts. For monetary assets and liabilities the year-end exchange rate prevailing on December 31 of each year is used. The income statement amounts are
remeasured into U.S. dollars at a weighted average exchange rate for the year. Remeasurement gains or losses are recorded in foreign exchange gains (losses) in the income statement.



n) Goodwill



Goodwill is the excess of acquisition cost of a business over the fair value of identifiable net assets acquired. Goodwill and other intangible assets are
deemed to have an indefinite life and are not amortized. However, these indefinite life assets are tested for impairment on an annual basis and when indicators of impairment are determined to exist by applying a fair-value based test.



o) Revenue recognition



Revenues are recorded at the time of shipment of products to the customer. Revenue from inter-segment sales is recorded when
the forest is harvested and sold; such inter-segment sales, which are generally made at prices that approximate market prices, are eliminated in the consolidated financial statements. The following criteria must be met in order to recognize revenue:
(1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the price to the buyer is fixed or determinable; and (4) collection is reasonably assured.



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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES



Notes to the Consolidated Financial Statements



p) Bonds



Bonds are shown at face value plus accrued interest. The discount on, and expenses incurred in, the issue of the bonds are
shown under other current and long- term assets and are amortized using the interest method of amortization over the term of the instruments. Total capitalized costs associated with bonds were U.S.$17.4 million and U.S.$17.5 million at December 31,
2003 and 2002, respectively.



q) Research and development expenses



The cost of research, project development and special
studies are charged to income in the year in which they are incurred. The cost of research and development charged to income was U.S.$1.7 million, U.S.$1.6 million and U.S.$1.5 million for the years ended December 31, 2003, 2002, and 2001
respectively.



r) Software



External direct costs of materials and services consumed in developing or
obtaining internal use computer software are capitalized. Payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal use computer software project and interest costs incurred while developing
internal use computer software are capitalized. Maintenance, training, data conversion and reengineering costs are charged to the results of operations as incurred. Purchased software is capitalized and amortized over the estimated useful life up to
a maximum of three years. Capitalized software assets are classified in Property, plant and equipment.



s) Severance benefit plan



Arauco sponsors a retirement plan that covers certain employees. It has recorded a liability for long-term severance indemnities based on agreements it
has entered into with its employees at certain of its companies in Chile. Generally, upon leaving Arauco, employees who have completed five years of service are entitled to one months salary for each year of service, up to the retirement age
of 60 and 65 years for women and men, respectively. In accordance with Emerging Issues Task Force (EITF) 88-1, Arauco records the undiscounted obligation for this plan as if it was payable at each balance sheet date. Severance expense
for this plan was U.S.$5.4 million, U.S.$1.3 million and U.S.$1.3 million, for fiscal 2003, 2002 and 2001, respectively. The severance liability is recorded in other long-term and current liabilities and amounted to U.S.$14.6 million and U.S.$13.7
million, at December 31, 2003 and 2002, respectively.



t) Acquisitions



On January 2, 2003, the Company acquired 100,000 shares
of EKA Chile S.A. for U.S.$3.5 million and contributed U.S.$25 million equivalent to 800,000 additional shares. As a result, the Company now holds a 50% interest in EKA Chile S.A.



On December 23, 2003, the Companys subsidiary Forestal Celco S.A. acquired 735,042,070 shares of Forestal Celsur S.A.
for U.S.$33 million. As a result, Forestal Celco S.A. now holds a 83.05% controlling interest in Forestal Celsur S.A.



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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES



Notes to the Consolidated Financial Statements



u) Recent accounting pronouncements



Effective January 1, 2003, Arauco adopted SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities (SFAS 146), which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
Liability Recognition for Certain Employees Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring). The adoption of SFAS No. 146 did not have a material effect on Araucos
consolidated financial position, results of operations or cash flows.



Effective January 1, 2003, Arauco adopted FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45
requires that upon issuance of a guarantee, the Company must disclose and may be required to recognize a liability for the fair value of the obligation it assumes under that guarantee. The initial recognition and measurement requirement of FIN 45 is
effective for guarantees issued or modified after December 31, 2002. The adoption of FIN 45 did not have a material effect on Araucos consolidated financial position, results of operations or cash flows.



Effective February 1, 2003, Arauco adopted FASB Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46). FIN 46 (an interpretation of ARB 51) has recently introduced a new consolidation model focused on identifying entities for which a controlling financial interest is
achieved through means other that voting rights. Under this interpretation, a variable interest entity must be consolidated if certain consolidation requirements are met. An enterprise should consolidate an entity if that enterprise has a variable
interest in the entity that will absorb a majority of the entitys expected losses, receive a majority of the entitys expected residual returns, or both. FIN 46, as revised by FIN 46R, was effective on February 1, 2003 for new
transactions and is effective for reporting periods after March 15, 2004 for transactions entered into prior to February 1, 2003. The impact of the adoption of FIN 46 did not have a material effect on Araucos consolidated financial position,
results of operations or cash flows.



In April 2003, the FASB
issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Arauco adopted the provisions of SFAS No. 149 on July 1,
2003. The adoption did not have a material effect on Araucos consolidated financial position, results of operations or cash flows.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.
This Statement establishes standards of how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective July 1, 2003. Arauco adopted the provisions of SFAS No. 150 on July 1, 2003.
The adoption did not have a material effect on Araucos consolidated financial position, results of operations or cash flows.



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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES



Notes to the Consolidated Financial Statements



NOTE 2 - OTHER RECEIVABLES - NET



|                              |  |              |   |  |         |  
|----------------------------- |  | ------------ | - |  | ------- | -
|                              |  | December 31, |  
|                              |  | 2003         |   |  | 2002    |  
|                              |  | ThU.S.$      |   |  | ThU.S.$ |  
|Value added tax receivable    |  | 50,366       |   |  | 56,309  |  
|Related party receivables     |  | 1,663        |   |  |        |  
|Other receivables             |  | 20,225       |   |  | 13,100  |  
|Allowance                     |  | (1,999       | ) |  | (1,516  | )
|                              |  |              |   |  |         |  
|Total other receivables - net |  | 70,255       |   |  | 67,893  |  
|                              |  |              |   |  |         |  



NOTE 3 - INVENTORIES



Inventories were valued in accordance with the policy
described in note 1(f). The principal components were as follows:



|                            |  |              |  |        
|--------------------------- |  | ------------ |  | -------
|                            |  | December 31,
|                            |  | 2003         |  | 2002   
|                            |  | ThU.S.$      |  | ThU.S.$
|Finished goods              |  | 142,669      |  | 133,687
|Work in progress            |  | 3,767        |  | 2,609  
|Sawlogs, pulpwood and chips |  | 22,571       |  | 10,950 
|Raw materials               |  | 54,624       |  | 44,623 
|Other parts and materials   |  | 12,532       |  | 11,220 
|                            |  |              |  |        
|Total inventories           |  | 236,163      |  | 203,089
|                            |  |              |  |        



NOTE 4 - PREPAID EXPENSES AND
OTHER CURRENT ASSETS



|                                                |  |              |  |        
|----------------------------------------------- |  | ------------ |  | -------
|                                                |  | December 31,
|                                                |  | 2003         |  | 2002   
|                                                |  | ThU.S.$      |  | ThU.S.$
|Prepaid freight and other expenses              |  | 30,742       |  | 33,077 
|Deferred tax assets                             |  | 4,256        |  | 25,447 
|Deposits                                        |  |             |  | 32,046 
|Supplies non-production                         |  | 21,175       |  | 16,964 
|Other current assets                            |  | 15,622       |  | 18,754 
|                                                |  |              |  |        
|Total prepaid expenses and other current assets |  | 71,795       |  | 126,288
|                                                |  |              |  |        



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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES



Notes to the Consolidated Financial Statements



NOTE 5 - PROPERTY, PLANT AND EQUIPMENT - NET



|                                          |  |              |      |              |   |      |            |  
|----------------------------------------- |  | ------------ | ---- | ------------ | - | ---- | ---------- | -
|                                          |  | Useful lives |      | December 31, |  
|                                          |  |              | 2003 |              |   | 2002 |           
|                                          |  |              |      | ThU.S.$      |   |      | ThU.S.$    |  
|Land and improvements                     |  |             |      | 377,409      |   |      | 367,674    |  
|Buildings and improvements                |  | 29 years     |      | 1,218,058    |   |      | 1,238,483  |  
|Machinery and equipment                   |  | 10 years     |      | 1,360,481    |   |      | 1,211,599  |  
|Construction in progress                  |  |             |      | 509,730      |   |      | 331,294    |  
|Other                                     |  | 5 years      |      | 266,237      |   |      | 145,325    |  
|                                          |  |              |      |              |   |      |            |  
|                                          |  |              |      | 3,731,915    |   |      | 3,294,375  |  
|Accumulated depreciation                  |  |              |      | (1,555,214   | ) |      | (1,443,135 | )
|                                          |  |              |      |              |   |      |            |  
|Total property, plant and equipment  net |  |              |      | 2,176,701    |   |      | 1,851,240  |  
|                                          |  |              |      |              |   |      |            |  



NOTE 6 - ACCOUNTS PAYABLE



|                                   |  |              |  |        
|---------------------------------- |  | ------------ |  | -------
|                                   |  | December 31,
|                                   |  | 2003         |  | 2002   
|                                   |  | ThU.S.$      |  | ThU.S.$
|Accounts payable - trade           |  | 107,779      |  | 76,514 
|Dividends payable                  |  | 90,911       |  | 66,119 
|Accounts payable - related parties |  | 1,329        |  | 1,935  
|Income tax payable                 |  | 3,879        |  | 17,829 
|                                   |  |              |  |        
|Total accounts payable             |  | 203,898      |  | 162,397
|                                   |  |              |  |        



NOTE 7 - ACCRUED LIABILITIES AND
OTHER CURRENT LIABILITIES



|                                                        |  |              |  |        
|------------------------------------------------------- |  | ------------ |  | -------
|                                                        |  | December 31,
|                                                        |  | 2003         |  | 2002   
|                                                        |  | ThU.S.$      |  | ThU.S.$
|Accrued interest                                        |  | 35,369       |  | 30,498 
|Other accruals                                          |  | 25,012       |  | 24,553 
|Withholding taxes                                       |  | 5,810        |  | 4,930  
|Deferred income                                         |  | 3,363        |  | 1,111  
|                                                        |  |              |  |        
|Total accrued liabilities and other current liabilities |  | 69,554       |  | 61,092 
|                                                        |  |              |  |        



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Notes to the Consolidated Financial Statements



NOTE 8 - LONG-TERM DEBT



|                                          |  |                                  |  |              |      |  |         |  
|----------------------------------------- |  | -------------------------------- |  | ------------ | ---- |  | ------- | -
|Long-term notes                           |  | Interest Rateat December 31,2003 |  | December 31, |     
|                                          |  | 2003                             |  |              | 2002 | 
|                                          |  | %                                |  | ThU.S.$      |      |  | ThU.S.$ |  
|Notes payable:                            |  |                                  |  |              |      |  |         |  
|J.P. Morgan Chase (due in 2008)           |  | LIBOR + 0.85                     |  | 150,000      |      |  |        |  
|Morgan Guarantee Trust Company (due 2003) |  | LIBOR + 0.35                     |  |             |      |  | 37,500  |  
|Argentine Collateral Trust I (due 2006)   |  | LIBOR + 0.725                    |  | 250,000      |      |  | 250,000 |  
|Note payable - Argentina (due in 2008)    |  | LIBOR + 0.625                    |  | 2,649        |      |  | 2,920   |  
|                                          |  |                                  |  |              |      |  |         |  
|Total notes payable                       |  |                                  |  | 402,649      |      |  | 290,420 |  
|Less: current portion                     |  |                                  |  | (629         | )    |  | (38,057 | )
|                                          |  |                                  |  |              |      |  |         |  
|Total long-term notes                     |  |                                  |  | 402,020      |      |  | 252,363 |  
|                                          |  |                                  |  |              |      |  |         |  



The Company obtained a
U.S.$150 million loan from J.P. Morgan Chase in February 2003. The loan is denominated in U.S. dollars, and has a variable interest rate of LIBOR plus 0.85%. Interest payments are due semi-annually, while the loan principal is repayable in five
semi-annual payments, which begin on February 7, 2006. In accordance with the loan, the Company must maintain a minimum interest coverage ratio of 2:1 (on a rolling four-quarter basis), a maximum debt to equity ratio of 1.2:1 and a minimum
consolidated net worth of at least U.S.$2,500 million under Chilean GAAP. The Company was in compliance with these covenants at December 31, 2003.



The Companys subsidiary Alto Paraná S.A. borrowed U.S.$250 million through Argentine Collateral Trust I on June 13, 2001. Interest is payable
semi-annually. The Company has guaranteed repayment of the loan. See note 14.



Arauco has a note payable to the Argentine Tesoro Nacional. The loan was initially obtained by Alto Paraná, a subsidiary of the Company acquired in 1997. The principal amount of the initial loan was U.S.$13
million, payable to Banco Nacional de Desarrollo, and was guaranteed by the Argentine government. The loan was refinanced when Banco Nacional de Desarrollo was taken over by the Argentine government. The note is due in annual installments with final
payment due in 2008. Interest is payable semi-annually in arrears.



The six - month LIBOR at December 31, 2003 and 2002 was 1.22 % and 1.38%, respectively.



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Notes to the Consolidated Financial Statements



|                                               |  |                                         |   |      |                                              |  |           |  
|---------------------------------------------- |  | --------------------------------------- | - | ---- | -------------------------------------------- |  | --------- | -
|Long-term bonds                                |  | AnnualInterest Rateat December 31, 2003 |   |      | Outstanding Principal Amount at December 31, | 
|                                               |  | 2003                                    |   | 2002 |                                             
|                                               |  |                                         |   |      | ThU.S.$                                      |  | ThU.S.$   |  
|Bonds:                                         |  |                                         |   |      |                                              |  |           |  
|                                               |  |                                         |  
|Domestic issue Series A bond due February 2003 |  | 6.00                                    | % |      |                                             |  | 1,413     |  
|Domestic issue Series A bond due December 2003 |  | 6.00                                    | % |      |                                             |  | 874       |  
|Domestic issue Series B bond due December 2003 |  | 6.00                                    | % |      |                                             |  | 291       |  
|U.S.$ bonds (1stissue) due December 2003       |  | 6.75                                    | % |      |                                             |  | 80,215    |  
|U.S.$ bonds (1stissue) due December 2007       |  | 7.00                                    | % |      | 100,000                                      |  | 100,000   |  
|U.S.$ bonds (2ndissue) due September 2005      |  | 6.95                                    | % |      | 175,000                                      |  | 175,000   |  
|U.S.$ bonds (2ndissue) due September 2009      |  | 7.20                                    | % |      | 100,000                                      |  | 100,000   |  
|U.S.$ bonds (2ndissue) due September 2017      |  | 7.50                                    | % |      | 125,000                                      |  | 125,000   |  
|U.S.$ bonds (3rdissue) due August 2010         |  | 8.62                                    | % |      | 270,500                                      |  | 270,500   |  
|U.S.$ bonds (4thissue) due September 2011      |  | 7.75                                    | % |      | 387,000                                      |  | 387,000   |  
|U.S.$ bonds (5thissue) due July 2013           |  | 5.125                                   | % |      | 300,000                                      |  |          |  
|                                               |  |                                         |   |      |                                              |  |           |  
|Total bonds                                    |  |                                         |   |      | 1,457,500                                    |  | 1,240,293 |  
|Less current maturities of long-term bonds     |  |                                         |   |      |                                             |  | (82,793   | )
|                                               |  |                                         |   |      |                                              |  |           |  
|Total long-term bonds                          |  |                                         |   |      | 1,457,500                                    |  | 1,157,500 |  
|                                               |  |                                         |   |      |                                              |  |           |  



In July 2003, the
Company issued U.S.$300 million of 10-year bonds at 5.125% (5th issue). The interest on these bonds is payable semi-annually in arrears.



In September 2001, the Company issued U.S.$400 million of 10-year bonds at 7.75% (4th issue). The interest on these bonds is payable semi-annually in
arrears.



In August 2000, the Company issued U.S.$300 million
of 10-year bonds at 8.62% (3rd issue). The interest on these bonds is payable semi-annually in arrears.



In October 1997, the Company issued U.S.$175 million of 8-year bonds, at 6.95%, U.S.$100 million of 12-year bonds at 7.2% and U.S.$125 million of 20
year-bonds at 7.5% (2nd issue). The interest on these bonds is payable semi-annually in arrears.



In December 1995, the Company issued U.S.$200 million of 8-year bonds at 6.75% and U.S.$100 million of 12-year bonds at 7.0% (1st issue). The interest on
these bonds is payable semi-annually in arrears.



In the period
between October 2002 and December 2002, the Company repurchased and retired approximately U.S.$42.5 million of its 7.75% and 8.62% bonds due in 2011 and 2010, respectively. The bonds were obtained at a premium, resulting in a loss of U.S.$3,006
thousand, net of income taxes. The loss includes the write-off of unamortized capitalized issuance costs associated with these bonds of U.S.$916 thousand. In September 2001 the Company repurchased and retired U.S.$119.8 million of its 6.75% bonds
due in 2003. The bonds were obtained at a premium, resulting in a loss of U.S.$3.9 million, net of income taxes. The loss includes the write-off of unamortized capitalized bond issuance costs of U.S.$967 thousand.



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Notes to the Consolidated Financial Statements





The Company entered into a rate swap agreement in May 2002 with Dresdner Bank A.G. The notional amount of the contract was U.S.$200 million. The Company swapped its fixed interest rate for variable interest. Under the terms of the contract,
the Company pays variable interest at a rate of LIBOR plus 1.79875% and receives interest at a rate equal to 7.75%. This is the rate equal to the 4th bond issue. The interest rate swap settles semi-annually, and the contract terminates in 2011.



The Company entered into a rate swap agreement in May 2003
with JP Morgan Chase Bank. The notional amount of the contract was U.S.$200 million. The company swapped its variable interest rate for fixed interest. Under the terms of the contract, the Company pays fixed interest at a rate of 5.506% and receives
variable interest at a rate of LIBOR plus 1.79875%. The interest rate swap settles semi-annually, and the contract terminates in 2011.



In June and August 2003 the Company made settlements of U.S.$30 million and U.S.$40 million, respectively, of both interest rate swap agreements, leaving
a notional amount of U.S.$130 million for both contracts.



The
weighted average interest rate for all long-term debt at December 31, 2003 and 2002 was approximately 6.05% and 7.73% respectively. Required repayment of principal for long-term debt is as follows:



|                    |  |                              
|------------------- |  | -----------------------------
|                    |  | Year EndedDecember 31,ThU.S.$
|2004                |  | 629                          
|2005                |  | 175,413                      
|2006                |  | 110,493                      
|2007                |  | 260,557                      
|2008                |  | 130,557                      
|2009 and thereafter |  | 1,182,500                    
|                    |  |                              
|Total               |  | 1,860,149                    
|                    |  |                              



Cash paid during 2003,
2002 and 2001 for interest was U.S.$111.5 million, U.S.$113.2 million and U.S.$101.3 million, respectively. The total amount of interest cost incurred by Arauco was U.S.$116.4 million (net of U.S.$21.2 million related to interest rate swaps),
U.S.$115.7 million (net of U.S.$4.0 million related to interest rate swaps), and U.S.$108.4 million for the years ended December 31, 2003, 2002, and 2001, respectively. The amount of interest capitalized for these periods was U.S.$69.7 million,
U.S.$54.0 million, and U.S.$46.1 million, respectively.



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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES



Notes to the Consolidated Financial Statements



NOTE 9 - INCOME TAXES



Provision for income taxes was as follows:



|                                 |  |                         |  |         |   |  |         |  
|-------------------------------- |  | ----------------------- |  | ------- | - |  | ------- | -
|                                 |  | Year ended December 31, | 
|                                 |  | 2003                    |  | 2002    |   |  | 2001    |  
|                                 |  | ThU.S.$                 |  | ThU.S.$ |   |  | ThU.S.$ |  
|Domestic                         |  |                         |  |         |   |  |         |  
|Current                          |  | 56,408                  |  | 40,335  |   |  | 10,653  |  
|Deferred                         |  | 3,507                   |  | 16,257  |   |  | 24,534  |  
|                                 |  |                         | 
|Foreign                          |  |                         |  |         |   |  |         |  
|Current                          |  | 383                     |  |        |   |  | 81      |  
|Deferred                         |  | 20,276                  |  | (4,014  | ) |  | (22,312 | )
|                                 |  |                         |  |         |   |  |         |  
|Total provision for income taxes |  | 80,574                  |  | 52,578  |   |  | 12,956  |  
|                                 |  |                         |  |         |   |  |         |  



The tax effects of significant
temporary differences creating deferred tax assets and liabilities at December 31 were as follows:



|                                |  |              |   |  |          |  
|------------------------------- |  | ------------ | - |  | -------- | -
|                                |  | December 31, |  
|                                |  | 2003         |   |  | 2002     |  
|                                |  | ThU.S.$      |   |  | ThU.S.$  |  
|Deferred income tax liabilities |  |              |   |  |          |  
|                                |  |             
|Inventories                     |  | (5,562       | ) |  | (5,517   | )
|Other                           |  | (11,309      | ) |  | (4,265   | )
|Property, plant and equipment   |  | (184,918     | ) |  | (166,483 | )
|Debt issue costs                |  | (3,078       | ) |  | (3,220   | )
|                                |  |              |   |  |          |  
|Total deferred tax liabilities  |  | (204,867     | ) |  | (179,485 | )
|Deferred income tax asset       |  |              |   |  |          |  
|Accruals                        |  | 32,199       |   |  | 28,823   |  
|Tax loss carry forwards         |  | 5,096        |   |  | 31,404   |  
|Other                           |  | 25,313       |   |  | 19,529   |  
|                                |  |              |   |  |          |  
|Total deferred tax assets       |  | 62,608       |   |  | 79,756   |  
|                                |  |              |   |  |          |  
|Valuation Allowance             |  | (6,290       | ) |  | (25,038  | )
|                                |  |              |   |  |          |  
|Total deferred tax assets - net |  | 56,318       |   |  | 54,718   |  
|                                |  |              |   |  |          |  
|Net deferred tax liability      |  | (148,549     | ) |  | (124,767 | )
|                                |  |              |   |  |          |  



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Notes to the Consolidated Financial Statements



Net long-term deferred tax liabilities were U.S.$152.8 million at December
31, 2003 and U.S.$150.2 million at December 31, 2002. In addition, net short-term deferred tax assets of U.S.$4.2 million at December 31, 2003 and U.S.$25.4 million, at December 31, 2002, are included in the Consolidated Balance Sheets in prepaid
expenses and other current assets.



Cash paid during 2003, 2002
and 2001 for income taxes was U.S.$59.2 million, U.S.$23.2 million and U.S.$36.2 million, respectively.



As of December 31, 2003 and 2002, Arauco had valuation allowances of U.S.$6.3 million and U.S.$25.0 million, respectively, to reduce its deferred tax
assets to estimated realizable value. The valuation allowances relate to the deferred tax assets arising from Argentina.



In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of Araucos
total deferred tax assets will not be realized. The ultimate realization of these deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the
periods in which the temporary differences are anticipated to reverse, management believes it is more likely than not that Arauco will realize the benefits of its deferred tax assets, net of the valuation allowance, at December 31, 2003, as
reductions of future taxable income or by utilizing available tax planning strategies. However, the amount of the net deferred tax assets considered realizable could be adjusted in the future if estimates of taxable income are revised.



At December 31, 2003, Arauco had operating loss carry-forwards of
approximately U.S.$27.5 million. Loss carry-forwards associated with Chile are U.S.$24.3 million, which can be carried forward indefinitely. Loss carry-forwards associated with Argentina are U.S.$3.2 million, which expire in 2007.



The following table summarizes the effect of the differences between the
statutory income tax rate and the effective income tax rates:



|                                                     |  |                         |   |  |         |   |  |         |  
|---------------------------------------------------- |  | ----------------------- | - |  | ------- | - |  | ------- | -
|                                                     |  | Year ended December 31, |  
|                                                     |  | 2003                    |   |  | 2002    |   |  | 2001    |  
|                                                     |  | ThU.S.$                 |   |  | ThU.S.$ |   |  | ThU.S.$ |  
|US GAAP pretax income multiplied by enacted tax rate |  | 82,507                  |   |  | 54,229  |   |  | 29,083  |  
|Change in valuation allowance                        |  | (18,748                 | ) |  | (18,032 | ) |  | (11,398 | )
|Tax effect resulting from foreign subsidiaries       |  | 15,688                  |   |  | 12,795  |   |  | 6,611   |  
|Permanent differences                                |  | 2,099                   |   |  | 4,894   |   |  | (10,114 | )
|Non-taxable income                                   |  | (972                    | ) |  | (1,308  | ) |  | (1,226  | )
|                                                     |  |                         |   |  |         |   |  |         |  
|Effective income tax amount                          |  | 80,574                  |   |  | 52,578  |   |  | 12,956  |  
|                                                     |  |                         |   |  |         |   |  |         |  



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Notes to the Consolidated Financial Statements



The Chilean statutory, first category (corporate) income tax rate was 15% for
all years prior to 2002. The rate was 16% in 2002, 16.5% in 2003 and is scheduled to be 17% in 2004 and thereafter in accordance with currently enacted tax legislation. Also, in accordance with Chilean law, the Company and each of its subsidiaries
compute and pay tax on a separate basis and not on a consolidated basis. The Argentine statutory first category income tax rate was 35% for all years presented.



NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS



The Companys financial instruments include cash and short-term investments, receivables, payables, debt including notes and bonds and interest rate
swap agreements. The estimated fair value of these financial instruments is based on the amount at which such instruments could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. There are
certain limitations inherent in the fair value data since, while the data represents managements best estimates, the data is subjective, involving significant estimates regarding current economic and market conditions.



The methods and assumptions used to estimate the fair values are as follows:



For cash and short-term time deposits, the carrying amounts
approximate the fair value due to the short-term maturity of these instruments. The fair value of short-term investments is estimated based on quoted market prices. The fair value of short-term and long-term debt is estimated based on current
interest rates available to the Company for debt instruments with similar terms, degrees of risk, and remaining maturities. The fair value of the interest-rate swap agreements is obtained from dealer quotes and represents the estimated amount the
Company would receive or pay to terminate the agreements.



The
estimated fair values of the Companys financial instruments are summarized below.



|                       |  |                      |  |                      |  |             |  |                     
|---------------------- |  | -------------------- |  | -------------------- |  | ----------- |  | --------------------
|                       |  | At December 31, 2003 |  | At December 31, 2002
|                       |  | Carrying value       |  | Estimated fair value |  | Carry value |  | Estimated fair value
|                       |  | (ThU.S.$)            |  | (ThU.S.$)           
|Assets                 |  |                      |  |                      |  |             |  |                     
|Cash                   |  | 15,335               |  | 15,335               |  | 29,583      |  | 29,583              
|Time deposits          |  | 11,940               |  | 11,940               |  | 19,564      |  | 19,564              
|Short-term investments |  | 522,793              |  | 522,793              |  | 350,283     |  | 350,283             
|                       |  |                      |  |                     
|Liabilities            |  |                      |  |                      |  |             |  |                     
|Short-term debt        |  | 1,368                |  | 1,368                |  | 32,125      |  | 32,125              
|Notes payable          |  | 402,649              |  | 402,649              |  | 290,420     |  | 290,420             
|Bonds                  |  | 1,457,500            |  | 1,626,900            |  | 1,240,293   |  | 1,381,247           
|                       |  |                      |  |                     
|Derivative instrument  |  |                      |  |                      |  |             |  |                     
|Interest rate swap     |  | 4,161                |  | 4,161                |  | 4,693       |  | 4,693               



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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES



Notes to the Consolidated Financial Statements



NOTE 11 - RELATED PARTY TRANSACTIONS



Arauco enters into fuel purchase contracts with Compañía de
Petróleos de Chile COPEC S.A., a subsidiary of the parent corporation of the Company. Arauco purchased fuel totaling U.S.$14.6 million during 2003 and U.S.$12.1 million in 2002. The terms of these contracts and purchases were generally
similar to those prevailing with unrelated parties.



Arauco
obtains insurance from Compañía de Seguros Generales Cruz del Sur S.A. (Cruz del Sur), a Chilean insurance company controlled by a related party. Cruz del Sur is the supplier of all of Araucos insurance policies
covering its forest holdings and production plants, facilities and equipment. Arauco paid direct insurance premiums of U.S.$11.0 million, U.S.$3.0 million and U.S.$7.2 million for the years ended December 31, 2003, 2002 and 2001, respectively.
Outstanding balances at December 31, 2003 and 2002 with Cruz del Sur included a receivable of U.S.$1.2 million and a payable of U.S.$1.0 million, respectively.



NOTE 12 - CONTINGENCIES AND COMMITMENTS



In the normal course of business, the Company and its subsidiaries are parties to various legal claims, actions and complaints. It is not possible to
predict with certainty whether or not the Company and its subsidiaries will ultimately be successful in any of the legal matters, or if not, what the impact may be. However, Araucos management does not expect that the results in any of these
legal proceedings will have a material adverse effect on Araucos results of operations, financial position or cash flows.



Guarantees



The Company has guaranteed the debt of one of its subsidiaries, Alto Paraná S.A. At December 31, 2003 the outstanding principal amount of the
guaranteed debt totaled U.S.$250 million. This guarantee would require payment by the Company in the event of default by Alto Paraná. The guarantee coincides with the terms of the note and expires in 2008. Arauco has no other material
guarantees.



Covenants



The Companys long-term borrowings require compliance with certain
financial restrictions (see note 8). Non-compliance could result in these debts becoming fully payable upon demand. Arauco was in compliance with all financial covenants at December 31, 2003.



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CELULOSA ARAUCO Y CONSTITUCION S.A. AND SUBSIDIARIES



Notes to the Consolidated Financial Statements



Environmental Proceedings



The Company and its subsidiaries are subject to certain Chilean
environmental laws and regulations. Under such regulations, the Company is required to conduct environmental impact studies of any future projects or activities that may affect the environment. These regulations also establish procedures for private
citizens to object to the plans or studies submitted by project owners. The extent to which such regulations will affect Arauco will depend upon how the authorized Chilean governmental agencies decide to implement such legislation. Enforcement
remedies could include temporary or permanent closure of facilities and fines.



Arauco entered into various projects related to the improvement of, or investment in, product processes designed to protect the environment during the year ended December 31, 2003.



Arauco entered into a project to reduce gases and steam which are a
by-product of the mill production process. Arauco has incurred costs of U.S.$4.3 million through December 31, 2003 and expects to incur an additional U.S.$0.3 million on this project.



The Company entered into environmental protection projects in connection with the Valdivia Mill Construction Project. The
Company has incurred costs of U.S.$15.5 million on this project through December 31, 2003 and expects to incur an additional U.S.$16.4 million on this project.



Arauco has entered into various other environmental projects and incurred costs approximating U.S.$0.5 million. The Company anticipates incurring
additional costs of U.S.$0.2 million associated with these projects.



Other



In December 2002 the
Companys subsidiary Alto Paraná S.A. won a bid for 60,000 hectares of forestry land and plantations sold by the Argentine company Pérez Companc. Alto Paraná S.A. agreed to pay U.S.$40 million, for the land, which is
located in Argentina, a sawmill and other assets located close to Alto Parana S.A.s operations. At December 31, 2003, Arauco had deposited U.S.$10 million in relation to this purchase. At December 31, 2003 the transaction was still subject to
the approval of the Argentine antitrust authorities.



NOTE 13 - SEGMENT
INFORMATION



The Company operates principally in four
identifiable product segments, which comprise the production and sales of goods for (i) pulp products, (ii) forestry products, (iii) wood products and (iv) plywood and fiberboards panels. Pulp products include bleached and unbleached wood pulp
products that result from the processing of pulp logs and chips. Forestry products include sawlogs and pulpwood. Wood products include flitches, sawn timber (lumber) and remanufactured wood products. Plywood and fiberboards panels are consumer
products manufactured at production facilities. Other services and products include mainly forestry services performed by the Company and electricity generation, which began production in late 1996.



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Notes to the Consolidated Financial Statements



Total revenues by segment include sales to unaffiliated customers, as
reported in Araucos consolidated income statement, and inter-segment sales, which are accounted for at invoice price. Corporate expenses are allocated to the pulp segment.



|                                            |  |                              |  |           |  |              |  |                              |  |        |  |                                                        |   |  |             
|------------------------------------------- |  | ---------------------------- |  | --------- |  | ------------ |  | ---------------------------- |  | ------ |  | ------------------------------------------------------ | - |  | ------------
|                                            |  | Year ended December 31, 2003
|                                            |  | (ThU.S.$)                   
|                                            |  | Pulp                         |  | Forestry  |  | WoodProducts |  | Plywood andfiberboardspanels |  | Others |  | Eliminations ofintercompany sales and corporate assets |   |  | Consolidated
|Sales to unaffiliated customers             |  | 709,771                      |  | 33,306    |  | 401,578      |  | 296,941                      |  | 16,624 |  |                                                       |   |  | 1,458,220   
|Inter-segment sales                         |  | 2,666                        |  | 396,212   |  | 192,153      |  | 160,826                      |  | 30,966 |  | (782,823                                               | ) |  |            
|                                            |  |                              |  |           |  |              |  |                              |  |        |  |                                                        |   |  |             
|Total sales revenue                         |  | 712,437                      |  | 429,518   |  | 593,731      |  | 457,767                      |  | 47,590 |  | (782,823                                               | ) |  | 1,458,220   
|                                            |  |                              |  |           |  |              |  |                              |  |        |  |                                                        |   |  |             
|Operating income                            |  | 230,276                      |  | 105,033   |  | 46,844       |  | 71,039                       |  | 3,702  |  |                                                       |   |  | 456,894     
|                                            |  |                              |  |           |  |              |  |                              |  |        |  |                                                        |   |  |             
|Identifiable assets as of December 31, 2003 |  | 2,304,728                    |  | 1,243,308 |  | 310,430      |  | 286,158                      |  | 23,329 |  | 568,074                                                |   |  | 4,736,027   
|                                            |  |                              |  |           |  |              |  |                              |  |        |  |                                                        |   |  |             



|                                            |  |                              |  |           |  |              |  |                              |  |        |  |                                                        |   |  |             
|------------------------------------------- |  | ---------------------------- |  | --------- |  | ------------ |  | ---------------------------- |  | ------ |  | ------------------------------------------------------ | - |  | ------------
|                                            |  | Year ended December 31, 2002
|                                            |  | (ThU.S.$)                   
|                                            |  | Pulp                         |  | Forestry  |  | WoodProducts |  | Plywood andfiberboardspanels |  | Others |  | Eliminations ofintercompany sales and corporate assets |   |  | Consolidated
|Sales to unaffiliated customers             |  | 628,764                      |  | 31,100    |  | 343,938      |  | 178,397                      |  | 5,819  |  |                                                       |   |  | 1,188,018   
|Inter-segment sales                         |  | 2,260                        |  | 356,278   |  | 192,133      |  | 114,319                      |  | 27,917 |  | (692,907                                               | ) |  |            
|                                            |  |                              |  |           |  |              |  |                              |  |        |  |                                                        |   |  |             
|Total sales revenue                         |  | 631,024                      |  | 387,378   |  | 536,071      |  | 292,716                      |  | 33,736 |  | (692,907                                               | ) |  | 1,188,018   
|                                            |  |                              |  |           |  |              |  |                              |  |        |  |                                                        |   |  |             
|Operating income                            |  | 189,929                      |  | 28,890    |  | 50,085       |  | 89,367                       |  | 4,883  |  |                                                       |   |  | 363,154     
|                                            |  |                              |  |           |  |              |  |                              |  |        |  |                                                        |   |  |             
|Identifiable assets as of December 31, 2002 |  | 1,878,910                    |  | 1,095,831 |  | 290,990      |  | 284,863                      |  | 26,178 |  | 533,564                                                |   |  | 4,110,336   
|                                            |  |                              |  |           |  |              |  |                              |  |        |  |                                                        |   |  |             



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Notes to the Consolidated Financial Statements



|                                            |  |                              |  |           |  |              |  |                              |  |        |  |                                                         |   |  |             
|------------------------------------------- |  | ---------------------------- |  | --------- |  | ------------ |  | ---------------------------- |  | ------ |  | ------------------------------------------------------- | - |  | ------------
|                                            |  | Year ended December 31, 2001
|                                            |  | (ThU.S.$)                   
|                                            |  | Pulp                         |  | Forestry  |  | WoodProducts |  | Plywood andfiberboardspanels |  | Others |  | Eliminations of intercompany sales and corporate assets |   |  | Consolidated
|Sales to unaffiliated customers             |  | 705,416                      |  | 33,641    |  | 284,427      |  | 141,120                      |  | 9,222  |  |                                                        |   |  | 1,173,826   
|Inter-segment sales                         |  | 4,243                        |  | 359,796   |  | 160,396      |  | 101,997                      |  | 28,414 |  | (654,846                                                | ) |  |            
|                                            |  |                              |  |           |  |              |  |                              |  |        |  |                                                         |   |  |             
|Total sales revenue                         |  | 709,659                      |  | 393,437   |  | 444,823      |  | 243,117                      |  | 37,636 |  | (654,846                                                | ) |  | 1,173,826   
|                                            |  |                              |  |           |  |              |  |                              |  |        |  |                                                         |   |  |             
|Operating income                            |  | 157,868                      |  | 46,972    |  | 12,154       |  | 45,848                       |  | 7,304  |  |                                                        |   |  | 270,146     
|                                            |  |                              |  |           |  |              |  |                              |  |        |  |                                                         |   |  |             
|Identifiable assets as of December 31, 2001 |  | 1,765,836                    |  | 1,128,749 |  | 251,916      |  | 219,146                      |  | 28,118 |  | 505,492                                                 |   |  | 3,899,257   
|                                            |  |                              |  |           |  |              |  |                              |  |        |  |                                                         |   |  |             



Araucos sales revenue and
long-lived assets, detailed by country, were as follows:



|          |  |                              |  |                              
|--------- |  | ---------------------------- |  | -----------------------------
|          |  | Year ended December 31, 2003
|          |  | (ThU.S.$)                   
|Country   |  | Sales Revenue (*)            |  | Property, plant and equipment
|Chile     |  | 1,256,293                    |  | 1,747,281                    
|Argentina |  | 201,927                      |  | 429,420                      
|          |  |                              |  |                              
|Total     |  | 1,458,220                    |  | 2,176,701                    
|          |  |                              |  |                              



|          |  |                              |  |                             
|--------- |  | ---------------------------- |  | ----------------------------
|          |  | Year ended December 31, 2002
|          |  | (ThU.S.$)                   
|Country   |  | SalesRevenue (*)             |  | Property, plantand equipment
|Chile     |  | 1,036,359                    |  | 1,381,904                   
|Argentina |  | 151,659                      |  | 469,336                     
|          |  |                              |  |                             
|Total     |  | 1,188,018                    |  | 1,851,240                   
|          |  |                              |  |                             



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Notes to the Consolidated Financial Statements



|          |  |                              |  |                             
|--------- |  | ---------------------------- |  | ----------------------------
|          |  | Year ended December 31, 2001
|          |  | (ThU.S.$)                   
|          |  | SalesRevenue (*)             |  | Property, plantand equipment
|Country   |  |                              |  |                             
|Chile     |  | 1,017,840                    |  | 1,222,575                   
|Argentina |  | 155,986                      |  | 430,891                     
|          |  |                              |  |                             
|Total     |  | 1,173,826                    |  | 1,653,466                   
|          |  |                              |  |                             

---

|(*) | Sales revenues are attributed to countries based on the location of the sales office where the sale was recorded.
|--- | -----------------------------------------------------------------------------------------------------------------



Depreciation expense for Araucos segments was summarized as follows:



|                               |  |                         |  |         |  |        
|------------------------------ |  | ----------------------- |  | ------- |  | -------
|                               |  | Year ended December 31,
|                               |  | 2003                    |  | 2002    |  | 2001   
|                               |  | (ThU.S.$)              
|Industry                       |  |                         |  |         |  |        
|Pulp                           |  | 80,103                  |  | 75,447  |  | 94,252 
|Forestry                       |  | 5,118                   |  | 4,078   |  | 2,404  
|Wood products                  |  | 12,501                  |  | 12,122  |  | 11,629 
|Plywood and fiberboards panels |  | 13,103                  |  | 10,249  |  | 9,261  
|Other                          |  | 1,811                   |  | 1,989   |  | 2,250  
|                               |  |                         |  |         |  |        
|Total depreciation             |  | 112,636                 |  | 103,885 |  | 119,796
|                               |  |                         |  |         |  |        



Capital expenditures
for Araucos segments were summarized as follows:



|                               |  |                         |  |         |  |        
|------------------------------ |  | ----------------------- |  | ------- |  | -------
|                               |  | Year ended December 31,
|                               |  | 2003                    |  | 2002    |  | 2001   
|                               |  | (ThU.S.$)              
|Industry                       |  |                         |  |         |  |        
|Pulp                           |  | 379,109                 |  | 235,689 |  | 110,392
|Forestry                       |  | 88,965                  |  | 40,522  |  | 53,319 
|Wood products                  |  | 20,719                  |  | 13,899  |  | 21,960 
|Plywood and fiberboards panels |  | 23,074                  |  | 37,689  |  | 36,883 
|Other                          |  | 1,072                   |  | 3,005   |  | 1,277  
|                               |  |                         |  |         |  |        
|Total capital expenditures     |  | 512,939                 |  | 330,804 |  | 223,831
|                               |  |                         |  |         |  |        



Non cash capital expenditure activity
was U.S.$(9.7) million, U.S.$(6.4) million and U.S.$2.4 million for the years ended December 31, 2003, 2002 and 2001, respectively.



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Notes to the Consolidated Financial Statements



Araucos export sales detailed by major geographic area were as follows:



|                                                    |  |                         |   |  |           |   |  |         |  
|--------------------------------------------------- |  | ----------------------- | - |  | --------- | - |  | ------- | -
|                                                    |  | Year ended December 31, |  
|                                                    |  | 2003                    |   |  | 2002      |   |  | 2001    |  
|                                                    |  | (ThU.S.$)               |  
|North America                                       |  | 339,791                 |   |  | 316,784   |   |  | 188,400 |  
|Central and South America                           |  | 141,879                 |   |  | 161,863   |   |  | 155,467 |  
|Asia                                                |  | 453,801                 |   |  | 341,922   |   |  | 442,369 |  
|Europe                                              |  | 243,990                 |   |  | 182,858   |   |  | 192,158 |  
|Other                                               |  | 56,333                  |   |  | 23,162    |   |  | 10,582  |  
|                                                    |  |                         |   |  |           |   |  |         |  
|Total export sales                                  |  | 1,235,794               |   |  | 1,026,589 |   |  | 988,976 |  
|                                                    |  |                         |   |  |           |   |  |         |  
|Export sales as a percentage of total sales revenue |  | 84.75                   | % |  | 86.41     | % |  | 84.25   | %



NOTE 14 - SUBSEQUENT EVENTS



On January 22, 2004, the Companys subsidiary Alto
Parana S.A. completed a restructuring of its debt (see note 8), establishing new terms as follows:



Due date: December 12, 2008



Interest Rate: LIBOR + 6.50%



It was also decided to terminate the irrevocable and unconditional guarantee granted by Arauco related to the Notes issued by the Argentine Collateral
Trust I financial trust that was formed on June 13, 2001 under the laws of the Republic of Argentina.



Simultaneously, through an offshore custodial vehicle, Arauco offered to the holders of the amended Notes due 2008, a new full, unconditional and
irrevocable guarantee, not meaningful in the event of any failure to meet the obligations related to the Notes.



In a meeting held on January 29, 2004, Chief Executive Officer informed the Board of Directors that the construction of the Valdivia Pulp Mill, the
Companys principal investment in the last decade, had been completed. Also on January 29, 2004, the Board of Directors was informed that the Valdivia Pulp Mill had begun production.



No other events have occurred since December 31, 2003 and up to the issue of these financial statements that may affect
significantly the financial situation of Arauco.



F-26