================================================================================

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

                                   ----------
                                    FORM 20-F
                                   ----------

(Mark One)

|_|   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, 2002

                                       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 1-14656

                                  Quinenco S.A.
             (Exact name of Registrant as specified in its charter)

                                       N/A
                 (Translation of Registrant's name into English)

                                Republic of Chile
                 (Jurisdiction of incorporation or organization)

         Enrique Foster Sur 20, 14th Floor, Las Condes, Santiago, Chile
                    (Address of principal executive offices)

                                   ----------

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

<TABLE>
<CAPTION>
                 Title of each class                                  Name of each exchange on which registered
                 -------------------                                  -----------------------------------------
<S>                                                                           <C>
     American Depositary Shares representing Common Stock                     New York Stock Exchange
     Common Stock, without par value                                          New York Stock Exchange*
</TABLE>

----------
*     Not for trading, but only in connection with the registration of American
      Depositary Shares which are evidenced by American Depositary Receipts.

Securities registered or to be registered pursuant to Section 12(g) of the Act.
                                 Not applicable

        Securities for which there is a reporting obligation pursuant to
                           Section 15(d) of the Act.
                                 Not applicable

      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.

    Common stock, without par value...........................1,079,740,079

      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|

================================================================================
<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                        Page
                                                                                                        ----
<S>                                                                                                      <C>
INTRODUCTION..............................................................................................ii

           INCORPORATION BY REFERENCE....................................................................iii
           EXCHANGE RATES AND CURRENCY...................................................................iii
           PRESENTATION OF MARKET SHARE AND OTHER INFORMATION.............................................iv
           FORWARD-LOOKING STATEMENTS.....................................................................vi

PART I.....................................................................................................1

           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.............................................................8
           Item 5.  Operating and Financial Review and Prospects..........................................70

Contractual Obligations and Commercial Commitments.......................................................109

           Contractual Commitments.......................................................................109
           Commercial Commitments........................................................................109
           Item 6.  Directors, Senior Management and Employees...........................................110
           Item 7.  Major Shareholders and Related Party Transactions....................................119
           Item 8.  Financial Information................................................................121
           Item 9.  The Offer and Listing................................................................125
           Item 10. Additional Information...............................................................129
           Item 11. Quantitative and Qualitative Disclosures About Market Risk...........................139
           Item 12. Description of Securities Other than Equity Securities...............................142

PART II..................................................................................................142

           Item 13. Defaults, Dividend Arrearages and Delinquencies......................................142
           Item 14. Material Modifications of the Rights of Security Holders and Use of Proceeds.........142
           Item 15. (Reserved)...........................................................................142
           Item 16. (Reserved)...........................................................................142

PART III.................................................................................................142

           Item 17. Financial Statements.................................................................142
           Item 18. Financial Statements.................................................................142
           Item 19. Exhibits.............................................................................143
</TABLE>


                                      i
<PAGE>

                                  INTRODUCTION

      Quinenco S.A. is a sociedad anonima abierta (open stock corporation)
organized under the laws of the Republic of Chile ("Chile"). Unless the context
otherwise requires, references herein to "Quinenco" are to Quinenco S.A. and
references herein to the "Company" are to Quinenco together with its
consolidated subsidiaries and the companies in which Quinenco holds significant
non-consolidated equity interests. Unless the context otherwise requires:

o     "Madeco" refers to Madeco S.A., a consolidated subsidiary 53.4%-owned and
      76.8%-owned by Quinenco, together with Madeco's consolidated subsidiaries
      as of December 31, 2002 and June 6, 2003, respectively.

o     "Telsur" refers to Compania Nacional de Telefonos, Telefonica del Sur
      S.A., a consolidated subsidiary, 73.6%-owned by Quinenco through its
      subsidiary VTR S.A. ("VTR"), together with Telsur's consolidated
      subsidiaries.

o     "Lucchetti" refers to Empresas Lucchetti S.A., a 93.7%-owned consolidated
      subsidiary of Quinenco, together with Lucchetti's consolidated
      subsidiaries.

o     "Hoteles Carrera" refers to Hoteles Carrera S.A., an 89.9%-owned
      consolidated subsidiary of Quinenco.

o     "CCU" refers to Compania Cervecerias Unidas S.A., in which Quinenco owns
      an indirect 30.8% non-consolidated equity interest, together with CCU's
      consolidated subsidiaries.

o     "LQIF" refers to LQ Inversiones Financieras S.A., a 99.9%-owned
      consolidated subsidiary of Quinenco.

o     "Banco de Chile" refers to Banco de Chile, a 52.2% non-consolidated
      subsidiary of Quinenco, together with its consolidated subsidiaries.

o     "Habitaria" refers to Habitaria S.A., in which Quinenco owns a 50.0%
      non-consolidated equity interest, together with Habitaria's consolidated
      subsidiaries.

o     "Entel" refers to Empresa Nacional de Telecomunicaciones S.A., in which
      Quinenco owned a 5.7% non-consolidated equity interest as of December 31,
      2002.

o     "Banco Edwards" refers to Banco de A. Edwards, a 51.2%-owned
      non-consolidated subsidiary of Quinenco, together with its consolidated
      subsidiaries as of December 31, 2000 and 2001. Effective January 1, 2002,
      Banco Edwards was merged into Banco de Chile, which is the surviving
      entity.

o     "Plava Laguna" refers to Plava Laguna d.d., in which Quinenco owned a
      39.4% non-consolidated equity interest until August 20, 2001. On that
      date, Quinenco completed the divestiture of its 39.4% interest in Plava
      Laguna.

      Unless otherwise indicated, references herein to Quinenco's percentage
ownership of Madeco, Telsur, Lucchetti, Hoteles Carrera, CCU, Banco Edwards,
Habitaria, Entel and Plava Laguna are to the percentage of the effective
economic interest owned by Quinenco, and in certain cases, by intermediate
holding companies of Quinenco. References herein to Quinenco's percentage
ownership of Banco de Chile are to the percentage of voting rights owned by
Quinenco, either directly or through intermediate holding companies. See "Item
5. Operating and Financial Review and Prospects".

      The condensed financial statements of Telsur, Lucchetti, Hoteles Carrera
and Habitaria set forth in Item 4 of this Annual Report are derived from the
financial statements of the respective companies which, as of and for the years
ended December 31, 2000, have been audited by PricewaterhouseCoopers, as of and
for the year ended December 31, 2001 and 2002 have been audited by Ernst & Young
Servicios Profesionales de Auditoria y Asesoria Limitada ("Ernst & Young
Limitada").


                                       ii
<PAGE>

      The condensed financial statements of Madeco set forth in Item 4 of this
Annual Report are derived from the financial statements of Madeco, which, as of
and for the years ended December 31, 2000, 2001 and 2002, have been audited by
Deloitte & Touche.

      The condensed financial statements of Banco de Chile set forth in Item 4
of this Annual Report are derived from the financial statements of Banco de
Chile, which, as of and for the years ended December 31, 2000, 2001 and 2002,
have been audited by Ernst & Young Limitada.

      The condensed financial statements of CCU set forth in Item 4 of this
Annual Report are derived from the financial statements of CCU, which, as of and
for the years ended December 31, 2000, 2001 and 2002 have been audited by
PricewaterhouseCoopers.

      The condensed financial statements of Entel set forth in Item 4 of this
Annual Report are derived from Entel's Annual Report corresponding to the year
2002, the financial statements of which, as of and for the years ended December
31, 2000, 2001 and 2002 have been audited by Deloitte & Touche.

                            REQUESTS FOR INFORMATION

      Written requests for copies of this Annual Report should be directed to
Quinenco S.A., Enrique Foster Sur 20, 15th Floor, Las Condes, Santiago, Chile,
Attention: Cindi Freeman, Investor Relations Officer. Facsimile requests may be
sent to (56-2) 245-6241. Telephone requests may be directed to (56-2) 750-7221
or (56-2) 750-7100. Email requests may be directed to cfreeman@lq.cl. Additional
information, including this Annual Report, may be found on the Company's website
at www.quinenco.cl or www.quinencogroup.com. The contents of the Company's
website are not incorporated into this Annual Report.

                           INCORPORATION BY REFERENCE

      The Company incorporates by reference in this Annual Report on Form 20-F
(1) Banco de Chile's financial statements at December 31, 2000, 2001 and 2002
and for the years ended December 31, 2000, 2001 and 2002 which are included as
Item 18 of Banco de Chile's Annual Report on Form 20-F for the year ended
December 31, 2002 ("Banco de Chile's Annual Report) and (2) Banco de Chile's
Guide 3 Data which is included in Item 4 of such Annual Report "Information on
the Company - Selected Statistical Information". (3) Banco Edwards' financial
statements at December 31, 2000 and 2001 and for the years ended December 31,
2000 and 2001 which are included as Item 18 of Banco Edwards' Annual Report on
Form 20-F for the year ended December 31, 2001 ("Banco Edwards' Annual Report"),
(4) Banco Edwards' Guide 3 Data which is included in Item 4 of such Annual
Report "Information on the Company - Selected Statistical Information".

                           EXCHANGE RATES AND CURRENCY

      Quinenco prepares its financial statements in Chilean pesos and in
conformity with Chilean generally accepted accounting principles ("Chilean
GAAP"). Chilean GAAP as applied to Quinenco differs in certain important
respects from generally accepted accounting practices in the United States of
America ("U.S. GAAP"). See Note 27 to the audited consolidated financial
statements of the Company at December 31, 2001 and 2002 and for the years ended
December 31, 2000, 2001 and 2002 (together with the notes thereto, the
"Consolidated Financial Statements") contained elsewhere in this Annual Report
for a description of the principal differences between Chilean GAAP and U.S.
GAAP as they relate to the


                                      iii
<PAGE>

Company and a reconciliation to U.S. GAAP of net income and total shareholders'
equity for the periods and as of the dates therein indicated.

      Unless otherwise indicated, financial data for all periods included in the
Consolidated Financial Statements and elsewhere throughout this Annual Report
have been restated in constant Chilean pesos as of December 31, 2002. See Notes
2(b) and 3 to the Consolidated Financial Statements. Transactions which are
described herein and which have taken place during 2003 are stated in Chilean
pesos as of the transaction date, unless otherwise indicated.

      In this Annual Report, references to "U.S. dollars", "dollars", "$" or
"US$" are to United States dollars, references to "pesos" or "Ch$" are to
Chilean pesos, and references to "UF" are to Unidades de Fomento, which are
inflation-indexed, peso-denominated monetary units. The UF rate is set daily in
advance based on changes in the previous month's inflation rate in Chile. See
Note 2(b) to the Consolidated Financial Statements. Percentages and certain
dollar and peso amounts contained herein have been rounded for ease of
presentation. Due to the effects of rounding, certain totals may not appear to
directly reflect the sums of their components. This Annual Report contains
translations of certain peso amounts into U.S. dollars at specified rates solely
for the convenience of the reader. These translations should not be construed as
representations that the peso amounts actually represent such dollar amounts or
could be converted into dollars at the rate indicated. Unless otherwise
indicated, such U.S. dollar amounts have been translated from pesos based on the
Dolar Observado (the "Observed Exchange Rate") reported by the Banco Central de
Chile (the "Central Bank of Chile" or "Central Bank") for December 31, 2002,
which was Ch$718.61 = US$1.00. The Federal Reserve Bank of New York does not
report a noon buying rate for pesos. The Observed Exchange Rate for June 17,
2003 was Ch$ 705.24 = per US$1.00.

               PRESENTATION OF MARKET SHARE AND OTHER INFORMATION

      The market share and other operating and statistical data contained in
this Annual Report have been compiled by the Company based upon statistics and
other information obtained from several third-party sources.

      Market shares of bank loans, risk indexes and other operating and
statistical data for the financial services industry in Chile are estimated by
the Company based on information published by the Chilean Superintendency of
Banks and Financial Institutions ("SBIF").

      CCU's estimates of market share are based on statistics published or made
available by the single market research company that conducts store audits in
Chile, A.C. Nielsen Chile S.A. ("Nielsen"), in the case of beer, soft drinks,
mineral water and wine sales in Chile; the Camara de la Industria Cervecera
Argentina (Argentine Beer Industry Chamber, or "CICA") in the case of beer sales
in Argentina; the Croatian Beer Industry Association in the case of beer sales
in Croatia; the Asociacion Nacional de Bebidas Refrescantes (National
Association of Soft Drinks, or "ANBER") in the case of soft drinks and mineral
water; the Servicio Agricola Ganadero (Agricultural and Livestock Service, or
"SAG") in the case of wine sales in Chile; and the Asociacion de Vinas de Chile,
A.G. (the "Wineries of Chile Association") in the case of Chilean wine exports.
The Company believes that, due to the methodologies used, the statistics
provided by these sources in some cases do not accurately reflect the Company's
market share or industry sales volumes. For example, the Nielsen sampling base
includes only the metropolitan areas of Chile and not the rural areas of the
country, where the Company believes its beer market share is higher than in the
metropolitan areas, due to its distribution system. Likewise, the sales of two
of the Company's Argentine competitors are not reflected in CICA's statistics
because these two companies are not members of CICA.


                                       iv
<PAGE>

Similarly, data regarding the size of the Chilean soft drink and mineral water
markets and market shares do not coincide with publicly available information of
sales volume of the Company and its competitors. As a consequence, the Company
has revised the share estimates from the sources identified below for Chilean
and Argentine beer sales and soft drink and mineral water sales to reflect what
it believes is a more accurate measure of market shares, taking into account (i)
reports published by the Instituto Nacional de Estadisticas (the Chilean
National Institute of Statistics, or the "INE"), (ii) the Company's internal
sales data, (iii) sales information filed publicly by the Company's competitors,
(iv) equity research analyst reports and (v) import and export reports made
available by Chilean and Argentine customs authorities. However, the Company's
revised estimates have not been confirmed by independent sources. Certain
amounts (including percentage amounts) which appear herein have been rounded and
may not sum exactly to the totals shown.

      Market share, volume and consumption data with respect to Lucchetti's food
products business in Chile are based on data supplied by Nielsen Chile. Because
Nielsen Chile's reports primarily cover supermarket volume sales in the Santiago
Metropolitan Region and urban centers in the remaining regions of Chile, the
Company's estimates of market share for its food products in the country as a
whole are based in part on information made public by the Company's competitors
and on its own periodic analysis. Consumption and market share data for the
Company's pasta businesses in Peru and Argentina are estimated by the Company on
the basis of information supplied by Samimp S.A. and A.C. Nielsen Argentina
S.A., respectively.

      The Company estimates market share and other operating and statistical
data with respect to its telecommunications business in Chile on the basis of
information supplied by the Chilean Undersecretary of Telecommunications and on
its own analysis of information provided by market participants, primarily
Compania de Telecomunicaciones de Chile ("Telefonica CTC"), the leading
telephony provider in Chile.

      The Company bases its estimates of market share and other operating and
statistical data with respect to Madeco's manufacturing businesses on its own
analysis of available information which includes: (i) Madeco's internal
production and sales data; (ii) import and export reports made available by
customs' authorities in each country in which Madeco operates; (iii) copper
sales reports from the Corporacion Chilena del Cobre (The Chilean Copper
Corporation); (iv) production reports from Madeco's suppliers of copper rods;
(v) import and export reports provided by Central Banks; (vi) sales information
filed publicly by some of Madeco's competitors; and (vii) information informally
obtained from market participants and Madeco's suppliers. No third parties or
other independent companies have provided estimates or confirmed Madeco's market
share calculations and estimates. Sources that use methodologies which are not
identical to Madeco's may produce different results.

      Occupancy rates and market share data for the Company's hotel business are
estimated by the Company on the basis of information collected from market
participants.

      Habitaria bases its market share estimates on figures provided by the
Camara Chilena de la Construccion (The Chilean Construction Commerce) and on
reports and analysis generated internally.

      Unless otherwise specified, per capita consumption data for countries in
which the Company operates and all regions within them are based on relevant
volume and consumption information provided by the sources described in this
section and on data derived by the Company from the most recent public censuses
of populations.


                                       v
<PAGE>

      Sources other than the Company use methodologies which are not identical
to the Company's and may produce results that differ from the Company's own
estimates.

                           FORWARD-LOOKING STATEMENTS

      This Annual Report includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These statements relate
to analyses and other information which are based on forecasts of future results
and estimates of amounts not yet determinable. They also relate to the Company's
future prospects, development and business strategies.

      These forward-looking statements are identified by the use of terms and
phrases such as "anticipates", "believes", "could", "expects", "intends", "may",
"plans", "predicts", "projects", "will" and similar terms and phrases. The
Company cautions the reader that actual results could differ materially from
those expected by the Company, depending on the outcome of certain factors,
including, without limitation (1) adverse changes in the Chilean economy with
respect to the rates of inflation and economic growth, currency devaluations and
other factors, (2) adverse changes in the international markets for the
Company's products, including markets in other Latin American countries, such as
Brazil and Argentina, as well as markets in Asia and (3) other factors discussed
under "Item 4B. Business Overview", "Item 5. Operating and Financial Review and
Prospects" and "Item 7A. Major Shareholders" herein. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date hereof. The Company undertakes no obligation to release publicly the
result of any revisions to these forward-looking statements which may be made to
reflect events or circumstances after the date hereof, including, without
limitation, changes in the Company's business strategy or planned capital
expenditures, or to reflect the occurrence of unanticipated events.


                                       vi
<PAGE>

                                     PART I

Item 1. Identity of Directors, Senior Management and Advisers

      Not applicable.

Item 2. Offer Statistics and Expected Timetable

      Not applicable.

Item 3. Key Information

A. Selected Financial Data

      The selected consolidated financial information for the Company included
in the following table should be read in conjunction with, and is qualified in
its entirety by reference to, the Consolidated Financial Statements of the
Company, including the notes thereto, appearing elsewhere in this Annual Report.
The summary financial data for the Company as of and for the years ended
December 31, 1998, 1999 and 2000 is derived from the Consolidated Financial
Statements of the Company appearing elsewhere in this Annual Report, which have
been audited by PricewaterhouseCoopers, independent accountants. The summary
financial data for the Company for the years ended December 31, 2001 and 2002 is
derived from the Consolidated Financial Statements of the Company, which have
been audited by Ernst & Young Limitada. The reports of Ernst & Young Limitada
and PricewaterhouseCoopers on the Consolidated Financial Statements of the
Company appear elsewhere in this Annual Report.

      The Consolidated Financial Statements of the Company have been prepared in
accordance with Chilean GAAP, which differs in certain material respects from
U.S. GAAP. Note 27 to the Consolidated Financial Statements provides a
description of the principal differences between Chilean GAAP and U.S. GAAP as
they relate to the Company and a reconciliation to U.S. GAAP of net income and
shareholders' equity for the periods and as of the dates covered thereby.

      In accordance with Chilean GAAP, financial data included in the
Consolidated Financial Statements have been restated in constant Chilean pesos
of December 31, 2002. See Notes 2(b) and 3 to the Consolidated Financial
Statements.


                                       1
<PAGE>

<TABLE>
<CAPTION>
                                                                   At or for the Year Ended December 31,
                                           ----------------------------------------------------------------------------------------
                                                 1998           1999            2000           2001            2002            2002
                                                 ----           ----            ----           ----            ----            ----
                                              (in millions of constant Ch$ or thousands of U.S. dollars, except per share amounts)
<S>                                        <C>            <C>             <C>            <C>             <C>             <C>
QUINENCO CONSOLIDATED
Income Statement Data:
Chilean GAAP:
Net sales                                  Ch$614,834     Ch$452,157      Ch$479,743     Ch$488,258      Ch$396,299      US$551,479
Cost of sales                                (443,046)      (367,879)       (383,003)      (387,902)       (315,942)       (439,656)
Administrative and selling expenses          (120,420)      (106,599)        (80,095)       (82,315)        (70,080)        (97,522)
                                           ----------     ----------      ----------     ----------      ----------      ----------
Operating income (loss)                        51,368        (22,321)         16,645         18,041          10,277          14,301
Operating income (loss) per share            Ch$47.57      Ch$(20.67)       Ch$15.42       Ch$16.71         Ch$9.52        US$13.24
Interest income                                21,447         21,600           9,041          8,178           5,348           7,442
Non-operating income                           53,148        294,392          35,325        106,024          33,542          46,677
Interest expense                              (52,323)       (44,430)        (39,242)       (60,779)        (50,727)        (70,591)
Non-operating expense                         (14,930)       (56,560)        (36,139)       (71,879)        (85,688)       (119,241)
Price-level restatement gain (loss)            (8,341)        13,988          (6,343)       (10,951)         (8,896)        (12,379)
                                           ----------     ----------      ----------     ----------      ----------      ----------
Non-operating results (1)(2)(3)(4)(5)            (999)       228,990         (37,358)       (29,407)       (106,421)       (148,092)
                                           ----------     ----------      ----------     ----------      ----------      ----------
Income (loss) before taxes and
minority interests                             50,369        206,669         (20,713)       (11,366)        (96,144)       (133,791)
Income taxes                                   (7,645)       (23,791)          7,541          4,893             142             197
                                           ----------     ----------      ----------     ----------      ----------      ----------
Income (loss) before minority interest         42,724        182,878         (13,172)        (6,473)        (96,002)       (133,594)
Minority interest                             (12,678)        (4,639)          7,174         22,448          20,522          28,558
                                           ----------     ----------      ----------     ----------      ----------      ----------
Net income (loss)                           Ch$30,046     Ch$178,239       Ch$(5,998)     Ch$15,975      Ch$(75,480)    US$(105,036)
                                           ==========     ==========      ==========     ==========      ==========      ==========
Net income (loss) per share                  Ch$27.83      Ch$165.08        Ch$(5.55)      Ch$14.80       Ch$(69.91)      US$(97.28)
Dividends per share                          Ch$34.91        Ch$8.29        Ch$48.37          Ch$--         Ch$5.89         US$0.01
U.S. GAAP:
Net sales (Non-financial services)         Ch$614,833     Ch$452,157      Ch$479,744     Ch$488,241      Ch$395,655      US$550,584
Net interest revenue and expenses
(Financial services) (2)(3)                        --         26,746         108,008        319,841         391,695         545,073
Net income (loss)                            Ch$4,860     Ch$189,408      Ch$(20,493)     Ch$11,243      Ch$(73,579)    US$(102,391)
Net income (loss) per share                   Ch$4.50      Ch$175.42       Ch$(18.98)      Ch$10.41       Ch$(68.18)      US$(0.095)

Balance Sheet Data: (at year end)
Chilean GAAP:
Cash and cash equivalents                  Ch$166,015     Ch$135,665      Ch$139,498      Ch$54,501       Ch$93,087      US$129,538
Total current assets                          452,394        427,138         395,437        273,724         258,591         359,849
Property, plant and equipment                 552,798        468,239         434,787        430,318         392,467         546,147
Total assets                                1,462,067      1,443,616       1,448,664      1,608,080       1,523,238       2,119,701
Current liabilities                           286,562        327,500         348,272        263,643         303,822         422,791
Long-term liabilities                         376,300        270,209         315,262        554,170         509,588         709,130
                                           ----------     ----------      ----------     ----------      ----------      ----------
Total liabilities                             662,862        597,709         663,534        817,813         813,410       1,131,921
Minority interest                             235,520        110,579         108,664         92,565          79,313         110,371
Shareholders' equity                          563,685        735,328         676,466        697,702         630,515         877,409
Number of shares                        1,079,740,079  1,079,740,079   1,079,740,079  1,079,740,079   1,079,740,079
U.S. GAAP:
Total assets                             Ch$1,461,852   Ch$4,039,598    Ch$4,404,245  Ch$10,814,061   Ch$10,261,699   US$14,279,928
Non-financial services long-term
liabilities                                   389,152        265,573         318,964        539,008         503,888         701,198
Financial services borrowings                      --      2,328,497       2,474,973      2,102,458       2,024,872       2,817,762
Shareholders' equity                          532,595        721,722         742,942        693,336         626,040         868,398
</TABLE>

----------
(1)   In 1998, non-operating results included net gains on the sale of VTR Larga
      Distancia (Ch$16,971 million). In 1999, non-operating results included net
      gains on the sales of VTR Hipercable (Ch$79,817 million) and O'Higgins
      Central Hispanoamericano (OHCH) (Ch$177,695 million). Non-operating
      results included net gains on the sales of shares of Entel of Ch$7,834
      million in 2000 and Ch$51,056 million in 2001.

(2)   In 1999, Quinenco acquired a 51.2% interest in Banco Edwards. The
      consolidated financial statements of the Company did not include the
      financial statements of Banco Edwards because banking operations are
      generally not consolidated with non-


                                       2
<PAGE>

      financial businesses in Chile. Under U.S. GAAP, the financial statements
      of Banco Edwards were consolidated. The income statement information for
      the Company includes the operations of Banco Edwards from the last quarter
      of 1999 until its merger with Banco de Chile on January 1, 2002.

(3)   On March 27, 2001, Quinenco's interest in Banco de Chile reached 52.7%.
      The consolidated financial statements of the Company do not include the
      financial statements of Banco de Chile because banking operations are
      generally not consolidated with non-financial businesses in Chile. Under
      U.S. GAAP, the financial statements of Banco de Chile are consolidated.
      The income statement information under Chilean GAAP for Banco de Chile
      includes the operations of Banco de Chile since January 1, 2001.

(4)   For the year ended December 31, 2000, Lucchetti Argentina's balance sheet
      was deconsolidated and the investment was adjusted to net realizable value
      resulting in a loss of Ch$7,543 million.

(5)   For the year ended December 31, 2002, Lucchetti Peru made non-recurring
      charges related to its plant closure in January 2003 of Ch$30,678 million.

Dividends

      The following table sets forth a five-year summary of dividends per share:

<TABLE>
<CAPTION>
                   Period (1)            Cash Dividend Per Share       Cash Dividend per Share
                   ----------            -----------------------       -----------------------
                                            (in constant Ch$)             (U.S. dollars (2))
<S>                                               <C>                            <C>
            1999 ...................               8.29                          0.01
            2000 ...................              48.37                          0.08
            2001 ...................                 --                            --
            2002 ...................               5.89                          0.01
            2003 ...................                 --                            --
</TABLE>

            ----------
            (1)   Indicates year of payment. The dividend distribution
                  corresponds to the distribution of net income of the previous
                  year.

            (2)   Based on the exchange rate in effect on December 31 of each
                  year.

Exchange Rates

      Prior to 1989, Chilean law permitted the purchase and sale of foreign
exchange only in those cases explicitly authorized by the Central Bank of Chile.
The Central Bank Act, which was enacted in 1989, liberalized the rules that
govern the ability to buy and sell foreign exchange. The Central Bank Act now
empowers the Central Bank of Chile to determine that certain purchases and sales
of foreign exchange specified by law must be carried out in the Formal Exchange
Market. The Formal Exchange Market is formed by banks and other entities so
authorized by the Central Bank. All payments and distributions with respect to
the Company's American Depositary Shares ("ADSs") referred to in this Annual
Report must be transacted in the Formal Exchange Market.

      For purposes of the operation of the Formal Exchange Market, the Central
Bank of Chile sets a reference exchange rate (dolar acuerdo) (the "Reference
Exchange Rate"). The Reference Exchange Rate is reset monthly by the Central
Bank of Chile, taking internal and external inflation into account, and is
adjusted daily to reflect variations in parities between the Chilean peso and
each of the U.S. dollar, the Japanese yen and the Euro. Authorized transactions
by banks were generally conducted within a certain band above or below the
Reference Exchange Rate. In January 1992, the Central Bank of Chile reduced the
Reference Exchange Rate by 5% and widened the band for transactions in the
Formal Exchange Market from 5% to 10%. In November 1994, the Central Bank of
Chile reduced the Reference Exchange Rate by approximately 10%. In November
1995, the Central Bank of Chile reduced the Reference Exchange Rate by
approximately 2%. In January 1997, the Central Bank widened the band for
transactions in the Formal Exchange Market to 12.5%. On June 25, 1998, the
Central Bank of Chile reduced the band for transactions in the Formal Exchange
Market to 2% above and 3.5% below the Reference Exchange Rate. At that time, the
Central Bank also announced the elimination of a fixed 2% (peso re-valuing)
factor which had hitherto been taken into account in the annual resetting of the
Reference Exchange Rate. In September 1998, the Central Bank began a gradual
widening of the


                                       3
<PAGE>

exchange rate band from 3.5% to 5% above and below the Reference Exchange Rate.
In December 1998, the Central Bank set the exchange band at 8% above and below
the Reference Exchange Rate and provided for the gradual widening of the limits
of the band at a daily rate of 0.01375%. In order to keep fluctuations in the
average exchange rate within certain limits, the Central Bank of Chile
intervened by buying or selling foreign exchange on the Formal Exchange Market.
In September 1999, the Central Bank of Chile decided to suspend its formal
commitment to intervene in the exchange market to maintain the limits of the
band, and decided to intervene in the market only under extraordinary
circumstances and with advance notification. The Central Bank of Chile also
committed itself to provide periodic information about the levels of its
international reserves. The Reference Exchange Rate was maintained as a
medium-term reference for the market and to be used in contracts entered into
using such rate. The Observed Exchange Rate is the average exchange rate at
which commercial banks conduct authorized transactions on a given date in Chile,
as determined by the Central Bank of Chile. The Central Bank of Chile generally
carries out its transactions at the spot market rate. Before the suspension of
the band, however, when commercial banks requested to buy U.S. dollars from the
Central Bank of Chile, or requested to sell U.S. dollars to the Central Bank of
Chile, the Central Bank of Chile made such sales up to 2% over the Reference
Exchange Rate and carried out such purchases at 3.5% under the Reference
Exchange Rate. Authorized transactions by banks are generally conducted at the
spot market rate. Historically, such rate fluctuated within the band set by the
Central Bank with respect to the Reference Exchange Rate. No assurances can be
given that the Central Bank of Chile will not establish the band limits again.

      Purchases and sales of foreign exchange effected outside the Formal
Exchange Market are carried out in the Mercado Cambiario Informal (the "Informal
Exchange Market"). The Informal Exchange Market reflects the supply and demand
for foreign currency. There are no limits imposed on the extent to which the
rate of exchange in the Informal Exchange Market can fluctuate above or below
the Observed Exchange Rate. On June 17, 2002, the average exchange rate in the
Informal Exchange Market was Ch$703.65 per U.S. dollar and the U.S. dollar
Observed Exchange Rate was Ch$705.24 per U.S. dollar.

      The following table sets forth the low, high, average and period-end
Observed Exchange Rates for U.S. dollars for each of the indicated periods
starting in 1998 as reported by the Central Bank the following day. The Federal
Reserve Bank of New York does not report a noon buying rate for Chilean pesos.


                                       4
<PAGE>

                          Daily Observed Exchange Rate
                                  (Ch$ per US$)

<TABLE>
<CAPTION>
           Period                                            Low(1)           High(1)         Average(2)     Period - end
           ------                                            ------           -------         ----------     ------------
<S>                                                          <C>               <C>              <C>             <C>
           1998 .................................            439.58            475.41           460.29          472.41
           1999 .................................            468.69            550.93           508.78          530.07
           2000 .................................            501.04            580.37           539.49          573.65
           2001 .................................            557.13            716.62           634.94          654.79
           2002 .................................            641.75            756.56           688.94          718.61
           December 2002 ........................            692.94            718.61           701.95          718.61
           January 2003 .........................            709.22            738.87           722.48          736.15
           February 2003 ........................            733.10            755.26           745.21          750.28
           March 2003 ...........................            725.79            758.21           743.28          731.56
           April 2003 ...........................            704.42            729.78           718.25          704.42
           May 2003 .............................            694.22            714.10           703.58          714.10
           June 2003 (through June 17) ..........            705.24            717.40           712.68          705.24
</TABLE>

----------
Source: Central Bank of Chile

(1)   Rates shown are the low and high exchange rates, on a day-by-day basis,
      for each period.

(2)   The average of monthly average rates during the period reported.

D. Risk Factors

Certain Considerations Relating to Chile and Other Countries in Latin America

      The Company is predominantly engaged in business in Chile. Consequently,
its results of operations and financial condition are to a large extent
dependent on the overall level of economic activity in Chile. The Chilean
economy has had GDP growth rates of 3.2%, (0.8%), 4.2%, 3.1% and 2.1% for the
years 1998, 1999, 2000, 2001 and 2002, respectively. There can be no assurance
regarding future rates of growth relating to the Chilean economy. Some of the
factors that would be likely to have an adverse effect on the Company's business
and results of operations include future downturns in the Chilean economy, a
return to the high inflation experienced by Chile in the 1970s and a devaluation
of the Chilean peso relative to the U.S. dollar.

      In addition to their operations in Chile, some of the Company's businesses
operate in and export to companies that operate in and export to Argentina,
Brazil, Peru and other countries in Latin America that have at various times in
the past been characterized by volatile and frequently unfavorable economic,
political and social conditions. The Company's business, earnings and asset
values may be materially and adversely affected by developments with respect to
inflation, interest rates, currency fluctuations, government policies, price and
wage controls, exchange control regulations, taxation, expropriation, social
instability and other political, economic or diplomatic developments in or
affecting the specific countries in which the Company operates and Latin America
in general.

      In recent years, Argentina has suffered a prolonged economic recession
which culminated in an economic crisis by the fourth quarter of 2001. During
2002, the Argentine economy has partially stabilized as a result of measures
adopted by the Argentine government, including restrictions on bank deposits and
withdrawals, exchange controls, suspension of payments of external debt and the
abrogation of Argentine peso convertibility. Nevertheless, Argentina's economy
has continued to contract. The economic deterioration in Argentina has
materially adversely affected and is expected to continue to materially
adversely affect the operations of Quinenco's subsidiary, Madeco, in Argentina.
See "Item 4. Information on the Company - Business Overview -
Manufacturing--Madeco" and "Item 5. Trend Information".


                                       5
<PAGE>

Certain Considerations Relating to the Company

      Future Capital Needs

      The Company's operations to date have required substantial amounts of
capital, and Quinenco expects that the Company will be required to contribute
substantial additional amounts of capital to support or expand existing
businesses and to enter additional businesses in the future. In prior periods,
the Company's businesses have met capital needs through internally generated
funds and issuances of debt and equity securities, including to Quinenco. There
can be no assurance that capital will be available in the future as needed on
reasonable terms, and the inability to obtain capital would constrain the
Company's ability to support and/or expand its existing businesses and to
maintain or enter new businesses. An unavailability of capital on reasonable
terms could have a material adverse effect on the Company's financial condition
and results of operations.

      Holding Company Structure

      As a holding company, the level of Quinenco's income and its ability to
pay debt service obligations and dividends depend primarily upon receipt of
dividends and distributions from its subsidiaries, equity investments and
related companies. The payment of dividends by such subsidiaries, equity
investments and related companies is, in certain instances, subject to
restrictions and is contingent upon their earnings and cash flows. In addition,
Quinenco's level of income has largely depended on the periodic sale of assets
held for investment. There can be no assurance that Quinenco will be able to
continue to rely on certain subsidiaries' dividends and distributions nor that
the Company will be able to generate the level of gains on the sale of
investments that it has shown in the past.

      Equity Price Risk

      Many of the Company's businesses are publicly traded entities whose equity
value may vary depending on market value fluctuations. The equity value of
Quinenco's investments could be affected by downturns in the Chilean securities
markets and other securities markets, including the New York Stock Exchange,
where the equity securities of CCU, Madeco and Banco de Chile are also traded.
Quinenco and its businesses may also experience low trading volumes, which could
negatively affect the stocks' share price and liquidity.

      The Company's Businesses

      Quinenco's businesses face a high level of competition in the industries
and countries in which they operate. This is generally reflected in prices,
costs and sales volumes of the products and services produced and marketed by
Quinenco's businesses. The Company expects, based on its past experience and
track record, that its businesses will be able to continue to compete within
their industries.

      Banking Regulation Restrictions

      Banco de Chile is subject to regulation by the SBIF. In addition, it is
subject to regulation by the Central Bank with regard to certain matters,
including interest rates and foreign exchange. Pursuant to the Chilean General
Banking Law, all Chilean banks may engage in additional businesses depending on
the risk of the activity and the strength of the bank. The Banking Law also
applies a modified version of the capital adequacy guidelines issued by the
Basle Committee on Banking Regulation and Supervisory Practices to the Chilean
banking system and limits the discretion of the SBIF to deny new banking
licenses. There can be no assurance that regulators will not in the future
impose more restrictive limitations on the activities of banks, including Banco
de Chile, than those that are currently in effect.


                                       6
<PAGE>

Any such change could have a material adverse effect on Banco de Chile's
financial condition and results of operations.

      Interest Rates and Foreign Currency Positions

      A portion of the Company's debt is subject to variable interest rates,
which could have an impact on the company in periods in which the variable rate
increases. A risk also exists with respect to exchange rate fluctuations on debt
instruments maintained in foreign currencies. See "Item 11 Quantitative and
Qualitative Disclosures About Market Risk - Interest Rate Risk".

Certain Considerations Relating to the Company's Shares and ADSs

      Majority Shareholder

      As of the date of this Annual Report, the Luksic Group, which consists of
Mr. Andronico Luksic Sr., his sons, Andronico Luksic Craig, Guillermo Luksic
Craig and Jean Paul Luksic Fontbona, and companies they control, beneficially
own approximately 82.4% of the shares of Quinenco. As long as the Luksic Group
beneficially owns a majority of the outstanding shares, they will be able to
elect a majority of the Directors of Quinenco and determine the outcome of the
voting on substantially all actions that require shareholder approval. See "Item
6. Directors, Senior Management and Employees" and "Item 7. Major Shareholders
and Related Party Transactions". There can be no assurance that the Luksic
Group's interests will not differ from the interests of other holders of the
Company's shares, which may be reflected in the Luksic Group's control of the
Company.

      Dividends Affected by Exchange Conditions

      The Company's ADSs trade in U.S. dollars. Fluctuations in the exchange
rate between certain Latin American currencies and the U.S. dollar are likely to
affect the market price of the ADSs. For example, since Quinenco's financial
statements are reported in Chilean pesos, a decline in the value of the Chilean
peso against the dollar would reduce the Company's earnings as reported in U.S.
dollars. Any dividend the Company may pay in the future would be denominated in
Chilean pesos. A decline in the value of the Chilean peso against the U.S.
dollar would reduce the U.S. dollar equivalent of any such dividend. A
devaluation of the Brazilian, Argentine and/or Peruvian currency could also
reduce the Company's earnings in Chilean pesos and therefore the earnings
reported in U.S. dollars.

      Holders of ADSs

      Due to the fact that holders of ADSs do not hold their shares directly,
they are subject to the following additional risks:

      In the event of a dividend or other distribution, if exchange rates
fluctuate during any period of time when the ADS depositary cannot convert a
foreign currency into dollars, the ADS holders may lose some or all of the value
of the distribution. There can be no assurance that the ADS depositary will be
able to convert any currency at a specific exchange rate or sell any property,
rights, shares or other securities at a specific price, or that any of such
transactions can be completed within a specific time period.

      In order to vote at shareholders' meetings, ADS holders not registered on
the books of the ADS depositary are required to transfer their ADSs for a
certain number of days before a shareholders' meeting into a blocked account
established for that purpose by the ADS depositary. Any ADS transferred to this
blocked account will not be available for transfer during that time. ADS holders
who are registered on the books of the ADS depositary must give instructions to
the ADS depositary not to


                                       7
<PAGE>

transfer their ADSs during this period before the shareholders' meeting. ADS
holders must therefore receive voting materials from the ADS depositary
sufficiently in advance in order to make these transfers or give these
instructions. There can be no guarantee that ADS holders will receive voting
materials in time to instruct the ADS depositary how to vote. It is possible
that ADS holders, or persons who hold their ADSs through brokers, dealers or
other third parties, will not have the opportunity to exercise a right to vote
at all.

      ADS holders may not receive copies of all reports from the Company or the
ADS depositary. Holders may have to go the ADS depositary's offices to inspect
any reports issued.

      In the event the Company or its publicly traded subsidiaries fail to meet
any of the continued listing requirements of the New York Stock Exchange or
"NYSE", the Company's or its subsidiaries' ADSs may become subject to delisting
at the option of the NYSE.

      In the past year, the Company's subsidiary, Madeco, was not in compliance
with certain of the NYSE's continued listing requirements. However, Madeco was
informed by the NYSE on May 21, 2003 that as a result of actions taken by the
company to meet the continued listing requirements, Madeco would regain
compliance if the continued listing requirements were successfully sustained
over a 30-trading-day period. The NYSE will continue to monitor Madeco's
financial situation and results of operations, the achievement of its business
plan as well as its compliance with the minimum listing requirements on a
monthly basis. There can be no assurance however that Madeco will not fail to
meet the continued listing requirements of the NYSE in the future. See "Item 4.
- Information on the Company - Business Overview - Manufacturing - Madeco".

      Eligibility for Investment by Chilean Pension Funds

      Madeco was notified on July 1, 2002 that the Comision Clasificadora de
Riesgo (the "Risk Classification Commission"), which regulates the investment
activities of the pension funds in Chile, had ruled that as a result of the
deterioration of Madeco's financial situation, Chilean pension funds will be
further limited in the amount of debt securities or common shares of Madeco that
they can hold. There can be no assurance regarding the effect of this action by
the Risk Classification Commission, including on Madeco's ability to secure
financing, nor regarding any future actions of the Commission and the effects of
such action on Madeco and Quinenco.

Item 4. Information on the Company

A. History and Development of the Company

Overview

      The Company is one of the largest diversified companies engaged in the
industrial and services sectors in Chile. It has invested in five main sectors
of the economy: financial services; food and beverage; telecommunications;
manufacturing; and real estate and hotel administration.

      The Company, which is among the market leaders in each of its major
businesses, provides:

      o     banking and other financial services through Banco de Chile and,
            until it was merged with Banco de Chile on January 1, 2002, through
            Banco Edwards;

      o     produces, bottles and distributes beer, wine, soft drinks and other
            beverages through CCU;

      o     processes and distributes food through Lucchetti;


                                       8
<PAGE>

      o     provides fixed telephony and other telecommunications services
            through Telsur;

      o     manufactures copper and aluminum products and flexible product
            packaging through Madeco;

      o     provides hotel services through Hoteles Carrera; and

      o     develops residential real estate through Habitaria.

      In addition, the Company holds a financial investment in Entel, a leading
Chilean telecommunications provider, which complements its existing investment
in the telecommunications sector.

      Quinenco, an open stock corporation, operates under the laws of the
Republic of Chile. It was founded in 1957 as Forestal Quinenco S.A., a company
engaged in logging and supplying wood to the Chilean coal mining industry. In
the mid-1960s, Andronico Luksic Sr. acquired a majority interest in the Company.
The Company's registered office is at Enrique Foster Sur 20, 14th Floor, Las
Condes, Santiago, Chile and its telephone number is (56-2) 750-7221.

      The Company's current structure is a result of transfers and
consolidations among Luksic Group companies at various times, principally in
September 1996. Prior to September 1996, the Luksic Group held interests in the
Company's businesses through several entities controlled by the Luksic family.
During September 1996, these interests were combined within Quinenco through a
series of transactions in order to consolidate the holdings of the Luksic Group.
As a result of these transactions, Quinenco became the principal company through
which the Luksic family is active in the industrial and financial sectors,
except those related to mining and railways which continue to be held through
another company controlled by the Luksic family. Although Quinenco continues to
be the principal company through which the Luksic Group participates in the
industrial and financial sectors, individual members of the Luksic family are
not restricted from carrying out investments in these sectors individually or
through other Luksic family companies.

      Companies controlled by Quinenco include Lucchetti, which was acquired in
1965, Hoteles Carrera, acquired in 1979, Madeco, acquired in 1983, and Telsur,
acquired in 1987. A venture with Paulaner Salvator Beteiligungs A.G.
("Paulaner") was formed in 1986 to jointly control CCU. Habitaria, a joint
venture with Ferrovial Inmobiliaria Chile Ltda., was established in 1998. The
Company acquired control of Banco Edwards in 1999 and control of Banco de Chile
in 2001. Banco Edwards merged into Banco de Chile in January 2002.

      As of the date of this Annual Report, the Luksic Group, which consists of
Mr. Andronico Luksic Abaroa, his sons, Andronico Luksic Craig, Guillermo Luksic
Craig and Jean Paul Luksic Fontbona, and companies they control, beneficially
own approximately 82.4% of the shares of Quinenco. As long as the Luksic Group
beneficially owns a majority of the outstanding shares, the Luksic Group will be
able to elect a majority of the Directors of Quinenco and to determine the
outcome of the voting on substantially all actions that require shareholder
approval. See "Item 6. Directors, Senior Management and Employees" and "Item 7.
Major Shareholders and Related Party Transactions".

DEVELOPMENTS DURING 2002

      Financial Services - LQIF

      On January 3, 2002, the Board of Directors of Quinenco's wholly owned
subsidiary, LQIF, approved a capital increase of Ch$484,000 million through the
issuance of 500,000,000 new shares. On January 22, 2002, Quinenco directly and
indirectly subscribed to 273,768,064 shares for Ch$265,007


                                       9
<PAGE>

million (value at transaction date). Proceeds from the capital increase were
used to reduce a portion of the indebtedness incurred with the Banco de Chile
acquisition.

      On June 3, 2002, Quinenco announced that LQIF had prepaid a two-year note
that had been granted by the ex-controlling shareholders of Banco de Chile, as
part of the Banco de Chile share acquisition in March of 2001. The obligation,
which was originally scheduled to become due in March of 2003, had an initial
face value of UF12,437,783. The note was prepaid with long-term financing
obtained from domestic and international banks, the proceeds from Quinenco's
bond offering in 2001, dividend income received from Quinenco's main operating
companies and a US$70 million loan granted by Andsberg Finance Corporation,
Ltd., a financial entity related to Quinenco's controlling shareholder, Mr.
Andronico Luksic Abaroa. For further information see Item 7B. "Related Party
Transactions".

      Financial Services - Banco de Chile

      Pursuant to authorizations from the SBIF and a majority of the
shareholders from both banks, Banco de Chile, a 52.7%-owned subsidiary of the
Company, and Banco Edwards, a 51.2%-owned subsidiary of the Company, merged
their operations effective January 1, 2002. As a consequence of the merger,
Banco Edwards was absorbed by Banco de Chile, the surviving entity and legal
successor.

      Under the terms of the merger, Banco Edwards constituted 34% of the equity
of the surviving entity and Banco de Chile, 66% of the surviving entity. On
January 4, 2002, holders of Banco Edwards common stock received 3.135826295
Banco de Chile F shares for each Banco Edwards common share and received
0.862352231125 Banco de Chile F ADSs for each Banco Edwards ADS. Accordingly, an
aggregate of 23,147,126,425 Banco de Chile F shares were issued to shareholders
of Banco Edwards, including 11,845,494,384 F shares issued to the Company,
representing its 51.2% interest, equivalent to 17.4% of Banco de Chile's
68,079,783,605 common shares. The F shares had all the same rights as the Banco
de Chile common stock except that they entitled holders to receive dividends in
2002 with respect to Banco Edwards' 2001 net income. These dividends were
declared and paid on March 21, 2002, and the F shares were automatically
converted on a one-to-one basis into Banco de Chile common stock.

      Following the merger, the Company has a 52.2% interest in the voting
rights of Banco de Chile and a 29.2% economic interest corresponding to dividend
rights. Its interest is held through its 99.9%-owned subsidiary, LQIF, and
includes 13,762.3 million ordinary shares of Banco de Chile, which represent
20.2% of the outstanding shares of Banco de Chile, 377.5 million shares of SM
Chile's Series A shares, which represent 66.5% of the outstanding shares of SM
Chile Series A, 5,811.6 million shares of SM Chile's Series B shares, which
represent 52.8% of the outstanding shares of SM Chile Series B, 223.4 million
shares of SM Chile's Series D shares, which represent 52.0% of the outstanding
shares of SM Chile Series D and 47.9 million shares of SM Chile's Series E
shares, which represent 8.2% of the outstanding shares of SM Chile Series E.

      The investment is currently being accounted for as a non-consolidated
equity-method investment, as authorized by the Superintendency of Securities and
Insurance ("SVS"). See " - Business Overview, Banco de Chile" for a description
of the rights of the Central Bank over cash dividend distributions in connection
with the subordinated debt obligation Banco de Chile maintains with the Chilean
Central Bank. For further information regarding the results of Banco de Chile,
whose results are not consolidated into the Company's financial statements,
reference is made to Banco de Chile's Annual Report on Form 20-F for the year
ended December 31, 2002.


                                       10
<PAGE>

      Financial Services - LQ-SM S.A.

      On July 18, 2002, as part of an organizational restructuring of LQIF, the
Board of Directors of LQIF approved the creation of a wholly owned subsidiary,
LQ-SM S.A ("LQ-SM"). LQ-SM was subsequently formed on August 26, 2002. On the
same date, LQIF contributed 377,528,973 SM Chile Series A shares valued at
Ch$7,721 million (value at transaction date) to LQ-SM as an initial capital
contribution.

      Food and Beverage - CCU

      On May 10, 2002, CCU announced that it had acquired a 50% interest in
Compania Cervecera Kunstmann S.A. ("Kunstmann"), a small premium microbrewery in
the south of Chile. The purchase price of the brewery was not disclosed by CCU.

      Food and Beverage - Lucchetti

      On January 23, 2002, Lucchetti completed a capital increase approved and
partially carried out in 2001. On that date, Lucchetti issued 128,757,805 new
shares for Ch$2,706 million (value at transaction date). Quinenco subscribed to
128,610,448 shares for Ch$2,701 million (value at transaction date). Quinenco's
economic interest in Lucchetti increased from 93.3% to 93.7% following the
capital increase. Proceeds were used to reduce indebtedness.

      Manufacturing - Madeco

      At the beginning of 2002, as a consequence of Argentina's severe economic
crisis and political instability, Madeco halted its business activities related
to wire and cable and brass mills in that country. Madeco's subsidiary,
Decker-Indelqui, was closed although it continues to maintain a minimal staff,
primarily to sell products imported from certain of Madeco's Brazilian and
Chilean facilities and to ensure the security and maintenance of
Decker-Indelqui's Argentine facilities. In addition, Madeco and its joint
venture partner, Corning, have minimized their optical fiber cable operation in
Argentina.

      The deep economic recession in Argentina as well as other adverse economic
developments in Madeco's main markets in 2001, principally Brazil, had a
material adverse effect on Madeco's operations and financial condition. In order
to ensure the viability of the company to meet its future obligations, Madeco
devised a plan to restructure its existing financial debt and improve its
capital structure by carrying out a capital increase.

      On July 10, 2002 at an extraordinary shareholders' meeting, shareholders
approved a capital increase of Ch$63 billion, divided into 1.8 billion shares at
Ch$35 per share. Shareholders agreed that the capital increase would be
conditioned upon a minimum capital subscription of Ch$47 billion as well as the
successful renegotiation of the company's bank facilities under terms more
favorable to Madeco and compatible with its estimated cash generation capacity.
Shareholders were offered the option to subscribe to the capital increase under
a mandate with Banchile Corredores de Bolsa, a 99.7%-owned stock brokerage
subsidiary of Banco de Chile, which would monitor the process and only allow for
the final subscription and payment of shares once the minimum conditions of the
capital increase were met.

      On October 8, 2002, the preferential rights offering periods of the
capital increase was concluded and 19,511,028 shares for Ch$683 million (value
at transaction date) were subscribed and paid outside of the mandate option. An
additional 1,057,082,454 shares for Ch$36,998 million (value at transaction
date) were subscribed under the mandate agreement and held in escrow. On October
15, 2002, the company


                                       11
<PAGE>

announced that the minimum conditions established for the capital increase had
not been met, and the funds held in escrow were returned to shareholders.

      Quinenco directly and indirectly subscribed to 1,009,989,363 shares for
Ch$35,350 million (value at transaction date) during the preferential rights
offering period of Madeco's capital increase, but due to the failure to met the
minimum conditions, its subscription was returned under the mandate agreement.
As a result, Quinenco's interest in Madeco decreased from 56.1% to 53.4%.

      On December 18, 2002, Madeco reached agreements with fourteen of its bank
lenders to restructure its credit facilities. The terms of the agreements
provided for a US$120 million debt restructuring over seven years, conditioned
upon a repayment of 30% of the loan balances at the time of signing amended and
modified loan agreements. The agreements were also conditioned upon a minimum
capital increase of Ch$49,400 million on or before March 31, 2003. See
"Developments During 2003 - Manufacturing - Madeco" for information on Madeco's
2003 capital increase and debt restructuring.

DEVELOPMENTS DURING 2003

      Quinenco

      On January 14, 2003, Quinenco S.A. announced that Quinenco and its joint
venture partner in Inversiones y Rentas S.A. ("IRSA"), the Schorghuber Group,
had agreed to put an end to the arbitration proceedings which had been underway
since 2001. See "Item 8. Financial Information - Legal Proceedings - IRSA". As
part of the agreement, the Schorghuber Group made a US$50 million payment to
Quinenco on January 28, 2003.

      The existing shareholders' agreement between the parties was modified on
January 13, 2003 to allow the Schorghuber Group to sell its interest in IRSA to
Heineken International B.V. ("Heineken") within a three-year period provided
that certain conditions were met. Subsequently on April 17, 2003, the
Schorghuber Group gave Quinenco formal notice of the sale of its interest in
IRSA to Heineken Americas B.V., a subsidiary of Heineken International B.V., in
accordance with the terms and conditions of the amended shareholders' agreement
with Quinenco. As a consequence, Heineken is a 50% partner in IRSA, the entity
which holds a 61.6% controlling interest in CCU.

      Terms of the agreement also specified that IRSA would propose to the Board
of Directors of CCU that it submit for consideration to its shareholders a
dividend distribution equivalent to 100% of its 2002 earnings and an additional
dividend distribution against CCU's retained earnings amounting to Ch$168,700
million, to be paid within 180 days in single or multiple distributions. For
further information see "Developments During 2003 - Food and Beverages - CCU".

      Finally, as part of the agreement reached to put an end to the conflict,
Southern Breweries Establishment ("SBE"), a 50%-owned indirect subsidiary of
CCU, agreed in principle to sell its interest in the Croatian brewery,
Karlovacka pivovara d.d. ("Karlovacka"), to Heineken at a sales price equivalent
to ten times its annual earnings from operations. The sale of Karlovacka
received regulatory approval and approval by the Boards of Directors of
Heineken, SBE, and its controlling entities, Lanzville Investments Establishment
and CCU. For further information see "Food and Beverages - CCU".

      Quinenco

      On April 10, 2003, Quinenco announced that its wholly-owned subsidiary,
Hidroindustriales Overseas Company, had obtained a US$19 million loan from
Andsberg Finance Corporation Ltd., a financial entity organized under the laws
of Bermuda, related to Quinenco's controlling shareholder, Mr.


                                       12
<PAGE>

Andronico Luksic Abaroa. For further information see "Item 7 Majority
Shareholders and Related Party Transactions - Related Party Transactions".

      Food and Beverages - CCU

      On February 27, 2003, CCU announced that pursuant to an extraordinary
shareholders meeting held on February 26, 2003, it would pay from retained
earnings an extraordinary dividend amounting to Ch$168,700 million. The
extraordinary dividend is to be fully paid on or before October 31, 2003 in
multiple distributions. The first distribution was made on March 14, 2003 for
Ch$56,375 million, corresponding to 318,502,872 outstanding subscribed and paid
shares.

      On April 1, 2003, CCU announced that its 50%-owned indirect subsidiary,
SBE, had sold the 68.8% interest it held in a Croatian brewery, Karlovacka, to
Heineken. As a result of the divestiture, CCU reported an extraordinary gain of
Ch$20,221 million (value as of March 31, 2003).

      At CCU's General Ordinary Shareholders' Meeting held on April 24, 2003,
pursuant to the agreement reached between Quinenco and the Schorghuber Group on
January 13, 2003, CCU's Board of Directors proposed a dividend distribution of
Ch$20,574 million, equivalent to 100% of CCU's 2002 net distributable income.
The dividend was approved by shareholders.

      Food and Beverages - Lucchetti

      On January 6, 2003, Lucchetti's wholly owned Peruvian subsidiary,
Lucchetti Peru S.A. ("Lucchetti Peru"), was notified by an official of the
Municipality of Chorrillos of the revocation of its license to operate its
industrial plant which lies adjacent to the Pantanos de Villa ecological reserve
on the outskirts of Lima, for alleged environmental violations. As a consequence
of the forced closing of the plant facilities, Lucchetti terminated its
activities in Peru. The company's book value of its Peruvian investment was
Ch$29,812 million as of December 31, 2002, and the entire amount was charged
against 2002 results from operations, in accordance with Chilean GAAP. Lucchetti
is currently attempting to sell its Peruvian plant facilities. For further
information, see "Business Overview - Food & Beverage - Lucchetti".

      Lucchetti is seeking damages under an existing treaty between Peru and
Chile, which establishes that unsettled conflicts are subject to arbitration
under the auspices of the International Centre for Settlement of Investment
Disputes ("ICSID") in Washington, D.C. On March 26, 2003, Lucchetti was notified
that the case is registered for the establishment of an arbitration tribunal by
ICSID.

      Manufacturing - Madeco

      On February 18, 2003, pursuant to approval by shareholders at an
extraordinary shareholders' meeting held on November 14, 2002, Madeco initiated
a Ch$101,380 million capital increase. On March 4, 2003, Quinenco directly and
indirectly subscribed and paid 2,058,353,792 shares for Ch$49,400 million.

      The voluntary offering period concluded on March 22, 2003. Subscribed and
paid capital amounted to Ch$51,314 million, divided in 2,138,097,727 shares.
Following the close of the pre-emptive rights offering period, Madeco initiated
a bond capitalization process that concluded on March 31, 2003. Madeco's Series
A and Series C bondholders capitalized a total of 154,876,051 shares at Ch$24
per share for an amount equivalent to Ch$3,717 million.

      As a result of the capital increase, Madeco issued a total of
2,292,973,778 shares. Total subscribed and paid capital as of April 1, 2003
amounted to 2,698,484,806 shares. As a result of the capital increase Quinenco's
interest in Madeco increased from 53.4% to 84.3%.


                                       13
<PAGE>

      Cash proceeds from the capital increase amounted to Ch$51,314 million. In
March of 2003, Madeco used Ch$28,847 million of the total proceeds to repay bank
debt and Ch$3,717 million to redeem a portion of the outstanding Series A and
Series C bonds. Remaining funds of Ch$18,750 million were set aside to reduce
liabilities and provide additional working capital for the company.

      An additional 264,800,000 shares were sold in a public auction on the
Santiago Stock exchange on June 6, 2003 for Ch$7,679 million. As a result of the
sale, Madeco's total outstanding shares increased to 2,963,284,806 shares.
Quinenco did not subscribe to additional shares. As a consequence, its interest
in Madeco decreased from 84.3% to 76.8% as of the same date. Proceeds from the
share increase will be used to reduce liabilities and provide additional working
capital for the company.

B. Business Overview

Financial Services - LQIF

      The Company's investments in the Financial Services Sector are held by a
99.9%-owned intermediate holding company of Quinenco, LQIF. LQIF was formed on
August 15, 2000 with initial capital of Ch$10 million (historic value). Since
its creation, it has served as the Company's investment vehicle for its
investments in the financial services sector, which until their merger on
January 1, 2002, included a 51.2% interest in Banco Edwards and a 52.7% interest
in Banco de Chile. As a consequence of the merger, LQIF's interest in Banco de
Chile, the surviving entity, is now 52.2%.

      LQIF's interest in Banco de Chile is currently being accounted for as a
non-consolidated equity-method interest under Chilean GAAP, in accordance with
authorization from the SVS. For further information regarding the results of
Banco de Chile, whose results are not consolidated into the Company's financial
statements, reference is made to Banco de Chile's Annual Report on Form 20-F for
the fiscal year ended December 31, 2002.

      At December 31, 2002, as a percentage of Quinenco's total investments, the
investment in Banco de Chile represented approximately 67% of total investments,
and as a percentage of total consolidated assets, the investment represented 41%
of total consolidated assets.

      LQIF Capital Increase. On January 3, 2002, the Board of Directors of
Quinenco's wholly owned subsidiary, LQIF, approved a capital increase of
Ch$484,000 million (historic value) through the issuance of 500,000,000 new
shares. On January 22, 2002, Quinenco subscribed to 273,768,064 shares for
Ch$265,007 million (value at transaction date). Proceeds from the capital
increase were used to reduce a portion of the indebtedness incurred as part of
the Banco de Chile acquisition.

      Prepayment of Obligation with Former Controlling Shareholders of Banco de
Chile. On June 3, 2002, Quinenco announced that its wholly-owned subsidiary,
LQIF, had prepaid a two-year note that had been granted by the ex-controlling
shareholders of Banco de Chile as part of the Banco de Chile share acquisition
in March of 2001. The obligation, which was originally scheduled to become due
in March of 2003, had an initial face value of UF12,437,783. The note was
prepaid with long-term financing obtained from national and international banks,
the proceeds from Quinenco's bond offering in 2001, dividend income received
from Quinenco's main operating companies and a US$70 million loan granted by a
company related to Quinenco's controlling shareholder, the Luksic Group.

      Creation of LQ-SM S.A. On July 18, 2002, as part of an organizational
restructuring of LQIF, the Board of Directors of LQIF approved the creation of a
wholly owned subsidiary, LQ-SM S.A ("LQ-SM"). LQ-SM was subsequently formed on
August 26, 2002. On the same date, LQIF contributed 377,528,973 SM Chile Series
A shares valued at Ch$7,721 million (value at transaction date) to LQ-SM as an
initial capital contribution.


                                       14
<PAGE>

Financial Services - Banco de Chile

      The Company had a 52.2% interest in Banco de Chile's voting rights and
29.2% of the corresponding dividend rights as of December 31, 2002. The Company
does not consolidate Banco de Chile's results, which are accounted for on an
equity-method investment basis in the consolidated financial statements of
Quinenco. For further information regarding the results of Banco de Chile,
reference is made to Banco de Chile's Annual Reports on Form 20-F for the fiscal
year ended December 31, 2002.

      Banco de Chile reported net income of Ch$52,635 million, of which
Ch$15,424 million corresponded to Quinenco's interest in 2002.

      Quinenco began acquiring shares of Banco de Chile in 1999, and as of
December 31, 1999 it had an 8% interest, through shares held directly in Banco
de Chile and through SM Chile, the holding company which, as of December 31,
2001, directly owned a 28% interest in Banco de Chile and indirectly owned an
additional 63.6% through its subsidiary, SAOS S.A. Quinenco continued to acquire
shares during 2000, and at December 31, 2000 it had a 12.3% interest.

      On December 14, 2000, Quinenco announced that it had entered into an
agreement with the controlling shareholder group of Banco de Chile, led by
Empresas Penta, to acquire, through its wholly-owned subsidiary, LQIF, an
additional 35.8% interest in Banco de Chile for UF19,766,052 (equivalent to
US$541.3 million on the announcement date). The acquisition was completed on
March 27, 2001.

      On February 6, 2001, the Company launched a tender offer on the Chilean
Stock Exchanges to acquire 5% of the outstanding shares of SM Chile S.A. ("SM
Chile"). The tender offer was successfully concluded on February 28, 2001. The
shares purchased included 28.4 million shares of SM Chile's Series A shares, 550
million shares of SM Chile's Series B shares, 21.5 million shares of SM Chile's
Series D shares and 29.2 million shares of SM Chile's Series E shares. The
shares acquired during the tender offer represented 5% of the outstanding shares
of each series of SM Chile. The cost of the share acquisition in connection with
the tender offer was Ch$36,212 million (pesos as of March 31, 2001).

      On March 27, 2001, Quinenco, through its wholly owned subsidiary, LQIF,
acquired an additional 35.8% interest in Banco de Chile, pursuant to a purchase
agreement signed by Quinenco and the controlling shareholder group of Banco de
Chile on February 2, 2001. The interest in Banco de Chile was acquired through
the purchase of shares of Banco de Chile and SM Chile S.A. The total purchase
price was Ch$304,128 million (pesos as of March 31,2001).

      The shares purchased included 1,466.8 million ordinary shares of Banco de
Chile, which represented 3.3% of the outstanding shares of Banco de Chile, 79.5
million shares of SM Chile's Series A shares, which represented 14.0% of the
outstanding shares of SM Chile, 4,144.1 million shares of SM Chile's Series B
shares, which represented 37.7% of the outstanding shares of SM Chile, 90.7
million shares of SM Chile's Series D shares, which represented 21.1% of the
outstanding shares of SM Chile and 18.6 million shares of SM Chile's Series E
shares, which represented 3.2% of the outstanding shares of SM Chile.

      The transaction was financed in part pursuant to a direct financing
agreement with the controlling shareholder group for UF12,437,783.Quinenco
obtained financing from local and international banks for the remaining amount.

      Combined with prior share purchases carried out in 1999 and 2000, the
Company's aggregate interest in Banco de Chile, as of March 27, 2001, reached
52.7%. As a consequence, Quinenco, through


                                       15
<PAGE>

LQIF, became the bank's largest shareholder. The carrying cost of the aggregate
investment in Banco de Chile was Ch$411,398 million as of March 31, 2001
(historic value).

      The dividend rights associated with Quinenco's 52.7% interest in Banco de
Chile represented 17.8% of the total dividend rights between March 27, 2001, and
December 31, 2001. See "- Business Overview, Banco de Chile" for a description
of the rights of the Central Bank over cash dividend distributions in connection
with Banco de Chile's subordinated debt obligation to the Chilean Central Bank.

      Merger of Banco Edwards with Banco de Chile. Pursuant to authorizations
from the SBIF and a majority of the shareholders from both banks, Banco de
Chile, a 52.7%-owned subsidiary of the Company and Banco Edwards, a 51.2%-owned
subsidiary of the Company, merged operations effective January 1, 2002. As a
consequence of the merger, Banco Edwards was absorbed by Banco de Chile, the
surviving entity and legal successor.

      Under the terms of exchange, Banco Edwards constituted 34% of the equity
of the surviving entity and Banco de Chile, 66% of the surviving entity. Each
Banco Edwards share was exchanged for 3.135826295 shares of Banco de Chile
common stock. Following the merger, Banco de Chile had 68,079,783,605 shares of
common stock outstanding, all of the same series.

      Following the merger, the Company, through LQIF, has a 52.2% interest in
the voting rights of Banco de Chile and a 29.2% economic interest corresponding
to dividend rights. Its interest includes 13,762.3 million ordinary shares of
Banco de Chile, which represent 20.2% of the outstanding shares of Banco de
Chile, 377.5 million shares of SM Chile's Series A shares, which represent 66.5%
of the outstanding shares of SM Chile Series A, 5,811.6 million shares of SM
Chile's Series B shares, which represent 52.8% of the outstanding shares of SM
Chile Series B, 223.4 million shares of SM Chile's Series D shares, which
represent 52.0% of the outstanding shares of SM Chile Series D and 47.9 million
shares of SM Chile's Series E shares, which represent 8.2% of the outstanding
shares of SM Chile Series E. As part of the merger agreement and an earlier
agreement with the Central Bank of Chile, the Central Bank has the rights to
42.8% of future cash distributions in connection with the subordinated debt
obligation Banco de Chile maintains with the Chilean Central Bank ("Central
Bank"). See "- Subordinated debt" below, for a description of the subordinated
debt obligation to the Central Bank.

      Founded in 1893, Banco de Chile, for much of its history, has been one of
the largest and most profitable Chilean banks in terms of return on assets and
shareholders' equity. It is a full-service financial institution engaged
principally in commercial banking in Chile, providing general banking services
to a diverse customer base through a wide variety of credit and non-credit
products, servicing all segments of the Chilean financial market. Its operations
are organized in five principal business areas - large corporations, middle
market companies, retail banking, international banking, treasury and money
market operations - and in eight non-banking financial service subsidiaries.
Banco de Chile offers international banking services through its branch in New
York, its agency in Miami, representative offices in Buenos Aires, Sao Paulo and
Mexico City and a worldwide network of correspondent banks. It also offers,
through its subsidiaries, a variety of non-banking financial services including
securities brokerage, mutual fund management, financial advisory services,
factoring, insurance brokerage, securitization, collection and sales services.

      According to information provided by the SBIF, Banco de Chile was the
second largest private bank in Chile in terms of total lending (excluding
interbank loans), with a 18.7% market share as of December 31, 2002.


                                       16
<PAGE>

      Subordinated debt. During the 1982-1983 economic crisis, the Chilean
banking system experienced significant instability due to, among other things, a
recession in most of the world's major economies accompanied by high
international interest rates, an overvalued peso, a lack of stringent banking
regulation and ineffective credit policies at most Chilean banking
organizations. The financial crisis required that the Central Bank and the
Chilean government provide assistance to most Chilean private-sector banks,
including Banco de Chile.

      During this period, Banco de Chile experienced significant financial
difficulties, and as a result, the Chilean government assumed administrative
control. In 1985 and 1986, Banco de Chile increased its capital and sold shares
representing 88% of its capital to more than 30,000 new shareholders. In 1987,
the Chilean Superintendency of Banks returned control and administration of the
bank to its shareholders.

      Subsequent to the 1982-1983 economic crisis, Banco de Chile sold certain
non-performing loans to the Central Bank at face value on terms that included a
repurchase obligation. The repurchase obligation was later exchanged for
subordinated debt issued in favor of the Central Bank. In November 1989,
pursuant to Law No. 18,818, banks were permitted to repurchase the portfolio of
non-performing loans previously sold to the Central Bank for a price equal to
the economic value of such loans, provided that the bank assumed a subordinated
debt obligation equal to the difference between the face value of the loans and
the economic value paid. In November 1989, Banco de Chile repurchased its
portfolio of non-performing loans from the Central Bank and assumed the Central
Bank subordinated debt.

      The repayment terms of Banco de Chile's Central Bank subordinated debt,
which at December 31, 1989 equaled approximately US$1.5 billion, required that a
certain percentage of its income before provisions for the subordinated debt, be
applied to repay the obligation. The Central Bank subordinated debt did not have
a fixed maturity and payments were to be made only to the extent that the bank
earned income before provisions for the subordinated debt. In 1993, 1994 and
1995 Banco de Chile applied 72.9%, 67.6% and 65.8%, respectively, of its income
before provisions for the Central Bank subordinated debt to the repayment of
such debt.

      In November 1996, pursuant to Law 19,396, Banco de Chile's shareholders
approved a reorganization by which Banco de Chile was converted to a holding
company named SM Chile S.A. that in turn organized a new wholly-owned banking
subsidiary named Banco de Chile to which it contributed all of its assets and
liabilities other than the Central Bank subordinated debt. SM Chile then created
a second wholly owned subsidiary, Sociedad Administradora de la Obligacion
Subordinada S.A., or SAOS, that, pursuant to a prior agreement with the Central
Bank, assumed a new repayment obligation in favor of the Central Bank which
replaced the Central Bank subordinated debt in its entirety.

      This Central Bank indebtedness, for which SAOS is solely responsible and
for which there is no recourse to Banco de Chile or SM Chile, was equal to the
unpaid principal of the Central Bank subordinated debt that it replaced but had
terms that differed in certain respects, including a rescheduling of the debt
for a term of 40 years providing for equal annual installments and a pledge of
Banco de Chile shares as collateral for such debt. The Central Bank indebtedness
bears interest at a rate of 5.0% per year and is denominated in UF. SAOS is not
required to record the entire balance of the subordinated debt obligation as a
liability, but instead accrues a liability equal to its share of dividends
receivable from Banco de Chile. As a result, the subordinated debt is not
included under equity method investments in the Chilean GAAP financial
statements of Quinenco. The balance of the subordinated debt as of April 30,
2003, including accrued interest, was UF52,802,128 (approximately US$1.2 billion
as of April 30, 2003).

      In exchange for assuming the Central Bank indebtedness, SAOS received from
SM Chile 63.6% of the shares of Banco de Chile, which serve as collateral for
the Central Bank indebtedness. As a result


                                       17
<PAGE>

of its merger with Banco Edwards effective on January 1, 2002, the percentage of
Banco de Chile shares held by SAOS decreased to 42%. Dividends received from
Banco de Chile are the sole source of SAOS's revenue, which it must apply to
repay the Central Bank indebtedness. However, under SAOS's agreement with the
Central Bank regarding SAOS's Central Bank indebtedness, Banco de Chile has no
obligation to distribute dividends to shareholders. To the extent dividend
revenues are not sufficient to pay the amount due on any installment, SAOS is
permitted to maintain a cumulative deficit balance with the Central Bank that
SAOS commits to pay with future dividends. In the event the cumulative deficit
balance exceeds the equivalent amount by 20% of the total capital of Banco de
Chile, SAOS will be required by the Central Bank to sell a sufficient number of
shares of the stock owned by SAOS to pay the entire deficit amount accumulated.
In the event of any such sale of shares, the shareholders of SM Chile have the
right of first refusal with respect to those shares. As of April 30, 2003, SAOS
maintained a deficit balance with the Central Bank of Ch$37,550 million
(equivalent to UF2,213,289), equivalent to 6.6% of Banco de Chile's capital and
reserves.

      In the event that Banco de Chile's shareholders decide to retain and
capitalize all or part of its annual net income, distributing stock dividends
among its shareholders, the Central Bank has the option to require that the part
of such net income corresponding to the shares owned by SAOS be paid in cash to
SAOS. If Banco de Chile distributes stock dividends and the Central Bank does
not exercise the option to require cash, the resulting shares received by SAOS
are required to be sold by SAOS in the following 12 months. The shareholders of
SAOS are to have the right of first refusal with respect to those shares.

      The following diagram presents in summary form the ownership structure of
Banco de Chile that resulted from the merger in January 2002:


                                -----------------
                                  SM Chile S.A.
                                -----------------
                                       |      |
                                       |      |
                                       |      |  100%
                                       |       -------------------|
                                       |                          |
                                       |                          |
      ----------------                 |                  ---------------
           Public                      |  18.48%
        Shareholders                   |                     SAOS S.A.
      ----------------                 |                  ---------------
             |                         |                         |
             |                         |                         |
             |-------------------      |      -------------------|
                      39.52%    |             | 42.0%
                                |             |
                                |             |
                                ----------------
                                    BANCO DE
                                     CHILE
                                ----------------

      Strategy. Banco de Chile's long-term strategy is to maintain its position
as a leading bank in Chile, providing a broad range of financial products and
services to large corporations, small and mid-sized companies and individuals
nationwide. As part of its strategy, Banco de Chile operates under a multi-brand
approach in order to target its different market segments. The strategy focuses
on: (i) delivering superior service that responds to the specific needs of its
customers in each market segment; (ii) enhancing profitability by increasing
revenues from fee-based services through development of new services and active
cross-selling of such services to customers; (iii) continuing to focus on
measures that control costs and otherwise enhance productivity to improve its
existing efficiency standards; and (iv) further developing its international
products and services.


                                       18
<PAGE>

      The following table shows selected financial information of Banco de Chile
and its subsidiaries at or for the years ended December 31, 2001 and 2002:

<TABLE>
<CAPTION>
               Banco de Chile and subsidiaries (1)                            2000                    2001                    2002
                                                                              ----                    ----                    ----
                                                                           (in millions of constant Ch$, except percentages)
<S>                                                                   <C>                     <C>                     <C>
Interest revenue ...........................................            Ch$583,855              Ch$531,020              Ch$689,713
Interest expense ...........................................              (365,980)               (309,716)               (322,117)
                                                                      ------------            ------------            ------------
Net interest revenue .......................................               217,875                 221,304                 367,596
Net interest margin ........................................                   4.3%                    3.8%                    4.5%

Provisions for loan losses .................................               (40,668)                (47,264)               (100,644)
Total fees and income from services, net ...................                46,537                  52,367                  86,686
Total other operating income, net ..........................                11,827                   6,577                 (30,025)
Total Other income and expenses (net):
     Loan loss recoveries ..................................                 9,356                   9,935                  11,914
     Other income and expenses, net ........................                 1,357                   1,838                 (17,209)
Minority interest ..........................................                    (1)                     (1)                     (1)
Total operating expenses ...................................              (147,953)               (150,615)               (257,239)
Loss from price-level restatement ..........................                (9,705)                 (5,950)                 (9,596)
Income taxes ...............................................                (1,591)                  1,386                   1,153
                                                                      ------------            ------------            ------------
Net income .................................................             Ch$87,034               Ch$89,577               Ch$52,635
                                                                      ============            ============            ============

Total assets ...............................................          Ch$5,978,946            Ch$6,270,077            Ch$8,596,031
Total liabilities ..........................................             5,572,782               5,859,860               7,977,801
Shareholders' equity .......................................               406,164                 410,217                 618,230
Quinenco's interest % (2) ..................................                  12.3%                   52.7%                   52.2%
</TABLE>

----------
(1)   Banco de Chile merged with Banco Edwards on January 1, 2002.

(2)   Corresponds to voting rights in Banco de Chile.

      The following table provides information on the composition of Banco de
Chile's loan portfolio and contribution to consolidated net income before tax by
segment for the year ended December 31, 2002:

<TABLE>
<CAPTION>
                                                                                                          Consolidated net
                                                                                                               income
                                                                                Loans                      before tax (1)
                                                                     --------------------------           ---------------
                                                                        (in millions of Ch$, except for percentages)
<S>                                                                  <C>                <C>                   <C>
Large corporations .........................................         Ch$ 2,553,522        41.5%                18,924
Middle market companies ....................................             1,542,089        25.0                 38,785
International banking ......................................               351,485         5.7                 (6,898)
Retail banking .............................................             1,633,726        26.5                 46,340
Treasury and money market operations .......................                18,795         0.3                 23,054
Subsidiaries ...............................................                61,896         1.0                 13,497
Other (adjustments and eliminations) .......................                    --          --                (82,220)
                                                                     -------------       -----                 ------
   Total ...................................................         Ch$ 6,161,513       100.0%                51,482
                                                                     =============       =====                 ======
</TABLE>

----------
(1)   Consolidated net income before tax consists of the sum of operating
      revenues and other income and expenses, net, and the deduction for
      operating expenses and provisions for loan losses.


                                       19
<PAGE>

      Large Corporations

      At December 31, 2002, Banco de Chile had approximately 2,184 large
corporate customers. Loans to large corporations totaled approximately
Ch$2,553,522 million at December 31, 2002, representing 41.5% of total loans at
that date. The Large Corporations area accounted for Ch$18,924 million of
consolidated net income before tax for the year ended December 31, 2002.

      In general, the Large Corporations area services domestic companies with
annual sales in excess of Ch$12,000 million (approximately US$17 million),
multinational corporations, financial institutions, governmental entities and
companies affiliated with Chile's largest conglomerates (regardless of size).
The Large Corporations area offers companies a broad range of products and
services, including deposit-taking and lending in both pesos and foreign
currency, trade and project financing, and various non-credit services, such as
collection, supplier payments and payroll management. In addition, the Large
Corporations area offers a broad range of banking products and services
including working capital financing, lines of credit, commercial loans, leasing,
corporate financial services, foreign trade financing, letters of credit in
domestic and foreign currencies, mortgage loans, payment and asset management
services, checking accounts and time deposits, and, through the bank's
subsidiaries, brokerage, mutual funds and investment fund management services.
All of the bank's branches except the Credichile branches provide services to
the Large Corporations area customers directly and indirectly.

      Large corporate customers are engaged in a wide spectrum of industry
sectors, including, among others, financial services (approximately 28.8% of all
loans made by the area), manufacturing (approximately 13.5% of all loans made by
the area), construction (approximately 13.2% of all loans made by the area),
trade (approximately 13.1% of all loans made by the area), and agriculture
(approximately 9.4% of all loans made by the area).

      The following table sets forth the composition of Banco de Chile's
portfolio of loans to large corporations as of December 31, 2002:

<TABLE>
<CAPTION>
                                                              As of December 31, 2002
                                                   --------------------------------------------
                                                   (in millions of Ch$, except for percentages)
<S>                                                   <C>                            <C>
      Commercial loans ...................            Ch$ 1,595,371                   62.5%
      Foreign trade loans ................                  355,118                   13.9
      Contingent loans ...................                  241,808                    9.5
      Leasing contracts ..................                  137,075                    5.4
      Mortgage loans .....................                   92,770                    3.6
      Consumer loans .....................                      169                    0.0
      Other loans ........................                  131,211                    5.1
                                                      -------------                  -----
      Total ..............................            Ch$ 2,553,522                  100.0%
                                                      =============                  =====
</TABLE>

      The Large Corporations area's loan portfolio consists principally of
unsecured loans with maturities between one and six months and of medium and
long-term loans to finance fixed assets, investment projects and infrastructure
projects. In addition, the Large Corporations area issues contingent credit
obligations in the form of letters of credit, bank guarantees and similar
obligations in support of the operations of its large corporate customers.

      The market for loans to large corporations in Chile in recent years has
been characterized by reduced profit margins, due in part to the greater direct
access of such customers to domestic and international capital markets and other
sources of funds. As a result, Banco de Chile has increasingly focused on
generating fee services, such as payroll processing, dividend payments and
billing services as well as computer banking services.


                                       20
<PAGE>

      Banco de Chile is party to approximately 3,050 payment service contracts
and approximately 765 collection service contracts. Under these payment
contracts, the bank provides large corporate clients with a system to manage
their accounts and make payments to suppliers, pension funds and employees.
Under collection contracts, the bank acts as a collection agent for its large
corporate customers, providing centralized collection services for their
accounts receivables and other similar payments.

      Middle Market Banking

      As of December 31, 2002, the Middle Market Banking area maintained
outstanding loans in the amount of Ch$1,542,089 million, which represented 25%
of the total loans granted by the bank. The Middle Market Banking area accounted
for Ch$38,785 million of the bank's total consolidated net income before tax for
the year ended December 31, 2002.

      Through the Middle Market Banking area, Banco de Chile services small and
medium-size Chilean companies. Medium-size companies are generally defined as
those with annual sales of less than Ch$12,000 million (US$17 million) and small
or emerging companies as those with sales of less than Ch$300 million
(approximately US$0.4 million). The Middle Market Banking area had approximately
65,930 checking account holders, of which approximately 74% are small or
emerging companies. In terms of loan amount, however, 63.1% of the business
area's total loan portfolio is comprised of medium-size companies.

      Middle Market customers are engaged in a wide spectrum of industry
sectors, including, among others, trade (approximately 22.4% of all loans made
by the area), financial services (approximately 16.9% of all loans made by the
area), agriculture (approximately 15.8% of all loans made by the area).
manufacturing (approximately 15.3% of all loans made by the area) and transport
and storage (approximately 5.3% of all loans made by the area).

      The Middle Market Banking area offers a broad range of financial products,
including project financing, working capital financing, mortgage loans and debt
rescheduling, as well as other alternatives such as leasing operations and
factoring, mutual funds, insurance and securities brokerage services and
collection services (through subsidiary operations). With respect to foreign
trade, the bank offers advisory services as well as comprehensive financing and
service alternatives.

      Other services, which include the payment of compensation, taxes and
employee benefits, payments to suppliers, and automated bill payments, are
mainly provided through remote service channels (Internet) and are made to
approximately 18,000 customers. Through other subsidiaries, Banco de Chile
offers customers full-range services in financial advisory, stock brokerage,
mutual fund management, and general and life insurance brokerage.


                                       21
<PAGE>

      The following table shows the composition of the Middle Market loan
portfolio as of December 31, 2002:

<TABLE>
<CAPTION>
                                                                      As of December 31, 2002
                                                            --------------------------------------------
                                                            (in millions of Ch$, except for percentages)
<S>                                                          <C>                               <C>
      Commercial loans .......................               Ch$   714,761                      46.4%
      Consumer loans(1) ......................                      13,602                       0.9
      Foreign trade loans ....................                     119,391                       7.7
      Contingent loans .......................                      82,426                       5.3
      Mortgage loans .........................                     356,192                      23.1
      Leasing contracts ......................                     107,655                       7.0
      Other loans ............................                     148,062                       9.6
                                                             -------------                     -----
         Total ...............................               Ch$ 1,542,089                     100.0%
                                                             =============                     =====
</TABLE>

      ----------
      (1)   Certain commercial loans to individuals are classified as consumer
            loans.

      International Banking

      As of December 31, 2002, Banco de Chile had approximately Ch$611,671
million in foreign trade loans, representing 9.9% of its total loans as of that
date and Ch$93,618 million in letters of credit and other contingent obligation
related to foreign trade operations, representing 1.5% of its loan portfolio.
The International Banking area accounted for a loss of Ch$6,898 million of the
bank's total consolidated net income before tax for the year ended December 31,
2002.

      Banco de Chile offers all of its customers a wide range of international
banking facilities, including those related to import and export financing,
issuing letters of credit, guarantees and other forms of credit support, as well
as currency swaps, banking and treasury services for corporate customers, both
in Chile and abroad. The International Banking area has two main lines of
business. The first is related to all banking products that involve foreign
currency, including those related to foreign trade. The second main line of
business is that of managing the Banco de Chile international network. This
network is made up of a branch in New York and an agency in Miami; three
representative offices, located in Mexico City, Sao Paulo and Buenos Aires;
approximately 1,000 correspondent banks, of which 90 have established a credit
relationship with Banco de Chile and 40 of which have established account
relationships with the bank.

      The following table sets forth the composition of Banco de Chile's
portfolio of loans originated through its New York branch and Miami agency, as
of December 31, 2002:

<TABLE>
<CAPTION>
                                                                   As of December 31, 2002
                                                            ------------------------------------
                                                            New York Branch         Miami Agency
                                                            ---------------         ------------
                                                                      (in millions of Ch$)
<S>                                                            <C>                    <C>
      Commercial loans .......................                 Ch$  67,613            Ch$ 47,717
      Foreign trade loans ....................                      73,707                27,936
      Interbank loans ........................                      33,647                 2,376
      Contingent loans .......................                      12,195                 9,467
      Other loans ............................                       3,167                   292
                                                               -----------            ----------
         Total ...............................                 Ch$ 190,329            Ch$ 87,788
                                                               ===========            ==========
</TABLE>


                                       22
<PAGE>

      Retail Banking

      At December 31, 2002, loans made by the Retail Banking area amounted to
Ch$1,633,726 million, which represented 26.5% of the total loan portfolio of
Banco de Chile. The Retail Banking area accounted for approximately Ch$46,340
million of consolidated net income before tax for the year ended December 31,
2002.

      The following table sets forth information on the composition of the
portfolio of loans of the Retail Banking area for the year ended December 31,
2002:

<TABLE>
<CAPTION>
                                                                           As of December 31, 2002
                                                                      -------------------------------
                                                                      (in millions of Ch$, except for
                                                                                percentages)
<S>                                                                 <C>                        <C>
            Commercial loans ............................           Ch$    86,801                 5.3%
            Consumer loans ..............................                 398,982                24.4
            Foreign trade loans .........................                   1,247                 0.1
            Contingent loans ............................                   1,831                 0.1
            Mortgage loans ..............................                 738,309                45.2
            Leasing contracts ...........................                   4,363                 0.3
            Other loans (1) .............................                 402,193                24.6
                                                                    -------------               -----
                Total ...................................           Ch$ 1,633,726               100.0%
                                                                    =============               =====
</TABLE>

            (1)   Other loans are mainly composed by mortgage loans financed by
                  the bank's general borrowings and lines of credits.

      High- and Middle-Income Individuals. High and middle-income individuals
are offered a broad range of retail banking products, including residential
mortgage loans, lines of credit and other consumer loans, credit cards, checking
accounts, savings accounts and time deposits. Mutual funds and brokerage
services are provided to individuals through subsidiaries. At December 31, 2002,
Banco de Chile had outstanding extensions of credit to approximately 254,450
high- and middle-income individuals, including approximately 35,050 residential
loans, 215,100 lines of credit, 95,440 other consumer loans and 231,070 credit
card accounts. At the same date, 286,750 checking accounts, 121,766 savings
accounts and 67,550 time deposits corresponded to this segment (the bank defines
high- and middle-income individuals as those with annual income in excess of
Ch$5.7 million (approximately US$8,000) compared to per capita annual income in
Chile of approximately US$4,000 in the year 2002).

      Residential Mortgage Loans. Outstanding residential mortgage loans were
Ch$680,452 million as of December 31, 2002, which represented 46.2% of the
Retail Banking business area's total loans and 11% of total loans.

      Residential mortgage loans generally have maturities between five and 30
years and are denominated in UF. To reduce exposure to interest rate
fluctuations and inflation with respect to the residential loan portfolio, a
majority of the residential loans are currently funded through the issuance of
mortgage finance bonds, which are recourse obligations with payment terms that
are matched to the residential loans and which bear a real market interest rate
plus a fixed spread over the rate of change in the UF.

      At December 31, 2002, Banco de Chile was Chile's second largest private
sector bank in terms of residential mortgage loans and, based on information
prepared by the SBIF, accounted for approximately 18.9% of the residential
mortgage loans in the Chilean banking system and approximately 24.8% of such
loans made by Chilean private-sector banks.


                                       23
<PAGE>

      Credit Cards. The product portfolio includes both personal and corporate
credit cards. As of December 31, 2002, Banco de Chile had 255,172 valid usable
accounts, with 388,261 cards. Total charges on credit cards during 2002 amounted
to Ch$296,999 million, with Ch$261,400 million corresponding to purchases and
service payments in Chile and abroad and Ch$35,599 million corresponding to cash
advances (both domestic and international). As of December 31, 2002, the bank's
credit card loans amounted to Ch$46,586 million and represented 11.7% of the
bank's consumer loans.

      Processing services are provided by Transbank and Nexus S.A., both of
which support the retail banking line of business, in accordance with current
Chilean regulations. As of December 31, 2002, Transbank had 18 shareholders and
Nexus had 7 shareholders, all of them banks. Banco de Chile's equity ownership
in Transbank and Nexus was 17.4% and 25.8%, respectively.

      Debit Cards. Banco de Chile has different types of cards with debit
options. According to the relative category, these can be used on the automated
teller machines that operate on the local network (Redbanc S.A.), on the Visa
International PLUS network, on the local network of merchants participating in
the local Redcompra debit program and/or on international merchants associated
with Electron. During 2002, transactions related with Banco de Chile's debit
cards totaled more than 7.5 million.

      Installment Loans. Consumer installment loans to individuals are generally
incurred, up to a customer's approved credit limit, to finance the cost of goods
or services, such as cars, travel and household furnishings. Consumer loans are
denominated in both pesos and UF, bear interest at fixed or variable rates of
interest and generally are repayable in installments of up to 36 months.

      At December 31, 2002, outstanding installment loans were Ch$257,996
million, accounting for 64.7% of the Retail Banking business area's consumer
loans. A majority of the installment loans are denominated in pesos and are
payable monthly.

      Lines of Credit. As of December 31, 2002, the bank had 215,100 approved
lines of credit to customers and outstanding advances to 162,966 individuals
under lines of credit. Individual lines of credit are generally available on a
revolving basis, up to an approved credit limit, and may be used for any
purpose. Advances under lines of credit are denominated in pesos and bear
interest at a rate that is set monthly. At the customer's option, such loan may
be renewed and re-priced for successive monthly periods, in each case subject to
minimum monthly payments.

      Deposit Products. The bank offers a broad range of checking accounts, time
deposits and savings accounts to retail customers. Checking accounts are
peso-denominated and mostly non-interest bearing. Savings accounts are
denominated in UF and bear interest at a fixed rate of interest. Time deposits
are denominated in pesos, UF and U.S. dollars and most bear interest at a fixed
rate with a term of 30 to 360 days. At December 31, 2002, 286,750 checking
accounts for approximately 276,140 customers with an aggregate balance of
Ch$285,360 million were maintained with the bank. At such date, checking account
balances totaled approximately Ch$1,072,183 million and represented 13.4% of the
bank's total liabilities.

      Lower Income Individuals - Credichile. Products and services to the lower
middle to middle income segments of the Chilean population are offered through a
network of 46 Credichile branches and 9 other credit centers. Lower-middle
income individuals are defined as persons with annual income between Ch$1.4
million (US$2,000) and Ch$5.7 million (US$8,000). Credichile offers its
customers a range of products, including consumer loans, credit cards, auto
loans and residential mortgage loans and a special demand deposit account
targeted at low-income customers. At December 31, 2002, Credichile had 164,670
customers and total loans outstanding of Ch$160,536 million, representing 2.6%
of the total loan portfolio. Credichile provides short to medium-term consumer
loans and credit lines. Credichile had


                                       24
<PAGE>

approximately 152,703 short to medium-term consumer loans that totaled Ch$88,829
million at December 31, 2002. Credichile customers had 26,989 valid credit card
accounts, with loans of Ch$5,570 million and total charges of Ch$2,910 million.

      The SBIF requires a greater allowance for loan losses with lower credit
classifications, such as those of Credichile. Credichile has rigorous procedures
for collection of past due loans. Collection services are provided by Socofin, a
subsidiary of the bank specialized in account collections.

      Bancuenta. The Bancuenta account is a non-interest bearing demand deposit
account without checking privileges targeted at customers who want a secure and
comfortable means of managing and accessing their money. The customer may use
the ATM card linked to the Bancuenta account (which may include a revolving line
of credit) to make deposits or automatic payments to other Credichile accounts
through a network of ATMs available through the Redbanc system.

      At December 31, 2002, Credichile had 697,750 Bancuenta accounts, each of
which pays an annual fee, a fee each time the customer draws on the Bancuenta
line of credit and interest on any outstanding balance under the line of credit.
All fees and interest due on a Bancuenta account are withdrawn automatically on
a monthly basis from funds available in the account. Bancuenta also offers large
corporate customers the ability to pay their employees by direct deposit of
funds into the individual employee's account at Credichile.

      Treasury and Money Market Operations

      The bank offers currency intermediation, instruments derived for currency
and interest rate risk hedging, transactions under repurchase agreements and
investment products based on bonds, mortgage notes and deposits. Also available
through the bank's delivery channels are investments in mutual funds and stock
brokerage services. Other services are oriented towards managing currency,
interest rate and maturity gaps and the intermediation of fixed-income
instruments, currencies and derivatives.

      Banco de Chile's investment portfolio as of December 31, 2002 amounted to
Ch$1,598,900 million, of which 68.6% corresponded to instruments issued by the
Central Bank and the Chilean government, 21.1% to securities from international
issuers, 7.7% from local financial institutions and 2.6% from local
corporations.

      Operations Through Subsidiaries

      These products and services, which may not be offered directly by banks
under Chilean Law, include financial advisory services, mutual and investment
funds, securities brokerage, factoring, securitization, collection, sales and
insurance brokerage services. Consolidated net income from securities brokerage
services was Ch$5,493 million, which represented 10.4% of the bank's
consolidated net income in 2002 and net income from mutual funds services was
Ch$4,866 million, which represented 9.2% of consolidated net income for the same
period.

      Distribution Channels and Electronic Banking. The bank's distribution
network includes branches, ATMs, Call Centers and Internet banking. As of
December 31, 2002, the bank's branch network consisted of 219 branches and it
owned and operated 799 ATMs connected to Redbanc, the national ATM network,
covering more than 2,782 ATMs. In addition, Banco de Chile is interconnected to
Banco del Estado's network of approximately 800 ATMs. A wide array of services
are also provided by Banco de Chile's Internet-based service network. As of
December 31, 2002, approximately 114,000 individual customers and 20,000
corporate customers performed close to 4.3 million transactions on a monthly
basis. Together with 15 other Chilean banks, Banco de Chile is a shareholder of
the Sociedad Interbancaria de Transferencias Electronicas S.A., a corporation
that executes electronic transfer services


                                       25
<PAGE>

and provides support to the operations performed by banks through the
installation, operation, maintenance and development of the systems and
equipment involved in automated electronic fund transfers.

      Competition. The Chilean market for banking and other financial services
is highly competitive, and the bank faces significant competition in each of its
principal areas of operation. The Chilean financial services market consists of
a number of distinct sectors. The most important sector in terms of loan volume,
commercial banking, includes 24 privately owned banks and one public-sector
bank, Banco del Estado. The privately owned banks have traditionally been
divided between those that are principally Chilean-owned, of which there are
ten, and those that are principally foreign-owned, of which there are 14. At
December 31, 2002, two private-sector banks, Banco Santander-Chile (24.7%) and
Banco de Chile (18.7%) and the public-sector bank, Banco del Estado (12.5%),
together accounted for 55.9% of all outstanding loans by Chilean financial
institutions. All of the Chilean private owned banks together accounted for
56.8% of total loans outstanding while foreign-owned banks accounted for 42.7%
of total loans outstanding. A single finance company accounted for 0.5% of total
loans outstanding.

      During 2002, two new private sector banks initiated their operations,
mainly as consumer and middle-market company niche banks. In addition, some
local investor groups have announced the incorporation of new banks for next
year. This will imply further competition, mainly in banking services to
middle-income individuals.

      The bank considers other private sector banks to be its primary
competitors, however it also faces competition to a lesser extent from Banco del
Estado, which has a larger distribution network and a larger customer base than
Banco de Chile.

      As a commercial bank offering a range of services to all types of
businesses and individual customers, Banco de Chile faces a variety of
competitors, ranging from other large, privately-owned commercial banks to more
specialized entities like finance companies and "niche" banks. The principal
commercial banks in Chile include Banco Santander- Chile, Banco de Credito e
Inversiones, BBVA Banco Bhif, Corpbanca and Citibank.

      In the large corporations and middle market sectors, the bank considers
its strongest competitors to be Banco Santander- Chile and Banco de Credito e
Inversiones.

      In the retail banking business, Banco de Chile competes with other private
sector Chilean banks, Banco del Estado and finance companies. Among private
Chilean banks, they consider their strongest competitors in the consumer retail
market sector to be Banco Santander-Chile and Banco de Credito e Inversiones. In
the individual banking sector, particularly with respect to high income
individuals, it competes with both private Chilean and foreign-owned banks and
considers its strongest competitors in this market to be Banco Santander-Chile
and Citibank.

      The Chilean banking industry has experienced increased levels of
competition in recent years, including from foreign banks, which has led to,
among other things, consolidation in the industry. Strategies have, on an
overall basis, been aimed at reducing costs and improving efficiency standards.
As a result of this competitive environment, our income may decrease due to the
extent and intensity of competition.

      Banco de Chile expects the trend of increased competition and
consolidation to continue, particularly in connection with the formation of new
large financial groups. In this regard, in mid-1996 Banco Santander of Spain
took control of Banco Osorno and merged it into its Chilean operations, changing
its name to Banco Santander. In addition, Banco O'Higgins and Banco de Santiago
merged in


                                       26
<PAGE>

January 1997, forming Banco Santiago. In 1999, Banco Santander of Spain took
control of Banco Santiago. In August 2002, Banco Santiago and Banco
Santander-Chile, the second and fourth largest banks in Chile at that date,
respectively, merged and became Chile's largest bank. Although Banco de Chile
believes that it is currently large enough to compete effectively in its target
market segments, any further consolidation of participants in the Chilean
financial system may adversely affect the bank's competitive position in the
Chilean financial services industry.

      Historically, commercial banks in Chile have competed in the retail market
against each other, with finance companies and with department stores, the two
latter mainly having traditionally been focused on consumer loans to middle- and
low-income segments. However, finance companies have gradually disappeared as
they have been purchased by the largest banks. At December 31, 2002, there was
only one finance company in the market, however it initiated its operations as a
private-sector bank in January 2003.

      Non-bank competition from large department stores has become increasingly
significant in the consumer lending segment. Recently, two new consumer-oriented
banks related to large department stores in Chile have been established.
Although these banks had a market share of less than 1% as of December 31, 2002,
according to the SBIF, the opening of these banks should bring increased
competition into the consumer banking business.

      Loans

      The following table sets forth Banco de Chile's market share in terms of
loans (excluding interbank loans), and that of its principal private-sector
competitors in the Chilean financial system, in each case at December 31 in each
of the last five years, according to information published by the SBIF:

<TABLE>
<CAPTION>
                                                                                  Bank Loans (1)
                                                       --------------------------------------------------------------------
                                                                                 As of December 31,
                                                       --------------------------------------------------------------------
                                                       1998            1999            2000            2001            2002
                                                       ----            ----            ----            ----            ----
<S>                                                    <C>             <C>             <C>             <C>             <C>
Banco Santander-Chile ......................           11.7%           12.3%           11.5%           11.7%           24.7%
Banco Santiago (2) .........................           17.3            16.1            15.8            16.1              --

Banco de Chile .............................           11.7            12.4            12.7            12.1            18.7
Banco de A. Edwards (3) ....................            7.9             7.7             8.3             7.4              --

Banco de Credito e Inversiones .............            7.8             8.1             7.9             9.0            10.4
BBVA Banco BHIF ............................            4.9             5.4             5.8             6.0             6.7
                                                       ----            ----            ----            ----            ----
     Total average for six banks ...........           61.3%           62.0%           62.0%           62.3%           60.5%
                                                       ====            ====            ====            ====            ====
</TABLE>

----------
Source: SBIF

(1)   For ease of comparison, interbank loans have been eliminated.

(2)   Banco Santiago merged with Banco Santander-Chile in August, 2002.

(3)   Banco de Edwards merged with Banco de Chile on January 1, 2002.

      Risk Index. At October 31, 2002, Banco de Chile's unconsolidated risk
index was 2.98%, compared to the financial system's risk index of 1.95%.

      Credit Quality. At December 31, 2002, Banco de Chile had a ratio of past
due loans of 2.43%.


                                       27
<PAGE>

      Deposits. Banco de Chile had deposits of Ch$4,652,136 million at December
31, 2002, with a 16.7% market share in unconsolidated terms, the second-largest
in the Chilean financial system, according to the SBIF.

      Shareholders' Equity. Banco de Chile had Ch$565,595 in shareholders'
equity as of December 31, 2002 (not including net income), making it the
second-largest private-sector commercial bank in Chile in terms of shareholders'
equity. Return on average shareholders' equity (including net income for the
year) for the year ended December 31, 2002 was 8.9%, according to information
published by the SBIF.

      Efficiency. For the year ended December 31, 2002, the bank's efficiency
ratio was 61.1%, mainly as of the result of non-recurring expenses incurred in
connection with the merger process in 2002.

Food and Beverage - CCU

      The Company does not consolidate CCU's results, which are accounted for on
an equity-method investment basis. In 2002, CCU<180>s net income was Ch$22,065
million, of which 30.8% corresponded to Quinenco's proportional share, included
in other non-operating income in its consolidated income statement. Quinenco's
economic interest in CCU as of December 31, 2001 and 2000 was 30.8%. The
Company's interest in CCU is held through a holding company, Inversiones y
Rentas S.A. (IRSA), in which the Company holds a 50% interest.

      CCU, a diversified beverage company, was founded in 1902 and is now the
largest Chilean brewer, the second largest brewer in Argentina, the third
largest Chilean soft drink producer, the largest Chilean mineral water producer
and the second largest Chilean wine producer. In early 2003, CCU entered into
the production and commercialization of pisco, a popular Chilean liquor derived
from grapes. CCU had a domestic beer market share of approximately 88% in 2002,
88% in 2001 and 89% in 2000 and a market share in Argentina of approximately 13%
in 2002, 12% in 2001 and 13% in 2000. In Chile, CCU's beer division produces,
markets, sells and distributes proprietary brands, including Cristal, the
country's best-selling beer in 2002 which accounted for 60% of all beer sales by
volume, as well as brands under license and distribution agreements, such as
Budweiser, Paulaner and Guinness. CCU produces, markets, sells and distributes
Budweiser brand beer as well as proprietary brands in Argentina. Through its
subsidiary Embotelladoras Chilenas Unidas S.A. ("ECUSA"), CCU produces, markets,
sells and distributes proprietary brands, PepsiCo and Schweppes Holdings Ltd.
soft drink brands and Watt's nectars. In addition, CCU has proprietary brands of
mineral water which it bottles and distributes in Chile and is the market
leader. CCU also owns a majority interest in Vina San Pedro, Chile's
second-largest winery. CCU also produces plastic bottles for use in its
businesses.

      Settlement of Dispute and Change of Partners in IRSA. During 2001 and
2002, Quinenco was involved in arbitration proceedings under the rules of the
International Chamber of Commerce in connection with its 50% interest in IRSA, a
joint venture formed in 1986 between Quinenco and the Schorghuber Group of
Germany. IRSA is the controlling entity of CCU with a 61.6% interest. In early
2001, the Schorghuber Group announced that it had sold 49.9% of its interest in
IRSA to the Dutch brewer, Heineken International B.V. ("Heineken"). Although the
exact terms of the Schorghuber Group's agreement with Heineken were not known,
Quinenco believed the sales represented a violation of the existing
shareholders' agreement with the Schorghuber Group.

      On January 14, 2003, Quinenco S.A. announced that Quinenco and the
Schorghuber Group had come to an agreement and that the arbitration proceedings
had been terminated. As part of the agreement, the Schorghuber Group made a
US$50 million payment to Quinenco on January 28, 2003.


                                       28
<PAGE>

      The existing shareholders' agreement between the parties was modified on
January 13, 2003 to allow the Schorghuber Group to sell its interest in IRSA to
Heineken within a three-year period provided that certain conditions were met.
Subsequently on April 17, 2003, the Schorghuber Group gave Quinenco formal
notice of the sale of its interest in IRSA to Heineken Americas B.V., a
subsidiary of Heineken International B.V., in accordance with the terms and
conditions of the amended shareholders' agreement with Quinenco. As a
consequence, Heineken is currently a 50% partner in IRSA.

      Terms of the agreement also specified that IRSA would propose to the Board
of Directors of CCU that it submit for consideration to its shareholders a
dividend distribution equivalent to 100% of its 2002 earnings and an additional
dividend distribution against CCU's retained earnings amounting to Ch$168,700
million, to be paid within 180 days in single or multiple distributions.

      Finally, as part of the agreement reached to put an end to the conflict,
Southern Breweries Establishment, a 50%-owned indirect subsidiary of CCU, agreed
in principle to sell its interest in the Croatian brewery, Karlovacka, to
Heineken at a sales price equivalent to ten times its annual earnings from
operations. The sale of Karlovacka received regulatory approval and approval by
the Boards of Directors of Heineken, SBE, and its controlling entities,
Lanzville Investments Establishment and CCU.

      Extraordinary Dividend Payment. On February 27, 2003, CCU announced that
shareholders had approved the extraordinary dividend distribution at an
extraordinary shareholders' meeting held on February 26, 2003. The extraordinary
dividend is to be fully paid on or before October 31, 2003 in multiple
distributions. The first distribution was made on March 14, 2003 for Ch$56,375
million, corresponding to 318,502,872 outstanding subscribed and paid shares.

      Sale of Interest in the Karlovacka Pivovara Brewer in Croatia. On April 1,
2003 CCU announced that SBE had sold the 68.8% interest it held in Karlovacka to
Heineken. As a result of the divestiture, CCU reported an extraordinary gain of
Ch$20,221 million (value as of March 31, 2003).

      Dividend Distribution Corresponding to 2002 Net Income. At CCU's General
Ordinary Shareholders' Meeting held on April 24, 2003, pursuant to the agreement
reached between Quinenco and the Schorghuber Group on January 13, 2003, CCU's
Board of Directors proposed a dividend distribution of Ch$20,574 million,
equivalent to 100% of CCU's 2002 net distributable income. The dividend was
approved by shareholders.

      Syndicated Bank Loan. On May 9, 2003, CCU subscribed to a US$135 million
five year syndicated bank credit agreement with a group of national and
international lenders.

      Purchase of Kunstmann Microbrewery. On May 10, 2002, CCU announced that it
had acquired a 50% interest in Kunstmann, a small premium brand brewer in the
south of Chile.

      Sale of 6.7% interest in Backus y Johnston. On March 20, 2001, CCU
announced that it had sold a 6.7% interest it held in Union de Cervecerias
Peruanas Backus y Johnston S.A.A., the leading beer producer in Peru. The
pre-tax gain on the sale associated with the disposal of shares was Ch$17,199
million.

      Acquisition of Cerveceria Austral .On November 2, 2000, CCU announced that
it had acquired 45,000 shares of Cerveceria Austral S.A. ("Austral"). On the
same date, Austral carried out a capital increase of 1,000,000 shares, of which
CCU purchased 878,916 shares. Following the acquisition and the capital
increase, CCU had a 50% interest in Austral, acquired for Ch$4,700 million. The
purchase was financed by CCU's internally generated resources.


                                       29
<PAGE>

      Land purchase in Argentina for Wine Production. In January 2000, CCU's
60.3%-owned subsidiary, Vina San Pedro S.A., acquired 200 hectares of land near
Mendoza, Argentina. In August 2000, it acquired an additional 411 hectares of
adjoining land.

      Strategy. CCU's strategic plan for 2002-2004 is built on three fundamental
pillars: (i) Profitability, through the optimization of expenses, margins and
capital employed; (ii) Growth in the company's current businesses and expansion
into new businesses and product categories and; (iii) Sustainability, both
internal, in the management of the company's current brands, human resources and
corporate image, and external, in relationships with the company's customers,
consumers, suppliers and society as a whole. From these pillars, the company
focuses on six strategic objectives: (1) to make current businesses more
profitable; (2) to grow and innovate in current businesses; (3) to achieve
operational excellence in the sales and distribution processes; (4) to increase
knowledge of general consumer habits and trends, along with those of the
specific consumers in each of the company's brands; (5) to implement strategic
human resources management; and (6) to expand into new product categories and
consider the development of new beverages.

      The following table shows selected financial information of CCU and its
subsidiaries at or for the years ended December 31, 2000, 2001 and 2002:

<TABLE>
<CAPTION>
                  CCU and subsidiaries

                                                                  2000                    2001                    2002
                                                                  ----                    ----                    ----
                                                               (in millions of constant Ch$, except percentages)
<S>                                                         <C>                     <C>                     <C>
Net Sales:
    Beer (1)
        Chile ..................................            Ch$133,327              Ch$133,895              Ch$134,474
        Argentina ..............................                52,223                  54,724                  24,881
                                                            ----------              ----------              ----------
    Total Beer .................................               185,550                 188,619                 159,355

    Soft drinks and mineral water (2) ..........               110,150                 111,744                 110,794
    Wine (3) ...................................                56,094                  69,592                  75,158
    Other (4) ..................................                   268                     429                     584
                                                            ----------              ----------              ----------
             Total net sales ...................            Ch$352,062              Ch$370,384              Ch$345,891
                                                            ==========              ==========              ==========
Operating Income:
    Beer (1)
        Chile ..................................             Ch$28,766               Ch$29,756               Ch$27,294
        Argentina ..............................                (5,783)                 (6,989)                (11,808)
    Soft drinks and mineral water (2) ..........                 9,547                   8,790                  10,107
    Wine (3) ...................................                 5,532                   9,580                   9,464
    Other (4) ..................................                 3,865                   3,825                   2,537
                                                            ----------              ----------              ----------
             Total operating income ............             Ch$41,927               Ch$44,962               Ch$37,594
                                                            ----------              ----------              ----------

Non-operating results ..........................                (8,468)                  3,820                  (6,841)
Minority interest ..............................                  (807)                 (1,893)                 (1,252)
Income taxes ...................................                (5,331)                 (7,360)                 (7,436)
                                                            ----------              ----------              ----------
Net income .....................................             Ch$27,321               Ch$39,529               Ch$22,065
                                                            ==========              ==========              ==========

Total assets ...................................            Ch$663,045              Ch$648,285              Ch$652,959
Bank debt and bond obligations .................                97,298                  72,936                  71,073
Other liabilities ..............................               138,899                 151,427                 148,401
Shareholders' equity ...........................               426,848                 423,922                 433,485
Quinenco's effective economic interest .........                  30.8%                   30.8%                   30.8%
</TABLE>

----------
(1)   Includes sales of beer, beer by-products and other products such as malt,
      spent grain and yeast.


                                       30
<PAGE>

(2)   Includes sales of carbonated and non-carbonated soft drinks, nectars,
      mineral water, powdered juices and related merchandise.

(3)   Includes sales of wine, wine by-products and other products such as labels
      and corks.

(4)   Includes sales of crates and other packaging.

      The following table shows certain operating and statistical data regarding
CCU's beer segment at or for the years ended December 31, 2000, 2001 and 2002:

<TABLE>
<CAPTION>
                         CCU - Beer Segment                               2000              2001              2002
                                                                          ----              ----              ----
                                                                          (in millions of liters, except per capita
                                                                                 information and percentages)
<S>                                                                      <C>               <C>               <C>
Chile
       Total Market Volume Sold .............................              397               397               398
       CCU Volume Sold ......................................              352               348               350
       CCU Market Share .....................................               89%               88%               88%
       Beer Consumption per Capita (liters) .................               27                27                26
       CCU Average Beer Production Capacity Utilization .....               53%               55%               54%
Argentina
       Total Market Volume Sold .............................            1,231             1,233             1,223
       CCU Volume Sold ......................................              155               151               160
       CCU Market Share .....................................               13%               12%               13%
       Beer Consumption per Capita (liters) .................               34                34                33
       CCU Average Beer Production Capacity Utilization .....               53%               52%               54%
</TABLE>

      Beer Business in Chile. CCU is the largest producer, bottler and
distributor of beer in Chile, accounting for approximately 88% of all beer sales
by volume in Chile during 2002. The production and marketing of beer in Chile is
CCU's principal activity, generating net sales of Ch$134,474 million, or 39% of
CCU's total net sales in 2002.

      CCU produces and markets super-premium, premium, medium-priced, and
popular-priced beers. CCU's premium brand, Cristal, a premium-priced beer, is
Chile's best selling brand, accounting for approximately 60% of all 2002 beer
sales by volume in Chile. Royal Guard is CCU's proprietary super-premium brand.
Royal Light is a light beer extension of the Royal Guard line, and contains a
lower alcohol content. Escudo, a medium-priced beer, is a high-alcohol content
beer product and the second best selling beer in Chile. Morenita, a dark beer,
and Dorada, a discount brand of lager beer, are popular-priced beers. In 2001,
CCU introduced Lemon Stones and Orange Stones beer, a low-alcohol content lemon
and orange flavored sweetened beer, respectively. CCU also produces, bottles and
markets Paulaner brand beer and distributes other Paulaner products in Chile
under an exclusive five-year license from Paulaner Brauerei AG ("Paulaner"),
renewable in 2005. Pursuant to a license agreement between CCU and Guinness
Brewing Worldwide Limited ("Guinness"), CCU is the distributor in Chile of
Guinness brand beer. CCU also has long-standing exclusive rights to distribute
Budweiser and a right of first refusal in favor of the Company with respect to
the distribution of all other Anheuser-Busch beers in Chile.

      On April 28, 2003, CCU and Heineken International signed licensing and
technical assistance agreements which provide the Company with the exclusive
rights to produce, sell and distribute Heineken Lager beer in Chile commencing
June 18, 2003. These agreements have an initial term of 10 years beginning in
June 2003 and are renewable for subsequent periods of five years.

      Distribution. CCU distributes beer directly throughout Chile to (i) small-
and medium-sized retail outlets, which, in turn, sell beer to consumers for
take-out consumption (representing 40% of total volume sold by CCU in Chile in
2002), (ii) retail establishments, such as restaurants, hotels and bars, for
on-premises consumption (representing 18% of total volume sold by CCU in Chile
in 2002), (iii)


                                       31
<PAGE>

wholesalers (representing 22% of total volume sold by CCU in Chile in 2002) and
(iv) supermarket chains (representing 20% of total volume sold by CCU in Chile
in 2002). CCU had more than 36,500 customers for its beer products in 2002, none
of which accounted for more than 6% of its total beer sales by volume. CCU does
not maintain any long-term contractual arrangements for the sale of beer with
any of its customers.

      Production Facilities. CCU centralizes its beer production in two plants.
CCU also has a bottling facility in Antofagasta. The Santiago production
facility, located on the outskirts of Santiago, has a production capacity of 43
million liters per month. The Temuco production facility in Temuco, Chile was
completed during 1999, with a production capacity of 12 million liters per
month. The Antofagasta plant produces approximately 4 million liters per month.

      Beer Business in Argentina. CCU is the second largest beer producer in
Argentina, with a 2002 market share of approximately 13%. In 2002, CCU's beer
operations in Argentina generated net sales of Ch$24,881 million, which
represented 7% of CCU's consolidated net sales for the year.

      CCU established CCU Argentina at the end of 1994, and in 1995, CCU
Argentina acquired a 62.7% interest in Compania Industrial Cervecera S.A.
("CICSA"), a brewer located in the city of Salta, and a 98.8% interest in
Cerveceria Santa Fe S.A. ("CSF"), located in the city of Santa Fe. In January
1998, CCU Argentina merged CICSA and CSF, and CCU Argentina currently holds a
99.2% interest in the combined entity.

      In December 1995, CCU Argentina and Anheuser-Busch entered into a license
agreement which provides for CCU Argentina's exclusive right to produce, market,
sell and distribute Budweiser brand beer in Argentina. In connection with the
license agreement, Anheuser-Busch acquired approximately 4.4% of CCU Argentina,
with an option until 2005 to increase its aggregate ownership interest to 20%.
In November 1999, Anheuser-Busch increased its ownership interest to 10.8%
through a capital increase, and CCU reduced its participation to 89.2%. Since
1996, CCU and Anheuser-Busch have invested approximately US$189 million and
US$23 million (historic values), respectively, in CCU Argentina. In April 1998,
CCU Argentina paid approximately US$8 million (historic value) to acquire the
brands and certain other assets of Cerveceria Cordoba, a regional brewer in
Argentina, to further strengthen its presence and portfolio of brands.

      In Argentina, CCU produces and markets medium-priced and popular-priced
beers. The medium-priced beers are Budweiser, Salta, Santa Fe, Cordoba and
Rosario brands. Schneider, a popular-priced beer, is CCU's principal brand of
beer in Argentina, comprising 41% of total sales volume by CCU's Argentine
subsidiary in 2002. Rio Segundo is another popular-priced beer of the company in
Argentina. CCU began local production of Budweiser brand beer in December 1996,
and sales of Budweiser brand beer have since grown to represent 23% of CCU's
Argentine sales volume in 2002. In addition, during 1997, CCU began importing
Guinness brand beer from Ireland and during 2001, Corona brand beer from Mexico,
both premium-priced beers. Export sales represented less than 1% of CCU
Argentina's beer sales volume in 2002. On April 28, 2003, CCU and Heineken
International signed licensing and technical assistance agreements, which
provide the Company with the exclusive rights to produce, sell and distribute
Heineken Lager beer in Argentina commencing June 18, 2003. These agreements have
an initial term of 10 years beginning in June 2003 and are renewable for
subsequent periods of five years.

      Distribution. During 2002, approximately 75% of CCU's beer volume in
Argentina was sold through wholesalers, with supermarkets and retailers
accounting for approximately 10% and 15%, respectively. In 2002, CCU sold its
products to approximately 17,500 customers in Argentina, none of which
individually accounted for more than 5% of its total beer sales by volume.


                                       32
<PAGE>

      CCU estimates that total beer consumption in Argentina decreased at a
five-year compounded annual growth rate of 0.6% between 1997 and 2002. Beer
consumption stagnated in Argentina in 2001 and decreased in 2002 due to the
depressed economic situation affecting Argentina since 1998 and the volatile
political and social environment which culminated in 2001 and continues to
produce a high degree of instability in mass consumer product sales.
Nonetheless, CCU believes that its position as one of the largest producers in
the beer market in Argentina, its product portfolio, which includes Budweiser
and Heineken beer, and its marketing and distribution capabilities leaves it
well positioned to benefit from future growth of beer consumption in Argentina,
once the country recovers and begins to experience growth again.

      Beer Business in Croatia. Until March 31, 2003 CCU had an indirect 34.4%
interest in a Croatian brewery, Karlovacka, through a joint venture with another
Luksic Group company. On March 31, 2003, SBE sold its interest in Karlovacka to
the Dutch brewer, Heineken. CCU reported an extraordinary gain on sale of its
interest in SBE of Ch$20,221 million for the period ended March 31, 2003.

      Soft Drinks. CCU is the third largest soft drink producer in Chile. CCU's
line of soft drink and mineral water products includes its own proprietary
brands of soft drinks in addition to brands produced under license from other
beverage manufacturers. Under a licensing agreement with Watt's, a local fruit
related products company, CCU has bottled and distributed Watt's nectar products
in Chile since 1987. In 2002, CCU's soft drink, nectar and mineral water
products business in Chile generated net sales of Ch$110,794 million,
representing 32% of CCU's total consolidated net sales.

      The following table shows certain operating and statistical data regarding
CCU's soft drink and mineral water segment at and for the years ended December
31, 2000, 2001 and 2002.

<TABLE>
<CAPTION>
                    CCU - Soft Drinks and Mineral Water Segment
                                                                                       2000             2001             2002
                                                                                       ----             ----             ----
                                                                                    (in millions of liters, except per capita
                                                                                          information and percentages)
<S>                                                                                   <C>              <C>              <C>
      Soft Drinks
           Total market volume sold (1) ...................................           1,432            1,484            1,535
           CCU volume sold ................................................             329              340              339
           CCU market share (2) ...........................................              25%              24%              23%
           Chilean consumption per capita (liters) ........................              97               99              102
           CCU average production capacity utilization ....................              33%              34%              34%
      Mineral Water
           Total market volume sold (1) ...................................             124              127              130
           CCU volume sold (3) ............................................              76               74               74
           CCU market share (2) ...........................................              64%              62%              63%
           Chilean consumption per capita (liters) ........................               8                9                9
           CCU average production capacity utilization ....................              32%              28%              31%
</TABLE>

      (1)   CCU company estimates; includes nectars.

      (2)   Information provided by Nielsen Chile; does not include nectars.

      (3)   Include sales of mineral water in Argentina of 1.3 million liters
            and 2.1 million liters in 2001 and 2002, respectively.

      ECUSA, CCU's wholly-owned subsidiary, is the exclusive producer, bottler
and distributor in Chile of CCU's proprietary soft drink and mineral water
brands, soft drink brands produced under license from PepsiCo and Schweppes
Holding Ltd. and bottled fruit juice nectars produced under license from Watt's.
ECUSA has two soft drink and nectar production facilities located in Chile and
operates two mineral water bottling plants in the central region of Chile. The
two water sources for these products


                                       33
<PAGE>

are owned by CCU. In addition, CCU bottles soft drinks at one of its facilities
in the northern city of Antofagasta.

      Distribution. ECUSA operates its own sales force in Santiago, Vina del
Mar, Rancagua, Melipilla, Arica, Concepcion and other major cities in the south
and uses CCU's sales system in the outlaying northern and southern regions of
Chile. CCU distributes its soft drink and mineral water products throughout
Chile to (i) small and medium-sized retail establishments, that in turn sell the
beverages to consumers for take-out consumption (54% of 2002 segment volume),
(ii) restaurants, hotels, kiosks, and bars for on-premises consumption (9% of
2002 segment volume), (iii) wholesalers (11% of segment volume) and (iv)
supermarkets (26% of segment volume).

      Wine. CCU operates Vina San Pedro ("VSP"), the second-largest winery in
terms of domestic and export sales. In 2002, VSP generated consolidated net
sales of Ch$75,158 million or 22% of CCU's total net consolidated sales.

      CCU commenced its investment in Vina San Pedro in 1994 with the purchase
of 48.4% of Vina San Pedro's equity for approximately US$17.1 million (historic
value). Through subsequent capital increases and purchases of shares on the
Santiago stock market, CCU's share in Vina San Pedro is 60.3% at December 31,
2002. Vina San Pedro is a publicly traded company, listed on Chile's principal
stock exchanges.

      The following table shows certain operating and statistical data regarding
CCU's wine segment at and for the years ended December 31, 2000, 2001 and 2002.

<TABLE>
<CAPTION>
                      CCU - Wine Segment                                     2000              2001              2002
                                                                             ----              ----              ----
                                                                              (in millions of liters, except per capita
                                                                                      information and percentages)
<S>                                                                            <C>               <C>               <C>
Total domestic market volume sold ..............................               32                43                51
Total export market volume sold (1) ............................               34                41                45
Vina San Pedro domestic market share (2) .......................               11%               14%               17%
Vina San Pedro share of total Chilean wine exports .............               12%               13%               13%
Chilean consumption per capita (liters) ........................               16                17                17
</TABLE>

----------
(1)   Does not include sparkling wine.

(2)   Information provided by Nielsen Chile.

      Vina San Pedro is one of Chile's largest producers and distributors of
wine in terms of volume and revenues. Vina San Pedro produces and markets a full
range of wine products for both the domestic and export markets. Vina San
Pedro's business includes operation of its own vineyards as well as mixing,
packaging and reselling wines produced by independent Chilean vineyards. Vina
San Pedro exports wine products to a total of 66 countries worldwide. Vina San
Pedro's total export sales in 2002 were approximately Ch$50,728 million. Its
primary export markets included Europe (67% of total exports in 2002), South
America (13% of total sales in 2002), North America (12% of total sales in 2002)
and Asia (7% of total exports in 2002). According to industry sources, exports
of Chilean wine (excluding champagne) increased from approximately 43 million
liters in 1990 to 347 million liters in 2002, a compounded annual growth rate of
19%.

      VSP's wines are segmented by product type. VSP produces and sells premium,
varietals and popular-priced wines within the domestic market and export market.
VSP also exports bulk wine. Premium wines and many of the varietal wines are
produced from high quality grapes, aged and packaged in glass bottles.
Popular-priced wines are usually produced using non-varietal grapes and are not
aged. These products are generally sold in either cartons or jug packaging.


                                       34
<PAGE>

      Vina Santa Helena. In December 2001, VSP's subsidiary, Vina Santa Helena
S.A. created a commercial and productive winemaking operation under the Vina
Santa Helena wine label.

      Joint venture with Chateau Dassault. In October 2001, Vina San Pedro
created a new subsidiary, Vina Totihue S.A., as part of a joint venture
agreement with Chateau Dassault, a French wine producer, to elaborate and
commercialize premium quality wines.

      Distribution. Vina San Pedro sells it wines directly in the major cities
of Chile and in the rest of the country through CCU's sales system. In the
domestic Chilean market in 2002, Vina San Pedro sold its wines through the
following channels: retailers (35% of all domestic sales); wholesalers (22% of
all domestic sales); supermarkets (37% of all domestic sales); and bars and
restaurants (6% of all domestic sales).

      Vina San Pedro has arrangements with 164 international agents, who
facilitate the export of its wine to 66 countries. CCU has signed distribution
agreements with Schenk, one of the largest distributors in Europe, Asahi
Breweries, one of the largest beverage companies in Asia, and Shaw Ross
International, a subsidiary of Southern Wines and Spirits and the main liquor
wholesale distributor for the United States, as well as other distributors. In
December 2002, VSP signed a distribution agreement with Vin & Sprit AB, a
Swedish company, to distribute VSP's wines in Sweden, Norway and Estonia. In
addition, VSP has signed an agreement with Mitsubishi for the distribution of
its wines in China.

      Raw Materials. The principal raw materials used in CCU's production of
beer are barley (used to make malt), rice, water and hops. CCU obtains its
supply of barley from local growers and in the international market. Rice is
obtained from local and international suppliers in spot transactions and/or
annual contract agreements. CCU imports hops mainly pursuant to contracts with
international suppliers, primarily in the United States and Europe, which permit
CCU to secure supplies for periods of up to four years. Although water does not
represent a major raw material cost, it is nonetheless essential in the
production of beer.

      The principal raw materials in the production of soft drinks and nectars
are water, sugar, flavoring concentrates, and carbon dioxide gas. Water is
obtained from wells located at CCU's plants and/or public utilities in Chile.
CCU generally purchases all of its sugar requirements from Empresas Iansa S.A.,
the sole producer of sugar in Chile. CCU purchases flavoring concentrates for
the soft drink brands it produces under license from the respective licensing
companies. The flavoring concentrates for CCU's proprietary brands are purchased
from third party suppliers in Chile and Germany, which manufacture the
concentrates under contract with CCU. CCU obtains carbon dioxide gas for the
production of both its soft drinks and its mineral water from local suppliers in
Chile. CCU owns two mineral water sources in Chile from which its branded
mineral water products are obtained.

      The principal raw materials that Vina San Pedro uses in its production
process are grapes, wine and packaging. Vina San Pedro obtains 47% of the grapes
used for export wines from its own vineyards. The majority of the wine sold in
the domestic market is purchased from third parties.

      Historically, CCU has not experienced difficulty in obtaining adequate
supplies of raw materials at satisfactory prices and does not expect to in the
near term.

      Competition. The most important bases of competition in CCU's beer, soft
drink and mineral water businesses are capacity, distribution, advertising,
product image, pricing, packaging and the proprietary nature of returnable
bottles in Chile, which creates a significant barrier to entry. The
establishment and expansion of capacity and distribution and funding successful
marketing campaigns requires significant capital and financial resources. CCU
believes that these factors, together with import


                                       35
<PAGE>

tariffs although low, provide significant barriers to large-scale entry of new
competitors and large-scale expansion by existing competitors. There are
currently no legal or regulatory barriers to enter the beer market in Chile.
Substantial capital investment is required, however, to establish or acquire
production and distribution facilities and market share. However, it is
conceivable that other competitors may enter the beer market.

      CCU's principal competitor in the Chilean beer business is Cerveceria
Chile, a subsidiary of Quilmes Industrial S.A. ("Quilmes"), the largest beer
production company in Argentina. Due to the high cost of shipping beer to Chile
and the competitive advantage inherent to domestic producers in Chile's
proprietary returnable glass bottle system, imported beer is not a significant
competitor in the Chilean market. Cerveceria Chile is estimated to have
approximately an 11% share of the Chilean beer market. CCU's beer brands also
compete directly against soft drinks, other beverages, wine and other alcoholic
drinks.

      During 2002, CCU competed with four other brewing groups in Argentina:
Quilmes, Companhia de Bebidas das Americas ("AmBev"), Warsteiner Braurei Hans
Cramer GmbH & Co. ("Warsteiner") and Cerveceria Estrella de Galicia S.A.
("Galicia"). Quilmes' estimated market share at December 2002 was 62%, followed
by AmBev (17%), CCU Argentina (13%), Warsteiner (8%) and Galicia (less than 1%).
Due to the high cost of shipping beer to Argentina and the competitive advantage
inherent to domestic producers as a result of Argentina's returnable glass
bottle system, imported beer is not a significant competitor in the Argentine
market.

      In recent years, the beer industry in Latin America has experienced
greater consolidation and is expected to continue to experience further
consolidation in the future. On May 2, 2002, AmBev and Quilmes announced that
pursuant to an agreement between both parties, AmBev would transfer all of its
beer assets in Argentina, Bolivia, Paraguay and Uruguay to Quilmes in exchange
for 26.4 million new B shares of Quilmes. Additionally, according to the
announcement AmBev would purchase from the controlling shareholders of Quilmes
230.92 million class A shares for US$346.4 million. Also the agreement
stipulates that AmBev can purchase at the end of a seven-year period the
remaining Quilmes shares owned by the current controlling group, the Bemberg
family, with AmBev shares. The Bemberg family has the option to sell to AmBev
their remaining class A shares during a period beginning with the end of the
first year and ending with the seventh year after the agreement was announced.
The price of these transactions will be determined by the relative EBITDA of
both companies. This transaction was approved by the Argentine antitrust
authorities on January 13, 2003, subject to the condition that AmBev and Quilmes
divest themselves of certain brands and the AmBev plant in Lujan, near Buenos
Aires, to a company currently not present in the Argentine beer market. On
February 14, 2003, CCU, through its subsidiary, CICSA, filed a complaint before
the Argentine federal courts in order to be eligible to participate in the
acquisition of these assets. The ruling is still pending. Consolidation in the
beer industry has resulted in larger and more competitive participants, which
could change the current market conditions under which CCU operates.

      CCU's principal competitors in the soft-drink business are companies which
produce, bottle and distribute soft drinks in Chile under licenses from The
Coca-Cola Company and its affiliates. The Coca-Cola Company's products are
produced, bottled and distributed in Chile through three separate licensees
which market soft drinks under the Coca-Cola, Coca-Cola Light, Quatro, Fanta,
Sprite, Sprite Light, Nordic Mist, Andina nectars and juices, and Kapo juices
brand names. According to store audits conducted by Nielsen Chile, Coca-Cola and
related brands accounted for 65% of total carbonated soft drink sales in Chile
in 2002. However, figures calculated by CCU are higher than Nielsen Chile
estimates. CCU expects that soft drinks marketed under private labels could
experience further growth from the current 12% market share they have obtained
as of 2002.


                                       36
<PAGE>

      CCU is the largest producer of mineral water in Chile and the market
leader. CCU's main competitor in the mineral water business is VITAL S.A. (a
subsidiary of one of The Coca-Cola Company licensees). According to Nielsen
estimates, CCU's mineral water products in 2002 accounted for approximately 63%
of mineral water sales by volume, while VITAL accounted for approximately 29%.

      The wine industry is very competitive, in both the domestic and the export
markets. In the domestic market, Vina San Pedro competes directly against all
other major Chilean wineries, including Concha y Toro and Santa Rita, the market
leaders with 23% and 21% estimated market shares, respectively. VSP estimates,
based on information supplied by Nielsen, that its market share in the Chilean
market was approximately 17% in 2002, making it the third largest domestic
producer. According to industry sources, in 2002, Vina San Pedro was the
second-largest exporter of Chilean wines by volume with an estimated market
share of 13%. Vina San Pedro competes internationally against other Chilean
producers as well as with wine producers from other parts of the world.

      Seasonality. CCU's beer, soft drink and mineral water business is
seasonal, with sales and earnings being relatively lower during the Southern
hemisphere winter season of June through August.

Food and Beverage - Lucchetti

      At December 31, 2002, Lucchetti was a 93.7%-owned consolidated subsidiary
of the Company. As of the same date, Quinenco's ownership interest in Lucchetti
was held through an intermediate holding company, Inversiones Rio Bravo Limitada
in which Quinenco had an effective economic interest as of December 31, 2002 of
100.0%. Quinenco's economic interest in Lucchetti was approximately 93.3% and
87.0% at December 31, 2001 and 2000, respectively. Lucchetti and its
subsidiaries accounted for 21.1% of Quinenco's consolidated sales in 2002, 18.2%
in 2001 and 21.3% in 2000.

      Lucchetti is the second largest producer of pastas in Chile with an
approximate 36% share of the domestic market, and the leading domestic producer
of edible oils (principally sunflower and soy oils), with an approximate 28%
market share. Lucchetti also produces packaged soups, creams and broths, with an
approximate 18% share of the domestic market.

      Lucchetti's main market is the Chilean market where it made 77.6% of its
consolidated sales in 2002. The Company believes that, because of Lucchetti's
strong market share and the strength of its major competitor in Chile, future
growth in pasta sales in Chile will largely be dependent on growth in the
overall market. To take advantage of growth opportunities in neighboring
countries during the 1990s, Lucchetti developed additional production facilities
and distribution channels for its products in Argentina and Peru. Lucchetti
constructed a pasta plant in Argentina which was operational from 1997 until
2001 when it was sold to an Argentine competitor. Lucchetti also constructed a
pasta plant on the outskirts of Lima, Peru, which was operational until early
2003 when it was closed for alleged environmental violations.

      Lucchetti Peru S.A. Lucchetti began to export its pasta products to the
Peruvian market in 1995. In 1998, it constructed a state-of-the-art plant
facility in Peru in order to develop further its position in the Peruvian pasta
market. Between 1995 and 2000, Lucchetti gained a significant share of the pasta
market in Peru, becoming the second leading pasta producer in the country. In
addition, Lucchetti sold edible oils in the Peruvian market and distributed
third party products. However, beginning in 2001 and until its closure in early
January 2003 as a result of actions taken by the local Peruvian authorities and
media coverage of such actions, Lucchetti's Peruvian operations suffered a
significant deterioration in terms of sales, which declined by 17.5% in 2001 and
a further 18.5% in 2002, and a significant loss of market share, which fell from
approximately 21% in December 2000 to an estimated 12% as of December 2002.


                                       37
<PAGE>

      The Lucchetti plant is located outside of Lima adjacent to a wetlands area
which is, at present, considered to be of ecological significance. On August 16,
2001, the Concejo Municipal Metropolitano de Lima ("Municipal Council of Lima")
adopted the "Acuerdo de Concejo" or resolution, purporting to revoke the
Lucchetti operating license that had been previously granted by the Municipality
of Chorrillos, and requiring Lucchetti to close the plant operations within 12
months, and dismantle and remove the plant facilities. The Municipal Council of
Lima alleged that the operation of the plant interfered with the special
characteristics of the wetlands area. Lucchetti Peru disagreed with this
assessment, which conflicted with the findings of Peru's environmental
authorities that the plant met all applicable standards and was located outside
of the protected area. Lucchetti believes that the actions of the Peruvian
authorities violate both Peruvian law and various provisions of a bilateral
investment treaty between Chile and Peru, including provisions forbidding
expropriation of investments, discrimination against foreign investors, and
unjust and inequitable treatment.

      On October 3, 2001, Lucchetti notified the Republic of Peru that it was
invoking the dispute resolution procedures of the bilateral investment treaty
between Chile and Peru, which require a six-month period of consultations prior
to the formal initiation of any legal proceedings. The consultation period ended
on April 3, 2002 without a settlement. Moreover, on December 16, 2002, The
Municipal Council of Lima rejected a request by Lucchetti to extend the deadline
for the closure of the plant in order to continue to seek an amicable solution
between the parties.

      On December 23, 2002, Lucchetti submitted the dispute for resolution by an
international arbitral tribunal under the auspices of the International Centre
for Settlement of Investment Disputes ("ICSID"), located in Washington, D.C.

      On January 6, 2003, Lucchetti was notified by an official of the
Municipality of Chorrillos that on January 3, 2003, the Municipality had ordered
the immediate revocation of Lucchetti's operating license. In compliance with
this order, Lucchetti Peru began an orderly evacuation of the plant and is
currently in the process of liquidating its assets. On January 16, 2003, an
official from the Municipality of Chorrillos visited the plant to insure its
compliance with the municipal order.

      On March 26, 2003, Lucchetti was notified that its request for an
arbitration tribunal has been accepted by ICSID. Lucchetti plans to seek damages
for the loss of its investment and commercial activities in Peru. However,
neither the timing nor the outcome of the arbitration can be determined at this
time. Lucchetti recorded an impairment provision in its 2002 financial
statements equivalent to 100% of the book value of its investment in the
Peruvian operations of Ch$29,812 million, in accordance with Chilean GAAP.

      2002 Capital Increase. On January 23, 2002, Lucchetti completed a capital
increase approved and partially carried out in 2001. On this date, Lucchetti
issued 128,757,805 new shares for Ch$2,706 million (value at transaction date).
Quinenco subscribed to 128,610,448 shares for Ch$2,701 million (value at
transaction date). Quinenco's economic interest in Lucchetti increased from
93.3% to 93.7% following the capital increase. Proceeds were used to reduce
indebtedness.

      2001 Capital increase. During Lucchetti's expansion process during the
1990s, Lucchetti incurred significant indebtedness. As part of an effort to
reduce indebtedness, on April 26, 2001, Lucchetti's Board of Directors approved
a capital increase of Ch$21,000 million through the issuance of 1,000,000,000
new shares. The capital increase was carried out in the second half of 2001 and
as of December 31, 2001, Lucchetti had issued 871,242,195 new shares for
Ch$18,294 million (value at transaction date). Quinenco subscribed to
869,708,297 shares for Ch$18,264 million (value at transaction date). Quinenco's
economic interest in Lucchetti increased from 87.0% to 93.3% following the
capital increase.


                                       38
<PAGE>

      Sale of 100% of Lucchetti Argentina S.A. After several years of competing
in the Argentine market with its pasta products, in 2001, Lucchetti decided to
divest its Argentine-based operations in order to concentrate its efforts mainly
in Chile where it has a strong brand recognition, significant market share,
access to a critical mass of consumers which facilitates new product launches,
and in-house distribution capabilities.

      On June 25, 2001, Lucchetti sold its subsidiary, Lucchetti Argentina S.A,
to Molinos Rio de la Plata S.A. ("Molinos"), an Argentina-based food producer
for US$29.7 million (value on transaction date, net of debt). The terms of the
sale agreement also grants Molinos the right to use the Lucchetti trademark in
Argentina and Uruguay for seven years. Lucchetti reported a loss provision on
the sale of its subsidiary of Ch$7,543 million in its financial statements for
the year ended December 31, 2000. Proceeds from the sale were used to reduce
Lucchetti's indebtedness.

      2001 Financial restructuring. During 2001, Lucchetti carried out a
financial restructuring aimed at reducing the company's overall indebtedness
level, and reprogramming remaining debt maturities in line with Lucchetti's
future expected cash flow. As of December 31, 2001, Lucchetti had reduced its
interest bearing debt by 46% to Ch$58,125 million. Proceeds from the sale of the
Argentine subsidiary and the aforementioned capital increases were used to
reduce company indebtedness. The debt restructuring mainly corresponded to a
refinancing of short-term debt into a seven-year syndicated credit facility with
a group of banks for UF2,369,359. As a result of the debt refinancing, as of
December 31, 2001, 82.5% of Lucchetti's interest bearing debt was concentrated
in long-term facilities. The balance of the syndicated bank loan as of December
31, 2002 is UF2,217,722.

      Strategy. Following the exit of its businesses in Argentina and Peru,
Lucchetti's strategy is: (i) to expand its market share in the Chilean pasta,
edible oils and soups and broths markets by capitalizing on its strong brand
recognition, mainly through introductions of higher-value-added products (ii) to
increase profitability in those products associated with large sales volumes by
developing greater production and operating efficiencies.

      The following table shows net sales for each of Lucchetti's principal
business segments for the years ended December 31, 2000, 2001 and 2002:

<TABLE>
<CAPTION>
                       Lucchetti and subsidiaries                           2000           2001            2002
                       --------------------------                           ----           ----            ----
                                                                               (in millions of constant Ch$)
<S>                                                                   <C>             <C>             <C>
            Net sales:
               Pasta ......................................            Ch$60,616      Ch$45,500       Ch$42,703
               Edible oils ................................               29,053         35,201          31,537
               Soups and broths ...........................                1,593          1,747           3,534
               Other (1) ..................................               11,075          6,395           6,025
                                                                      ----------      ---------       ---------
                  Total ...................................           Ch$102,337      Ch$88,843       Ch$83,799
                                                                      ==========      =========       =========
</TABLE>

----------
(1)   Other includes the sale of wheat by-products and third party distribution.


                                       39
<PAGE>

      The following table shows selected consolidated financial information for
Lucchetti and its subsidiaries at and for the years ended December 31, 2000,
2001 and 2002:

<TABLE>
<CAPTION>
             Lucchetti and subsidiaries
                                                                    2000                2001                     2002
                                                                    ----                ----                     ----
                                                                 (in millions of constant Ch$, except percentages)
<S>                                                           <C>                 <C>                     <C>
Net sales (1)(2)(3):
Chile ...............................................          Ch$57,372           Ch$59,129                Ch$65,006
Argentina ...........................................             17,017               6,658                       --
Peru ................................................             27,948              23,056                   18,793
                                                              ----------          ----------               ---------
Total net sales .....................................         Ch$102,337           Ch$88,843                Ch$83,799
                                                              ==========          ==========               ==========

Gross margin ........................................          Ch$32,015           Ch$26,551                Ch$22,415

Operating income (loss) .............................              3,638               2,726                    2,678
Non-operating income (loss) .........................            (21,094)            (12,194)                 (39,721)
Minority interest ...................................                 --                  --                       --
Income taxes ........................................              6,849               2,869                     (180)
                                                              ----------          ----------               ---------
Net income (loss) ...................................         Ch$(10,607)          Ch$(6,599)              Ch$(37,223)
                                                              ==========          ==========               ==========

Total assets ........................................         Ch$142,927          Ch$122,807                Ch$76,345
Bank debt ...........................................             75,237              49,785                   49,110
Other liabilities ...................................             29,579              24,484                   11,046
Shareholders equity .................................             38,111              48,538                   16,189
Quinenco's effective economic interest ..............               87.0%               93.3%                    93.7%
</TABLE>

----------
(1)   Lucchetti's consolidated income statements in 2000, and until the time of
      its sale in 2001, included results from Lucchetti Argentina. Lucchetti's
      consolidated balance sheet as of December 31, 2000 accounted for Lucchetti
      Argentina under the equity method and did not consolidate Lucchetti
      Argentina on a line by line basis, in accordance with Chilean GAAP and
      instructions from the SVS.

(2)   Export sales accounted for 2% of consolidated net sales in 2000, 2001 and
      2002, respectively.

(3)   Lucchetti's consolidated income statements in 2002 included results from
      Lucchetti Peru. Lucchetti's consolidated balance sheet as of December 31,
      2002 accounted for Lucchetti Peru under the equity method and did not
      consolidate Lucchetti Peru on a line by line basis, in accordance with
      Chilean GAAP and instructions from the SVS.

      The following table shows selected statistical data for Lucchetti at and
for the years ended December 31, 2000, 2001 and 2002:

<TABLE>
<CAPTION>
        Lucchetti and subsidiaries
                                                           2000         2001        2002
                                                           ----         ----        ----
                                                            (in thousands of metric tons)
<S>                                                       <C>          <C>         <C>
Production Volumes:
Pasta (1) .....................................           120.3         95.5        87.0
Edible Oils ...................................            39.2         50.5        47.0
Soups, Creams and Broths ......................             1.2          1.2         2.4
Production Capacity: (2)
Pasta .........................................           164.0        128.0       128.0
Edible Oils ...................................            87.0         85.0        85.0
Soups, Creams and Broths ......................             6.8          8.9         7.5
</TABLE>

----------
(1)   Lucchetti Argentina was sold on June 25, 2001. Prior to its sale in 2001,
      Lucchetti Argentina produced 15 thousand metric tons.

(2)   Based on three shifts of eight hours per day for a 360-day year.


                                       40
<PAGE>

      Chile

      Chile is Lucchetti's main market, where approximately 77.6% of its
consolidated sales were made during 2002. In Chile, Lucchetti principally
manufactures and sells pastas, edible oils, soups and broths.

      Pasta. Chile is one of the largest markets in South America for dry pasta
on a per capita basis with an estimated consumer market size of 113,000 metric
tons per year and estimated market value of US$117 million as of December 31,
2002. The production and marketing of pasta in Chile generated sales of
Ch$31,608 million, or 48.6% of Lucchetti Chile's total net sales in 2002
(including export pasta sales).

      Lucchetti produces and markets premium, medium-priced, and popular-priced
pasta under the brands Talliani, Lucchetti, Napoli and Romano. Among these
brands, Lucchetti is Chile's second best-selling pasta brand, accounting for
approximately 36% of all 2002 sales by volume in Chile. Talliani is Lucchetti's
premium pasta, which is made entirely from higher-quality durum wheat. Napoli
and Romano are medium-priced and popular-priced pastas, which are made of a mix
of durum wheat and wheat flour. In addition, Lucchetti produces pastas for third
parties, mainly Chilean supermarket chains. In 2002, revenues related to third
party production of pastas represented approximately 11% of total pasta sales
for the year.

      Edible Oils. Lucchetti is the largest Chilean producer of edible oils,
principally sunflower and soy oils, with a market share of approximately 28% for
the year ended December 31, 2002. Lucchetti's edible oils business in Chile
generated Ch$29,833 million, or 45.9% of Lucchetti Chile's total net sales in
2002.

      Lucchetti produces and sells four types of edible oils: olive oil,
sunflower, vegetable and mixed oils under the brands Talliani Oliva, Miraflores,
Oro Vegetal, Dona Flor, Dona Sofia, El Dorado and Protal. Among these brands,
Protal, a mixed oil, is Chile's best selling edible oil, accounting for
approximately 11% of all 2002 sales by volume in Chile. Talliani is Lucchetti's
leading premium brand for sales of olive oil. The Protal, Dona Flor, Dona Sofia,
El Dorado and Oro Vegetal brands are vegetable oils targeted at the
medium-income and low-income markets. The bulk edible oil market in Chile is
mainly comprised of supply to producers of the mass consumption products such as
mayonnaise and fried potatoes as well as paints. Lucchetti estimates that its
market share in the bulk edible oil market is 50%.

      Packaged Soups, Creams and Broths. Lucchetti is the second-largest
producer of packaged soups, creams and broths in Chile, with a market share of
approximately 18% in soups and creams. Lucchetti's packaged soups, creams and
broths business generated Ch$3,534 million, or 5.4% of Lucchetti's total net
sales in 2002. In addition, Lucchetti produces soups, creams and broths for
Knorr. In 2002, revenues related to third party production of soups for Knorr
represented approximately 9% of total soup sales and 0.5% of total sales in
Chile for the year.

      Customers. Lucchetti's principal customers in Chile are supermarkets,
distributors and other retailers, representing 50%, 33% and 17% of 2002 net
sales, respectively.

      Competition. Lucchetti's principal competitor in the Chilean pasta
business is Carozzi. Carozzi has approximately 39% of the pasta market share,
compared to Lucchetti's 36%. Lucchetti does not face significant competition
from a single foreign manufacturer of pasta in the Chilean pasta market.

      Lucchetti is the largest producer of edible oils in the Chilean market.
Lucchetti's principal competitors in the edible oils business are Malloa, a
subsidiary of Unilever BestFood Chile, and Watts


                                       41
<PAGE>

with estimated market shares of 17% and 22%, respectively. Lucchetti estimates
that its sales accounted for approximately 28% of total Chilean sales of edible
oils for the year ended December 31, 2002. Foreign competition mainly comes from
Argentine producers, mainly as a result of the economic crisis in that country,
which has led Argentine producers to seek other markets and capitalize on
favorable exchange rates following the devaluation of the Argentine peso in
2001.

      Lucchetti's principal competitor in the dry soup and cream business is
Maggi, a brand associated with Nestle, with an estimated market share of 74%.
Lucchetti estimates that its net sales accounted for approximately 18% of total
Chilean sales of packaged soups, creams and broths in 2002.

      Manufacturing facilities. Lucchetti manufactures pasta products for
domestic and export sales at its plant in Santiago. The Santiago pasta and mill
facilities consist of storage silos, a production and packaging plant and a
finished products warehouse. Pasta is produced in eleven lines: four dedicated
to long pasta products and seven dedicated to cut products. Pasta production
capacity is approximately 80,000 metric tons per year. Capacity utilization was
70% in 2002 of which approximately 16% corresponded to third party production in
2002.

      Lucchetti's edible oil plant is located in Maipu, near Santiago. The plant
consists of installations for crushing, solvent extraction, oil refining and
bottling. Lucchetti offers its competitors the use of this facility on a fee
basis. Lucchetti has a joint production arrangement with a subsidiary of
Unilever BestFood Chile in order to improve its production efficiency and reduce
production costs. Oil production capacity is approximately 85,000 metric tons
per year. Capacity utilization was 56% for the Company's own products and 26% in
connection with third party production in 2002.

      Lucchetti's plant for the production of soups, creams and broths is
located in Santiago. The plant consists of installations for dehydration and
packaging. Soup, cream and broth production capacity is approximately 7,500
metric tons per year. Capacity utilization was 32% in 2002.

      Raw Materials. The principal raw material that Lucchetti uses in the
production of pasta is wheat, which represents approximately 67% of production
costs. Lucchetti purchases approximately 40%-60% of its durum wheat from Canada,
principally through a joint venture with Carozzi which was formed to procure
wheat for the venture owners under mutually advantageous terms. The remainder of
Lucchetti's wheat requirements have been satisfied in recent years through
domestic purchases pursuant to annual contracts under which, in some cases,
Lucchetti provides working capital to local farmers to encourage a continuing
local source for raw materials. Lucchetti has never experienced significant
difficulties in obtaining adequate supplies of wheat on satisfactory terms.
Lucchetti has facilities in its Santiago pasta plant for the storage of up to
29,700 metric tons of unprocessed wheat.

      For the production of edible oils, Lucchetti purchases 100% of its crude
oil requirements from suppliers in Argentina. Lucchetti has facilities in its
Santiago oil plant for the storage of up to 2,700 tons of seeds, 4,800 tons of
crude oils and 1,000 tons of refined oil.

      The principal materials that Lucchetti uses in the production and
distribution of its soups, creams and broths are flour, fat and packaging
materials. Lucchetti purchases all these raw materials from local suppliers.
Historically, Lucchetti has not experienced any difficulty in obtaining raw
materials at satisfactory prices and does not expect to in the near term.

      Peru

      Until January 2003, Lucchetti manufactured and sold pasta products and
imported and sold edible oils in the Peruvian market. It also distributed third
party products to the Peruvian market. Approximately 22.4% of Lucchetti's
consolidated sales were made in Peru in 2002. Lucchetti's Peruvian


                                       42
<PAGE>

operations were closed by municipal authorities in January 2003 for alleged
environmental violations. Lucchetti has no plans to restart its manufacturing
activities in Peru in the future. It is currently in the process of liquidating
its manufacturing plant and machinery in Peru.

      Lucchetti's subsidiary in Peru began local distribution of Lucchetti's
pasta products in 1995, and in 1998 began local production. During the time it
operated in Peru, Lucchetti's products reached a market share of 25.4% in 1998,
its first year of local production. This market share gradually fell to 12.4% in
2002, as a consequence of the negative public relations stemming from
accusations made by Peruvian authorities for alleged environmental violations.

      Lucchetti's Peruvian operation generated sales of Ch$18,793 million in
2002, of which 59.0% or Ch$11,095 million corresponded to pasta sales. The
remaining sales corresponded to edible oils and sales of third party products.

      The estimated consumer market size is approximately 231,000 tons per year,
and the estimated market value is US$127 million in Peru as of December 2002.

      Customers. Lucchetti's principal customers in Peru were major
distributors, representing 56% of 2002 net sales and small distributors who
represented approximately 39% of net sales. Supermarkets represented only a
small percentage of 2002 net sales.

      Competition. Lucchetti's main competitors in the Peruvian packaged pasta
market were Alicorp S.A. (formed from the merger of Consorcio de Alimentos
Fabril-Pacifico S.A. and Nicolini S.A. in October 1996) and Molitalia S.A, a
company related to Carozzi, Lucchetti's principal competition in Chile.

      Manufacturing facilities. Lucchetti manufactured pasta products for the
Peruvian market at its plant on the outskirts of Lima, which is now closed. The
Peruvian facilities consist of a mill, storage silos, a production and packaging
plant and a finished products warehouse. Pasta was produced in three lines.
Pasta production capacity was approximately 48,000 metric tons. The capacity
utilization rate of the plant in Peru was 57% in 2002.

      Raw materials. Lucchetti Peru purchased all of its wheat from the main
supplier in the Peruvian market, Cargill U.S.A, which imports wheat from Canada
and the United States. Raw oil was imported from one main supplier in Argentina.

      Argentina

      Between 1993 and 2001, Lucchetti competed in the Argentine market with its
pasta products. In 2001, Lucchetti decided to divest its Argentine-based
operations, mainly associated with its limited in-house distribution capability
which resulted in less profitable operations than originally expected. As a
consequence, Lucchetti entered into an agreement to sell its operations in
Argentina to its largest competitor in the Argentine market in early 2001. The
sale was concluded on June 25, 2001, following the approval of the Argentine
antitrust authorities. In 2001, approximately 7.5% of Lucchetti's 2001
consolidated sales were made in Argentina.

      Legal Proceedings

      For a discussion of material legal proceedings involving Lucchetti, see
"Item 8. Financial Information - Legal Proceedings".


                                       43
<PAGE>

      Financial Leverage

      In 2002, Lucchetti's net worth suffered a significant deterioration as a
result of the losses associated with the closure of its Peruvian operations of
Ch$30,678 million, reflected in the company's financial statements for the year
ended December 31, 2002. As a consequence, Lucchetti's net worth decreased to
Ch$16,189 million in 2002. At December 31, 2002, Lucchetti had bank debt
obligations of approximately Ch$49,110 million, which resulted in a total debt
to net worth ratio of 3:1. Total liabilities to net worth was 3.7:1 as of the
same date.

      In accordance with instructions from the SVS, Lucchetti did not
consolidate its balance sheet with Lucchetti Peru as of December 31, 2002. Bank
and other interest bearing indebtedness related to the Peruvian operations as of
the same date amounted to Ch$12,117 million and total liabilities in Peru were
Ch$19,172 million. Lucchetti is at present in the process of liquidating its
assets in Peru, and it is expected that proceeds from the sale of assets will be
sufficient to meet Lucchetti Peru's bank, leasing and other obligations.
However, there can be no assurance that the timing of the sale of the Peruvian
assets will coincide with scheduled bank repayments associated with Lucchetti
Peru's debt or that sales proceeds will be sufficient to settle its obligations
in Peru. For further information, see "Item 5.B Operating and Financial Review
and Prospects - Liquidity and Capital Resources - Financial Covenants and Other
Restrictions".

Telecommunications - Telefonica Del Sur

      At December 31, 2002, Telsur was a 73.6%-owned consolidated subsidiary of
the Company. The Company's interest in Telsur is held through a wholly-owned
subsidiary, VTR. Telsur is the principal provider of local telephone service in
Regions X and XI and the second largest provider of telephone services in the
city of Temuco, in the south of Chile. Since the year 2000, Telsur also provides
local telephone service in some cities of Region VIII of Chile, including the
city of Concepcion, the second largest city in the country. In addition to local
telephone services, Telsur is also a provider of nationwide domestic and
international long distance telephone services, Internet services and other
non-regulated telecommunications services. Quinenco's economic interest in
Telsur was 73.6% at December 31, 2000, 2001 and 2002, respectively. Telsur's net
sales as a percentage of Quinenco's total consolidated net sales was 11.8% in
2002, 9.6% in 2001 and 9.2% in 2000.

      2002 Reorganization. With the objective of fortifying its base for future
growth, Telsur restructured its operations in 2002. The reorganization involved
a change in the company's management structure and a 12% cut in personnel, which
were designed to reduce costs and raise efficiency levels. The restructuring
process resulted in a cash outlay of US$2.1 million in 2002. The plan is
oriented towards centralizing functions, optimizing resources, modernizing
processes, outsourcing services and redesigning information technology. Telsur
expects to achieve annual savings of US$1.7 million as a result of the
reorganization.

      2001 Bond Issue in the Chilean market. In May 2001, Telsur issued bonds in
the Chilean market for UF1,000,000. The bond issue consisted of two series.
Series G, which amounted to UF400,000, matures in 2005, and Series H, which
amounted to UF600,000, matures in 2021.

      Strategy. Due to the dynamic nature of the telecommunications business in
Chile, which in 2002 was subject to high levels of competition in all business
areas and a diminishing tariff base for long distance and Internet services,
Telsur revised its strategic plan. Telsur's revised strategy is: 1) to
strengthen the bases for growth of non-traditional services, 2) to expand its
geographical coverage, 3) to focus on improving the operating efficiency of its
business units and 4) to improve the profitability on invested capital.


                                       44
<PAGE>

      Local Exchange Telephony. Telsur is the leading provider of local
telephone service in the X and XI Regions which include the cities of Puerto
Montt, Valdivia, Osorno, Chiloe and Coyhaique, in the south of Chile. Telsur
began providing telephone service in the IX Region which includes the city of
Temuco, during the first quarter of 1997 and currently has an estimated 45.2%
market share in that city. In addition, Telsur expanded to the VIII Region which
includes Concepcion in late 2002, where it currently has an 11.6% market share.
Telsur is a facility carrier in Regions X and XI (where it operates over its own
network); in the rest of Chile it is a non-facility carrier, renting capacity
from other networks.

      The following table shows selected financial information of Telsur and its
subsidiaries at or for the years ended December 31, 2000, 2001 and 2002:

<TABLE>
<CAPTION>
              Telsur and subsidiaries                             2000                    2001                    2002
                                                                  ----                    ----                    ----
                                                                        (in millions of constant Ch$)
<S>                                                         <C>                     <C>                     <C>
Net Revenues ...................................             Ch$44,164               Ch$46,701               Ch$46,646
Gross margin ...................................                24,813                  27,775                  27,354

Operating income ...............................                12,646                  13,845                  13,148
Non-operating results ..........................                (2,989)                 (3,099)                 (3,681)
Minority interest ..............................                  (127)                   (166)                   (134)
Income taxes ...................................                (1,635)                 (1,844)                 (1,780)
Extraordinary items ............................                    --                      --                  (1,526)
                                                            ----------              ----------              ----------
Net income .....................................              Ch$7,895                Ch$8,736                Ch$6,027
                                                            ==========              ==========              ==========

Total assets ...................................            Ch$121,215              Ch$135,683              Ch$137,532
Bank debt & bond obligations ...................                52,569                  67,426                  67,123
Other liabilities ..............................                13,318                  11,611                  13,099
Shareholders' equity ...........................                55,328                  56,646                  57,310
Quinenco's effective economic interest .........                  73.6%                   73.6%                   73.6%
</TABLE>

      Tariff Structure. On December 20, 1999 and April 27, 2000, the Ministry of
Economy in conjunction with the Ministry of Transportation and
Telecommunications, published in the Official Gazette, the decree which sets
forth the rates for the regulated services of Telsur and Telcoy, an 88.7%-owned
subsidiary of Telsur, for the period December 1999-December 2004. The effect of
the new tariff structure on Telsur was to reduce access charges and alter the
structure of per minute charges to per second charges for basic telephony usage.

      Revenue from Telsur's local exchange telephony business, which for the
year ended December 31, 2002 accounted for 55% of total revenues, is generated
principally by fixed monthly fees, per minute charges, the price of which
depends on the time of the day in which calls are made (utilizing peak and
off-peak rates), and access charges from other carriers. In addition, Telsur
offers prepaid fixed cost telephone services.

      Telsur's concession requires it to provide telephone service to any
requesting party within areas designated as "mandatory service areas" in the
Technical Plan prepared by the Chilean Undersecretary of Telecommunications
every five years. Outside of these "mandatory service areas", parties requesting
new telephone line installation must pay for the cost of extending the network
to the point of connection to their premises.


                                       45
<PAGE>

      The following table shows certain statistical data for Telsur's local
exchange telephone operations at or for the years ended December 31, 2000, 2001
and 2002:

<TABLE>
<CAPTION>
             Telsur and subsidiaries
                                                                   2000           2001               2002
                                                                   ----           ----               ----
<S>                                                             <C>            <C>                <C>
Lines in Service ....................................           162,233        177,281            172,099
% Growth from prior period ..........................               8.5%           9.3%              -2.9%
Lines installed .....................................           178,035        194,842            197,436
% Growth from prior period ..........................               9.9%           9.4%               1.3%
Employees per 1000 lines in service .................               3.1            2.7                2.3
Utilization Ratio(1) ................................              0.91           0.91               0.87
Digitalization (2) ..................................               100%           100%               100%
Automation (3) ......................................               100%           100%               100%
</TABLE>

----------
(1)   Ratio of lines in service at the end of the period to lines installed at
      the end of the period.

(2)   Percentage of lines in service connected to digital exchanges at the end
      of the period.

(3)   Percentage of lines installed connected to automatic exchanges at the end
      of the period.

      Telsur owns approximately 81.4% of the telephone lines in service in the X
and XI Regions, 45.2% of the telephone lines in service in Temuco and 11.6% of
the telephone lines in service in Concepcion, with a total of 172,099 lines in
service as of December 31, 2002. Approximately 64% of its lines are residential,
33% are commercial, 1.8% are public telephones and 1.2% are used in Telsur's
businesses. During 2002, 21,452 new lines were installed and 26,634 existing
lines were retired, representing a decline in the total number of lines in
services of 2.9% from the prior year. Telsur's local telephone system
penetration in recent years has increased to an estimated 13.7 lines per 100
inhabitants at December 31, 2002, from 4.2 lines per 100 inhabitants at December
31, 1992. These penetration levels are lower than those of Chile as a whole
(22.7 lines per 100 inhabitants at December 31, 2002), reflecting the rural
character of Telsur's concession area.

      As a result of its extensive addition of digital exchange technology in
the last decade, Telsur achieved full digitalization of its network, with all of
its lines connected to digital exchanges. The digitalization of its network has
allowed Telsur to provide additional non-regulated services, including ISP, web
hosting, call waiting, voice mail, call transfer, conference calling and call
blocking. Digitalization also allows for more efficient utilization and
maintenance of the network through automatic testing and traffic control. Other
unregulated services accounted for 15% of Telsur's revenues as of December 31,
2002.

      In order to more fully develop business opportunities associated with
Internet related services, Telsur formed a new subsidiary, Telefonica del Sur
Net S.A., in March 2000. This subsidiary has implemented a broadband network,
which offers high speed access to Internet, network connections and video
conferencing services, among others. As of December 31, 2002, Telsur had 8,145
Internet subscribers and 8,153 subscribers of high-speed wide band services with
revenues of Ch$5,696 million in 2002, equivalent to 12.2% of total consolidated
revenues.

      In September 2000, in order to develop business opportunities associated
with the security related services, Telsur formed Telsur Seguridad S.A. The main
services include alarm and telemonitoring services and access control services,
oriented to individual consumers and businesses. As of December 31, 2002, the
subsidiary had 7,799 clients, equivalent to a 63% market share between Temuco
and Coyhaique and an 18% market share in Concepcion with revenues of Ch$942
million in 2002.


                                       46
<PAGE>

      In June 2001, Telsur created Telsur Call Center S.A. in order to provide
inbound and outbound call center services for Telsur, its subsidiaries and third
parties. Revenue associated with this business unit amounted to Ch$942 million
in 2002.

      Subsidiaries in Start-Up Phase. In connection with the expansion of its
business, Telsur's subsidiaries Telefonica del Sur Net, Telefonica del Sur
Seguridad and Telsur Call Center were in the development stage until 2002 when
they began to consolidate with Telsur. In October 2002, Telsur formed a new
subsidiary, Blue Two Chile S.A. in order to develop the first public network of
wireless wide band for Internet utilizing Bluetooth and wireless LAN technology.
This subsidiary is currently in the development stage.

      Start-up losses incurred by Telsur in relation to these subsidiaries
amounted to Ch$1,320 million in 2000, Ch$2,497 million in 2001 and Ch$889
million in 2002. The losses were recorded as a charge to Telsur's net worth in
2000, 2001 and 2002 and did not affect Telsur's results from operations.

      Long Distance Telephony. Through Telefonica del Sur Carrier S.A., a
wholly-owned subsidiary of Telsur, Telsur provides domestic long distance and
international long distance services. In 2002, Telsur's subsidiary, this
subsidiary reported net revenues of Ch$6,788 million.

      On March 10, 1994, an amendment to Chile's Telecommunications Law was
enacted, establishing a multiple long distance carrier system in Chile,
permitting customers in Chile to select long distance carriers for provision of
both international long distance and domestic long distance telephone services.
The multicarrier system (i) requires local telephone companies to install
switches and equipment and to provide any licensed long distance carrier equal
access to the local telephone system; (ii) requires local telephone companies
that provide long distance services to do so only through subsidiaries
constituted as open-stock (publicly traded) corporations, in order to prevent
cross-subsidies; and (iii) imposes temporary market limitations for the first
few years of the system's operation to prevent any single carrier from
establishing immediate dominance in the market.

      Competition. Telsur has faced and continues to face intense competition in
every aspect of its business activities. In local telephony, Telsur faces
competition from Telefonica CTC, which entered Telsur's concession area in
Regions X and XI in 1996 and is the incumbent competitor in the VIII and IX
Regions. Telefoncia CTC, which operates approximately 76.8% of installed local
service telephone lines in Chile, is expected to continue as a strong
competitor. In long distance telephony, Telsur competes with other national
carriers, including Entel, Telefoncia CTC Mundo, Chilesat and Bellsouth, among
others. In Internet services, Telsur competes with Entel, Terra, a subsidiary of
Telefonica of Spain, VTR Hipercable and Telefonica CTC.

      Mobile telephony has experienced dramatic growth rates in Chile in recent
years, and its subscriber base now exceeds that of fixed telephony. However,
traffic in minutes is inferior to that of fixed telephony mainly due to the high
per minute cost associated with mobile telephony. Telsur believes that the
growth of mobile telephony has been stimulated by artificially high access
charges placed on fixed telephony users when they make calls to mobile phones,
which in the long run, will not be sustainable. During 2003, telecommunications
authorities are expected to set tariffs related to access charges for the next
five year period. Telsur believes regulators will lower the access charges
mobile operators are permitted to charge, which could result in lower revenues
for mobile operators. Lower revenues from access charges could cause mobile
operators to raise other fees for mobile phone users in order to compensate for
the decline in revenues. Telsur believes that this will allow fixed telephony
operators to better compete against mobile telephony operators on a price basis.
While there can be no assurance, Telsur believes that mandated lower access
charges for mobile telephony could revert the declining growth tendencies seen
in fixed telephony in recent years.


                                       47
<PAGE>

      Regulatory Factors. Substantially all of Telsur's telecommunications
business is conducted pursuant to non-exclusive concessions granted by the
Chilean government or its instrumentalities. Obtaining the requisite government
concessions and licenses is not considered a significant barrier to entry under
Chile's current telecommunications regulatory regime.

      The Chilean telecommunications regulatory authorities ruled on May 20,
2003 that for antitrust reasons, the current market conditions in Chile are not
conducive to a free tariff rate structure for Telefonica CTC as it has certain
monopolistic characteristics. Specifically, authorities ruled that Telefonica
CTC's fee structure will be regulated on a nationwide basis except for the
Regions X, XI and Easter Island. Telsur and its subsidiary, Telcoy will be
regulated in the Regions X and XI and Entel on Easter Island. During 2003 and
2004, regulatory authorities will review Telefoncia CTC's and Telsur's local
fixed telephony and access charges, respectively.

      The telecommunications industry as a whole has traditionally been, and is
likely to continue to be, subject to rapid and significant changes in
technology. Although Telsur does not generally view the requirement to obtain
necessary concessions and licenses as presenting significant risks, and does not
believe that the current regulatory environment poses significant restrictions
on its prospects, there can be no assurance that it will be able to obtain or
maintain all required concessions and licenses, or that amendments to the
applicable laws or regulations will not occur that could adversely affect its
business, results of operations, financial conditions or prospects.

Telecommunications - Entel

      As of December 31, 2002, Quinenco owns a 5.7% interest in Entel, a leading
telecommunications provider in Chile. The interest in Entel is held through a
wholly-owned intermediate holding companies, VTR S.A. and Comatel S.A. In 2002,
the Company's equity participation in Entel's net income was Ch$2,337 million.

      Entel is one of the leading providers in the telecommunications sector of
long distance, cellular telephony, Internet and other telecommunications
services in Chile. During 1999, through privately negotiated transactions and
purchases on the open market, Quinenco acquired a 14.3% interest in Entel.
During the first half of 2000, additional purchases were carried out on the open
market and the Company's interest in Entel reached 14.5%. In August 2000, the
Company sold a portion of its interest in Entel for Ch$12,000 million. The
pre-tax gain on the sale amounted to Ch$7,834 million in 2000. During 2001, the
Company sold an additional 8% interest in Entel for Ch$91,486 million. The
pre-tax gain on the sale amounted to Ch$51,056 million in 2001. Quinenco does
not consolidate Entel's results, which are accounted for as an equity-method
investment. Entel is traded on the Chilean stock exchanges.

      Founded in 1964, Entel is a leader in Chile in the two areas that have
represented the highest growth in past years in the telecommunications industry,
Internet services and PCS wireless technology. In addition, since commencing its
multicarrier services, Entel has been a leading company in this area. Entel's
digital network allows it to offer integrated telecommunications services which
include national and international long distance multi-carrier services,
Internet services, cellular telephony and voice, data and video communication
services. It also operates public telephones and call centers throughout the
country. Entel's subsidiary, Americatel in the United States offers specialized
long distance services oriented to Spanish speaking customers in that country.


                                       48
<PAGE>

      The following table contains selected financial information, which was
derived from Entel's 2001 and 2002 Annual Report and relates to Entel and its
subsidiaries at or for the years ended December 2000, 2001 and 2002:

<TABLE>
<CAPTION>
                Entel and subsidiaries
                                                                  2000                    2001                    2002
                                                                  ----                    ----                    ----
                                                               (in millions of constant Ch$, except percentages)
<S>                                                       <C>                     <C>                     <C>
Net Sales ......................................            Ch$553,796              Ch$731,101              Ch$804,762
Gross margin ...................................               259,066                 309,389                 329,681

Operating income ...............................                73,323                  85,661                  97,561
Non-operating results ..........................               (38,768)                (48,716)                (50,880)
Minority interests .............................                  (820)                   (915)                 (1,289)
Income taxes ...................................                (4,664)                   (800)                 (4,296)
                                                                                  ------------            ------------
Net income .....................................             Ch$29,071               Ch$35,230               Ch$41,096
                                                          ============            ============            ============

Total assets ...................................          Ch$1,106,485            Ch$1,233,840            Ch$1,290,562
Bank debt & bond obligations ...................               251,601                 327,986                 442,725
Other liabilities ..............................               366,245                 388,916                 302,940
Shareholders' equity ...........................               488,638                 516,938                 544,897
Quinenco's effective economic interest .........                  13.7%                    5.7%                    5.7%
</TABLE>

      The following table shows the composition of Entel's consolidated sales
and certain statistical data pertaining to Entel's telecommunications operations
at or for the year ended December 31, 2000, 2001 and 2002:

<TABLE>
<CAPTION>
                      Entel and subsidiaries                                      2000               2001               2002
                                                                                  ----               ----               ----
                                                                                      (in millions of constant Ch$)
<S>                                                                        <C>                <C>                <C>
Net Sales:
Telephony services (including long distance & Internet) ...........        Ch$ 151,220        Ch$ 161,325        Ch$ 181,130
Private business network services .................................             59,198             63,213             62,888
Wireless telephony services .......................................            188,338            263,928            321,686
Local telephony services ..........................................             22,870             26,841             26,740
International subsidiaries ........................................            132,170            215,794            212,318
                                                                           -----------        -----------        -----------
Total net sales ...................................................        Ch$ 553,796        Ch$ 731,101        Ch$ 804,762
                                                                           ===========        ===========        ===========

National multicarrier traffic (millions of minutes) ...............              869.0              793.2              698.9
International multicarrier traffic (millions of minutes) ..........               89.4               91.8               91.7
Americatel multicarrier national & international traffic
(millions of minutes) .............................................                510                987                937
Internet traffic (millions of minutes) ............................            2,035.8            2,849.2            2,403.8
Number of cellular telephone subscribers ..........................          1,273,977          1,938,846          2,292,536
</TABLE>

Manufacturing - Madeco

      Madeco was a 53.4%-owned consolidated subsidiary of the Company for the
year ended December 31, 2002 and a 56.1%-owned subsidiary for the years ended
December 31, 2001 and 2000. Madeco's net consolidated sales as a percentage of
the Company's consolidated net sales was 64.7% in 2002, 70.0% in 2001 and 67.0%
in 2000.

      Madeco is a leading diversified manufacturer of finished and semi-finished
non-ferrous products based on copper, copper alloys and aluminum. Additionally,
Madeco is also a leading producer of


                                       49
<PAGE>

flexible packaging products for large consumer industries. Madeco has a
significant presence throughout Chile, Brazil, Argentina and Peru with
productive and sales activities in these countries.

      Historically, the prices for copper, aluminum and plastic, the principal
raw materials used by Madeco, have fluctuated greatly. Madeco's price policy is
to sell based on the quantity of metal contained in a product, valued at the
London Metals Exchange, or "LME", prices. The ability to modify selling prices
in response to fluctuations in the cost of raw materials does not insulate
Madeco from non-operating, non-cash accounting losses which may arise as a
result of recording copper and aluminum inventories at the lower of restated
cost or market value in a declining price environment. However, Madeco generally
has been able to increase its selling prices in response to increases in costs
of copper and/or aluminum. There can be no assurance, however, that Madeco will
be able to recover increases in the cost of copper and/or aluminum in the
future. Further, while Madeco has not experienced significant difficulty in
obtaining raw materials in the past, there can be no assurance that the
materials it uses will remain available in the future.

      Madeco's business and results of operations in all of its lines of
businesses are also to a large extent dependent on the overall level of economic
activity and growth in Chile, Brazil, Peru and Argentina, and specifically on
the level of growth in the telecommunications, electricity, mining and general
construction sectors, as well as levels of economic activity in its principal
export markets. Because Madeco's businesses, in large part, depend on capital
planning and capital expenditures, its sales and financial results are sensitive
to economic cycles, particularly downturns in economic activity.

      Madeco's principal activity, which accounted for 55.8%, 57.6% and 51.2% of
consolidated sales in 2000, 2001 and 2002, respectively, is the wire and cable
business. Since 1997, Madeco has participated in the wire and cable business in
Brazil, through its subsidiaries, Ficap S.A. ("Ficap"), which produces copper
and aluminum cables, and Optel Ltda. ("Optel"), which produces optical fiber
cable. For the year 2002, sales in Brazil generated approximately 28% of
Madeco's consolidated revenue. Madeco's revenues are dependent on the overall
level of economic activity and investment in Brazil and demand from its main
customers, telecommunications companies and energy transmission and distribution
companies.

      From the second half of 2000 through the first half of 2001, Madeco
experienced significant demand from Brazil for copper and optical fiber telecom
cable, due mainly to the expansion of two optical fiber telecom network
back-bones in Brazil and investments in copper telecom cable pursuant to the
concession agreement between Brazil's telecommunications agency and various
telecommunications companies. However, by the third quarter of 2001, when most
of these companies had reached their targets, demand for telecom equipment in
Brazil all but halted. Although Madeco's operations in Brazil continue to
operate, plant capacity is largely under utilized. This downturn continued in
2002 and was further exacerbated by lower demand for cable products by customers
in the energy transmission sector, mainly as a result of underlying political
and economic uncertainty which affected overall investment levels. Madeco does
not expect demand for cable products in Brazil to significantly recover in the
foreseeable future.

      In addition, Madeco's businesses in Argentina, which in 2001 generated
approximately 14.7% of Madeco's consolidated sales, were deeply affected by the
economic deterioration in Argentina in 2001. Argentina's economic activity
contracted severely as its government imposed restrictions on bank deposits and
withdrawals, exchange controls, suspension of payment of external debt and the
abrogation of Argentine peso convertibility. At the beginning of the year 2002,
as a consequence of Argentina's tumultuous economic environment and political
instability, Madeco suspended its Argentine wire and cable and brass mills
operations. Since early 2002, Madeco's subsidiary, Decker-Indelqui, has been
closed although it maintains a minimal staff in Argentina, primarily to
commercialize products imported


                                       50
<PAGE>

from Madeco's operations in other countries and ensure the security and
maintenance of its five production facilities. In conjunction with its joint
venture partner, Corning, in Optel Argentina, Madeco also decided to minimize
its optical fiber cable operation in Argentina.

      As a result of the material adverse effect on Madeco of the deep economic
recession in Argentina and other adverse economic developments in the markets in
which it operates, Madeco developed a refinancing plan aimed at fortifying its
capital structure and improving its debt repayment capacity. Under this plan,
Madeco was to increase capital by approximately US$70 million, principally to
pay certain of its indebtedness, as required under certain of its loan
agreements. The plan also called for Madeco to restructure its ongoing loan
facilities.

      Capital Increase and Debt Restructuring. On July 10, 2002 at an
extraordinary shareholders' meeting, Madeco's shareholders approved a capital
increase of Ch$63 billion, divided in 1.8 billion shares at Ch$35 per share.
Shareholders agreed that the capital increase would be conditioned upon a
minimum capital subscription of Ch$47 billion as well as the successful
renegotiation of the company's bank facilities under terms more favorable to
Madeco and compatible with its estimated cash generation capacity. Shareholders
were offered the option to subscribe to the capital increase under a mandate
with Banchile Corredores de Bolsa, a 99.7%-owned stock brokerage subsidiary of
Banco de Chile, which would monitor the process and only allow for the final
subscription and payment of shares once the minimum conditions of the capital
increase were met.

      On October 8, 2002, the preferential rights offering period of the capital
increase was concluded, and 19,511,028 shares for Ch$683 million (value at
transaction date) were subscribed and paid outside of the mandate option. An
additional 1,057,082,454 shares for Ch$36,998 million (value at transaction
date) were subscribed under the mandate agreement and held in escrow. On October
15, 2002, the company announced that the minimum conditions established for the
capital increase had not been met and the funds held in escrow were returned to
shareholders.

      Quinenco directly and indirectly subscribed to 1,009,989,363 shares for
Ch$35,350 million (value at transaction date) during the preferential rights
offering period of Madeco's capital increase, but due to the failure to meet the
minimum conditions, its subscription was returned under the mandate agreement.
As a result, Quinenco's interest in Madeco decreased from 56.1% to 53.4%.

      On December 18, 2002, Madeco reached agreements with fourteen of its bank
lenders to amend certain of its credit facilities. The terms of the agreements
provided for a US$120 million debt restructuring over seven years, conditioned
upon a repayment of 30% of the loan balances at the time of signing amended and
modified loan agreements. The agreements were also conditioned upon a minimum
capital increase of Ch$49,400 million on or before March 31, 2003.

      On February 18, 2003, Madeco initiated a Ch$101,380 million capital
increase. On March 4, 2003, Quinenco directly and indirectly subscribed and paid
2,058,353,792 shares for Ch$49,400 million.

      The voluntary offering period concluded on March 22, 2003. Subscribed and
paid capital amounted to Ch$51,314 million, divided in 2,138,097,727 shares.
Following the close of the pre-emptive rights offering period, Madeco initiated
a bond capitalization process that concluded on March 31, 2003. Series A and
Series C bondholders capitalized a total of 154,876,051 shares at Ch$24 per
share for an amount equivalent to Ch$3,717 million.

      As a result of the capital increase, Madeco issued a total of
2,292,973,778 shares. Total subscribed and paid capital as of April 1, 2003
amounted to 2,698,484,806 shares. As a result of the capital increase Quinenco's
interest in Madeco increased from 53.4% to 84.3%.


                                       51
<PAGE>

      Cash proceeds from the capital increase amounted to Ch$51,314 million. In
March of 2003, Madeco used Ch$28,847 million of the total proceeds to repay bank
debt and Ch$3,717 million to redeem a portion of the outstanding Series A and
Series C bonds. Remaining funds of Ch$18,750 million were set aside to reduce
liabilities and provide additional working capital for the company.

      An additional 264,800,000 shares were sold in a public auction on the
Santiago Stock exchange on June 6, 2003 for Ch$7,679 million. As a result of the
sale, Madeco's total outstanding shares increased to 2,963,284,806 shares.
Quinenco did not subscribe to additional shares. As a consequence, its interest
in Madeco decreased from 84.3% to 76.8% as of the same date. Proceeds from the
share increase will be used to reduce liabilities and provide additional working
capital for the company.

      Arbitration with Corning Inc. On June 27, 2002, Madeco announced that it
had been notified by Corning Inc., Madeco's joint venture partner in Optel which
produces optical fiber cable in Brazil and Argentina, of its desire to liquidate
the joint venture. Madeco believes that Corning is attempting to unjustifiably
terminate the agreements with Madeco and has filed an arbitration suit against
its partner to resolve this dispute. There can be no assurance regarding the
outcome of this arbitration. Madeco's management believes that an adverse
outcome of the arbitration would have a materially adverse effect on Madeco's
interest in Optel's assets. See "Item 8. Financial Information - Legal
Proceedings - Madeco".

      Compliance of Continued Listing Requirements with the NYSE. In the past
year, Madeco was not in compliance with certain of the NYSE's continued listing
requirements. Madeco was informed on June 25, 2002 that it had failed to meet
one of the continued listing requirements of the New York Stock Exchange with
respect to a minimum $1.00 average closing price for a consecutive
30-trading-day period. The company was given six months from the date of receipt
of the notification to comply with the continued listing requirement. On
December 31, 2002, Madeco received a second notification that in addition to the
minimum average closing price requirement, that it also did not comply with the
minimum market capitalization requirement of US$15 million over a 30- trading-
day period.

      In a letter to the New York Stock Exchange dated December 20, 2002, Madeco
requested an extension until April 2003 in order to comply with the continued
listing requirements. The company informed the NYSE that it was currently in the
process of carrying out a capital increase and that it expected to achieve
compliance with the continued listing requirements as a result of the capital
increase and other actions to be taken by the company. The request was granted
by the NYSE on January 10, 2003.

      In order to cure the minimum share price requirement, Madeco effected an
ADR ratio change from 10 common shares per 1 ADR to 100 common shares to 1 ADR
on May 12, 2003.

      Madeco was informed by the NYSE on May 21, 2003 that as a result of
actions taken by the company to meet the continued listing requirements, which
included the capital increase and ADR ratio change, among other actions, Madeco
would regain compliance if the continued listing requirements were successfully
sustained over a 30-trading-day period. The NYSE will continue to monitor
Madeco's financial situation and results of operations, the achievement of its
business plan as well as its compliance with the minimum listing requirements on
a monthly basis. There can be no assurance however that Madeco will not fail to
meet the continued listing requirements of the NYSE in the future.

      Sale of 25% Interest of Ficap Optel. On March 27, 2001, Madeco announced
that it had sold a 25% interest in Optel to Corning International Corporation,
for US$20 million (historic value). The pre-tax gain on the sale of its interest
was Ch$3,232 million. Following the sale of this interest, Madeco and Corning
both own a 50% interest in Optel. Also, as part of the joint venture
arrangement, Optel


                                       52
<PAGE>

purchased 99.9% of Corning Argentina for US$10 million (historic value) and
expanded its optical fiber business into Argentina.

      2001 Bond Issue. On August 3, 2001, Madeco issued bonds in the Chilean
market for UF1,500,000 (equivalent to US$35.5 million on the transaction date).
The bond issue consisted of one series maturing in 2004. The proceeds from the
bond issue were used to refinance existing debt.

      In 2002, Madeco's consolidated net sales were Ch$256,283 million, of which
51.2% corresponded to sales of wire and cable products, 22.1% to brass mills
products, 10.9% to aluminum profile products, and 15.8% to flexible packaging
products. Export sales amounted to Ch$59,939 million, accounting for 23.4% of
consolidated sales in 2002. Export sales volume amounted to 36,356 equivalent
tons, which represented 26.9% of the total 135,299 equivalent tons sold in 2002.

      The following table shows selected financial information of Madeco and its
subsidiaries at or for the years ended December 31, 2000, 2001 and 2002:

<TABLE>
<CAPTION>
               Madeco and subsidiaries
                                                                    2000                      2001                      2002
                                                                    ----                      ----                      ----
                                                                      (in millions of constant Ch$, except percentages)
<S>                                                           <C>                       <C>                       <C>
Net sales:
      Wire and Cable .................................        Ch$179,621                Ch$196,781                Ch$131,093
      Brass Mills ....................................            74,146                    71,913                    56,561
      Aluminum Profiles ..............................            24,026                    29,585                    28,096
      Flexible Packaging .............................            43,868                    43,590                    40,533
                                                              ----------                ----------                ----------
           Total net sales ...........................        Ch$321,661                Ch$341,869                Ch$256,283
                                                              ==========                ==========                ==========
Operating income (loss):
      Wire and Cable .................................          Ch$3,245                  Ch$9,848                 Ch$(2,928)
      Brass Mills ....................................             5,482                       661                     1,063
      Aluminum Profiles ..............................                49                       503                     3,618
      Flexible Packaging .............................             1,831                       (26)                    2,251
                                                              ----------                ----------                ----------
           Total operating income (loss) .............         Ch$10,607                 Ch$10,986                  Ch$4,004

Non-operating results ................................           (29,860)                  (63,475)                  (47,570)
Income taxes .........................................             1,547                      (431)                    1,402
Minority interest ....................................              (120)                    1,321                     1,998
                                                              ----------                ----------                ----------
Net income (loss) ....................................        Ch$(17,826)               Ch$(51,599)               Ch$(40,166)
                                                              ==========                ==========                ==========

Total assets .........................................        Ch$464,744                Ch$416,840                Ch$378,152
Bank debt & bond obligations .........................           211,273                   216,121                   215,737
Other liabilities ....................................            88,464                    73,676                    63,183
Shareholders' equity .................................           165,007                   127,043                    99,232
Quinenco's effective economic interest ...............              56.1%                     56.1%                     53.4%
</TABLE>


                                       53
<PAGE>

      The following table shows selected information regarding Madeco's plant
facilities, installed capacity, and average utilization in 2002:

<TABLE>
<CAPTION>
                                                     Plant size            Installed Production            Avg. Capacity
          Production facility                    (in square meters)     Capacity (in tons per year)    Utilization in 2002(1)
          -------------------                    ------------------     ---------------------------    ----------------------
<S>                                                     <C>                    <C>                               <C>
Wire and Cable:
San Miguel, Chile .....................                 27,650                    15,100                         54%
Sao Paulo, Brazil .....................                 28,300                    29,100                         67%
Rio de Janeiro, Brazil ................                 58,000                    20,760                         23%
Bahia, Brazil .........................                 19,000                    12,360                         76%
Lima, Peru ............................                 49,150                    11,880                         66%
Lima, Peru (2) ........................                    770                     1,800                         83%
Llavallol, Argentina (3) ..............                 18,162                    10,800                          0%
Buenos Aires, Argentina (2) ...........                  3,500                   420,000                          1%
Quilmes, Argentina (3) ................                 39,850                     6,890                          0%
Rio de Janeiro, Brazil (2) ............                  4,400                 1,000,000                          6%
Brass Mills:
San Miguel, Chile .....................                 32,400                    38,530                         67%
Lo Espejo, Chile ......................                 21,500                    78,200                         56%
Quilpue, Chile ........................                 12,100                     9,000                         43%
Llavallol, Argentina (3) ..............                 31,887                     6,883                          0%
Barracas, Argentina (3) ...............                 15,800                     8,400                          0%
San Luis, Argentina (3) ...............                  3,450                     3,700                          0%
Flexible Packaging:
Santiago, Chile .......................                 16,600                    13,600                         81%
San Luis, Argentina ...................                  7,500                     5,900                         62%
Aluminum Profiles:
Santiago, Chile .......................                 33,200                    16,800                         65%
</TABLE>

----------
(1)   Average Capacity Utilization: total real production output as a percentage
      of 2001 installed annual production capacity.

(2)   Production capacity is in kilometers.

(3)   This plant facility has been closed as a consequence of the Argentine
      economic crisis.

      The following table shows Madeco's sales volumes, in metric tons, by
business segment, in 2000, 2001 and 2002:

<TABLE>
<CAPTION>
         Sales Volume (in metric tons) (1):                   2000               2001               2002
                                                              ----               ----               ----
<S>                                                        <C>                <C>                <C>
         Wire & Cable ............................          95,717             99,935             80,568
         Brass Mills .............................          39,868             36,833             29,353
         Flexible Packaging ......................          14,426             14,013             13,912
         Aluminum Profiles .......................           9,052             10,258              9,978
                                                           -------            -------            -------
         Total ...................................         159,063            161,039            133,811
                                                           =======            =======            =======

         Optical Fiber cables (in kms) (2) .......         425,138            555,202             65,452
                                                           =======            =======            =======

         Total equivalent tons ...................         168,725            173,657            135,299
                                                           =======            =======            =======
</TABLE>

         (1)   Sales volume figures include metal and insulating materials.

         (2)   Total sales volume represented in tons include the conversion of
               optical fiber volume sales using the conversion rate of 1 ton =
               44 kilometers.


                                       54
<PAGE>

      Wire and Cable Business Unit

      Madeco's principal activity is its wire and cable business, which
accounted for 51.2% of consolidated sales in 2002. Madeco's wire and cable
business expanded from Chile to Argentina in 1990, to Peru in 1994, and to
Brazil in 1997. The Brazilian wire and cable operation, which includes the
production and commercialization of copper, aluminum and optical fiber cables,
is Madeco's largest operation in this business segment with sales in 2002 of
Ch$70,737 million, representing 54.0% of the total wire and cable segment sales
of Ch$131,093 million in 2002.

      Madeco produces a wide variety of wire and cable products for the
telecommunications, energy, mining, industry and construction sectors, the most
generalized characteristics being: singular strand (wire) versus multiple,
twisted strands (cable), bare or insulated and non-magnetic or magnetic. In
addition to production facilities for the manufacturing of copper and/or
aluminum wire and cable products in Chile, Brazil, Peru and Argentina, Madeco
also has a facility in Brazil and Argentina for the production of optical fiber
cables, although the Argentine production is being kept to a minimal level as a
consequence of the ongoing economic crisis in that country. Madeco supplies the
telecommunications, energy transmission, mining, general industry and
construction sectors.

      Sales of the wire and cable business unit decreased in 2002 mainly as a
result of lower sales to the telecom sector in Brazil during the year. Export
sales accounted for 15% of the wire and cable unit's revenue in 2002.

<TABLE>
<CAPTION>
                  Madeco and subsidiaries                                          Wire and Cable Unit
                                                                        2000                 2001                 2002
                                                                        ----                 ----                 ----
<S>                                                               <C>                  <C>                  <C>
Revenues (in millions of constant Ch$):
Chile .................................................            Ch$18,984            Ch$19,554            Ch$20,403
Brazil ................................................              111,561              121,050               70,737
Argentina .............................................               13,767               15,272                2,103
Peru ..................................................               15,137               18,666               18,177
Exports (1) ...........................................               20,172               22,239               19,673
                                                                  ----------           ----------           ----------
Total .................................................           Ch$179,621           Ch$196,781           Ch$131,093
                                                                  ==========           ==========           ==========

Sales Volume of Copper & Aluminum Cable
 (in metric tons) (2)
Chile .................................................                9,113               10,608               11,042
Brazil ................................................               56,399               59,664               44,917
Argentina .............................................                5,651                4,663                1,331
Peru ..................................................                8,143                9,356                9,380
Exports (1) ...........................................               16,411               15,644               13,898
                                                                  ----------           ----------           ----------
Total .................................................               95,717               99,935               80,568
                                                                  ==========           ==========           ==========

Sales Volume of Optical Fiber Cable (in kms)
Chile .................................................               10,341                  253                3,174
Brazil ................................................              356,025              473,779                2,128
Argentina .............................................               58,772               32,377                3,525
Peru ..................................................                   --                6,346                   72
Exports (1) ...........................................                   --               42,447               56,553
                                                                  ----------           ----------           ----------
Total .................................................              425,138              555,202               65,452
                                                                  ==========           ==========           ==========
</TABLE>

----------
(1)   Exports for the wire and cable unit are considered to be all sales to
      customers in any country other than Chile, Brazil, Argentina and Peru.

(2)   Sales volumes include metal as well as insulating materials.


                                       55
<PAGE>

      Wire and Cable - Chile

      Madeco produces copper wires and cables in Chile. Operations are carried
out through Madeco's subsidiary, Madeco Chile. The Chilean operations accounted
for 15.6% of the total wire and cable segment sales in 2002.

      Customers. Madeco has approximately 410 clients in Chile. Products are
sold to retailers (22%), durable goods manufacturers (42%), mining businesses
(14%), energy producers (9%), telecom operators (12%) and others (1%). There was
no significant concentration of sales made to any one client in 2002.

      Competition. The total market size of the wire and cable industry, (metal
estimates only; does not include insulating materials) in Chile is estimated to
be 26,000 metric tons as of December 31, 2002. Madeco estimates that its market
share in Chile was 31% in 2002. Madeco has two main competitors in the Chilean
wire and cable industry, Cocesa, a 66% subsidiary of Phelps Dodge Corporation
with an estimated market share of 31%, and Covisa, a local producer with an
estimated market share of 14%. In addition, there are other domestic and
international competitors in the Chilean market with market shares of 4% and
20%, respectively.

      Manufacturing facilities. Production is carried out in Madeco's plant
facilities located near Santiago. Manufacturing activities are dedicated to the
production of copper wire and cable products. The Chilean facility does not
currently produce aluminum or optical fiber wire and cables.

      Raw materials. Madeco purchases its copper supplies for its wire and cable
operations in Chile from two large Chilean mining companies, Codelco and Enami.
Madeco has many suppliers for both plastic and rubber materials, and believes it
is currently not dependent on any one supplier.

      Wire and Cable - Argentina

      Madeco's Argentine wire and cable operation are operated through its
wholly-owned subsidiary Decker-Indelqui. Until early 2002, Madeco manufactured a
wide variety of copper, aluminum and optical fiber wire and cable products in
Argentina. At the beginning of the year 2002, as a consequence of Argentina's
economic environment and political instability, the company suspended its
Argentine Wire and Cable production operations. Currently, Decker-Indelqui,
maintains a minimal staff in its Argentine facilities, primarily to sell
products imported from certain of Madeco's Brazilian and Chilean facilities and
to ensure the security and maintenance of Decker-Indelqui's Argentine
facilities. Madeco has stated that it intends to reopen its Wire and Cable
operation in Argentina as economic conditions improve, though there can be no
assurance when or if this operation will be reopened.

      Further, Madeco and its joint venture partner, Corning, have minimized the
operations of their Argentine optical fiber joint venture, Optel. Madeco cannot
assure regarding any future Argentine operations of Optel. See "Item 8.
Financial Information - Legal Proceedings - Madeco".

      The Argentine operations accounted for 1.6% of wire and cable segment
sales in 2002 and 0.8% of Madeco's consolidated sales.

      Customers. Madeco's copper and aluminum wire and cable operation has
approximately 84 clients in Argentina. Products are sold to retailers (37%),
durable goods manufacturers (7%), energy producers (21%), telecom operators
(18%) and exports and others (17%). There was no significant concentration of
sales made to any one client in 2002.

      Competition. The total market size of the wire and cable industry in
Argentina (metal estimates only; does not include insulating materials) is
estimated to be 14,100 metric tons as of December 31, 2002, a contraction of
62.8% from 2001 as a result of the economic problems the country is suffering.


                                       56
<PAGE>

Madeco estimates that its market share in Argentina was 4% in 2002. Madeco's
main competitors in the Argentine wire and cable industry are Pirelli (26%),
Imsa (20%) and Cimet (13%). In addition, there are other domestic and
international competitors in Argentina which have estimated market shares of 35%
and 2%, respectively. Madeco does not have information regarding the Argentine
optical fiber cable market.

      Manufacturing facilities. Production facilities for copper and aluminum
cables are located in Quilmes and Llavallol, on the outskirts of Buenos Aires.
Production for optical fiber cables is carried out in plant facilities located
in Buenos Aires. Due to the ongoing economic crisis in Argentina, production for
cable and aluminum wire and cables has been ceased. Optical fiber cable is
presently being manufactured at minimal levels.

      Raw materials. Madeco purchases its copper supplies for the Argentine
operations from two large Chilean mining companies, Codelco and Enami. Aluminum
is purchased for Argentina's wire and cable operation from the sole Argentine
supplier, Aluminios Argentinos. Madeco has many suppliers for both plastic and
rubber materials, and believes it is currently not dependent on any one
supplier. Optical fiber is supplied by Corning according to the terms
established in the joint venture agreement with Madeco.

      Wire and Cable - Brazil

      Madeco produces copper and aluminum wire and cable products as well as
optical fiber products in Brazil. The Brazilian operations accounted for 54% of
wire and cable segment sales in 2002. In Brazil, Madeco operates in the copper
and aluminum wire and cable segment through its wholly-owned subsidiary, Ficap
and since 1999, through a joint venture with Corning Incorporated (Optel Ltda.)
for the production and sales of optical fiber cables.

      Customers. Madeco's copper and aluminum wire and cable operation has
approximately 3,180 clients in Brazil. Products are sold to energy producers
(37%), durable goods manufacturers (60%) and telecom operators (3%). The largest
customer in Brazil, a telecom operator, accounted for 6.2% of total wire and
cable segment sales in 2002. Madeco's optical fiber cable operation has
approximately 18 customers in Brazil.

      Competition. The total market size of the wire and cable industry in
Brazil (metal estimates only; does not include insulating materials) is
estimated to be 182,500 metric tons as of December 31, 2002. Madeco estimates
that its market share in Brazil was 18% in 2002. Madeco's main competitors in
the Brazilian wire and cable industry are Pirelli (21%), Alcoa/Phelps Dodge
(11%) and Furukawa (5%). In addition, there are many other domestic and
international competitors in Brazil, which have estimated market shares of 43%
and 2%, respectively.

      The total size of the optical fiber cable market in Latin America is
estimated to be 125,000 kms as of December 31, 2002. Madeco estimates that its
market share in optical fiber cable in Latin America was 27% in 2002. Madeco
believes there are nine manufacturers of optical fiber cable in Brazil with
total installed capacity exceeding 6,000,000 kms.

      Manufacturing facilities. Madeco has four plant facilities in Brazil, a
copper cable and an optical fiber cable plant in Rio de Janeiro, a copper cable
plant in Sao Paulo and an aluminum plant in Bahia. The fiber optical plant is
operating at a minimum level owing to a joint decision between Madeco and
Corning to minimize production levels due to the current low demand for fiber
optical cable.

      Raw materials. 67% of the Brazilian operations' copper requirements are
purchased from Caraiba Metais, the main local supplier, and the remainder is
supplied by Madeco's suppliers in Chile.


                                       57
<PAGE>

Optical fiber is supplied by Corning according to terms established in the joint
venture agreement. Aluminum is purchased from Alcan Aluminio do Brasil Ltda., a
large local supplier in Brazil.

      Wire and Cable - Peru

      In Peru, Madeco produces a variety of copper and aluminum wire and cable
products, excluding plastic insulated aluminum products. The Peruvian operations
of the wire and cable segment accounted for 13.8% of wire and cable segment
sales in 2002. In Peru, Madeco operates in the copper and aluminum wire and
cable segment through its subsidiary, Indeco.

      Customers. Madeco's copper and aluminum wire and cable operation has
approximately 743 clients in Peru. Products are sold to Distributors (24%),
energy producers (10%), mining businesses (4%), retailers (8%), durable goods
manufacturers (4%), telecom companies (4%) and exports and others (46%). There
was no significant concentration of sales made to any one client in 2002.

      Competition. The total market size of the wire and cable industry in Peru
(metal estimates only; does not include insulating materials) is estimated to be
10,900 metric tons as of December 31, 2002. Madeco estimates that its market
share in Peru was 56% in 2002. Madeco's main competitors in the Peruvian wire
and cable industry are Ceper (18%), Celsa (9%), and BICC (1%). In addition,
there are other domestic and international competitors in Argentina which have
estimated market shares of 9% and 8%, respectively.

      Manufacturing facilities. Manufacturing activities of copper and aluminum
wire and cable products are carried out in Indeco's plant, located in Lima.

      Raw materials. The main raw material, copper, is purchased from two main
suppliers, Southern Peru Copper Corporation and Sociedad Minera Cerro Verde.
Aluminum is purchased from three suppliers, Pianmeca and Siderugica del Norte
and Conductores de Aluminio del Caroni. Madeco has many suppliers for both
plastic and rubber materials, and believes it is not dependent on any one
supplier.

      Brass Mills Business Unit

      Sales of the brass mills segment amounted to Ch$56,561 million, accounting
for 22.1% of Madeco's consolidated sales in 2002. Madeco has been operating in
the brass mills business in Chile since 1944. Business expanded from Chile to
Argentina in 1994 and brass mill operations in Argentina have been conducted
through Madeco's subsidiary, Decker-Indelqui. As a consequence of Argentina's
unstable economic and political environment, Madeco has halted its brass mills
production in Argentina. At present, a minimal staff is being maintained to
oversee plant security and to handle commercial operations. Madeco expects to
reopen certain of its brass mills production operations during 2003 as the
Argentine economy improves, though there can be no assurance when or if these
operations will resume.

      Madeco's brass mills business unit is composed of: (1) pipes, bars and
sheets and (2) coin blanks and minted coins. Pipes, bars and sheets are
manufactured in Chile and, until recently, in Argentina from copper, copper
alloys, brass and aluminum and are used by other industrial firms and in the
construction sector. Madeco, through its Chilean subsidiary, Armat, also
produces coin blanks and minted coins in Chile. Madeco's brass mills products
are sold in 27 countries with exports accounting for 67% of the total sales by
volume of the brass mills business unit in 2002.

      Sales of the brass mills business unit decreased by 21.3% in 2002, mainly
due to reduced levels of construction activity in Argentina, and to a lesser
extent, Chile and other countries in the Latin American region, as well as a
slowdown in the demand for "Euro" coin blanks.


                                       58
<PAGE>

<TABLE>
<CAPTION>
                      Madeco and subsidiaries                                           Brass Mills Unit
                                                                             2000               2001              2002
                                                                             ----               ----              ----
<S>                                                                     <C>                <C>                <C>
Revenues (in millions of constant Ch$):
Pipes, Bars and Sheets
Chile .........................................................         Ch$20,206          Ch$18,807          Ch$18,158
Argentina .....................................................            11,713              8,445              2,657
Exports (1) ...................................................            27,468             30,672             25,706
                                                                        ---------          ---------          ---------
Total Pipes, Bars and Sheets ..................................         Ch$59,387          Ch$57,924          Ch$46,521
Coins
Chile .........................................................          Ch$1,076           Ch$1,067           Ch$1,241
Exports (2) ...................................................            13,684             12,922              8,799
                                                                        ---------          ---------          ---------
Total Coins ...................................................         Ch$14,760          Ch$13,989          Ch$10,040
Total Brass Mills Unit ........................................         Ch$74,147          Ch$71,913          Ch$56,561
                                                                        =========          =========          =========

Sales Volume of Pipes, Bars and Sheets (in metric tons)
Chile .........................................................            10,022              8,978              8,494
Argentina .....................................................             5,255              3,927              1,113
Exports (1) ...................................................            18,306             19,236             16,164
                                                                        ---------          ---------          ---------
Total .........................................................            33,583             32,141             25,771
                                                                        =========          =========          =========

Sales Volume of Coins (in metric tons)
Chile .........................................................               447                 39                 92
Exports (2) ...................................................             5,838              4,653              3,490
                                                                        ---------          ---------          ---------
Total .........................................................             6,285              4,692              3,582
                                                                        =========          =========          =========
</TABLE>

----------
(1)   Exports for the pipes, bars and sheets sub-unit are considered to be all
      sales to customers in any country other than Chile and Argentina.

(2)   Exports for the coins sub-unit are considered to be all sales to customers
      in any country other than Chile.

      Brass Mills - Pipes, Bars and Sheets

      Sales of the pipes, bars and sheets sub-unit which includes the
manufacturing of pipes, bars, bus bars and sheets in copper, copper alloy,
brass, aluminum and aluminum alloy amounted to Ch$46,521 million in 2002,
accounting for 82.2% of the total brass mills business unit's sales in 2002.
Sales in Chile accounted for 39.0% of pipes, bars and sheets revenue in 2002,
sales in Argentina accounted for 5.7%, and exports accounted for 55.3%.

      Customers. Madeco has 464 customers in Chile, 212 in Argentina and 148
customers in its export markets. In 2002, the largest customer, a brass mill
products distributor in the United States, accounted for 8.5% of the total
pipes, bars and sheets sales. In Chile, pipes, bars and sheets are sold to
retailers (68%), durable goods manufacturers (18%), electric appliance
manufacturers (7%), aluminum manufacturers (4%) and others (3%). In Argentina,
pipes, bars and sheets are sold to distributors (53%), durable goods
manufacturers (32%) and construction companies (15%).

      Competition. Madeco estimates that the total market size for pipes, bars
and sheets is approximately 15,800 metric tons in Chile and 9,700 metric tons in
Argentina, as of December 31, 2002. Madeco estimates that it has a 53% market
share in Chile and a 11% market share in Argentina. There are four main
competitors in the Chilean pipes, bars and sheets market, including Cembrass
(10%), Tecob (7%), Conmetal (8%) and Offermanns (3%). In addition, there are
other domestic and international competitors in the Chilean pipes, bars and
sheets market, which have estimated market shares of 3% and 16%, respectively.
There are four main competitors in the Argentine pipes, bars and sheets market,
including Pajarbol-Cembrass (13%), Sotyl (13%), Vaspia (7%), Cooper Metal (11%)
and Quimetal (11%). In addition, there are other domestic and international
competitors in the Argentine pipes, bars and sheets market, which have estimated
market shares of 31% and 3%, respectively. While


                                       59
<PAGE>

Madeco does not collect extensive market share information regarding the global
brass mills industry, it estimates that the size of the global market exceeds 4
million metric tons and that Madeco's market share represents less than 1%.

      Manufacturing facilities. Manufacturing activities of pipes, bars and
sheets are carried out in Chile at Madeco's plant located in San Miguel, near
Santiago. In addition, Madeco has a smelting facility in Lo Espejo, near
Santiago. Manufacturing in Argentina which has been halted, was carried out in
three brass mills facilities in Argentina, in San Luis, Llavallol and Barracas.

      Raw materials. The primary raw materials used in the production of pipes,
bars and sheets are copper, aluminum, zinc, nickel and tin. Copper supplies are
purchased for both Argentina and Chile from two large Chilean mining companies,
Codelco and Enami. In 2002, Madeco obtained most of its aluminum requirements
from Aluminios Argentinos in Argentina. Zinc is purchased from two Peruvian
supplier, Doe Run Peru and Cajamarquilla.

      Brass Mills - Coin Blanks and Minted Coins

      Sales of the coins sub-unit which includes the manufacture of coin blanks
and minted coins amounted to Ch$10,040 million in 2002, accounting for 17.8% of
the total brass mills business unit's sales in 2002. Sales in Chile accounted
for 12.4% of coins revenue in 2002 and exports accounted for 87.6% of coins
revenue. Coin blanks and minted coins are produced by Madeco's wholly-owned
Chilean subsidiary, Armat. Production is specialized in four alloys which are
copper based. The exact alloy mix is determined according to customer
specifications.

      Customers. The company's largest customers in 2002 were the Banco Central
de la Republica Dominicana which accounted for 18% of total coin sales, the
Central Bank of Ireland, which accounted for 11% and the Treasury Department of
Thailand which accounted for 10%.

      Competition. Madeco estimates that the international demand for newly
minted coins was 65,200 metric tons in 2002. Madeco estimates that it had a 6%
market share worldwide in 2002. Madeco's main competitors in coins are Poongsan
(35%), VDN (31%), the Royal Mint of the United Kingdom (2%), and Royal Canadian
Mint of Canada (3%). In addition, there are other competitors which were
estimated to have a market share of approximately 23% in 2002.

      Raw materials. Madeco purchases its copper supplies from Codelco and
Enami, and most of its aluminum requirements from Aluminios Argentinos in
Argentina. Zinc necessities are principally purchased from two Peruvian
suppliers, Roe Run Peru and Cajamarquilla.

      Flexible Packaging Business Unit

      Sales of the flexible packaging business unit amounted to Ch$40,533
million in 2002, accounting for 15.8% of Madeco's 2002 consolidated sales.
Madeco is a manufacturer of printed flexible packaging for use in the packaging
of consumer products. It also produces aluminum foil and plastic wrap for both
commercial and home use. Madeco participates in the flexible packaging industry
in Chile through its subsidiaries, Alusa and Alufoil. In Argentina, Madeco has
operated since 1993 through its subsidiary, Aluflex. Additionally, Madeco owns a
25% stake in two manufacturers in Peru, Peruplast and Tech Pack, which together
comprise the largest flexible packaging operation in that country.

      In 2002, sales of the flexible packaging segment decreased by 7% compared
to 2001, mainly due to a reduction in sales in Argentina, the effect of which
was partially offset by an increase in exports and sales in Chile.


                                       60
<PAGE>

<TABLE>
<CAPTION>
          Madeco and subsidiaries                                       Flexible Packaging Unit
                                                                  2000            2001             2002
                                                                  ----            ----             ----
<S>                                                          <C>             <C>              <C>
Revenues (in millions of constant Ch$):
Chile .........................................              Ch$26,339       Ch$26,102        Ch$26,343
Argentina .....................................                 14,334          14,272            9,815
Exports (1) ...................................                  3,195           3,216            4,375
                                                             ---------       ---------        ---------
Total .........................................              Ch$43,868       Ch$43,590        Ch$40,533
                                                             =========       =========        =========

Sales Volume (in metric tons)
Chile .........................................                  9,560           9,379            9,319
Argentina .....................................                  3,862           3,746            3,222
Exports (1) ...................................                  1,004             888            1,371
                                                             ---------       ---------        ---------
Total .........................................                 14,426          14,013           13,912
                                                             =========       =========        =========
</TABLE>

----------
(1)   Exports for the flexible packaging unit are considered to be all sales to
      customers in any country other than Chile and Argentina.

      Flexible Packaging - Chile

      Sales of the Chilean flexible packaging operations amounted to Ch$26,343
million, accounting for 65% of the total flexible packaging segment sales in
2002.

      Customers. The Chilean flexible packaging operations have approximately
311 customers, which include 113 mass consumer product manufacturers and 157
retail customers. Exports from Chile are made to approximately 41 customers.

      Competition. Madeco estimates that the total market size in Chile of
flexible packaging products is approximately 36,050 metric tons per year. Madeco
estimates that it has a market share in Chile of approximately 26%. The main
competitor in the Chilean flexible packaging market is Edelpa, who had an
estimated market share of 30% in 2002.

      Manufacturing facilities. Manufacturing in Chile is carried out in two
plant facilities located near Santiago.

      Raw materials. Madeco's plastics suppliers include Vitopel, Terphane, Dow
Chemical and Sigdopack. Madeco currently purchases approximately 40% of its
plastic raw material requirements from these suppliers. Madeco obtains most of
its aluminum requirements from Aluminios Argentinos and VAW Aluminum AG. Ink is
purchased from Sun Chemical and Tintas Graficas. Paper is purchased from
suppliers in Chile, Brazil, the United States and Sweden. Madeco purchases its
various adhesives from Henkel and Rhom & Hass.

      Flexible Packaging - Argentina

      Sales of the Argentine flexible packaging operations amounted to Ch$9,815
million, accounting for 24.2% of the total flexible packaging segment sales in
2002.

      Customers. The Argentine flexible packaging operations have approximately
30 customers, including 4 export customers. The main customers in Argentina
include biscuit and cookie producers (54%), pet food producers (18%) and other
mass consumer product producers (28%).

      Competition. Due to a lack of public information, Madeco is unable to
estimate the total market size in Argentina of flexible packaging products.
Based on its own internal analysis, Madeco estimates that its market share is
probably around 7% as of December 31, 2002. Principal competitors in Argentina


                                       61
<PAGE>

include Dinan (9 to 12%), Fleximat (8 to 10%). In addition, there are multiple
small competitors which together represent a large portion of the flexible
packaging market.

      Manufacturing facilities. Manufacturing activities are carried out in
Argentina at a plant facility located in San Luis.

      Raw materials. Madeco's plastics suppliers include Vitopel, Terphane, Dow
Chemical and Sigdopack. Madeco currently purchases approximately 40% of its
plastic raw material requirements from these suppliers. Madeco obtains most of
its aluminum requirements from Aluminios Argentinos and VAW Aluminum AG. Ink is
purchased from Sun Chemical and Tintas Graficas. Paper is purchased from
suppliers in Chile, Brazil, the United States and Sweden. Madeco purchases its
various adhesives from Henkel and Rhom & Hass.

      Aluminum Profiles Business Unit

      Sales of the aluminum profiles segment amounted to Ch$28,096 million in
2002, accounting for 10.9% of Madeco's 2002 consolidated sales. Madeco is the
sole Chilean manufacturer of aluminum profiles, the foundation of window frames
and doorframes. In addition, it produces profiles which are used in the
manufacture of industrial durable goods such as refrigerators and ovens. Between
1991 and early 2002, Madeco also operated in the curtain wall installation
business which involved the engineering and installation of curtain walls in
large commercial real estate projects. In early 2002, as part of a strategic
decision, Madeco exited from this business.

      Madeco operates in the aluminum profiles segment through its subsidiary,
Indalum. Through Indalum, Madeco also owns Alumco, the largest Chilean aluminum
profiles distributor. Madeco also distributes aluminum profiles in Bolivia
through its proprietary company, Distribuidora Boliviana.

      Sales of the aluminum profiles segment decreased by 5% in 2002 mainly due
to Madeco's exit from the curtain wall business, partially compensated by a
11.5% increase in aluminum profiles sales.

<TABLE>
<CAPTION>
           Madeco and subsidiaries                               Aluminum Profiles (1)
                                                           2000           2001            2002
                                                           ----           ----            ----
<S>                                                   <C>            <C>             <C>
Revenues (in millions of constant Ch$):
Aluminum profiles ..........................          Ch$20,296      Ch$24,734       Ch$27,577
Curtain walls ..............................              3,730          4,851             519
                                                      ---------      ---------       ---------
Total ......................................          Ch$24,026      Ch$29,585       Ch$28,096
                                                      =========      =========       =========

Sales Volume (in metric tons)
Aluminum profiles ..........................              9,052         10,257           9,978
Exports ....................................                 --              1              --
                                                      ---------      ---------       ---------
Total ......................................              9,052         10,258           9,978
                                                      =========      =========       =========
</TABLE>

(1)   Revenues include exports of Ch$585 million and Ch$1,386 million in 2001
      and 2002, respectively.

      Customers. The aluminum profiles operation has approximately 50 active
customers, of which 8 are key distributors for Madeco. In 2002, Madeco's main
customers in the aluminum profiles segment were Alumco (24%), independent
distributors (53%), construction companies and durable goods manufacturers (19%)
and distribution offices in Bolivia (4%).

      Competition. The size of the aluminum profiles market in Chile is
estimated to be 13,000 metric tons per year as of December 31, 2002. Madeco
estimates that it had a 73% market share in the aluminum profiles segment in
Chile, and that its main competitor, Alcoa, had a 19% market share in


                                       62
<PAGE>

2002. International aluminum profiles manufacturers also compete in Chile
through imported products with an estimated market share of 8%.

      Manufacturing facilities. Manufacturing activities are carried out in
Chile at a plant facility located in San Bernardo, on the outskirts of Santiago.

      Raw Materials. Aluminum, the principal raw material used in the production
of aluminum profiles, is purchased from the Argentine supplier, Aluminios
Argentinos. Madeco purchases paint from two painting companies, Pinturas
Tricolor and Dupont Powder Coating Andina. Chemical products are purchased from
four suppliers, Harting Representaciones, Quimica del Sur, Chemal Katschmareck-
GMBH and Goldschmidt Quimica.

Real Estate/Hotel Administration - Hoteles Carrera

      Hoteles Carrera was a 89.9%-owned consolidated subsidiary of the Company
in 2002 and 2001 and a 87.2%-owned consolidated subsidiary in 2000. Quinenco's
interest in Hoteles Carrera is held through an intermediate holding company,
Agricola El Penon S.A., a 96.2%-owned subsidiary of Quinenco. Hoteles Carrera
accounted for approximately 1.8% of the Company's consolidated sales in 2002,
1.6% of consolidated sales in 2001 and 1.6% of consolidated sales in 2000.

      Capital increase. On May 17, 2001, Hoteles Carrera's Board of Directors
approved a capital increase of Ch$4,287 million (value at transaction date)
through the issuance of 5,358,920 new shares. The capital increase was carried
out in the last quarter of 2001 and as of December 31, 2001, Carrera had issued
2,827,221 new shares for Ch$2,261 million (value at transaction date). Quinenco
subscribed to 2,825,264 shares for Ch$2,260 million (value at transaction date).
Quinenco's economic interest in Carrera increased from 87.2% to 89.9% following
the capital increase. Proceeds from the capital increase were used to reduce
liabilities.

      Hoteles Carrera operates five hotels in Chile. Two of these, the five-star
Hotel Carrera in central Santiago and the four-star Hotel El Araucano in
Concepcion, are owned and operated by Hoteles Carrera. The three remaining
hotels, located in the north of Chile in the cities of La Serena, Iquique and
Antofagasta, are leased and operated by Hoteles Carrera.


                                       63
<PAGE>

      The following table shows selected statistical data for Hoteles Carrera's
hotel business at and for the years ended December 31, 2000, 2001 and 2002:

<TABLE>
<CAPTION>
                       Hoteles Carrera
                                                                     2000               2001                2002
                                                                     ----               ----                ----
<S>                                                              <C>                 <C>                 <C>
Average daily number of available rooms
        Hotel Carrera .................................               307                 307                 305
        Hotel El Araucano .............................               144                 144                 139
        La Serena Club Resort .........................                98                  95                  95
        Carrera Club Hotel Iquique ....................                77                  77                  76
        Carrera Club Hotel Antofagasta ................               140                 137                 137
                                                                   ------              ------               -----
            Total .....................................               766                 760                 752
                                                                   ======              ======               =====
Occupancy rate(1)
        Hotel Carrera .................................              39.8%               31.7%               30.0%
        Hotel El Araucano .............................              32.9%               32.0%               29.7%
        La Serena Club Resort .........................              36.5%               46.0%               34.8%
        Carrera Club Hotel Iquique ....................              31.1%               33.2%               32.2%
        Carrera Club Hotel Antofagasta ................              17.0%               27.2%               22.8%
            Weighted Average ..........................              33.0%               32.9%               29.5%
Average daily rate(2)
        Hotel Carrera .................................          US$104.1            US$105.0             US$91.8
        Hotel El Araucano .............................              60.7                45.7                42.2
        La Serena Club Resort .........................              62.6                53.0                60.1
        Carrera Club Hotel Iquique ....................              50.3                45.7                41.5
        Carrera Club Hotel Antofagasta ................              57.1                53.3                49.3
            Weighted Average ..........................              80.5                71.2                66.3
Average revenue per available room (REVPAR)(3)
        Hotel Carrera .................................           US$41.4             US$33.3             US$27.5
        Hotel El Araucano .............................              20.0                14.6                12.6
        La Serena Club Resort .........................              22.9                24.4                20.9
        Carrera Club Hotel Iquique ....................              15.6                15.2                13.4
        Carrera Club Hotel Antofagasta ................               9.7                14.4                11.2
             Weighted Average .........................              26.6                23.4                19.5
</TABLE>

----------
(1)   Occupancy is determined for a period by dividing total room nights sold
      during the period by total rooms available for each day during the period.

(2)   Average daily rate is determined by dividing total room revenues plus
      breakfast by total room nights sold.

(3)   Average revenue per available room is calculated as the average daily rate
      per room multiplied by the occupancy rate (equivalent to dividing total
      room revenues by total room nights available for sale).


                                       64
<PAGE>

      The following table shows selected financial information of Hoteles
Carrera at and for the years ended December 31, 2000, 2001 and 2002:

<TABLE>
<CAPTION>
              Hoteles Carrera                             2000                 2001                2002
                                                          ----                 ----                ----
                                                      (in millions of constant Ch$, except percentages)
<S>                                                  <C>                  <C>                 <C>
Net Revenues ...............................          Ch$7,675             Ch$7,579            Ch$7,015
Gross margin ...............................             1,264                1,232               1,017

Operating income ...........................              (466)                (557)               (378)
Non-operating results ......................              (803)                (627)               (617)
Income taxes ...............................                94                    9                  (1)
                                                     ---------            ---------           ---------
Net income .................................         Ch$(1,175)           Ch$(1,175)            Ch$(996)
                                                     =========            =========           =========

Total assets ...............................         Ch$25,016            Ch$24,204           Ch$23,206
Bank debt ..................................             7,206                5,142               4,636
Other liabilities ..........................             3,450                3,544               4,049
Shareholders' equity .......................            14,360               15,518              14,521
Quinenco's effective economic interest .....              87.2%                89.9%               89.9%
</TABLE>

      Hotel Carrera, located in central Santiago, facing La Moneda, headquarters
of the Chilean government, is considered to be one of the most traditional
European-style hotels in Chile. It has 305 guest rooms, as well as thirteen
meeting rooms, four restaurants, a business center, a rooftop pool, a gym/health
club and a beauty salon.

      Hotel Carrera in Santiago is a member of the "Leading Hotels of the World"
program, which is sponsored by Hotel Representatives, Inc., a worldwide
organization headquartered in New York City. Membership in the "Leading Hotels
of the World" program is limited to hotels categorized as "deluxe" and selected
by Hotel Representatives, Inc. based on their quality of services and
facilities. Participation in this program has enabled Hotel Carrera to benefit
from a worldwide cooperative reservations and promotion system. For the year
ended December 31, 2002, sales through the "Leading Hotels of the World" program
represented 15% of Hotel Carrera's total sales.

      Hotel El Araucano is the largest and best known four-star hotel in
Concepcion, which is the second-largest city in Chile. Hotel El Araucano serves
mostly business travelers, and has 139 guest rooms and eleven meeting rooms.

      La Serena Club Resort is located in a popular holiday destination located
325 miles north of Santiago. This property is operated by Hoteles Carrera under
a five-year renewable lease that commenced in December 1995. La Serena Club
Resort has 95 guest rooms and since 1999, a convention center that holds 1,200
people. The five-year lease/management contract on the convention center began
in 1999 and ends in 2004. During 2003, Hoteles Carrera will evaluate whether or
not it will renew the lease/management contract at its expiration date.

      Carrera Club Hotel Iquique is a small hotel located in the seaside resort
city of Iquique, in Northern Chile. The hotel has 76 rooms. It is being operated
under a five year lease/management contract which began in 1999 and ends in
2004. During 2003, Hoteles Carrera will evaluate whether or not it will renew
the lease/management contract at its expiration date.


                                       65
<PAGE>

      Carrera Club Hotel Antofagasta is a medium sized hotel located in the
northern coastal city of Antofagasta. The hotel has 137 rooms. Hoteles Carrera
was awarded the lease/management contract in 1999 which establishes a five year
contract period. During 2003, Hoteles Carrera will evaluate whether or not it
will renewal the lease/management contract at its expiration date.

      Competition. Hotel Carrera competes directly with numerous four-star and
five-star hotels in Santiago, including international hotels such as the
Santiago Hyatt Regency, the Marriott, the Santiago Sheraton, The Crown Plaza and
the Radisson Hotel. Management estimates that Hotel Carrera ranked fourth in
2002 among Santiago's five-star hotels with respect to share of room-nights
sold, with an approximate 10% market share during the year. Hoteles Carrera
expects that during 2003 and 2004, an additional five four-star hotels and the
luxury category Ritz Carlton will initiate activities in the eastern section of
Santiago. Hoteles Carrera believes that its location in the center of Santiago
and quality of its services will help to mitigate the effect of the increased
competition.

      Hotel El Araucano is the largest four-star hotel in Concepcion, where
there are no five-star hotels, and, according to management estimates, ranked
second in Concepcion with respect to occupancy in 2002. The first ranked hotel
in Concepcion is believed by management to be the Diego de Almagro hotel.

      La Serena Club Resort's principal competitor is Hotel Francisco de
Aguirre, another large resort complex in La Serena. In addition, La Serena Club
Resort competes against smaller hotels and guest houses. Though there are no
comparable convention centers located in or near La Serena, the convention
center faces competition from other established convention sites, located in
Santiago, Vina del Mar, Marbella and Pucon. Management estimates that its share
of the hotel markets in La Serena is 20%.

      The two hotels in Iquique and Antofagasta compete in their respective
cities with hotels of similar characteristics. The hotel business in Iquique is
considered more developed than that in Antofagasta as it attracts many tourists
from Chile, neighboring Argentina and Bolivia. In Iquique, there are several
hotels of four-star and one of five-star quality against which the hotel
competes. In Antofagasta, which is considered less developed in terms of hotel
and tourist-related infrastructure, there is one four-star hotel which competes
with the Carrera Club Hotel Antofagasta. Management estimates that its share of
the hotel markets in Iquique and Antofagasta is 7% and 18%, respectively.

      Operating Risks. Hoteles Carrera's hotels are subject to operating risks
common to the hotel industry, including competition from other hotels,
oversupply in room availability, increases in operating costs due to inflation
and other factors, dependence on business travelers and tourism, increases in
energy costs and other expenses, risks inherent in real estate investments and
adverse effects of general and local economic conditions. Hoteles Carrera's
business is seasonal, with revenues being higher during the spring and summer
months.

      Real Estate/Hotel Administration - Habitaria

      Since 1998, Quinenco has owned a 50% equity interest in Habitaria, a
developer of residential real estate for Chilean families in the middle-income
and upper middle-income segments. Habitaria was formed in June 1998 through a
joint venture between the Company and Ferrovial Inmobiliaria Chile Ltda.
("Ferrovial"), an indirect subsidiary of Ferrovial S.A. (listed on the Madrid
Stock Exchange), which is among the three largest construction firms in Spain.
Quinenco and Ferrovial jointly control Habitaria through a shareholders
agreement. The Company does not consolidate Habitaria's results, which are
accounted for as an equity-method investment. In 2002, Habitaria reported net
income of Ch$898 million, of which Ch$449 million corresponded to Quinenco's
proportional share.


                                       66
<PAGE>

      Habitaria was initially capitalized in 1998 with an amount equivalent to
US$20 million, of which Quinenco and Ferrovial each contributed US$10 million
(historic value). In order to continue acquiring properties for future
development, there was an additional capital increase of UF300,000 in 2000 and
UF120,000 in 2001. In 2001, Quinenco subscribed to 50% of the 4,180,600 shares
issued for UF60,000. In the past, Habitaria has financed purchases of land, as
well as expenditures on professional services (such as architects and licenses),
from equity capital and construction costs have been financed with bank debt.
Based on the current level of sales and projections for the real estate market
for the types of projects that Habitaria specializes in, the company has not
purchased additional land for future development. At this time, there are no
further plans to contribute additional capital.

      Habitaria was originally formed with the goal of becoming a leading
residential real estate developer, capitalizing on the experience that Ferrovial
has gained in Spain as a developer of residential real estate with a
brand-oriented, customer-focused strategy. Although the shareholders' agreement
between Quinenco and Ferrovial allows for the possibility of expansion to other
countries in South America, it is expected that Habitaria will confine its
activities to the Chilean market. Habitaria's sales strategy is oriented towards
developing and marketing its existing projects with high quality-to-price
attributes.

      As a real estate developer, Habitaria purchases land, supervises the
design and construction of residential projects, secures financing for the
projects, and markets and sells the projects to consumers. Projects cost between
US$13.5 million and US$33.5 million, on average, to develop and construct,
before financing costs, depending on their size and location. Habitaria's
middle-class apartment units are priced between UF1,500 and UF3,500 depending on
the number of bedrooms, quality of finishings, and location. Units targeted
towards the upper-middle-class segment are priced between UF3,500 and UF8,000
depending on number of bedrooms and location. Habitaria's middle-class houses
are priced between UF2,000 and UF3,500 and upper-middle-class houses between
UF3,500 and UF5,500.

      As of December 2002, Habitaria has nine projects under development, of
which seven are in the greater Santiago metropolitan region and two are located
in Valparaiso, the most important port city in Chile. Of these projects, six
phases were completed in 2002. Four additional phases are planned for completion
in 2003 and 2004, respectively.

      For the year ended and as of December 31, 2002, 436 units were delivered
to their owners and 142 were reserved under deposit agreements. Stock as of
December 31, 2002 included 266 finished units and 525 units which will be
completed between 2003 and 2005. Sales revenue or revenue from deposits is
recognized as income for a given period when final delivery of the units has
been made or in the case of finished units, upon the signing of a preliminary
agreement, the delivery of a 10% down payment by the client, and certification
by the municipal authorities.


                                       67
<PAGE>

      The following table contains selected financial information of Habitaria
at or for the years ended December 2000, 2001 and 2002:

<TABLE>
<CAPTION>
                            Habitaria                                        2000                    2001                 2002
                                                                             ----                    ----                 ----
                                                                             (in millions of constant Ch$, except percentages)
<S>                                                                      <C>                    <C>                  <C>
    Net revenues .............................................           Ch$6,696               Ch$20,059            Ch$23,006
    Gross margin .............................................                663                   3,633                4,800

    Operating income .........................................               (951)                  1,026                1,395
    Non-operating results ....................................                (56)                   (577)                (462)
    Income taxes .............................................                 11                     (19)                 (35)
                                                                         --------               ---------            ---------
    Net income ...............................................            Ch$(996)                 Ch$430               Ch$898
                                                                         ========               =========            =========

    Total assets .............................................             42,679                  50,365               46,939
    Bank debt ................................................             25,365                  31,220               26,354
    Other liabilities ........................................              3,240                   2,636                3,194
    Shareholders' equity .....................................             14,074                  16,509               17,391
    Quinenco's effective economic interest ...................                 50%                     50%                  50%
</TABLE>

      Competition. The Chilean real estate development industry is fragmented,
with no developer controlling a significant share of the residential market.
Therefore, Habitaria competes with a variety of real estate developers, the
largest of which include Socovesa, ENACO, Almagro, Inmobiliaria P&Y,
Inmobiliaria Manquehue and Geosal, among others. According to information
provided by Camara Chilena de la Construccion (the Chilean Construction
Association), Habitaria estimates that it has an approximate 11.2% share of the
real estate development industry in those communities where it has projects, as
of December 2002.

      Sensitivity to Economic Activity. Habitaria expects that its operations
will continue to be sensitive to Chile's economic cycles. At present, the slow
recovery of the Chilean economy has created, in the view of Habitaria's
management, conditions of oversupply. Though Habitaria's management believes
that the economic conditions experienced since 1997 have reduced land prices and
construction costs, sales have also been adversely impacted as a result of the
oversupply discussed above. The Company cannot assure or predict the timing of
any improvement in the market for residential real estate.

      Sensitivity to Interest Rates and Credit Availability. As a developer of
real estate, Habitaria is highly dependent on its ability to procure financing
for its projects. In the past, Habitaria has financed its projects by a mix of
30% equity and 70% debt, typically in the form of bank loans. Bank financing has
historically been available to Habitaria, however, there can be no assurance
that Habitaria will be able to obtain the necessary financing to complete the
remaining phases of its projects. Of equal importance are the terms and
availability of mortgage financing for home-buyers. Habitaria expects that its
sales will be sensitive to fluctuations in interest rates and mortgage
availability and cannot guarantee that mortgages will be available on terms
acceptable to home-buyers.


                                       68
<PAGE>

C. Organizational Structure

      The following table shows the percentage interests directly and indirectly
owned by Quinenco in each of its main businesses as of December 31, 2002:

<TABLE>
<CAPTION>
                                                                    Percentage of Economic Interest
                                                                           Owned by Quinenco
                                                          -------------------------------------------------
                                                                        At December 31, 2002
                                                          -------------------------------------------------
                                                            Country of        Economic         Control Of
                                                          Incorporation       Ownership       Voting Shares
                                                          -------------       ---------       -------------
<S>                                                           <C>                <C>               <C>
Financial
           Banco de Chile (1) ...............                 Chile              29.2%             52.2%
Food and Beverage
           Lucchetti ........................                 Chile              93.7%             93.7%
           CCU ..............................                 Chile              30.8%             30.8%
Telecommunications
           Telsur ...........................                 Chile              73.6%             73.6%
           Entel ............................                 Chile               5.7%              5.7%
Manufacturing
           Madeco ...........................                 Chile              53.4%             53.4%
Real Estate/Hotel Administration
           Hoteles Carrera ..................                 Chile              89.9%             93.5%
           Habitaria ........................                 Chile              50.0%             50.0%
</TABLE>

----------
(1)   On January 1, 2002, Banco de Chile merged with Banco Edwards. As a result,
      Quinenco's economic interest in Banco de Chile increased from 17.8% to
      29.2% and its control of the voting rights of Banco de Chile decreased
      from to 52.7% to 52.2%. Economic ownership corresponds to dividend rights.
      Under the terms of its agreement, and prior to its merger with Banco
      Edwards on January 1, 2002, Banco de Chile paid 64.9% of all declared
      dividends directly to the Central Bank. The terms of its agreement with
      the Central Bank have been modified as of January 1, 2002 and until its
      subordinated debt with the Central Bank of Chile has been fully
      extinguished, Banco de Chile will pay 42.8% of all declared dividends
      directly to the Central Bank.

D. Property, Plant and Equipment

      Quinenco's principal executive offices are located in Santiago at Enrique
Foster Sur 20, Floor 14, Las Condes, and occupy approximately 2,500 square
meters of office space owned by Quinenco.

      Madeco's headquarters are located in Santiago, in a building containing
approximately 3,524 square meters of office space. In addition, Madeco owns
plants, warehouses and office space occupying a total of approximately 423,219
square meters in various locations in Chile, Argentina, Peru and Brazil. In
Chile, Madeco owns plants, warehouses and office space in and around Santiago.
In Argentina, Madeco owns plants in the Greater Buenos Aires area, San Luis and
LLlavallol. In Peru, Madeco owns plants and offices in Lima. In Brazil, Madeco
owns production plants in Sao Paulo, Rio de Janeiro and Bahia.

      Telsur has its own headquarters in the city of Valdivia (approximately 520
miles south of Santiago). In addition, Telsur owns office space, switch sites
and customer service facilities in most of the cities in Regions VIII, IX, X and
XI, particularly in major cities such as Puerto Montt, Coyhaique, Osorno, Temuco
and Concepcion.

      Lucchetti's headquarters are located in Santiago, in Lucchetti's pasta
manufacturing facilities. In Chile, Lucchetti owns manufacturing plants,
warehouses and office space occupying a total of approximately 47,600 square
meters in various locations in the Santiago Metropolitan Region. In Peru,
Lucchetti owns a 17,000 square meter pasta plant near Lima which was placed in
service in December 1998. Lucchetti is currently in the process of liquidating
its assets in Peru. See "Item 4. Information on the Company - Business Overview
- Food and Beverages - Lucchetti" and "Item 8. Financial Information-Legal
Proceedings".


                                       69
<PAGE>

      CCU's headquarters are located in Santiago. In addition, CCU owns and
leases manufacturing plants and warehouses in various locations in the Santiago
Metropolitan Region and throughout Chile. In Argentina, CCU owns and leases
manufacturing plants, warehouses, commercial offices and vineyards in various
locations, including the Greater Buenos Aires areas.

      Banco de Chile owns a 71,000 square meter building and the underlying land
of its executive offices located in Santiago, Chile. It also owns a 15,000
square meter office building in downtown Santiago. At December 31, 2002, it
owned 130 properties in Chile totaling approximately 90,000 square meters, not
including 89 leased full service branches in Chile and the leased New York
branch and the Miami agency. It has properties for back office and
administrative operations as well as for document storage. Following its merger
with Banco Edwards on January 1, 2003, Banco de Chile closed approximately 50
redundant branches.

      Hoteles Carrera owns the Hotel Carrera in Santiago and Hotel El Araucano
in Concepcion, Chile, which together occupy a total of approximately 43,100
square meters. The La Serena Club Resort and convention center, which occupies a
total of approximately 10,914 square meters, is leased pursuant to a four-year
renewable lease that commenced in 2000. In July 1999, Hoteles Carrera signed a
five year lease/management contract to operate two hotels in Iquique and
Antofagasta. The lease payments are fixed, with an additional annual variable
rental based on percentages of room revenues.

      Habitaria's headquarters are located in Santiago, in 667 square meters of
leased office space. The lease expires in June 2005.

      For further information on future investments in property, plant and
equipment, see Note 10 to the Consolidated Financial Statements and "Item 5.
Operating and Financial Review and Prospects - Liquidity and Capital Resources".

Item 5. Operating and Financial Review and Prospects

A. Results of Operations

      The following discussion should be read in conjunction with the
Consolidated Financial Statements included elsewhere herein. The Consolidated
Financial Statements have been prepared in accordance with Chilean GAAP, which
differs in significant respects from U.S. GAAP. Note 27 to the Consolidated
Financial Statements provides a description of the principal differences between
Chilean GAAP and U.S. GAAP as they relate to the Company, and a reconciliation
to U.S. GAAP of shareholders' equity as of December 31, 2001 and 2002 and net
income for the years ended December 31, 2000, 2001 and 2002.

      In accordance with Chilean GAAP, financial data included in the
Consolidated Financial Statements have been restated in constant Chilean pesos
of December 31, 2002. See Notes 2(b) and 3 to the Consolidated Financial
Statements.

      The Company conducts its operations through various consolidated
subsidiaries (in which, in certain cases, minority shareholders hold significant
interests), and through significant equity investments in certain other
companies. The Consolidated Financial Statements as of December 31, 2002
consolidate the results of Madeco, Lucchetti, Telsur and Hoteles Carrera. The
Company's majority-owned investments in Banco de Chile, and its equity
investments in CCU, Entel and Habitaria are accounted for under the equity
method, and the Company's share of the net income (or loss) thereof is included
under the caption "Non-operating results" in the Company's income statement.

      Of the Company's unconsolidated investments, the results of Banco de Chile
and CCU are important contributors to the Company's results. For further
information regarding these entities whose


                                       70
<PAGE>

results are not consolidated into the Company's financial statements under
Chilean GAAP, see Banco de Chile's and CCU's Annual Report on Form 20-F for the
fiscal year ended December 31, 2002.

      The Company's lines of businesses and results of operations are, to a
large extent, dependent on the overall level of economic activity and growth in
Chile. In addition, certain group companies are also dependent on the overall
level of economic activity and growth in Argentina, Brazil and Peru.
Specifically, Madeco's wire and cable, brass mills, flexible packaging and
aluminum profiles businesses are dependent on the sectors that buy its products
outside of Chile, including export markets. Lucchetti is dependent on the
sectors that purchase its products in Peru, and CCU is dependent upon the
sectors that buy its products in Argentina.

      The Company's consolidated net income for any period is a function of: (i)
the relative level of income (or loss) generated by Quinenco and the
consolidated subsidiaries and Quinenco's economic interest in each such company,
(ii) the relative level of income (or loss) generated by the companies accounted
for under the equity method and Quinenco's economic interest in each such
company, (iii) adjustments for income items of intermediate holding companies,
(iv) dividends from other investments accounted for by the cost method and (v)
the level of income (or loss) generated by Quinenco on the sale of investments.
In addition, Quinenco owns a printing company and an insurance company, neither
of which have contributed significantly to the Company's operating results.

      The following table shows the percentage interests directly and indirectly
owned by Quinenco in each of the main sectors in which it participates at
December 31, 2000, 2001 and 2002:

<TABLE>
<CAPTION>
                                                         Percentage of Economic Interest
                                                                Owned by Quinenco
                                                                  At December 31,
                                                       -----------------------------------
                                                       2000           2001            2002
                                                       ----           ----            ----
<S>                                                    <C>            <C>            <C>
Financial Services
           Banco Edwards (1) ................          51.2%          51.2%            --
           Banco de Chile (2) ...............          12.3%          52.7%          52.2%
Food and Beverage
           Lucchetti (3) ....................          87.0%          93.3%          93.7%
           CCU ..............................          30.8%          30.8%          30.8%
Telecommunications
           Telsur ...........................          73.6%          73.6%          73.6%
           Entel (4) ........................          13.7%           5.7%           5.7%
Manufacturing
           Madeco (5) .......................          56.1%          56.1%          53.4%
Real Estate/Hotel Administration
           Hoteles Carrera (6) ..............          87.2%          89.9%          89.9%
           Habitaria ........................          50.0%          50.0%          50.0%
           Plava Laguna (7) .................          39.4%            --             --
</TABLE>

----------
(1)   In 2000 and 2001, through an exception granted by the SVS, the Company's
      interest in Banco Edwards was accounted for as a long-term investment
      under the equity-investment method. Banco Edwards merged with Banco de
      Chile on January 1, 2002.

(2)   In 2000, Quinenco's 12.3% interest in Banco de Chile (as a percentage of
      the outstanding voting rights) was accounted for as a long-term investment
      under the equity-investment method. On March 27, 2001, Quinenco's
      interest, which is held through an intermediate holding company, LQIF, was
      increased to 52.7% (as a percentage of the outstanding voting rights).
      Through an exception granted by the SVS, Banco de Chile is still accounted
      for as an equity method investment. On January 1, 2002, Banco de Chile
      absorbed Banco Edwards through a merger process. Following the merger,
      Quinenco's interest in Banco de Chile decreased to 52.2%.

(3)   On December 10, 2001, the Company subscribed to a capital increase of
      869,708,297 shares. As a consequence, Quinenco's effective economic
      interest increased to 93.3%. On January 23, 2002, the Company subscribed
      to an additional capital increase of 128,610,448 shares. As a result,
      Quinenco's interest increased to 93.7%.


                                       71
<PAGE>

(4)   On May 18, 2001, Quinenco sold a 4% interest and on August 1, 2001 an
      additional 4% interest in Entel. As a result, the Company holds a 5.7%
      interest in Entel.

(5)   On October 15, 2002, Madeco completed a capital increase in which the
      Company did not subscribe to any shares. As a result, the Company's
      ownership interest in Madeco decreased from 56.1% to 53.4% as of December
      31, 2002.

(6)   On October 12, 2001, the Company subscribed to a capital increase of
      2,825,264 shares. As a result, Quinenco holds a 89.9% interest.

(7)   Quinenco's interest in Plava Laguna, held by an intermediate holding
      company, Excelsa Establishment, was acquired on April 16, 2000. It was
      divested by the Company on August 20, 2001.

      The following discussion analyzes the consolidated results of the Company
for the years ended December 31, 2000, 2001 and 2002. See "Item 4. Information
on the Company" for certain data regarding revenues and operating income of
major product segments of the Company's principal businesses. In the following
discussion the term "holding company" refers to Quinenco S.A. and the
intermediate level holding companies through which, in certain cases, Quinenco
holds its interest in the Company's consolidated operating companies and certain
equity investments.

RESULTS OF OPERATIONS
NET SALES

<TABLE>
<CAPTION>
                                                    2000     Variation      % change     2001      Variation     % change       2002
                                                    ----     ---------      --------     ----      ---------     --------       ----
                                                                 (in millions of constant Ch$, except percentages)
<S>                                              <C>          <C>            <C>       <C>          <C>            <C>       <C>
Madeco ....................................      321,661       20,208          6.3     341,869      (85,586)       (25.0)    256,283
Lucchetti .................................      102,337      (13,494)       (13.2)     88,843       (5,044)        (5.7)     83,799
Telsur ....................................       44,164        2,537          5.7      46,701          (55)        (0.1)     46,646
Hoteles Carrera ...........................        7,675          (96)        (1.3)      7,579         (564)        (7.4)      7,015
Holding Co. & eliminations ................        3,906         (640)       (16.4)      3,266         (710)       (21.7)      2,556
                                                 -------        -----                  -------      -------                  -------
Total net sales ...........................      479,743        8,515          1.8     488,258      (91,959)       (18.8)    396,299
                                                 =======        =====                  =======      =======                  =======
</TABLE>

      2002 Compared to 2001

      In 2002, the Company reported net consolidated sales of Ch$396,299
million, an 18.8% decrease from the net sales of Ch$488,258 million in 2001. The
decrease was mainly attributable to lower sales at Madeco and to a lesser
extent, at Lucchetti.

      Madeco's sales, which accounted for 64.7% of Quinenco's consolidated sales
in 2002, decreased by 25% in 2002, mainly due to a reduction in sales of the
wire and cable and brass mills business units. The wire and cable segment, which
is Madeco's main business representing 51.2% of Madeco's consolidated sales in
2002, experienced a decline in sales in 2002 of 33.4%, mainly as a result of
lower demand by the telecommunications and energy sectors for copper, aluminum
and optic fiber cable products in Brazil. In addition, wire and cable sales in
Argentina were practically non-existent in 2002 following the temporary closure
of Madeco's production facilities in the beginning of the year. The reduction in
sales of the wire and cable business unit accounted for approximately 77% of the
total downturn in Madeco's consolidated sales in 2002. Sales of the brass mills
business unit, which represented 22.1% of total sales, also declined by 21.3%
during the year due to a general slowdown in exports and coin sales. To a lesser
extent, the shutdown of production activities in Argentina also impacted the
level of brass mills sales. The reduction in sales of brass mills products
accounted for approximately 18% of Madeco's total sales decline in 2002. Sales
of Madeco's other two business units, flexible packaging and aluminum profiles,
also decreased by 7% and 5%, respectively, although the impact on consolidated
sales was marginal, accounting for 5.3% of the total downturn.

      Lucchetti's sales, which accounted for 21.1% of Quinenco's consolidated
sales in 2002, decreased by 5.7%, mainly as a result of the divestment of its
Argentine operations in the first half of 2001. In addition, the decrease in
sales corresponded to an 18.5% reduction in sales of the Peruvian operations,
partially offset by a 9.9% increase in sales of the Chilean operations.
Lucchetti's sales in


                                       72
<PAGE>

Chile, which accounted for 77.6% of consolidated sales in 2002, increased due to
higher pasta volume sold and new product launches in the soups, creams and
broths product line. Sales in Peru, which accounted for the remaining 22.4% of
consolidated sales, were negatively affected by an ongoing public dispute with
Peruvian authorities for alleged environmental violations related to the plant
location on the outskirts of Lima. As a consequence, Lucchetti Peru experienced
a sharp drop in the volume sold and lower average prices of its pasta products.

      2001 Compared to 2000

      In 2001, the Company reported net consolidated sales of Ch$488,258
million, a 1.8% increase from the net sales of Ch$479,743 million in 2000. The
increase was mainly attributable to higher sales at Madeco, partially offset by
lower sales at Lucchetti.

      Madeco's sales, which accounted for 70% of Quinenco's consolidated sales
in 2001, increased by 6.3% in 2001, mainly due to an increase in sales in the
wire and cable business unit in Brazil. The wire and cable segment, which is
Madeco's main business representing 57.6% of Madeco's consolidated sales in
2001, experienced an increase in sales of 9.6% in 2001 as a result of the high
demand for copper and optical fiber telecommunications cables from the Brazilian
telecommunications sector during the first half of the year, mainly due to the
expansion of two telecom network back-bones in Brazil. This high level of demand
continued up until the third quarter of 2001, when demand for telecommunications
equipment in Brazil all but halted. This sudden decrease in demand in Brazil was
exacerbated by a global downturn in demand for telecommunications cable.

      Madeco's aluminum profiles business unit which represented 8.6% of
Madeco's consolidated sales, generated a 23.1% sales increase in 2001. The
overall increase in Madeco's consolidated sales was partially offset by a 3.0%
reduction in sales from the brass mills business unit and a 0.6% reduction in
sales from the flexible packaging business unit, which represented 21.0% and
12.8% of consolidated sales, respectively.

      Lucchetti's sales, which accounted for 18.2% of Quinenco's consolidated
sales in 2001, decreased by 13.2%, mainly as a result of the divestment of its
Argentine operations in the first half of 2001. In addition, the decrease in
sales corresponded to an 18.0% reduction in sales of the Peruvian operations,
partially offset by a 3% increase in sales in the Chilean operations. Sales from
the Chilean operations represented 72% of consolidated sales and the remaining
28% was accounted for by sales from the Peruvian operations. Sales from the
Peruvian operations were affected by a sharp drop in the volume sold and lower
average prices as a consequence of negative publicity generated by local
politicians for alleged environmental violations related to the plant location
on the outskirts of Lima.

COST OF SALES

<TABLE>
<CAPTION>
                                              2000        Variation    % change       2001       Variation     % change       2002
                                              ----        ---------    --------       ----       ---------     --------       ----
                                                                      (in millions of constant Ch$, except percentages)
<S>                                        <C>             <C>           <C>       <C>            <C>            <C>       <C>
Madeco ..............................      (281,065)       14,429          5.1     (295,494)      (70,907)       (24.0)    (224,587)
Lucchetti ...........................       (70,322)       (8,030)       (11.4)     (62,292)         (908)        (1.5)     (61,384)
Telsur ..............................       (19,351)         (425)        (2.2)     (18,926)          366          1.9      (19,292)
Hoteles Carrera .....................        (6,411)          (64)        (1.0)      (6,347)         (349)        (5.5)      (5,998)
Holding Co. & eliminations ..........        (5,854)       (1,011)       (17.3)      (4,843)         (162)        (3.3)      (4,681)
                                           --------         -----                  --------       -------                  --------
Total cost of  sales ................      (383,003)        4,899          1.3     (387,902)      (71,960)       (18.6)    (315,942)
                                           ========         =====                  ========       =======                  ========
</TABLE>

      2002 Compared to 2001

      In 2002, the Company's cost of sales was Ch$315,942 million, compared to
cost of sales of Ch$387,902 million in 2001, a decrease of 18.6%. The decrease
in consolidated cost of sales was in line


                                       73
<PAGE>

with the decrease of 18.8% in consolidated sales and was mainly attributable to
a decrease in cost of sales at Madeco.

      At Madeco, the decrease in cost of sales of 24% was in line with its sales
revenue decrease of 25% in 2002. As a percentage of sales, cost of sales
increased slightly from 86.4% to 87.6% in 2002.

      2001 Compared to 2000

      In 2001, the Company's cost of sales was Ch$387,902 million, compared to
cost of sales of Ch$383,003 million in 2000, an increase of 1.3%. The increase
was mainly attributable to an increase in cost of sales at Madeco, partially
offset by a reduction in cost of sales at Lucchetti.

      At Madeco, the increase in cost of sales of 5.1% was in line with its
sales revenue increase of 6.3% in 2001. As a percentage of sales, cost of sales
decreased from 87.4% to 86.4% in 2001.

      At Lucchetti, the reduction in the cost of sales was related to the
divestiture of the Argentine operations in the first half of 2001, and to a
lesser extent, lower cost of sales at Lucchetti Peru as a result of the lower
sales activity during the year.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>
                                                2000        Variation     % change     2001       Variation     % change      2002
                                                ----        ---------     --------     ----       ---------     --------      ----
                                                              (in millions of constant Ch$, except percentages)
<S>                                            <C>           <C>           <C>       <C>           <C>            <C>       <C>
Madeco ..................................      (29,989)       5,400         18.0     (35,389)       (7,697)       (21.7)    (27,692)
Lucchetti ...............................      (28,377)      (4,552)       (16.0)    (23,825)       (4,088)       (17.2)    (19,737)
Telsur ..................................      (12,167)       1,763         14.5     (13,930)          276          2.0     (14,206)
Hoteles Carrera .........................       (1,730)          59          3.4      (1,789)         (394)       (22.0)     (1,395)
Holding Co. & eliminations ..............       (7,832)        (450)        (5.7)     (7,382)         (332)        (4.5)     (7.050)
                                               -------        -----                  -------       -------                  -------
Total SG&A expenses .....................      (80,095)       2,220          2.8     (82,315)      (12,235)       (14.9)    (70,080)
                                               =======        =====                  =======       =======                  =======
</TABLE>

      2002 Compared to 2001

      In 2002, the Company's selling, general and administrative expenses or
SG&A expenses were Ch$70,080 million, compared to Ch$82,315 million in 2001, a
decrease of 14.9%. The decrease was mainly due to lower selling, general and
administrative expenses at Madeco and to a lesser extent, at Lucchetti.

      The decrease in selling, general and administrative expenses from
Ch$35,389 million to Ch$27,692 million at Madeco was related to various factors,
which included the closure of production facilities in Argentina, the exit from
the curtain wall business (part of the aluminum profiles business unit) and a
company wide personnel reduction.

      The reduction of Ch$4,088 million in Lucchetti's selling, general and
administrative expenses in 2002 was mainly due to the divestiture of the
Argentine operations which accounted for Ch$2,861 million of the total
reduction. SG&A expenses corresponding to the Peruvian operation decreased in
line with the sales decrease experienced during the year. In absolute terms,
selling, general and administrative expenses of the Chilean operation remained
constant between 2001 and 2002, although as a percentage of sales, they fell
from 25.9% to 23.5%, thereby contributing to a reduction in SG&A expenses as a
percentage of sales at the consolidated level.

      2001 Compared to 2000

      In 2001, the Company's selling, general and administrative expenses or
SG&A expenses were Ch$82,315 million, compared to Ch$80,095 million in 2000, an
increase of 2.8%. The increase was


                                       74
<PAGE>

mainly due to higher selling, general and administrative expenses at Madeco and
to a lesser extent, at Telsur, partially offset by a reduction in selling,
general and administrative expenses at Lucchetti.

      The increase in selling, general and administrative expenses at Madeco was
related to various factors, the most important of which include the
consolidation starting in 2001 of the fiber optic operation in Argentina, and
indemnities related to Madeco's restructuring and workforce reduction in its
Argentine and Brazilian operations. The increase in SG&A expenses was partially
offset by a decrease in personnel expense in the last quarter of 2001.

      The reduction in Lucchetti's selling, general and administrative expenses
in 2001 was mainly due to the divestiture of the Argentine operations and lower
expenses incurred in Lucchetti's Chilean operations.

OPERATING INCOME (LOSS)

<TABLE>
<CAPTION>
                                                  2000      Variation     % change      2001       Variation   % change       2002
                                                  ----      ---------     --------      ----       ---------   --------       ----
                                                           (in millions of constant Ch$, except percentages)
<S>                                              <C>           <C>          <C>        <C>          <C>          <C>          <C>
Madeco ...................................       10,607          379          3.6      10,986       (6.982)      (63.6)       4,004
Lucchetti ................................        3,638         (912)       (25.1)      2,726          (48)      (1.8)        2,678
Telsur ...................................       12,646        1,199          9.5      13,845         (697)      (5.0)       13,148
Hoteles Carrera ..........................         (466)         (91)        19.5        (557)         179       (32.1)        (378)
Holding Co. & eliminations ...............       (9,780)         821         (8.4)     (8,959)        (216)       2.4        (9,175)
                                                 ------        -----                   ------       ------                   ------
Total operating income (loss) ............       16,645        1,396          8.4      18,041       (7,764)      (43.0)      10,277
                                                 ======        =====                   ======       ======                   ======
</TABLE>

      2002 Compared to 2001

      In 2002, the Company reported operating income of Ch$10,277 million,
compared to operating income of Ch$18,041 million in 2001. The decrease of 43%
in 2002 was primarily due to deterioration in the operating performance of
Madeco, which accounted for 89.9% of the total reduction, and to a lesser
extent, Telsur.

      The decrease in Madeco's operating profit of 63.6% in 2002 was mainly
attributable to the wire and cable business unit, which suffered from a lack of
demand for its products in Brazil by the telecommunications sector, thereby
generating operating losses for the year.

      Telsur reported a 5% decrease in operating profit in 2002. The decrease in
operating profit was mainly due to the consolidation of non-regulated services
in 2002 which do not yet generate sufficient revenue to cover their cost of
operations as well as a reduction in basic telephony traffic as a consequence of
low economic activity in the south of Chile and the effect of substitution of
fixed line telephony for mobile alternatives.

      2001 Compared to 2000

      In 2001, the Company reported operating income of Ch$18,041 million,
compared to operating income of Ch$16,645 million in 2000. The increase of 8.4%
in 2001 was primarily due to the improved operating performance of Telsur and,
to a lesser extent, Madeco, partially offset by a reduction in Lucchetti's
operating profit.

      Telsur reported a 9.5% increase in operating profit in 2001. The increase
in operating profit was attributable to a 5.7% increase in sales in 2001 as well
as effective management of costs, the combination of which resulted in an
improvement in the operating margin as a percentage of sales from 28.6% in 2000
to 29.6% in 2001.


                                       75
<PAGE>

      Madeco's operating profit increased by 3.6% in 2001. However its low
operating margin of 3.2% as a percentage of sales reflected the higher level of
SG&A expenses incurred by Madeco, mainly attributable to the restructuring of
the Brazilian and Argentine operations.

      Lucchetti's operating profit declined by 25.1% compared to 2000, partially
as a result of the divestiture of the Argentine operations in the first half of
the year and a reduced sales level in Lucchetti's Peruvian operations.

NON - OPERATING RESULTS

INTEREST INCOME

      2002 Compared to 2001

      In 2002, interest income amounted to Ch$5,348 million, compared to
Ch$8,178 million in 2001, a reduction of 34.6%. The decrease in interest income
was primarily attributable to a reduction in interest rates on cash deposits.

      2001 Compared to 2000

      In 2001, interest income amounted to Ch$8,178 million, compared to
Ch$9,041 million in 2000, a reduction of 9.5%. The decrease in interest income
was primarily attributable to a reduction in interest income earned at the
Quinenco corporate level, and to a lesser extent, at Madeco and Lucchetti due to
a lower level of cash and cash equivalents.

NON - OPERATING INCOME

<TABLE>
<CAPTION>
                                                                                               2000             2001            2002
                                                                                               ----             ----            ----
                                                                                                  (in millions of constant Ch$)
<S>                                                                                          <C>             <C>              <C>
Gain on sale of investments:
     Gain on sale of Entel shares .................................................           7,834           51,056              --
     Gain on sale of other investments ............................................           1,774            6,209             431
                                                                                             ------          -------          ------
Total gain on sale of investments .................................................           9,608           57,265             431
Proportional share of net income of equity method investments:
     Banco Edwards ................................................................           1,726            5,325              --
     Banco de Chile ...............................................................           2,918           15,993          15,424
     CCU ..........................................................................           8,412           12,171           6,794
     Entel ........................................................................           4,062            3,174           2,337
     Habitaria ....................................................................              --              215             449
     Plava Laguna .................................................................             567               --              --
     Others .......................................................................           1,096              602             672
                                                                                             ------          -------          ------
Total proportional share of net income of equity method investments ...............          18,781           37,480          25,676
                                                                                             ------          -------          ------
Other non-operating income ........................................................           6,936           11,279           7,435
                                                                                             ------          -------          ------
Total non-operating income ........................................................          35,325          106,024          33,542
                                                                                             ======          =======          ======
</TABLE>

      2002 Compared to 2001

      In 2002, non-operating income was Ch$33,542 million compared to Ch$106,024
million reported in 2001, a decrease of 68.4%. The reduction in non-operating
income in 2002 was primarily due to the absence of gains on the sale of
investments and to a lesser extent, a reduction in the proportional share of net
income of equity method investments, which fell by 31.5% to Ch$25,676 million.
Quinenco's proportional share of net income was affected by lower net income
corresponding to its investments in CCU and the banking sector, which following
the merger of Banco Edwards and Banco de Chile, only included Banco de Chile in
2002.


                                       76
<PAGE>

      2001 Compared to 2000

      In 2001, non-operating income was Ch$106,024 million compared to Ch$35,325
million reported in 2000, an increase of over 200%. Non-operating income in 2001
included large non-recurring gains on the sale of investments, principally the
sale of an 8% interest in Entel which produced a gain of Ch$51,056 million in
2001, the sale of Plava Laguna, which generated a gain of Ch$1,318 million and
Madeco's sale of a 25% interest in Optel, which generated a gain on sale of
Ch$3,232 million. In addition, Quinenco's proportional share of net income of
equity method investments increased by 99.6% to Ch$37,480 million, due to the
acquisition of a controlling interest in Banco de Chile in March of 2001 as well
as higher results corresponding to Quinenco's interest in Banco Edwards and CCU.

GAIN ON SALE OF INVESTMENTS

      2002 Compared to 2001

      In 2002, gains on the sale of investments amounted to Ch$431 million,
compared to Ch$57,265 million in 2001. In 2001, gains on the sale of investments
were mostly made up of the gain on the sale of 8% of the outstanding shares of
Entel and a 39.4% interest in Plava Laguna, which amounted to Ch$51,056 million
and Ch$1,318 million, respectively.

      2001 Compared to 2000

      In 2001, gains on the sale of investments amounted to Ch$57,265 million,
compared to Ch$9,608 million in 2000. In 2001, gains on the sale of investments
were mostly made up of the gain on the sale of 8% of the outstanding shares of
Entel, which amounted to Ch$51,056 million. In addition, the Company sold its
39.4% interest in Plava Laguna during 2001, which produced a gain on sale of
Ch$1,318 million (included with gain on sale of other investments). In 2000,
gains on the sale of investments included the gain on the sale of a 0.7%
interest in Entel of Ch$7,834 million.

PROPORTIONAL SHARE OF NET INCOME OF EQUITY METHOD INVESTMENTS

      2002 compared to 2001

      The proportional share of net income of equity method investments was
Ch$25,676 million in 2002, compared to Ch$37,480 million in 2001, a decrease of
31.5%. The decrease can mainly be explained by a lower proportional share of net
income from Quinenco's investments in CCU and the banking sector, which
following the merger of Banco Edwards and Banco de Chile in 2002, only included
Banco de Chile.

      2001 compared to 2000

      The proportional share of net income of equity method investments was
Ch$37,480 million in 2001, compared to Ch$18,781 million in 2000, an increase of
99.6%. The increase can mainly be explained by the acquisition of a controlling
interest in Banco de Chile in March of 2001 and to a lesser extent, a greater
proportional share of net income from Quinenco's investment in Banco Edwards and
CCU.

      Quinenco's Proportional Share of Net Income of Equity Method Investments

      Financial Services Sector - 2002 compared to 2001

      Quinenco's investment in Banco de Chile is currently being accounted for
as a non-consolidated equity-method interest, in accordance with authorization
from the SVS. Until it merged with Banco de Chile on January 1, 2002, Quinenco's
interest in Banco Edwards was also accounted for as a non-consolidated
equity-method interest.


                                       77
<PAGE>

      Quinenco's proportional share of net income from its investments in the
financial services sector was Ch$15,424 million in 2002, which represented 29.2%
of the net income of Banco de Chile. In 2001, Quinenco's share of the net income
from investments in the financial services sector amounted to Ch$21,318 million,
consisting of 17.8% of the net income of Banco de Chile and 51.2% of the net
income of Banco Edwards.

      To facilitate the understanding of comparative results of Quinenco's
investments in the financial services sector between 2002 and 2001, the
historical results of Banco de Chile and Banco Edwards have been combined for
the year 2001 in the table below.

                                                   (in millions of constant Ch$)

<TABLE>
<CAPTION>
                                                           Quinenco's proportional                      Quinenco's proportional
                                            Net income     share of equity method      Net income       share of equity method
                                              2001              investment 2001            2002            investment 2002
<S>                                         <C>                   <C>                   <C>                   <C>
Banco de Chile (1) ..............           Ch$89,577             Ch$15,993             Ch$52,635             Ch$15,424
Banco Edwards (2) ...............           Ch$10,406             Ch$ 5,325                    --                    --
                                            ---------             ---------             ---------             ---------
Combined banks (3) ..............           Ch$99,983             Ch$21,318             Ch$52,635             Ch$15,424
</TABLE>

(1)   The Company's proportional share of net income of equity method investment
      corresponded to its 17.8% and 29.2% economic interest in Banco de Chile in
      2001 and 2002, respectively.

(2)   The Company's proportional share of net income of equity method investment
      corresponded to its 51.2% interest in the bank in 2001.

(3)   Banco de Chile absorbed Banco Edwards on January 1, 2002.

      Banco de Chile's net income was Ch$52,635 million in 2002, a decrease of
47.4% from the combined income of Banco de Chile and Banco Edwards of Ch$99,983
million in 2001. The reduction in net income was primarily attributable to an
increase in merger related expenses, provisions for loan losses as well as a
reduction in other income and expenses and marked to market losses on Argentine
securities. The decrease in net income from banking services was partially
offset by an increase in net income from financial services subsidiaries of the
bank.

      Operating revenues decreased by 2.6% to Ch$424,257 million in 2002 ,
mainly due to a decline in net financial income and gains on financial
instruments, partially offset by an increase in fee income. Net financial
income, which is calculated as the sum of net interest revenue and net foreign
exchange transactions, decreased by 4.0% from Ch$350,641 million to Ch$336,679
million, mostly attributable to a decline of 3.1% in the bank's average interest
earnings assets. Gains on sales of financial instruments, which fell from
Ch$8,010 million in 2001 to Ch$892 million in 2002, were affected by marked to
market losses made in connection with Argentine securities. Income from services
(net) increased by 12.6% to Ch$86,686 million, mainly related to banking
services and fee income earned at the subsidiary level.

      Loan loss provisions increased from Ch$90,057 million in 2001 to
Ch$118,750 million in 2002 (not adjusted by voluntary provisions), an increase
of 31.9%. The increase in loan provisions was primarily related to medium sized
companies in the real estate and construction sectors and debtors in Argentina.
Loan loss provisions were partially offset by the release of voluntary
provisions of Ch$17,223 million in 2002.

      Other income and expenses fell from income of Ch$17,264 million in 2001 to
a net expense of Ch$5,296 million in 2002, primarily attributable to a decline
in non-operating income and lower recovery of previously charged off loans.

      The impact of the merger on 2002 results was Ch$30,884 million. The main
expense items were personnel severance expense and costs associated with the
closure of redundant branches.


                                       78
<PAGE>

      Banco de Chile - 2002 compared to 2001

      Quinenco's proportional share of Banco de Chile's net income was Ch$15,424
million in 2002 and Ch$15,993 million in 2001. The Company's economic interest
(dividend rights) in Banco de Chile was 29.2% and 17.8% as of December 31, 2002
and 2001, respectively.

      Banco de Chile's net income was Ch$52,635 million in 2002, a decrease of
41.2% from the Ch$89,577 million reported in 2001. The reduction in net income
was primarily attributable to an increase in merger related expenses, higher
provisions for loan losses and to a lesser extent, the recognition of marked to
market losses on Argentine securities accounted for as available for sale. These
were partially offset by higher net interest revenue and fee income.

      Net interest revenue increased by 66.1% from Ch$221,304 million to
Ch$367,596 million, mainly due to a 41.8% increase in average interest earning
assets as a result of the merger and an increase of 65 basis points in the net
interest margin. The net interest margin, which rose from 3.8% in 2001 to 4.5%
in 2002, benefited from higher lender spreads, repricing, a better funding mix
and a net position in US dollars which revalued vis-a-vis the Chilean peso
during the year.

      Fee income increased by 65.5% from Ch$52,367 million in 2001 to Ch$86,686
million in 2002. The increase was primarily a result of the merger although
higher fees earned in connection with traditional banking services and at the
subsidiary level also contributed to the growth experienced during the year.

      Loan loss provisions increased by 112.9% from Ch$47,264 million in 2001 to
Ch$100,644 million in 2002. The increase in loan provisions was primarily
related to the merger and a leveling of the credit risk classifications of the
portfolios of Banco Edwards and Banco de Chile. In addition, uniform risk
criteria was applied to both banks' loan portfolios which also contributed to a
higher level of provisions.

      Banco de Chile's operating expenses increased from Ch$150,615 million in
2001 to Ch$257,239 million in 2002. The increase was mainly a result of the
merger with Banco Edwards, mainly related to personnel and administrative
expense. Merger related operating expenses include severance payments,
technological developments, outplacement, financial advisory and branch
refurbishment costs.

      Banco de Chile - 2001 compared to 2000

      Quinenco's proportional share of Banco de Chile's net income was Ch$15,993
million in 2001 and Ch$2,918 million in 2000. The Company's economic interest
(dividend rights) in Banco de Chile was 17.8% and 4.3% as of December 31, 2001
and 2000, respectively.

      Banco de Chile's net income was Ch$89,577 million in 2001, an increase of
2.9% from the Ch$87,034 million reported in 2000. The increase in net income was
primarily attributable to a higher level of net interest revenue, which
increased from Ch$217,875 million in 2000 to Ch$221,304 million in 2001, a 12.5%
increase in fee income which totaled Ch$52,367 million in 2001, and a
significant tax benefit of Ch$1,386 million. The increase of 1.6% in net
interest revenue in 2001 is explained by a 13.7% increase in average interest
earning assets, partially offset by a reduction of forty-five basis points in
the net interest margin.

      These increases were however, partially offset by higher provisions for
loan losses which increased from Ch$40,668 million in 2000 to Ch$47,264 million
in 2001, and an increase of 1.8% in operating expenses which increased by
Ch$2,662 million to Ch$150,615 million. The increase in loan loss provisions was
made in response to the weak macroeconomic conditions, low internal consumption


                                       79
<PAGE>

and a significant reduction in aggregate demand prevailing in Chile during 2001.
The increase in operating expenses was related to the merger process with Banco
Edwards, which became effective on January 1, 2002.

      Banco Edwards - 2001 compared to 2000

      Quinenco's proportional share of Banco Edwards' net income was Ch$5,325
million in 2001 and its proportional share of Banco Edwards' net income was
Ch$1,726 million in 2000, corresponding to its 51.2% interest from the date of
purchase in 1999.

      Banco Edwards' net income was Ch$10,406 million in 2001, an increase of
208.6% from the Ch$3,374 million reported in 2000. The increase in net income
was primarily attributable to an increase in operating revenues and lower
charge-offs on assets received in lieu of payment. Net interest revenue, which
increased by 11.7% from Ch$111,254 million in 2000 to Ch$124,261 million in
2001, was the result of a 7.1% expansion in average interest earning assets and
a nineteen basis points increase in the net interest margin. In addition, fee
income increased by 47.4% to Ch$26,252 million in 2001, primarily due to the
implementation of a new pricing strategy during the second half of 2000.

      These increases were, however, partially offset by higher provisions for
loan losses which increased by 22.6% from Ch$37,520 million in 2000 to Ch$46,001
million in 2001, and an increase of 11.8% in operating expenses which rose by
Ch$10,582 million to Ch$100,324 million. The increase in loan loss provisions
was attributable to higher provisions made on commercial loans as well as the
establishment of voluntary provisions in the amount of Ch$4,378 million required
by the Central Bank as a condition for the merger with Banco de Chile. The
increase in operating expenses was related to the merger process with Banco de
Chile which became effective on January 1, 2002.

      CCU - 2002 compared to 2001

      Quinenco's proportional share of CCU's income was Ch$6,794 million in 2002
and Ch$12,171 million in 2001, which represented its 30.8% economic interest in
CCU's net income in both years.

      CCU's consolidated sales decreased by 6.6% to Ch$345,891 million in 2002,
compared to Ch$370,384 million in 2001. The decrease in CCU's consolidated sales
was mainly due to an 8.8% decrease in average prices, partially offset by a 2.4%
increase in volumes sold. The decrease in revenues was primarily attributable to
the Argentine beer segment, which declined by 54.6% due to Argentina's ongoing
economic crisis and currency devaluation, partially offset by an increase of
2.2% in revenues corresponding to the Chilean operations. Sales by segment were
as follows in 2002: beer Chile (38.9%), beer Argentina (7.2%), soft
drinks/mineral waters (32.0%), wine (21.7%) and other (0.2%).

      Operating income decreased by 16.4% to Ch$37,594 million in 2002, of which
Ch$5,029 million is explained by a decline in operating profit in Argentina, and
the remaining Ch$2,338 million to the Chilean operations. As a percentage of
sales, the operating margin fell from 12.1% in 2001 to 10.9% in 2002.

      Non-operating losses amounted to Ch$6,891 million in 2002, compared to
non-operating income of Ch$3,773 million in 2001. The variation in non-operating
results can mostly be explained by the non-recurring gain on the sale of a 6.7%
interest in Backus & Johnston in 2001, which amounted to Ch$17,199 million. Net
income in 2002 amounted to Ch$22,065 million, a decrease of 44.2% from the net
income of Ch$39,529 million reported in 2001, as a result of the aforementioned
decreases in operating and non-operating results.


                                       80
<PAGE>

      CCU - 2001 compared to 2000

      Quinenco's proportional share of CCU's income was Ch$12,171 million in
2001 and Ch$8,412 million in 2000, which represented its 30.8% economic interest
in CCU's net income in both years.

      CCU's consolidated sales increased by 5.2% to Ch$370,384 million in 2001,
compared to Ch$352,062 million in 2000. The increase in CCU's consolidated sales
was mainly due to a 1.9% increase in volumes sold and a 3.3% increase in average
prices. The increase in revenues was mainly attributable to the wine segment
which grew by over 24%. Sales by segment were as follows in 2001: beer-Chile
(36.2%), beer-Argentina (14.8%), soft drinks/mineral waters (30.1%), wine
(18.8%) and other (0.1%).

      Operating income increased by 7.2% to Ch$44,962 million in 2001 as a
consequence of the aforementioned 5% increase in sales. This was in spite of
higher cost of goods sold related with raw material purchases abroad and
slightly higher SG&A expenses. As a percentage of sales, the operating margin
increased from 11.9% in 2000 to 12.1% in 2001.

      Non-operating income amounted to Ch$3,773 million in 2001, compared to
non-operating losses of Ch$8,504 million in 2000. Non-operating income in 2001
included a significant gain on the sale of shares of a 6.7% interest in Backus &
Johnston, a Peruvian beer producer, which produced a non-recurring gain of
Ch$17,199 million. Net income in 2001 amounted to Ch$39,529 million, an increase
of 44.7% from the net income of Ch$27,321 million reported in 2000, as a result
of the aforementioned improvement in operating and non-operating results.

      Entel - 2002 compared to 2001

      Quinenco's proportional share of Entel's net income was Ch$2,337 million
in 2002 and Ch$3,174 million in 2001. Its economic interest in Entel was 5.7%
and 5.7% as of December 31, 2002 and 2001, respectively.

      Entel's consolidated sales increased by 10.1% in 2002 to Ch$804,762
million, mostly explained by an increase in revenues related to Entel's cellular
telephony business unit. Operating income amounted to Ch$97,561 million in 2002,
compared to Ch$85,661 million in 2001, an increase of 13.9%. The increase in
operating income was a result of the higher overall sales level which outpaced
cost increases in the same period, resulting in a higher operating margin,
equivalent to 12.1% of sales.

      Non-operating losses amounted to Ch$50,880 million in 2002, compared to
non-operating losses of Ch$48,716 million in 2001. Non-operating losses
increased due to higher expenses related to personnel severance indemnities,
partially offset by a lower level of interest expense for the year.

      Entel reported net income of Ch$41,096 million in 2002, compared to
Ch$35,230 million in 2001, an increase of 16.7%, attributable to the
aforementioned improvements in the company's operating performance in the year.

      Entel - 2001 compared to 2000

      Quinenco's proportional share of Entel's net income was Ch$3,174 million
in 2001 and Ch$4,062 million in 2000. Its economic interest in Entel was 5.7%
and 13.7% as of December 31, 2001, 2000, respectively.

      Entel's consolidated sales increased by 32.0% in 2001 to Ch$731,101
million, mostly explained by an increase in revenues related to Entel's cellular
telephony business unit, Internet services and long distance services in the
United States and parts of Central America.


                                       81
<PAGE>

      Operating income amounted to Ch$85,661 million in 2001, compared to
Ch$73,323 million in 2000, an increase of 16.8%. The increase in operating
income was a result of the higher overall sales level and higher margins earned
in connection with Entel's subsidiaries, particularly the cellular telephony
business.

      Non-operating losses amounted to Ch$48,716 million in 2001, compared to
non-operating losses of Ch$38,768 million in 2000. Non-operating losses were
increased in part due to a higher level of goodwill expense. Entel reported net
income of Ch$35,230 million in 2001, compared to Ch$29,071 million in 2000, an
increase of 21.2%, attributable to the aforementioned improvements in the
company's operating performance in the year and reduced tax obligations during
the period.

      Habitaria - 2002 compared to 2001

      Quinenco's proportional share of Habitaria's net income was 50%, or Ch$449
million in 2002 and Ch$215 million in 2001.

      Habitaria reported net income in 2002 of Ch$ 898 million, compared to a
net income of Ch$430 million in 2001, an increase of 108.8%. Sales revenues
reached Ch$23,006 million in 2002, compared to Ch$20,059 million in 2001,
reflecting a relatively dynamic real estate market, stimulated by low prevailing
interest rates as well as an increase in Habitaria's housing stock available for
sale. Habitaria sold and delivered 436 apartments in 2002. In comparison, 2001
sales revenues corresponded to the sale and delivery of 398 apartments.
Operating income was Ch$1,395 million in 2002, compared to operating income of
Ch$1,026 million in 2001, an increase of 36%.

      Habitaria - 2001 compared to 2000

      Quinenco's proportional share of Habitaria's net income was 50%, or Ch$215
million in 2001 and a loss of Ch$497 million in 2000.

      Habitaria reported net income in 2001 of Ch$ 430 million, compared to a
net loss of Ch$996 million in 2000. During 2001, Habitaria reported a sales
increase of 199.6% compared to 2000. Sales revenues reached Ch$20,059 million in
2001, compared to Ch$6,696 million in 2000, reflecting Habitaria's increase in
housing stock available to the public and activity in the Chilean real estate
market which was stimulated by lower prevailing interest rates. Habitaria sold
and delivered 398 apartments in 2001. In comparison, 2000 sales revenues
corresponded to the sale and delivery of 161 apartments. Operating income was
Ch$1,026 million in 2001, compared to an operating loss of Ch$951 million in
2000.

OTHER NON - OPERATING INCOME

      2002 compared to 2001

      Other non-operating income was Ch$7,435 million in 2002, compared to
Ch$11,279 million in 2001, a decrease of 34.1%. The decrease in 2002 is mainly
explained by a reduction of Ch$7,298 million in negative goodwill amortization
associated with the original Entel share purchases disposed of during 2001. The
reduction in negative goodwill amortization was partially offset by an increase
in other non-operating income of Ch$3,454 million, mainly composed of the
reversal of a loss contingency provision made in connection with the purchase
from SBC of its interest in VTR, a subsidiary of Quinenco, in 1999.

      2001 compared to 2000

      Other non-operating income was Ch$11,279 million in 2001, compared to
Ch$6,936 million in 2000, an increase of 62.6%. The increase in 2001 is mainly
explained by the negative goodwill

                                       82
<PAGE>

amortization of Ch$7,809 million associated with the original Entel share
purchases sold during 2001, partially offset by lower miscellaneous income.

INTEREST EXPENSE

      2002 Compared to 2001

      Interest expense was Ch$50,727 million in 2002, a 16.5% decrease from the
Ch$60,779 million reported in 2001. The decrease in interest expense is
explained by lower prevailing interest rates during the twelve-month period.
Quinenco's consolidated interest expense in 2002 is principally composed of
interest expense incurred by Quinenco and intermediate holding companies
(45.3%), Madeco (37.6%), Lucchetti (9.7%), Telsur (6.4%) and others (1.0%).

      2001 Compared to 2000

      Interest expense was Ch$60,779 million in 2001, a 54.9% increase from the
Ch$39,242 million reported in 2000. The increase in interest expense is
associated with the indebtedness incurred in relation to the Banco de Chile
acquisition in early 2001, and, to a lesser extent, an increase in interest
expense at Madeco. Quinenco's consolidated interest expense in 2001 is
principally composed of interest expense incurred by Quinenco and intermediate
holding companies (42.2%), Madeco (36.0%), Lucchetti (15.7%), Telsur (5.0%) and
others (1.1%).

      Madeco's increase in interest expense reported in 2001 is related to
higher average interest rates on bank obligations during the period.

NON - OPERATING EXPENSES

<TABLE>
<CAPTION>
                                                                                      2000           2001           2002
                                                                                      ----           ----           ----
                                                                                         (in millions of constant Ch$)
<S>                                                                                 <C>            <C>            <C>
Proportional share of net loss of equity method investments:
      Habitaria (1) .......................................................            497             --             --
      Others ..............................................................            485            140            493
                                                                                    ------         ------         ------
      Total proportional share of net loss of equity method investments ...            982            140            493
Other non-operating expenses ..............................................         35,157         71,739         85,195
                                                                                    ------         ------         ------
Total non-operating expenses ..............................................         36,139         71,879         85,688
                                                                                    ======         ======         ======
</TABLE>

----------
(1)   Quinenco's proportional share of net income corresponding to its interest
      in Habitaria amounted to Ch$215 million in 2001 and Ch$449 million in
      2002. For a discussion of Habitaria's results in 2002 compared to 2001 and
      2001 compared to 2000, see "- Non-operating income - Proportional share of
      net income - main equity investments" in this section.

      2002 Compared to 2001

      In 2002, non-operating expenses were Ch$85,688 million compared to
Ch$71,879 million in 2001, an increase of 19.2%. The increase in non-operating
expenses was mainly attributable to a significant increase in Lucchetti's
non-operating expenses which included loss provisions of Ch$30,678 million
related to the forced closure of its Peruvian operations. The increase in
non-operating expenses was partially offset by a reduction in Madeco's
non-operating expenses and a decrease in goodwill expense at the Quinenco
corporate level.

      2001 Compared to 2000

      In 2001, non-operating expenses were Ch$71,879 million compared to
Ch$36,139 million in 2000, an increase of 98.9%. The increase in non-operating
expenses was mainly attributable to a significant increase in Madeco's
non-operating expenses incurred in connection with the restructuring of its
Argentine and Brazilian operations, as well as higher goodwill expense reported
during the period


                                       83
<PAGE>

related to the Banco de Chile acquisition in early 2001. The increase in
non-operating expenses was partially offset by a reduction in Lucchetti's
non-operating expenses.

PROPORTIONAL SHARE OF NET LOSS OF EQUITY METHOD INVESTMENTS

      2002 compared to 2001

      The proportional share of net loss of equity method investments was Ch$493
million in 2002, compared to Ch$140 million in 2001.

      2001 compared to 2000

      The proportional share of net loss of equity method investments was Ch$140
million in 2001, compared to Ch$982 million in 2000.

OTHER NON - OPERATING EXPENSES

      2002 compared to 2001

      In 2002, other non-operating expenses were Ch$85,195 million, compared to
Ch$71,739 million in 2001, an increase of 18.8%. The increase in other
non-operating expenses was mainly due to an increase in other non-operating
expenses at Lucchetti. The increase in other non-operating expenses was
partially offset by a reduction of other non-operating expenses at Madeco and a
decrease in goodwill amortization expense at the Quinenco corporate level.

      Lucchetti's other non-operating expenses amounted to Ch$34,657 million in
2002, compared to Ch$5,698 million in 2001. In 2002, in accordance with local
accounting principles, Lucchetti made charges to 2002 results of Ch$30,678
million in connection with its plant closure.

      Madeco's other non-operating expenses amounted to Ch$20,011 million in
2002, compared to Ch$31,325 million in 2001. In 2001, Madeco reported
significant non-recurring charges, including severance payments, restructuring
costs, provisions for accounts receivable and write-offs of fixed assets in
Argentina. In 2002, other non-operating expenses consisted mainly of charges for
obsolescence of inventories and supplies, severance pay and provisions for
accounts receivable as well as additional asset write-downs in Argentina.

      Goodwill expense amortization, included with other non-operating expenses,
amounted to Ch$20,532 million in 2002, compared to Ch$28,231 million in 2001.
The decrease of 27.3% is explained by the reduction in goodwill amortization
associated with purchases of shares of Entel, which were disposed of in 2001.

      2001 compared to 2000

      In 2001, other non-operating expenses were Ch$71,739 million, compared to
Ch$35,157 million in 2000, an increase of 104%. The increase in other
non-operating expenses was mainly due to an increase in other non-operating
expenses at Madeco and an increase in goodwill expense at the Quinenco corporate
level. The increase in other non-operating expenses was partially offset by a
reduction of other non-operating expenses at Lucchetti.

      Madeco's other non-operating expenses amounted to Ch$31,325 million in
2001, compared to Ch$7,616 million in 2000. In 2001, Madeco restructured its
Brazilian and Argentine subsidiaries, which resulted in significant
non-recurring charges in the period, including severance payments, restructuring
costs, provisions for accounts receivable and write-offs of fixed assets.


                                       84
<PAGE>

      With respect to its Argentine operations, Madeco shut down its plant
facilities in the last quarter of the year due to the economic crisis and
currency devaluation in that country which impeded Madeco from further
developing its businesses. As a consequence, Madeco made charges to income which
amounted to Ch$12,834 million in 2001 in connection with the write-down of
assets of its Argentine operations and Ch$5,661 million related to restructuring
and other non-recurring expenses in that country. Also included in other
non-operating expenses was a provision for Ch$3,924 million, mostly made in
connection with the settlement of a decade long labor lawsuit.

      Lucchetti's other non-operating expenses decreased by Ch$5,348 million to
Ch$5,698 million, mainly because other non-operating expenses in 2000 included a
provision of Ch$7,543 million made in connection with the expected loss on the
sale of the Argentine subsidiary, divested during 2001.

      Goodwill expense, included with other non-operating expenses, amounted to
Ch$28,231 million in 2001, compared to Ch$12,437 million in 2000. The increase
of 127.0% is explained by goodwill expense associated with the Banco de Chile
acquisition in March of 2001.

PRICE - LEVEL RESTATEMENT

      2002 Compared to 2001

      Price-level restatement losses amounted to Ch$8,896 million in 2002,
compared to price-level restatement losses of Ch$10,951 million in 2001, a
decrease of 18.8%. In 2002, the net credit to income to adjust for the change in
purchasing power of the Chilean peso on the Company's net non-monetary asset
position and income and expense accounts amounted to Ch$5,023 million, compared
to a net charge to income of Ch$3,896 million in 2001. Exchange rate translation
losses, also included with price-level restatement, increased from Ch$7,055
million in 2001 to Ch$13,919 million in 2002. Exchange rate translation losses
mostly corresponded to Madeco's businesses and reflect the devaluation of the
Chilean peso, Brazilian real and the Argentine peso vis-a-vis the United States
dollar in 2002.

      2001 Compared to 2000

      Price-level restatement losses amounted to Ch$10,951 million in 2001,
compared to price-level restatement losses of Ch$6,343 million in 2000. In 2001,
the net charge to income to adjust for the change in purchasing power of the
Chilean peso on the Company's net non-monetary liability position and income and
expense accounts amounted to Ch$3,896 million, compared to Ch$4,755 million in
2000. Also included with price-level restatement is a charge to income in 2001
of Ch$7,055 million for exchange rate translation losses, most of which
corresponded to Madeco's businesses and reflect the devaluation of the Chilean
peso, Brazilian real and the Argentine peso vis-a-vis the United States dollar
in 2001. In 2000, a charge of Ch$1,588 million related to exchange rate
translation losses was included with price-level restatement.

NON - OPERATING RESULTS (NET)

      2002 Compared to 2001

      There was a non-operating loss of Ch$106,421 million in 2002, compared to
a non-operating loss of Ch$29,407 million in 2001. The main items which
contributed to a non-operating loss in 2002 were other non-operating expenses,
which included non-recurring charges related to Lucchetti's operations in Peru
and for Madeco's operations in Argentina, interest expense and goodwill expense
incurred during the period. In 2001, the main items which contributed to a
non-operating loss were other non-operating expenses, goodwill expense and
interest expense incurred during the period. These expenses were partially
offset by a large non-recurring gain resulting from the sale of a portion of the
Company's interest in Entel.


                                       85
<PAGE>

      2001 Compared to 2000

      There was a non-operating loss of Ch$29,407 million in 2001, compared to a
non-operating loss of Ch$37,358 million in 2000. The main items which
contributed to a non-operating loss in 2001 were other non-operating expenses,
goodwill expense and interest expense incurred during the period. These expenses
were partially offset by a large non-recurring gain resulting from the sale of a
portion of the Company's interest in Entel. In 2000, non-operating losses were
mostly attributable to interest expense and other non-operating expenses,
partially offset by other non-operating income which included a gain on the sale
of a portion of Quinenco's interest in Entel.

MINORITY INTEREST

                                                 2000        2001         2002
                                                 ----        ----         ----
                                                 (in millions of constant Ch$)

      Madeco & subsidiaries ............        7,685      23,948       19,845
      Telsur & subsidiaries ............       (2,215)     (2,475)      (1,728)
      Lucchetti & subsidiaries .........        1,381         692        2,347
      Hoteles Carrera ..................          108         101           65
      Other ............................          215         182           (7)
                                               ------      ------       ------
      Total minority interest ..........        7,174      22,448       20,522
                                               ======      ======       ======

      2002 Compared to 2001

      In 2002, minority interest amounted to a credit to income of Ch$20,522
million, compared to a credit to income of Ch$22,448 million in 2001. Madeco and
Lucchetti reported a net loss in 2002 which resulted in an add-back to income of
the net loss which did not correspond to Quinenco of Ch$19,845 million and
Ch$2,347 million, respectively. The deduction from income of Ch$1,728 million
corresponding to Telsur and its subsidiaries was related to the portion of
Telsur's net income which did not correspond to the Company's interest.

      2001 Compared to 2000

      In 2001, minority interest amounted to a credit to income of Ch$22,448
million, compared to a credit to income of Ch$7,174 million in 2000. Madeco and
Lucchetti reported a net loss in 2001 which resulted in an add-back to income of
the net loss which did not correspond to Quinenco of Ch$23,948 million and
Ch$692 million, respectively. The deduction from income of Ch$2,475 million
corresponding to Telsur and its subsidiaries was related to the portion of
Telsur's net income which did not correspond to the Company's interest.

      INCOME TAXES

      2002 Compared to 2001

      In 2002, the Company reported a tax credit of Ch$142 million, in
connection with tax loss carry-forwards, compared to Ch$4,893 million in 2001.
Taxes are imposed separately on each group company. Income is not consolidated
for tax purposes.

      2001 Compared to 2000

      In 2001, the Company reported a tax credit of Ch$4,893 million, in
connection with tax loss carry-forwards, compared to Ch$7,541 million in 2000.
Taxes are imposed separately on each group company. Income is not consolidated
for tax purposes.


                                       86
<PAGE>

NET INCOME

      2002 Compared to 2001

      In 2002, the company reported a net loss of Ch$75,480 million, compared to
net income of Ch$15,975 million in 2001. The variation is largely explained by a
reduction in the net income contribution from the main operating companies of
the group, principally Lucchetti, which reported non-recurring charges of
Ch$30,678 million in connection with the forced closure of its plant facilities
in Peru, in addition to the reduction in the net income contribution from
investments in the banking sector and CCU which fell by Ch$11,271 million. The
variation in net earnings between 2002 and 2001 is also explained by the absence
of extraordinary gains on sale in 2002. In 2001, Quinenco reported a gain on the
sale of shares of Entel and the divestment of its stake in Plava Laguna,
boosting non-operating results by Ch$52,374 million in that year.

      2001 Compared to 2000

      In 2001, the Company reported net income of Ch$15,975 million, compared to
net loss of Ch$5,998 million in 2000. The improvement in net results in 2001 was
primarily attributable to a higher proportional share of net income from
Quinenco's main investments, namely Banco de Chile, Banco Edwards and CCU, as
well as significant non-operating income related to the sale of shares of Entel.
These results were partially offset by losses incurred by Madeco.

IMPACT OF INFLATION AND PRICE - LEVEL RESTATEMENT

      As explained in detail in Notes 2(b) and 3 to the Consolidated Financial
Statements, the Company is required to restate non-monetary assets and
liabilities, equity and income and expense accounts to reflect the effect of
variations in the purchasing power of the Chilean peso, thus reflecting by an
indirect method the gain or loss resulting from holding or owning monetary
assets and liabilities. For all the above balances, the restatement is based on
the variation of the official Consumer Price Index ("CPI") of the National
Institute of Statistics, with the exception of assets and liabilities in foreign
currencies, and inventories, which are adjusted in accordance with their
replacement value.

      Chilean companies sometimes finance current assets and fixed assets with
short-term and long-term liabilities in foreign currency. Because assets are
generally restated using the CPI and liabilities in foreign currencies are
restated to closing exchange rates, the price-level restatement line in the
income statement is affected by the relationship between local inflation and the
U.S. dollar exchange rate of the Chilean peso.

      Because of Chile's past history with inflation, the financial markets have
developed a system of borrowing and lending in UFs. Most long-term assets and
liabilities in pesos are indexed in UFs, and the adjustment to the closing value
is reflected in the price-level adjustment account.

      The restatement of the principal non-monetary assets and liabilities,
equity and income and expense accounts and the corresponding effect on the
Company's results of operations is set forth in the following table:


                                       87
<PAGE>

<TABLE>
<CAPTION>
                                                                                     Credit (charge)
                                                                                Year Ended December 31,
                                                                       -------------------------------------------
                                                                            2000             2001             2002
                                                                            ----             ----             ----
                                                                              (in millions of constant Ch$)
<S>                                                                    <C>               <C>              <C>
Property, plant and equipment ...................................      Ch$12,993         Ch$8,630         Ch$8,018
Shareholders' equity accounts ...................................        (31,528)         (20,340)         (20,148)
Other assets and liabilities ....................................         26,000           22,916           29,215
Income and expense accounts in terms of period-end
  constant Chilean pesos ........................................           (466)             (97)             839
Net adjustment of assets and liabilities indexed in UFs .........        (11,754)         (15,005)         (12,901)
Net adjustment of assets and liabilities denominated in
  foreign currency ..............................................         (1,588)          (7,055)         (13,919)
                                                                       ---------       ----------        ---------
Price-level restatement .........................................      Ch$(6,343)      Ch$(10,951)       Ch$(8,896)
                                                                       =========       ==========        =========
</TABLE>

WORKING CAPITAL IN FOREIGN CURRENCIES

      The Company's operating results and investments are exposed to
fluctuations of foreign currency exchange rates principally as a result of
carrying working capital in local currencies. According to Chilean GAAP, the
Company's financial statements are expressed in Chilean pesos which result from
the consolidation of financial statements of Chilean subsidiaries expressed in
Chilean pesos and the translation of the foreign subsidiaries' financial
statements expressed in local currencies to Chilean pesos. In 2002,
approximately 46% of the Company's consolidated revenues were from sales made
outside of Chile and investments in subsidiaries outside of Chile represented
approximately 9% of the Company's total investments at December 31, 2002.

      The following table presents the working capital position (net) in local
currencies as of December 31, 2002. All amounts are expressed in thousands of
Chilean pesos.

<TABLE>
<CAPTION>
                                                                       Other         Argentine      Peruvian      Brazilian
                                     U.S. dollars        Euros       currencies        pesos           sols         reals
                                     ------------        -----       ----------        -----           ----         -----
                                                                (in thousands of constant Ch$)
<S>                                  <C>               <C>          <C>              <C>            <C>          <C>
   Working capital in
   foreign currencies
   (net) .......................     (60,220,988)      703,168      (1,284,030)      1,457,599      2,786,827    18,512,818
</TABLE>

      In addition, CCU, an equity-method investment, maintains working capital
in foreign currencies. As of December 31, 2002, working capital in foreign
currencies (net) was Ch$32,783 million in U.S. dollars (net liabilities), Ch$620
million in Argentine pesos and Ch$4,160 million in other foreign currencies.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

      Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, which would potentially result in
materially different results under different assumptions and conditions. The
Company principally operates in five operating segments, Manufacturing, Food and
Beverage, Telecommunications, Financial Services and Real estate/hotel
administration, each with different critical accounting policies and estimates
described below:

      The Company believes that its critical accounting policies in the
preparation of its Chilean GAAP financial statements are limited to those
described below. It should be noted that in many cases, Chilean GAAP
specifically dictates the accounting treatment of a particular transaction, with
no need for


                                       88
<PAGE>

management's judgment in their application. Additionally, significant
differences can exist between Chilean GAAP and U.S. GAAP, as explained in note
27 of the financial statements. There are also areas in which management's
judgment in selecting available alternatives would not produce materially
different results. For a summary of significant accounting policies and methods
used in the preparation of the financial statements, see Note 2 and Note 27 to
the consolidated financial statements.

Manufacturing

      Revenue Recognition

      Madeco recognizes revenues when goods are shipped or services are
provided, while revenues from telephone line installation contracts are by the
percentage of completion method. Madeco measures the percentage of completion
based on the relationship between actual costs incurred to total costs estimated
to be incurred over the contract duration. Madeco recognizes provisions for
anticipated losses on contracts at the time they become known. Because of the
use of estimates in its revenue recognition policies, if Madeco used a different
estimation method, its revenue line would be higher or lower, depending on the
type of estimate used.

      Inventories

      Madeco values raw materials at the lower of restated cost or current
replacement cost. Work-in-progress and finished goods are shown at restated
cost, which includes related direct and indirect manufacturing expenses. Madeco
values projects for installation of telephone cables which are in progress by
the percentage of completion method. Inventory costs are reflected in income on
the basis of average cost. Madeco's inventory in the balance sheet would be
effected had it used a different estimation method.

Food and Beverage

      Allowance for Doubtful Accounts

      The allowance for doubtful accounts is based upon the assessment of
probable loss related to overdue accounts receivable. A 100% provision is
applied for those customers that are 180 days overdue in the case of CCU and 90
days overdue at Lucchetti.

      Accounting for bottles

      CCU incurs a liability for the deposits on bottles in circulation paid by
its customers. Its recorded liability for such deposits is based on an annual
inventory of the bottles and cases in the possession of customers along with an
independent statistical analysis of the number of deposits that have not been
reclaimed.

      Bottles are included in fixed assets and depreciated over the estimate of
their useful life. For glass bottles, CCU estimates the useful life to be eight
years while for plastic bottles, it estimates the useful life to be four years.

      Inventory

      CCU's inventories of finished and in-process goods, raw materials and
supplies are stated at replacement cost, as defined in the Income Tax Law,
including solely the cost of raw materials added to the products. The resulting
value of inventories does not exceed their estimated net realizable values.


                                       89
<PAGE>

      At December 31, 2002, CCU's subsidiaries Cervecera CCU Chile Ltda., ECUSA
S.A., Plasco S.A., and Compania Industrial Cervecera S.A. changed the method
used to value its finish products from direct cost including solely raw
materials to a method which includes raw materials, labor and overhead costs.

Telecommunications

      Revenue Recognition

Telsur's revenues include income from contract fees and services rendered but
not billed at each period end, which have been valued at contracted rates
existing at each respective period end.

Financial Services

      Banco de Chile and Banco Edwards prepare their financial statements in
accordance with Chilean GAAP and the rules of the SBIF. They are required to
make estimates and assumptions in the application of certain rules because they
are related to matters that are inherently uncertain. The banks believe that the
following are the more critical judgment areas or are those accounting policies
that involve a higher degree of complexity and affect the Banks' financial
condition and results of operations:

      Allowance for Loan Losses

      Under the regulations of the SBIF, banks must classify their loan
portfolio into five categories of payment capability. The minimum amount of
required loan loss allowances are determined based on fixed percentages of
estimated loan losses assigned to each category.

      Additionally, Chilean banks may also maintain voluntary reserves in excess
of the minimum required amount so as to provide additional coverage for
potential loan losses. Classification of the Banks' loan portfolio are
determined based on a systematic, ongoing review and evaluation performed as
part of the credit-risk evaluation process, estimated fair value and adequacy of
collateral and other pertinent factors.

      Investment securities

      Investment portfolios principally include debt securities purchased in
connection with the Banks' balance sheet management activities. These securities
are classified at the time of purchase, based on management's intentions, as
either trading or permanent.

      The bank's account for financial investments that have a secondary market
at fair value with unrealized gains and losses included in other operating
income (expenses) for those classified as trading investments, and unrealized
gains and losses included in a separate component of shareholders' equity for
those classified as permanent, in accordance with the regulations of the SBIF.
All other financial investments are carried at acquisition cost plus accrued
interest and UF indexation adjustments, as applicable.

      If available, quoted market prices provide the best indication of value.
If quoted market prices are not available for fixed maturity securities, the
banks discount the expected cash flows using market interest rates commensurate
with the credit quality and maturity of the investment. Alternatively, matrix or
model pricing may be used to determine an appropriate fair value.


                                       90
<PAGE>

Accounting policies common to all segments and areas of accounting to which a
U.S. reader may not be accustomed.

      Accounting for Argentine operations

      Since 1991, the Argentine peso had been pegged to the U.S. dollar at a
rate of 1 Argentine peso to 1 U.S. dollar. In early December 2001, restrictions
were put in place that prohibited cash withdrawals above a certain amount and
foreign money transfers, with certain limited exceptions. While the legal
exchange rate remained at 1 peso to 1 U.S. dollar, financial institutions were
allowed to conduct only limited activity due to these controls, and currency
exchange activity was effectively halted except for personal transactions in
small amounts.

      In January 2002, the Argentine government announced its intent to create a
dual currency system with an "official" fixed exchange rate of 1.4 pesos to 1
U.S. dollar for import and export transactions, and a "free" floating exchange
rate for other transactions. On January 11, 2002, the exchange rate market
holiday ended closing new "free" floating exchange rates ranged from 1.6 to 1.7
pesos to 1 U.S. dollar. On February 3, 2002, the Argentine government issued a
decree to (1) eliminate the fixed exchange rate of 1 to 1; (2) establish one
"free" floating exchange rate for the Argentine peso; and (3) require U.S.
dollar-denominated obligations be converted to peso-denominated obligations
using mandated conversion rates, depending on the type of obligation. The "free"
floating exchange rate was 1.7 Argentine pesos per U.S. Dollar on the day the
market opened on February 11, 2002.

      The financial statements of the Company's Argentine operations are
remeasured into U.S. dollars under Chilean GAAP in accordance with Technical
Bulletin 64 ("BT 64"), which requires remeasurement of financial statements of
foreign subsidiaries that operate in countries exposed to significant risks
("unstable" countries), and that are not considered to be an extension of the
parent company's operations. The Company has remeasured its Argentine subsidiary
financial statements in accordance with SVS Circular No. 81 using the conversion
rate of 1.7 Argentine pesos per U.S. Dollar.

      Price-level restatement

      Chilean GAAP requires that financial statements be restated to reflect the
full effects of the loss in the purchasing power of the Chilean peso on the
financial position and results of operations of reporting entities. The method
prescribes that the historical cost of all non-monetary accounts be restated for
general price-level changes between the date of origin of each item and the
year-end. The Company's consolidated financial statements have been price-level
restated in order to reflect the effects of the changes in the purchasing power
of the Chilean currency during each year. All non-monetary assets and
liabilities and all equity accounts have been restated to reflect the changes in
the CPI from the date they were acquired or incurred to year-end. The purchasing
power gain or loss included in net income reflects the effects of Chilean
inflation on monetary assets and liabilities. For comparative purposes, the
historical December 31, 2000 and 2001 consolidated financial statements and
their accompanying notes have been presented in constant Chilean pesos as of
December 31, 2002. This updating does not change the prior years' statements or
information in any way except to update the amounts to constant pesos of similar
purchasing power.

      The price-level adjusted consolidated financial statements do not purport
to represent appraised values, replacement cost, or any other current value of
assets at which transactions would take place currently and are only intended to
restate all non-monetary consolidated financial statement components in terms of
local currency of a single purchasing power and to include in the net result for
each year the gain or loss in purchasing power arising from the holding of
monetary assets and liabilities exposed to


                                       91
<PAGE>

the effects of inflation. In the financial statements, price level restatement
also includes foreign exchange differences.

      Technical Bulletin No. 64

      In October 1998, the Chilean Association of Accountants (Colegio de
Contadores de Chile) issued Technical Bulletin No. 64, Accounting for Permanent
Foreign Investments. Technical Bulletin No. 64 replaced Technical Bulletin No.
51, which was effective as from January 1, 1996. As required by Chilean GAAP,
Technical Bulletin No. 64 has been applied prospectively from January 1, 1998.
Technical Bulletin No. 64 differs from the foreign currency translation
procedures to which a U.S. investor is accustomed under Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation" issued by the
Financial Accounting Standards Board. Technical Bulletin No. 64 changes the
method used to restate the foreign investments, by first translating foreign
currency amounts in respect of foreign subsidiaries and investees to U.S.
dollars at historical rates of exchange and then translating the U.S. dollar
amounts to Chilean pesos at the period-end rate of exchange. In effect, the
foreign investments are adopting the U.S. dollar as their "functional currency",
because the Chilean peso is not considered to be a stable currency.

      The application of Technical Bulletin No. 64 results in the comprehensive
separation of the effects of inflation in Chile (for financial accounting
purposes) from the changes in foreign currency translation, with respect to
non-Chilean investments. Under Chilean GAAP, the amount of the net foreign
investment as of the opening balance sheet date is price-level restated for the
effects of inflation in Chile, thereby increasing net income due to price-level
restatement. Changes in the opening balance sheet balance of the net foreign
investment due to movements in the Chilean peso to U.S. dollar exchange rates
are recorded net of the effects of price-level restatement mentioned above in
shareholders' equity under the caption "cumulative translation adjustments." As
a result, during periods when the Chilean peso depreciates in excess of
inflation in Chile, compared to the U.S. dollar, shareholders' equity would
increase. Conversely, during periods in which the Chilean peso appreciates in
excess of inflation in Chile, as compared to the U.S. dollar, shareholders'
equity would decrease.

      The application of Chilean foreign currency translation standard Technical
Bulletin No. 64 with respect to the translation of non-Chilean operations is
part of the comprehensive basis of preparing of price-level adjusted financial
statements required by Chilean GAAP. The inclusion of inflation and translation
effects in the financial statements is considered appropriate under the
inflationary conditions that have historically affected the Chilean economy and,
accordingly, have not been eliminated. The U.S. Securities Exchange Commission
has confirmed that they do not object to the view that the adjustments made in
respect of investments in unstable countries are part of a comprehensive basis
of adjusting for inflation. Accordingly, differences between Technical Bulletin
No. 64 and SFAS No. 52 do not need to be eliminated in the reconciliation to US
GAAP. If the Company applied SFAS No. 52 instead of Technical Bulletin No. 64,
significant differences would result:

      o     As the methodology used to determine both the Company's and its
            subsidiaries functional currencies differs under SFAS No. 52, it is
            probable that the local currency would be considered the functional
            currency of the Company's foreign subsidiaries instead of the U.S.
            dollar.

      o     Income statement amounts would be translated using the actual or
            average exchange rates instead of the closing rates.

      o     Gains or losses related to foreign currency denominated assets and
            liabilities may vary significantly.


                                       92
<PAGE>

      Recoverability of Tangible Assets

      The Company assesses the permanent impairment of tangible assets and
investments whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Factors it considers important which
could trigger an impairment review include the following:

      o     significant underperformance relative to expected historical or
            projected future operating results;

      o     significant changes in the use of the acquired assets or the
            strategy for the overall business;

      o     significant negative industry or economic trends.

      When the Company determines that the carrying value of tangible assets and
investments may not be recoverable based upon the existence of one or more of
the above indicators of impairment, it evaluates the future cash flows to
determine if it needs to write down the asset or the investment. If the sum of
the expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the assets, the Company would recognize an
impairment loss. The measurement of the impairment loss is based on the fair
value of the asset, which is generally determined using a discounted cash flow
approach and recent comparable transactions in the market.

      Derivative Contracts

      The Company maintains foreign exchange forward and swap contracts to hedge
against the risk of fluctuations in foreign currencies. These contracts are
recorded at fair value with losses recognized in earnings. Generally, fair
values under Chilean GAAP are estimated using the closing spot exchange rate at
the period end, because listed forward market prices between these currencies
are not widely-available in the Chilean market, and spot rates are the accepted
local standard to estimate fair value. The Company defers and amortizes gains
over the period of the contract.

      The Company's estimates of fair value are based on assumptions about
market variables that may change in the future. Changes in assumptions could
have a significant impact on the estimates. As a result, such fair value amounts
are subject to volatility and are dependent on the quality of the assumptions
used.

      Income and Deferred Taxes

      In accordance with Chilean law, the Company and each of its subsidiaries
compute and pay tax on a separate basis. The Company estimates its actual
current tax exposure together with assessing temporary differences resulting
from differing treatment of items, such as depreciation, for tax and accounting
purposes. These differences result in deferred tax assets and liabilities, which
are included within the consolidated balance sheet.

      Prior to January 1, 2000 deferred taxes were not recorded under Chilean
GAAP. As a transitional provision, the Company recorded a contra asset or
liability offsetting the effects of the deferred tax assets and liabilities not
recorded prior to that date. These asset or liability amounts must be amortized
to income over the estimated average reversal periods corresponding to the
underlying temporary differences to which the deferred tax asset or liability
relates calculated using the tax rates in effect at the time of reversal. The
Company then assesses the likelihood that its deferred tax assets will be
recovered from future taxable income and to the extent it believe that recovery
is unlikely, it establishes a valuation allowance. Revisions to the estimated
realizable value of deferred tax assets or estimated average


                                       93
<PAGE>

reversal periods of contra assets or liabilities could cause the provision for
income taxes to vary significantly from period to period.

Changes in Accounting Principles

      Financial Services - Banco de Chile and Banco Edwards

      During 2000 for Banco Edwards and 2001 for Banco de Chile, the banks began
to write-off assets received or awarded in lieu of payment, and assets recovered
from leasing operations, on a straight-line basis over 18 months if they are not
sold within one year. Previously, they were required to write-off completely
those assets received in lieu of payment that were not sold within one year.

      Also during 2000 for Banco Edwards and 2001 for Banco de Chile, they
modified the accounting treatment of fees and expenses related to the
origination of loans, as well as fees for services rendered, to be deferred and
recognized in income over the term of the loans to which they relate, and over
the period that the services are performed. Previously, these fees and expenses
were recognized in income as the fee was received or the expense incurred.

      The Changes in accounting principles described above were made in order to
comply with regulations issued by the SBIF.

      For US GAAP purposes, the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets", as of January 1, 2002, which applies to all goodwill
and identified intangible assets acquired in a business combination. Under the
new standard, all goodwill, including that acquired before initial application
of the standard, and indefinite-lived intangible assets is not amortized, but
must be tested for impairment at least annually. In addition to the transitional
impairment test required by the standard, which was performed during 2002 and
which did not result in any impairment, the Company must perform the required
impairment test annually. The Company is required to apply the new standard
prospectively.

US GAAP RECONCILIATION

      The differences between Chilean GAAP and US GAAP as they affected the
Company's results for the three years in the period ended December 31, 2002
principally related to accounting for (i) the consolidation of banking
operations, (ii) the recognition of goodwill and other purchase accounting
adjustments resulting from the step acquisitions of Banco de Chile and Banco
Edwards and their subsequent merger and the subsequent amortization of such
differences, (iii) investments accounted for by the equity method, (iv)
price-level restatement, (v) investment securities, and (vi) deferred income
taxes.

      Consolidation of Banking Operations

      Under Chilean GAAP, banking operations are not generally consolidated with
non-financial businesses in Chile primarily due to the dissimilarity of both the
nature of the businesses and the related accounting policies. However, under US
GAAP, all majority-owned subsidiaries, including the Company's banking
subsidiaries, must be consolidated. Note 27 to the financial statements presents
the effects of consolidating the Company's banking operations under Chilean
GAAP.


                                       94
<PAGE>

      The recognition of goodwill and other purchase accounting and merger
adjustments

      Under Chilean GAAP, the Company recorded assets acquired and liabilities
assumed from the step acquisitions of Banco de Chile and Banco Edwards at their
historical carrying values. The excess of the purchase price over carrying
values is recorded as goodwill. Under US GAAP, the Company has allocated the
purchase price between the fair value of the identifiable assets assumed and
identifiable liabilities acquired as of the acquisition date. Any remaining
unidentifiable excess amount of the purchase price is recorded as goodwill.
Included in the fair value of the assets are identifiable intangible assets,
such as the brand name and the value of the banks' long-term customer
relationships.

      Investments accounted for by the equity method

      The Company records certain investments using the equity method under both
Chilean and US GAAP. Under the equity method, the carrying amount of an
investment is initially recorded at cost and is displayed in a separate caption
on the balance sheet and income statement of the investor. The carrying value is
adjusted to recognize the investor's share of changes in the carrying amount of
the investee determined subsequent to the date of investment. The Company's
equity participation in the increases or decreases in the carrying value of such
investments is generally included in the determination of net income by the
investor. However, the Company is required to adjust an investee's Chilean GAAP
financial statements to US GAAP in order to determine its equity participation
in the net income of the investment under US GAAP. There are significant
differences in accounting criteria applied under Chilean GAAP as compared to US
GAAP in the Company's equity method investments in CCU and Banco de Chile.

      In CCU, the main US GAAP differences in accounting criteria relate
primarily to deferred income taxes, goodwill amortization, employee severance
indemnities, the capitalization of interest cost and the effects of US GAAP
adjustments in the equity method investment, ECUSA. During the period in which
the Company held less than a majority interest in SM Chile and Banco de Chile,
which were the years ended December 31, 1999 and 2000 and the three-month period
ended March 27, 2001, the primary US GAAP differences relate to the subordinated
debt obligation, goodwill amortization, purchase accounting differences, loan
loss allowances, deferred income taxes, recognition of interest income, and
employee severance indemnities. After March 27, 2001, Quinenco started to
consolidate SM Chile and Banco de Chile under US GAAP so they were no longer
considered equity method investments.

      Similarly, due to basis differences that exist in the carrying values of
investments in other companies that the Company holds, differences exist in the
amount of gain or loss that is recorded under US GAAP and Chilean GAAP when the
investment is sold.

      Price-level restatement

      Chilean accounting principles require that financial statements be
restated to reflect the full effects of loss in the purchasing power of the
Chilean peso on the financial position and results of operations of reporting
entities. The method, which is described in more detail in note 2(b) to the
Company's consolidated financial statements, is based on a model that requires
the calculation of net inflation gains or losses caused by monetary assets and
liabilities exposed to changes in the purchasing power of the local currency by
restating all non-monetary accounts in the financial statements. The model
prescribes that the historical cost of such accounts be restated for general
price-level changes between the date of origin of each item and the year-end.


                                       95
<PAGE>

      Although the cumulative inflation rate in Chile as measured by the
Consumer Price Index for the three-year period ended December 31, 2002 was only
approximately 11.18%, the inclusion of price-level adjustments in the Company's
consolidated financial statements is considered appropriate under the prolonged
inflationary conditions that have affected the Chilean economy in the past.
Therefore, the Company has not eliminated the effect of price-level changes in
its reconciliation to US GAAP.

      Investment Securities

      The Company held a 13.7% ownership interest in Entel as of December 31,
2000 and 5.7% interest as of December 31, 2001 and 2002. Under Chilean GAAP,
this investment is recorded based on the Company's equity participation in the
net income and net equity of Entel. Under US GAAP, these investments would be
classified as available-for-sale marketable securities with unrealized gains and
losses included in a separate component of shareholders' equity, while realized
gains and losses on sale of such investment securities are included in the
results from operations.

      Deferred Income Taxes

      On January 1, 2000, the Company began to apply Technical Bulletin No. 60
of the Chilean Association of Accountants concerning deferred taxes. Technical
Bulletin No. 60 requires the recognition of deferred income taxes for all
temporary differences arising after January 1, 2000, whether recurring or not,
using an asset and liability approach. For US GAAP purposes, in prior years the
Company had applied SFAS 109, "Accounting for Income Taxes", whereby income
taxes are also recognized using substantially the same asset and liability
approach, with deferred income tax assets and liabilities established for
temporary differences between the financial reporting basis and tax basis of the
assets and liabilities based on rates at the time that the temporary differences
are expected to reverse.

      Prior to the implementation of Technical Bulletin No. 60, the Company had
not recorded deferred income taxes under Chilean GAAP to the extent that the
timing differences were expected to be offset in the year that they were
projected to reverse by new timing differences of a similar nature. Because the
effects of deferred income taxes are only recognized in the results of
operations for temporary differences arising after January 1, 2000, after that
date, Chilean GAAP and US GAAP differ primarily due to the recognition for US
GAAP purposes of the reversal of deferred income taxes included in the US GAAP
reconciliation in prior years.

      Investments held in other companies and sales of participations in other
companies

      Under Chilean GAAP, the investments held in other companies are reported
in the financial statements at the lower of restated cost or market value.
Unrealized losses on such investments are reflected in the statements of income.

      Under US GAAP, investments in other companies are classified as
available-for-sale securities and are reported at fair value, with unrealized
gains and losses excluded from earnings and reported in other comprehensive
income, a separate component of shareholders' equity, net of the deferred income
tax effects.

      Due to differences in carrying value in the participations in other
companies that the Company holds, when the Company sells such investments, there
is a difference in the amount of gain or loss that is recorded under US GAAP and
Chilean GAAP.


                                       96
<PAGE>

B. LIQUIDITY AND CAPITAL RESOURCES

General

      As a holding company, the level of Quinenco's income and cash flow and its
ability to pay debt service obligations and dividends depends primarily upon the
receipt of dividends and distributions from its subsidiaries, equity investments
and related companies and, to a certain extent, on the periodic sale of
investments. The payment of dividends by such subsidiaries, equity investments
and related companies is in certain instances subject to restrictions and is
contingent upon their earnings and cash flows.

      Although Quinenco controls many of these companies, Quinenco has in the
past and expects in the future to influence the dividend policies of its
subsidiaries and affiliates in order to retain resources within such companies
where it is deemed necessary or appropriate to further these entities'
individual business plans and strategies. In addition, certain of Quinenco's
non-consolidated subsidiaries and related companies, and their respective
subsidiaries, are operated pursuant to shareholders' agreements that require
unanimous consent of the parties thereto to pay dividends beyond the minimum
required by law, and in some cases, the parties have agreed not to pay dividends
for certain periods.

      In addition to funds used for its own operations, Quinenco's primary use
of funds has been oriented to investments in consolidated investments and
unconsolidated equity investments. Quinenco believes that its working capital is
sufficient to meet its present working capital requirements.

      At December 31, 2002, the Company had cash and cash equivalents totaling
Ch$93,087 million on a consolidated basis and Ch$59,979 million on a
non-consolidated basis. This compares to Ch$54,501 million on a consolidated
basis and Ch$23,977 million on a non-consolidated basis at December 31, 2001 and
Ch$139,498 million on a consolidated basis and Ch$21,879 million on a
non-consolidated basis at December 31, 2000.

DIVIDEND INCOME

      The following table shows dividends received by Quinenco from its
investments in 2000, 2001 and 2002:

<TABLE>
<CAPTION>
                                                                                        Year Ended December 31,
                                                                              ------------------------------------------
                                                                                   2000            2001             2002
                                                                                   ----            ----             ----
<S>                                                                           <C>             <C>                <C>
  Dividends paid to Quinenco by:                                                      (in millions of constant Ch$)
       VTR (1) ..................................................             Ch$76,119              --               --
       IRSA (2) .................................................                 6,893          13,602            6,621
       LQIF (3) .................................................                    --             505               --
       Banco de Chile(3) ........................................                 2,960              --               --
       Others (4) ...............................................                    11               3               --
                                                                              ---------       ---------          --------
  Total Dividends received by Quinenco ..........................             Ch$85,983       Ch$14,110          Ch$6,621
                                                                              =========       =========          ========
</TABLE>

----------
(1)   VTR is an intermediate holding company through which Quinenco holds a
      73.6% interest in Telsur. In 2000, 2001 and 2002, VTR received a dividend
      distribution from Telsur which amounted to Ch$4,177 million, Ch$3,627
      million and Ch$3,292 million, respectively.

(2)   IRSA is a 50%-owned intermediate holding company through which Quinenco
      holds a 30.8% interest in CCU. IRSA' only activity is its investment in
      CCU.

(3)   LQIF is a wholly-owned subsidiary of Quinenco, formed in August 2000 to
      invest in companies in the financial services sector. Since December 2000,
      LQIF has held the Company's interests in Banco de Chile and until its
      merger with Banco de Chile on January 1, 2002, in Banco Edwards. In 2001,
      LQIF received a dividend distribution from Banco de Chile and Banco
      Edwards, which amounted to Ch$4,471 million and Ch$861 million,
      respectively. In 2002, LQIF received a dividend distribution from Banco de
      Chile of Ch$21,368 million.

(4)   Quinenco's interest in Entel is held through intermediate holding
      companies. In 2000, 2001 and 2002, the intermediate holding companies
      received cash dividend distributions which amounted to Ch$1,448 million,
      Ch$1,160 million and Ch$594 million, respectively.


                                       97
<PAGE>

OPERATING ACTIVITIES

      Consolidated cash flow provided by operating activities was Ch$30,007
million in 2002, compared to cash flow provided by operating activities of
Ch$14,128 million in 2001 and cash flow used in operating activities of Ch$1,916
million in 2000.

      Operating Activities - 2002

      In 2002, cash flow provided by operating activities totaled Ch$30,007
million. The main components of cash flow generated by operating activities in
2002 consisted of the net loss of Ch$75,480 million, adjusted by net non-cash
items included in the income statement which amounted to Ch$102,160 million,
plus cash obtained from a reduction in working capital of Ch$3,327 million.

      Non-cash items add-backs are mainly composed of goodwill amortization
(net) related to the Banco de Chile acquisition, depreciation expense related to
Madeco, Telsur and Lucchetti, foreign exchange rate differences primarily
related to Madeco's operations, write-offs and provisions primarily associated
with Madeco's operations, and the loss provision associated with the closure of
Lucchetti's plant in Peru. In addition, cash dividends received from Banco de
Chile, CCU and Entel are added back to operating activities and equity
participations in the earnings of Banco de Chile, CCU and Entel are deducted in
order to adjust cash flow from operations. Other deductions from non-cash items
mainly consisted of minority interest associated with Madeco.

      The net decrease in working capital was mainly due to an increase in other
liabilities, decreases in accounts and notes receivable, inventories and other
assets, the effects of which were partially offset by a decrease in accounts and
notes payable.

      Operating Activities - 2001

      In 2001, cash flow provided by operating activities totaled Ch$14,127
million. The main components of cash flow generated by operating activities in
2001 consisted of the net income of Ch$15,975 million, adjusted by net non-cash
items included in the income statement which amounted to Ch$9,260 million, less
cash used to fund an increase in working capital of Ch$11,106 million. The net
increase in working capital was mainly due to an increase in other assets and a
decrease in accounts and notes payable, partially offset by a decrease in
accounts and notes receivable and inventories.

      Operating Activities - 2000

      In 2000, cash flow used by operating activities totaled Ch$1,916 million.
The main components of cash flow used by operating activities in 2000 consisted
of the net loss of Ch$5,998 million, adjusted by net non-cash items included in
the income statement which amounted to Ch$43,356 million, less cash used to fund
an increase in working capital of Ch$39,273 million. The net increase in working
capital was mainly due to an increase in accounts and notes receivable,
inventories and other assets and a decrease in other current liabilities,
partially offset by an increase in accounts and notes payable.

INVESTING ACTIVITIES

      In 2002, consolidated cash flow provided by investing activities was
Ch$877 million, compared to cash flow used in investing activities of Ch$37,629
million in 2001 and cash flow used in investing activities of Ch$20,804 million
in 2000.

      Investing Activities - 2002

      In 2002, the main components of cash flow provided by investing activities
were funds provided by other investing activities (net) of Ch$21,256 million and
proceeds from the sale of property, plant and


                                       98
<PAGE>

equipment of Ch$2,772 million, partially offset by additions to property, plant
and equipment of Ch$22,885 million. Cash flow provided by other investing
activities (net) mostly consisted of a receipt of a note receivable at Quinenco
for Ch$20,679 million. Cash flow used in investing activities in 2002 was
primarily related to additions to plant, property and equipment of Ch$14,056
million at Telsur and Ch$6,401 million at Madeco.

      Investing Activities - 2001

      In 2001, the main components of cash flow provided by investing activities
were proceeds from the sale of other investments of Ch$163,193 million, which
included proceeds from the sale of shares of Entel for Ch$91,486 million, the
sale of Plava Laguna for Ch$19,979 million, the sale of a partial interest in
Ficap Optel (subsidiary of Madeco in Brazil) for Ch$12,723 million and the sale
of Lucchetti Argentina (subsidiary of Lucchetti in Argentina) for Ch$18,466
million. In addition, proceeds from sales of other investments included
Ch$17,143 million corresponding to the liquidation of time deposits held by VTR.
Cash flow used in investing activities in 2001 was mostly related to investments
in other companies of Ch$162,235 million, which included the investments made in
Banco de Chile of Ch$152,396 million and in Ficap Optel (subsidiary of Madeco in
Argentina) of Ch$6,743 million. Additions to plant, property and equipment of
Ch$32,086 million were mainly composed of fixed asset additions of Telsur for
Ch$21,037 million and of Madeco for Ch$8,658 million.

      Investing Activities - 2000

      In 2000, the main components of cash flow provided by investing activities
were proceeds from the sale of other investments of Ch$62,657 million, which
included proceeds from the sale of shares of Entel for Ch$11,953 million and the
liquidation of time deposits held by VTR, which amounted to Ch$45,603 million.
Cash flow used in investing activities in 2000 was mostly related to investments
in other companies of Ch$56,072 million, which included the investments made in
Banco de Chile of Ch$32,241 million, in Entel of Ch$4,383 million and in Plava
Laguna of Ch$16,292 million. Additions to plant, property and equipment of
Ch$35,008 million were mainly composed of fixed asset additions at Madeco and
Telsur.

FINANCING ACTIVITIES

      Telsur, Madeco, Lucchetti, Hoteles Carrera, Banco de Chile, CCU, Entel and
Habitaria generally do not rely on each other or on Quinenco for financing
except that they may rely on Quinenco when significant new capital or other
expenditures are to be made. When intercompany financing is needed, it generally
is provided by Quinenco to such companies (or to intermediate holding companies)
by means of capital contributions or loans. Quinenco, its intermediate holding
companies, subsidiaries and affiliates may periodically borrow from the
Company's bank in the ordinary course of business on commercial terms and on an
arms' length basis.

      Quinenco believes that it has access to local and international funding
such as short-term and long-term bank borrowings, bonds and capital markets in
order to fund its investment programs.

      The cash flows of Banco de Chile (which was merged with Banco Edwards on
January 1, 2002), CCU, Entel and Habitaria, which are accounted for under the
equity method, are not included in the Company's consolidated statements of cash
flows.

      In 2002, consolidated cash flow provided by financing activities was
Ch$5,130 million, compared to cash flow used in financing activities of
Ch$60,540 million in 2001 and cash flow provided by financing activities of
Ch$28,372 million in 2000.


                                       99
<PAGE>

      Financing Activities - 2002

      In 2002, the main source of cash flow provided by financing activities was
borrowings from banks, which amounted to Ch$140,588 million, mostly
corresponding to loans obtained by intermediate holdings companies related to
the acquisition of Banco de Chile and the restructuring of Madeco's debt. Other
sources of cash flow provided by financing activities included related party
financing for Ch$45,468 million. The main uses of cash flow from financing
activities corresponded to a decrease in the bank borrowings of intermediate
holding companies and Madeco for Ch$160,448 million, dividends paid of Ch$7,911
million and a net decrease in bonds payable totaling Ch$17,271 million, of which
Ch$6,753 million corresponded to repayments made by Quinenco and Ch$8,645
million to Telsur.

      Related party financing of Ch$45,468 primarily consisted of a loan made by
a financial entity related to Quinenco's controlling shareholder, Andsberg
Finance Corporation Ltd. to LQ Inversiones Financieras, a wholly-owned
subsidiary of Quinenco. For further information on this transaction, see "Item
7.B. Related Party Transactions".

      Dividend payments, which amounted to Ch$7,911 million in 2002, can mostly
be explained by dividend payments made by Quinenco of Ch$6,360 million and by
Telsur to minority shareholders of Ch$1,523 million.

      Financing Activities - 2001

      In 2001, the main sources of cash flow provided by financing activities
were an increase in net bonds payable of Ch$140,566 million, and capital
increases in subsidiaries contributed by minority shareholders of Ch$746
million. In 2001, the main uses of cash flow from financing activities
corresponded to a net decrease in bank borrowings of Ch$191,588 million,
dividends paid of Ch$1,746 million, a decrease in accounts payable to related
companies of Ch$1,087 million and other financing activities (net) of Ch$7,431
million.

      The increase in net bonds payable of Ch$140,566 million on a consolidated
basis in 2001 was mainly attributable to bonds issued by Quinenco for Ch$107,308
million, by Madeco for Ch$24,857 million and Telsur for Ch$16,413 million.
Madeco and Telsur's bond obligations were partially reduced by payments of
Ch$1,431 million and Ch$6,582 million, respectively.

      The net decrease in bank borrowings of Ch$191,588 million was composed of
a net decrease in bank borrowings of Quinenco and its intermediate holding
companies of Ch$134,117 million, a net decrease in bank borrowings at Madeco of
Ch$28,277 million and at Lucchetti of Ch$29,193 million.

      Dividend payments, which amounted to Ch$1,746 million in 2001, can mostly
be explained by dividend payments made by Telsur to minority shareholders of
Ch$1,415 million.

      Financing Activities - 2000

      In 2000, the main sources of cash flow provided by financing activities
were a net increase in bank borrowings on a consolidated basis of Ch$46,272
million, an increase in net bonds payable of Ch$34,297 million, and to a lesser
extent, capital increases in subsidiaries contributed by minority shareholders
of Ch$3,801 million. In 2000, the main uses of cash flow from financing
activities correspond to dividends paid of Ch$54,193 million, a decrease in
accounts payable to related companies of Ch$701 million and other financing
activities (net) of Ch$2,506 million.


                                      100
<PAGE>

      The net increase in bank borrowings of Ch$46,272 million was mainly
composed of a net increase in bank borrowings at VTR of Ch$15,198 million and
Quinenco and its intermediate holding companies of Ch$58,107 million, partially
offset by a net decrease in bank borrowings at Madeco of Ch$25,926 million and
Lucchetti of Ch$1,555 million.

      Dividend payments, which amounted to Ch$54,193 million in 2000, can mostly
be explained by dividend payments made by Quinenco to its shareholders which
amounted to Ch$52,230 million. The remaining balance consists of dividend
payments by subsidiaries to minority shareholders.

      The increase in net bonds payable of Ch$34,297 million on a consolidated
basis in 2000, was attributable to bonds issued by Madeco which totaled
Ch$38,988 million, partially offset by bond repayments and costs associated with
the bond issue of Ch$2,024 million made by Madeco and payments by Telsur of
Ch$2,667 million in 2000.

DEBT STRUCTURE

      As of December 31, 2002, approximately 61.7% of the Company's Ch$813,410
million in outstanding liabilities consisted of long-term interest bearing debt.
The Company's outstanding long-term bank loans (excluding the current portion of
long-term debt of Ch$116,439 million) which totaled Ch$293,983 million in 2002,
generally consist of borrowings by Quinenco, Madeco, Lucchetti, Telsur and
intermediate holding companies for periods up to five years. Approximately 36.5%
of these long-term bank facilities were dollar-denominated with interest rates
which averaged 3.5%, 63.4% were Chilean UF-denominated with interest rates which
averaged 4.2% and 0.1% were long-term loans denominated in currencies other than
the U.S. dollar or the Chilean peso with interest rates averaging 13.2%. The
average interest rate of U.S. dollar-denominated debt was 5.5% and the average
interest rate of Chilean UF-denominated debt was 6.6% in the year 2001.
Additionally, the Company has long-term bond obligations denominated in Chilean
UF, which at December 31, 2002 amounted to Ch$199,736 million. The average terms
of the bond obligations are between five and twenty-one years. The average
interest rate of long term bond obligations was 6.4% in 2002. 15.0% of the
Company's bond obligations will mature within the next three years.

      As of December 31, 2002, the Company's outstanding short-term bank loans
totaled approximately Ch$107,329 million, which represented 13.2% of the
Company's outstanding liabilities. The Company's outstanding short-term bank
loans mostly consist of borrowings by Quinenco, Madeco and Lucchetti under
unsecured revolving credit facilities provided by Chilean and U.S. commercial
banks. At December 31, 2002, the Company had no committed credit lines.
Approximately 59.7% of these short-term facilities were dollar-denominated with
interest rates which averaged 5.0% and 38.5% were Chilean UF-denominated with
interest rates which averaged 5.9%. In 2001 approximately 66.1% of these
short-term facilities were dollar-denominated with interest rates which averaged
4.5% in the case of dollar-denominated obligations and 6.5% in the case of
UF-denominated obligations.

      The Company's total dollar-denominated liabilities amounted to Ch$261,925
million at December 31, 2002, compared to Ch$161,757 million at December 31,
2001. The Company's total debt to capitalization ratio increased to 51.2% at
December 31, 2002 from 47.9% at December 31, 2001.

      At December 31, 2002, the Company's net consolidated dollar-denominated
liabilities (e.g. after deducting dollar denominated assets) were Ch$6,417
million, compared to net consolidated dollar-denominated assets of Ch$103,556
million in 2001.


                                      101
<PAGE>

      There is no seasonality with respect to Quinenco's borrowings. For a
summary of the maturities of the Company's long-term debt, see "Item 11.
Quantitative and Qualitative Disclosures About Market Risk".

      The Company utilizes foreign exchange forward contracts and swap exchange
currency contracts in order to hedge its currency exchange exposure as part of
its asset and liability management. Investment contracts (for speculative
purposes) are recorded at the closing spot exchange rate and gains and losses
are included in earnings as Other non-operating income and expenses. For a
summary of Foreign Exchange Rate Exposure, see "Item 11. Foreign Currency
Exchange Rate Risk".

FINANCIAL COVENANTS AND OTHER RESTRICTIONS

      The Company is subject to certain financial covenants and restrictions
with respect to its existing agreements with the banks party to its credit
facilities. The Company believes that it is in compliance with all of the
financial covenants and restrictions associated with its credit facilities as of
December 31, 2002 except as described below.

      Madeco

      On several occasions in 2002, Madeco had period-end results that did not
meet the financial covenant requirements in some of its debt instruments.
Specifically, Madeco did not comply with covenants associated with a medium term
credit facility, which as of December 31, 2002 amounted to Ch$3,597 million and
a medium term credit facility, which amounted to Ch$5,396 million as of the same
date. In both cases, Madeco negotiated a waiver with the banks for each of the
quarters in which it was not in compliance.

      In addition, during 2002, Madeco did not meet some of the financial
covenant requirements of its bond obligations. Considering that Madeco was in
the process of negotiating a financial restructuring plan with its principal
lenders, bondholders, in an extraordinary meeting held on October 28, 2002,
approved a waiver of certain financial covenants associated with the Series A, B
and C bonds until March 31, 2003. As a result, Madeco was not in default for
non-compliance with respect to its bond obligations at year-end 2002. As of
December 31, 2002, Series A, B and C bond obligations amounted to Ch$69,005
million, of which Ch$5,488 million is scheduled for maturity in 2003.

      During 2002, Madeco restructured approximately 40.3% of its total
outstanding bank debt, equivalent to approximately US$120 million. The purpose
of the restructuring, among other things, was to assure the company's ongoing
compliance with all of its debt instruments' financial covenants. On December
18, 2002, Madeco and fourteen of its lenders signed agreements to modify their
existing credit agreements by extending credit repayment terms over a seven-year
period with a three-year grace period. The balance of the restructured debt was
Ch$86,954 million as of December 31, 2002.

      The debt restructuring, among other things, was conditioned upon a minimum
capital increase of Ch$49,400 million prior to March 31, 2003, as well as a
mandatory prepayment of approximately 30% of the outstanding bank loans
associated with the restructured debt. Madeco received total cash proceeds of
Ch$51,314 million from the capital increase, Ch$49,400 million of which was
subscribed and paid by Quinenco. On March 4, 2003, Madeco paid Ch$28,847 million
to the banks party to the credit agreements signed on December 18, 2002. The
balance of the restructured debt was approximately Ch$63,148 million as of March
31, 2003.

      Following the close of the pre-emptive rights offering period of the
capital increase, Madeco initiated a bond capitalization process that concluded
on March 31, 2003. Series A and Series C


                                      102
<PAGE>

bondholders capitalized shares for an amount equivalent to Ch$3,717 million.
Madeco used proceeds from the capital increase to redeem a portion of the
remaining outstanding Series A and C bonds for Ch$3,717 million. The balance of
the bond obligations as of March 31, 2003 was Ch$61,908 million.

      As a result of the capital increase, Madeco's subscribed and paid-in
capital increased from Ch$125,657 million as of December 31, 2002 to Ch$181,317
million as of March 31, 2003. Of the total cash proceeds of Ch$51,314 million
from the capital increase, bank debt and bond obligations were reduced by 13.1%
to Ch$187,572 million as of March 31, 2003. As of result of the capital increase
and debt restructuring, Madeco believes its capital structure has been
significantly fortified, and while there can be no assurance, it is expected
that the company will be able to comply with its current financial covenants.

      As of March 31, 2003, Madeco and its subsidiaries maintained bank credit
facilities with approximately 20 banking institutions, both in Chile and abroad.
As of the same date, Madeco had short-term bank and bond obligations totaling
Ch$56,422 million and Ch$5,201 million, respectively and long-term bank and bond
obligations of Ch$69,241 million and Ch$56,707 million, respectively. Short-term
obligations do not require compliance with specific financial covenants.
Long-term obligations are generally subject to financial covenants compliance.

      During 2002, Madeco's subsidiary, Armat S.A. did not comply with several
of the financial covenants associated with a US$4 million bank credit granted by
Scotiabank. Specifically, Armat did not comply with two minimum cash flow
covenants. Armat obtained a waiver with Scotiabank for the non-compliance as of
December 31, 2002.

      Lucchetti

      As of December 31, 2002, Lucchetti's bank debt amounted to Ch$49,110
million. Of the total amount, approximately 76% or Ch$37,134 million corresponds
to its seven-year syndicated bank facility maturing in 2008.

      As a result of the closure of Lucchetti's plant installations in Peru in
early January 2003, Lucchetti made extraordinary charges in connection with the
plant closure to its 2002 results of Ch$30,678 million, which included a charge
for Ch$29,812 million, equivalent to 100% of its equity investment in the
Peruvian subsidiary. The impact of the charges was a reduction in Lucchetti's
net worth, which decreased from Ch$48,537 million as of year-end 2001 to
Ch$16,189 million as of year-end 2002. As a consequence, at year-end 2002,
Lucchetti was not in compliance with certain of its financial covenants related
to its syndicated bank loan, including a maximum leverage level (measured as
total liabilities to total net worth) of 1.5:1. As of December 31, 2002, due to
the non-recurring loss associated with the cessation of its activities in Peru,
this measurement was 3.7:1. Lucchetti obtained a waiver for its period-ended
December 31, 2002 non-compliance from the banks party to the syndicated bank
facility.

      On May 15, 2003, Lucchetti and the banks party to the bank facility
modified the loan agreement to allow for a maximum leverage level of 3.9:1 as of
June 30, 2003, 3.2:1 as of December 31, 2003, and a gradual decrease to a
maximum level of 1.5:1 in 2007. With this modification, Lucchetti believes it
will comply with the facility's covenants for the period ended June 30, 2003.

      Lucchetti is analyzing various alternatives that would allow it to reduce
indebtedness, such as the sale of non-core assets and the securitization of a
portion of its accounts receivable, among other alternatives. Lucchetti believes
that it will be able to timely reduce its indebtedness sufficient to meet the


                                      103
<PAGE>

facility's financial covenants in future periods. However, there can be no
assurance that Lucchetti will be able to do so.

      In accordance with Chilean GAAP and instructions from the SVS, Lucchetti
did not consolidate its Peruvian subsidiary in its balance sheet as of December
31, 2002. At year-end 2002, Lucchetti Peru had outstanding liabilities of
Ch$19,172 million, including a US$11.6 million leasing obligation, to which
Lucchetti Chile is a co-debtor. The obligation under this instrument is required
to be repaid in five remaining installments between July 2003 and July 2005.

      Lucchetti is currently in the process of further renegotiating the terms
of this leasing obligation, having received a postponement of the payment
originally due January 2003. Lucchetti believes that the value of the assets of
Lucchetti Peru exceeds Lucchetti Peru's total liabilities, and is therefore
attempting to reschedule future payments until after the sale of the Lucchetti
Peru assets. While Lucchetti expects to be able to postpone payments until such
time as Lucchetti Peru's assets are sold, there can be no assurance that
Lucchetti will be successful in postponing payments, that it will timely sell
sufficient of Lucchetti Peru's assets, nor that such assets will be sold for the
value Lucchetti management currently anticipates. If Lucchetti is unable to
successfully renegotiate its leasing obligation, nonpayment of any installment
would materially adversely affect the financial condition of Lucchetti Chile as
co-debtor for this obligation, although it would not be expected to materially
adversely affect the financial condition of Quinenco.

CAPITAL EXPENDITURES AND OTHER INVESTMENTS

      The following table sets forth the capital expenditures and other
investments made by each of the Company's principal businesses for the years
ended December 31, 2000, 2001 and 2002:

<TABLE>
<CAPTION>
Capital Expenditures and Other Investments                                 2000                2001               2002
                                                                           ----                ----               ----
                                                                                (in millions of constant Ch$)
<S>                                                                   <C>                <C>                 <C>
Quinenco and Consolidated Subsidiaries
Madeco (Manufacturing) .....................................          Ch$16,738           Ch$15,402           Ch$6,401
Telsur (Telecommunications) ................................             15,372              21,336             14,361
Lucchetti (Food and Beverage) ..............................              2,200               1,803              1,801
Hoteles Carrera (Real Estate and Hotel Administration) .....                411                 295                143
Quinenco and others ........................................             56,358             155,485                784
                                                                      ---------          ----------          ---------
Total ......................................................          Ch$91,079          Ch$194,321          Ch$23,490
                                                                      ---------          ----------          ---------
Main Equity Investments (1)
CCU (Food and Beverage) ....................................             65,579              38,361             34,595
Banco de Chile (Financial Services) ........................              6,189              11,370             12,645
Banco Edwards (Financial Services) (2) .....................             18,773               6,929                 --
                                                                      ---------           ---------          ---------
Total ......................................................          Ch$90,541           Ch$56,660          Ch$47,240
                                                                      =========           =========          =========
</TABLE>

----------
(1)   Represents Quinenco's main equity investments, all of which are either
      controlled directly by Quinenco or indirectly by Quinenco in conjunction
      with strategic partners.

(2)   Banco Edwards was merged with Banco de Chile on January 1, 2002.


                                      104
<PAGE>

EXPANSION PLANS; FUTURE CAPITAL EXPENDITURES

      The following table sets forth the total capital expenditures currently
planned to be made by the Company and its principal businesses for the years
ending December 31, 2003, 2004 and 2005:

<TABLE>
<CAPTION>
Planned Capital Expenditures 2003 - 2005                               2003           2004            2005
                                                                       ----           ----            ----
                                                                         (in millions of constant Ch$)
<S>                                                               <C>            <C>             <C>
Quinenco and Consolidated Subsidiaries
Madeco (Manufacturing) .....................................       Ch$2,509       Ch$2,735        Ch$2,735
Telsur (Telecommunications) ................................          4,315         11,769          11,841
Lucchetti (Food and Beverage) ..............................          1,500          1,500           1,500
Hoteles Carrera (Real Estate/Hotel Administration) .........             98            100             101
Quinenco and others (1) ....................................             --             --              --
                                                                  ---------      ---------       ---------
Total ......................................................       Ch$8,422      Ch$16,104       Ch$16,177
                                                                  =========      =========       =========
Main Equity Investments
CCU (Food and Beverage) ....................................      Ch$25,362      Ch$45,454       Ch$34,693
Banco de Chile (Financial Services) ........................         25,290         46,430          21,490
                                                                  ---------      ---------       ---------
Total ......................................................      Ch$50,652      Ch$91,884       Ch$56,183
                                                                  =========      =========       =========
</TABLE>

(1)   Capital expenditures for Quinenco and other intermediate holding companies
      for the years 2003-2005 do not include future acquisitions. Historically,
      capital expenditures used for acquisitions have been significant, though
      they may vary.

      Quinenco, its subsidiaries and equity investments review their capital
expenditures program periodically and changes are made as needed and
appropriate. Accordingly, there can be no assurance that the Company will make
the capital expenditures described herein. The actual amount of future capital
expenditures, which could vary significantly from those planned, will depend on
a variety of factors, many of which are beyond the Company's control.

      If necessary, Quinenco intends to provide or actively participate in
obtaining financing (whether equity, debt or a combination thereof) to support
the planned future capital expenditures and expansion of its principal
businesses. The amounts and terms of any such debt or equity financing from
Quinenco will depend, among other things, on the terms and conditions of
financing available to its businesses from third parties and international
capital markets, as well as Quinenco's strategy to maintain control of its
businesses. In addition, Quinenco may participate in the planned capital
increases of its principal businesses, depending on the terms, timing, and other
investment considerations relevant to Quinenco.

      Quinenco. Capital expenditures in 2003 through 2005 do not include further
acquisitions that could be made by Quinenco or its intermediate holding
companies as these amounts are not readily estimated and depend on many factors
outside of the Company's control.

      Banco de Chile. Capital expenditures planned for the period 2003-2005 are
related to investment in technology, including an upgrade of the core technology
system. In addition, Banco de Chile plans to improve its existing branch network
infrastructure. Capital expenditures for the three year period, which amount to
Ch$93,210 million, will be financed with internally generated funds.

      CCU. CCU plans to make an aggregate of approximately Ch$105,509 million in
capital expenditures over the 2003-2005 period, mainly to adapt, update and
increase production capacity, install new bottling lines, enhance environmental
protection, optimize its distribution system and warehouse facilities, invest in
additional returnable bottles and crates to replace obsolete inventories, adapt
to new packaging formats and support industry volume growth. Capital
expenditures are also focused on improving management information systems and
making additional investments in marketing assets. CCU expects to fund its
capital expenditures through a combination of internally generated funds and
long term indebtedness.


                                      105
<PAGE>

      Lucchetti. Lucchetti's capital expenditure budget for the years 2003, 2004
and 2005, which is estimated to total Ch$4,500 million, mainly includes
maintenance expenditures in Lucchetti's manufacturing facilities in Chile.

      Telsur. All of Telsur's capital expenditures planned for 2003, 2004 and
2005 relate to the expansion of its telephony business based in the south of
Chile. Telsur plans to continue investing in its geographic expansion, mainly in
the city of Concepcion in Region VIII of southern Chile. This includes expansion
of telephone lines, transmission equipment, infrastructure and buildings. In
addition, Telsur will expand its wide band Internet related services and will
dedicate resources to further develop telephone-based security services. Telsur
expects to finance its capital expenditures through internally generated funds,
supplier financing and external financing.

      Madeco. Madeco's capital expenditures for the years 2003 to 2005 are
estimated to total Ch$7,979 million. Capital expenditures for the three year
period related to the company's wire and cable business unit are expected to be
Ch$4,414 million, the brass mills business unit, Ch$1,516 million, the flexible
packaging business unit, Ch$1,667 million and the aluminum profiles business
unit, Ch$383 million. The planned capital expenditures are to maintain and
upgrade production facilities and machinery and equipment used in the productive
processes.

C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

      The Company does not own patents, licenses to technology, copyright or
other intellectual property, nor is it involved in any research and development.
In addition, the Company has not spent any money on research and development
during the three year period immediately preceding the date of this annual
report.

D. TREND INFORMATION

      Since 2001, Quinenco has held a controlling interest in Banco de Chile. As
of December 31, 2002, investments in the Financial Services Sector represented
approximately 67% of Quinenco's total investments and 59% of total assets at the
corporate level. Due to the importance of Quinenco's investments in the
financial services sector, the level of future revenue and income will depend,
to a large extent, on the results from this sector.

      The share acquisition involved significant cash outlays during 2001, which
amounted to Ch$340,340 million (historic value) in 2001 and was financed with
debt. Although the initial debt incurred in connection with acquisition has been
partially reduced through sales of non-strategic assets, dividend income and
other resources, the Company will continue to incur interest expense associated
with the remaining debt until the debt level is reduced, either by payments at
scheduled amortization dates or through the sale of non-strategic assets.

      In connection with the acquisition of Banco de Chile, goodwill amounted to
Ch$247,779 million (historic value). The goodwill is being amortized over a
period of 20 years, in accordance with Chilean GAAP and the related expense will
represent a charge to income in future periods.

      Banco de Chile

      The Chilean banking industry has become increasingly competitive in recent
years which has led to, among other things, increased consolidation in the
industry and reduction of margins. Limited barriers to entry, as a consequence
of higher flexibility in the regulatory framework in the Chilean financial
system, and continued consolidation of the Chilean banking industry have
intensified this competition. Banco de Chile expects the trend in increased
competition to continue and result in further efficiency


                                      106
<PAGE>

pressures as well as the formation of new large financial groups. The continued
consolidation may materially and adversely affect Banco de Chile's financial
condition and results of operations.

      Madeco

      At the beginning of 2002, Madeco closed its operations in Argentina as a
consequence of the economic deterioration and currency devaluation in that
country. In 2001, Madeco had 19.2% of its consolidated assets in Argentina and
derived 14.7% of its revenue from Argentine operations.

      Currently, Madeco's subsidiary, Decker-Indelqui, maintains a minimal staff
in its Argentine facilities, primarily to sell products imported from certain of
Madeco's Brazilian and Chilean facilities and to ensure the security and
maintenance of Decker-Indelqui's Argentine facilities. Madeco expects to reopen
certain of the Brass Mills operations during 2003. Madeco has stated that it
intends to reopen certain of its other Argentine operations as economic
conditions improve in Argentina, although there can be no assurance when or if
these operations will be reopened.

      Further, Madeco and its joint venture partner, Corning, have minimized the
operations of their Argentine optical fiber joint venture, Optel. Madeco cannot
assure regarding any future Argentine operations of Optel. See "Item 8.
Financial Information - Legal Proceedings - Madeco".

      Madeco has recently undergone a debt restructuring process and a capital
increase. Proceeds obtained from the capital increase were used to reduce
indebtedness, resulting in a significant improvement in the company's capital
structure. In addition, Madeco has taken measures to improve the profitability
of its production and commercial operations in its main markets, including a
change in the company's management. The company believes that these steps will
improve its results from operations, however, to date Madeco's results continue
to be affected by a reduction in the investment levels in the main markets in
which it operates, particularly Brazil, and at this time it cannot be determined
when a recovery of its main markets may occur.

      Lucchetti

      Lucchetti's operations in Peru were halted in January of 2003 following
the revocation of Lucchetti's operating license and an order by the Municipality
of Chorrillos to shut down the plant's productive activities for alleged
environmental violations. Lucchetti believes that it was operating its plant in
Peru legally and that the allegations made by the Peruvian authorities are not
supported by Peru's environmental regulatory authority which certified that
Lucchetti was in compliance with local standards. Lucchetti is seeking damages
under an existing treaty between Peru and Chile, which establishes that
unsettled conflicts are subject to arbitration under the International Center
for Settlement of Investment Disputes (ICSID) in Washington D.C. On March 26,
2003, Lucchetti was notified that the case had been registered for the
establishment of the arbitral tribunal by ICSID. At present, neither the timing
nor the outcome of the arbitration can be determined.

      For the year ended December 31, 2002, Lucchetti derived Ch$18,793 million
or 22.4% of its consolidated revenue from Peruvian operations. Cash flow from
the Peruvian operations for the year 2002 amounted to Ch$302 million,
representing 4.2% of total consolidated cash flow from operations. The closure
of the plant installments resulted in charges against 2002 results of Ch$30,678
million, materially adversely affecting Lucchetti's results from operations and
financial condition for the year ended December 31, 2002.

      Due to the permanent impairment of its operations in Peru and in
accordance with Chilean GAAP and instructions from the SVS, Lucchetti did not
consolidate with its Peruvian subsidiary as of December 31, 2002. Therefore,
Lucchetti's consolidated financial statements do not reflect the liabilities


                                      107
<PAGE>

associated with the Peruvian operations of Ch$19,172 million of which Lucchetti
in Chile is jointly and severally liable for US$11.6 million.

      Lucchetti is at present in the process of liquidating its assets in Peru
and it is expected that proceeds from the sale of assets will be sufficient to
meet Lucchetti Peru's bank, leasing and other obligations. However, there can be
no assurance that the timing of the sale of the Peruvian assets will coincide
with scheduled debt repayments associated with Lucchetti Peru's debt or that the
sales proceeds will be sufficient to settle its obligations in Peru which could
result in further deterioration of Lucchetti's financial condition.

      CCU

      CCU's Argentine subsidiary was affected and continues to be affected by
the Argentine economic crisis, registering losses of Ch$2,953 million in
connection with the currency devaluation in 2002. CCU's subsidiary, Finca La
Celia, a wine producer in Argentina, also experienced a loss associated with the
crisis of Ch$987 million in 2002 (not consolidated with CCU in 2002 as it was in
the start-up phase). The current economic crisis has resulted in a significant
reduction in the demand for goods and services in Argentina during 2002.
Although CCU Argentina's beer sales volume increased by 6.1% in 2002, its
revenues decreased by 54.5% to Ch$24,881 million in 2002. CCU's investment and
presence in Argentina is consistent with its long-term strategy to further
develop markets for its products. However, there can be no assurance when the
Argentine economy will experience the growth levels achieved prior to the
current crisis or that it will recover in the near to medium term.

      In addition, CCU's beer brands in Chile may face increased competition
from other alcoholic beverages such as wine and spirits, as well as from
non-alcoholic beverages such as soft drinks. Beer consumption in Chile
historically has been influenced by changes in domestic wine prices. Increases
in domestic wine prices have tended to lead to increases in beer consumption,
while reductions in wine prices have tended to reduce or slow the growth of beer
consumption. However, this correlation has not been observed clearly in the past
four years due to the low level of wine consumption and factors like higher wine
quality and awareness of the positive effects of moderate wine consumption on
health. Similarly, as the price of soft drinks has decreased relative to the
price of beer over the past few years, due to lower packaging costs and the
introduction of larger packaging formats, growth in beer consumption has slowed.

      CCU estimates that the total beer market in Chile increased approximately
0.3% in terms of volume sold during 2002 as compared to 2001. Consumption has
stagnated since 1998 when the country began to feel the effects of the slowdown
in the Chilean economy which has resulted in higher unemployment levels and a
reduction in consumer spending. Although the economy has experienced some signs
of recovery since the second half of 2000, the level of beer consumption has
remained flat as a consequence of a lower level of consumer demand in Chile.

      On May 21, 2002, the President of Chile announced a possible increase in
excise taxes, including taxes on alcoholic beverages, tobacco and diesel fuel,
to finance a new health program. As beer and wine taxes have not gone up since
1971, this initiative caused distress in the political and business sectors in
Chile. On June 26, 2002 several related excise tax proposals were sent to the
Congress including additional hikes in gambling and value added taxes. Further,
on June 11, 2003, the President of Chile sent a new proposal to Congress in
order to increase tobacco, diesel fuel, alcoholic beverages and value added
taxes. On June 18, 2003, the Chamber of Deputies approved an increase in the
above mentioned taxes except for alcoholic beverages. The proposal must now be
discussed in the Senate, presumably during July. The government announced its
intention to insist on an increase in alcoholic beverage excise taxes. An
increase in beer and wine taxes could have a material adverse effect on CCU's
future sales as well as the profitability of its business wine and beer business
segments.


                                      108
<PAGE>

      Telsur

      In recent years, the rate of growth of mobile telephony has exceeded that
of fixed telephony, and the number mobile subscribers in Chile is now greater
than the number of fixed telephony subscribers. This substitution from fixed
telephony has tended to diminish Telsur's traditional fixed telephony revenue
base. As a consequence, Telsur has attempted to develop new products and
services to compensate for the decline in its basic telephony services revenues.
Although Telsur has been able to provide new products and services, which in
2002 accounted for approximately 15% of its total revenue, further strong growth
of mobile telephony could negatively affect the company's future revenues
associated with basic telephony services.

      In addition, certain competitors in the Chilean telecommunications
industry continue to expand their operations geographically in order to capture
a larger subscriber base. This geographic expansion could lead to higher
competition in Telsur's traditional market in Regions X and XI of Chile. Telsur
expects the trend in increased competition to continue, which could materially
and adversely affect its financial condition and results of operations in the
future.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

      The following tables summarize the Company's contractual and commercial
obligations as of December 31, 2002:

<TABLE>
<CAPTION>
                                                                                                                      More than 5
Contractual Commitments                             Total      Less than 1 year         1-3 years        4-5 years          years
<S>                                           <C>                   <C>               <C>               <C>           <C>
Short term and long term debt                 702,665,192           230,922,155       277,843,674       78,410,807    115,488,556
Capital lease obligations                       9,593,080             1,314,350         2,426,665        1,556,958      4,295,108
Operating leases                                  787,245               750,605            18,822            8,909          8,909
Unconditional purchase obligations                     --                    --                --               --             --
Other short term and long term obligations     67,927,293            60,564,718         1,465,126        2,212,189      3,685,260
                                              -----------------------------------------------------------------------------------
Total contractual cash obligations            780,972,810           293,551,828       281,754,287       82,188,863    123,477,833
                                              ===================================================================================

<CAPTION>
                                                                                                                      More than 5
Commercial Commitments                              Total      Less than 1 year         1-3 years        4-5 years          years
<S>                                            <C>                   <C>               <C>               <C>                   <C>
Lines of credit                                33,224,047            11,020,529        15,370,948        6,832,569             --
Stand by letters of credit                             --                    --                --               --             --
Guarantees                                     10,036,648             5,101,103         4,310,505          625,040             --
Stand by repurchase obligations                        --                    --                --               --             --
Other commercial commitments                           --                    --                --               --             --
                                              -----------------------------------------------------------------------------------
Total commercial commitments                   43,260,695            16,121,632        19,681,453        7,457,609             --
                                              ===================================================================================
</TABLE>


                                      109
<PAGE>

Item 6. Directors, Senior Management and Employees

A. Directors and Senior Management

Directors

      Quinenco is managed by its Board of Directors which, in accordance with
Quinenco's By-laws, must consist of nine directors who are elected at the Annual
General Shareholders' Meeting. The entire Board of Directors is elected every
three years. The last election was held on April 30, 2003. The entire board was
reelected except for Mr. Philip Adeane who was replaced by Mr. Matko Koljatic.
The next election will be held in April 2006. The Board of Directors may appoint
replacements to fill any vacancies that occur during periods between elections.
Quinenco's Chief Executive Officer is appointed by the Board of Directors. There
are regularly scheduled meetings of the Board of Directors at least once a month
on dates predetermined by the Board; extraordinary meetings are called by the
Chairman of the Board or when requested by an absolute majority of directors.


                                      110
<PAGE>

      The following table sets forth information with regard to Quinenco's
directors as of December 31, 2002:

<TABLE>
<CAPTION>
                                                            Year         First
Name                            Position in Quinenco        Born         Elected     Principal Directorships
----                            --------------------        ----         -------     -----------------------
<S>                            <C>                          <C>          <C>         <C>
Guillermo Luksic ..........    Chairman of the Board ....   1956         1982        CCU (1)(3)
                                                                                     Telsur (1)(3)
                                                                                     Madeco (1)(3)
                                                                                     Lucchetti (1)
                                                                                     Banco de Chile (1)
Andronico Luksic ..........    Vice Chairman of the         1954         1978        Banco de Chile (1)
                               Board ....................                            Madeco (1)
                                                                                     CCU (1)
                                                                                     Lucchetti (1)
Philip J. Adeane (4) ......    Director .................   1933         1980        Antofagasta plc (2)
                                                                                     Axmin Inc.
                                                                                     Carpathian Gold Ltd.
Hernan Buchi ..............    Director .................   1949         1990        Madeco (1)
                                                                                     Lucchetti (1)(3)
                                                                                     CCU (advisor) (1)
                                                                                     Soquimich S.A.
                                                                                     Falabella S.A.
                                                                                     Pilmaiquen S.A.
                                                                                     P&S S.A.
                                                                                     Alto Palermo (Argentina)
Joaquin Errazuriz .........    Director .................   1953         1984        Hoteles Carrera (1)
                                                                                     JAL Fisheries S.A.
                                                                                     Com. E Ind. Hochschild S.A.
Juan Andres Fontaine ......    Director .................   1954         1997        Banco Santander Chile
                                                                                     Mall Plaza Vespucio S.A.
                                                                                     Mall Plaza Tobalaba S.A.
                                                                                     Mall Plaza La Serena S.A.
                                                                                     Plaza El Trebol S.A.
                                                                                     Plaza Oeste S.A.
                                                                                     Besalco S.A.
Jean Paul Luksic...........    Director .................   1964         1993        Madeco (1)
                                                                                     Antofagasta plc (2)
                                                                                     Antofagasta Minerals S.A. (2)
                                                                                     Antofagasta Railway Co. (2)
                                                                                     Minera Los Pelambres Ltd.(2)(3)
                                                                                     Minera Michilla S.A. (2)(3)
                                                                                     Minera El Tesoro S.A.(2)(3)
Gonzalo Menendez ..........    Director .................   1949         1996        Telsur (1)
                                                                                     Inversiones Vita S.A. (1)
                                                                                     Banco de Chile (1)
                                                                                     SM Chile S.A. (1)
                                                                                     Antofagasta plc (2)
                                                                                     Antofagasta Minerals S.A.(2)
                                                                                     Minera Michilla S.A.(2)
                                                                                     Socofin S.A.
                                                                                     FCAB (2)
                                                                                     Banco Latinoamericano de Exportaciones (3)
                                                                                     Fundacion Andronico Luksic A.(2)
Vladimir Radic ............    Director .................   1933         1981        Hoteles Carrera (1)(3)
</TABLE>


                                      111
<PAGE>

----------
(1)   Subsidiary or affiliate of Quinenco.

(2)   Company associated with the Luksic Group.

(3)   Chairman of the Board.

(4)   Until April 2003. Mr. Adeane was replaced by Mr. Matko Koljatic.

      Guillermo Luksic, Andronico Luksic and Jean Paul Luksic are brothers.
Other than such relationships, there is no family relationship between any
director or executive officer and any other director or officer of Quinenco.

      The following table sets forth Quinenco's key executive officers as of
December 31, 2002, their positions and years of service with Quinenco and with
the Luksic Group:

<TABLE>
<CAPTION>
                                                                               Years with      Years with
Name of Executive Officer               Position                                Quinenco      Luksic Group
-------------------------               --------                                --------      ------------
<S>                                     <C>                                         <C>           <C>
Francisco Perez Mackenna ..........     Chief Executive Officer                     5             12
Luis Fernando Antunez .............     Chief Financial Officer                     6             16
Manuel Jose Noguera ...............     Chief Legal Counsel                         4             28
Felipe Joannon ....................     Business Development Manager                4              4
Luis Hernan Paul ..................     Strategy and Performance Appraisal          4              4
Sergio Cavagnaro ..................     Human Resources                             5             17
</TABLE>

      Francisco Perez Mackenna,(age 45) Francisco Perez Mackenna has served as
Chief Executive Officer of the Company since 1998. He is also a Director of many
Quinenco group companies, including CCU, Banco de Chile, Inversiones y Rentas,
LQIF, Hoteles Carrera, ECUSA, Vina San Pedro, CCU Argentina and Karlovacka
Pivovara (Croatia). Prior to joining Quinenco, between 1991 and 1998, Mr. Perez
Mackenna was General Manager and CEO of CCU. Prior to his experience with the
Luksic Group, he worked in key positions at Bankers Trust and Citicorp Chile.
Mr. Perez attended the Catholic University of Chile, majoring in Business
Administration. He holds a postgraduate degree (MBA) from the University of
Chicago.

      Luis Fernando Antunez Bories,(47) Luis Fernando Antunez has served as
Chief Financial Officer of Quinenco since 1996. In addition, he is General
Manager of Quinenco's wholly-owned subsidiary, LQIF. Prior to joining Quinenco,
between 1985 and 1996, Mr. Antunez was CFO of CCU. Prior to his experience with
the Luksic Group, he worked in COPEC as a financial analyst. Mr. Antunez
attended the Catholic University of Chile, majoring in Industrial Engineering.
He holds a postgraduate degree (MBA) from Georgia State University.

      Manuel Jose Noguera Eyzaguirre,(53) Manuel Jose Noguera has served as
Chief Legal Counsel of Quinenco since 2000. He is also a Director of several
Quinenco group companies, including CCU, Inversiones y Rentas and LQIF, and an
advisor to the Boards of Madeco and Hoteles Carrera. In his capacity as Chief
Legal Counsel, he serves as an advisor to the board of Quinenco. Prior to
joining Quinenco, Mr. Noguera developed his career in other Luksic group
companies for over 28 years. He is also a partner at the law firm of Morales,
Noguera, Valdivieso y Besa. Mr. Noguera received his law degree from the
Catholic University of Chile.

      Luis Hernan Paul Fresno,(43) Luis Hernan Paul has served as Manager of
Strategy and Performance Appraisal since 1999. He is also currently a member of
the Board of several Quinenco companies, including Telsur, Habitaria and LQIF.
Other experience includes: advisor to the Ministries of Finance and Economics,
Professor at the Business School of the Catholic University and Chief of the
Business and Capital Markets Area at Centro de Estudios Publicos (a Chilean
think tank). He has also worked as a consultant to the World Bank. Between 1991
and 1998, Mr. Paul was a partner with Fontaine and Paul Consultores. Mr. Paul
received a degree in Civil Engineering from the Catholic University of Chile and
an MBA from the Massachusetts Institute of Technology.


                                      112
<PAGE>

      Sergio Cavagnaro Santa Maria,(48) Sergio Cavagnaro has served as Human
Resources Manager for Quinenco since 2000. Mr. Cavagnaro's experience with the
Luksic Group dates back 17 years. During his career with the group, he has
served as Chief Executive Officer of VTR Celular S.A., and Chief Executive
Officer of VTR Telefonica S.A. He is currently on the boards of Habitaria and
VTR. He also serves as CEO of VTR. Mr. Cavagnaro received his degree in Civil
Industrial Engineering from the Catholic University of Chile, and he has a
postgraduate degree from Adolfo Ibanez University.

      Felipe Joannon Vergara,(43) Felipe Joannon has served as Business
Development Manager of Quinenco since 1999. He is also currently a Director of
Madeco, Habitaria, Hoteles Carrera, Entel and LQIF. Prior to joining Quinenco,
Mr. Joannon was General Manager and CEO of Vina Santa Rita, CFO of Cristalerias
Chile and Resident Vice President of the Corporate Finance Area of Citicorp
Chile. He has also been a Professor at the Business School of the Catholic
University of Chile and Universidad de Los Andes. He received a degree in
Economics from the Catholic University of Chile and holds an MBA degree from the
Wharton School, University of Pennsylvania.

      The following table shows the Chief Executive Officer and Chief Financial
Officer of the principal businesses of the group as of December 31, 2002:

<TABLE>
<CAPTION>
                                                                                                Years with
                                                                                                 Current      Years with
         Name                                    Position                                        Company     Luksic Group
         ----                                    --------                                        -------     ------------
<S>                            <C>                                                                  <C>           <C>
Pablo Granifo .............    Chief Executive Officer of  Banco de Chile                             2             8
Arturo Concha .............    Manager of the Financial Division of  Banco de Chile                  17             2
Arturo Tagle ..............    Manager of the Planning and Research Division of Banco de Chile        8             2
Patricio Jottar ...........    Chief Executive Officer of CCU                                         5             5
Ricardo Reyes .............    Chief Financial Officer of CCU                                         6             6
Fernando Pacheco ..........    Chief Executive Officer of Lucchetti                                  10            10
Eduardo Saez ..............    Chief Financial Officer of Lucchetti                                   8             8
Jorge Atton ...............    Chief Executive Officer of  Telsur                                    19            17
Eduardo Commentz (1) ......    Chief Financial Officer of Telsur                                     19            17
Tiberio Dall'Olio (2) .....    Chief Executive Officer of Madeco                                      1            10
Jorge Tagle (2) ...........    Chief Financial Officer of Madeco                                      1             4
Paulo Rosales .............    Chief Executive Officer of Hoteles Carrera                             2             2
Gloria Vergara ............    Chief Financial Officer of Hoteles Carrera                            14            14
Rafael Valderrabano .......    Chief Executive Officer of Habitaria                                   5             5
Waldo Arce (3) ............    Chief Financial Officer of Habitaria                                   5            14
</TABLE>

----------
(1)   Until April 2003.

(2)   Since October 2002.

(3)   Until January 2003. Mr. Arce is currently General Manager of Inmobiliaria
      Norte Verde S.A., a wholly-owned subsidiary of Quinenco.

      Pablo Granifo Lavin,(45) Pablo Granifo was named Chief Executive Officer
of Banco de Chile in October 2001, after having served as the Chief Executive
Officer of Banco Edwards, since November 2000. Prior to being named Chief
Executive Officer, between March and November 2000, Mr. Granifo was Commercial
Manager of the bank. Between 1995 and early 2000, he was Commercial and
Corporate Manager of Banco Santiago. He is currently a Director of Banchile
Administradora General de Fondos S.A., Banchile Asesoria Financiera S.A. and
Banchile Factoring S.A. Mr. Granifo is also a member of the executive committee
of Banchile Corredores de Seguros Ltda. He holds a degree in Business
Administration from the Catholic University of Chile.

      Patricio Jottar Nasrallah,(40) Patricio Jottar has served as Chief
Executive Officer of CCU S.A. since 1998. He is also currently a Director of CCU
Argentina, ECUSA, Austral and Kunstmann and is Chairman of the Board of Vina San
Pedro. Prior to joining CCU, he was Chief Executive Officer of Santander Chile
Holding. He received a degree in Business Administration from the Catholic
University


                                      113
<PAGE>

of Chile, and a Masters degree in Economics and Business Administration from
IESE, in Barcelona, Spain.

      Fernando Pacheco Novoa, (48) Mr. Fernando Pacheco has served as Chief
Executive Officer of Empresas Lucchetti S.A. since 1998. Previously, he was the
Finance and Administration Manager of Empresas Lucchetti S.A. Prior to joining
Lucchetti, he was Studies and Development Manager at Vidrios Lirquen, Finance
Manager of Vina Santa Carolina, Pesquera Eicomar (Pathfinder) and El Tattersal.
He received a degree in Business Administration from the Catholic University of
Chile.

      Jorge Adolfo Atton Palma,(49) Jorge Atton has served as Chief Executive
Officer of Telefonica del Sur S.A. and Telefonica de Coyhaique S.A. since 1998.
He is also currently Chairman of the Board of Telefonica del Sur Carrier S.A.
During his career with Telsur, he has been Operations Manager and Client Service
Manager of Telefonica de Coyhaique. He received his degree in Electronic
Engineering, specializing in telecommunications, from the Universidad de
Concepcion, and a degree in Electronic Engineering from Universidad Austral de
Chile.

      Tiberio Dall'Olio,(66) Tiberio Dall'Olio was named Chief Executive Officer
of Madeco S.A. in October of 2002. He has a long career in the cable industry,
having served as General Manager and CEO of Teleco Cable Italia (subsidiary of
the Siemens Group of companies) between 1991 and 2000. Mr. Dall'Olio was General
Manager and CEO of Madeco earlier in his career from 1980 to 1986. He also was
General Manager and CEO of the Quinenco group company, CCU between 1986 and
1990. Mr. Dall'Olio holds a degree in law from the Universidad de Padua in
Italy.

      Paulo Rosales,(38) Paulo Rosales was named Chief Executive Officer of
Hoteles Carrera in early 2001. Mr. Rosales developed his career as General
Manager of DCP, The Walt Disney Company, Director of New Business Initiatives
for LATAM and Export Manager of Vina Santa Rita. Mr. Rosales holds a degree in
Business Administration from the Catholic University of Chile.

      Rafael Valderrabano,(35) Rafael Valderrabano has been Chief Executive
Officer of Habitaria since 1998. Prior to this, he was Commercial Manager of
Ferrovial Inmobiliaria in Madrid, Spain and General Manager of Ferrovial
Inmobiliaria Chile Limitada. Mr. Valderrabano holds a degree in Economics and
Business Administration from ICADE and an MBA from IESE, in Spain.

B. Compensation

      Director Compensation

      For the year ended December 31, 2002, compensation paid to each of the
Company's Directors in connection with their service on Quinenco and subsidiary
boards was the following:

                                                         Total Compensation
                                                         ------------------
                                                   (in millions of constant Ch$)
      Guillermo Luksic ........................              Ch$133
      Andronico Luksic ........................                 121
      Jean Paul Luksic ........................                  12
      Gonzalo Menendez ........................                 237
      Hernan Buchi ............................                  37
      Juan Andres Fontaine ....................                  12
      Joaquin Errazuriz .......................                  17
      Vladimir Radic ..........................                  17
      Philip Adeane ...........................                  11
                                                             ------
         Total ................................              Ch$597
                                                             ======


                                      114
<PAGE>

      Executive Officer Compensation

      For the year ended December 31, 2002, the aggregate amount of compensation
paid to officers and key executives of Quinenco, including bonuses, was Ch$2,035
million. For the year ended December 31, 2002 and prior years, Quinenco did not
disclose to its shareholders or otherwise make publicly available information as
to the compensation of its individual executive officers.

      Each executive officer of the Company receives a fixed monthly salary and
benefit package. In addition, the Company may, at its discretion, compensate
executive officers with an annual bonus, depending on individual performance and
adherence to predefined goals.

      In addition, in accordance with approval granted by the Board of Directors
on March 8, 2000, a long-term executive incentive plan was established by the
Company in March 2000 for qualified executives. In accordance with this plan,
shares of Quinenco and its principal operating companies were purchased by a
group of qualified executives and as of December 31, 2002, total shares
purchased amounted to 5,479,593 shares of the Company, 243,223 shares of CCU,
31,990,780 shares of Banco de Chile, 548,038 shares of Madeco, 434,607 shares of
Telsur and 33,718 shares of Lucchetti. Each executive was offered a
predetermined number of shares, approved in each case by the Board of Directors.
Financing was provided by the Company through non-interest bearing loans to each
executive, the total of which amounted to Ch$4,730 million as of December 31,
2002. The loans, which are expressed in Unidades de Fomento (UF), are repayable
in annual installments beginning in 2003 and maturing in 2006. The individual
shares are pledged as collateral during the loan period. At each installment
date, the pledged shares may be delivered as full payment for such installment
or the entire loan. To the extent that the value of the shares exceeds the loan
value, the executive will be entitled to the difference as compensation. The
first loan installment came due in the first half of 2003 for UF69,210.33. At
this time, each of the participating executives determined to deliver shares in
full payment for such loan installment or a combination of shares and money in
full payment for the loan installment. The terms and conditions of the loans may
not be modified and once an installment is paid, the loan may not be renewed.

C. Board Practices

      The current term of office for each director expired in April 2003. At the
Annual Shareholders' Meeting held on April 30, 2003, the entire board was
reelected for a new term of three years. The Company does not provide for any
additional benefits upon termination of the current term of office to the
directors of Quinenco or its subsidiaries.

      Audit Committee

      The Chilean Corporations Act was amended effective December 20, 2000. The
following is a summary of the main provisions of the amendment. Under the
amendment, the boards of directors of corporations whose market capitalization
reaches or exceeds UF1.5 million shall designate an audit committee (the "Audit
Committee"). If the market capitalization falls below this threshold, the
obligation to designate an Audit Committee disappears. However, corporations
which do not reach the threshold may voluntarily assume the obligations
concerning the Audit Committee, in which case they shall strictly follow the
provisions of the amendment.

      The Audit Committee shall have the following powers and duties:

      (1)   to examine the independent accountants' reports, the balance sheets,
            and other financial statements submitted by the corporation's
            managers or liquidators to the shareholders, and issue an opinion
            about them prior to their submission for shareholder approval;


                                      115
<PAGE>

      (2)   to propose to the Board of Directors the independent accountants and
            the risk rating agencies, which the Board must then propose to the
            shareholders. Should the Board disagree with the Audit Committee's
            proposal, the Board shall be entitled to make its own proposal,
            submitting both to the shareholders for their consideration;

      (3)   to examine the documentation concerning (i) contracts or agreements
            in which directors have an interest and (ii) transactions between
            related or affiliated companies, and to produce a written report on
            such documentation. A copy of the report shall be delivered to the
            Chairman of the Board, who shall read it at the Board meeting in
            which the relevant transaction is presented for approval or
            rejection;

      (4)   to examine the managers' and chief executives' remuneration policies
            and compensation plans; and

      (5)   all other matters contemplated in the company's bylaws or entrusted
            to the Audit Committee by a shareholders' meeting or the Board of
            Directors.

      For purposes of the related party transactions mentioned in paragraph (3)
above, the following persons are considered by the Securities Market Law and the
Chilean Corporation Act to be related to a company:

      (a)   any entities within the financial conglomerate to which the company
            belongs;

      (b)   corporate entities that have, with respect to the company, the
            character of parent company, affiliated company, subsidiary or
            related company. Parent companies are those that control directly or
            indirectly more than 50% of the subsidiary's voting stock (or
            participations, in the case of business organizations other than
            stock companies), or that may otherwise elect or appoint, or cause
            the election or appointment, of the majority of the directors or
            officers. Limited partnerships (sociedades en comandita) may
            likewise be affiliates of a corporation, whenever the latter has the
            power to direct or guide the administration of the general partner
            (gestor) thereof. Related companies are those that, without actually
            controlling the affiliate, own directly or indirectly 10% or more of
            the affiliate's voting stock (or participations, in the case of
            business organizations other than stock companies), or that may
            otherwise elect or appoint, or cause the election or appointment of
            at least one board member or manager;

      (c)   persons who are directors, managers, administrators or liquidators
            of the company, and their spouses or their close relatives (i.e.,
            parents, father/mother in law, sisters, brothers, sisters/brothers
            in law); and

      (d)   any person who, whether acting alone or in agreement with others,
            may appoint at least one member of the management of the company or
            controls 10% or more of the capital of the company.

      In addition, the Superintendency of Securities and Insurance may create a
presumption that any individual or corporate entity is related with a company
if, because of relationships of equity, administration, kinship, responsibility
or subordination, the person:

      (i)   whether acting alone or in agreement with others, has sufficient
            voting power to influence the company's management;

      (ii)  creates conflicts of interest in doing business with the company;


                                      116
<PAGE>

      (iii) in the case of a corporate entity, is influenced in its management
            by the company; or

      (iv)  holds an employment position, which affords the person access to
            non-public information about the company and its business which
            renders the person capable of influencing the value of the company's
            securities.

      However, a person shall not be considered to be related to a company by
the mere fact of owning up to 5% of the company, or if the person is only an
employee of the company without managerial responsibilities.

      The Audit Committee's discussions, agreements, and organization are
regulated, in every applicable matter, by the Chilean Corporations Act
provisions relating to board of directors' meetings. The Audit Committee shall
inform the Board of Directors about the manner in which it will request
information and about its resolutions.

      In addition to the general liabilities imputable to any director, the
directors that compose the Audit Committee shall, in the exercise of their
duties, be jointly and severally liable for any damage caused to the corporation
or the shareholders.

      The Audit Committee shall be composed of three members, the majority of
which shall be independent. Independent directors are those that would have been
elected even if the votes cast in that director's favor by the controlling
shareholder and its related persons had not been counted. However, a majority of
directors related to the controlling shareholder is permissible if there is an
insufficient number of independent directors. Should there be more than three
directors entitled to participate in the Audit Committee, the Board of Directors
shall elect the members of the Audit Committee by unanimous vote. Should the
Board fail to reach an agreement, the matter shall be decided by drawing. The
Company's Audit Committee is composed of Gonzalo Menendez, Vladimir Radic and
Joaquin Errazuriz.

      The members of the Audit Committee shall be remunerated. The amount of
such remuneration shall be established annually by the shareholders, taking into
consideration the duties that the Audit Committee members shall perform. The
remuneration of the members of the Company's Audit Committee was UF10 per
session in 2002.

      The shareholders shall determine the budget of the Audit Committee and its
advisors, and the Audit Committee shall be allowed to request the recruitment of
professionals to fulfill its duties, within the limits imposed by the budget.
The activities of the Audit Committee and its expenses, including those of its
advisors, shall be included in the annual report and made known to the
shareholders. The annual budget of the Company's Audit Committee and its
advisors was UF1,000 in 2002.

D. Employees

      The following table sets forth the number of employees of Quinenco and its
subsidiaries as of December 31, 2000, 2001 and 2002:

<TABLE>
<CAPTION>
               2002                    Executives        Professional/Technical       Other Personnel          Total
                                       ----------        ----------------------       ---------------          -----
<S>                                           <C>                         <C>                   <C>            <C>
         Quinenco                              12                            17                    10             39
         Banco de Chile                       279                         4,239                 4,137          8,655
         Madeco                                52                           331                 2,405          2,788
         Telsur                                26                           298                   212            536
         Lucchetti                             24                           151                   406            581
         Hoteles Carrera                       10                            25                   242            277
         Other Subsidiaries                    13                            76                    33            122
                                              ---                         -----                 -----         ------
         Total Employees                      416                         5,137                 7,445         12,998
                                              ===                         =====                 =====         ======
</TABLE>


                                      117
<PAGE>

<TABLE>
<CAPTION>
               2001                    Executives        Professional/Technical       Other Personnel          Total
                                       ----------        ----------------------       ---------------          -----
<S>                                           <C>                         <C>                   <C>           <C>
         Quinenco                              14                            16                    10             40
         Banco de Chile                       168                         2,975                 1,392          4,535
         Banco Edwards                        122                         1,713                 1,008          2,843
         Madeco                                60                           385                 2,869          3,314
         Telsur                                28                           353                   249            630
         Lucchetti                             17                           148                   793            958
         Hoteles Carrera                        8                            54                   271            333
         Other Subsidiaries                    16                            74                    65            155
                                              ---                         -----                 -----         ------
         Total Employees                      433                         5,718                 6,657         12,808
                                              ===                         =====                 =====         ======

<CAPTION>
               2000                    Executives        Professional/Technical       Other Personnel         Total
                                       ----------        ----------------------       ---------------          -----
<S>                                           <C>                         <C>                   <C>            <C>
         Quinenco                              15                             9                    14             38
         Banco Edwards                        201                         1,562                 1,176          2,939
         Madeco                                66                           391                 3,492          3,949
         Telsur                                30                           330                   256            616
         Lucchetti                             27                           174                   977          1,178
         Hoteles Carrera                       10                            58                   255            323
         Other Subsidiaries                    11                            54                    85            150
                                              ---                         -----                 -----          -----
         Total Employees                      360                         2,578                 6,255          9,193
                                              ===                         =====                 =====          =====
</TABLE>

      In addition, at December 31, 2000, 2001 and 2002, CCU had 4,332, 3,892 and
3,908 employees, respectively. For the same years ended, Habitaria had 59, 83
and 85 employees, respectively. In 2000, Plava Laguna had 812 employees.

      The Company believes its subsidiaries maintain productive relationships
with their employees' respective unions and negotiate collective bargaining
agreements from time to time. We include specific information regarding labor
relationships of CCU, Madeco and Banco Chile below.

      At December 31, 2002, CCU's unionized employees represented approximately
62% of the total permanent workforce. CCU's total workforce of unionized
employees, which includes permanent and temporary employees, are subject to
collectively negotiated agreements. During 2002, 682 employees renewed their
collective contracts, all of them for a period of two years.

      At December 31, 2002, Madeco's unionized employees represented
approximately 44% of the total workforce. Madeco's total workforce of unionized
employees, which did not include 71 temporary employees who were hired to
satisfy specific short-term needs of the company, are subject to collectively
negotiated agreements. During 2002, 229 employees in Brazil and 167 employees in
Chile renewed their collective contracts for a period of one year and two years,
respectively.

      At December 31, 2002, 1,736 (20.1%) of Banco de Chile's employees were
unionized. All management positions are held by non-union employees. Banco de
Chile is party to four collective bargaining agreements (one of which was
assumed as part of the merger with Banco Edwards) covering the unionized
employees. Three collective bargaining agreements were signed in September 2001
and expire in December 2005 and the other was signed in January 2003 and expires
in December 2006.

E. Share Ownership

      As of December 31, 2002, except as disclosed in "Item 7. Major
Shareholders and Related Party Transactions - Principal Shareholders", none of
the Company's directors or executive officers beneficially owned more than one
percent of the outstanding stock. Excluding members of the Luksic Group, the
directors and executive officers collectively held 0.6% of the Company's shares
as of December 31, 2002. As of June 15, 2003, the percentage of shares
collectively held by directors and executive officers was 0.45%.


                                      118
<PAGE>

Item 7. Major Shareholders and Related Party Transactions

A. Major Shareholders

      As of the date of this Annual Report, members of the Luksic Group, which
consists of Mr. Andronico Luksic Sr. and his sons, Andronico Luksic Craig,
Guillermo Luksic Craig and Jean Paul Luksic Fontbona, beneficially own
approximately 82.4% of the outstanding shares of common stock, without par
values of Quinenco ("the shares") and thereby control the Company. Guillermo
Luksic, Andronico Luksic and Jean Paul Luksic are all directors on the Company's
Board of Directors.

      Control by the Luksic Group is exercised through the Luksic Group's
control of Inversiones FCAB Ltda., Ruana Copper A.G. Agencia Chile, Inversiones
Consolidadas S.A., Sociedad Inmobiliaria y de Inversiones Rio Claro Ltda. and
Inversiones Salta S.A.(collectively, the "Principal Shareholders"), which are
the Luksic Group companies that hold shares of Quinenco. Although there are no
formal agreements as to the voting or disposition of shares known to Quinenco,
Quinenco believes that the members of the Luksic Group generally consult with
each other regarding actions to be taken by shareholders of Quinenco.
Consequently, the Luksic Group has the power to elect a majority of Quinenco's
directors and to determine the outcome of substantially all matters to be
decided by a vote of shareholders.

      Quinenco's only outstanding voting securities are the common shares. There
was no significant change in the share ownership of the Company in 2000, 2001 or
2002. The following table sets forth certain information concerning ownership of
the shares with respect to the Luksic Group's companies at December 31, 2002:

<TABLE>
<CAPTION>
      Title of Class                 Identity of Person or Group                           Amount Owned     Percent of Class
      --------------                 ---------------------------                           ------------     ----------------
<S>                       <C>                                                               <C>                  <C>
      Common Stock        Inversiones FCAB Ltda. ......................................     362,757,196          33.6%
                          Ruana Copper A.G. Agencia Chile .............................     240,938,000          22.3%
                          Sociedad Inmobiliaria y de Inversiones Rio Claro Ltda .......     142,819,109          13.2%
                          Inversiones Consolidadas S.A. ...............................     124,819,108          11.6%
                          Inversiones Salta S.A. ......................................      18,000,000           1.7%
</TABLE>

      In addition, the Fundacion Andronico Luksic A., a charity foundation
presided by Mr. Andronico Luksic, owned 1,348,247 shares of Quinenco, equivalent
to a 0.1% interest, as of December 31, 2002.

      Registration Rights Agreement with Antofagasta. In connection with the
reorganization of Quinenco during 1996, Quinenco has entered into a registration
rights agreement (the "Registration Rights Agreement") with Antofagasta,
pursuant to which Antofagasta has the right to cause or agree with Quinenco to
cause the registration of shares obtained by Antofagasta and its subsidiaries in
the 1996 reorganization on one or more registration statements (not to exceed
five "demand" registration statements). In addition, Antofagasta has
"piggy-back" rights in connection with its shares which permit Antofagasta,
subject to certain conditions and limitations, to include shares received by its
subsidiaries in connection with the 1996 reorganization and held by Antofagasta
and its affiliates in any future registered public offerings of shares (or ADSs
representing shares) in the United States.

B. Related Party Transactions

      Article 89 of the Chilean Corporations Law, Law N(degree) 18.046, requires
that the Company's transactions with related parties be on terms similar to
those of an arm's length transaction. Directors and executive officers of
companies that violate Article 89 are liable for losses resulting from such
violations. In addition, Articles 44 and 50 of the Chilean Corporations Law
provide that any related party transaction, including any transaction in which a
director has a personal interest or is acting on behalf of a third party may be
executed only when such transaction is disclosed to the Audit Committee and
previously approved by the Board of Directors, and the terms of such transaction
are similar to those of an arm's length transaction. If the conflicting interest
transaction involves a "material amount," the


                                      119
<PAGE>

Board of Directors is required to produce a statement declaring in advance that
the conflicting interest transaction is similar in its terms to an arm's length
transaction. A conflicting interest transaction is deemed to involve a "material
amount" if the amount involved is both greater than UF2,000 (as of March 31,
2003, approximately US$46 thousand) and exceeds 1% of the assets of the
corporation, or if the amount exceeds UF20,000 (as of March 31, 2003,
approximately US$459 thousand) regardless of the size of the corporation.

      If the Board of Directors believes that it is not possible to ascertain
whether the conflicting interest transaction is similar to an arm's length
transaction, it may approve or reject the conflicting interest transaction, or
appoint independent advisors to make such a determination. In each case,
interested directors are excluded from the decision of the Board related to the
conflicting interest transaction. If the Board appoints independent advisors,
the report prepared by the advisors will be made available to the shareholders
and the Board of Directors for 20 business days from the date the last report
was received from the independent advisors. The shareholders will be notified in
writing of the receipt of the report. After this period the Board may approve or
reject the conflicting interest transaction, but the Board is not required to
follow the independent advisors' conclusion. The Board may treat the conflicting
interest transaction and the report as confidential information. In each
circumstance, the interested director would be excluded from the decision-making
process at the Board level.

      Within a twenty day period, shareholders representing at least a 5% of the
voting shares of the Company may request the Board to call a shareholders'
meeting in order to approve or reject the conflicting interest transaction by a
two-thirds majority of the outstanding voting shares. All decisions adopted by
the Board in respect of the conflicting interest transaction must be reported at
the next shareholders' meeting.

      The controller of the corporation or the related party which intends to
enter into the conflicting interest transaction shall make available to the
Board of Directors, at the time the transaction is being considered by the
Board, all information relating to the transaction filed with any non-Chilean
regulatory entities or stock exchanges. A violation of Article 44 may result in
administrative or criminal sanctions against the interested director. The
Company, the shareholders or interested third parties who suffer losses as a
result of such violation have the right to receive compensation from such
director in certain situations.

      In the ordinary course of its business, the Company engages in a variety
of transactions with affiliates of the Luksic Group. Financial information
concerning these transactions during the last three years is set forth in Note
21 to the Consolidated Financial Statements. The Company believes that it has
complied with the requirements of Article 89 and Article 44 in all transactions
with related parties.

      Although the Company generally does not provide or receive long-term debt
financing to or from other entities within the Luksic Group (except in
connection with bank loans on arm's length terms in the ordinary course of
business from the Company's subsidiary, Banco de Chile), the Company has
occasionally in the past and may in the future advance funds and receive
advances of funds from other companies under the common control of the Luksic
Group when required to meet liquidity requirements. These loans have been on an
unsecured basis at market rates of interest and, in the case of loans made by
the Company to affiliated companies, require the prior approval of the Audit
Committee and Quinenco's Board of Directors pursuant to the requirements of the
Chilean Corporations Laws relating to open companies such as Quinenco. The
outstanding amounts of such loans made by the Company to affiliated companies
during the years ended December 31, 2000, 2001 and 2002 were not material to
Quinenco, individually or in the aggregate. In addition, the Company has from
time to time in the past made loans and advances to affiliated companies in the
Luksic Group and to strategic investors and their affiliates to provide
financing resources in connection with acquisitions of assets and other
transactions. Such loans


                                      120
<PAGE>

and advances have generally been made on a secured basis at market rates of
interest. See Note 21 to the Consolidated Financial Statements.

      The Company also provides goods and services in commercial transactions in
the ordinary course of business to affiliated companies in the Luksic Group. In
connection with such transactions, the Company from time to time extends
unsecured credit on terms substantially similar to those available to other
customers purchasing goods and services in similar quantities.

      Except for the transactions described below, none of the transactions
carried out during 2002 between the Company and related parties were deemed to
have been material to the related party:

      1.    On May 29, 2002, Quinenco's subsidiary, LQIF, obtained a US$70
            million loan from Andsberg Finance Corporation, a company based in
            Bermuda, owned by Mr. Andronico Luksic. The transaction, which was
            carried out at arms' length, bears an interest rate of LIBOR plus 2%
            per annum. The loan matures in May of 2005. Proceeds were used by
            LQIF to refinance existing indebtedness.

      2.    Under its executive incentive plan established in 2000, Quinenco has
            made non-interest bearing loans to qualified executives for Ch$4,730
            million as of December 31, 2002. For a description of the incentive
            plan, see "Item 6B. Executive Compensation".

      In addition. on April 10, 2003, Quinenco's wholly-owned subsidiary,
Hidroindustriales Overseas Company, obtained a US$19 million loan from Andsberg
Finance Corporation, a company based in Bermuda, owned by Mr. Andronico Luksic.
The transaction, which was carried out at arms' length, bears an interest rate
of LIBOR plus 1.83% per annum. The loan matures in April of 2006. Proceeds were
used to finance working capital needs.

Item 8. Financial Information

A. and B. See "Item 18. Financial Statements"

Legal Proceedings

      Neither Quinenco nor any of its subsidiaries or affiliates in which
Quinenco holds significant non-consolidated equity investments is party to any
legal proceedings which are material to the Company, except as described below.

      IRSA

      In 2002, Quinenco was involved in arbitration proceedings, under the rules
of the International Chamber of Commerce, in connection with its 50% interest in
IRSA, the holding company which directly owns 61.6% of the outstanding shares of
CCU. IRSA was a joint venture between Quinenco and the Schorghuber Group of
Germany, formed in 1986 to invest in CCU. In February 2001, the Schorghuber
Group announced that it had sold 49.9% of its interest in an intermediate
holding company that indirectly held the Schorghuber Group's 50% in IRSA to
Heineken International B.V. ("Heineken"), the Dutch brewer for an undisclosed
sum of money. Quinenco believed the sale represented a violation of the existing
shareholders' agreement with the Schorghuber Group.

      In December 2001, the arbitration panel placed a temporary freeze on the
transfer to Heineken of any direct or indirect interest that the Schorghuber
Group maintained in IRSA.

      On January 13, 2003, Quinenco and the Schorghuber Group executed a
Settlement and Release Agreement by which they agreed to settle and put an end
to the arbitration proceeding initiated before the International Court of
Arbitration of the International Chamber of Commerce.


                                      121
<PAGE>

      In addition, Quinenco agreed to file a voluntary waiver of its petition to
designate an arbitrator initiated before the 10th Civil Court of Santiago, case
number 2619-2000, "Quinenco S.A." and a voluntary waiver of its appeal filed
before the Court of Appeals of Santiago in respect of the aforementioned
proceeding, case number 2581-2001.

      Pursuant to the Settlement and Release Agreement and the voluntary
waivers, all disputes between the parties, as the only shareholders of IRSA were
resolved and terminated. In accordance with the Settlement and Release
Agreement, the Shareholders' Agreement entered into between the shareholders of
IRSA on April 14, 1994 was amended on January 13, 2003.

      As part of the agreement, the Schorghuber Group paid Quinenco the amount
of US$50 million on January 28, 2003.

      In the amendment to the Shareholders' Agreement, it was further agreed
that within a maximum period of three years starting on January 13, 2003, the
Schorghuber Group would have the right to transfer its direct or indirect shares
in IRSA to Heineken and the sale would not be subject to the procedures of First
Refusal or of First Offer, as the case may be, regulated by the Shareholders'
Agreement, subject to the following conditions:

      a)    Heineken may not compete against CCU in the defined "CCU
            Territories" (Chile and Argentina);

      b)    Heineken will grant to CCU, subject to entering into a license
            agreement on Heineken's customary terms and conditions, the
            exclusive right to produce, market, sell and distribute the Heineken
            brand in Chile and Argentina, and will not grant any such license to
            any party other than CCU in Chile and Argentina for so long as it
            owns any interest in IRSA; and

      c)    Heineken agrees to be bound by the terms of the Shareholders'
            Agreement entered into amongst the parties in IRSA on April 14,
            1994, as amended on January 13, 2003, as successor to all the rights
            and obligations of the Schorghuber Group.

      d)    At the Extraordinary Board Meeting of IRSA held on January 13, 2003,
            the Board of Directors agreed to propose to the Board of Directors
            of CCU that it submit for shareholder approval, a dividend
            distribution equivalent to 100% of the net profit for the year 2002.
            It was also agreed to propose an extraordinary dividend
            distribution, to be charged against the retained earnings of CCU, of
            Ch$ 168,700 million, within 180 days, in one or more installments.

      e)    Southern Breweries Establishment ("SBE") a 50%-owned subsidiary of
            CCU, agreed to sell to Heineken, its interest in the Croatian
            company, Karlovacka pivovara d.d., at a price equal to ten times
            earnings before interest, taxes, depreciation and amortization;
            subject to inter alia prior regulatory approval and approval of the
            respective boards of Heineken and SBE, and its controlling
            shareholders, Lanzville Investments Establishment and CCU.

      On April 17, 2003, Quinenco was given formal notice of the sale of the
Schorghuber Group's interest in IRSA to Heineken Americas B.V., a subsidiary of
Heineken International B.V.

      On February 24, 2003, Anheuser-Busch International Holdings, Inc. Chile II
Limitada ("Anheuser-Busch"), a 20% shareholder of CCU, requested the SVS to
determine if Article 199 of the Securities Law, which addresses the obligation
for companies acquiring controlling interests in publicly-


                                      122
<PAGE>

traded companies to do so through a public tender offer process, would be
applicable to the transfer of interest from the Schorghuber Group to Heineken.

      On April 14, 2003, the SVS notified Anheuser-Busch that Article 199 of the
Securities Law did not apply to the transaction between Schorghuber and Heineken
because Heineken did not acquire a controlling interest in IRSA or in CCU. On
April 28, 2003, Anheuser-Busch filed a lawsuit ("recurso de ilegalidad") before
the Appellate Court of Santiago to overturn the SVS's decision. Quinenco is not
a party to the lawsuit, which remains pending and whose outcome and possible
effect on Quinenco cannot be determined at this time.

      Banco de Chile

      Like other institutions in the Chilean financial system, two of Banco de
Chile's subsidiaries, Banchile Administradora General de Fondos and Banchile
Corredores de Bolsa, may face allegations in connection with the Corfo-Inverlink
case as a result of time deposits they acquired. Banco de Chile's subsidiaries
used the time deposits as investments for the account of their administered
funds and for their own account. As of March 7, 2003, the amount of such time
deposits held by Banco de Chile's subsidiaries totaled Ch$3,850 million. If
proceedings are initiated against Banco de Chile's subsidiaries, and a final
judgment is entered declaring that those time deposits were illegally acquired,
the subsidiaries may be required to reimburse Corfo for these amounts. While no
proceedings have been initiated, any future litigation will contain an element
of uncertainty. However, Banco de Chile does not believe that liabilities, if
any, related to these claims and eventual proceedings are likely to have, in the
aggregate, a material adverse effect on its consolidated financial condition or
results of operations.

      Madeco

      In Brazil, two legal disputes against the previous owner of Madeco's
subsidiary, Ficap, have been pending since prior to Madeco's acquisition of the
subsidiary in 1997. It is estimated that the total amount of the lawsuits
involve approximately US$10 million. Madeco has a personal guarantee from the
previous owner of Ficap to indemnify the Company if the Brazilian subsidiary
were to be affected by these actions.

      In 2001, Madeco resolved a labor dispute which involved two unions of
Madeco Chile that stemmed from an interpretation of collective bargaining
agreements in effect in 1989 and 1990. Madeco has made a provision for Ch$2,743
million in its financial statements for the estimated flow of payments required
in future periods to cover the indemnization payments related to this dispute.

      In 2002, Madeco maintains several labor lawsuits in Argentina, primarily
related to indemnity payments. The amounts of the claims are expressed in
Argentine pesos, therefore after the devaluation of the Argentine currency
against the U.S. dollar, the total amount of related damages claimed is not
material for Madeco.

      On June 27, 2002, Madeco announced that it had been notified by Corning
Inc., Madeco's joint venture partner in Optel which produces optical fiber cable
in Brazil and Argentina, of its desire to liquidate the joint venture. Madeco
believes that Corning is attempting to unjustifiably terminate the agreements
with Madeco and has filed an arbitration suit against its partner to resolve
this dispute.

      Corning has filed a counterclaim against the Company in which it requests,
among other things, that Corning be permitted to terminate its joint venture
agreements with the Company, alleging that Optel is effectively bankrupt.
Depending on the outcome of the arbitration, Madeco's ability to exercise its
put option to sell its Optel shares to Corning for US$18 million, subject to
certain adjustments, between January 2004 and December 2005, may be compromised.


                                      123
<PAGE>

      There can be no assurance regarding the outcome of this arbitration.
Madeco's management believes that an adverse outcome of the arbitration would
have a materially adverse effect on Madeco's interest in Optel's assets.

      Telsur

      Telsur is involved in four lawsuits involving claims worth Ch$3,509
million. Telsur has not made provisions to cover anticipated losses because it
believes that the lawsuits will not result in significant losses.

      Lucchetti

      In March 2000, allegations were made by certain governmental authorities
and private parties in Peru that Lucchetti representatives acted improperly to
obtain a judgment in their favor with respect to legal proceedings in 1998
arising out of a dispute between Lucchetti Peru and the Municipality of Lima, as
discussed below under "-Lucchetti Peru". Lucchetti Peru had commenced these
proceedings following actions by Lima to suspend construction and operation of
the Lucchetti plant. The allegations were based in part on publicly-released
portions of videotapes of meetings between Lucchetti representatives and
Vladimiro Montesinos, a senior official of the government of then President
Alberto Fujimori who has since been implicated in a widespread corruption
scandal. The videotapes have been portrayed as an attempt by Lucchetti
representatives to use Mr. Montesino's influence to intervene on behalf of
Lucchetti Peru in order to obtain a favorable judgment. Lucchetti has denied
that it acted improperly in the matter.

      In May 2001, criminal charges were filed before the Second Anti-Corruption
Court of Lima against certain Lucchetti representatives and Peruvian government
officials, alleging influence peddling in connection with the matter described
above. These charges have been denied by the individuals involved, and are still
being investigated by the court in order to determine whether or not there is
cause to warrant a trial. Since this time, efforts by the prosecution to broaden
the charges to include corruption were dismissed and may not be brought again.

      Although Lucchetti expects its representatives to prevail in the pending
legal proceedings, no assurances can be given as to the outcome of these or any
related proceeding or other actions which may be brought against Lucchetti, its
Peruvian subsidiary or their respective representatives relating to this matter.

      Lucchetti Peru

      On August 16, 2001, the Metropolitan Council of the Municipality of Lima
adopted a resolution to revoke Lucchetti's operating license that had been
previously granted by the Municipality of Chorrillos, and to require Lucchetti
to close its plant operations within twelve months and dismantle and remove the
plant facilities. The Municipal Council of the Municipality of Lima alleged that
the operation of the plant interfered with the special characteristics of an
adjacent wetlands area. The resolution was published in the Official Gazette of
Peru on August 21, 2001.

      On October 3, 2001, Lucchetti notified the Republic of Peru that it was
invoking the dispute resolution procedures of a bilateral investment treaty
between Chile and Peru, which requires a six-month period of consultations prior
to the formal initiation of any legal proceedings. The consultation period ended
on April 3, 2002 without a settlement. On August 16, 2002, Lucchetti requested
an extension of the term dictated by the Municipal resolution. This request was
rejected by the Metropolitan Council of the Municipality of Lima on December 16,
2002.


                                      124
<PAGE>

      On December 23, 2002, Lucchetti presented its request for arbitration to
the International Centre for Settlement of Investment Disputes ("ICSID") in
Washington D.C.

      On January 6, 2003, Lucchetti received an order by an official of the
Municipality of Chorrillos to immediately close the plant. Lucchetti proceeded
to close the plant and is currently in the process of liquidating its assets.

      On March 26, 2003, Lucchetti was notified by ICSID that its request for
the constitution of an arbitration tribunal had been accepted. Lucchetti is
seeking damages in connection with the loss of its investment in Peru, arguing
that there was a lack of technical and legal justification for the Municipality
to have adopted the resolution to close the plant. Although Lucchetti believes
that its case will prevail in the pending arbitration tribunal, the final
outcome of this matter cannot be determined at this time.

      Habitaria

      The Company's 50%-owned affiliate, Habitaria, was notified on January 14,
2003 of a lawsuit filed against the company for alleged construction defects and
false advertising. Habitaria believes that it develops and markets high quality
housing units, and that it will be able to make repairs and construction
upgrades in conjunction with the construction company responsible for building
the project on an extra-judicial basis. Habitaria considers the amount involved
is not significant to its operations and has not made a provision in its
financial statements.

      Dividend Policy

      A declaration of dividends is made to shareholders at a general ordinary
meeting. A dividend declaration is based upon a proposal made by the Board of
Directors. However, shareholders are not obligated to approve the board's
recommendation. The dividend policy of the Company is to distribute 30% of
annual net earnings as dividends. On April 30, 2003, a general ordinary meeting
was held. At that time, it was proposed and accepted that a dividend
distribution corresponding to the 2002 fiscal year would not be paid.

B. Significant Changes

      See "Item 4. Information on the Company -Summary of Developments in 2003"
for certain developments in 2003.

Item 9. The Offer and Listing

A. and C. Trading Information

      The Company's shares are traded on the Santiago Stock Exchange, the
Chilean Electronic Stock Exchange, and the Valparaiso Stock Exchange and since
June 1997 have been quoted on the New York Stock Exchange (the "NYSE") in the
form of American Depositary Shares. The Company conducted a preemptive rights
offering and United States offering of American Depositary Shares ("ADSs") in
June 1997 (the "Offerings"). Since the conclusion of the Offerings, the ADSs
(each ADS representing 10 shares) have been traded in the United States on the
NYSE under the symbol LQ. The ADSs are evidenced by American Depositary Receipts
("ADRs"). The ADRs are outstanding under a Deposit Agreement, dated as of June
24, 1997 (the "Deposit Agreement"), among the Company, Citibank N.A., as
depositary (the "Depositary"), and the holders from time to time of ADRs issued
there under. Only persons in whose names ADRs are registered on the books of the
Depositary are treated by the Depositary as owners of ADRs.


                                      125
<PAGE>

      The table below shows, for the period indicated, the high and low closing
prices in Chilean pesos for the Shares on the Santiago Stock Exchange and the
high and low closing prices of the ADS in U.S. dollars on the NYSE:

<TABLE>
<CAPTION>
                                 Santiago Stock Exchange(1)               NYSE
                                 --------------------------               ----
                                      Ch$ per Share                   US$ per ADS
  Annual                           High              Low        High                Low
                                   ----              ---        ----                ---
<S>                                <C>               <C>        <C>                <C>
  1998 .....................       570               215        13.25              4.00
  1999 .....................       621               310        12.00              6.00
  2000 .....................       795               390        14.63              6.75
  2001 .....................       545               347         8.00              5.48
  2002 .....................       490               245         7.40              3.30

  2001
  1st Quarter ..............       460               347         7.94              6.45
  2nd  Quarter .............       485               410         8.00              5.80
  3rd Quarter ..............       545               410         7.70              6.00
  4th  Quarter .............       500               382         7.47              5.48

  2002
  1st Quarter ..............       490               370         7.40              5.43
  2nd  Quarter .............       405               324         6.30              4.75
  3rd Quarter ..............       320               245         4.70              3.30
  4th  Quarter .............       350               262         4.85              3.60

  2003
  1st Quarter ..............       391               325         5.40              4.53
  January ..................       391               325         5.40              4.70
  February .................       370               350         5.09              4.80
  March ....................       376               340         4.86              4.53
  April ....................       410               325         5.93              4.54
  May ......................       458               410         6.45              5.90
  June (through June 17) ...       440               420         6.25              5.90
</TABLE>

----------
(1)   Pesos per Share and U.S. dollar per share reflected nominal price at trade
      date.

(2)   Shares began to trade on the Santiago Stock Exchange and the NYSE on June
      25, 1997.

      At December 31, 2002, ADRs evidencing 9,431,963 ADSs were outstanding
(equivalent to 94,319,630 shares, or 8.74% of the total number of issued
Shares). It is not practicable for the Company to determine the proportion of
ADRs beneficially owned by U.S. persons. At December 31, 2002, the Luksic Group
did not own ADRs of Quinenco.

      Madeco's shares are traded on the Chilean Stock Exchanges, and since 1993
have traded on the NYSE in the form of American Depositary Shares. CCU's shares
are traded on the Chilean Stock Exchanges and between 1992 and March 1999 had
been quoted on the NASDAQ National Market in the form of American Depositary
Shares. In March 1999, trading in CCU's American Depositary Shares moved to the
NYSE. Until December 31, 2001, Banco Edwards's shares were traded on the Chilean
Stock Exchanges, and since November 1995 were traded on the NYSE in the form of
American Depositary Shares. On January 1, 2002, as a result of its merger with
Banco de Chile, Banco Edwards shares were converted to Banco de Chile "F shares"
and on March 21, 2002, following the distribution of Banco Edwards' 2001 net
income, the "F shares were converted to Banco de Chile common shares. Banco de
Chile's shares have been traded on the Chilean Stock Exchanges since November
1996 and on the NYSE since January 2002. Since the last quarter of 2002, Banco
de Chile's shares also trade on the London Stock Exchange in the form of
American Depositary Shares and on the Madrid Latibex Stock


                                      126
<PAGE>

Exchange as ordinary shares. The shares of Lucchetti, Hoteles Carrera, Entel,
and Telsur are traded on the Chilean Stock Exchanges. The shares of Habitaria
are not publicly traded.

      Markets

      The Chilean Stock Market

      General

      The Chilean stock market, which is regulated by the Superintendencia de
Valores y Seguros (SVS) under Chile's Securities Market Law, is one of the most
developed among emerging markets, reflecting the particular economic history and
development of Chile. The Chilean government's policy of privatizing state-owned
companies, implemented during the 1980s, has led to an expansion of private
ownership of shares, resulting in an increase in the importance of stock
markets. This policy of privatization extended to the social security system,
which was converted into a privately managed pension fund system. These pension
funds have been allowed, subject to certain limitations, to invest in stocks and
are currently major investors in the stock market. Certain elements of the
market, including pension fund administrators, are highly regulated with respect
to investment and remuneration criteria, but the general market is less
regulated than the U.S. market with respect to disclosure requirements and
information usage. While the expectation is that stock market regulations and
practices will evolve, the Chilean stock market is still developing.

      History and Description

      The Santiago Stock Exchange was established in 1893. As of December 31,
2002, 245 companies had shares listed on the Santiago Stock Exchange. The
Santiago Stock Exchange is Chile's principal exchange, with transactions in 2002
which amounted to Ch$2,421,414 million. In Chile, shares may also be traded on
the Valparaiso Stock Exchange and the Chilean Electronic Stock Exchange.

      There are two share price indices for the Santiago Stock Exchange: The
General Share Price Index (the "IGPA") and the Selective Shares Price Index
("IPSA"). The IGPA index is calculated using the prices of companies traded on
the exchange, divided into five main sectors: banks and finance, farming and
forest products, mining, industrial, and miscellaneous. The IPSA is a major
company index, currently including the Exchange's 40 most active stocks. Shares
included in the IPSA are weighted according to the value of shares traded.

      The table below summarizes recent value and performance indicators for the
Santiago Stock Exchange.

<TABLE>
<CAPTION>
                                                             Annual                                Percent          Percent
                                              Market       Trading       IGPA         IPSA        Change in        Change in
At or for the Year Ended                Capitalization      Volume     Index (1)   Index (1)    IGPA Index (2)   IPSA Index (2)
------------------------                --------------      ------     ---------   ---------    --------------   --------------
                                       (in US$ millions)
<S>                                          <C>             <C>        <C>          <C>           <C>              <C>
December 31, 1998 .................          51,809          4,405      147.15       288.07        (28.37)%         (26.08)%
December 31, 1999 .................          68,193          6,601      206.76       402.78         40.51%           39.82%
December 31, 2000 .................          60,426          5,778      186.37       371.36         (9.86)%          (7.80)%
December 31, 2001 .................          56,857          4,111      201.30       394.72          8.01%            6.29%
December 31, 2002 .................          47,693          3,370      182.06       324.46         (9.56)%         (17.80)%
</TABLE>

----------
Source: Santiago Stock Exchange

(1)   Index base = 100 on December 31, 1980

(2)   In nominal peso terms.

      Volatility and Suspension of Trading


                                      127
<PAGE>

      The IPSA has increased at an average compounded annual rate of 5.1% for
the period 1999 to 2002. During 2002, the IPSA decreased by 17.80% in nominal
peso terms. As the table above shows, swings in market performance are often
significant and reflect the high level of volatility characteristic of the
Chilean stock market.

      According to Article 14 of the Securities Market Law, the SVS may suspend
the offer, quotation or trading of shares of any company listed on one or more
Chilean stock exchanges for up to 30 days if in its opinion such suspension is
necessary to protect investors or is justified for reasons of public interest.
Such suspension may be extended to 120 days. If, at the expiration of the
extension, the circumstances giving rise to the original suspension have not
changed, the SVS may then cancel the relevant listing in the Registry of
Securities.

      Liquidity

      The aggregate market value of equity securities listed on the Santiago
Stock Exchange as of December 31, 2002 was US$47.7 billion. The ten largest
companies in terms of market capitalization as of December 31, 2002 represented
approximately 47% of that exchange's aggregate market capitalization and
accounted for approximately 61% of total volume traded during 2002. Average
monthly trading volume for 2002 was US$281 million. (Comparatively, the NYSE had
an aggregate global market capitalization of approximately US$13.4 trillion at
December 31, 2002, and average daily reported share volume of approximately 1.5
billion).

      Foreign Ownership

      Foreign investment in Chile is governed by Decree Law No. 600 of 1974, as
amended ("Decree Law No. 600"), by the Central Bank Foreign Exchange Regulations
and by the Central Bank Act, law No. 18,840, which is an organic constitutional
law requiring a "special majority" vote of the Chilean Congress to be modified
(hereinafter referred to as the "Central Bank Act"). See "Item 10 D. Exchange
Controls". Foreign investment into Chile under Decree Law No. 600 may not be
remitted outside Chile earlier than one year after the initial investment.
According to new regulations issued by the Central Bank of Chile in May 2000 and
April 2001, if governed by Chapter XIV of the Central Bank Foreign Exchange
Regulations, the capital may be remitted outside Chile at any time. However, in
the case of investments made before May 2000, the capital must be kept in Chile
for one year. Earnings may be remitted at any time, whether under Decree Law No.
600 or Chapter XIV. Capital and earnings must be remitted through the Formal
Exchange Market.

      Notwithstanding the foregoing, an investment in Chilean shares by
foreigners through an ADR program is also governed by the Central Bank Act and
by Chapter XIV of the Central Bank Foreign Exchange Regulations, which do not
require a holding period before remitting capital or earnings abroad. See "Item
10 D. Exchange Controls".

      Foreign capital investment funds ("FCIFs") are governed by Law No. 18,657
and are permitted to receive preferential tax treatment. FCIFs are required to
obtain a favorable report issued by the SVS in order to conduct business in
Chile. FCIFs may not remit capital for five years following the investment of
such capital, although earnings may be remitted at any time. An FCIF may hold a
maximum of 5% of a given company's shares, although this can be increased to a
maximum of 10% if the excess over 5% corresponds to newly issued shares of such
company that are subscribed and paid by the FCIF. Furthermore, no more than 10%
of an FCIF's assets may be invested in a given company's stock, unless the
security is issued or guaranteed by the Republic of Chile or the Central Bank,
and no more than 25% of the outstanding shares of any listed company may be
owned by FCIFs, taken together. In addition, a FCIF may not own more than 40% of
the outstanding shares of the same conglomerate. For a description of Chilean
taxation, see "Item 10 E. Taxation".


                                      128
<PAGE>

Item 10. Additional Information

B. Memorandum and Articles of Association

      Pursuant to the requirements of the Chilean Corporations Law, and in
accordance with Law Number 18,046, the Company's articles of incorporation and
by-laws or estatutos, have been registered with the Securities Register
(Registro de Valores), under entry number 0594.

      For a description of the Company's share capital, including rights,
preferences and restrictions thereto, See "Description of Share Capital" in the
Registration Statement, Form F-1, filled with the Securities and Exchange
Commission on June 6, 1997.

C. Material Contracts

      Not applicable.

D. Exchange Controls

      The Central Bank of Chile is responsible for, among other things, monetary
policies and exchange controls in Chile. See "Item 3. Key Information - Exchange
Rates". Foreign investments can be registered with the Foreign Investment
Committee under Decree Law No. 600 - registration which grants the investor
access to the Formal Exchange Market - or with the Central Bank of Chile under
Chapter XIV of the Central Bank Foreign Exchange Regulations.

      Effective April 19, 2001, the Central Bank of Chile abrogated the then
existing Chapter XXVI of the Central Bank Foreign Exchange Regulations ("Chapter
XXVI"), which addressed issuances of ADSs by a Chilean company, and issued an
entirely new set of Foreign Exchange Regulations (the "2001 Foreign Exchange
Regulations"), virtually eliminating all the restrictions and limitations that
had been in force up to that date. The 2001 Foreign Exchange Regulations were
based upon the general principle that foreign exchange transactions can be done
freely in Chile by any person, notwithstanding the power conferred by law to the
Central Bank of Chile of imposing certain restrictions and limitations on such
transactions.

      With the issuance of the 2001 Foreign Exchange Regulations, the approval
by the Central Bank of Chile required for access to the Formal Exchange Market
was replaced with the requirement of disclosure of the relevant transactions to
the Central Bank of Chile. However, some foreign exchange transactions, notably
foreign loans, capital investment or deposits, continued to be subject to the
requirement of being effected through the Formal Exchange Market.

      The 2001 Foreign Exchange Regulations, among others, eliminated the
following restrictions:

      (1)   prior authorization by the Central Bank of Chile for the entry of
            capital in connection with foreign loans, investment, capital
            contribution, bonds and ADRs;

      (2)   prior authorization by the Central Bank of Chile for the remittance
            of capital in connection with repatriation of capital, dividends and
            other benefits related to capital contributions and investment, and
            prepayment of foreign loans;

      (3)   minimum risk classification restrictions and terms for the issuance
            of bonds;

      (4)   restrictions to the issuance of ADRs. Therefore, the rules
            established under Chapter XXVI of the previous Foreign Exchange
            Regulations were abrogated; and

      (5)   Mandatory Reserve deposits for foreign capital.


                                      129
<PAGE>

      The abrogation of Chapter XXVI by the 2001 Foreign Exchange Regulations
implied that the issuance of ADSs by a Chilean company remained subject to the
rules contained in Chapter XIV of such regulations, according to which credits,
deposits, investments and capital contributions coming from abroad must be
effected through the Formal Exchange Market.

      According to the 2001 Foreign Exchange Regulations, the foreign exchange
transactions performed before April 19, 2001, remained subject to the
regulations in effect at the time of the transactions, unless the interested
parties elected the applicability of the 2001 Foreign Exchange Regulations,
thereby expressly waiving the applicability of the regulations in force at the
time of the execution of the respective transaction.

      Effective March 1, 2002, the Central Bank of Chile has abrogated the then
existing Central Bank Foreign Exchange Regulations, i.e. the 2001 Foreign
Exchange Regulations, and issued an entirely new set of Foreign Exchange
Regulations (the "New Regulations"), thereby continuing the liberalization of
the foreign exchange regulations. As the 2001 Foreign Exchange Regulations, the
New Regulations are also based upon the general principle that foreign exchange
transactions can be done freely in Chile by any person, notwithstanding the
power conferred by law to the Central Bank of Chile of imposing certain
restrictions and limitations on such transactions.

      The New Regulations also require the disclosure of the relevant
transaction to the Central Bank of Chile and that some foreign exchange
transactions, notably foreign loans, capital investments or deposits, be
effected through the Formal Exchange Market.

      The issuance of ADSs by a Chilean company remains subject to the rules
contained in Chapter XIV. These rules were partly amended in the New
Regulations, which allow the use of proceeds from a foreign credit, deposit,
investment or capital contribution directly abroad, i.e., without delivering the
currency into Chile. The direct use abroad of the proceeds of a foreign credit,
deposit, investment or capital contribution remain subject to the obligation of
informing the Central Bank of Chile of the transaction.

      The New Regulations have also simplified the forms required to provide the
information to the Central Bank of Chile, so as to reduce the time needed to
effect foreign exchange transactions by foreign investors in Chile.

      The New Regulations contain a transitory norm establishing that foreign
exchange transactions performed before April 19, 2001, remain subject to the
regulations in effect at the time of the transactions, unless the interested
parties elect the applicability of the New Regulation, thereby expressly waiving
the applicability of the regulations in force at the time of the execution of
the relevant transaction.

      A Foreign Investment Contract was entered into among the Central Bank of
Chile, the Company and the Depositary pursuant to Article 47 of the Central Bank
Act and Chapter XXVI. According to Chilean law, a contract is ruled by the law
in effect at the time of the execution of the contract. Therefore, the Foreign
Investment Contract entered into among the Central Bank of Chile, the Company
and the Depositary is ruled by the foreign exchange regulations in force before
April 19, 2001, among which is Chapter XXVI.

      Absent the Foreign Investment Contract, under Chilean exchange controls in
force until April 19, 2001, investors would not have been granted access to the
Formal Exchange Market for the purpose of converting Chilean pesos to U.S.
dollars and repatriating from Chile amounts received in respect of deposited
shares or shares withdrawn from deposit on surrender of ADRs (including amounts
received as


                                      130
<PAGE>

cash dividends and proceeds from the sale in Chile of the underlying shares and
any rights with respect thereto). In December 1999, amendments were introduced
in Chapter XXVI whereby, among other things, the Central Bank of Chile was
authorized to reject applications under such regulations without expression of
cause. In resolving on such applications, the Central Bank of Chile was required
to take into account the situation of the balance of payments and the stability
of the capitals account. However, the Central Bank of Chile was authorized to
require certain conditions to the applicants prior to resolving on the
applications. In April 2000, Chapter XXVI was again amended in order to
incorporate, in addition to shares issued by Chilean corporations, quotes of
investment funds as eligible to be converted into ADSs. Chapter XXVI did not
require delivery of a new application in case of the entry of U.S. dollars
intended for the acquisition of shares not subscribed by the shareholders or by
the transferees of the options to subscribe the shares.

      Under Chapter XXVI and the Foreign Investment Contract, the Central Bank
of Chile agreed to grant to the Depositary, on behalf of ADR holders, and to any
non-Chilean resident investor who withdrew Shares upon surrender of ADRs (such
Shares being referred to herein as "Withdrawn Shares") access to the Formal
Exchange Market to convert Chilean pesos to U.S. dollars (and to remit such
dollars outside of Chile) in respect of Shares represented by ADSs or Withdrawn
Shares, including amounts received as (a) cash dividends, (b) proceeds from the
sale in Chile of Withdrawn Shares (subject to receipt by the Central Bank of
Chile of a certificate from the holder of the Withdrawn Shares (or from an
institution authorized by the Central Bank of Chile) that such holder's
residence and domicile were outside Chile and a certificate from a Chilean stock
exchange (or from a brokerage or securities firm established in Chile) that such
Withdrawn Shares had been sold on a Chilean exchange), (c) proceeds from the
sale in Chile of pre-emptive rights to subscribe for and purchase additional
Shares, (d) proceeds from the liquidation, merger or consolidation of the
Company and (e) other distributions, including, without limitation, those
resulting from any recapitalization, as a result of holding Shares represented
by ADSs or Withdrawn Shares. Access to the Formal Exchange Market in the case of
(a), (b), (c) and (d) above would be available for only five working days
following the sale of the shares on the stock exchange. Transferees of Withdrawn
Shares would not be entitled to any of the foregoing rights under Chapter XXVI
unless the Withdrawn Shares were redeposited with the Custodian. Investors
receiving Withdrawn Shares in exchange for ADRs would have the right to
redeposit such Shares in exchange for ADRs, provided that certain conditions to
redeposit were satisfied. For a description of the Formal Exchange Market, see
"3A Exchange Rates". Alternatively, according to the amendments introduced to
Chapter XXVI in December 1999, in case of Withdrawn Shares and their subsequent
sale in a stock exchange, the Chilean peso proceeds obtained thereby could be
converted into U.S. dollars in a market different from the Formal Exchange
Market within five business days from the date of the sale.

      Chapter XXVI provided that access to the Formal Exchange Market in
connection with the sale of Withdrawn Shares or distributions thereon would be
conditioned upon receipt by the Central Bank of Chile of a certification by the
Depositary or the Custodian, as the case might have been, that such Shares had
been withdrawn in exchange for delivery of the pertinent ADRs and receipt of a
waiver of the benefits of the Foreign Investment Contract with respect thereto
(except in connection with the proposed sale of the Shares) until such Withdrawn
Shares were redeposited. Chapter XXVI also provided that access to the Formal
Exchange Market in connection with dividend payments was conditioned on
certification by the Company to the Central Bank of Chile that a dividend
payment had been made. The provision contained in Chapter XXVI that established
that access to the Formal Exchange Market in connection with dividend payments
was conditioned on certification by the Company to the Central Bank of Chile
that any applicable tax had been withheld was eliminated on November 23, 2000.

      Chapter XXVI and the Foreign Investment Contract provided that a person
who brought foreign currency into Chile, including U.S. dollars, to purchase
Shares entitled to the benefit of the Foreign Investment Contract was required
to convert such foreign currency into Chilean pesos on the same date


                                      131
<PAGE>

and had five banking business days within which to invest in Shares in order to
receive the benefit of the Foreign Investment Contract. If such person decided
within such period not to acquire Shares, such person could access the Formal
Exchange Market to reacquire foreign currency, provided that the applicable
request was presented to the Central Bank of Chile within seven banking days of
the initial conversion into pesos. Shares acquired as described above could be
deposited in exchange for ADRs and receive the benefit of the Foreign Investment
Contract, subject to receipt by the Central Bank of Chile of a certificate from
the Depositary that such deposit had been effected and that the related ADRs had
been issued and receipt by the Custodian of a declaration from the person making
such deposit waiving the benefit of the Foreign Investment Contract with respect
to the deposited Shares.

      Chapter XXVI required foreign investors acquiring shares or securities in
Chile to maintain a mandatory reserve (the "Mandatory Reserve") for one year in
the form of a non-interest bearing U.S. dollar deposit with the Central Bank, or
to pay to the Central Bank a non-refundable fee (the "Fee"). Such reserve
requirement was imposed with respect to investments made by foreign investors to
acquire shares or securities in the secondary market, but did not apply to
capital contributions made for purposes of paying-in capital for a newly created
company or increasing the capital of an existing company. As of June 1, 1999,
the Mandatory Reserve was not applied to foreign investments made for purposes
of acquiring shares of a stock corporation, provided that the investor was
entitled to the benefit of Chapter XXVI, and that such acquisition was
consummated in accordance with the provisions of Chapter XXVI. On September 17,
1998, the Central Bank of Chile reduced the Mandatory Reserve to 0%.

      Access to the Formal Exchange Market under any of the circumstances
described above was not automatic. Pursuant to Chapter XXVI, such access
required approval of the Central Bank of Chile based on a request presented
through a banking institution established in Chile within five business days
from the occurrence of any of the events described in letters (a), (b), (c) and
(d) above. Pursuant to the Foreign Investment Contract, if the Central Bank of
Chile had not acted on such request within seven banking days, the request would
be deemed approved.

      Under current Chilean law, the Foreign Investment Contract cannot be
changed unilaterally by the Central Bank of Chile. No assurance can be given,
however, that new restrictions applicable to the holders of ADRs, the
disposition of underlying Shares or the repatriation of the proceeds from such
disposition will not be reinstated in the future by the Central Bank of Chile,
nor can there be any assessment of the possible duration or impact of such
restrictions.

E. Taxation

Chilean Tax Considerations

      The following discussion relates to Chilean income tax laws presently in
force, including Ruling No. 324 of January 29, 1990 of the Chilean Internal
Revenue Service and other applicable regulations and rulings in effect on the
date of this Annual Report, all of which are subject to change. The discussion
summarizes the principal Chilean income tax consequences of an investment in the
ADSs or Shares by a person who is neither domiciled in nor a resident of Chile
or by a legal entity that is not organized under the laws of Chile and does not
have a permanent establishment located in Chile (any such individual or entity,
a "Foreign Holder"). For purposes of Chilean tax law, an individual holder is a
resident of Chile if he has resided in Chile for more than six consecutive
months in one calendar year or for a total of six months, whether consecutive or
not, in two consecutive tax years. The discussion is not intended as tax advice
to any particular investor, which can be rendered only in light of that
investor's particular tax situation.

      Under Chilean law, provisions contained in statutes such as tax rates
applicable to foreign investors, the computation of taxable income for Chilean
purposes and the manner in which Chilean


                                      132
<PAGE>

taxes are imposed and collected may only be amended by another statute. In
addition, the Chilean tax authorities enact rulings and regulations of either
general or specific application and interpret the provisions of Chilean tax law.
Chilean tax may not be assessed retroactively against taxpayers who act in good
faith relying on such rulings, regulations and interpretations, but Chilean tax
authorities may change these rulings, regulations and interpretations
prospectively. There is no income tax treaty in force between Chile and the
United States.

Cash Dividends and Other Distributions

      Cash dividends paid by Quinenco with respect to the ADSs or Shares held by
a Foreign Holder will be subject to a 35% Chilean withholding tax, which is
withheld and paid over to the Chilean tax authorities by Quinenco (the
"Withholding Tax"). If the dividends, however, are paid to a Chilean Bank under
whose name the Shares are registered by power of attorney, such bank will be
liable for withholding and paying the Withholding Tax once the cash dividends
are remitted to the bank's principal. A credit against the Withholding Tax is
available based on the level of corporate income tax actually paid by Quinenco
on the income to be distributed (the "First Category Tax"); however, this credit
does not reduce the Withholding Tax on a one-for-one basis because it also
increases the base on which the Withholding Tax is imposed. In addition, if
Quinenco distributes less than all of its distributable income, the credit for
First-Category Tax paid by Quinenco is proportionally reduced. Presently, the
First Category Tax rate is 16.5. The example below illustrates the effective
Chilean Withholding Tax burden on a cash dividend received by a foreign holder,
assuming a Withholding Tax rate of 35%, an effective First-Category Tax rate of
16.5% and a distribution of 30% of the consolidated net income of Quinenco
distributable after payment of the First-Category Tax:

<TABLE>
<S>                                                                                                              <C>
            Quinenco taxable income ..................................................................             100
            First Category Tax (16.5% of Ch$100) .....................................................           (16.5)
                                                                                                                 -----
            Net distributable income .................................................................            83.5
                                                                                                                 -----
            Dividend distributed (30% of net distributable income) ...................................           25.05
            Withholding Tax (35% of the sum of Ch$25.05 dividend plus Ch$4.95
               First-Category Tax paid) ..............................................................           (10.5)
            Credit for 30% of First-Category Tax .....................................................            4.95
                                                                                                                 -----
            Net additional tax withheld ..............................................................           (5.55)
                                                                                                                 -----
            Net dividend received ....................................................................            19.5
                                                                                                                 -----
            Effective dividend withholding rate ......................................................           22.16%
                                                                                                                 =====
</TABLE>

      In general, the effective dividend Withholding Tax rate, after giving
effect to the credit for the First-Category Tax, can be calculated using the
following formula:

<TABLE>
<S>                                                 <C>
                                                    (Withholding Tax Rate) - (First Category Tax Rate)
                                                    --------------------------------------------------
      Effective dividend Withholding Tax rate =                 1 - (First Category Tax Rate)
</TABLE>

      Under Chilean income tax law, dividends generally are assumed to have been
paid out of the Company's oldest retained profits for purposes of determining
the level of First-Category Tax that was paid by the Company. For information as
to the retained earnings of the Company for tax purposes and the tax credit
available on the distribution of such retained earnings, see Note 24 to the
Audited Consolidated Financial Statements. The effective rate of Withholding Tax
to be imposed on dividends paid by Quinenco will vary depending upon the amount
of First Category Tax paid by the Company on the earnings to which the dividends
are attributed. The effective rate for dividends attributed to earnings from
1991 until 2001, for which the First Category Tax was 15%, generally was 23.5%.
For 2002, the First Category Tax rate was 16%, which resulted in an effective
rate of Withholding Tax of 22.6%. In


                                      133
<PAGE>

2003, the First Category Tax rate is 16.5%, resulting in an effective rate of
Withholding Tax of 22.16%, and from 2004 onwards, the First Category Tax rate
will be 17%.

      For dividends attributable to the Company's profits during years when the
First-Category Tax was 10% (before 1991), the effective dividend Withholding Tax
rate will be 27.8%. However, whether the First-Category Tax is 10%, 15%, 16%,
16.5% or 17%, the effective overall combined tax rate imposed on the Company's
distributed profits will be 35%.

      Dividend distributions made in property would be subject to the same
Chilean tax rules as cash dividends based on the fair market value of such
property. Stock dividends and the distribution of preemptive rights are not
subject to Chilean taxation.

Capital Gains

      Gain from the sale or other disposition by a Foreign Holder of ADSs (or
ADRs evidencing ADSs) outside Chile will not be subject to Chilean taxation. The
deposit and withdrawal of Shares in exchange for ADRs will not be subject to any
Chilean taxes.

      Gain recognized on a sale or exchange of Shares (as distinguished from
sales or exchanges of ADRs evidencing ADSs representing such Shares) may be
subject to both the First-Category Tax and the Withholding Tax (the former being
creditable against the latter) if either, (i) the Foreign Holder has held the
Shares for less than one year since exchanging ADSs for the Shares, (ii) the
Foreign Holder acquired and disposed of the Shares in the ordinary course of its
business or as a habitual trader of shares, or (iii) the Foreign Holder and the
purchaser of the Shares are "related parties" within the meaning of Article 17,
Number 8, of Decree Law N(0) 824 of 1974, the Chilean Income Tax Law. In all
other cases, gain on the disposition of Shares will be subject only to a capital
gains tax which is assessed at the same rate as the First Category Tax
(currently imposed at a rate of 16.5%).

      Gain recognized in the transfer of Shares that have a high presence in the
stock exchange, however, is not subject to capital gains tax in Chile, provided
that the Shares are transferred in a local stock exchange, in other authorized
stock exchanges (up to this date, the New York Stock Exchange, the London Stock
Exchange and the Madrid Stock Exchange have been authorized for these purposes),
or within the process of a public tender of shares governed by the Chilean
Securities Market Act. The Shares must also have been acquired either in a stock
exchange, within the referred process of a public tender of shares governed by
the Chilean Securities Market Act, in an initial public offer of shares
resulting from the formation of a corporation or a capital increase of the same,
or in an exchange of convertible bonds. Shares are considered to have a high
presence in the stock exchange when they (i) are registered in the Securities
Registry, (ii) are registered in a Chilean Stock exchange, and (iii) have an
adjusted presence equal to or above 25%. To calculate the adjusted presence of a
particular Share, the aforementioned regulation states that, the number of days
in which the operations regarding the stock exceeded, in Chilean pesos, the
equivalent of UF200 (approximately US$4,800) within the previous 180 business
days of the stock market. That number must then be divided by 180, multiplied by
100, and expressed in a percentage value. The referred tax regime does not apply
in case the transaction involves an amount of Shares that would allow the
acquirer to take control of the publicly traded corporation, in which case the
ordinary tax regime referred in the previous paragraph will apply, unless the
sale complies with one of the following conditions: (i) the transfer is part of
a tender offer governed by the Chilean Securities Market Act; or (ii) the
transfer is done in a Chilean stock exchange, without substantially exceeding
the market price.

      Capital gains obtained in the sale of shares that are publicly traded in a
stock exchange are also exempt from capital gains tax in Chile when the sale is
made by "foreign institutional investors", such as


                                      134
<PAGE>

mutual funds and pension funds, provided that the sale is made in a stock
exchange or in accordance with the provisions of the Securities Market Law, or
in any other form authorized by the Superintendencia de Valores y Seguros ( the
SVS is equivalent to the Securities and Exchange Commission in the U.S.). To
qualify as a foreign institutional investor, the referred entities must be
formed outside of Chile, not have a domicile in Chile, and they must be at least
one of the following:

      (a)   An investment fund that offers its shares or quotas publicly in a
            country with an investment grade for its public debt, according to a
            classification performed by an international risk classification
            entity registered with the SVS;

      (b)   An investment fund registered with a regulatory agency or authority
            from a country with an investment grade for its public debt,
            according to a classification performed by an international risk
            classification entity registered with the SVS, provided that its
            investments in Chile constitute less than 30% of the share value of
            the fund, including deeds issued abroad representing Chilean
            securities, such as ADRs of Chilean companies;

      (c)   An investment fund whose investments in Chile represent less than
            30% of the share value of the fund, including deeds issued abroad
            representing Chilean securities, such as ADRs of Chilean companies,
            provided that not more than 10% of the share value of the fund is
            directly or indirectly owned by Chilean residents;

      (d)   A pension fund, i.e., those formed exclusively by natural persons
            that receive pensions out of an accumulated capital in the fund;

      (e)   A Foreign Capital Investment Fund, as defined in Law N(0) 18.657; or

      (f)   Any other foreign institutional investor that complies with the
            requirements set forth through general regulations for each category
            of investor, prior information from the SVS and the Chilean tax
            authority or Servicio de Impuestos Internos ("SII").

      The foreign institutional investor must not directly or indirectly
participate in the control of the corporations issuing the shares it invests in
nor possess or participate in 10% or more of the capital or the profits of the
same corporations.

      Other requirements for the exemption to apply are that the referred
foreign institutional investors must execute a written contract with a bank or a
stock broker, both incorporated in Chile. In this contract, the bank or stock
broker undertake to perform the purchase and sale orders, as well as to verify
the applicability of the tax exemption and inform the SII of the investors it
operates with and the transactions it performs. Finally, the foreign
institutional investor must register with the SII by means of a sworn statement
issued by the entities referred above (bank or stock broker).

      The tax basis of Shares received in exchange for ADRs will be the
acquisition value of the Shares on the date of exchange. The valuation procedure
set forth in the Deposit Agreement, which values Shares which are being
exchanged at the highest price at which they trade on the Santiago Stock
Exchange on the date of the exchange, will determine the acquisition value for
this purpose. Consequently, the surrender of ADRs for Shares and the immediate
sale of the Shares for the value established under the Deposit Agreement will
not generate a capital gain subject to taxation in Chile.

      The exercise of preemptive rights relating to the Shares will not be
subject to Chilean taxation. Any gain on the sale of preemptive rights relating
to the Shares will be subject to both the First-Category Tax and the Withholding
Tax (the former being creditable against the latter).


                                      135
<PAGE>

Other Chilean Taxes

      There are no Chilean inheritance, gift or succession taxes applicable to
the ownership, transfer or disposition of ADSs by a Foreign Holder, but such
taxes generally will apply to the transfer at death or by gift of the Shares by
a Foreign Holder. There are no Chilean stamp, issue, registration or similar
taxes or duties payable by Foreign Holders of ADSs or Shares.

Withholding Tax Certificates

      Upon request, Quinenco will provide to Foreign Holders appropriate
documentation evidencing the payment of the Chilean Withholding Tax (net of
applicable First Category Tax).

United States Tax Considerations

      The following is a summary of certain United States federal income tax
consequences of the ownership of Shares or ADSs by an investor that is a U.S.
Holder (as defined below) that holds the Shares or ADSs as capital assets. This
summary does not purport to address all material tax consequences of the
ownership of Shares or ADSs, and does not take into account the specific
circumstances of any particular investors (such as tax-exempt entities, certain
insurance companies, broker-dealers, traders in securities that elect to mark to
market, investors liable for alternative minimum tax, investors that actually or
constructively own 10% or more of the voting stock of the Company, investors
that hold Shares or ADSs as part of a straddle or a hedging or conversion
transaction or U.S. Holders (as defined below) whose functional currency is not
the U.S. dollar), some of which may be subject to special rules. This summary is
based on the tax laws of the United States (including the Internal Revenue Code
of 1986, as amended, its legislative history, existing and proposed regulations
there under, published rulings and court decisions) as in effect on the date
hereof, all of which are subject to change (or changes in interpretation),
possibly with retroactive effect.

      For purposes of this discussion, a "U.S. Holder" is any beneficial owner
of Shares or ADSs that is (i) a citizen or resident of the United States, (ii) a
corporation or partnership organized under the laws of the United States or any
State, (iii) an estate whose income is subject to United States federal income
tax regardless of its source or (iv) a trust if a United States court can
exercise primary supervision over the trust's administration and one or more
United States persons are authorized to control all substantial decisions of the
trust. The discussion does not address any aspects of United States taxation
other than federal income taxation. Investors are urged to consult their tax
advisors regarding the United States federal, state and local and other tax
consequences of owning and disposing of Shares and ADSs.

      In general, assuming that the representations of the Depositary are true
and that each obligation in the Deposit Agreement and any related agreement will
be performed in accordance with its terms, for United States federal income tax
purposes, holders of ADRs evidencing ADSs will be treated as the owners of the
Shares represented by those ADSs, and exchanges of Shares for ADSs, and ADSs for
Shares, will not be subject to United States federal income tax.

      Cash Dividends and Other Distributions

      Under the United States federal income tax laws, and subject to the
passive foreign investment company ("PFIC") rules discussed below, U.S. Holders
will include in gross income the gross amount of any dividend paid (after
reduction for any Chilean First-Category Tax that is credited against Chilean
Withholding Tax, but before reduction for the net amount of Chilean Withholding
Tax) by the Company out of its current or accumulated earnings and profits (as
determined for United States federal income tax purposes) as ordinary income
when the dividend is actually or constructively received by the U.S. Holder, in
the case of Shares, or by the Depositary, in the case of ADSs. The dividend will
not be


                                      136
<PAGE>

eligible for the dividends-received deduction. Dividends paid to a U.S. Holder
that is a corporation are not eligible for the dividends received deduction
available to corporations. New tax legislation signed into law on May 28, 2003,
provides for a maximum 15% United States tax rate on the dividend income of an
individual U.S. Holder with respect to dividends paid by a domestic corporation
or "qualified foreign corporation." A qualified foreign corporation generally
includes a foreign corporation if (i) its shares (or, according to the
legislative history of the new legislation, its ADSs) are readily tradable on an
established securities market in the United States or (ii) it is eligible for
benefits under a comprehensive United States income tax treaty. The ADSs are
traded on the New York Stock Exchange. As a result, the Company may be treated
as a qualified foreign corporation. However, if the Company is treated as a
PFIC, as discussed below, it will not be a qualified foreign corporation. If the
Company is a qualified foreign corporation, dividends paid to an individual U.S.
Holder with respect to Shares or ADSs should, subject to generally applicable
limitations, be taxed at a maximum rate of 15%. The maximum 15% tax rate is
effective with respect to dividends included in income during the period
beginning on or after January 1, 2003, and ending December 31, 2008. However,
due to the absence of specific statutory or regulatory provisions addressing the
ADSs, there can be no assurance that such reduced rate will apply and each U.S.
Holder should consult its own tax advisor regarding the treatment of dividends.
The amount of the dividend distribution includible in income of a U.S. Holder
will be the U.S. dollar value of the Chilean peso payments made, determined at
the spot Chilean peso/U.S. dollar rate on the date such dividend distribution is
includible in the income of the U.S. Holder, regardless of whether the payment
is in fact converted into U.S. dollars. Generally, any gain or loss resulting
from currency exchange fluctuations during the period from the date the dividend
payment is includible in income to the date such payment is converted into U.S.
dollars will be treated as ordinary income or loss. Such gain or loss will
generally be from sources within the United States for foreign tax credit
limitation purposes.

      Subject to certain generally applicable limitations, the net amount of
Chilean Withholding Tax (after reduction for the credit for Chilean
First-Category Tax) paid over to Chile will be creditable against the U.S.
Holder's United States federal income tax liability. For foreign tax credit
limitation purposes, the dividend will be income from sources without the United
States. In the case of U.S. individuals, if the reduced rate of tax on dividends
applies to such holder, such limitations and restrictions will appropriately
take into account the rate differential under rules similar to section
904(b)(2)(B) of the Internal Revenue Code. The rules governing foreign tax
credits are complex and U.S. Holders should consult their tax advisors regarding
their application to the particular circumstances of such holder.

      Pro rata distributions of Shares or preemptive rights generally are not
subject to United States federal income tax. The basis of the new Shares or
preemptive rights (if such rights are exercised or sold) generally will be
determined by allocating the U.S. Holder's adjusted basis in the old shares
between the old Shares and the new Shares or preemptive rights received, based
on their relative fair market values on the date of distribution (except that
the basis of the preemptive rights will be zero if the fair market value of the
rights is less than 15% of the fair market value of the old Shares at the time
of distribution, unless the U.S. Holder irrevocably elects to allocate basis
between the old Shares and the preemptive rights). The holding period of a U.S.
Holder for the new Shares or preemptive rights will include the U.S. Holders
holding period for the old Shares with respect to which the new Shares or
preemptive rights were issued.

      Capital Gains

      U.S. Holders will not recognize gain or loss on deposits or withdrawals of
Shares in exchange for ADSs or on the exercise of preemptive rights. U.S.
Holders will recognize capital gain or loss on the sale or other disposition of
ADSs or Shares (or preemptive rights with respect to such Shares) held by the
U.S. Holder or by the Depositary equal to the difference between the amount
realized and the U.S.


                                      137
<PAGE>

Holder's tax basis in the ADSs or Shares. Any gain recognized by a U.S. Holder
generally will be treated as United States source income. Consequently, in the
case of a disposition of Shares or preemptive rights (which, unlike a
disposition of ADRs, will be taxable in Chile), the U.S. Holder may not be able
to claim the foreign tax credit for Chilean tax imposed on the gain unless it
appropriately can apply the credit against tax due on other income from foreign
sources. Loss generally would be treated as United States source loss. With
respect to sales occurring on or after May 6, 2003, but before January 1, 2009,
the long-term capital gain tax rate for an individual U.S. Holder is 15%. For
sales occurring before May 6, 2003, or after December 31, 2008, under current
law the long-term capital gain rate for an individual U.S. Holder is 20%.

      PFIC Rules

      Quinenco believes that it should not be treated as a passive foreign
investment company (a "PFIC") for United States federal income tax purposes,
although this conclusion is subject to some uncertainty given the lack of
definitive asset values for non publicly-traded or illiquid assets. This
conclusion is a factual determination made annually and thus may be subject to
change.

      In general, the Company will be a PFIC with respect to a U.S. Holder if,
for any taxable year in which the U.S. Holder held the Company's ADSs or Shares,
either (i) at least 75% of the gross income of the Company for the taxable year
is passive income or (ii) at least 50% of the value (determined on the basis of
a quarterly average) of the Company's assets is attributable to assets that
produce or are held for the production of passive income. For this purpose,
passive income generally includes dividends, interest, royalties, rents (other
than certain rents and royalties derived in the active conduct of a trade or
business), annuities and gains from assets that produce passive income. If a
foreign corporation owns at least 25% by value of the stock of another
corporation, the foreign corporation is treated for purposes of the PFIC tests
as owning its proportional share of the assets of the other corporation, and as
receiving directly its proportional share of the other corporation's income. If
the Company is treated as a PFIC, a U.S. Holder would be subject to special
rules with respect to (a) any gain realized on the sale or other disposition of
Shares or ADSs and (b) any "excess distribution" by the Company to the U.S.
Holder (generally, any distributions to the U.S. Holder in respect of the Shares
or ADSs during a single taxable year that are greater than 125% of the average
annual distributions received by the U.S. Holder in respect of the Shares or
ADSs during the three preceding taxable years or, if shorter, the U.S. Holder's
holding period for the Shares or ADSs). Under these rules, (i) the gain or
excess distribution would be allocated ratably over the U.S. Holder's holding
period for the Shares or ADSs, (ii) the amount allocated to the taxable year in
which the gain or excess distribution was realized would be taxable as ordinary
income, (iii) the amount allocated to each prior year, with certain exceptions,
would be subject to tax at the highest tax rate in effect for that year and (iv)
the interest charge generally applicable to underpayments of tax would be
imposed in respect of the tax attributable to each such year.

      Special rules apply with respect to the calculation of the amount of the
foreign tax credit with respect to excess distributions by a PFIC.

      If the Company is treated as a PFIC, a U.S. Holder may be able to make a
mark-to-market election if the Company's stock is treated as regularly traded on
a registered national securities exchange or other exchange to the extent
permitted by the IRS. If the election is made, the PFIC rules described above
will not apply. Instead, in general, the electing U.S. Holder will be required
to include as ordinary income each year the excess, if any, of the fair market
value of the Shares or ADSs at the end of the taxable year over the U.S.
Holder's adjusted tax basis in the Shares or ADSs. The electing U.S. Holder will
also be allowed to take an ordinary loss in respect of the excess, if any, of
the adjusted tax basis in the Shares or ADSs over their fair market value at the
end of the taxable year (but only to the extent of the net amount of income
previously included as a result of the mark-to-market election). An electing


                                      138
<PAGE>

U.S. Holder's tax basis in the Shares or ADSs will be adjusted to reflect any
such income or loss amounts.

      Alternatively, a U.S. holder of shares or ADSs in a PFIC can sometimes
avoid the rules described above by electing to treat the company as a "qualified
electing fund" under section 1295 of the Internal Revenue Code. This option will
not be available to U.S. Holders because the Company does not intend to comply
with the requirements necessary to permit a U.S. Holder to make this election.
U.S. Holders should consult their own tax advisors concerning the U.S. federal
income tax consequences of holding Shares or ADSs if the Company is considered a
passive foreign investment company in any taxable year.

      Information Reporting and Backup Withholding

      Dividends in respect of the Shares or ADSs and proceeds from the sale,
exchange, or redemption of the Shares or ADSs may be subject to information
reporting to the United States Internal Revenue Service and a backup withholding
tax of 28% may apply unless the U.S. Holder furnishes a correct taxpayer
identification number or certificate of foreign status or is otherwise exempt
from backup withholding. Generally, a U.S. Holder will provide such
certification on Form W-9 and a non-U.S. Holder will provide such certification
on Form W-8BEN.

F. Documents on Display

      All Company documents referred to in this Annual Report may be inspected
at the Company's offices, located at Enrique Foster 20, 14th Floor, Las Condes,
Santiago, Chile.

Item 11. Quantitative and Qualitative Disclosures About Market Risk

      The following discussion about the Company's risk management activities
includes "forward-looking statements" that involve risk and uncertainties.
Actual results could differ materially from those projected in the
forward-looking statements.

      The Company faces material market risk exposures in four categories:
interest rate risk, exchange rate risk, equity price risk and commodity price
risk. None of the instruments, equity securities or commodities discussed below
were entered into, acquired or held by the Company for trading purposes.

      Interest Rate Risk

      Of the Company's long-term interest bearing debt at December 31, 2002,
Ch$294,008 million was fixed rate and Ch$344,145 million was variable rate;
78.0% of the Company's long-term interest bearing debt with fixed rate was
indexed to the UF, 0.4% was indexed to the Chilean peso and 21.6% was indexed to
foreign currencies. The Company's long-term interest bearing debt with variable
rates was 64.9% indexed to the UF, 35.0% was dollar-denominated and tied to the
LIBOR and 0.1% was other-denominated.

      The following table summarizes the debt obligations held by the Company at
December 31, 2002. The table presents principal payments obligations in
thousands of Chilean pesos categorized by maturity date and the related
weighted-average interest rates. U.S. dollar-denominated liabilities and
notional amounts have been converted to Chilean pesos based on the observed
exchange rate of December 31, 2002, which was US$1.00 = Ch$718.61.


                                      139
<PAGE>

<TABLE>
<CAPTION>
                                                                       Expected Maturity Date
                                         ---------------------------------------------------------------------------------
On Balance Sheet Financial                                                                                        2008 and
      Instruments                           2003           2004          2005        2006           2007         thereafter
      -----------                           ----           ----          ----        ----           ----         ----------
                                                                            (in thousands)
<S>                                <C>                 <C>            <C>          <C>            <C>             <C>
LONG-TERM DEBT

Fixed rate

US$-denominated                    Ch$   57,419,158     4,917,506        382,643           --             --              --

Weighted average interest rate                 5.37%         6.09%          5.97%          --             --              --

UF-denominated                     Ch$   20,414,300    44,473,186     23,095,847   22,671,491     20,109,448      98,691,831

Weighted average interest rate                 6.34%         6.39%          5.94%        5.77%          6.03%           6.41%

Ch$-denominated                    Ch$       32,716       389,273        282,729      220,899        220,899              --

Weighted average interest rate                 6.46%           --             --           --             --              --

Other-denominated                  Ch$      412,091       273,859             --           --             --              --

Weighted average interest rate                 3.26%           --             --           --             --              --

Sub-total                          Ch$   78,278,265    50,053,824     23,761,219   22,892,390     20,330,347      98,691,831

Variable rate

US$-denominated                    Ch$   17,769,390    33,476,960     64,315,595    5,173,992             --              --

Weighted average interest rate                 3.61%         3.54%          3.32%        3.61%            --              --

UF-denominated                           39,880,310    83,388,884     40,385,384   32,758,493      5,376,141      21,424,136

Weighted average interest rate     Ch$         4.31%         4.14%          4.28%        3.88%          4.70%           5.26%

Other-denominated                                --       126,607         69,481           --             --              --

Weighted average interest rate     Ch$           --         13.28%         13.29%          --             --              --

Sub-total                          Ch$   57,649,700   116,992,451    104,770,460   37,932,485      5,376,141      21,424,136
                                     --------------   -----------    -----------   ----------     ----------     -----------

Total                              Ch$  135,927,965   167,046,275    128,531,679   60,824,875     25,706,488     120,115,967
                                     ==============   ===========    ===========   ==========     ==========     ===========

<CAPTION>


On Balance Sheet Financial                              Fair
      Instruments                       Total           Value
      -----------                       -----           -----

<S>                                  <C>             <C>
LONG-TERM DEBT

Fixed rate

US$-denominated                       62,719,307      63,586,693

Weighted average interest rate              5.43%

UF-denominated                       229,456,103     236,504,680

Weighted average interest rate              6.25%

Ch$-denominated                        1,146,516         900,115

Weighted average interest rate             0,18%

Other-denominated                        685,950         664,294

Weighted average interest rate              1,96%

Sub-total                            294,007,876     301,655,782

Variable rate

US$-denominated                      120,735,937     121,240,281

Weighted average interest rate              3.44%

UF-denominated                       223,213,348     214,608,061

Weighted average interest rate              4.28%

Other-denominated                        196,088         196,088

Weighted average interest rate             13.29%

Sub-total                            344,145,373     336,044,430
                                     -----------     -----------

Total                                638,153,249     637,700,212
                                     ===========     ===========
</TABLE>

      Foreign Currency Exchange Rate Risk

      At December 31, 2002, approximately 33.2% of the Company's short and
long-term interest bearing debt of Ch$745,482 million was exposed to risk from
exchange rate fluctuations between the Chilean peso and the U.S. dollar. As of
December 31, 2002, the Company had entered into 90 day forward contracts for
Ch$77,470 million (equivalent to US$107.8 million) to limit the exposure to
fluctuations between the Chilean peso and the U.S. dollar. As of the same date,
the Company had entered into forward and swap contracts with maturities of 90
days and 270 days for Ch$15,893 million (equivalent to US$22.1 million) to limit
the exposure between the U.S. dollar and the Brazilian real. In addition,
certain liabilities are considered hedge instruments of investments abroad, in
accordance with Technical Bulletin 64.

      The following table summarizes the debt obligations sensitive to foreign
currency exchange rates held by the Company at December 31, 2002 by maturity
date. The table presents principal payment obligations in thousands of Chilean
pesos by maturity date. The U.S. dollar-denominated debt, which


                                      140
<PAGE>

have been converted to Chilean pesos based on the observed exchange rate of
December 31, 2002, was US$1.00 = Ch$718.61.

<TABLE>
<CAPTION>
                                                                        Expected Maturity Date
                                        ------------------------------------------------------------------------------

On Balance Sheet Financial                                                                                   2008 and
      Instruments                           2003            2004          2005          2006        2007    thereafter     Total
      -----------                           ----            ----          ----          ----        ----    ----------     -----
                                                                       (in thousands)
<S>                             <C>                      <C>           <C>           <C>              <C>       <C>     <C>
US$-denominated                 Ch$     139,217,056      38,394,466    64,698,238    5,173,992        --        --      247,483,752

Other currencies                Ch$       2,339,971         400,466        69,481           --        --        --        2,809,918

Total                           Ch$     141,557,027      38,794,932    64,767,719    5,173,992        --        --      250,293,670
</TABLE>

      Equity Price Risk

      At December 31, 2002 the Company's carrying value of investments under the
cost method was Ch$220 million. The market risk associated with these equity
securities is the potential loss in fair value that would result from a decrease
in their market price. As of December 31, 2002 a 10% decrease in the fair market
value of these investments would not have a material impact on the results of
operations of the Company.

      Commodity Price Risk

      Exposure to commodity price risk relates primarily to Madeco's inventories
of copper and aluminum and Lucchetti's inventories of wheat and edible oil.
Madeco uses significant amounts of copper and aluminum to manufacture its
products. These metal inventories are subject to price-level restatements of its
carrying amount with reference to trading prices at the London Metal Exchange.
The differences arising from consecutive restatements appear as accounting gains
or losses in Madeco's income statement's price-level restatements line. Market
prices for copper and aluminum fluctuate widely and are affected by numerous
factors beyond Madeco's control.

      To reduce the effects of metal price fluctuations on operating income,
Madeco seeks to sell its copper and aluminum products on a "cost plus" basis,
with reference to current market prices. Accordingly, Madeco's operating income
has generally been determined by the value added to the final product since the
price of copper and aluminum are components of the product's price and passed
through directly to the final price of the product. However, operating margin
(calculated as the percentage of operating income over net sales) is affected by
changes in the prices of copper and aluminum since the product's price reflects
the changes in metal prices.

      In addition, purchases of copper and aluminum are carried out at fair
values and therefore Madeco hedges naturally through its operations the metal
inventories that are periodically purchased as raw material and sold as a
component of final products. During 2002, Madeco sold 75,868 metric tons of
copper and 22,831 metric tons of aluminum in the form of finished goods.

      As of December 31, 2002 Madeco held inventories of copper and aluminum of
13,268 metric tons and 5,817 metric tons, respectively. A 10% adverse change
during 2003 in metal prices with respect to 2002 year-end balances would result
in a pre-tax accounting loss of approximately Ch$2,217 million.

      In addition, Lucchetti uses significant amounts of wheat and crude
vegetable oil to produce pastas and edible oils, respectively. Lucchetti
participates in a joint venture with its major competitor in


                                      141
<PAGE>

order to negotiate advantageous terms in the purchase of wheat. As of December
31, 2002 Lucchetti had inventories of wheat and crude oil of 22,894 and 1,345
metric tons, respectively. A 10% adverse change in wheat and crude vegetable oil
prices during 2003 with respect to 2002 year-end balances could have a material
effect on Lucchetti's gross margins and results from operations should market
conditions not allow it to transfer cost increases to the product prices.

Item 12. Description of Securities Other than Equity Securities

      Not applicable.

                                     PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

      Not applicable.

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

      Not applicable.

Item 15. (Reserved)

      The Company's Chief Executive Officer ("CEO") and Chief Financial Officer
("CFO") have evaluated the effectiveness of the Company's "disclosure controls
and procedures" (as defined in Exchange Act rules 13a-14(c) and 15d-14(c))
within the last 90 days. These controls and procedures were designed to ensure
that material information relating to the Company and its subsidiaries are
communicated to the CEO and the CFO. Based on such evaluation, Quinenco's CEO
and CFO concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information required to be
included in periodic SEC reports. There have been no significant changes in the
Company's internal controls and procedures or in other factors that could
significantly affect these controls and procedures subsequent to the date of
this evaluation.

Item 16. (Reserved)

      Not applicable.

                                    PART III

Item 17. Financial Statements

      Not applicable.

Item 18. Financial Statements

      Reference is made to pages F-1 through F-104.


                                      142
<PAGE>

Item 19. Exhibits

Index to Consolidated Financial Statements

Independent Auditors' Reports:

    Report of Ernst & Young ...........................................    F-2
    Report of PriceWaterhouseCoopers ..................................    F-4
    Report of Deloitte & Touche .......................................    F-6
    Report of PriceWaterhouseCoopers ..................................    F-8

Consolidated Financial Statements:
    Consolidated Balance Sheets at December 31, 2001 and 2002 .........    F-10
    Consolidated Statements of Income for each of the
       three years in the Period ended December 31, 2002 ..............    F-11
    Consolidated Statements of Cash Flows for each of the
       three years in the Period ended December 31, 2002 ..............    F-12
    Notes to the Consolidated Financial Statements ....................    F-13

Index to Exhibits

     Exhibit
       No.                                 Exhibit
       ---                                 -------

      1.1     By-Laws of Quinenco S.A. (incorporated by reference from Quinenco
              S.A. Annual Report on Form 20-F for the year ended December 31,
              2000, filed on June 29, 2001).

      9.1     Amended Shareholders' Agreement, dated January 13, 2003, by and
              between FHI Finance Holding International B.V., Schorghuber
              Stiftung & Co. Holding K.G. and Quinenco S.A.

      10.1    Banco de Chile's Financial Statements at December 31, 2001 and
              2002 and for the years ended December 31, 2000, 2001 and 2002
              (incorporated by reference from Item 18 of the Banco de Chile 2002
              Annual Report on Form 20-F, filed on June 25, 2003).

      10.2    Banco de Chile's Guide 3 Data (incorporated by reference from Item
              4 "Information on the Company - Selected Statistical Information"
              of the Banco de Chile 2002 Annual Report on Form 20-F, filed on
              June 25, 2003).

      10.3    Banco Edwards' Financial Statements at December 31, 2000 and 2001
              and for the years ended December 31, 2000 and 2001 (incorporated
              by reference from Item 18 of the Banco Edwards 2001 Annual Report
              on Form 20-F, filed on June 28, 2002).

      10.4    Banco Edwards' Guide 3 Data (incorporated by reference from Item 4
              "Information on the Company - Selected Statistical Information" of
              the Banco Edwards 2001 Annual Report on Form 20-F, filed on June
              28, 2002).

      99.1    Certification of Chief Executive Officer of Quinenco S.A. pursuant
              to Section 906 of the Sarbanes-Oxley Act of 2002.

      99.2    Certification of Chief Financial Officer of Quinenco S.A. pursuant
              to Section 906 of the Sarbanes-Oxley Act of 2002.


                                      143
<PAGE>

                                    SIGNATURE

      Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, as amended, the registrant certifies that it meets all of 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.

                                          QUINENCO S.A.


                                          By: /s/ Luis Fernando Antunez
                                          ------------------------------------

                                              Name: Luis Fernando Antunez
                                              Title: Authorized Representative

Dated: June 26, 2003

<PAGE>

                      Chief Executive Officer Certification

I, Francisco Perez Mackenna, certify that:

1.    I have reviewed this annual report on Form 20-F of Quinenco S.A;

2.    Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this annual report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this annual
      report;

4.    The registrant's other certifying officers and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
      have:

      a)    designed such disclosure controls and procedures to ensure that
            material information relating to the registrant, including its
            consolidated subsidiaries, is made known to us by others within
            those entities, particularly during the period in which this annual
            report is being prepared;

      b)    evaluated the effectiveness of the registrant's disclosure controls
            and procedures as of a date within 90 days prior to the filing date
            of this annual report (the "Evaluation Date"); and

      c)    presented in this annual report our conclusions about the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;

5.    The registrant's other certifying officers and I have disclosed, based on
      our most recent evaluation, to the registrant's auditors and the audit
      committee of registrant's board of directors (or persons performing the
      equivalent function):

      a)    all significant deficiencies in the design or operation of internal
            controls which could adversely affect the registrant's ability to
            record, process, summarize and report financial data and have
            identified for the registrant's auditors any material weaknesses in
            internal controls; and

<PAGE>

      b)    any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal controls; and

6.    The registrant's other certifying officers and I have indicated in this
      annual report whether or not there were significant changes in internal
      controls or in other factors that could significantly affect internal
      controls subsequent to the date of our most recent evaluation, including
      any corrective actions with regard to significant deficiencies and
      material weaknesses.

      Date: June 25, 2003


                                                 /s/ Francisco Perez Mackenna
                                                 ----------------------------
                                                   Francisco Perez Mackenna
                                                    Chief Executive Officer

<PAGE>

                      Chief Financial Officer Certification

I, Luis Fernando Antunez, certify that:

1.    I have reviewed this annual report on Form 20-F of Quinenco S.A;

2.    Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this annual report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this annual
      report;

4.    The registrant's other certifying officers and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
      have:

      a)    designed such disclosure controls and procedures to ensure that
            material information relating to the registrant, including its
            consolidated subsidiaries, is made known to us by others within
            those entities, particularly during the period in which this annual
            report is being prepared;

      b)    evaluated the effectiveness of the registrant's disclosure controls
            and procedures as of a date within 90 days prior to the filing date
            of this annual report (the "Evaluation Date"); and

      c)    presented in this annual report our conclusions about the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;

5.    The registrant's other certifying officers and I have disclosed, based on
      our most recent evaluation, to the registrant's auditors and the audit
      committee of registrant's board of directors (or persons performing the
      equivalent function):

      a)    all significant deficiencies in the design or operation of internal
            controls which could adversely affect the registrant's ability to
            record, process, summarize and report financial data and have
            identified for the registrant's auditors any material weaknesses in
            internal controls; and

      b)    any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal controls; and

<PAGE>

6.    The registrant's other certifying officers and I have indicated in this
      annual report whether or not there were significant changes in internal
      controls or in other factors that could significantly affect internal
      controls subsequent to the date of our most recent evaluation, including
      any corrective actions with regard to significant deficiencies and
      material weaknesses.

      Date: June 25, 2003


                                                      /s/ Luis Fernando Antunez
                                                      -------------------------
                                                        Luis Fernando Antunez
                                                       Chief Financial Officer

<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Item 18  Financial Statements
                                                                           Page
                                                                           ----
Report of Independent Auditors:
      Report of Ernst & Young............................................   F-2
      Report of PricewaterhouseCoopers...................................   F-4
      Report of Deloitte & Touche........................................   F-6
      Report of PricewaterhouseCoopers...................................   F-8

Consolidated Financial Statements:
      Consolidated Balance Sheets as of December 31, 2001 and 2002.......   F-10
      Consolidated Statements of Income for each of the three
         years in the period ended December 31, 2002.....................   F-11
      Consolidated Statements of Cash Flows for each of the three
         years in the period ended December 31, 2002.....................   F-12
      Notes to the Consolidated Financial Statements.....................   F-13

      Ch$   - Chilean pesos
      ThCh$ - Thousands of Chilean pesos
      US$   - United States dollars
      ThUS$ - Thousands of United States dollars
      UF-     The UF is a Chilean inflation-indexed, peso-denominated monetary
              unit that is set daily in advance based on the previous month's
              inflation rate (Note 2b))


                                      F-1
<PAGE>

Report of Independent Auditors

To the Board of Directors and Shareholders of
Quinenco S.A. and subsidiaries:

We have audited the accompanying consolidated balance sheets of Quinenco S.A and
subsidiaries as of December 31, 2001 and 2002, and the related consolidated
statements of income and cash flows for the years then ended all expressed in
thousands of Chilean pesos. 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 did not audit the consolidated
financial statements of Madeco S.A. and subsidiaries, which statements reflect
total assets of Ch$416,840 million and Ch$378,152 million as of December 31,
2001 and 2002, respectively, and total revenues of Ch$341,869 million and
Ch$256,283 million for the years then ended. In addition, we did not audit the
consolidated financial statements of Compania Cervecerias Unidas S.A., an
investment that is reflected in the accompanying financial statements using the
equity method of accounting. The investment in Compania Cervecerias Unidas S.A.
accounted for Ch$130,600 million and Ch$133,519 million of total assets as of
December 31, 2001 and 2002, respectively, and accounted for Ch$12,119 million
and Ch$6,752 million of net income in 2001 and 2002, respectively. Those
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to the amounts included for those
entities, is based solely on the reports of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Quinenco S.A. and
subsidiaries as of December 31, 2001 and 2002, and the consolidated results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in Chile.


                                      F-2
<PAGE>

Accounting principles generally accepted in Chile vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Application of accounting principles generally accepted in the United
States of America would have affected shareholder's equity as at December 31,
2001 and 2002, and the results of operations for each of the two years in the
period ended December 31, 2002, to the extent summarized in Note 27 to the
consolidated financial statements.


                     ERNST & YOUNG LTDA.

Santiago, Chile, March 15, 2003
(except for notes 26 and 27 for which the date is June 25, 2003)


                                      F-3
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of
Quinenco S.A.

We have audited the accompanying consolidated statement of income of Quinenco
S.A. and its subsidiaries and the related consolidated statement of cash flows
for the year ended December 31, 2000, both expressed in thousands of constant
Chilean pesos. 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 audit. We did not audit the 2000 consolidated
statements of income and of cash flows of Madeco S.A., a majority-owned
subsidiary, which statements reflect total revenues of ThCh$ 321,661,385 for the
year ended December 31, 2000. We also did not audit the 2000 statements of
income and of cash flow of Banco de Chile and S.M. de Chile, as investments
which are recorded using the equity method of accounting (see Note 10) and for
which the participation in their net income was ThCh$ 605,868 and ThCh$
2,312,411, respectively, in 2000. These statements were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as it
relates to the amounts included for Madeco S.A., Banco de Chile and S.M. Chile,
is based solely on the reports of the other auditors.

We conducted our audit in accordance with auditing standards generally accepted
in both Chile and the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, based on our audit and the reports of the other auditors, the
consolidated statements of income and of cash flows of Quinenco S.A. and its
subsidiaries audited by us present fairly, in all material respects, the results
of their operations and their cash flows for the year ended December 31, 2000,
in conformity with accounting principles generally accepted in Chile.

As described in Note 2 b), the accompanying statements of income and of cash
flow have been restated to reflect the effects of changes in the purchasing
power of the Chilean peso on the Company's results operations.


                                      F-4
<PAGE>

Accounting principles generally accepted in Chile vary in certain important
respects from accounting principles generally accepted in the United States of
America and as allowed by Item 18 to Form 20-F. The application of the latter
would have affected the determination of consolidated net income expressed in
constant Chilean pesos for the year ended December 31, 2000 and the
determination of shareholders' equity, also expressed in constant Chilean pesos
at December 31, 2000, to the extent summarized in Note 26 to the consolidated
financial statements.

As described in Note 3 to the consolidated financial statements, in conformity
with generally accepted accounting principles in Chile, during 2000 the Company
changed its method of accounting for deferred income taxes.


PRICEWATERHOUSECOOPERS

Santiago, Chile
February 28, 2001, except for Note 25, as to which the date is April 30, 2001
and the restatements to December 31, 2002 constant pesos, as to which the date
is June 21, 2003.


                                      F-5
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Shareholders of
Madeco S.A.

We have audited the consolidated balance sheets of Madeco S.A. and subsidiaries
(the "Company") (a majority owned subsidiary of Quinenco S.A.) as of December
31, 2002 and 2001, and the related consolidated statements of income and of cash
flows for the three years in the period ended December 31, 2002 all expressed in
thousands of constant Chilean pesos. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in Chile and in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by the Company's management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Madeco S.A. and its subsidiaries as
of December 31, 2002 and 2001, and the results of their operations and cash
flows for each of the three years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in Chile.

Accounting principles generally accepted in Chile vary in certain significant
respects from accounting principles generally accepted in the United States of
America. The application of the latter would have affected the determination of
net loss for the years ended December 31, 2002, 2001 and 2000 respectively, and
the determination of the shareholders' equity at December 31, 2002 and December
31, 2001, to the extent summarized in Note 36 to the consolidated financial
statements.


                                      F-6
<PAGE>

As explained in note 1 to the consolidated financial statements, the Board of
Directors of the foreign subsidiary Metarlurgica Industrial Argentina S.A.
decided to temporarily suspend the activities of the industrial plants of
Quilmes, Barracas, Llavallol and San Luis starting January 1, 2002, having
previously suspended that of Avellaneda.

As explained in note 34 to the consolidated financial statements, on March 4,
2003, the Group of Madeco S.A.(Quinenco and Subsidiaries) paid in further
capital of ThCh$49,400,491.


DELOITTE & TOUCHE

Santiago, Chile
February 17, 2003, except for Note 34a, b, and c.
   as to which the date is March 4, 2003, Note 34d.
   as to which the date is April 9, 2003, and Note 36
   as to which the date is June 25, 2003


                                      F-7
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

Santiago, January 30, 2003

To the Board of Directors and Shareholders
Compania Cervecerias Unidas S.A.

1     We have audited the accompanying consolidated balance sheets of Compania
      Cervecerias Unidas S.A. and its subsidiaries as of December 31, 2001 and
      2002, and the related consolidated statements of income and of cash flows
      for each of the three years in the period ended December 31, 2002,
      expressed in constant Chilean pesos. These financial statements (not
      presented separately herein) are the responsibility of the Company's
      management. Our responsibility is to express an opinion on these financial
      statements based on our audits.

2     We conducted our audits in accordance with generally accepted auditing
      standards in both Chile and the 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. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement
      presentation. We believe that our audits provide a reasonable basis for
      our opinion.

3     As described in Note 1, the accompanying consolidated financial statements
      have been restated to reflect the effects of changes in the purchasing
      power of the Chilean peso on the Company's financial position and results
      of operations. Furthermore, the financial statements as of December 31,
      2000 and 2001 and for the years then ended have been restated in terms of
      constant Chilean pesos of December 31, 2002 purchasing power.

4     In our opinion, the consolidated financial statements referred to above
      present fairly, in all material respects, the financial position of
      Compania Cervecerias Unidas S.A. and its subsidiaries at December 31, 2001
      and 2002, and the results of their operations and their cash flows for
      each of the three years in the period ended December 31, 2002, in
      conformity with accounting principles generally accepted in Chile.


                                      F-8
<PAGE>

5     Accounting principles generally accepted in Chile vary in certain
      important respects from accounting principles generally accepted in the
      United States and as allowed by Item 18 to Form 20-F. The application of
      the latter would have affected the determination of consolidated net
      income expressed in constant Chilean pesos for each of the three years in
      the period ended December 31, 2002 and the determination of consolidated
      shareholders' equity, also expressed in constant Chilean pesos, at
      December 31, 2000, 2001 and 2002 to the extent summarized in Note 24 to
      the consolidated financial statements.


      PRICEWATERHOUSECOOPERS


                                      F-9
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

             Restated for general price-level changes and expressed
     in constant December 31, 2002 Chilean pesos (Ch$) and US dollars (US$)

<TABLE>
<CAPTION>
                                                                                               As of December 31,
                                                                             -----------------------------------------------------
                                                                                 2001                   2002                2002
                                                                             -------------         -------------         ---------
                                                                   Note                                                   (Note 2v)
Assets                                                                           ThCh$                  ThCh$                ThUS$
<S>                                                                <C>       <C>                   <C>                   <C>
Current assets
Cash ........................................................        2           4,323,886             5,037,535             7,010
Time deposits ...............................................        4          17,831,771             6,730,065             9,365
Marketable securities .......................................        5           1,453,727             2,221,942             3,092
Accounts receivable, net ....................................        6          94,492,489            71,601,310            99,639
Notes and accounts receivable from related companies ........       21           9,418,117             3,313,589             4,611
Inventories, net ............................................        7          81,032,739            63,417,429            88,250
Other current assets, net ...................................        8          65,171,084           106,269,110           147,882
                                                                             -------------         -------------         ---------
       Total current assets .................................                  273,723,813           258,590,980           359,849
                                                                             -------------         -------------         ---------

Property, plant and equipment , net .........................        9         430,317,962           392,466,656           546,147
                                                                             -------------         -------------         ---------

Other assets
Long-term notes and accounts receivable from related
   companies ................................................       21              40,421             4,738,696             6,594
Investments in related and other companies ..................       10         489,597,930           493,161,438           686,271
Goodwill, net ...............................................       11         356,848,208           341,554,264           475,299
Other non-current assets ....................................       12          57,552,136            32,725,999            45,541
                                                                             -------------         -------------         ---------
       Total other assets ...................................                  904,038,695           872,180,397         1,213,705
                                                                             -------------         -------------         ---------
       Total assets .........................................                1,608,080,470         1,523,238,033         2,119,701
                                                                             =============         =============         =========

Liabilities and Shareholders' Equity
Current liabilities
Short-term bank loans .......................................       13         125,464,195           107,329,070           149,356
Current portion of long-term liabilities ....................       15          61,180,784           135,927,964           189,154
Accounts payable and supplier notes payable .................                   47,886,573            36,881,270            51,323
Notes and accounts payable to related companies .............       21             434,403               321,631               448
Accrued and other liabilities ...............................       14          28,676,623            23,361,817            32,510
                                                                             -------------         -------------         ---------
       Total current liabilities ............................                  263,642,578           303,821,752           422,791
                                                                             -------------         -------------         ---------

Long-term liabilities
Long-term debt ..............................................       15         324,316,971           302,489,676           420,937
Bonds payable ...............................................       15         215,573,534           199,735,609           277,947
Accrued expenses ............................................       14          14,279,816             7,362,575            10,246
                                                                             -------------         -------------         ---------
       Total long-term liabilities ..........................                  554,170,321           509,587,860           709,130
                                                                             -------------         -------------         ---------

Minority interest ...........................................       22          92,565,528            79,313,609           110,371
                                                                             -------------         -------------         ---------

Commitments and contingencies                                       19

Shareholders' Equity
Common stock 1,079,740,079 shares authorized, issued
   and outstanding with no par value) .......................       17         454,744,268           454,744,268           632,811
Reserves ....................................................       17          25,357,060            41,417,911            57,636
Retained earnings ...........................................       17         217,600,715           134,352,633           186,962
                                                                             -------------         -------------         ---------
       Total Shareholders' Equity ...........................                  697,702,043           630,514,812           877,409
                                                                             -------------         -------------         ---------

       Total Liabilities and Shareholders' Equity ...........                1,608,080,470         1,523,238,033         2,119,701
                                                                             =============         =============         =========
</TABLE>

The accompanying Notes form an integral part of these consolidated financial
statements.


                                      F-10
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

             Restated for general price-level changes and expressed
     in constant December 31, 2002 Chilean pesos (Ch$) and US dollars (US$)

<TABLE>
<CAPTION>
                                                                                      Years ended December 31,
                                                                  ---------------------------------------------------------------
                                                                      2000               2001              2002            2002
                                                                  ------------       ------------      ------------      --------
                                                         Note                                                            (Note 2v)
                                                                       ThCh$             ThCh$             ThCh$           ThUS$
<S>                                                       <C>     <C>                <C>               <C>               <C>
Operating Results
Net sales ........................................                 479,743,594        488,258,497       396,298,694       551,479
Cost of sales ....................................                (383,003,286)      (387,902,319)     (315,941,435)     (439,656)
                                                                  ------------       ------------      ------------      --------
       Gross margin ..............................                  96,740,308        100,356,178        80,357,259       111,823
Administrative and selling expenses ..............                 (80,094,885)       (82,315,236)      (70,080,374)      (97,522)
                                                                  ------------       ------------      ------------      --------

       Operating income (loss) ...................                  16,645,423         18,040,942        10,276,885        14,301
                                                                  ------------       ------------      ------------      --------

Non-Operating Results
Interest income ..................................                   9,041,489          8,177,405         5,347,733         7,442
Non-operating income .............................        20        35,325,308        106,024,138        33,542,407        46,677
Interest expense .................................                 (39,242,169)       (60,779,543)      (50,727,151)      (70,591)
Non-operating expense ............................        20       (36,139,340)       (71,878,145)      (85,687,878)     (119,241)
Price-level restatement, net .....................         3        (6,343,441)       (10,950,796)       (8,895,937)      (12,379)
                                                                  ------------       ------------      ------------      --------

       Non-operating results .....................                 (37,358,153)       (29,406,941)     (106,420,826)     (148,092)
                                                                  ------------       ------------      ------------      --------
                                                                   (20,712,730)       (11,365,999)      (96,143,941)     (133,791)
        Income (loss) before taxes
Income taxes .....................................        16         7,541,236          4,892,540           141,436           197
                                                                  ------------       ------------      ------------      --------
                                                                   (13,171,494)        (6,473,459)      (96,002,505)     (133,594)
       Income (loss) before minority interest
Minority interest ................................        22         7,173,611         22,448,122        20,522,294        28,558
                                                                  ------------       ------------      ------------      --------

       Net income (loss) .........................                  (5,997,883)        15,974,663       (75,480,211)     (105,036)
                                                                  ============       ============      ============      ========
</TABLE>

The accompanying Notes form an integral part of these consolidated financial
statements.


                                      F-11
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

             Restated for general price-level changes and expressed
     in constant December 31, 2002 Chilean pesos (Ch$) and US dollars (US$)

<TABLE>
<CAPTION>
                                                                                             Year ended December 31,
                                                                           --------------------------------------------------------
                                                                               2000            2001            2002          2002
                                                                           ------------    ------------    ------------    --------
                                                                                                                           (Note 2v)
                                                                                ThCh$          ThCh$            ThCh$        ThUS$
<S>                                                                        <C>             <C>             <C>             <C>
Cash Flow From Operating Activities
Net income (loss) ......................................................     (5,997,883)     15,974,663     (75,480,211)   (105,036)
Adjustments to reconcile net income to net cash provided by
   operating activities that do not represent cash flows: ..............                                                         --
Depreciation ...........................................................     32,026,475      31,691,413      32,153,795      40,576
Amortization of goodwill, net ..........................................      9,906,456      19,043,171      18,642,824      25,943
Minority interest ......................................................     (7,173,611)    (22,448,122)    (20,522,294)    (28,558)
Price-level restatement, net ...........................................      6,343,441      10,950,796       8,895,937      12,379
(Gains) losses on sales of property, plant and equipment ...............        772,904         (33,225)         16,919          24
Participation in earnings of investments under equity method ...........    (17,799,494)    (37,339,984)    (25,183,352)    (35,045)
Dividends received from unconsolidated investments .....................     11,542,724      20,326,047      29,266,873      40,727
Gains on sales of investments and marketable securities ................     (9,083,910)    (37,700,207)       (401,720)       (559)
Write-offs and provisions ..............................................      9,509,130       9,986,267      43,421,100      17,732
Other ..................................................................      7,311,426      14,783,588      15,869,796      68,944
(Increase) decrease in accounts and notes receivable ...................    (13,507,182)     20,607,766       4,061,825       5,652
(Increase) decrease in inventories .....................................     (6,652,745)     10,780,849       7,782,599      10,830
(Increase) decrease in other assets ....................................    (36,819,019)    (34,695,767)     15,036,209      20,924
Increase (decrease) in accounts and notes payable ......................     26,395,296      (8,471,576)    (40,588,361)    (56,482)
(Decrease) increase in other current liabilities .......................     (8,689,979)        672,040      17,035,047      23,706
                                                                           ------------    ------------    ------------    --------
     Net cash flow provided by (used in) operating
     activities ........................................................     (1,915,971)     14,127,719      30,006,986      41,757
                                                                           ------------    ------------    ------------    --------

 Cash Flow From Investing Activities
Proceeds from sales of other investments ...............................     62,656,750     163,192,931         601,033         836
Proceeds from sales of property, plant and equipment ...................      7,907,441       1,572,628       2,771,550       3,857
Additions to property, plant and equipment .............................    (35,007,426)    (32,085,303)    (22,884,699)    (31,846)
Investments in other companies .........................................    (56,071,797)   (162,234,957)       (605,010)       (842)
Investments in time deposits ...........................................             --      (3,357,352)       (298,631)       (416)
Decrease (increase) in accounts receivable from related companies ......        (79,431)     (3,073,639)         37,337          52
Other investing activities (net) .......................................       (209,040)     (1,643,467)     21,255,867      29,580
                                                                           ------------    ------------    ------------    --------
     Net cash flow provided by (used in) investing
     activities ........................................................    (20,803,503)    (37,629,159)        877,447       1,221
                                                                           ------------    ------------    ------------    --------

Cash Flow From Financing Activities
Borrowings from banks and others .......................................    328,288,306     254,254,980     140,587,868     195,639
Dividends paid .........................................................    (54,193,315)     (1,745,795)     (7,910,663)    (11,008)
Payments of borrowings from banks ......................................   (282,016,776)   (445,842,480)   (160,448,096)   (223,276)
Increase in bonds payable ..............................................     38,988,045     148,578,240              --          --
Repayments of bonds payable ............................................     (4,690,826)     (8,012,116)    (17,270,697)    (24,033)
Capital increase in subsidiaries contributed by
  minority shareholders ................................................      3,801,035         745,516       1,089,701       1,516
(Increase) decrease in accounts payable to related companies ...........        701,278      (1,086,947)     45,468,113      63,272
Other financing activities (net) .......................................     (2,505,901)     (7,431,888)      3,613,931       5,029
                                                                           ------------    ------------    ------------    --------
     Net cash flow provided by (used in) financing
       activities ......................................................     28,371,846     (60,540,490)      5,130,157       7,139
                                                                           ------------    ------------    ------------    --------
Net (decrease) increase in cash and cash equivalents ...................      5,652,372     (84,041,930)     36,014,590      50,117
Price-level restatement of cash and cash equivalents ...................     (1,819,525)       (955,670)      2,571,986       3,579
           Cash and cash equivalents at beginning of  year .............    135,665,349     139,498,196      54,500,596      75,842
                                                                           ------------    ------------    ------------    --------
           Cash and cash equivalents at end of year ....................    139,498,196      54,500,596      93,087,172     129,538
                                                                           ============    ============    ============    ========

Supplemental cash flow information:
Interest paid ..........................................................    (41,012,363)    (57,778,220)    (43,559,252)    (60,616)
Income taxes paid ......................................................    (13,834,667)     (3,928,077)     (1,992,138)     (2,772)
</TABLE>

The accompanying Notes form an integral part of these consolidated financial
statements.


                                      F-12
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

NOTE 1 - THE COMPANY

The Company is a diversified company engaged in the industrial and financial
services sectors primarily in the Southern Cone countries of South America. The
Company provides banking and other financial services, through its
unconsolidated investment in Banco de Chile formed by the merger between Banco
de Chile and Banco de A. Edwards (Banco Edwards); produces bottles and
distributes beer, wine, soft drinks and other beverages through an equity method
investment in Compania Cervecerias Unidas S.A. ("CCU"); processes and
distributes food through Empresas Lucchetti S.A. ("Lucchetti"); provides
telecommunications services through Compania Nacional de Telefonos, Telefonica
del Sur S.A. ("Telsur"); manufactures copper and aluminum products and consumer
packaging products through Madeco S.A. ("Madeco"); is engaged in hotel services
through Hoteles Carrera S.A. ("Hoteles Carrera"); and develops residential real
estate in Chile through its equity investment in Habitaria S.A. ("Habitaria").
References herein to "Quinenco" or "The Parent Company" are to Quinenco S.A. and
references herein to the "Company" are to Quinenco together with its
consolidated subsidiaries and the companies in which Quinenco holds significant
equity interests. Further details of the industries in which the Company
operates are as a follows:

Financial Services: Banco de Chile, which provides financial services in Chile
is an equity method investment of LQ Inversiones Financieras S.A. ("LQIF"), a
consolidated subsidiary.

Between September 2, 1999 and October 26, 1999, Quinenco acquired a 51.17%
controlling interest in Banco Edwards through a Purchase and Sale Agreement
negotiated with Banco Edwards' controlling shareholder group, subsequent
purchases on the open market, and a private transaction. On December 9, 1999,
Quinenco subscribed to a capital increase of 814,635,802 shares, to maintain its
51.17% ownership interest. During 2000 and 2001, Quinenco held a 51.17% interest
in Banco Edwards.

Quinenco acquired shares of Sociedad Matriz del Banco de Chile S.A. ("SM Chile")
and Banco de Chile between October 18, 1999 and March 27, 2001 and as of
December 31, 2000, 2001 and 2002 held voting interests of 12.38%, 52.66% and
52.16% in Banco de Chile, respectively, which translate into economic interests
of 12.38%, 51.32% and 51.27% respectively. Hereafter, interest will refer to the
voting interest held, unless otherwise specified. Banco de Chile, a Chilean
private bank with branches in New York and Miami provides a range of services
through its nationwide service network in Chile. SM Chile is the holding company
that, before the merger of Banco de Chile and Banco Edwards on January 1, 2002,
owned a direct interest of 28% in Banco de Chile and indirectly held an
additional 63.64% through its wholly-owned subsidiary Sociedad Administradora de
la Obligacion Subordinada SAOS S.A. ("SAOS").

In shareholders' meetings held on December 6, 2001 and December 18, 2001, in
Banco de Chile and Banco Edwards respectively, it was agreed to merge the two
banks. Pursuant to authorizations from the Chilean Superintendency of Banks and
Financial Institutions ("SBIF") and a majority of the shareholders from both
banks, Banco de Chile and Banco Edwards, merged operations effective January 1,
2002. As a consequence of the merger, Banco de Chile, the surviving entity and
legal successor, absorbed Banco Edwards. Under the terms of exchange, Banco
Edwards constituted 34% and Banco de Chile, 66% of the assets, liabilities and
equity of the surviving entity.

As a result of the merger, the Company held a 51.35% interest in SM Chile and a
further 20.22% interest in Banco de Chile.


                                      F-13
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

SM Chile, after the merger of Banco de Chile and Banco Edwards on January 1,
2002, owned a direct interest of 18.48% in Banco de Chile and indirectly held an
additional 42% through its wholly-owned subsidiary SAOS.

As of December 31, 2002, the Company, through its interests in Banco de Chile
and SM Chile owns 52.16% of the voting rights and is entitled to 29.15% of the
dividend rights in the merged bank.

Food and Beverage: CCU, an equity investee, has beer production facilities in
Chile and Argentina for the domestic markets in those countries, and it bottles
and distributes its proprietary brands, PepsiCo and Cadbury Holdings Ltd. brand
soft drinks and mineral water in Chile. CCU markets and distributes brand beer
through both domestic and international licensing agreements. Additionally, CCU
produces Budweiser in Argentina and distributes it within Argentina and to other
countries in the Southern Cone. CCU also owns a majority interest in Vina San
Pedro, Chile's second largest winery. Quinenco owns its interest in CCU through
a 50% interest in Inversiones y Rentas S.A. ("IRSA"). IRSA is a joint venture
formed in 1986 between Quinenco and the Schorghuber Group, German brewers of the
Paulaner beer brand. On April 17, 2003, the Schorghuber Group announced that it
had sold its interest in IRSA to Heineken, the Dutch brewer. In June 2003 CCU
began producing Heineken in Chile and Argentina. See Note 26 "Subsequent
Events".

Lucchetti, a consolidated subsidiary, produces pasta, edible oil and packaged
soups for the Chilean market through its production facilities in Chile. Until
recently, Lucchetti produced pasta and imported edible oils for the Peruvian
market. In 2000, 2001 and 2002, Lucchetti carried out capital increases giving
Quinenco an ownership interest in Lucchetti of 86.97%, 93.25% and 93.69% as of
those dates, respectively.

Lucchetti has had a presence in Peru since 1995 but in recent times has been
faced with a political campaign against it due to the plant being located in an
environmentally sensitive area in Chorrillos, Lima. This initially led to lower
sales to the closure of the plant by an order of the Municipality of Chorrillos
in January 2003. See Note 26 "Subsequent Events".

Since that date, the Company has started the process of liquidating its assets
in order to pay off its bank loans and amounts due to suppliers and personnel.
In accordance with accounting principles generally accepted in Chile, the
Company has made a provision against the entire investment and for part of the
accounts receivable of Lucchetti Peru S.A. ("Lucchetti Peru"), amounting to a
total of ThCh$30,678,486 as of December 31, 2002.

Telecommunications: Telsur, a consolidated subsidiary held through VTR S.A.
provides local telephone service in Regions VIII, IX, X and XI in the south of
Chile.

Manufacturing: Madeco, a consolidated subsidiary, is a Chilean based
manufacturer of copper, aluminum and optical fiber cable and wire products and
other copper and aluminum products used in the telecommunications, construction,
mining, energy and general industrial products sectors. Madeco is also a
manufacturer of packaging for consumer products.

In the late 1990s, the Company expanded into Brazil by acquiring Ficap S.A.
("Ficap"), which is a manufacturer of copper and aluminum wire and cable
products.

Until recently, Madeco had been engaged in the production of copper and aluminum
wire and cable products and brass mills products in Argentina. As a result of
the economic and political crisis in


                                      F-14
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

Argentina, Madeco decided to temporarily close its Argentine subsidiary
Decker-Indelqui and supply the Argentine market with products from Chile and
Brazil. In Peru, Madeco owns Indeco, a wire and cable manufacturer.

In 1999, Madeco's four business units (wire & cable, brass mills, aluminum
profiles and flexible packaging) were impacted by the economic deceleration in
Latin America and the devaluation of the Brazilian currency. Thereafter the
company initiated a slow but continuous recovery until the end of 2001 when
telecom cable demand significantly declined and the Argentine economy collapsed.

Madeco's Board of Directors considered it necessary to initiate a long-term
management plan oriented towards the industrial restructuring of Madeco. The
main goal of the plan was to improve the use of resources and working capital as
well as optimize the operating performance of its four business units, in order
to allow Madeco to compete under better terms in the new market conditions.

During 2002, Madeco focused its efforts on restructuring its bank liabilities.
On December 18, 2002, amended loan agreements were signed between Madeco and
fourteen lenders. Bank loans of approximately US$120 million were restructured
over a seven year period with a grace period of three years. The loan agreements
provided for an up-front payment of 30% of the total restructured debt. See Note
26 "Subsequent Events".

As of December 31, 2002, Quinenco held a 53.41% interest in Madeco.

Real Estate and Hotel Administration: Hoteles Carrera operates five hotels in
Chile. These are the Hotel Carrera in central Santiago (305 guest rooms) and the
Hotel El Araucano in Concepcion (139 guest rooms), both of which Hoteles Carrera
owns and operates, the La Serena Club Resort in La Serena (95 guest rooms), the
Carrera Club Hotel in Iquique (76 guest rooms) and the Carrera Club Hotel in
Antofagasta (137 guest rooms), which Hoteles Carrera leases and operates. Hotel
Carrera in Santiago is a member of "The Leading Hotels of the World" program,
which enables it to benefit from a worldwide cooperative reservations and
promotion system. As of December 31, 2001 and 2002, Quinenco held an 89.95%
interest in Hoteles Carrera.

During 2000, Quinenco acquired a 39.42% equity interest in Plava Laguna d.d.
("Plava Laguna"), a hotel and resort chain located in Croatia, on the Adriatic
Sea. Plava Laguna's resorts had a total of 23,391 beds, and included hotels,
apartments and campgrounds. On August 17, 2001, the Company sold its interest in
Plava Laguna to Sutivan Investments Establishment ("Sutivan Investments"), a
Company related to the Luksic Group for US$29.6 million.

Quinenco owns a 50% equity interest in Habitaria, a developer of residential
real estate for Chilean families in the middle-income and upper-middle income
segments. Habitaria is a joint venture between the Company and Ferrovial
Inmobiliaria Chile, Ltda., a subsidiary of the Spanish company Ferrovial S.A..


                                      F-15
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a)    Basis of consolidation

The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Chile, and specific guidelines
issued by the Superintendency of Securities and Insurance ("SVS"), (collectively
referred to as "Chilean GAAP").

The consolidated financial statements of Quinenco and its subsidiaries at
December 31, 2001 and 2002 include the accounts of companies in which the Parent
Company holds a direct or indirect ownership of more than 50%. However, they do
not include the financial statements of Banco de Chile, SM Chile, and Banchile
Seguros de Vida S.A. ("Banchile"), because banking and insurance operations are
generally not consolidated with non-financial businesses in Chile, primarily due
to the dissimilarity of both the nature of the operations and the related
accounting policies. The SVS has authorized the Company not to consolidate the
financial statements of Banco de Chile, SM Chile and Banchile.

SM Chile's wholly-owned subsidiary, SAOS has significant liabilities (the
"subordinated debt obligation") with the Chilean Central Bank in the amount of
UF 53,272,419 as of December 31, 2002. Under Chilean GAAP, as permitted by law,
such liabilities are not included in SM Chile's financial statements. See Note
10.

Lucchetti has not consolidated the subsidiary Lucchetti Peru as of December 31,
2002 as a result of action taken by Peruvian government as detailed in Note 19
d). This action resulted in the closure of the plant and the initiation of a
process to liquidate its assets. This decision is based on the provisions of
Technical Bulletin N(degree) 64 of the Chilean Association of Accountants and
SVS Resolution N(degree) 01642 dated March 11, 2003, which authorized the
non-consolidation of Lucchetti Peru.

The consolidated financial statements as of and for the years ended December 31,
2000, 2001 and 2002 include the following subsidiaries:

<TABLE>
<CAPTION>
                                                                    At December 31,
                                                            -----------------------------
                                                             2000         2001       2002
                                                            -----        -----      -----
                                                               %           %          %
<S>                                                         <C>          <C>        <C>
Percentage of Direct and Indirect Ownership:
Lucchetti and subsidiaries............................      86.97        93.25      93.69
Telsur and subsidiaries...............................      73.56        73.56      73.56
Madeco and subsidiaries...............................      56.11        56.11      53.41
Hoteles Carrera.......................................      87.19        89.95      89.95
</TABLE>

All significant intercompany balances and transactions have been eliminated in
consolidation, as well as any unrealized gains or losses arising from such
transactions. The participation of minority shareholders in subsidiaries has
been given effect in the consolidated financial statements under the caption
Minority Interest.

The preparation of financial statements in conformity with Chilean GAAP, along
with the reconciliation to generally accepted accounting principles in the
United States of America ("US GAAP"), requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities as of the date of the financial
statements, and


                                      F-16
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. In addition, certain
reclassifications have been made in the 2000 and 2001 amounts to conform to the
2002 presentation.

b)    Price-level restatement

The consolidated financial statements, which are expressed in Chilean pesos,
have been restated to reflect the effects of variations in the purchasing power
of the local currency during each year. For this purpose, and in conformity with
current Chilean regulations, non-monetary assets and liabilities, shareholders'
equity accounts and income and expense accounts have been restated each year in
terms of year-end constant pesos. The resulting net charge or credit to income
arises as a result of the gain or loss in purchasing power from the holding of
monetary assets and liabilities exposed to the effects of inflation. In
accordance with Chilean tax regulations and accounting practices, the
restatements were calculated based on the official Consumer Price Index ("CPI")
of the National Association of Statistics, which was 4.7%, 3.1% and 3.0% for the
years ended November 30, 2000, 2001 and 2002, respectively. The index is based
on the "prior month rule"; pursuant to which the inflation adjustments are based
on the CPI at the close of the month preceding the close of the respective
period or of the transaction.

This index is considered by the business community, the accounting profession
and the Chilean government to be the index which most closely complies with the
technical requirement to reflect the variation in the general level of prices in
the country and, consequently, is widely used for financial reporting purposes
in Chile. For comparative purposes, the consolidated financial statements for
the years ended December 31, 2000 and 2001 and the amounts disclosed in the
related footnotes have also been restated using the same index in terms of
Chilean pesos of December 31, 2002 purchasing power.

The above-mentioned price-level restatements do not purport to present appraisal
or replacement values and are only intended to restate all non-monetary
financial statement components in terms of local currency of a single purchasing
power, and to include in net income for each year the gain or loss in purchasing
power arising from the holding of monetary assets and liabilities exposed to the
effects of inflation.

Certain assets and liabilities are denominated in Unidades de Fomento ("UF").
The UF is a Chilean inflation-indexed, peso-denominated monetary unit that is
set daily in advance based on changes in the CPI. The adjustments to the closing
value of UF-denominated assets and liabilities are included in the Price-level
restatement account in the Consolidated Statement of Income. Each UF was
equivalent to Ch$15,769.92 as of December 31, 2000, Ch$16,262.66 as of December
31, 2001, and Ch$16,744.12 as of December 31, 2002. Price-level restatement also
includes foreign exchange differences as described below.

c)    Assets and liabilities in foreign currency

Balances in foreign currency included in the Consolidated Balance Sheets and
detailed in Note 18 have been translated into Chilean pesos at the Observed
Exchange Rates determined by the Central Bank of Chile in effect at each year
end (historical rates of Ch$573.65 per US$1 as of December 31, 2000, Ch$654.79
per US$1 as of December 31, 2001 and Ch$718.61 per US$1 as of December 31,
2002).


                                      F-17
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

d)    Cash and cash equivalents

The Company considers all short-term, highly liquid investment securities with
original maturities of three months or less to be cash equivalents for the
purposes of the Consolidated Statements of Cash Flows:

<TABLE>
<CAPTION>
                                                                                       As of December 31,
                                                                     -----------------------------------------------------
                                                                        2000                  2001                 2002
                                                                     -----------           ----------           ----------
                                                                         ThCh$                ThCh$                ThCh$
<S>                                                                  <C>                   <C>                  <C>
Cash .....................................................             5,152,046            4,323,886            5,037,535
Time deposits that are cash equivalents (Note 4) .........            15,466,135           17,831,771            6,730,065
Money market funds (Note 5) ..............................             3,419,313              944,689            1,951,784
Securities purchased under agreements to resell
(Note 8) .................................................           115,460,702           31,400,250           79,367,788
                                                                     -----------           ----------           ----------
       Total .............................................           139,498,196           54,500,596           93,087,172
                                                                     ===========           ==========           ==========
</TABLE>

e)    Time deposits and marketable securities

Time deposits are stated at cost plus interest and price-level restatement
(indexation) accrued at each year-end.

Marketable securities are valued as follows:

Shares: At the lower of restated cost plus price-level restatement or market
value of the portfolio at each year-end. Shares include the quoted shares of
companies in which both the Company's shareholding is less than 10% of the
investee's capital and the Company does not exert significant influence over the
investee.

Money market funds: At the quoted redemption value of the respective share at
each balance sheet date.

f)    Accounts receivable

Accounts receivables are shown net of the allowance for doubtful accounts.
Allowances are recorded at the end of each period based on those balances
considered to be of doubtful recovery due to the age of the receivable.

g)    Inventories

Raw materials are valued at the lower of their restated cost or current
replacement cost. Work-in-process and finished goods are shown at restated cost,
which includes related direct and indirect manufacturing expenses. Supplies,
spare parts and other inventories are shown at their restated cost. Inventory
values do not exceed net realizable values and are reflected in income on the
basis of average cost. A provision has been made related to discontinued
products and products with low turnover.

h)    Other current assets

Other current assets correspond principally to recoverable income taxes,
deferred income taxes, prepaid expenses, disposable assets held for sale, the
fair value effect of derivative financial instruments and securities purchased
under agreements to resell. These securities represent investments in promissory
notes issued by the Central Bank of Chile and Treasury Bills, which were
purchased at a discount under


                                      F-18
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

agreements to resell at a fixed price. They are valued at their present value
calculated on the basis of the discount rate used to determine the price of each
instrument on the date of acquisition.

i)    Property, plant and equipment

Property, plant and equipment are stated at cost plus price-level restatement
and include construction and financing costs incurred until the assets are in a
condition to be used, applying the average cost of financing. Such costs exclude
foreign exchange gains and losses that are included in the Consolidated
Statements of Income.

In substantially all cases, depreciation is determined by the straight-line
method based on the estimated useful lives of the assets and where applicable as
a function of the production units for certain plants (see Note 9).

In accordance with instructions issued by the SVS, property, plant and equipment
include the revaluation increment arising from the technical appraisals of
certain assets which were carried out in 1979 and 1986.

Property, plant and equipment are shown net of allowances for obsolescence.

Assets acquired under capital lease contracts are recorded at their present
value, calculated using the contracted monthly installments plus the purchase
option and using the interest rate implicit in the respective contract. The
corresponding liability is shown net of deferred interest. Assets obtained under
financial contracts are not the legal property of the Company until it exercises
the related purchase option. Therefore, the Company cannot freely dispose of
them.

j)    Investments in related companies

Investments in related companies over which the Company has significant
influence, are included in Other assets and are recorded using the equity
method. Accordingly, the Company's proportional share in the net income (or
loss) of each investee is recognized in the non-operating income and expense
classification in the Consolidated Statements of Income on an accrual basis,
after eliminating any unrealized profits from transactions with the related
companies.

Investments in majority-owned subsidiaries in the development stage are also
recorded using the equity method on the balance sheet, but the Company's share
of the investee's results of operations during the development stage are taken
to a reserve which forms part of Shareholders' equity.

Equity movements that do not affect the income of the related companies are
shown proportionally as a charge or credit to the account Other reserves in
Shareholders' equity.

k)    Other investments

Other investments in which the Company has less than 10% of the voting stock of
the investee, which are considered to be permanent are valued at the lower of
cost plus price-level restatement or market value. They are shown under the
caption Other assets. Dividends from such investments are recognized as income
when received.


                                      F-19
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

l)    Goodwill and negative goodwill

Under Chilean GAAP, goodwill arises from the excess of the purchase price of
companies acquired over their net book value; negative goodwill arises when net
book value exceeds the purchase price of companies acquired. Goodwill and
negative goodwill also arise from the purchase of investments accounted for by
the equity method. Both goodwill and negative goodwill are normally amortized
over the maximum period of twenty years considering the expected period of
return of the investments. Chilean GAAP also provides that goodwill and negative
goodwill amortization may be accelerated if the proportional net income or net
loss of the Investee Company exceeds the respective straight-line amortization
amount.

m)    Bonds payable

Bonds payable are included in liabilities at their par value plus accrued
price-level restatement and interest. The discount that arises from the
difference between par value and the proceeds actually received is included in
Other assets and is amortized using the straight-line method.

n)    Employee severance indemnities

Certain subsidiaries with agreements to pay severance indemnities calculate the
respective liability based on a present value method (accrued cost of the
benefit method), assuming real annual discount rates of between 6% and 7% and an
estimated remaining service period of each employee until retirement.

o)    Employee vacations

The cost of employee vacations is recognized in the financial statements on an
accrual basis as employees earn the vacations.

p)    Deferred income tax

Beginning January 1, 2000, the Company records deferred income taxes in
accordance with Technical Bulletin Nos. 60 and 71 of the Chilean Association of
Accountants, and with Circular No. 1466 issued on January 27, 2000 by the SVS,
recognizing the deferred tax effects of temporary differences between the
financial and tax values of assets and liabilities, using the liability method.

Previously, deferred income taxes attributable to those temporary differences
related to items that were treated differently for tax and accounting purposes
were not recorded as they were considered to be offsetting and temporary in
nature and thus were not required to be recorded pursuant to Technical Bulletin
No. 41 of the Chilean Association of Accountants.

As a transitional provision, a contra asset or liability was recorded offsetting
the effects of the deferred tax assets and liabilities not recorded prior to
January 1, 2000. The contra asset or liabilities, defined as "complementary
accounts", are being amortized to income over the estimated average reversal
periods corresponding to the underlying temporary differences to which the
deferred tax asset or liability relates.


                                      F-20
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

q)    Revenue recognition

The Company recognizes revenues when goods are shipped or services are provided.
Revenues from telephone line installation contracts (Madeco) are recognized by
the percentage of completion method based on the relationship of actual costs
incurred to total costs estimated to be incurred over the duration of the
contract. Provisions for anticipated contract losses are recognized at the time
they become known.

In addition to services invoiced, Hoteles Carrera recognizes as operating
revenues an estimate of services provided and not invoiced through year-end.
This estimate has been valued using actual rates corresponding to the period in
which the services were provided. Accordingly, the cost related to this service
has been included in cost of sales in the income statement.

r)    National and international long-distance traffic

The subsidiaries in the telecommunications sector maintain a policy of
recognizing revenues when the services are provided. Accordingly, revenues for
each year include both services billed and services provided but unbilled at the
end of the year. The unbilled services are accrued based on a calculation of the
unbilled time for domestic and international telephone and data transmission
services and the average telephone rates in effect during the corresponding year
in which the services are rendered. The related cost of such services is
included in Operating costs in the Consolidated Statement of Income. The
estimated amounts recorded for unbilled services and related costs do not differ
materially from the actual amounts of services normally billed within the
following two months and the actual costs incurred and paid in the subsequent
period.

s)    Translation of foreign currency financial statements

In accordance with Technical Bulletin N(degree) 64 of the Chilean Association of
Accountants (BT 64), the financial statements of foreign subsidiaries whose
activities do not constitute an extension of the Chilean operations, or which
operate in countries that are exposed to significant risks, restrictions or
inflation/exchange fluctuations are remeasured using the US dollar as the
functional currency and then translated into Chilean pesos at the year end
exchange rate. Accordingly, the financial statements of both the Company's
subsidiaries in South America (principally Argentina, Brazil Peru) and Banco de
Chile's branches in the United States are prepared in accordance with Chilean
GAAP, with the exception of price-level restatement, and are then remeasured
into US dollars as follows:

o     Monetary assets and liabilities are translated at year-end rates of
      exchange between the US dollar and the local currency.

o     All non-monetary assets and liabilities and shareholders' equity are
      translated at historical rates of exchange between the US dollar and the
      local currency.

o     Income and expense accounts are translated at average rates of exchange
      between the US dollar and the local currency.

o     Any exchange differences are included in the results of operations for the
      period.

In the Parent Company's books, price-level restatements based on Chilean
inflation are applied to the beginning balance of the investment account and
then the participation in the net income of the subsidiary (determined as
described above) is recorded. The Parent Company then compares this value to its
participation in the equity of the investee as remeasured into US dollars and
translated into Chilean pesos. The difference is recorded as an adjustment to
the investment account with a corresponding adjustment to the cumulative
translation account in Shareholders' equity.


                                      F-21
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

In addition, as required by Technical Bulletin N(degree) 64, the Company records
the effect of foreign exchange adjustments arising from hedge transactions that
cover the exposure of foreign investments, Accordingly, the excess of exchange
losses over related price-level restatements is also charged to the Cumulative
translation account.

t)    Changes of interest when investee sells stock

When an investee increases capital through sales of additional shares, the
Company's percentage ownership interest in the investee may increase or decrease
depending on whether all shareholders subscribe their proportional amount. As a
result, the Company's proportional carrying amount per share may vary; any
differences that arise are reflected as non-operating gains or losses in the
Consolidated Statements of Income in the period the change of interest
transaction occurs.

u)    Accumulated deficit during development period

In accordance with Circular N(degree) 981 of the Superintendency of Securities
and Insurance, disbursements made during the organization and start-up stage
that are not assignable to tangible or intangible assets are included in
Shareholders' equity in the Balance Sheets under the caption Accumulated Deficit
During Development Period.

v)    Basis of translation to US dollars

The Company maintains its accounting records and prepares its financial
statements in Chilean pesos. The United States dollar amounts disclosed in the
accompanying Consolidated Financial Statements (except the footnotes) as of and
for the year ended December 31, 2002 are presented solely for the convenience of
the reader at the December 31, 2002 exchange rate of Ch$ 718.61 per US$ 1. This
translation should not be construed as representing that the Chilean peso
amounts actually represent or have been, or could be, converted into United
States dollars at such rate or any other rate. All other US dollar amounts
included in the footnotes represent the actual dollars at the date of the
transaction.

w)    Financial derivative instruments

The Company maintains forward foreign exchange contracts and foreign exchange
swap contracts to cover the risks of fluctuation in exchange rates between the
Chilean peso, US dollar and Brazilian Real. The Company enters into forward
foreign exchange contracts to mitigate the risk that cash flows will be
adversely affected by changes in exchange rates resulting from the collection of
receivables from international customers and the purchase of supplies and raw
materials. These derivative instruments are recorded in the balance sheet at
fair value as other assets or liabilities, with a credit or charge to income,
respectively.


                                      F-22
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

NOTE 3 - PRICE-LEVEL RESTATEMENT

The application of price-level restatement as described in Note 2 b) resulted in
net (charges)/credits to income, the effects of which are summarized as follows:

<TABLE>
<CAPTION>
                                                                                         Credit (charge) Year ended December 31,
                                                                                  -------------------------------------------------
                                                                                      2000               2001               2002
                                                                                  -----------        -----------        -----------
                                                                                      ThCh$              ThCh$               ThCh$
<S>                                                                               <C>                <C>                <C>
Property, plant and equipment, net ........................................        12,993,491          8,630,002          8,017,845
Inventories ...............................................................         2,025,742         (2,834,029)         2,133,472
Other current assets ......................................................           812,670          1,088,472            441,575
Other assets ..............................................................        28,308,265         30,865,884         29,745,791
Other non-monetary liabilities ............................................        (5,146,829)        (6,204,113)        (3,105,397)
Shareholders' equity, net .................................................       (31,527,939)       (20,339,921)       (20,147,714)
 Income and expense accounts in terms of period-end constant
   Chilean pesos ..........................................................          (466,790)           (97,599)           838,660
Net adjustment of assets and liabilities indexed in UFs ...................       (11,753,946)       (15,004,620)       (12,901,125)
                                                                                  -----------        -----------        -----------
       Subtotal ...........................................................        (4,755,336)        (3,895,924)         5,023,107
Net adjustment of assets and liabilities denominated in
   foreign currency .......................................................        (1,588,105)        (7,054,872)       (13,919,044)
                                                                                  -----------        -----------        -----------
       Price-level restatement, net .......................................        (6,343,441)       (10,950,796)        (8,895,937)
                                                                                  ===========        ===========        ===========
</TABLE>

NOTE 4 - TIME DEPOSITS

Time deposits are summarized as follows:

<TABLE>
<CAPTION>
                                                                                                                At December 31,
                                                                                                        ----------------------------
                                                                                                            2001              2002
                                                                                                        ----------         ---------
                                                                                                           ThCh$             ThCh$
<S>                                                                                                     <C>                <C>
Time deposits in UF ...........................................................                         10,265,393         2,403,554
Time deposits in Chilean pesos ................................................                            146,137           133,396
Time deposits in US dollars ...................................................                          6,831,725         2,375,752
Time deposits in other foreign currencies .....................................                            588,516         1,817,363
                                                                                                        ----------         ---------
       Total ..................................................................                         17,831,771         6,730,065
                                                                                                        ==========         =========
</TABLE>

NOTE 5 - MARKETABLE SECURITIES

Marketable securities are summarized as follows:

<TABLE>
<CAPTION>
                                                                                                                At December 31,
                                                                                                        ----------------------------
                                                                                                            2001              2002
                                                                                                        ----------         ---------
                                                                                                           ThCh$              ThCh$
<S>                                                                                                      <C>               <C>
Marketable equity securities ..................................................                            509,038           254,227
Money market funds ............................................................                            944,689         1,951,784
Other .........................................................................                                 --            15,931
                                                                                                        ----------         ---------
       Total marketable securities ............................................                          1,453,727         2,221,942
                                                                                                        ==========         =========
</TABLE>


                                      F-23
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

NOTE 6 - ACCOUNTS RECEIVABLE

a)    Accounts receivable are summarized as follows:

<TABLE>
<CAPTION>
                                                                                    At December 31,
                                                                             ----------------------------
                                                                                2001             2002
                                                                             -----------      -----------
                                                                                ThCh$            ThCh$
<S>                                                                           <C>             <C>
Trade accounts receivable ........................................            88,391,662       68,886,327
Notes receivable .................................................            13,652,376       12,669,142
Other accounts receivable ........................................             7,187,233        4,384,716
Allowance for doubtful accounts ..................................           (14,738,782)     (14,338,875)
                                                                             -----------      -----------
       Total .....................................................            94,492,489       71,601,310
                                                                             ===========      ===========
</TABLE>

b)    Changes in the allowance for doubtful accounts for the years ended
      December 31, 2001 and 2002 are as follows:

<TABLE>
<CAPTION>
                                                                                    At December 31,
                                                                             ----------------------------
                                                                                2001             2002
                                                                             -----------      -----------
                                                                                ThCh$            ThCh$
<S>                                                                           <C>              <C>
Balance at beginning of year .....................................            15,859,681       14,738,782
Price-level restatements .........................................              (456,626)        (395,850)
Effect of devaluation of foreign currencies ......................                    --       (2,998,406)
Effect of non-consolidation of the subsidiary Lucchetti Peru .....                    --       (1,147,933)
Charged to expenses ..............................................             5,916,496        7,328,079
Write-offs .......................................................            (6,580,769)      (3,185,797)
                                                                             -----------      -----------
      Balance at end of year .....................................            14,738,782       14,338,875
                                                                             ===========      ===========
</TABLE>

NOTE 7 - INVENTORIES

a)    Inventories are summarized as follows:

<TABLE>
<CAPTION>
                                                                                    At December 31,
                                                                             ----------------------------
                                                                                2001             2002
                                                                             -----------      -----------
                                                                                ThCh$            ThCh$
<S>                                                                           <C>              <C>
Raw materials ....................................................            27,668,984       18,739,355
Finished goods ...................................................            24,944,079       19,485,949
Work-in-process ..................................................            13,042,978        9,772,683
Supplies .........................................................            10,309,180        7,827,620
Other ............................................................             5,067,518        7,591,822
                                                                             -----------      -----------
       Inventories, net ..........................................            81,032,739       63,417,429
                                                                             ===========      ===========
</TABLE>

Inventories are presented net of the allowance for obsolescence of
ThCh$3,141,288 and ThCh$4,567,656 in 2001 and 2002, respectively.


                                      F-24
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

b)    Changes in the allowance for obsolescence for the year ended December 31,
      2001 and 2002 are as follows:

<TABLE>
<CAPTION>
                                                                                         At December 31,
                                                                              -----------------------------------
                                                                                  2001                   2002
                                                                              -----------            ------------
                                                                                  ThCh$                  ThCh$
<S>                                                                             <C>                     <C>
Balance at beginning of year ......................................             2,960,674               3,141,288
Price level restatements ..........................................               (86,172)                (88,518)
Effect of devaluation of foreign currencies .......................                47,609                (429,283)
Effect of non-consolidation of the subsidiary Lucchetti Peru ......                    --                (102,180)
Transfer to long term other assets ................................               226,820                (147,286)
Charged to expenses ...............................................               681,568               2,482,586
Write-offs ........................................................              (689,211)               (288,951)
                                                                              -----------            ------------
      Balance at end of year ......................................             3,141,288               4,567,656
                                                                              ===========            ============
</TABLE>

NOTE 8 - OTHER CURRENT ASSETS

Other current assets are summarized as follows:

<TABLE>
<CAPTION>
                                                                                         At December 31,
                                                                              -----------------------------------
                                                                                  2001                   2002
                                                                              -----------            ------------
                                                                                  ThCh$                  ThCh$
<S>                                                                            <C>                    <C>
Securities purchased under agreements to resell ...................            31,400,250              79,367,788
Recoverable income taxes, net (see Note 16 a)) ....................             9,135,765               6,605,529
Prepaid expenses ..................................................             1,979,900               2,504,482
Deferred income taxes, net (see Note 16 b)) .......................             6,731,692               2,401,133
Property, plant and equipment held for sale, net ..................            10,813,214              10,512,448
Derivative financial instruments ..................................                    --               2,542,092
Other .............................................................             5,110,263               2,335,638
                                                                              -----------            ------------
       Total ......................................................            65,171,084             106,269,110
                                                                              ===========            ============
</TABLE>

Property, plant and equipment held for sale are shown net of allowances to
reflect those assets at their net realizable values. Such allowances amounted to
ThCh$7,822,768 in 2001 and ThCh$9,316,068 in 2002.


                                      F-25
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

NOTE 9 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                                                                           At December 31,
                                                                                              -------------------------------------
                                                                                                  2001                      2002
                                                                                              ------------             ------------
                                                                                                  ThCh$                    ThCh$
<S>                                                                                           <C>                      <C>
Land .............................................................................              25,024,297               23,588,958
                                                                                              ------------             ------------

Buildings and infrastructure .....................................................             199,868,444              188,837,850
Accumulated depreciation .........................................................             (60,655,967)             (54,815,909)
                                                                                              ------------             ------------
       Subtotal buildings and infrastructure, net ................................             139,212,477              134,021,941
                                                                                              ------------             ------------

Machinery and equipment ..........................................................             383,283,954              403,405,296
Accumulated depreciation .........................................................            (189,905,122)            (224,346,611)
                                                                                              ------------             ------------
       Subtotal machinery and equipment, net .....................................             193,378,832              179,058,685
                                                                                              ------------             ------------

Other property, plant and equipment:
Leased assets ....................................................................              27,582,626               15,173,472
Construction in progress .........................................................              15,619,590                8,269,681
Furniture and fixtures ...........................................................               9,495,439                9,697,707
Office equipment .................................................................               4,142,369                4,326,345
Tools and others .................................................................               2,695,782                2,602,987
Computer software ................................................................               3,523,024                5,217,231
Computers ........................................................................               2,486,811                1,102,122
Materials and replacement parts ..................................................               1,446,970                1,486,273
Other property, plant and equipment ..............................................               6,659,821                7,261,264
Accumulated depreciation .........................................................             (21,951,875)             (20,449,934)
                                                                                              ------------             ------------
       Subtotal other property, plant and equipment, net .........................              51,700,557               34,687,148
                                                                                              ------------             ------------

Revaluation from technical appraisals:
Land .............................................................................               5,902,626                6,026,226
Buildings and infrastructure .....................................................              17,427,141               17,882,679
Machinery and equipment ..........................................................               2,068,820                2,068,563
Accumulated depreciation .........................................................              (4,396,788)              (4,867,544)
                                                                                              ------------             ------------
       Subtotal revaluation from technical appraisals, net .......................              21,001,799               21,109,924
                                                                                              ------------             ------------
             Total property, plant and equipment, net ............................             430,317,962              392,466,656
                                                                                              ============             ============
</TABLE>

Depreciation expense for the years ended December 31 are summarized as follow:

<TABLE>
<CAPTION>
                                                                              Years ended December 31,
                                                                ----------------------------------------------
                                                                    2000              2001               2002
                                                                ----------         ----------       ----------
                                                                   ThCh$              ThCh$            ThCh$
<S>                                                             <C>                <C>              <C>
Operating expenses ......................................       27,760,670         28,401,120       25,746,056
Administration and sales expenses .......................        4,265,805          3,290,293        3,412,528
Non-operating expenses ..................................               --                 --        2,995,211
                                                                ----------         ----------       ----------
Total ...................................................       32,026,475         31,691,413       32,153,795
                                                                ==========         ==========       ==========
</TABLE>

Depreciation expense included depreciation of the revaluation from technical
appraisals of ThCh$469,195, ThCh$465,173, and ThCh$487,461 in 2000, 2001, and
2002, respectively.


                                      F-26
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

During the month of January 2002, the production activities of the Quilmes,
Barracas, San Luis and Llavallol properties of Madeco's subsidiary Decker
Indelqui S.A. were suspended. Property, plant and equipment involved in the
temporary shutdown have a net carrying value of approximately ThCh$25,935,400.
Madeco has continued depreciating these assets as a non-operating expense.

In light of the economic situation in Argentina, Madeco wrote-down fixed assets
and certain other long-term assets in the amount of ThCh$12,834,224 and
ThCh$4,694,239 in 2001 and 2002, respectively. The charge was included in Other
non-operating expenses.

The estimated useful lives of the principal categories of property, plant and
equipment are as follows:

                                                                       Years
                                                                      --------

Buildings and installations...................................           60
Machinery and equipment.......................................        10 to 20
Telephone plant and equipment.................................        10 to 30
Other fixed assets............................................        10 to 20

The revaluation from technical appraisals is being amortized over the remaining
lives of the respective assets.

Financing costs capitalized during construction periods amounted to
ThCh$349,172, ThCh$652,259 and ThCh$310,081 during 2000, 2001 and 2002,
respectively.


                                      F-27
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

NOTE 10 - INVESTMENTS

The carrying value of investments in related companies and other investments are
a follows:

<TABLE>
<CAPTION>
                                                                         Percentage owned               At December 31,
                                                                      --------------------------------------------------------
                                                                        2001           2002          2001             2002
                                                                      -------        -----------------------       -----------
                                                                          %             %           ThCh$              ThCh$
<S>                                                                   <C>            <C>         <C>               <C>
Related Companies
Inversiones y Rentas S.A. (1) ..............................            50.00          50.00     130,600,301       133,519,063
Banco Edwards (2) ..........................................            51.17             --     126,172,655                --
Banco de Chile (2) .........................................             4.27          20.22      17,500,057       124,983,749
SM Chile series "A","B","D" and "E" (2) ....................            51.35          51.35     163,272,808       180,679,702
Entel (3) ..................................................             5.69           5.69      29,387,815        31,006,039
Habitaria (4) ..............................................            50.00          50.00       8,254,600         8,695,527
Lucchetti Peru (5) .........................................               --          93.69              --                 1
Other ......................................................          Various        Various      13,807,520        14,057,444
                                                                                                 -----------       -----------
       Subtotal ............................................                                     488,995,756       492,941,525
Other investments ..........................................                                         602,174           219,913
                                                                                                 -----------       -----------
       Total ...............................................                                     489,597,930       493,161,438
                                                                                                 -----------       -----------
</TABLE>

Proportional share of net income (losses) of equity method investment are as
follow:

<TABLE>
<CAPTION>
                                                                                         Year ended December 31,
                                                                          ------------------------------------------------
Company                                                                       2000              2001               2002
                                                                          -----------       -----------        -----------
                                                                             ThCh$             ThCh$               ThCh$
<S>                                                                        <C>               <C>                <C>
Proportional share of net income
   Inversiones y Rentas S.A. (1) ..............................             8,386,180        12,118,983          6,751,894
   Banco Edwards (2) ..........................................             1,725,973         5,325,398                 --
   Banco de Chile (2) .........................................               605,868         3,821,404         10,640,557
   SM Chile series "A","B","D" and "E" (2) ....................             2,312,411        12,171,348          4,783,180
   Entel (3) ..................................................             4,061,866         3,173,738          2,337,493
   Habitaria (4) ..............................................                    --           214,914            448,881
   Plava Laguna (Croatia) (6) .................................               565,924                --                 --
   Other ......................................................             1,123,023           654,024            714,597
                                                                          -----------       -----------        -----------
       Subtotal ...............................................            18,781,245        37,479,809         25,676,602
                                                                          -----------       -----------        -----------
Proportional share of net loss
   Habitaria (4) ..............................................              (424,051)               --                 --
   Other ......................................................              (557,700)         (139,825)          (493,250)
                                                                          -----------       -----------        -----------
       Subtotal ...............................................              (981,751)         (139,825)          (493,250)
                                                                          -----------       -----------        -----------
             Total ............................................            17,799,494        37,339,984         25,183,352
                                                                          ===========       ===========        ===========
</TABLE>

(1)   Inversiones y Rentas S.A. is a joint venture holding company through which
      the Company's ownership interests in CCU is held.

(2)   Financial Services investment

SM Chile and Banco de Chile

Between October 18, 1999 and December 30, 1999, Quinenco acquired an 8.47%
voting interest in Banco de Chile through the purchase of shares of Banco de
Chile and its holding company SM Chile. Until December 31, 2001, prior to the
merger of Banco de Chile and Banco Edwards on January 1, 2002, SM Chile directly
owned 28% of Banco de Chile and indirectly held an additional 63.64% through its
wholly owned subsidiary, SAOS.


                                      F-28
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

Through a public tender offer which was completed on March 6, 2001, the Company
acquired 28.4 million; 550.0 million; 21.5 million and 29.2 million series A, B,
D and E shares of SM Chile, respectively, for a total price of ThCh$ 36,212,201
(historical). This investment was further increased by Quinenco on March 27,
2001 through the acquisitions from Empresas Penta and other companies of 1,466.8
million shares of Banco de Chile and 79.5 million, 4,144.1 million, 90.7 million
and 18.6 million series A, B, D and E shares of SM Chile respectively for a
total price of ThCh$ 304,127,162 (historical). The purchases during 2001
generated goodwill of ThCh$ 220,679,155 (historical). As of December 31, 2001,
the Company held a 51.35% interest in SM Chile and a further 4.27% interest in
Banco de Chile. As a result, Quinenco exercises control over Banco de Chile.

The voting rights of 41,179 million shares of Banco de Chile belonging to SM
Chile and to SAOS are exercised by the shareholders of SM Chile who attend the
bank's shareholders' meetings. The rights corresponding to the shares owned by
SM Chile are exercised by all of the series' shareholders, (i.e. Series A, B, D,
and E). Those rights corresponding to the shares owned by SAOS are exercised by
Series A, B and D shareholders. As a consequence of the above, the Company held
52.66% of the total voting rights of Banco de Chile as of December 31, 2001.

Banco Edwards

Between September 2, 1999 and October 26, 1999, Quinenco acquired a 51.17%
controlling interest in Banco Edwards through a Purchase and Sale Agreement
negotiated with Banco Edwards' controlling shareholder group, subsequent
purchases on the open market, and a private transaction. These purchases
totaling ThCh$167,859,780 generated goodwill of ThCh$86,478,915.

On December 9, 1999, Banco Edwards issued 1,591,836,735 new shares, through a
rights offering. As a result of the offering, the Company acquired 814,635,802
shares for a total of ThCh$40,758,537, thus maintaining its holding of 51.17%.
In addition, the Company subscribed for an additional 414,018,557 shares and
transferred them to J. Ergas Inversiones y Rentas Ltda. for a price of
UF1,238,290 pursuant to a three-year interest bearing note.

Merger of Banco de Chile and Banco Edwards

In shareholders' meetings held on December 6, 2001 and December 18, 2001, in
Banco de Chile and Banco Edwards respectively, it was agreed to merge the two
banks. Pursuant to authorizations from the SBIF and a majority of the
shareholders from both banks, Banco de Chile, a 52.66%-owned subsidiary of the
Company and Banco Edwards, a 51.17%-owned subsidiary of the Company, merged
operations effective January 1, 2002. As a consequence of the merger, Banco de
Chile, the surviving entity and legal successor, absorbed Banco Edwards. Under
the terms of exchange, Banco Edwards constituted 34% and Banco de Chile, 66% of
the assets, liabilities and equity of the surviving entity. Each Banco Edwards
share was exchanged for 3.135826295 shares of Banco de Chile common stock.
Following the merger, Banco de Chile had 68,079,783,605 shares outstanding of
common stock, all of the same series.

As a result of the merger, the Company held a 51.35% interest in SM Chile and a
further 20.22% interest in Banco de Chile.

SM Chile, after the merger of Banco de Chile and Banco Edwards on January 1,
2002, owned a direct interest of 18.48% in Banco de Chile and indirectly held an
additional 42% through its wholly-owned subsidiary SAOS.


                                      F-29
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

As of December 31, 2002, the Company owns 52.16% of the voting rights and is
entitled to 29.15% of the dividend rights in the merged bank.

The voting rights and the economic interest in Banco de Chile held by Quinenco,
directly and indirectly are summarized as follows:

                                              2000        2001      2002 (*)
                                               %           %            %

Voting Rights                                12.38       52.66        52.16
Economic Interest                            12.38       51.32        51.27

(*)   The interests held in 2002 are of the merged bank

Central Bank Subordinated Debt and dividend rights

During the 1982-1983 economic crisis, the Chilean banking system experienced
significant instability due to, among other things, a recession in most of the
world's major economies accompanied by high international interest rates, an
overvalued peso, a lack of stringent banking regulation and ineffective credit
policies at most Chilean banking organizations. Because of the financial crisis,
the Central Bank and the Chilean government had to provide assistance to most
Chilean private-sector banks.

Subsequent to the 1982-1983 economic crisis, most major Chilean banks sold
certain of their non-performing loans to the Central Bank at face value on terms
that included a repurchase obligation by the banks. This repurchase obligation
was later exchanged for subordinated debt of the banks issued in favor of the
Central Bank. Pursuant to Law 18,818 of 1989, the banks were permitted to
repurchase the portfolio of non-performing loans previously sold to the Central
Bank for a price equal to the economic value of such loans, provided that the
bank assumed a subordinated obligation equal to the difference between the face
value of the loans and the economic value paid.

The modification of the subordinated debt set forth in Law N(degree) 18,818 on
November 10, 1989, suspended the dividend rights of the Series A shares of SM
Chile (SM Chile is the predecessor entity of Banco de Chile, and was formerly
known as Banco de Chile at the time of the banking crisis) for the period of
time during which the subordinated debt with the Chilean Central Bank has not
been extinguished.

In accordance with the above, the surpluses generated by SM Chile after
provision of the annual installment of the subordinated debt, can only be
distributed as dividends to shareholders of Series B, D and E Shares of SM
Chile. Series A shares have no right to receive dividends while the subordinated
debt obligation is outstanding. As a result, the equity value of these shares is
calculated based on the shareholders' equity of SM Chile, excluding income.

Dividends received

The dividends received in 2002, relate to income earned during 2001 and are
therefore based on the individual net income of each bank before the merger,
although the dividends have been paid by the merged bank. The participation of
the Company in Banco de Chile's total dividend distribution was equal to 17.8%
of Banco de Chile's net income, before the merger and 51.17% of Banco Edwards'
net income before the merger.


                                      F-30
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

(3) Entel

During 1999, Quinenco acquired a 14.31% interest in Entel through an agreement
with Samsung Chile Holding Ltda. and open market purchases. During 2000 and
2001, Quinenco sold 2,000,000 and 18,920,948 shares of Entel (equivalent to a
0.63% interest and 7.99%), respectively, generating non-operating income of
ThCh$7,833,680 in 2000 and ThCh$51,056,068 in 2001 (see Note 20). The Company
accounts for this investment under the equity method as it exerts significant
influence through Board of Director representation.

(4) Habitaria

On April 26, 2001, the Company participated in the proportional capital increase
of the related company Habitaria, purchasing 2,090,300 shares in the amount of
ThCh$950,648 (historical), maintaining its participation of 50% of Habitaria's
capital.

(5) Lucchetti Peru

Lucchetti has not consolidated the subsidiary Lucchetti Peru as of December 31,
2002 as a result of action taken by Peruvian government as detailed in Note 19
d). This action resulted in the closure of the plant and the start of a process
to liquidate its assets. This decision is based on the provisions of Technical
Bulletin No. 64 of the Chilean Association of Accountants and Resolution No.
01642 of the SVS dated March 11, 2003, which authorized the non-consolidation of
Lucchetti Peru. The Company has therefore used the equity method to account for
this investment and based on the analysis that the Company has carried out, has
recorded a provision for the full amount of the investment, leaving a balance of
Ch$1. The Company's participation in the net loss incurred during the year-ended
December 31, 2002 and the charge for impairment are included in non-operating
expenses.

(6) Plava Laguna

On March 1, 2000, Quinenco purchased a 15.7% equity interest in Plava Laguna, a
large tourist and hotel complex on the Adriatic Coast of Croatia for
approximately US$ 11 million. On the same date it launched a tender offer for
the publicly held portion of Plava Laguna, traded on the Croatian Stock Exchange
and acquired an additional 23.72% percentage of Plava Laguna for approximately
US$ 16 million. As of December 31, 2000, Quinenco held an aggregate interest in
Plava Laguna of 39.42% through a wholly-owned subsidiary, Excelsa Establishment.

On August 20, 2001, Quinenco announced that it had sold its 39.42% interest in
Plava Laguna to Sutivan Investments, a Luksic Group company, for ThUS$29,624
(historical). The pre-tax gain on the sale of its interest was ThCh$1,280,114
(historical) (ThUS$1,955). Under the terms of the sales agreement, Quinenco has
an option to purchase 50% of Sutivan Investments in 2004.


                                      F-31
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

NOTE 11 - GOODWILL

Goodwill and negative goodwill are summarized as follows:

<TABLE>
<CAPTION>
                                                                                                  At December 31,
                                                                                           -------------------------------
                                                                                               2001               2002
                                                                                           ------------       ------------
                                                                                                ThCh$             ThCh$
<S>                                                                                         <C>                <C>
Goodwill ...................................................................                367,909,456        350,353,413
Negative goodwill ..........................................................                (11,061,248)        (8,799,149)
                                                                                           ------------       ------------
       Total ...............................................................                356,848,208        341,554,264
                                                                                           ============       ============
</TABLE>

Goodwill (net) at December 31 of each year arose from the purchase of the
following investments:

<TABLE>
<CAPTION>
                                                                                                  At December 31,
                                                                                           -------------------------------
Company                                                                                        2001               2002
                                                                                           ------------       ------------
                                                                                               ThCh$              ThCh$
<S>                                                                                         <C>                <C>
Banco Edwards ..............................................................                 76,393,421         72,069,266
Madeco and subsidiaries ....................................................                 37,641,741         37,782,008
Banco de Chile and SM Chile Series B, D and E ..............................                253,334,219        239,966,760
Entel ......................................................................                         --             31,424
Others .....................................................................                    540,075            503,955
                                                                                           ------------       ------------
       Total ...............................................................                367,909,456        350,353,413
                                                                                           ============       ============
</TABLE>

The amortization of goodwill is included in non-operating expense each year
(ThCh$12,437,416 in 2000, ThCh$28,230,631 in 2001 and ThCh$20,531,853 in 2002).

Negative goodwill (net) at December 31 of each year arose from the purchase of
the following investments:

<TABLE>
<CAPTION>
                                                                                                   At December 31,
                                                                                           -------------------------------
Company                                                                                        2001               2002
                                                                                           ------------       ------------
                                                                                               ThCh$              ThCh$
<S>                                                                                          <C>                 <C>
Banco de Chile y SM Chile Serie A ..........................................                    485,148            457,870
VTR and subsidiaries .......................................................                  5,098,220          4,352,988
Madeco and subsidiaries ....................................................                    189,384             55,415
Entel ......................................................................                  2,607,237          2,431,528
Agricola El Penon S.A ......................................................                  1,045,839            976,730
Other ......................................................................                  1,635,420            524,618
                                                                                           ------------       ------------
       Total ...............................................................                 11,061,248          8,799,149
                                                                                           ============       ============
</TABLE>

The amortization of negative goodwill is included in non-operating income in
each year (ThCh$2,530,960 in 2000, ThCh$9,187,460 in 2001 and ThCh$1,889,029 in
2002).


                                      F-32
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

NOTE 12 - OTHER NON-CURRENT ASSETS

Other non-current assets are summarized as follows:

<TABLE>
<CAPTION>
                                                                                                             At December 31,
                                                                                                     -------------------------------
                                                                                                        2001                 2002
                                                                                                     ----------           ----------
                                                                                                         ThCh$                ThCh$
<S>                                                                                                  <C>                  <C>
Long-term notes and account receivable ...................................................           24,381,221            2,263,452
Recoverable tax incentives in Argentina ..................................................            5,292,301            1,386,667
Recoverable VAT in Lucchetti Peru and VTR ................................................            3,901,355              270,465
Intangibles, net .........................................................................            2,362,474              912,934
Bond issuance costs ......................................................................            9,665,190            8,228,751
Deposits in guarantee ....................................................................            1,686,606              339,300
Fixed assets held-for-sale ...............................................................              211,473            3,136,883
Promissory notes in judicial collection, net .............................................              277,737                   --
Recoverable VAT in Argentina .............................................................               52,185              261,119
Deferred income taxes, net (see Note 16 b)) ..............................................            8,008,040           14,357,034
Slow movement inventories, net ...........................................................              230,352              296,236
Effect of carrying derivative financial instruments at fair value ........................              670,172                   --
Other ....................................................................................              813,030            1,273,158
                                                                                                     ----------           ----------
       Total other non-current assets ....................................................           57,552,136           32,725,999
                                                                                                     ==========           ==========
</TABLE>

Long-term notes and accounts receivable in 2001, corresponded primarily to the
sale of 414,018,557 shares of Banco Edwards by the Company to J. Ergas
Inversiones y Rentas Ltda. for UF1,238,290, equivalent to ThCh$ 20,742,033. The
balance accrued interest at 8.98% per annum and was originally due on March 31,
2003. The 414,018,557 shares were originally purchased by the Company on behalf
of J. Ergas Inversiones y Rentas Ltda. and served as collateral on the loan. J.
Ergas Inversiones y Rentas Ltda. paid the amount in advance on September 9,
2002.

NOTE 13 - SHORT-TERM BANK LOANS

Short-term bank loans are summarized as follows:

<TABLE>
<CAPTION>
                                                                                                             At December 31,
                                                                                                    --------------------------------
                                                                                                        2001                 2002
                                                                                                    -----------          -----------
                                                                                                         ThCh$                ThCh$
<S>                                                                                                  <C>                  <C>
Payable In:
United States dollars ....................................................................           82,933,868           64,028,508
Other foreign currencies .................................................................            4,498,472            1,927,880
Inflation-linked units (UFs) .............................................................           17,996,865            8,283,392
Chilean pesos (not indexed) ..............................................................           20,034,990           33,089,290
                                                                                                    -----------          -----------
       Total short-term bank loans .......................................................          125,464,195          107,329,070
                                                                                                    ===========          ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                                                             At December 31,
                                                                                                    --------------------------------
                                                                                                        2001                 2002
                                                                                                    -----------          -----------
                                                                                                          %                    %
<S>                                                                                                      <C>                  <C>
Year-end weighted average interest rates:
Loans in United States dollars ...........................................................               4.50                 4.95
Other foreign currencies .................................................................               7.25                30.80
Loans in inflation-linked units (UFs) ....................................................               6.46                 5.86
Loans in Chilean pesos (not inflation indexed) ...........................................               8.61                 5.73
</TABLE>


                                      F-33
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

NOTE 14 - ACCRUED AND OTHER LIABILITIES

Accrued and other liabilities are summarized as follows:

a)    Current liabilities

<TABLE>
<CAPTION>
                                                                                                   At December 31,
                                                                                           -------------------------------
                                                                                              2001                 2002
                                                                                           ----------           ----------
                                                                                              ThCh$                ThCh$
<S>                                                                                        <C>                  <C>
Withholdings ...................................................................            3,300,188            3,517,185
Accrued employee vacation expenses .............................................            3,368,457            2,608,620
Purchase price accruals ........................................................            3,831,236            1,846,136
Unearned revenues ..............................................................              151,198              855,394
Restructuring expenses .........................................................            1,191,428            1,109,068
Provision for anticipated losses on construction contracts .....................              139,791              256,446
Staff severance indemnities (1) ................................................              702,167            1,187,493
Remuneration and consulting services ...........................................            3,510,568            3,033,259
Project expenses and suppliers .................................................            3,090,851            2,354,598
Dividends payable ..............................................................            1,076,337              568,856
Advertising, promotions and corporate image ....................................               71,444              137,020
Employee benefits ..............................................................              342,753              344,742
Property, municipal and other taxes ............................................              904,430              909,005
Import and export costs ........................................................               51,490               70,793
Telephone access charges .......................................................              698,748            1,037,906
Effect of carrying derivative financial instruments at fair value ..............            2,372,920               23,679
Provisions for pending lawsuits ................................................                   --              447,873
Bank fees payable ..............................................................                   --              365,000
Other ..........................................................................            3,872,617            2,688,744
                                                                                           ----------           ----------
       Total accrued expenses and other liabilities ............................           28,676,623           23,361,817
                                                                                           ==========           ==========
</TABLE>

b)    Long-term liabilities

<TABLE>
<CAPTION>
                                                                                                   At December 31,
                                                                                           -------------------------------
                                                                                              2001                  2002
                                                                                           ----------            ---------
                                                                                              ThCh$                 ThCh$
<S>                                                                                        <C>                   <C>
Provisions for contingencies (Note 19) ........................................             6,433,048            1,889,241
Employee severance indemnities (1) ............................................             2,063,630            2,156,420
Provisions for pending lawsuits ...............................................             3,274,597            2,953,840
Effect of carrying derivative financial instruments at fair value .............                    --              263,216
Other .........................................................................             2,508,541               99,858
                                                                                           ----------            ---------
       Total accrued expenses .................................................            14,279,816            7,362,575
                                                                                           ==========            =========
</TABLE>

(1)   Hoteles Carrera, Madeco and Lucchetti have entered into collective
      bargaining agreements with their employees, under which each employee is
      entitled to approximately one month's remuneration for each year of
      service, payable upon termination of employment. These subsidiaries
      account for their obligation to pay these vested indemnities using a
      present value method applying real discount rates between 6% and 7% in
      2001 and 2002.


                                      F-34
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

NOTE 15 - LONG-TERM DEBT AND BONDS PAYABLE

a)    Long-term debt

Long-term debt is summarized as follows:

<TABLE>
<CAPTION>
                                                                                                     At December 31,
                                                                                           --------------------------------
                                                                                               2001                2002
                                                                                           ------------        ------------
                                                                                               ThCh$                ThCh$
<S>                                                                                         <C>                <C>
Long-term bank loans .............................................................          278,230,408         410,422,069
Long-term accounts payable .......................................................           14,931,715           8,392,724
Other long-term liabilities ......................................................           84,847,739             162,907
                                                                                           ------------        ------------
      Total ......................................................................          378,009,862         418,977,700
Less: Current portion (1) ........................................................          (53,692,891)       (116,488,024)
                                                                                           ------------        ------------
      Long-term debt .............................................................          324,316,971         302,489,676
                                                                                           ============        ============
</TABLE>

(1)    The current portion of long-term debt is reflected on the balance sheet
       together with the short-term portion of bonds payable totaling
       ThCh$7,487,893 and ThCh$19,439,940 at December 31, 2001 and 2002,
       respectively.

Year-end weighted average interest rates:

<TABLE>
<S>                                                                                          <C>             <C>
Long-term bank loans in United States dollars and others currencies ............             6.09%           3.41%
Long-term bank loans in UF .....................................................             6.56%           3.87%
Long-term accounts payable .....................................................             6.82%          12.19%
Other long-term liabilities ....................................................             8.50%             --
</TABLE>

b)    Bonds payable

Bonds have been issued by the following subsidiaries:

<TABLE>
<CAPTION>
                                                                    Original
                                                                issuance in UFs                  At December 31,
                                                                ---------------        ----------------------------------
Subsidiary:                                                                                 2001                  2002
                                                                                       ------------          ------------
                                                                                            ThCh$                 ThCh$
<S>                                                                 <C>                 <C>                   <C>
Compania de Telefonos de Coyhaique S.A. ("Telcoy") (1) .....           130,000              960,959               659,929
Telsur (2) .................................................           450,000            4,316,399             3,546,261
Telsur (3) .................................................           300,000            4,322,247             4,112,093
Telsur (4) .................................................           500,000            7,428,859             6,607,655
Telsur (5) .................................................           500,000            8,573,489             8,402,915
Telsur (6) .................................................           400,000            6,732,128             6,729,273
Telsur (7) .................................................           600,000           10,098,193            10,094,323
Madeco (8) .................................................           693,000            3,206,056             1,649,091
Madeco (9) .................................................         2,500,000           42,000,637            41,984,539
Madeco (10) ................................................         1,500,000           25,381,537            25,371,811
Quinenco (11) ..............................................         2,000,000           33,858,751            33,851,587
Quinenco (12) ..............................................         4,500,000           76,182,172            76,166,072
                                                                                       ------------          ------------
       Total ...............................................                            223,061,427           219,175,549
Less: Current portion ......................................                             (7,487,893)          (19,439,940)
                                                                                       ------------          ------------
       Long-term portion ...................................                            215,573,534           199,735,609
                                                                                       ============          ============
</TABLE>


                                      F-35
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

(1)   In September 1994, Telcoy, a subsidiary of Telsur, issued bonds under the
      following terms:

Amount issued          :   UF 130,000 composed of 260 Series A bonds of UF 500
                           each.
Term                   :   Ten years (two years of grace and eight years of
                           principal repayment).
Principal amortization :   Sixteen equal semi-annual installments from March 1,
                           1997. As of December 31, 2002, twelve principal
                           installments amounting to UF73,747 had been paid.
Interest rate          :   6.25% real annual rate, calculated and paid
                           semi-annually on the outstanding UF-denominated
                           principal.

(2)   In March 1995, Telsur issued bonds under the following terms:

Amount issued          :   UF 450,000 composed of 450 Series C bonds of UF 1,000
                           each.
Term                   :   Twelve years (two years of grace and ten years of
                           principal repayment).
Principal amortization :   Twenty equal semi-annual installments from June 1,
                           1997. As of December 31, 2002, twelve principal
                           installments amounting to UF239,180 had been paid.
Interest rate          :   5.8% real annual rate, calculated and paid
                           semi-annually on the outstanding UF-denominated
                           principal.
Advance redemption     :   Telsur has the right to redeem the entire bond issue
                           on any coupon payment date after June 1, 1997.

(3)   In March 1995, Telsur issued bonds under the following terms:

Amount issued          :   UF 300,000 composed of 300 Series D bonds of UF 1,000
                           each.
Term                   :   Twenty-one years (three years of grace and eighteen
                           years of principal repayment).
Principal amortization :   Thirty-six equal semi-annual installments from June
                           1, 1998. As of December 31, 2002, ten principal
                           installments amounting to UF 55,541 had been paid.
Interest rate          :   5.8% real annual rate, calculated and
                           paid semi-annually on the outstanding UF-denominated
                           principal.
Advance redemption     :   Telsur has the right to redeem the entire bond issue
                           on any coupon payment date after June 1, 2000.

(4)   In May 1997, Telsur issued bonds under the following terms:

Amount issued          :   UF 500,000 composed of 500 Series E bonds of UF 1,000
                           each.
Term                   :   Twelve years (three years of grace and nine years of
                           principal repayment).
Principal amortization :   Eighteen equal semi-annual installments from August
                           1, 2000. As of December 31, 2002, five principal
                           installments amounting to UF 114,499 had been paid.
Interest rate          :   5.8% real annual rate, calculated and paid
                           semi-annually on the outstanding UF-denominated
                           principal.
Advance redemption     :   Telsur has the right to redeem the entire bond issue
                           on any coupon payment date after August 1, 2000.


                                      F-36
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

(5)   In May 1997, Telsur issued bonds under the following terms:

Amount issued          :   UF 500,000 composed of 500 Series F bonds of UF 1,000
                           each.
Term                   :   Twenty-one years (five years of grace and sixteen
                           years of principal repayment).
Principal amortization :   Thirty-two equal semi-annual installments from August
                           1, 2002. As of December 31, 2002 one principal
                           installment amounting to UF9,760 had been paid.
Interest rate          :   5.8% real annual rate, calculated and paid
                           semi-annually on the outstanding UF-denominated
                           principal.
Advance redemption     :   Telsur has the right to redeem the entire bond issue
                           on any coupon payment date after August 1, 2002.

(6)   In April 2001, Telsur issued bonds under the following terms:

Amount issued          :   UF 400,000 composed of 200 Series G1 bonds of UF 500
                           each and 60 Series G2 bonds of UF 5,000 each.
Terms                  :   Five years (two years of grace and three years of
                           principal repayment).
Principal amortization :   Six equal semi-annual payments from June 1, 2003.
Interest rate          :   6.00% real annual rate calculated and paid
                           semi-annually on the outstanding UF-denominated
                           principal.

(7)   In April 2001, Telsur issued bonds under the following terms:

Amount issued          :   UF 600,000 composed of 300 Series H1 bonds of UF
                           1,000 each and 60 Series H2 bonds of UF 5,000 each.
Terms                  :   Twenty-one years (six years of grace and fifteen
                           years of principal repayment).
Principal amortization :   Thirty equal semi-annual payments from June 1, 2007.
Interest rate          :   6.00% real annual rate calculated and paid
                           semi-annually on the outstanding UF-denominated
                           principal.

(8)   In September 1991, Madeco issued bonds under the following terms:

Amount issued          :   UF 693,000 composed of 693 Series B bonds of UF 1,000
                           each.
Terms                  :   Thirteen years (six years of grace and seven years of
                           principal repayment).
Principal amortization :   Fourteen equal semi-annual payments from February 1,
                           1997. As of December 31, 2002, twelve principal
                           installments aggregating UF 596,880 had been paid.
Interest rate          :   6.00% real annual rate calculated and paid
                           semi-annually on the outstanding UF-denominated
                           principal.


                                      F-37
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

(9)   In April 2000, Madeco issued bonds under the following terms:

Amount issued          :   UF 2,500,000 composed of 1,000 Series A1 bonds of UF
                           1,000 each and 300 Series A2 bonds of UF 5,000 each.
Term                   :   Fifteen years (three years of grace and twelve years
                           of principal repayment).
Principal amortization :   Twelve equal semi-annual installments from September
                           15, 2003.
Interest rate          :   7.25% real annual rate, calculated and paid
                           semi-annually on the outstanding UF-denominated
                           principal.
Advance redemption     :   Madeco has the right to redeem the entire bond issue
                           on any coupon payment date after September 15, 2003.

(10)  In August, 2001, Madeco issued bonds under the following terms:

Amount issued          :   UF 1,500,000 composed of 500 Series C1 bonds of UF
                           1,000 each and 100 Series C2 bonds of UF 10,000 each.
Term                   :   Three years (five semi-annual installments of
                           principal repayment).
Principal amortization :   Six semi-annual installments from November 1, 2001.
Interest rate          :   6.20% real annual rate calculated and paid
                           semi-annually on the outstanding UF-denominated
                           principal.

(11)  In April 2001, Quinenco issued bonds under the following terms:

Amount issued          :   UF 2,000,000 composed of 180 Series A1 bonds of UF
                           10,000 each and 200 Series A2 bonds of UF 1,000 each.
Terms                  :   Twenty-one years (five years of grace and sixteen
                           years of principal repayment).
Principal amortization :   Thirty-two equal semi-annual payments from October
                           30, 2005.
Interest rate          :   6.20% real annual rate calculated and paid
                           semi-annually on the outstanding UF-denominated
                           principal.

(12)  In April 2001, Quinenco issued bonds under the following terms:

Amount issued          :   UF 4,500,000 composed of 400 Series B1 bonds of UF
                           10,000 each and 500 Series B2 bonds of UF 1,000 each.
Terms                  :   Eight years (three years of grace and five years of
                           principal repayment).
Principal amortization :   Ten equal semi-annual payments from October 30, 2003.
Interest rate          :   6.20% real annual rate calculated and paid
                           semi-annually on the outstanding UF-denominated
                           principal.


                                      F-38
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

c)    The scheduled principal payments on long-term debt and bonds payable at
      December 31, 2002 are summarized as follows:

<TABLE>
<CAPTION>
                                                                                      At December 31, 2002
                                                                                      --------------------
                                                                                              ThCh$
<S>                                                                                       <C>
Principal payments during the fiscal years ending December 31,
2004 ....................................................................                 131,827,624
2005 ....................................................................                 163,813,663
2006 ....................................................................                  61,831,612
2007 ....................................................................                  24,968,722
2008 and there after ....................................................                 119,783,664
                                                                                          -----------
       Total ............................................................                 502,225,285
                                                                                          ===========
</TABLE>

Long-term debt and bonds payable, including the current portion, are payable in
the following currencies:

<TABLE>
<CAPTION>
                                                                                                   At December 31,
                                                                                           -----------------------------
                                                                                               2001             2002
                                                                                           -----------       -----------
                                                                                               ThCh$             ThCh$
<S>                                                                                        <C>               <C>
United States dollars ..................................................                    48,608,968       183,455,244
Inflation linked-units (UFs) ...........................................                   546,638,030       452,669,451
Chilean pesos (not indexed) ............................................                       637,926         1,146,516
Other currencies (1) ...................................................                     5,186,365           882,038
                                                                                           -----------       -----------
       Total ...........................................................                   601,071,289       638,153,249
                                                                                           ===========       ===========
</TABLE>

(1)   Others currencies include Peruvian Sols, Argentine Pesos, Brazilian Reals
      and Euros.

d)    Financial covenants

As of December 31, 2002 Quinenco and its group companies, except Lucchetti, were
in compliance with financial covenants related to current bond issuances and
bank loan agreements.

d-1)  Quinenco is subject to certain financial covenants with respect to bond
      issuances and loan agreements. The main financial covenants relating to
      the Company as of December 31, 2002 are as follows:

      o     Maintain a ratio of unencumbered assets at book value to unsecured
            debt of at least 1.3:1.

      o     Maintain a ratio of unconsolidated interest-bearing debt to total
            capitalization of no greater than 0.45:1.

      o     Maintain a ratio of consolidated interest-bearing debt to total
            capitalization of no greater than 0.6:1.

      o     Maintain minimum shareholders' equity of UF 33 million.

      o     Luksic Group must maintain control of Quinenco.

      o     Quinenco must maintain control of Banco de Chile (through its
            investment in LQIF).


                                      F-39
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

d-2)  Telsur and it subsidiary Telcoy are subject to certain financial covenants
      and restrictions related to its bond issuances and bank loan agreements.
      The main financial covenants as of December 31, 2002 are as follows:

      Telsur

      o     Maintain a current ratio of at least 0.50:1 on both an
            unconsolidated and consolidated basis.

      o     Leverage (liabilities/net worth) to be no greater than 1.5:1 on both
            an unconsolidated and consolidated basis.

      o     Maintain minimum net worth of UF2,000,000.

      o     Investments in subsidiaries that are not eligible for investment by
            local pension funds or in shares that are not subject to approval by
            the Commission on Risk Classification may not exceed 20% of the
            company's consolidated net worth.

      o     Maintain a ratio of unencumbered assets to unsecured debt of at
            least 1.3:1.

      Telcoy

      o     Maintain a current ratio of at least 1:1.

      o     Leverage (liabilities/net worth) no greater than 1.5:1.

      o     Investments in subsidiaries that are not eligible for investment by
            local pension funds or in shares that are not subject to approval by
            the Commission on Risk Classification may not exceed 20% of the
            company's net worth.

      o     Maintain a ratio of unencumbered assets to unsecured debt of at
            least 1.3:1.

d-3)  Lucchetti's syndicated loan agreement stipulates that the following
      financial covenants must be met:

      Covenants based on the consolidated financial statements of Lucchetti
      Chile S.A. ("Lucchetti Chile"), the operating subsidiary of Lucchetti,
      excluding Lucchetti Peru:

      o     Current ratio of at least annual of 1.0 and semi-annual of 1.0.

      o     Debt to equity ratio no more than annual of 1.0 and semi-annual of
            1.2.

      Covenants based on the consolidated financial statements of Lucchetti:

      o     Current ratio of at least annual of 1.3 and semi-annual of 1.3.

      o     Debt to equity ratio no more than annual of 1.5 and semi-annual of
            1.6.

      As a result of the closure of Lucchetti's plant installations in Peru in
      early January 2003, Lucchetti made extraordinary charges amounting to
      Ch$30,678 million in connection with the plant closure to its 2002
      results, including a charge for Ch$29,812 million, equivalent to 100% of
      its equity in its Peruvian subsidiary. The impact of the charges was a
      reduction in Lucchetti's net worth, which decreased from Ch$48,537 million
      as of year-end 2001 to Ch$16,189 million as of year-end 2002. As a
      consequence, at year-end 2002 Lucchetti was not in compliance with certain
      of its financial covenants related to its syndicated bank loan, including
      a maximum leverage level (measured as total liabilities to total net
      worth) of 1.5:1. As of December 31, 2002, due to the non-recurring loss
      associated with the forced closing of its activities in Peru, this
      measurement was 3.7:1. Lucchetti obtained a waiver for its period-ended
      December 31, 2002 non-compliance from the banks party to the syndicated
      bank facility. See Note 26 "Subsequent events."


                                      F-40
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

d-4)  LQIF is subject to certain financial covenants and restrictions related to
      its bank loan agreements. The main financial covenants as of December 31,
      2002 are as follows:

      o     Maximum debt to capitalization ratio of 40%.

      o     Minimum shareholders' equity of UF9,500,000

      o     Maintain a minimum share coverage of 1.5:1 with topping up and
            closing out clauses.

      o     Quinenco must maintain control of LQIF.

      o     LQIF must maintain control of Banco de Chile.

d-5)  As of December 31, 2002, Madeco is subject to certain financial covenants
      and restrictions related to its bond issuances and bank loan agreements.
      The main financial covenants as of December 31, 2002 are as follows:

i.    Bonds

      o     Maintain a current ratio of at least 1:1

      o     Shareholders' equity plus minority interest at December 31, 2002 to
            be at least UF 7,000,000 (Bonds Series A and C).

      o     Debt to equity ratio (third-party liabilities/shareholder's equity
            plus minority interest) may not exceed 1.8:1 (Bonds Series A and C).

      o     Unencumbered assets to be at least 1.2 times the total amount of the
            issuance (Bonds series A and C).

      o     Short and long-term liabilities to net shareholders' equity may not
            exceed 2:1 starting March 2003 (Bonds Series B).

      o     A capital increase equivalent to US$60 million must be subscribed
            and paid (Bonds Series B) by March 31, 2003.

      At a meeting of bondholders held on October 28, 2002 waivers were approved
      for the non-compliance of the covenants mentioned above until March 31,
      2003. See Note 26 "Subsequent Events."

ii.   Bank loans:

      As of December 31, 2001 Madeco was not in compliance with certain
      covenants. See Note 27 III f).

      On December 18, 2002, Madeco signed amended loan agreements with twelve
      domestic and two foreign banks modifying and rescheduling loans in
      accordance with the conditions described below. As a result, Madeco
      obtained waivers for the non-compliance of the financial covenants
      associated with its bank loans.

      The agreements relate to the restructuring of a portion of Madeco's bank
      debt of approximately US$120 million. The agreements provide for an
      upfront payment of 30% of the restructured debt once the conditions
      contained in the agreements have been met. The remaining 70% will be
      rescheduled over seven years with a three year grace period, bearing
      interest at a rate of TAB plus 175 basis points for debts denominated in
      UF and LIBOR plus 220 basis points for debts denominated in US dollars.


                                      F-41
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

      The agreements are subject to compliance with certain conditions to be
      fulfilled by March 31, 2003, the most important being that the funds that
      Madeco receives as a result of the capital increase agreed at its
      extraordinary shareholders' meeting held on November 14, 2002 are no less
      than ThCh$49,400,491 and that part of these funds are paid by Madeco to
      its bank creditors in a percentage equal to 30% of the debt outstanding
      with each bank party to the agreement. Madeco met the requirements of the
      amended loan agreements subsequent to year end 2002. See Note 26
      "Subsequent Events."

NOTE 16 - INCOME TAXES AND OTHER TAXES

a)    Income taxes payable and receivable:

Income taxes payable are summarized as follows:

<TABLE>
<CAPTION>
                                                                    At December 31,
                                                              ---------------------------
                                                                 2001             2002
                                                              ----------       ----------
                                                                 ThCh$            ThCh$
<S>                                                           <C>              <C>
Income tax payable ......................................     (3,049,562)      (1,801,245)
Monthly income tax installments .........................      2,718,552        1,415,404
Other credits against taxes .............................      5,949,059        4,387,455
Others tax recoverable ..................................      3,517,716        2,603,915
                                                              ----------       ----------
       Recoverable income taxes, net  (Note 8) ..........      9,135,765        6,605,529
                                                              ==========       ==========
</TABLE>

The income tax liability has been determined based on current tax laws in each
country in which the Company operates. The net (charge) credit to the results of
operations for each year is summarized as follows:

<TABLE>
<CAPTION>
                                                                               At December 31,
                                                                 -------------------------------------------
                                                                    2000              2001           2002
                                                                 ----------       -----------     ----------
                                                                    ThCh$             ThCh$          ThCh$
<S>                                                              <C>               <C>            <C>
Current year provision for income tax ...................        (2,247,189)       (3,049,562)    (1,801,245)
Deferred income tax .....................................         4,903,136        (1,092,892)     2,808,126
Change in Chilean statutory tax rate ....................                --        (1,253,118)            --
Amortization of complementary accounts ..................         1,443,284           751,091      4,955,401
Valuation allowance on deferred tax assets ..............                --        (3,599,872)    (4,499,792)
Tax benefit from (use of) tax loss carry forwards .......         3,188,650        13,164,770     (1,245,300)
Other ...................................................           253,355           (27,877)       (75,754)
                                                                 ----------       -----------     ----------
       Net income tax benefit ...........................         7,541,236         4,892,540        141,436
                                                                 ==========       ===========     ==========
</TABLE>


                                      F-42
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

b)    Deferred income taxes

<TABLE>
<CAPTION>
                                                                        Current portion                     Long-term portion
                                                                 ----------------------------        ------------------------------
Timing differences                                                  2001              2002               2001               2002
                                                                 ----------        ----------        -----------        -----------
                                                                    ThCh$             ThCh$              ThCh$              ThCh$
<S>                                                               <C>               <C>                <C>               <C>
Assets
  Accrued vacation expense ...............................          423,481           303,356                 --              8,841
  Amortization of intangibles assets .....................               --                --            179,195                 --
  Allowance for doubtful accounts ........................        1,306,476         1,417,648                 --             92,045
  Allowance for obsolescence of inventories ..............          399,355           571,244             93,247            129,799
  Unearned revenues ......................................            3,575            35,947                 --                 --
  Property, plant and equipment held for sale ............          144,247           426,645            248,686            112,609
  Property, plant and equipment under leasing ............               --            41,118             24,397            207,755
  Accelerated depreciation of property, plant and
    equipment ............................................               --             2,253                 --              5,297
  Employee severance indemnities .........................            8,838             7,545                 --                 --
  Other provisions .......................................        1,548,318           764,218          1,377,407          6,612,496
Liabilities
  Property, plant and equipment under leasing ............         (149,997)          (64,173)        (2,391,049)        (2,548,395)
  Production costs (inventories) .........................         (192,917)         (491,255)           (60,010)                --
  Accelerated depreciation of property, plant and
    equipment ............................................               --          (438,602)       (15,679,914)       (17,008,192)
  Employee severance indemnities .........................           (5,639)           (2,918)          (590,157)          (505,088)
  Bonds issuance .........................................               --                --           (505,916)          (403,095)
  Other provisions .......................................          (31,251)         (276,277)          (528,410)          (570,733)
                                                                 ----------        ----------        -----------        -----------
      Subtotal ...........................................        3,454,486         2,296,749        (17,832,524)       (13,866,661)
Complementary accounts, net of amortization ..............         (688,693)          (58,689)        (5,084,799)          (759,402)
Valuation allowance ......................................         (220,954)               --         (3,574,578)        (8,295,324)
Tax loss carry forwards ..................................        4,186,853           163,073         34,499,941         37,278,421
                                                                 ----------        ----------        -----------        -----------
      Total deferred income taxes, net ...................        6,731,692         2,401,133          8,008,040         14,357,034
                                                                 ==========        ==========        ===========        ===========
</TABLE>


                                      F-43
<PAGE>
                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

NOTE 17 - SHAREHOLDERS' EQUITY

a)    The changes in Shareholders' equity during the years 2000, 2001 and 2002
      in historical amounts are summarized as follows:

<TABLE>
<CAPTION>
                                                                                                  Reserves
                                                                           ------------------------------------------

                                                                                           Cumulative
                                              Number of        Paid in         Other      Translation     Executive
                                                Shares         Capital       Reserves      Adjustment  Incentive Plan
                                             ------------------------------------------------------------------------
                                                                 ThCh$         ThCh$          ThCh$         ThCh$
                                             ------------------------------------------------------------------------
<S>                                          <C>             <C>            <C>            <C>           <C>
Balances at January 1, 2000 ..............   1,079,740,079   409,001,275    12,358,566      2,620,709            --
Allocation of 1999 net income ............              --            --            --             --            --
Payment of final dividend on 1999 net ....              --            --            --             --            --
income
Price-level restatement of equity ........              --    19,223,060       580,853        123,173            --
accounts
Proportional share of variations in
   equity of subsidiaries and investees ..              --            --       (64,086)            --            --
Cumulative translation adjustments, net ..              --            --            --      5,806,606            --
Executive incentive plan .................              --            --            --             --    (4,659,565)
Net loss for the year ....................              --            --            --             --            --
                                             -------------   -----------   -----------    -----------    ----------
   Balances at December 31, 2000 .........   1,079,740,079   428,224,335    12,875,333      8,550,488    (4,659,565)
                                             =============   ===========   ===========    ===========    ==========
   Restatement of December 31, 2000
     balances to December 31, 2002
     constant pesos ......................              --   454,744,268    13,672,702      9,080,020    (4,948,132)
                                             =============   ===========   ===========    ===========    ==========
Balances at January 1, 2001 ..............   1,079,740,079   428,224,335    12,875,333      8,550,488    (4,659,565)
Allocation of 2000 net loss ..............              --            --            --             --            --
Deficit from development period ..........              --            --            --             --            --
Price-level restatement of equity accounts              --    13,274,954       399,135        265,065      (144,446)
Proportional share of variations in
   equity of subsidiaries and investees ..              --            --      (957,119)            --            --
Cumulative translation adjustments, net ..              --            --            --      8,257,545            --
Executive incentive plan .................              --            --            --             --        32,069
Net income for the year ..................              --            --            --             --            --
                                             -------------   -----------   -----------    -----------    ----------
   Balances at December 31, 2001 .........   1,079,740,079   441,499,289    12,317,349     17,073,098    (4,771,942)
                                             =============   ===========   ===========    ===========    ==========
   Restatement of December 31, 2001
     balances to December 31, 2002
     constant pesos ......................              --   454,744,268    12,686,869     17,585,291    (4,915,100)
                                             =============   ===========   ===========    ===========    ==========
Balances at January 1, 2002 ..............   1,079,740,079   441,499,289    12,317,349     17,073,098    (4,771,942)
Allocation of 2001 net income ............              --            --            --             --            --
Payment of final dividend on 2001 net ....              --            --            --             --            --
income
Deficit from development period ..........              --            --            --             --            --
Price-level restatement of equity accounts              --    13,244,979       369,521        512,192      (143,158)
Proportional share of variations in
   equity of subsidiaries and investees ..              --            --     4,882,510             --            --
Cumulative translation adjustments, net ..              --            --            --     10,993,119            --
Executive incentive plan .................              --            --            --             --       185,222
Net loss for the year ....................              --            --            --             --            --
                                             -------------   -----------   -----------    -----------    ----------
   Balances at December 31, 2002 .........   1,079,740,079   454,744,268    17,569,380     28,578,409    (4,729,878)
                                             =============   ===========   ===========    ===========    ==========

<CAPTION>
                                                                      Retained Earnings
                                              ------------------------------------------------------
                                               Accumulated
                                              Deficit During
                                                Development                        Net Income (loss)
                                                  Period      Related Earnings        for the year       Total
                                              -------------------------------------------------------------------
                                                  ThCh$             ThCh$                ThCh$            ThCh$
                                              -------------------------------------------------------------------
<S>                                           <C>                <C>                  <C>             <C>
Balances at January 1, 2000 ..............      (225,666)         77,296,265          160,310,163     661,361,312
Allocation of 1999 net income ............       225,666         160,084,497         (160,310,163)             --
Payment of final dividend on 1999 net ....            --         (48,093,048)                  --     (48,093,048)
income
Price-level restatement of equity ........            --           9,762,196                   --      29,689,282
accounts
Proportional share of variations in
   equity of subsidiaries and investees ..      (948,892)           (427,498)                  --      (1,440,476)
Cumulative translation adjustments, net ..            --                  --                   --       5,806,606
Executive incentive plan .................            --                  --                   --      (4,659,565)
Net loss for the year ....................            --                  --           (5,648,096)     (5,648,096)
                                              ----------        ------------         ------------    ------------
   Balances at December 31, 2000 .........      (948,892)        198,622,412           (5,648,096)    637,016,015
                                              ==========        ============         ============    ============
   Restatement of December 31, 2000
     balances to December 31, 2002
     constant pesos ......................    (1,007,657)        210,923,098           (5,997,883)    676,466,416
                                              ==========        ============         ============    ============
Balances at January 1, 2001 ..............      (948,892)        198,622,412           (5,648,096)    637,016,015
Allocation of 2000 net loss ..............            --          (5,648,096)           5,648,096              --
Deficit from development period ..........    (2,153,073)                 --                   --      (2,153,073)
Price-level restatement of equity accounts       (29,416)          5,982,204                   --      19,747,496
Proportional share of variations in
   equity of subsidiaries and investees ..            --                  --                   --        (957,119)
Cumulative translation adjustments, net ..            --             (71,691)                  --       8,185,854
Executive incentive plan .................            --                  --                   --          32,069
Net income for the year ..................            --                  --           15,509,382      15,509,382
                                              ----------        ------------         ------------    ------------
   Balances at December 31, 2001 .........    (3,131,381)        198,884,829           15,509,382     677,380,624
                                              ==========        ============         ============    ============
   Restatement of December 31, 2001
     balances to December 31, 2002
     constant pesos ......................    (3,225,322)        204,851,374           15,974,663     697,702,043
                                              ==========        ============         ============    ============
Balances at January 1, 2002 ..............    (3,131,381)        198,884,829           15,509,382     677,380,624
Allocation of 2001 net income ............     3,131,381          12,378,001          (15,509,382)             --
Payment of final dividend on 2001 net ....            --          (6,203,753)                  --      (6,203,753)
income
Deficit from development period ..........    (1,382,458)                 --                   --      (1,382,458)
Price-level restatement of equity accounts            --           6,164,180                   --      20,147,714
Proportional share of variations in
   equity of subsidiaries and investees ..            --              (7,955)                  --       4,874,555
Cumulative translation adjustments, net ..            --                  --                   --      10,993,119
Executive incentive plan .................            --                  --                   --         185,222
Net loss for the year ....................            --                  --          (75,480,211)    (75,480,211)
                                              ----------        ------------         ------------    ------------
   Balances at December 31, 2002 .........    (1,382,458)        211,215,302          (75,480,211)    630,514,812
                                              ==========        ============         ============    ============
</TABLE>


                                      F-44
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
           (expressed in constant Chilean pesos of December 31, 2002,
                            unless otherwise stated)

b)    As of December 31, 2000, 2001 and 2002, the Cumulative translation
      adjustment account included the exchange differences resulting from the
      application of Technical Bulletin 64 of the Chilean Association of
      Accountants as follows:

<TABLE>
<CAPTION>
                                                                                           ThCh$
<S>                                                                                    <C>
Balance at December 31, 1999 .....................................................      2,620,709
Price-level restatement ..........................................................        123,173
Translation gain (net) on foreign investments ....................................      5,956,745
Exchange losses on bank loans designated as hedges of foreign investments ........       (150,139)
                                                                                      -----------
       Balance at December 31, 2000 ..............................................      8,550,488
Price-level restatement ..........................................................        265,065
Translation gain (net) on foreign investments ....................................      8,257,545
                                                                                      -----------
       Balance at December 31, 2001 ..............................................     17,073,098
Price-level restatement ..........................................................        512,192
Translation gain (net) on foreign investments ....................................     10,993,119
                                                                                      -----------
       Balance at December 31, 2002 ..............................................     28,578,409
                                                                                      ===========
</TABLE>

c)    The Accumulated deficit during development period for the years ended
      December 31, 2000, 2001 and 2002 includes the recognition of the
      proportional share of the results of operations of certain subsidiaries in
      the development stage, losses from which are charged directly against
      shareholders' equity and are not included in the statement of income.

d)    As required by the Chilean Law, unless otherwise decided by the unanimous
      vote of the holders of all of the issued and subscribed shares, open stock
      corporations must distribute a cash dividend in an amount equal to at
      least 30% of their net income for each year, as determined in accordance
      with Chilean GAAP, unless and except to the extent that the Company has
      accumulated losses.

e)    As required by Chilean Law, Paid-in capital has been modified to reflect
      the proportional capitalization of the price-level restatement of equity
      accounts.

f)    During March 2000, Quinenco established an executive incentive plan in
      which an aggregate loan of ThCh$4,659,565 (historical) was granted to
      eligible employees to acquire Quinenco's stock and the stock of some of
      its subsidiaries at fair market value. The loan denominated in UFs is
      payable in annual installments and the acquired shares are pledged to
      guarantee payment of the loan or may be tendered.

g)    There are no additional restrictions on the payment of dividends under the
      terms of the various loan agreements with banks and other financial
      institutions.

h)    The shareholders at the Ordinary Shareholders' Meeting of April 5, 2000
      approved the payment of a final dividend on net income for the year 1999
      amounting to ThCh$48,093,048 (historical).

i)    The shareholders at the Ordinary Shareholders' Meeting of April 30, 2002
      approved the payment of a final dividend on net income for the year 2001
      amounting to ThCh$6,203,753 (historical).


                                      F-45
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
  (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

NOTE 18 - FOREIGN CURRENCY, UF-INDEXED AND CPI RESTATED ASSETS AND LIABILITIES

a)    Balances denominated or measured in foreign currency (principally US
      dollars) at December 31, 2001 and 2002 are included in these financial
      statements in thousands of Chilean peso equivalents as follows:

<TABLE>
<CAPTION>
                                                                                                          At December 31,
                                                                                                ------------------------------------
                                                                                                    2001                     2002
                                                                                                ------------             -----------
                                                                                                    ThCh$                    ThCh$
<S>                                                                                              <C>                     <C>
Current assets:
   Cash and time deposits ..........................................................              11,242,778               7,767,971
   Accounts receivable, net ........................................................              43,663,313              24,840,101
   Inventories, net ................................................................              48,949,954              33,507,912
   Other current assets ............................................................              21,490,073              59,807,280
Long-term assets:
   Property, plant and equipment and other non-monetary assets .....................             205,263,819             170,324,911
   Other monetary assets ...........................................................                 713,012                 611,591
                                                                                                ------------             -----------
        Total assets ...............................................................             331,322,949             296,859,766
                                                                                                ------------             -----------
Current liabilities:
   Short-term bank loans and current portion of long-term liabilities ..............              98,531,705             141,557,028
   Accounts payable and supplier notes payable .....................................              28,443,676              16,737,488
   Other ...........................................................................               8,057,190               5,673,354
Long-term liabilities
   Long-term debt ..................................................................              31,536,248             108,544,335
   Other ...........................................................................             225,127,052                 780,730
                                                                                                ------------             -----------
        Total liabilities ..........................................................             391,695,871             273,292,935
                                                                                                ------------             -----------
               Net (liability) asset position in US dollars ........................             (60,372,922)             23,566,831
                                                                                                ============             ===========
</TABLE>

Certain of the US dollar-denominated obligations included in the above table are
considered to be economic hedges covering the exposure of foreign investments as
permitted by Technical Bulletin 64. As a result, portions of the exchange losses
that arise from such obligations are charged directly against Shareholders'
equity to the Cumulative translation account within Shareholders' equity (see
Note 17 b)).

The inventories and fixed assets and other non-monetary assets included above
relate to assets of foreign investments for which the financial statements are
translated to US dollars in accordance with Technical Bulletin 64, described in
Note 2 s). Accordingly, there is exposure to variations in the exchange rate
between the US dollar and the Chilean peso, from an accounting perspective.


                                      F-46
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
  (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

b)    Balances denominated in UFs or restated based on CPI variation are
      included in the financial statements as follows:

<TABLE>
<CAPTION>
                                                                                                          At December 31,
                                                                                               -------------------------------------
                                                                                                   2001                    2002
                                                                                               -------------           -------------
                                                                                                   ThCh$                    ThCh$
<S>                                                                                            <C>                     <C>
Current assets:
   Time deposits and marketable securities .........................................              10,916,353               4,574,333
   Accounts receivable, net ........................................................              27,416,635              18,447,860
   Inventories, net ................................................................               9,810,606              12,510,407
   Other current assets ............................................................              29,829,255              36,200,939
Long-term assets:
   Property, plant and equipment and other non-monetary assets .....................             276,929,593             270,912,689
   Other assets ....................................................................             850,448,707             820,945,637
                                                                                               -------------           -------------
        Total assets ...............................................................           1,205,351,149           1,163,591,865
                                                                                               -------------           -------------
Current liabilities:
   Short-term bank loans and current portion of long-term liabilities ..............              68,078,284              68,585,211
   Accounts payable and supplier notes payable .....................................               6,960,587               5,206,567
   Other ...........................................................................                 643,196               1,169,726
Long-term liabilities: .............................................................                      --                      --
   Long-term debt ..................................................................             285,822,341             192,675,770
   Other ...........................................................................                      --             202,928,591
                                                                                               -------------           -------------
        Total liabilities ..........................................................             361,504,408             470,565,865
                                                                                               -------------           -------------
             Net asset position in UF and CPI ......................................             843,846,741             693,026,000
                                                                                               =============           =============
</TABLE>

NOTE 19 - COMMITMENTS AND CONTINGENCIES

a)    Pledges of shares

The Company has pledged shares of subsidiaries and equity investees to cover
obligations as of December 31, 2002 as follows:

<TABLE>
<CAPTION>
               Beneficiary           Currency      Balance of           Number of         Company/Series of
                                                  secured loan           Shares                  Shares
                                                      ThCh$
<S>                                    <C>         <C>                <C>                  <C>
 Banco Santiago                         UF         21,757,561         1,502,293,606        SM Chile Series B
 Banco del Estado de Chile              UF         96,933,919         7,146,412,564        Banco de Chile
                                                                         55,277,000        Madeco
 BBVA Banco BHIF                        UF         27,460,357         1,800,792,151        Banco de Chile
                                                                        250,706,792        SM Chile Series B
 Credit Lyonnais                       US$         10,779,150           350,000,000        SM Chile Series B
 Deutsche Bank                         US$         57,488,800         3,615,000,000        Banco de Chile
                                                                      1,384,596,180        SM Chile Series B
 CTC Chile S.A.                         UF          4,501,778            37,034,839        Telsur
</TABLE>

b)    Mortgages and pledges

Lucchetti and its subsidiary Lucchetti Chile maintain guarantees in favor of a
group of banks under the terms of a syndicated loan agreement for UF 2,369,359
signed on December 10, 2001. Lucchetti Chile's guarantees include pledges and
mortgages over machinery, equipment, land and buildings of its plants at


                                      F-47
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
  (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

Santiago and Talca. As part of the same syndicated loan agreement, Lucchetti has
also pledged 50.1% of its shares in Lucchetti Chile and the rights to the
trademarks Lucchetti, Talliani, Miraflores and Oro Vegetal.

Hoteles Carrera has a mortgage obligation in favor of Banco del Estado de Chile
on the buildings and parking structure of the Hotel Araucano and its main hotel
establishment located at Teatinos 180.

Alusa, a subsidiary of Madeco, has industrial property, plant and equipment
pledged to Banco Security and Corpbanca. Alufoil, a subsidiary of Alusa, has a
mortgage obligation on its industrial plant in favor of Leasing Andino.

As of December 31, 2002, Lucchetti Peru had an outstanding leasing obligation,
to which Lucchetti Chile is a co-debtor. The obligation under this instrument is
required to be repaid in five remaining installments between July 2003 and July
2005.

Lucchetti is in the process of renegotiating the terms of the leasing obligation
and in the opinion of Lucchetti's management the value of the assets of
Lucchetti Peru exceeds Lucchetti Peru's total liabilities, and Lucchetti is
therefore attempting to reschedule future payments until after the sale of
Lucchetti Peru's assets. There can be no assurance that Lucchetti will be
successful in postponing payments, that it will timely sell sufficient of
Lucchetti Peru's assets, nor that such assets will be sold for the value
Lucchetti management currently anticipates. If Lucchetti were unable to
successfully renegotiate its leasing obligation, nonpayment of any installment,
including the payment due July 2003, would materially adversely affect both the
financial condition and operations of Lucchetti Chile as co-debtor for this
obligation.

c)    Guarantees to third parties

Hoteles Carrera has rental and administration contracts with Santander
Administradora de Fondos de Inversion for the La Serena Club Resort Hotel and
with Hotelera Norte Sur S.A. for the Carrera Club Hotel Antofagasta and Carrera
Club Hotel Iquique, for which it provided a renewable insurance policy for the
equivalent of six month's rent (ThCh$150,697) and a renewable time deposit of
ThCh$123,908.

d)    Lucchetti Peru and related extraordinary provision

On August 22, 2001, the Metropolitan Council of the Municipality of Lima
published in the Diario El Peruano (the Official Gazette) two council
resolutions (Nos. 258 and 259) declaring the public need to preserve the
ecological area adjoining the production plant of Lucchetti Peru. It authorized
the mayor to prepare legislation for the expropriation of the land where the
plant is built, to revoke the operating license granted by the Municipality of
Chorrillos to Lucchetti Peru for its industrial facilities, and to order the
closure of the plant and its complete eradication within twelve months.

Consequently, on October 3, 2001, Lucchetti started proceedings to protect its
rights and interests as a foreign investor under the Reciprocal Investment
Promotion and Protection Treaty signed between Chile and Peru (hereinafter "the
Treaty"). On the same day, Lucchetti delivered a letter addressed to the
President of Peru requesting that the process of amicable negotiations should
begin, as set out in the


                                      F-48
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
  (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

Treaty, which lasts for a period of six months. After that period, if no
agreement were reached, Lucchetti would be in a position to begin arbitration
proceedings to resolve the dispute before an arbitration tribunal reporting to
the International Center for the Settlement of Investment Disputes ("ICSID").

Lucchetti wrote four letters to the President of Peru, none of which were
answered. On August 16, 2002, at the request of the then mayor of the
Metropolitan Municipality of Lima, Mr. Alberto Andrade, Lucchetti Peru, asked
for an extension of the term granted by Municipal Resolution 259, expressly
reserving its rights to approach the ICSID. This request was rejected by the
Metropolitan Council of Lima on December 16, 2002.

On December 23, 2002, Lucchetti, together with Lucchetti Peru, then presented
its request for arbitration to the General Secretary of ICSID based on the
argument that there was a lack of technical and legal reasons for having adopted
these resolutions against Lucchetti Peru. See Note 26 "Subsequent Events".

e)    Civil liability

Lucchetti, in Peru, is a liable third party in legal proceedings brought against
certain of its executives and shareholders.

In the opinion of the management of Lucchetti and its legal advisers, should
judgment be unfavorable to the interests of the Company, the resultant liability
would not be significant with respect to the financial statements as a whole.

f)    Lawsuits

As of December 31, 2002, Madeco has lawsuits pending against it with respect to
its ordinary course of business, which according to the company's legal
advisers, do not represent risks of significant losses.

There are legal proceedings in Brazil against the previous owner of Ficap, a
subsidiary of Madeco, dating from the time prior to Madeco's ownership starting
in 1997. It is believed that total damages would be about US$10 million. Madeco
has personal guarantees from the previous owner of Ficap to indemnify Madeco
should the Brazilian subsidiary be affected by these legal actions.

Corning has filed a counterclaim against the Company in which it requests, among
other things, that Corning be permitted to terminate its joint venture
agreements with the Company, alleging that Optel, a joint venture between Madeco
and Corning, is effectively bankrupt. Depending on the outcome of the
arbitration, Madeco's ability to exercise its put option to sell its Optel
shares to Corning for US$18 million, subject to certain adjustments, between
January 2004 and December 2005, may be compromised.

g)    Other contingencies

The indirect guarantees of the Parent company include joint and several
guarantees for the debts of the following subsidiaries: Agricola El Penon S.A.,
VTR, Inversiones y Bosques S.A., Inversiones Ranquil S.A., Inversiones Punta
Brava S.A., Inmobiliaria e Inversiones Hidroindustriales S.A. and LQIF. The


                                      F-49
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
  (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

relative loan agreements include clauses regarding the use of the funds and
financial covenants that are normal for this type of agreement.

Quinenco has signed option contracts with the above companies, except LQIF,
which are exercisable between February 28, 2003 and February 28, 2006, which
state:

1)    Quinenco may require that the above companies sell their shares in LQIF at
      a price to be determined based on the purchase price of these shares, plus
      the cost of borrowing, plus an extra 2.0%.

2)    The above companies may require Quinenco to purchase shares of LQIF at a
      price to be determined based on the purchase price of these shares, plus
      the borrowing cost, plus an extra 0.5%.

Telsur and subsidiary Telcoy

Telsur and Telcoy, are in compliance with all the regulations applicable to them
as telecommunications companies.

VTR

Certain obligations were reciprocally agreed to between the parties to a share
purchase agreement between VTR S.A. and SBC International Inc. dated June 16,
1999, which could result in adjustments to the sale price.

Armat S.A.

On August 14, 2001, Armat, a subsidiary of Madeco, signed a loan agreement with
Scotiabank to restructure its working capital. The loan agreement requires that
Armat comply, inter alia, with certain obligations, including the delivery of
semi-annual information, annual audited financial statements, certain annual
financial ratios and obligations regarding the ownership of Armat.

As of December 31, 2002, Armat is not in compliance with the financial covenants
mentioned above, but as of December 31, 2002 received waivers for failure to
meet such covenants.

As of December 31, 2002 and 2001, Armat has commitments for metal purchases
(mainly copper) at prices similar to fixed-price future sales contracts to hedge
against the risk of metal price changes



                                      F-50
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
  (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

NOTE 20 - NON-OPERATING INCOME AND EXPENSES

Non-operating income and expenses for each year are summarized as follows:

<TABLE>
<CAPTION>
                                                                                                 Year ended December 31,
                                                                                       ---------------------------------------------
                                                                                          2000             2001             2002
                                                                                       ----------       -----------       ----------
                                                                                          ThCh$            ThCh$            ThCh$
<S>                                                                                    <C>               <C>              <C>
Non-operating income:
Proportional share of net income of equity method investments (Note 10) ........       18,781,245        37,479,809       25,676,602
Gain on sale of Entel shares (Note 10) .........................................        7,833,680        51,056,068               --
Gain on sale of Plava Laguna (Note 10) .........................................               --         1,318,518               --
Gain on sale of other investments ..............................................        1,773,959         4,889,830          431,050
Amortization of negative goodwill ..............................................        2,530,960         9,187,460        1,889,029
Amortization of unrealized gains ...............................................               --           160,117          581,207
Tax refunds ....................................................................        2,140,895           147,639          389,447
Release of purchase price accruals .............................................               --                --        3,264,077
Other ..........................................................................        2,264,569         1,784,697        1,310,995
                                                                                       ----------       -----------       ----------
        Total ..................................................................       35,325,308       106,024,138       33,542,407
                                                                                       ==========       ===========       ==========
Non-operating expenses:
Proportional share of net loss of equity method investments (Note 10) ..........          981,751           139,825          493,250
Amortization of goodwill .......................................................       12,437,416        28,230,631       20,531,853
Loss on sale of Lucchetti Argentina (1) ........................................        7,543,199                --               --
Restructuring costs and severance indemnities ..................................        1,904,992         5,563,487        6,799,292
Losses on sales of investments, fixed assets and other .........................        2,283,155           990,650        2,045,209
Financial, legal and other consulting services .................................          777,883         4,498,423          732,250
Adjustment to market value of shares ...........................................        1,160,955           104,057           34,000
Directors' compensation ........................................................          145,477           441,614          361,274
Adjustment of property, plant and equipment to net realizable value ............          530,965         2,708,432          840,277
Provision for losses on loans and recoverable taxes of foreign
   subsidiaries ................................................................               --         3,368,893        2,651,594
Losses on construction contracts ...............................................        1,320,694           897,392               --
Allowance for uncollectible debts ..............................................        4,166,772           679,351        1,155,078
Amortization of non-recurring expenses .........................................          239,778         1,352,952          763,033
Financial consulting and other expenses for sale of Argentina subsidiary .......               --           539,862               --
Labor lawsuit ..................................................................          193,313         3,924,107          323,099
Legal expenses for defense of Lucchetti Peru ...................................               --         2,386,356        2,224,488
Write-down of fixed and other assets, Argentina ................................               --        12,834,224        6,140,460
Impairment of equity investment in and account receivable with
   Lucchetti Peru ..............................................................               --                --       30,678,486
Depreciation of property, plant and equipment involved in temporary
   shutdown (see Note 9) .......................................................               --                --        2,995,211
Adjustment to fair value of property, plant and equipment held-for-sale ........               --                --          257,230
Loss originated in capital dilution of subsidiary ..............................               --                --        2,735,528
Adjustment to sales price of a business ........................................               --                --        1,238,052
Other ..........................................................................        2,452,990         3,217,889        2,688,214
                                                                                       ----------       -----------       ----------
        Total ..................................................................       36,139,340        71,878,145       85,687,878
                                                                                       ==========       ===========       ==========
</TABLE>


                                      F-51
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

(1)   On February 13, 2001, Lucchetti signed an agreement with Molinos, an
      Argentine based food company, to sell its 100% interest in Lucchetti
      Argentina.

      As authorized by the SVS, Lucchetti Argentina S.A. was not consolidated as
      of and for the year ended December 31, 2000, because in February 2001, a
      contract to sell the subsidiary was signed. Lucchetti made a provision for
      the accounting loss it expected to incur upon the closing of the sale of
      ThCh$7,543,199 in its 2000 year-end financial statements, which was
      included in other non-operating expenses.

      On June 25, 2001, Lucchetti completed the sale of its subsidiary,
      Lucchetti Argentina, to Molinos for US$29.7 million (value on the
      transaction date, net of debt). The actual sale resulted in a loss of
      ThCh$6,505,989 resulting in the recognition of ThCh$1,037,210 in income
      for the year ended December 31, 2001.

NOTE 21 - BALANCES AND TRANSACTIONS WITH RELATED PARTIES

Balances with related companies at December 31 of each year are as follows:

a)    Current assets

Notes and accounts receivable from related companies:

<TABLE>
<CAPTION>
                                                                                                                 At December 31,
                                                                                                             ----------------------
                                                                                                                2001         2002
                                                                                                             ---------    ---------
              Company                     Nature of relationship        Nature of transaction                  ThCh$         ThCh$
<S>                                   <C>                              <C>                                   <C>          <C>
                                                                       Current account in UFs and
Inversiones y Rentas S.A. .........   Equity method Investment         dividends receivable .............    3,297,166    2,150,971
Telefonica del Sur Net S.A. .......   Subsidiary in development stage  Services .........................    4,462,210           --
Telefonica del Sur Seguridad S.A. .   Subsidiary in development stage  Services .........................      963,854           --
Others related Companies...........   Various                          Various ..........................      694,887    1,162,618
                                                                                                             ---------    ---------
        Total......................                                                                          9,418,117    3,313,589
                                                                                                             =========    =========
</TABLE>

b)    Long-Term assets

Notes and accounts receivable from related companies:

<TABLE>
<CAPTION>
                                                                                                             At December 31,
                                                                                                        ----------------------------
                                                                                                          2001                2002
                                                                                                        ---------          ---------
              Company                        Nature of relationship     Nature of transaction             ThCh$               ThCh$
<S>                                       <C>                           <C>                                <C>             <C>
Electromecanica Industrial S.A. .......   Related company              Services ....................           --            106,395
Promosol S.A. .........................   Equity method Investment     Services ....................       40,421             40,421
Lucchetti Peru S.A. ...................   Equity method Investment     Current account in US$ ......           --          2,825,659
Transporte y Servicios Aereos S.A. ....   Equity method Investment     Services ....................           --          1,635,326
Inversiones Ontario S.A. ..............   Related company              Services ....................           --            130,895
                                                                                                        ---------          ---------
        Total..........................                                                                    40,421          4,738,696
                                                                                                        =========          =========
</TABLE>


                                      F-52
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

c)    Current Liabilities

Notes and accounts payable to related companies:

<TABLE>
<CAPTION>
                                                                                                           At December 31,
                                                                                                    -----------------------------
                                                                                                        2001             2002
                                                                                                    ------------      -----------
                Company                 Nature of relationship              Nature of transaction       ThCh$            ThCh$
<S>                               <C>                              <C>                                   <C>              <C>
Colada Continua Chilena S.A. .... Equity method Investment         Sales of products and services        335,793          183,432
Other related companies.......... Various                          Various                                98,610          138,199
                                                                                                    ------------      -----------
        Total....................                                                                        434,403          321,631
                                                                                                    ============      ===========
</TABLE>

The December 31, 2001 balances maintained with Banco Edwards are included in
bank loans for an amount of ThCh$9,344,768.

The December 31, 2001 and 2002 balances maintained with Banco de Chile are
included in bank loans for an amount of ThCh$15,177,556 and of ThCh$29,615,944,
respectively, and time deposits for an amount of ThCh$7,442,642 and of
ThCh$16,175,119 at the end of each year.

The December 31, 2002 balance maintained with Andsberg Finance Corp. LI, company
member of Luksic Group, is included in bank loans for an amount of
ThCh$50,454,635

Significant transactions with related parties are summarized as follows:

<TABLE>
<CAPTION>
                                                                                Revenue (Expenses) for the year-ended December 31,
                                                                                --------------------------------------------------
Company                                         Transaction                          2000            2001             2002
                                                                                 --------------   -------------   --------------
                                                                                     ThCh$           ThCh$            ThCh$
<S>                                             <C>                                <C>             <C>              <C>
Minera Los Pelambres S.A. ..................    Services.                               77,113         143,007          261,432
Telefonica del Sur Net S.A. ................    Sales.of.products and services         435,670     (1,206,357)               --
Promosol S.A. ..............................    Sales.of.products and services     (1,458,797)     (1,731,628)               --
Andsberg Finance Corp. Ltd. ................    Financing and interest                      --              --      (4,555,635)
Banco de Chile..............................    Investment income                      232,363         574,948        1,675,000
Alte S.A. ..................................    Sales.of.products and services        (16,068)         140,927          189,565
Compania de Telecomunicaciones Llanquihue       Services
   S.A. ....................................                                                --         150,872         (69,899)
</TABLE>

On August 20, 2001, Quinenco announced that it had sold its 39.4% interest in
Plava Laguna to Sutivan Investments, a Luksic Group company, for ThUS$29,624
(historical). The pre-tax gain on the sale of its interest was Ch$1,280 million
(historical) (ThUS$1,955). Under the terms of the sales agreement, Quinenco has
an option to purchase 50% of Sutivan Investments in 2004.

In accordance with Article 89 of the Chilean Companies Act, the Company's
transactions with related parties must be carried out on an "arm's length" or
market basis.


                                      F-53
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

NOTE 22 - MINORITY INTEREST

Minority interest is summarized as follows:

<TABLE>
<CAPTION>
                                                                                            At December 31,
                                                                                   --------------------------------
                                                                                      2001                  2002
                                                                                   ----------            ----------
                                                                                      ThCh$                 ThCh$
<S>                                                                                <C>                   <C>
Balance Sheet:
Madeco and subsidiaries ............................................               70,880,403            59,612,407
Telsur and subsidiaries ............................................               15,744,430            15,933,990
Lucchetti and subsidiaries .........................................                3,277,494             1,020,851
Hoteles Carrera ....................................................                1,008,344               943,595
Other ..............................................................                1,654,857             1,802,766
                                                                                   ----------            ----------
        Total ......................................................               92,565,528            79,313,609
                                                                                   ==========            ==========

<CAPTION>
                                                                                      For the Year ended December 31,
                                                                           --------------------------------------------------------
                                                                              2000                  2001                   2002
                                                                           ----------            -----------            -----------
                                                                              ThCh$                 ThCh$                  ThCh$
<S>                                                                        <C>                    <C>                    <C>
Income Statement:
Madeco and subsidiaries ........................................            7,684,397             23,947,576             19,844,899
Telsur and subsidiaries ........................................           (2,214,595)            (2,475,355)            (1,727,780)
Lucchetti and subsidiaries .....................................            1,381,826                692,427              2,347,152
Hoteles Carrera ................................................              108,356                101,148                 64,749
Other ..........................................................              213,627                182,326                 (6,726)
                                                                           ----------            -----------            -----------
        Minority interest participation in net loss ............            7,173,611             22,448,122             20,522,294
                                                                           ==========            ===========            ===========
</TABLE>


                                      F-54
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

NOTE 23 - CONDENSED FINANCIAL STATEMENTS

Set forth below are condensed financial statements for the significant
investment in CCU held through Quinenco's 50% owned company Inversiones y Rentas
S.A. ("IRSA")

CCU Condensed Consolidated Balance Sheet

The condensed consolidated financial statements of CCU at December 31, 2001 and
2002 and for the years ended December 31, 2000, 2001 and 2002 are as follows:

<TABLE>
<CAPTION>
                                                                                                       At December 31,
                                                                                           -----------------------------------------
                                                                                               2001                          2002
                                                                                           -----------                   -----------
                                                                                               ThCh$                         ThCh$
<S>                                                                                        <C>                           <C>
Assets
Current assets .........................................................                   207,062,960                   219,086,387
Property, plant and equipment, net .....................................                   352,827,530                   330,658,007
Other assets ...........................................................                    88,394,600                   103,214,319
                                                                                           -----------                   -----------
                                                                                           648,285,090                   652,958,713
                                                                                           ===========                   ===========

Liabilities and Shareholders' Equity
Current liabilities ....................................................                   108,619,680                   122,267,218
Long-term liabilities ..................................................                    74,677,060                    55,720,333
Minority interest ......................................................                    41,066,100                    41,486,478
Shareholders' equity ...................................................                   423,922,250                   433,484,684
                                                                                           -----------                   -----------
                                                                                           648,285,090                   652,958,713
                                                                                           ===========                   ===========
</TABLE>

CCU Condensed Consolidated Statement of Income

<TABLE>
<CAPTION>
                                                                                       Year ended December 31,
                                                                   ----------------------------------------------------------------
                                                                       2000                      2001                      2002
                                                                   ------------              ------------              ------------
                                                                       ThCh$                     ThCh$                     ThCh$
<S>                                                                <C>                       <C>                       <C>
Net sales ............................................              352,061,892               370,384,304               345,890,599
Cost of sales ........................................             (162,916,270)             (175,182,363)             (170,622,026)
Administrative and selling expenses ..................             (147,219,047)             (150,240,223)             (137,674,324)
Non-operating income and expenses ....................               (8,468,662)                3,819,878                (6,840,975)
Minority interest ....................................                 (806,518)               (1,892,742)               (1,251,953)
Income tax ...........................................               (5,330,725)               (7,360,240)               (7,436,435)
                                                                   ------------              ------------              ------------
Net income ...........................................               27,320,670                39,528,614                22,064,886
                                                                   ============              ============              ============
</TABLE>


                                      F-55
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

CCU Condensed Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                            Year ended December 31,
                                                                              -----------------------------------------------------
                                                                                 2000                 2001                 2002
                                                                              -----------          -----------          -----------
                                                                                 ThCh$                ThCh$                ThCh$
<S>                                                                           <C>                  <C>                  <C>
Cash Flows From Operating Activities
Net income ..........................................................          27,320,670           39,528,614           22,064,886
Income from sales of assets .........................................          (5,072,569)         (17,610,024)            (676,111)
Charges (credits) to income that do not represent cash flows ........          50,738,242           53,342,301           51,821,455
Changes in assets ...................................................         (10,248,263)         (10,731,352)         (12,796,981)
Changes in liabilities ..............................................           7,885,802            3,401,964            3,095,968
Minority interest ...................................................             806,518            1,892,742            1,251,953
                                                                              -----------          -----------          -----------
Cash flows from operating activities ................................          71,430,400           69,824,245           64,761,170
Cash flows from investing activities ................................         (53,582,303)         (63,021,141)         (25,909,991)
Cash flows from financing activities ................................         (27,084,723)           5,344,822          (12,602,127)
Price-level restatement of cash and cash equivalents ................          (1,822,518)           1,927,211            1,627,630
                                                                              -----------          -----------          -----------
Net increase in cash and cash equivalents ...........................         (11,059,144)          14,075,137           27,876,682
Cash and cash equivalents at beginning of year ......................          61,284,669           50,225,525           64,300,662
                                                                              -----------          -----------          -----------
Cash and cash equivalents at end of year ............................          50,225,525           64,300,662           92,177,344
                                                                              ===========          ===========          ===========
</TABLE>

The reconciliation between the equity holding in IRSA and the net assets and
income of CCU is as follows:

<TABLE>
<CAPTION>
                                                                                At or for the Year ended December 31,,
                                                                      ------------------------------------------------------------
                                                                          2000                    2001                    2002
                                                                      ------------            ------------            ------------
                                                                          ThCh$                   ThCh$                   ThCh$
<S>                                                                   <C>                     <C>                     <C>
Balance sheet data:
Net worth of CCU ...........................................           426,848,480             423,922,032             433,484,684
Minority interest in CCU (1) ...............................          (163,989,390)           (162,865,665)           (166,539,520)
Minority interest in IRSA (2) ..............................          (131,516,580)           (130,600,301)           (133,519,063)
Other movements of balance sheet of IRSA ...................               175,100                 144,235                  92,962
                                                                      ------------            ------------            ------------
Investment in IRSA by equity method (Note 10) ..............           131,517,610             130,600,301             133,519,063
                                                                      ============            ============            ============
Income statement data:
Net income of CCU ..........................................            27,320,670              39,528,614              22,064,886
Minority interest in CCU (3) ...............................           (10,495,700)            (15,186,411)             (8,477,059)
Minority interest in IRSA (4) ..............................            (8,386,260)            (12,118,984)             (6,750,894)
Other income and expenses of IRSA ..........................               (52,530)               (104,236)                (85,039)
                                                                      ------------            ------------            ------------
Equity in net earnings of IRSA (Note 10) ...................             8,386,180              12,118,983               6,751,894
                                                                      ============            ============            ============

IRSA's investment in CCU ...................................                 61.58%                  61.58%                  61.58%
Quinenco's investment in IRSA ..............................                 50.00%                  50.00%                  50.00%
</TABLE>

(1)   Corresponds to differences between the shareholders' equity of CCU and the
      amount recognized via the equity method in IRSA.

(2)   Corresponds to the proportion of the shareholders' equity of IRSA and the
      amount recognized via the equity method in Quinenco.

(3)   Corresponds to difference between of the net income of CCU and the net
      income recognized in IRSA.

(4)   Corresponds to proportion of the net income of IRSA recognized in minority
      shareholders'.


                                      F-56
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

NOTE 24 - SEGMENT REPORTING:

Quinenco provides disclosures in accordance with Statement of Financial
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131") which establishes standards for reporting information
about operating segments in annual financial statements as well as related
disclosures about products and services and geographic areas. Operating segments
are defined as components of an enterprise about which separate financial
statement information available is evaluated regularly by the chief operating
decision maker in making decisions about allocating resources and assessing
performance. In accordance with SFAS 131, Quinenco manages its business in five
segments: Financial Services (Banco de Chile-Banco Edwards), Food and Beverage
(Lucchetti-CCU), Telecommunications (Telsur), Manufacturing (Madeco), and Other.
Other includes real estate and hotel administration as well as Quinenco and
intermediate holding companies.

The accounting policies of each segment are the same as those as described in
the "Summary of Significant Accounting Policies"(Note 2).

In addition, for Financial Services, interest revenue and expense are recognized
on the accrual basis using the effective interest method. The carrying amounts
of loans, investments and liabilities include accrued interest and the
indexation adjustment applicable to balances that are denominated in UFs or
other indexes. The effect of changes in the UF index on interest-bearing assets
and liabilities are reflected in the income statement as an increase or decrease
in interest revenue or expense.

The Bank generally suspends the accrual of interest and indexation adjustment of
principal on loans beginning on the first day that such loans are overdue and on
amounts not yet due for loans on which any installments of principal or interest
are 90 days overdue. Previously accrued interest remains on the Bank's books and
is considered to be a part of the loan balance when determining the Allowance
for loan losses. Payments received on overdue loans are recognized as income,
after reducing the recorded balance of accrued interest receivable, if
applicable, to the extent of interest earned but not recorded.

Fees and expenses related to loans, as well as fees for services rendered, are
deferred and recognized in income over the term of the loans to which they
relate, and to the period that the services are performed. Prior to January 1,
2000, these fees and expenses were recognized in income as the fee was received
or the expense incurred.

CCU recognizes revenues relating to domestic sales of beer, soda, mineral water,
juice products and wine upon delivery and physical acceptance of the product, at
which time title passes to the customer. Vina San Pedro S.A. generally
recognizes revenues relating to export sales of wine when the wine is shipped,
which in accordance with established sales terms is when title passes to the
customer.


                                      F-57
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

In CCU, advertising and sales promotion costs are expensed as incurred.
Inventory is stated at replacement cost, which does not exceed estimated net
realizable value. Bottles and containers are reported at restated cost, net of
write-offs due to breakage and allowances. Deposits received on bottles and
containers in circulation are classified as long-term liabilities. The amount of
these deposits is determined based on an annual inventory of the bottles and
cases in the possession of customers.

The following segment information is presented in accordance with US GAAP
reporting requirements, however, it has been determined in accordance with
Chilean GAAP. In accordance with Chilean GAAP, and as described in Note 10,
Investments, Lucchetti Peru was consolidated through December 31, 2002 but the
balance sheet as of that date was not consolidated.

Segment information is presented below:


                                      F-58
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

<TABLE>
<CAPTION>
                                                                               Year ended December 31, 2000
                                                    --------------------------------------------------------------------------------



                                                         Financial                 Food and beverage           Telecommunications
                                                          Services
                                                      Banco de Chile-           CCU             Lucchetti            Telsur
                                                     Banco Edwards (1)
                                                           ThCh$               ThCh$              ThCh$              ThCh$
                                                    --------------------------------------------------------------------------------
<S>                                                    <C>                  <C>                <C>                <C>
 Statement of Income Data:
Sales to unaffiliated customers ................                  --        352,045,824        102,336,745         44,163,163
Intersegment sales .............................                  --             16,068                 --              1,161
                                                    --------------------------------------------------------------------------------
     Total revenues ............................                  --        352,061,892        102,336,745         44,164,324
                                                    --------------------------------------------------------------------------------

Operating (Loss) income before general corporate
expenses .......................................                  --        189,145,622         32,014,564         24,813,481
General corporate expenses .....................                  --       (147,219,047)       (28,376,852)                --
                                                    --------------------------------------------------------------------------------
Operating (loss) income ........................                  --         41,926,575          3,637,712         24,813,481
Interest income ................................                  --          4,845,701            594,933            282,824
Non-operating income ...........................                  --          7,923,785             14,558            367,550
Interest expense ...............................                  --         (7,408,687)        (9,363,247)        (2,836,613)
Non-operating expense ..........................                  --        (13,717,151)       (11,446,032)          (360,773)

 Financial Services
Net interest revenue and expenses ..............         327,836,640                 --                 --                 --
Provision for loan losses ......................         (78,187,300)                --                 --                 --
Income from services, net ......................          67,887,300                 --                 --                 --
Other operating income, net ....................          21,098,520                 --                 --                 --
Other income and expenses ......................           9,530,590                 --                 --                 --
Operating expenses .............................        (240,101,240)                --                 --                 --

Price-level restatement, net ...................         (17,119,630)          (112,310)          (894,023)          (441,514)
Income tax .....................................            (539,720)        (5,330,725)         6,849,506         (1,635,168)
Minority interest ..............................                  --           (806,518)                --           (127,104)
                                                    --------------------------------------------------------------------------------
     Net income ................................          90,405,160         27,320,670        (10,606,593)        20,062,683
                                                    ================================================================================

 Balance Sheet Data (at December 31):
Identifiable assets ............................       8,260,717,420        528,567,198        119,965,124        119,192,865
Cash and cash equivalents ......................         716,285,690         50,225,525          2,980,327            474,086
Accounts receivable from related companies .....                  --          5,583,437            807,361          1,546,282
Investments in related and other companies and
goodwill .......................................           3,955,200         78,669,259         19,174,231              2,096
                                                    --------------------------------------------------------------------------------
     Total assets ..............................       8,980,958,310        663,045,419        142,927,043        121,215,329
                                                    ================================================================================

<CAPTION>
                                                                               Year ended December 31, 2000
                                                    --------------------------------------------------------------------------------

                                                                      Elimination of
                                                                      Companies not
                                                     Manufacturing     Consolidated        Other      Eliminations    Consolidated

                                                         Madeco            (2)            (3) (4)

                                                         ThCh$            ThCh$            ThCh$          ThCh$         ThCh$
                                                    -------------------------------------------------------------------------------
<S>                                                   <C>             <C>                 <C>                         <C>
 Statement of Income Data:
Sales to unaffiliated customers ................      319,363,718       (352,045,824)      13,879,968            --     479,743,594
Intersegment sales .............................        2,297,667            (16,068)         442,541    (2,741,369)             --
                                                    -------------------------------------------------------------------------------
     Total revenues ............................      321,661,385       (352,061,892)      14,322,509    (2,741,369)    479,743,594
                                                    -------------------------------------------------------------------------------

Operating (Loss) income before general corporate
expenses .......................................       40,596,682       (189,145,622)        (684,419)           --      96,740,308
General corporate expenses .....................      (29,989,568)       147,219,047      (24,469,834)    2,741,369     (80,094,885)
                                                    -------------------------------------------------------------------------------
Operating (loss) income ........................       10,607,114        (41,926,575)     (25,154,253)    2,741,369      16,645,423
Interest income ................................        2,094,168         (4,845,701)      24,331,306   (18,261,742)      9,041,489
Non-operating income ...........................        3,470,389         (7,923,785)      31,472,811            --      35,325,308
Interest expense ...............................      (19,518,685)         7,408,687      (25,785,366)   18,261,742     (39,242,169)
Non-operating expense ..........................       (9,981,582)        13,717,151      (14,350,953)           --     (36,139,340)

 Financial Services
Net interest revenue and expenses ..............               --       (327,836,640)              --            --              --
Provision for loan losses ......................               --         78,187,300               --            --              --
Income from services, net ......................               --        (67,887,300)              --            --              --
Other operating income, net ....................               --        (21,098,520)              --            --              --
Other income and expenses ......................               --         (9,530,590)              --            --              --
Operating expenses .............................               --        240,101,240               --            --              --

Price-level restatement, net ...................       (5,923,709)        17,231,940          915,805            --      (6,343,441)
Income tax .....................................        1,546,470          5,870,445          780,428            --       7,541,236
Minority interest ..............................         (120,152)           806,518        7,420,867            --       7,173,611
                                                    -------------------------------------------------------------------------------
     Net income ................................      (17,825,987)      (117,725,830)        (369,355)    2,741,369      (5,997,883)
                                                    ===============================================================================

 Balance Sheet Data (at December 31):
Identifiable assets ............................      414,494,998     (8,789,284,618)      84,816,898            --     738,469,885
Cash and cash equivalents ......................        8,948,012       (766,511,215)     127,095,765            --     139,498,190
Accounts receivable from related companies .....          522,936         (5,583,437)       3,398,852            --       6,275,431
Investments in related and other companies and
goodwill .......................................       40,777,568        (82,624,459)     504,567,909            --     564,521,804
                                                    -------------------------------------------------------------------------------
     Total assets ..............................      464,743,514     (9,644,003,729)     719,879,424            --   1,448,765,310
                                                    ===============================================================================
</TABLE>

(1)   Banco de Chile and Banco Edwards are equity method investments under
      Chilean GAAP and are presented here as separate segments. In order to
      reconcile to the consolidated financial statements, they are removed in
      the column, "elimination of companies not consolidated and the equity
      participation is added in one line in the column "other".

(2)   This column includes the elimination of CCU, Banco de Chile and Banco
      Edwards.

(3)   This column includes real estate and hotel administration as well as
      Quinenco and intermediate holding companies.

(4)   Quinenco's participation in the income from the equity method investments
      CCU, Banco de Chile and Banco Edwards is included in the column entitled
      "Other" in the caption "Non-Operating income".


                                      F-59
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

<TABLE>
<CAPTION>
                                                                              Year ended December 31, 2001
                                                    -------------------------------------------------------------------------------



                                                         Financial                 Food and beverage           Telecommunications
                                                          Services
                                                      Banco de Chile-           CCU             Lucchetti            Telsur
                                                     Banco Edwards (1)
                                                           ThCh$               ThCh$              ThCh$              ThCh$
                                                    -------------------------------------------------------------------------------
<S>                                                    <C>                  <C>                <C>                <C>
 Statement of Income Data:
Sales to unaffiliated customers ................                  --        370,318,549         88,842,752         46,699,418
Intersegment sales .............................                  --             65,755                 --              1,548
                                                    -------------------------------------------------------------------------------
     Total revenues ............................                  --        370,384,304         88,842,752         46,700,966
                                                    -------------------------------------------------------------------------------

Operating (Loss) income before general corporate
expenses .......................................                  --        195,201,941         26,551,122         27,774,415
General corporate expenses .....................                  --       (150,240,223)       (23,825,146)       (13,929,725)
                                                    -------------------------------------------------------------------------------
Operating (loss) income ........................                  --         44,961,718          2,725,976         13,844,690
Interest income ................................                  --          3,530,864            331,775            371,919
Non-operating income ...........................                  --         20,453,349            904,863            600,558
Interest expense ...............................                  --         (6,393,562)        (9,529,675)        (3,033,957)
Non-operating expense ..........................                  --        (11,299,964)        (5,697,735)          (653,905)

 Financial Services
Net interest revenue and expenses ..............         345,565,000                 --                 --                 --
Provision for loan losses ......................         (93,264,440)                --                 --                 --
Income from services, net ......................          79,270,860                 --                 --                 --
Other operating income, net ....................          11,381,500                 --                 --                 --
Other income and expenses ......................          20,665,920                 --                 --                 --
Operating expenses .............................        (253,018,470)                --                 --                 --

Price-level restatement, net ...................         (10,248,500)        (2,470,809)         1,796,435           (383,180)
Income tax .....................................            (368,740)        (7,360,240)         2,869,137         (1,844,256)
Minority interest ..............................                  --         (1,892,742)                22           (165,698)
                                                    -------------------------------------------------------------------------------
     Net income ................................          99,983,130         39,528,614         (6,599,202)         8,736,171
                                                    ===============================================================================

 Balance Sheet Data (as of  December 31):
Identifiable assets ............................       8,704,290,010        529,107,672        119,995,076        128,847,261
Cash and cash equivalents ......................         543,787,470         58,677,618          2,398,366            795,737
Accounts receivable from related companies .....                  --            893,422             91,489          5,502,242
Investments in related and other companies and
goodwill .......................................           5,362,180         59,606,622            322,068            537,857
                                                    -------------------------------------------------------------------------------
     Total assets ..............................       9,253,439,660        648,285,334        122,806,999        135,683,097
                                                    ===============================================================================

<CAPTION>
                                                                              Year ended December 31, 2001
                                                    --------------------------------------------------------------------------------

                                                                      Elimination of
                                                                      Companies not
                                                      Manufacturing    Consolidated       Other        Eliminations    Consolidated

                                                          Madeco           (2)           (3) (4)

                                                          ThCh$           ThCh$           ThCh$           ThCh$         ThCh$
                                                    -------------------------------------------------------------------------------
<S>                                                    <C>            <C>                <C>            <C>           <C>
 Statement of Income Data:
Sales to unaffiliated customers ................       341,097,887      (370,318,549)     11,618,440             --     488,258,497
Intersegment sales .............................           771,345           (65,755)        488,097     (1,260,990)             --
                                                    -------------------------------------------------------------------------------
     Total revenues ............................       341,869,232      (370,384,304)     12,106,537     (1,260,990)    488,258,497
                                                    -------------------------------------------------------------------------------

Operating (Loss) income before general corporate
expenses .......................................        46,374,809      (195,201,941)       (344,168)            --     100,356,178
General corporate expenses .....................       (35,388,798)      150,240,223      (9,477,511)       305,944     (82,315,236)
                                                    -------------------------------------------------------------------------------
Operating (loss) income ........................        10,986,011       (44,961,718)     (9,821,679)       305,944      18,040,942
Interest income ................................         1,979,323        (3,530,864)     22,711,898    (17,217,510)      8,177,405
Non-operating income ...........................         4,119,931       (20,453,349)    100,398,786             --     106,024,138
Interest expense ...............................       (21,907,614)        6,393,562     (43,525,807)    17,217,510     (60,779,543)
Non-operating expense ..........................       (34,056,176)       11,299,964     (31,470,329)            --     (71,878,145)

 Financial Services
Net interest revenue and expenses ..............                --      (345,565,000)             --             --              --
Provision for loan losses ......................                --        93,264,440              --             --              --
Income from services, net ......................                --       (79,270,860)             --             --              --
Other operating income, net ....................                --       (11,381,500)             --             --              --
Other income and expenses ......................                --       (20,665,920)             --             --              --
Operating expenses .............................                --       253,018,470              --             --              --

Price-level restatement, net ...................       (13,610,792)       12,719,309       1,246,741             --     (10,950,796)
Income tax .....................................          (430,909)        7,728,980       4,298,568             --       4,892,540
Minority interest ..............................         1,321,259         1,892,742      21,292,539             --      22,448,122
                                                    -------------------------------------------------------------------------------
     Net income ................................       (51,598,967)     (139,511,744)     65,130,717        305,944      15,974,663
                                                    ===============================================================================

 Balance Sheet Data (as of  December 31):
Identifiable assets ............................       367,697,110    (9,233,397,683)     81,135,753             --     697,675,199
Cash and cash equivalents ......................         4,579,471      (602,465,088)     46,727,020             --      54,500,594
Accounts receivable from related companies .....           532,681          (893,422)      3,332,126             --       9,458,538
Investments in related and other companies and
goodwill .......................................        44,031,070       (64,968,801)    801,555,143             --     846,446,139
                                                    -------------------------------------------------------------------------------
     Total assets ..............................       416,840,332    (9,901,724,994)    932,750,042             --   1,608,080,470
                                                    ===============================================================================
</TABLE>

(1)   Banco de Chile and Banco Edwards are equity method investments under
      Chilean GAAP and are presented here as separate segments. In order to
      reconcile to the consolidated financial statements, they are removed in
      the column, "elimination of companies not consolidated and the equity
      participation is added in one line in the column "other".

(2)   This column includes the elimination of CCU, Banco de Chile and Banco
      Edwards.

(3)   This column includes real estate and hotel administration as well as
      Quinenco and intermediate holding companies.

(4)   Quinenco's participation in the income from the equity method investments
      CCU, Banco de Chile and Banco Edwards is included in the column entitled
      "Other" in the caption "Non-Operating income".


                                      F-60
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

<TABLE>
<CAPTION>
                                                                               Year ended December 31, 2002
                                                   --------------------------------------------------------------------------------



                                                         Financial                 Food and beverage           Telecommunications
                                                          Services
                                                     Banco de Chile (1)         CCU             Lucchetti            Telsur
                                                           ThCh$               ThCh$              ThCh$              ThCh$
                                                   --------------------------------------------------------------------------------
<S>                                                    <C>                  <C>                <C>               <C>
 Statement of Income Data:
Sales to unaffiliated customers ................                  --        345,890,599        83,798,532         46,645,619
Intersegment sales .............................                  --                 --                --                 --
                                                   --------------------------------------------------------------------------------
     Total revenues ............................                  --        345,890,599        83,798,532         46,645,619
                                                   --------------------------------------------------------------------------------

Operating (Loss) income before general corporate
expenses .......................................                  --        175,268,573        22,414,727         27,353,648
General corporate expenses .....................                  --       (137,674,324)      (19,736,542)       (14,205,522)

Operating (loss) income ........................                  --         37,594,249         2,678,185         13,148,126
Interest income ................................                  --          1,635,362           139,098            356,448
Non-operating income ...........................                  --          4,822,078           207,682            697,970
Interest expense ...............................                  --         (3,833,091)       (4,899,212)        (3,255,384)
Non-operating expense ..........................                  --         (5,791,326)      (34,686,723)        (2,594,711)
                                                   --------------------------------------------------------------------------------
 Financial Services ............................                  --
Net interest revenue and expenses ..............         367,596,000                 --                --                 --
Provision for loan losses ......................        (100,644,000)                --                --                 --
Income from services, net ......................          86,686,000                 --                --                 --
Other operating income, net ....................         (30,025,000)                --                --                 --
Other income and expenses ......................          (5,296,000)                --                --                 --
Operating expenses .............................        (257,239,000)                --                --                 --

Price-level restatement, net ...................          (9,596,000)        (3,673,998)         (482,331)          (410,696)
Income tax .....................................           1,153,000         (7,436,435)         (179,558)        (1,780,041)
Minority interest ..............................                  --         (1,251,953)              156           (134,246)
                                                   --------------------------------------------------------------------------------
     Net income ................................          52,635,000         22,064,886       (37,222,703)         6,027,466
                                                   ================================================================================

 Balance Sheet Data (as of December 31):
Identifiable assets ............................       7,914,831,000        483,928,221        73,199,335        135,157,586
Cash and cash equivalents ......................         676,423,000         92,177,344            88,555          1,943,159
Accounts receivable from related companies .....                  --          2,602,134         2,876,837             93,365
Investments in related and other companies and
goodwill .......................................           4,777,000         74,251,014           179,844            338,311
                                                   --------------------------------------------------------------------------------
     Total assets ..............................       8,596,031,000        652,958,713        76,344,571        137,532,421
                                                   ================================================================================

<CAPTION>
                                                                               Year ended December 31, 2002
                                                   ---------------------------------------------------------------------------------

                                                                     Elimination of
                                                                     Companies not
                                                     Manufacturing    Consolidated       Other         Eliminations   Consolidated

                                                         Madeco           (2)           (3) (4)
                                                         ThCh$           ThCh$           ThCh$            ThCh$          ThCh$
                                                   --------------------------------------------------------------------------------
<S>                                                  <C>            <C>                <C>             <C>            <C>
 Statement of Income Data:
Sales to unaffiliated customers ................     255,903,471      (345,890,599)      9,951,072              --      396,298,694
Intersegment sales .............................         379,124                --         290,899        (670,023)              --
                                                   --------------------------------------------------------------------------------
     Total revenues ............................     256,282,595      (345,890,599)     10,241,971        (670,023)     396,298,694
                                                   --------------------------------------------------------------------------------

Operating (Loss) income before general corporate
expenses .......................................      31,695,545      (175,268,573)     (1,106,661)             --       80,357,259
General corporate expenses .....................     (27,692,090)      137,674,324      (9,116,243)        670,023      (70,080,374)
                                                   --------------------------------------------------------------------------------
Operating (loss) income ........................       4,003,455       (37,594,249)    (10,222,904)        670,023       10,276,885
Interest income ................................       1,570,236        (1,635,362)     19,923,120     (16,641,169)       5,347,733
Non-operating income ...........................         708,080        (4,822,078)     31,928,675              --       33,542,407
Interest expense ...............................     (19,091,665)        3,833,091     (40,122,059)     16,641,169      (50,727,151)
Non-operating expense ..........................     (22,313,904)        5,791,326     (26,092,540)             --      (85,687,878)
                                                   --------------------------------------------------------------------------------
 Financial Services ............................
Net interest revenue and expenses ..............              --      (367,596,000)             --              --               --
Provision for loan losses ......................              --       100,644,000              --              --               --
Income from services, net ......................              --       (86,686,000)             --              --               --
Other operating income, net ....................              --        30,025,000              --              --               --
Other income and expenses ......................              --         5,296,000              --              --               --
Operating expenses .............................              --       257,239,000              --              --               --

Price-level restatement, net ...................      (8,442,351)       13,269,998         439,441              --       (8,895,937)
Income tax .....................................       1,402,348         6,283,435         698,687              --          141,436
Minority interest ..............................       1,997,934         1,251,953      18,658,450              --       20,522,294
                                                   --------------------------------------------------------------------------------
     Net income ................................     (40,165,867)      (74,699,886)     (4,789,130)        670,023      (75,480,211)
                                                   ================================================================================

 Balance Sheet Data (as of December 31):
Identifiable assets ............................     325,453,431    (8,398,759,221)     53,855,375              --      587,665,727
Cash and cash equivalents ......................       7,758,701      (768,600,344)     83,296,757              --       93,087,172
Accounts receivable from related companies .....         867,472        (2,602,134)      3,931,758              --        7,769,432
Investments in related and other companies and
goodwill .......................................      44,072,473       (79,028,014)    790,125,074              --      834,715,702
                                                   --------------------------------------------------------------------------------
     Total assets ..............................     378,152,077    (9,248,989,713)    931,208,964              --    1,523,238,033
                                                   ================================================================================
</TABLE>

(1)   Banco de Chile is an equity method investment under Chilean GAAP and is
      presented here as a separate segment. In order to reconcile to the
      consolidated financial statements, it is removed in the column,
      "elimination of companies not consolidated and the equity participation is
      added in one line in the column "other".

(2)   This column includes the elimination of CCU and Banco de Chile.

(3)   This column includes real estate and hotel administration as well as
      Quinenco and intermediate holding companies.

(4)   Quinenco's participation in the income from the equity method investments
      CCU and Banco de Chile is included in the column entitled "Other" in the
      caption "Non-Operating income".


                                      F-61
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

Depreciation for each of the segments was as follows:

<TABLE>
<CAPTION>
                                                                                         Year ended December 31,
                                                                        -----------------------------------------------------------
                                                                           2000                     2001                   2002
                                                                        -----------             -----------             -----------
                                                                           ThCh$                    ThCh$                  ThCh$
<S>                                                                     <C>                     <C>                     <C>
Segment
Financial Services
   Banco de Chile ..........................................              8,120,453               8,071,648              17,179,275
   Banco Edwards ...........................................              5,494,773               7,640,326                      --
Food and Beverage
   CCU .....................................................             39,751,524              41,403,612              42,270,056
   Lucchetti ...............................................              5,213,164               4,632,656               3,785,676
Telecommunications
   Telsur ..................................................              9,818,034               9,738,354              10,576,862
Manufacturing
   Madeco ..................................................             14,578,692              15,215,501              12,785,692
Other (1) ..................................................              2,416,585               2,104,902               2,010,354
Elimination of non-consolidated companies (2) ..............            (53,366,750)            (57,115,586)            (59,449,331)
                                                                        -----------             -----------             -----------
        Total depreciation .................................             32,026,475              31,691,413              29,158,584
                                                                        ===========             ===========             ===========
</TABLE>

(1)   Includes real estate and hotel administration as well as Quinenco and
      intermediate holding companies.

(2)   Includes the elimination of non-consolidated companies CCU, Banco de Chile
      and Banco Edwards.

Capital expenditures, comprised of additions to property plant and equipment,
for each of the segments were as follows:

<TABLE>
<CAPTION>
                                                                                          Year ended December 31,
                                                                        -----------------------------------------------------------
                                                                           2000                    2001                    2002
                                                                        -----------             -----------             -----------
                                                                           ThCh$                   ThCh$                   ThCh$
<S>                                                                     <C>                     <C>                     <C>
Segment:
Financial Services
   Banco de Chile ..........................................              6,036,521              10,112,437              11,996,900
   Banco Edwards ...........................................             18,708,405               6,573,254                      --
Food and Beverage
   CCU .....................................................             48,994,076              31,296,023              18,908,239
   Lucchetti ...............................................              2,200,365               1,802,409               1,800,686
Telecommunications
   Telsur ..................................................             14,563,110              20,397,022              14,056,286
Manufacturing
   Madeco ..................................................             16,468,483               8,658,518               6,400,830
Other (1) ..................................................              1,775,468               1,227,354                 626,897
Elimination of non-consolidated companies (2) ..............            (73,739,002)            (47,981,714)            (30,905,139)
                                                                        -----------             -----------             -----------
     Total capital expenditures ............................             35,007,426              32,085,303              22,884,699
                                                                        ===========             ===========             ===========
</TABLE>

(1)   Includes real estate and hotel administration as well as Quinenco and
      intermediate holding companies.

(2)   Includes the elimination of non-consolidated companies CCU, Banco de Chile
      and Banco Edwards.


                                      F-62
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

Property, plant and equipment for each of the segments were as follows:

<TABLE>
<CAPTION>
                                                                                         Year ended December 31,
                                                                       ------------------------------------------------------------
                                                                           2000                    2001                    2002
                                                                       ------------            ------------            ------------
                                                                           ThCh$                   ThCh$                   ThCh$
<S>                                                                    <C>                     <C>                     <C>
Segment:
Financial Services
   Banco de Chile ..........................................             86,740,420              87,659,386             139,343,541
   Banco Edwards ...........................................             65,510,678              61,214,136                      --
Food and Beverage
   CCU .....................................................            349,913,529             352,828,073             330,658,007
   Lucchetti ...............................................             76,015,544              74,568,874              38,579,822
Telecommunications
   Telsur ..................................................             99,164,766             106,702,188             111,413,169
Manufacturing
   Madeco ..................................................            214,454,416             205,975,985             201,232,498
Other (1) ..................................................             45,151,904              43,070,915              41,241,167
Elimination of non-consolidated companies (2) ..............           (502,164,627)           (501,701,595)           (470,001,548)
                                                                       ------------            ------------            ------------
     Total Property, plant and equipment ...................            434,786,630             430,317,962             392,466,656
                                                                       ============            ============            ============
</TABLE>

(1)   Includes the real estate and hotel administration as well as Quinenco and
      intermediate holding companies.

(2)   Includes the elimination of CCU, Banco de Chile and Banco Edwards.

Sales, which relate to non-Financial Service companies, detailed by major
geographic areas were as follows:

Sales (1)

<TABLE>
<CAPTION>
                                                                                         Year ended December 31,
                                                                       ------------------------------------------------------------
                                                                          2000                     2001                    2002
                                                                       ------------            ------------            ------------
                                                                          ThCh$                    ThCh$                   ThCh$
<S>                                                                    <C>                     <C>                     <C>
Chile ......................................................            553,924,882             584,070,666             586,488,001
Argentina ..................................................            121,077,054             111,828,515              40,227,482
Peru .......................................................             44,513,834              52,879,215              44,391,512
Brazil .....................................................            112,289,716             109,864,405              71,082,298
Elimination of non-consolidated companies (2) ..............           (352,061,892)           (370,384,304)           (345,890,599)
                                                                       ------------            ------------            ------------
     Total .................................................            479,743,594             488,258,497             396,298,694
                                                                       ============            ============            ============
</TABLE>

(1)   The table above does not include Banco de Chile and Banco Edwards.

(2)   Includes the elimination of CCU.


                                      F-63
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

NOTE 25 - DERIVATIVE CONTRACTS

The following details the Company's derivative instruments as of December 31,
2002:

<TABLE>
<CAPTION>
                                                 Description of contract
                                       ----------------------------------------------
 Type of    Contract      Expiration     Specific item          Hedged amount or
  hedge      amount          Date                                  transaction
                                                             ---------    -----------
                                                               Name          Amount
<S>         <C>           <C>         <C>                   <C>           <C>
Forward     11,103,450    Q-1 2003    Exchange rate US$     Loan US$      11,103,450
Forward      7,358,300    Q-1 2003    Exchange rate US$     Loan US$       7,358,300
Forward      7,355,300    Q-1 2003    Exchange rate US$     Loan US$       7,355,300
Forward      5,123,650    Q-1 2003    Exchange rate US$     Loan US$       5,123,650
Forward      7,017,500    Q-1 2003    Exchange rate US$     Loan US$       7,017,500
Forward      9,189,570    Q-1 2003    Exchange rate US$     Loan US$       9,189,570
Forward      7,319,500    Q-1 2003    Exchange rate US$     Loan US$       7,319,500
Forward      7,032,500    Q-1 2003    Exchange rate US$     Loan US$       7,032,500
Forward      5,564,560    Q-1 2003    Exchange rate US$     Loan US$       5,564,560
Forward     10,405,500    Q-1 2003    Exchange rate         Loan US$      10,405,500
Forward     21,000,000    Q-2 2003    Exchange rate         --                    --
Forward        945,511    Q-1 2003    US$/ Brazilian Real   Inventory        945,511
Forward      5,399,636    Q-1 2003    US$/ Brazilian Real   Loan US$       5,399,636
Swap         1,522,016    Q-1 2003    US$/ Brazilian Real   Loan US$       1,562,016
Swap         6,475,201    Q-2 2003    US$/ Brazilian Real   Loan US$       6,475,201
Swap         1,510,518    Q-3 2003    US$/ Brazilian Real   Loan US$       1,570,518

<CAPTION>
                                        Accounts affected
                          ------------------------------------------
 Type of       Value        Asset / Liability     Effect in income
  hedge        being
              hedged      ------------------------------------------
                           Name      Amount     Realized    Unrealized
                                     ThCh$       ThCh$        ThCh$
<S>         <C>            <C>      <C>       <C>          <C>
Forward     10,779,150     OCA      296,330          --    (296,330)
Forward      7,186,100     OCA      183,596          --    (183,596)
Forward      7,186,100     OCA      124,729          --    (124,729)
Forward      5,030,270     OCA      103,158          --    (103,158)
Forward      7,186,100     OCA      196,579          --      196,579
Forward      9,341,930     OCA      141,509          --      141,509
Forward      7,186,100     OCA      149,363          --    (149,363)
Forward      7,186,100     OCA      189,282          --      189,282
Forward      5,748,880     OCA      192,926          --      192,926
Forward     10,779,150     OCA      358,755          --      358,755
Forward             --     OLTL     263,216   (263,216)           --
Forward        945,511     OCL       23,679          --     (23,679)
Forward      5,399,636     OCA      239,374     239,964           --
Swap         1,562,014     OCA       90,964      90,964           --
Swap         6,703,194     OCA    1,710,530   1,710,530           --
Swap         1,510,518     OCA      279,349     279,349           --
</TABLE>

OCA: Other current assets
OCL: Other current liabilities
OLTL: Other long-term liabilities

NOTE 26 - SUBSEQUENT EVENTS

1.    CCU

On January 13, 2002, Quinenco and the companies Schorghuber Stiftung & Co.
Holding K.G. ("Schorghuber"), Bayerische BrauHolding A.G. ("Bayerische") and FHI
Finance Holding International B.V. ("FHI") executed a Settlement and Release
Agreement by which they agreed to fully and finally settle the arbitration
proceedings initiated before the International Court of Arbitration of the
International Chamber of Commerce, granting each other a complete release in
respect of the claims that had been made. Pursuant to this Settlement, all
disputes between the parties, as the only shareholders of the joint stock
company IRSA and members of the controller of the joint stock company CCU have
been completely resolved and terminated.

As part of the agreements reached, FHI undertook to pay Quinenco the amount of
US$50 million, not later than January 31, 2003. It was also agreed as part of an
amendment to the shareholders' agreement that within a maximum period of three
years starting on January 13, 2003, Schorghuber shall have the right to transfer
its shares in FHI or, alternatively, FHI shall have the right to sell its shares
in IRSA, to Heineken.

The transfer to Heineken, referred to above would be subject to the following
conditions:

      a) Heineken shall not compete against CCU in the so called "CCU
      Territories" (Chile and Argentina); and

      b) Heineken shall grant to CCU, subject to entering into a license
      agreement on Heineken's usual terms and conditions, the exclusive right to
      produce, market, sell and distribute the Heineken brand in


                                      F-64
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

      Chile and Argentina, and shall not grant any such license to any party
      other than CCU in Chile and Argentina for so long as it owns any interest
      in IRSA; and

      c) Heineken shall agree to be bound by the terms of the Shareholders'
      Agreement entered into amongst the parties in IRSA on April 14, 1994, as
      amended on January 13, 2003, as successor to all the rights and
      obligations of Schorghuber and FHI.

On April 17, 2003 Schorghuber informed Quinenco of the sale of its shares in FHI
to Heineken. As a consequence, Heineken has effectively become a 50% partner in
IRSA, the entity which holds a 61.6% controlling interest in CCU.

At an extraordinary board meeting of IRSA held on January 13, 2003, it was
decided to submit for the approval of the shareholders of CCU a dividend
distribution equal to 100% of the 2002 net profits of CCU. It was also agreed to
propose the distribution of retained earnings amounting to ThCh$168,700,000
within the following 180 days, in one or more installments.

Southern Breweries Establishment ("SBE") of which CCU indirectly owns 50%, has
agreed in principle with Heineken, the terms of the sale to Heineken of SBE's
stake in the Croatian company Karlovacka pivovara d.d. ("Karlovacka"), at a
price equal to ten times EBITDA; subject to inter alia prior regulatory approval
and approval of the respective boards of Heineken and SBE and its controlling
companies. Karlovacka was sold March 31, 2003.

2.    Madeco

Madeco entered into amended and restated agreements with certain of its bank
creditors, including twelve local and two international banks, on December 18,
2002, rescheduling certain of its bank indebtedness for a total amount of
approximately US$120 million. The debt restructuring was contingent upon the
successful completion of the Madeco's capital increase and the payment of 30% of
the its outstanding debt to those banks, among other requirements.

On February 18, 2003, pursuant to approval by shareholders at an extraordinary
shareholders' meeting held on November 14, 2002, Madeco initiated a Ch$101,380
million capital increase. On March 4, 2003, Quinenco and its subsidiary Rio
Grande, subscribed and paid 2,058,353,792 shares for Ch$49,400 million. The
voluntary offering period concluded on March 24, 2003. Subscribed and paid
capital amounted to Ch$51,314 million divided into 2,138,097,727 shares.

Following the close of the pre-emptive rights offering period, Madeco initiated
a bond capitalization process that concluded on March 31, 2003. Series A and
Series C bondholders capitalized a total of 154,876,051 shares at Ch$24 per
share for an amount equivalent to Ch$3,717 million. As a result of the capital
increase, Quinenco's interest in Madeco increased from 53.4% to 84.3%. Cash
proceeds from the capital increase amounted to Ch$51,314 million. Of the total
proceeds, Ch$28,847 million was used to repay bank debt and Ch$3,717 million was
used to redeem a portion of the outstanding Series A and Series C bonds.

On April 9, 2003, in accordance with the amended and restated agreements between
certain of its banks, Madeco paid an additional Ch$7,119 million to its bank
creditors. The amount corresponds to the first capital amortization payment and
interest (due in March 2006), and an additional payment of 12.68% of


                                      F-65
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

the last payment (due in March 2010). Remaining funds of Ch$11,631 million will
be used to reduce liabilities and provide additional working capital for Madeco.

An additional 264,800,000 shares were sold in a public auction on the Santiago
Stock Exchange on June 6, 2003 for Ch$7,679 million. As a result of the sale,
Madeco's total outstanding shares increased to 2,963,284,806 shares. Quinenco
did not subscribe additional shares. As a consequence, its interest in Madeco
decreased from 84.3% to 76.8% as of the same date. Proceeds from the share
increase will be used to reduce liabilities and provide additional working
capital for Madeco.

3.    Lucchetti

On January 6, 2003, Lucchetti Peru was notified by an official of the
Municipality of Chorrillos of the revocation of its license to operate its
industrial plant for alleged environmental violations and as a consequence
Lucchetti was forced to abandon its operations in Peru. Consequently, the Board
of Directors of Lucchetti agreed to comply with the order as quickly as possible
in order to protect its employees and installations, and to begin the orderly
liquidation of the assets of the Peruvian subsidiary.

As a result of these events, Lucchetti recorded a provision against the entire
investment and for part of the accounts receivable of its subsidiary Lucchetti
Peru, amounting to ThCh$30,678,486, which was charged against income for the
year. See Note 10.

Lucchetti is seeking damages under an existing treaty between Peru and Chile.

On May 15, 2003, Lucchetti and the banks party to a syndicated bank facility
modified the loan agreement to allow for a maximum leverage level of 3.9:1 as of
June 30, 2003, 3.2:1 as of December 31, 2003 and gradually decreasing to a
maximum level of 1.5:1 in 2007. With this modification, Lucchetti believes it
will comply with the facility's covenants for the period ended June 30, 2003,
though there can be no assurance Lucchetti will do so.

NOTE 27 - DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES

Accounting principles generally accepted in Chile (Chilean GAAP) vary in certain
important respects from accounting principles generally accepted in the United
States of America (US GAAP). Such differences involve certain methods for
measuring the amounts shown in the financial statements, as well as additional
disclosures required by US GAAP.

The principal differences between Chilean GAAP and US GAAP are described below
together with explanations, where appropriate, of the method used in the
determination of the adjustments that affect net income and total shareholders'
equity. Under Chilean GAAP, banking operations are not generally consolidated
with non-financial businesses primarily due to the dissimilarity of both the
nature of the businesses and the related accounting policies. However, under US
GAAP consolidation of the Company's banking operations would be required under
Statement of Financial Accounting Standards 94 ("SFAS 94"), which deals with the
consolidation of all majority-owned subsidiaries. As a result, where
appropriate, adjustments to US GAAP of the Company's banking operations are
disclosed on a gross basis with a separate adjustment for taxes, providing
separate disclosure for items that would impact several balance sheet accounts
under US GAAP separated between the Company's banking operations and
non-


                                      F-66
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

financial businesses. Additional disclosure required under US GAAP of the
consolidation of majority owned subsidiaries is provided in part II of this
note. This information has been presented on a Chilean GAAP basis. References
below to "the Bank" are to the merged Banco de Chile and Banco Edwards.
References below to "SFAS" are to United States Statements of Financial
Accounting Standards and references to "FASB" are to the Financial Accounting
Standards Board.

I.    Differences in measurement methods

The principal methods applied in the preparation of the accompanying financial
statements, which have resulted in amounts which differ from those that would
have otherwise been determined under US GAAP, are as follows:

(a)   Inflation accounting

Chilean accounting principles require that financial statements be restated to
reflect the full effects of the loss in the purchasing power of the Chilean peso
on the financial position and results of operations of reporting entities. The
method, described in Note 2b), is based on a model which permits the calculation
of net inflation gains or losses caused by the holding of monetary assets and
liabilities exposed to changes in the purchasing power of the local currency by
restating all non-monetary accounts in the financial statements. The model
prescribes that the historical cost of such accounts be restated for general
price-level changes between the date of origin of each item and the year-end.

Although the cumulative inflation rate in Chile as measured by the Consumer
Price Index for the three-year period ended December 31, 2002 was only
approximately 11.18%, the inclusion of price-level adjustments in the
accompanying financial statements is considered appropriate under the prolonged
inflationary conditions that have affected the Chilean economy in the past.
Accordingly, the effect of price-level changes is not eliminated in the
reconciliation to US GAAP.

(b)   Deferred income taxes

On January 1, 2000 the Company began applying Technical Bulletin No. 60 of the
Chilean Association of Accountants concerning deferred taxes. Technical Bulletin
No. 60 requires the recognition of deferred income taxes for all temporary
differences arising after January 1, 2000, whether recurring or not, using an
asset and liability approach. For US GAAP purposes, the Company applies SFAS
109, "Accounting for Income Taxes", whereby income taxes are also recognized
using substantially the same asset and liability approach with deferred income
tax assets and liabilities established for temporary differences between the
financial reporting basis and tax basis of the Company's assets and liabilities
based on enacted rates at the dates the temporary differences are expected to
reverse.

Prior to the implementation of Technical Bulletin No. 60, no deferred income
taxes were recorded under Chilean GAAP if the related timing differences were
expected to be offset in the year that they were projected to reverse by new
timing differences of a similar nature.

In order to mitigate the effects of recording deferred income taxes that under
the prior income tax accounting standard were not expected to be realized,
Technical Bulletin N(degree) 60 provides for a period of transition whereby the
full effect of using the liability method is not recorded immediately in income
but at the same time recording the deferred taxes are recorded in the balance
sheet. Under this transitional


                                      F-67
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

provision, a contra asset or liability has been recorded offsetting the effects
of the deferred tax assets and liabilities not recorded prior to January 1,
2000. Such contra assets or liabilities must be amortized to income over the
estimated average reversal periods corresponding to the underlying temporary
differences to which the deferred tax asset or liability relates. The primary
difference between Chilean GAAP and US GAAP relates to the reversal of the
amortization of the complementary asset and liability recorded in accordance
with the transition procedures for unrecorded deferred income taxes as of
January 1, 2000.

Furthermore, deferred income tax assets under US GAAP should be reduced by a
valuation allowance if, based on the weight of available evidence, it is more
likely than not that some portion or all of the deferred income tax assets will
not be realized. The valuation allowance should be sufficient to reduce the
deferred income tax asset to an amount that is more likely than not to be
realized. A similar valuation allowance is now provided under Chilean GAAP for
deferred income tax assets arising after January 1, 2000.

The effect of differences in accounting for deferred taxes is included in
paragraph I (ee) below and certain disclosures required under FAS 109 are set
forth under paragraph III b) below.

(c)   Minimum dividend

As required by the Chilean Companies Act, unless otherwise decided by the
unanimous vote of the issued and subscribed shares, an open stock corporation
must distribute a cash dividend in an amount equal to at least 30% of the
company's net income for each year as determined in accordance with Chilean
GAAP. Since the payment of the 30% dividend out of each year's income is a legal
requirement in Chile, provision has been made in the accompanying US GAAP
reconciliation in I (ee) below to recognize the corresponding decrease in net
equity as of December 31, 2001 for the difference between 30% of net income and
interim dividends paid during the year. No provision has been made for the year
ended December 31, 2002 as the Company had a net loss. The effects of the
accounting for the minimum dividend are shown in the paragraph I (ee) below.

(d)   Revaluation of property, plant and equipment

As mentioned in Note 2 i), certain property, plant and equipment are reported in
the financial statements at amounts determined in accordance with a technical
appraisal. Revaluation of property, plant and equipment is an accounting
principle that is not generally accepted in the United States. The effects of
the reversal of this revaluation, as well as of the related accumulated
depreciation and depreciation expense for each year is shown in paragraph I (ee)
below.

(e)   Investment securities

e-1) Non-Financial Services

Under Chilean GAAP, investments in other companies reported in the financial
statements are valued at the lower of restated cost or market value. Unrealized
losses on such investments are reflected in the statements of income.

Under US GAAP, SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"), requires that debt and equity securities be
classified in accordance with the Company's intent and ability to hold the
security, as follows:


                                      F-68
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

o     Debt securities that the Company has the positive intent and ability to
      hold to maturity are classified as held-to-maturity securities and are
      reported at amortized cost.

o     Debt and equity securities that are bought and held by the Company,
      principally for the purpose of selling them in the near term, are
      classified as trading securities and reported at fair value, with
      unrealized gains and losses included in earnings.

o     Debt and equity securities not classified as either held-to-maturity
      securities or trading securities are classified as available-for-sale
      securities and reported at fair value, with unrealized gains and losses
      excluded from earnings and reported in a separate component of
      shareholders' equity net of the deferred income tax effects.

The Company held a 13.68%, 5.69% and 5.69% ownership interest in Entel at
December 31, 2000, 2001 and 2002, respectively. Under Chilean GAAP, the Company
has recorded its equity participation in the net income of Entel under the
equity method. Under US GAAP, these investments would be classified as
available-for-sale marketable securities and held at fair value. Additionally,
due to the sale of 7.99% of its investment in 2001 and the distinct methods used
to account for the investments, there is also an adjustment between Chilean GAAP
and US GAAP relating to the gain on the sale, which under US GAAP was calculated
based on the average cost of the securities purchased. The effect of the
differences in the accounting method and the gain in the sale are included in
paragraph I (ee) below.

e-2) Financial Services

Under Chilean GAAP, the Company's banking operations classify investments as
either trading securities or permanent securities. Trading securities are
reported at fair value, with unrealized gains and losses included in earnings.
Permanent securities are stated at fair market value with unrealized gains and
losses included in a separate component of shareholders' equity, with realized
gains and losses included in other operating results. Investments with a
secondary market are carried at market value, and all other financial
investments are carried at acquisition cost plus accrued interest and UF
indexation adjustments.

Under US GAAP, based upon the criteria above, the banks have determined that
under US GAAP, its investments should be classified as "trading",
"available-for-sale" and "held-to-maturity". Consequently, investments
classified as permanent are considered to be "available-for-sale" and all other
investments are considered to be "trading", with the exception of certain
Central Bank securities and other investments, maintained by banking branches in
the United States of America, some of which are classified as
"held-to-maturity". The effect of eliminating the market value adjustment for
the held to maturity securities is included in the reconciliation of
consolidated net income and shareholders' equity in paragraph I (ee) above.

(f)   Employee severance indemnities

For Chilean GAAP purposes, the Company accrues for severance indemnities when
rights to such benefits have been formally guaranteed to employee groups. Those
obligations are based on the present value of the liability determined at the
end of each year based on the current salary and number of years of service to
date of each employee. The Company uses a real discount rate and a projected
employee service life based on probable tenure for vested employees. The real
annual discount rate does not include a projection of inflation and accordingly,
future salary increases are also excluded from the calculation of the


                                      F-69
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

obligation, because all such future increases are expected to approximate the
increase in inflation over a long-term period.

For US GAAP purposes, the severance indemnities described above are determined
based on the vested benefits to which the employees are entitled if they
separate immediately (settlement basis). The effect of differences in the
accounting for employee severance indemnities is included in paragraph I (ee)
below.

(g)   Deficit during development stage

For Chilean GAAP purposes, investments in majority-owned subsidiaries in the
development stage are recorded by the equity method and the investor's
proportional share of the subsidiary's results of operations are taken to a
reserve which forms part of the investor's shareholders' equity. For US GAAP
purposes, majority-owned subsidiaries in the development stage are consolidated
and the results of their operations charged directly to income. The effect of
differences in accounting methods is included in paragraph I (ee) below. No
disclosure of the effect of consolidation of such subsidiaries has been made
considering that the effects are not material.

(h)   Advertising costs

During 1998, Lucchetti capitalized corporate image advertising costs incurred in
connection with obtaining a municipal license for the construction of their
plant in Lima, Peru. During 1999 Lucchetti started amortizing the capitalized
advertising costs. For US GAAP purposes, those costs cannot be capitalized and
were charged to income. During the years ended December 31, 2000 and 2001, the
effect of reversing the amortization that is included in the income statement in
Chilean GAAP is included in paragraph I (ee) below. In the year ended December
31, 2002, under Chilean GAAP, all such costs have been written-off as part of
the provision for the shut down of the plant in Peru and subsequently, there is
no longer a difference in shareholders' equity between Chilean GAAP and US GAAP
as of December 31, 2002. The adjustment to reverse the write-down taken in the
year ended December 31, 2002 under Chilean GAAP is included in paragraph I (ee)
below.

(i)   Restructuring costs

During 1999, Madeco began restructuring a portion of its operations. As part of
this process, certain operating plants were either closed or transferred and
merged with other plants. At December 31, 1999, some steps related to this
process were not complete and accordingly, the Company recorded provisions for
the estimated costs to completion. The estimated costs related to employee
benefits, such as severance and termination benefits, and costs associated with
the relocation of plant facilities. During 2000 and 2001, other subsidiaries of
the Company also implemented restructuring plans.

Prior to the implementation of SFAS 146 "Accounting for Costs Associated with
Exit or Disposal Activities", effective for disposal activities after December
31, 2002, the recognition of liabilities related to a restructuring process
under US GAAP was prescribed primarily by Emerging Issue Task Force 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)"
("EITF 94-3"). In order to recognize a liability for employee termination
benefits and other restructuring costs, EITF 94-3 requires that, prior to the
date of the financial statements, certain specific conditions be met or exist.


                                      F-70
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

At December 31, 2000, 2001 and 2002, some of the required conditions had not
been met or did not exist with respect to the restructuring process of the
Company and its subsidiaries, therefore, an adjustment to reverse a portion of
the restructuring provisions was included in the reconciliation to US GAAP in
each of those years.

(j)   Investment in Lucchetti

Under Chilean GAAP, Quinenco recorded a gain in 1998 as a result of not
subscribing to a capital increase of Lucchetti. Quinenco then purchased shares
of Lucchetti in 1999 and recorded goodwill on the transaction. For US GAAP
purposes, the gain would be deferred in 1998 and would offset the goodwill
recorded in 1999. During 2000, Quinenco amortized the remaining balance of
goodwill under Chilean GAAP. Because under US GAAP, the goodwill balance had
already been reversed, the amortization recorded under Chilean GAAP had to be
reversed for US GAAP purposes in 2000. The effects of the US GAAP adjustments
are included in paragraph I (ee) below.

(k)   Goodwill

Under Chilean GAAP, prior to the implementation of Technical Bulletin 72, ("BT
72") which is effective for periods beginning after December 31, 2002, the
excess of cost over the net book value of a purchased company is recorded as
goodwill and amortized to income over a maximum period of twenty years.
Amortization of goodwill may be accelerated if the acquiring company generates
sufficient income to absorb the additional amortization in any given year.

Under US GAAP, the cost of an investment should be assigned to the tangible and
identified intangible assets acquired and liabilities assumed on the basis of
their fair values at the date of acquisition. An excess of cost over the fair
value of net assets acquired should be recorded as goodwill.

The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets", as of
January 1, 2002, which applies to all goodwill and identified intangible assets
acquired in a business combination.

Under the new standard, all goodwill, including that acquired before initial
application of the standard, and indefinite-lived intangible assets is not
amortized, but must be tested for impairment at least annually. In addition to
the transitional impairment test required by the standard, which was performed
during 2002 and which did not result in any impairment, the Company must perform
the required impairment test annually. The Company is required to apply the new
standard prospectively. Prior to the adoption of the new standard, the Company
amortized goodwill over a period not exceeding 40 years based on the expected
period of future benefit. The effect of differences in accounting methods for
goodwill is included in paragraph I (ee) below.

l)    Negative goodwill

Under Chilean GAAP, prior to the implementation of BT 72, negative goodwill was
calculated as the excess of the net book value over the purchase price of
companies acquired. Negative goodwill is capitalized as a credit to the balance
sheet and amortized over a period not exceeding 20 years.

Under US GAAP, prior to the adoption of SFAS 142, negative goodwill was
considered as a reduction of the long-term assets (except long-term investments
in marketable securities) of the acquired company, and


                                      F-71
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

if a credit remained after reducing those assets to zero, negative goodwill was
recorded on the balance sheet and amortized over the period of expected benefit.
However, in the period of adoption, SFAS 142 requires that unamortized negative
goodwill be written off and the resulting gain be recognized as an effect of a
change in accounting principle. The effect of writing-off negative goodwill as
recorded under US GAAP is set-forth in paragraph I ee) below.

(m)   Revenue recognition

Under Chilean GAAP revenue is recognized at the time that goods are shipped.
Revenue, which the Company has billed and collected in advance, is deferred
until the related goods are shipped. Under US GAAP and in accordance with SEC
Staff Accounting Bulletin No. 101 ("SAB 101"), revenue is realized or realizable
and earned when persuasive evidence of an arrangement exists, the seller's price
is fixed or determinable, collectibility is reasonably assured and delivery has
occurred. Delivery is considered to have occurred when title has been taken by
the customer and risks and rewards of ownership of the products are assumed by
the customer. Madeco records revenue on certain export sales, whose terms are
CIF, for which delivery has not occurred under US GAAP. The effect of the
differences in the accounting method is included in paragraph I (ee) below.

(n)   Executive incentive plan

During 2000, Quinenco established an executive incentive plan for eligible
employees. Under the plan, Quinenco granted a loan to employees to acquire
shares of the Company's stock and the stock of some of its subsidiaries at fair
market value. Under both Chilean and US GAAP, the aggregate loan was deducted
from equity. However, under US GAAP, the dividends paid to employees under the
plan should be treated as compensation cost and the monetary correction should
be credited to paid-in capital. The effect of the differences in accounting for
executive incentive plans is included in paragraph I (ee) below.

(o)   Investment in Plava Laguna

During 2000, Quinenco purchased an aggregate interest of 39.42% in Plava Laguna,
a Croatian hotel chain. For Chilean GAAP, the purchase was accounted for at its
book value and the investment was recorded under the equity method. For US GAAP
purposes the investment is also accounted for under the equity method. However,
as required under US GAAP, a purchase price allocation was performed and
ThCh$12,667,397 of negative goodwill was calculated and allocated to the
property, plant and equipment and is being amortized against depreciation
expense over the useful lives of the assets.

On August 17, 2001, the Company sold its 39.42% interest in the public Croatian
company Plava Laguna to Sutivan Investments, a related party, and as a result
the income effect on the sale has been adjusted for the difference in the basis
of the assets sold under US GAAP. The effect of the differences in accounting
methods is included in paragraph I (ee) below.

(p)   Purchase of companies with tax loss carryforwards

During 2000, the Company purchased a company with tax operating loss
carryforwards. Under Chilean GAAP, the acquisition was treated as a purchase of
a company in which goodwill totaling ThCh$3,202,549 was recorded on the
purchase. For US GAAP purposes, the transaction is not considered a business
combination. A gross deferred tax asset should be recorded for the expected tax
benefit and the


                                      F-72
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

difference between this amount and the purchase price paid for the company
represents a deferred credit which should be amortized to income tax expense in
proportion to the amount of the tax benefit realized each year. The effects of
conforming to US GAAP are included in paragraph I (ee) below.

(q)   Involuntary employee termination

Under Chilean GAAP, the Company recorded an impairment charge in 2002 related to
the closure of Lucchetti's plant in Peru. The impairment charge was calculated
after assessing the future cash flows likely to be generated by the plant.
Included in the charge was an accrual of involuntary employee termination
expenses. Under US GAAP, there must have been a detailed announcement of the
program prior to the balance sheet date in order to recognize a liability in the
balance sheet date. As of December 31, 2002 this requirement had not been met.
The effect of eliminating the accrued liability is presented in paragraph I (ee)
below.

(r)   Effects of US GAAP adjustments in equity investees

Under Chilean GAAP, when an investment accounted for by the equity method is
acquired, the proportionate net book value of the investee company is recorded
as an investment and the difference between the cost of the investment and the
proportionate net book value of the investee is recorded as goodwill. The
goodwill is then amortized to income over a maximum period of twenty years. The
investment account is adjusted to recognize the investor's share of the earnings
or losses of the investee determined under Chilean GAAP subsequent to the date
of the purchase.

Under US GAAP, in accordance with Accounting Principles Board Opinion No. 18,
"the Equity Method for accounting for Investments in Common Stock" ("APB No.
18"), the carrying amount of an investment accounted for under the equity method
is initially recorded at cost and shown as a single amount in the balance sheet
of the investor. It is adjusted to recognize the investor's share of the
earnings or losses of the investee determined under US GAAP subsequent to the
date of investment. The investment reflects adjustments similar to those made in
preparing consolidated financial statements, including adjustments to eliminate
intercompany gains and losses and to account for the differences, if any,
between the investor's cost and the underlying equity in net assets of the
investee at the date of investment. The investment is also adjusted to reflect
the investor's share of changes in the investee capital accounts.

The differences between recognizing the investor's share of the earnings of
investees under Chilean GAAP and under US GAAP for the Company's investments in
CCU, in which the Company had a 30.79% economic interest at December 31, 2002 is
included in paragraph I (ee) below. The significant differences between Chilean
and US GAAP relate to deferred income taxes, goodwill amortization, the
adjustment for staff severance indemnities, the effects of US GAAP adjustments
in its equity investment Embotelladoras Chilenas Unidas S.A. and the adjustment
for capitalization of interest costs.

(s)   Impairment of fixed assets in Madeco

For the year ended December 31, 2001, Madeco recorded a provision for impairment
related to property, plant and equipment to be held and used in Argentina. Under
Chilean GAAP during the year ended December 31, 2002, Madeco has reassessed this
impairment provision based on an improvement in the economic situation in
Argentina and has reversed ThCh$6,693,764 related to this provision. Under US
GAAP, SFAS 144 does not allow the reversal of impairment losses for such assets.
Therefore, the income


                                      F-73
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

relating to the release of the provision has been included in the reconciliation
to US GAAP in paragraph I (ee) below.

(t)   Derivatives

(t-1) Adoption of SFAS 133

In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS No. 133, as amended,
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the derivative
instrument's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative instrument's gains and losses to offset related results on
the hedged item in the income statement, to the extent effective, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting.

The Company records the foreign exchange gains and losses from liabilities
relating to investments in foreign countries, which are denominated in the same
currency as the investment, in the cumulative translation adjustment account in
shareholders' equity. Otherwise, the Company does not apply hedge accounting
under US GAAP. Therefore changes in the respective fair values of derivatives
are reported in earnings when they occur, apart from the net investment hedge
described above.

The Company adopted SFAS No. 133, as amended, on January 1, 2001. SFAS No. 133
requires that as of the date of initial adoption, the difference between the
market value of derivative instruments recorded on the balance sheet and the
previous carrying amount of those derivatives be reported in net income or other
comprehensive income, as appropriate, as the cumulative effect of a change in
accounting principle in accordance with Accounting Principles Board Opinion No.
20, "Accounting Changes". SFAS No. 133 has been applied to (a) derivative
instruments and (b) certain embedded derivative instruments. As permitted under
this standard, the Company has applied SFAS No. 133 to only those embedded
instruments that were issued, acquired, or substantively modified after January
1, 1999.

Currently the only host contracts that the Company has which have implicit or
explicit terms that must be separately accounted for at fair value are in its
financial services operations. These contracts are service type contracts
related to computer services agreements, which are recorded as freestanding
derivative instruments at their estimated fair values recognizing changes in
earnings when they occur.

The effect of adopting SFAS No. 133 as of January 1, 2001, resulted in a
cumulative effect on net income which is presented net of deferred taxes of
ThCh$364 and minority interest under the caption "Cumulative effect of change in
accounting principles". The effects of the adjustment with respect to financial
derivatives, commodity derivatives, and embedded derivatives for the years ended
December 31, 2001 and 2002 is included in the net income and shareholders'
equity reconciliation to US GAAP under paragraph I (ee) below.


                                      F-74
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

(t-2) Non-Financial Services

In its non-financial services operations, the Company maintains forward foreign
exchange contracts and foreign exchange swap contracts to cover the risks of
fluctuation in foreign exchange between the dollar and the Chilean peso and the
US dollar and the Brazilian real.

Under Chilean GAAP, these foreign forward exchange contracts and swaps exchange
rate contracts have been recorded on the balance sheet at the closing spot
exchange rate, with gains and losses included in earnings as "Other
non-operating income and expense". The initial discount or premium is amortized
over the life of the contract as interest expense.

Under US GAAP, contracts that are designated by the management as hedges of
future cash flow or forecasted transactions in Chilean GAAP do not meet the
conditions to be considered as true accounting hedges For the year ended
December 31, 2000, foreign forward exchange contracts and swaps exchange rate
contracts are recorded on the balance sheet at the closing forward exchange
rate, with the resulting gains and losses being recorded immediately in income.
The effects of the difference between using the closing spot rate and the
closing forward rate were not considered material for to the consolidated
financial statements for that year. For the years ended December 31, 2001 and
2002 such contracts were valued in accordance with SFAS 133 as described above.

(t-3) Financial Services

In terms of the Company's banking operations, the use of derivatives in Chile is
regulated by the Chilean Central Bank, which requires that all foreign exchange
forward contracts be made only in US dollars and other major foreign currencies.
Currently, Chilean banks are permitted to use foreign exchange forward contracts
(covering either foreign currencies against the US dollar, the UF against the
Chilean peso or the UF and the Chilean peso against the US dollar), forward rate
agreements and interest rate swaps.

The Bank enters into derivative transactions for its own account and to meet
customers' risk management needs. Generally the Bank enters into forward
contracts in US dollars against the Chilean peso or the UF, however,
occasionally, forward contracts are also made in other currencies, but only when
the Bank acts as intermediary. During the years ended December 31, 2001 and
2002, the bank entered into interest rate and foreign currency swap agreements
as a means of hedging its short-term deposits against long-term loans.

Under Chilean GAAP, the accounting for derivative transactions in the Company's
banking operations is established by the SBIF. The Bank accounts for forward
contracts between foreign currencies and US dollars at fair value with realized
and unrealized gains and losses on these instruments recognized in other income.
Forward contracts between the US dollar and the Chilean peso for the U.F. are
valued at the closing spot exchange rate of each balance sheet date, with the
initial discount or premium being amortized over the life of the contract in
accordance with Chilean hedge accounting criteria. Under Chilean GAAP the Bank
generally records differences between interest income and interest expense on
interest rate swap transactions in net income in the period that such
differences originate. Under US GAAP, for the year ended December 31, 2000, the
banks recorded their swap agreements at their estimated fair value and forward
contracts between the US dollar and the Chilean peso were valued at the fair
value based on the forward exchange rate. For the years ended December 31, 2001
and 2002 such contracts were recorded in accordance with SFAS 133 as described
above. The effects of the adjustments


                                      F-75
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

with respect to foreign exchange and interest rate swap transaction contracts on
the income and net equity of the Company are included in paragraph I (ee) below.

While the Bank uses derivatives for the purpose of mitigating its global
interest and foreign currency risks, these operations do not meet the
requirements to qualify for hedge accounting under US GAAP. Therefore changes in
the respective fair values of all derivative instruments are reported in
earnings when they occur.

(u)   Investment in SM Chile and Banco de Chile

As of December 31, 2001 and 2002, the Company held voting interests of 51.35% in
SM Chile and voting interests of 4.27% and 20.22% in Banco de Chile,
respectively, through a series of step acquisitions occurring during the three
year period ended December 31, 2001. Under Chilean GAAP, during the three years
ended December 31, 2002 these investments were accounted for using the equity
method.

Under US GAAP, in accordance with APB No. 18, these investments are also
accounted for using the equity method for the years ended December 31, 2000 and
2001 and the period from January 1, 2001 to March 27, 2001, the date at which
the Company acquired a controlling interest in them. The effect of recording the
Company's equity participation in the results of operations of SM Chile and
Banco de Chile prior to March 27, 2001 as calculated under US GAAP are included
in paragraph I (ee) below. The principal US GAAP adjustments in SM Chile and
Banco de Chile relate to the following items:

      -     Fair value adjustments relating to business combinations

      -     Loan origination fees and costs

      -     Investments in other companies

      -     Assets received in lieu of payment

      -     Mortgage finance bonds

      -     Allowance for loan losses

      -     Deferred income taxes

      -     Investment securities

      -     Derivatives

      -     Staff severance indemnities

Had the acquisition of Banco de Chile taken place on January 1, 2000 and January
1, 2001 respectively, the impact on Quinenco's consolidated revenues, net income
and net income per share under Chilean GAAP, for the years ended December 31, on
an unaudited pro forma basis would have been as follows:

<TABLE>
<CAPTION>
                                                      2000 (unaudited)                2001 (unaudited)
                                                      ----------------                ----------------
                                                            ThCh$                         ThCh$
<S>                                                     <C>                          <C>
Net sales                                                 479,743,594                  488,258,497
Net income                                                 37,324,190                   49,961,519
Net income per share (in single pesos)                           34.6                         46.3
Based on weighted average shares outstanding            1,079,740,079                1,079,740,079
</TABLE>

Under Chilean GAAP, Quinenco uses the equity method to account for Banco de
Chile and does not consolidate the bank. Therefore, consolidated revenues are
not impacted by the purchase but the effect can be seen in the net income line.


                                      F-76
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

(v)   Fair value of Financial Service assets and liabilities acquired in
      business combinations

Under Chilean GAAP, prior to the implementation of BT 72, assets acquired and
liabilities assumed in a business combination are recorded at their carrying
value, and the excess of the purchased price over the carrying value are
recorded as goodwill. Under US GAAP, in a business combination accounted for
under the purchase method of accounting, the acquired company's identifiable
assets and liabilities are adjusted to give effect to the purchase price paid by
the acquiring company. If, after the assets and liabilities of the acquired
company have been adjusted to their fair value at the acquisition date, the
purchase price exceeds the amount of such fair value, the excess is recorded as
goodwill.

Two business combinations have taken place during the period covered by these
financial statements; on March 27, 2001 Quinenco purchased a controlling stake
in Banco de Chile and on January 1, 2002, Banco de Chile merged with Banco
Edwards. Under the accounting treatment that is applicable under US GAAP for the
merger of the two banks, to the extent that Banco de Chile shares or cash (in
the case of fractional shares) were exchanged for Banco Edwards shares held by
parties other than LQIF a wholly owned subsidiary of Quinenco, purchase
accounting has been used to record the transaction. As a result and due to the
fact that Quinenco consolidates with Banco de Chile, the adjustment to fair
value of the assets and liabilities of Banco Edwards of that portion not held by
LQIF, at the time of the merger has been included in the reconciliation to US
GAAP, net of amortization and depreciation where applicable.

The fair value increments of the assets and liabilities of Banco de Chile and
Banco Edwards at the time of the business combinations have been calculated
based on appropriate market values and using estimates and modeling techniques
where the asset or liability makes reference to future cash flows. In a business
combination accounted for by the purchase method involving the acquisition of a
banking or thrift institution, intangible assets acquired that can be separately
identified are assigned a portion of the total cost of the acquired enterprise
if the fair values of those assets can be reliably determined. The identified
intangible assets shall be amortized over the estimated lives of those existing
relationships. The adjustments to fair value arising from the acquisitions of
Banco de Chile and Banco Edwards and their subsequent merger relate to the
following assets and liabilities:

(v-1) Core deposits, brand and other intangibles

In determining the fair value of the assets and liabilities of Banco de Chile
and Banco Edwards, the Company has considered the value of its long-term
customer relationships (core deposit intangibles) in estimating the fair value
of its deposits. In addition, independent valuations were carried out to assess
the value of the brand names and other intangible assets. The effect of
recording such assets at their fair value and their subsequent amortization is
recorded in paragraph I (ee) below.

(v-2) Fair value of bank premises and equipment

In determining the fair value of the assets and liabilities of Banco de Chile
and Banco Edwards, the Company has considered the fair value of the Banks'
tangible assets such as the Head Office and other owned branches. The effect of
recording such assets at their fair value and their subsequent amortization is
recorded in paragraph I (ee) below.


                                      F-77
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

(v-3) Fair value of loans

In determining the fair value of the assets and liabilities of Banco de Chile
and Banco Edwards, the Company has considered the fair value of the Banks' loan
portfolios based on future cash flows and using market based discount rates. The
effect of recording the loan portfolio at fair value and their subsequent
amortization is recorded in paragraph I (ee) below.

(v-4) Fair value of subordinated debt obligation

In determining the fair value of the assets and liabilities of Banco de Chile
the Company has considered the fair value of the subordinated debt arising from
the economic crisis in 1982-1983. At that time Banco de Chile sold certain of
its non-performing loans to the Chilean Central Bank at face value on terms that
included a repurchase obligation. The repurchase obligation was later exchanged
for subordinated debt of each participating bank issued in favor of the Central
Bank. In 1996, a reorganization took place by which Banco de Chile was converted
to a holding company named SM Chile that in turn organized a new wholly-owned
banking subsidiary named Banco de Chile to which it contributed all of its
assets and liabilities other than the Central Bank subordinated debt. SM Chile
then created a second wholly owned subsidiary, SAOS, that, pursuant to a prior
agreement with the Central Bank, assumed a new repayment obligation in favor of
the Central Bank which replaced the Central Bank subordinated debt in its
entirety.

Under Chilean GAAP, the Company is not required to record Banco de Chile's
subordinated debt obligation on its books and as a result it was not considered
in the determination of goodwill under Chilean GAAP. Under US GAAP, the Company
records the subordinated debt obligation at fair value in connection with the
purchase accounting for the acquisition of the bank. The effect of recording the
subordinated debt at fair value and its subsequent interest amortization is
recorded in paragraph I (ee) below.

(v-5) Fair value of other financial assets and liabilities

In determining the fair value of the assets and liabilities of Banco de Chile
and Banco Edwards, the Company has considered the value of its other financial
assets and liabilities such as financial investments, mortgage finance bonds and
deposits. The effect of recording such assets and liabilities and their
subsequent adjustment to interest yield is recorded in paragraph I (ee) below.

(w)   Loan origination fees and costs

Under Chilean GAAP, in accordance with regulations issued by the SBIF, beginning
January 1, 2001, the Bank began to defer and amortize certain loan fee income
and loan origination costs, over the term of loans to which they relate, and the
period that the services are performed. In prior years, the bank recognized
origination fees on credit card loans, lines of credit and letters of credit
when collected and recorded the related direct costs when incurred.

Under SFAS No 91, "Accounting for Nonrefundable Fees and Costs Associated with
Origination of Acquiring Loans and Initial Direct Costs of Leases", loan
origination fees and certain direct loan origination costs should be recognized
over the term of the related loan as an adjustment to yield. The effect of
accounting for net loan origination fees in accordance with US GAAP is included
in the reconciliation of consolidated net income and shareholders' equity in
paragraph I (ee) below.


                                      F-78
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

(x)   Investments in other companies

Banco de Chile and Banco Edwards participate in shared service companies with
other banks in the Chilean financial system, through equity investments each of
which represents an ownership interest of less than 20% in a particular company.
Under Chilean GAAP, these investments have been accounted for under the equity
method. As these investments are long-term in nature and are not traded, under
US GAAP these investments would generally be accounted for at cost less any
non-temporary impairment in value. The effect of recording these assets in
accordance with US GAAP is included in the reconciliation of consolidated net
income and shareholders' equity in paragraph I (ee) below.

(y)   Assets received in lieu of payment

Under Chilean GAAP, assets received in lieu of payment are carried at cost and
have been restated for price-level changes, less a global valuation allowance if
the total of the market value of those assets is lower than the carrying amount.
Market value is determined based on appraiser valuations, as required by the
SBIF. Beginning January 1, 2001, if the asset is not sold within one year, then
recorded asset amounts must be written-off on at least a straight-line basis
over the following 18-month period.

Under US GAAP, assets received in lieu of payment are initially recorded at fair
value less any estimated costs to sell at the date of foreclosure, on an
individual asset basis. The effect of recording these assets in accordance with
US GAAP is included in the reconciliation of consolidated net income and
shareholders' equity in paragraph I (ee) below.

(z)   Mortgage finance bonds

Under Chilean GAAP, up other financial investments include mortgage finance
bonds issued by the Bank and held for future sale. Effective October 31, 2002
the Bank modified its accounting treatment of financial investments in mortgage
finance bonds issued by the Bank in accordance with the instructions of the
SBIF, reducing from assets the amount recorded for mortgage finance bonds issued
by the Bank, including a market value adjustment, and from liabilities, the
respective mortgage finance bond obligation. Under US GAAP, this accounting
treatment has always been applied.

In addition, as under US GAAP mortgage finance bonds are offset against the
corresponding liability for periods before 2002, the market value adjustment
applied under Chilean GAAP before the accounting change would not have been made
under US GAAP.

The effects of this difference between Chilean and US GAAP have been included in
the reconciliation to US GAAP in paragraph I (ee) below.

(aa) Allowance for loan losses

Under Chilean GAAP, the allowance for loan losses is calculated according to
specific guidelines set out by the rules of the SBIF. Under US GAAP allowances
for loan losses should be in amounts adequate to cover inherent losses in the
loan portfolio at the respective balance sheet dates. Under US GAAP, the banks
have estimated their required reserve using historical loan data, in order to
estimate the inherent


                                      F-79
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

losses in their loan portfolio, using patterns and trends based upon historical
loan movements ("migration analysis").

In addition, specific additional provisions were determined for loans considered
impaired under SFAS No. 114, "Accounting by Creditors for Impairment of a Loan"
("SFAS No. 114"). Under this analysis, each bank's commercial loans and leasing
operations were valued at the present value of the expected future cash flows
discounted at the loan's effective contractual interest rate, or at market rates
in the case of those loans were considered to be collateral dependent, while the
related loan loss provisions for mortgage and consumer loans were determined
based on historical loan charge-offs, after considering the recoverability of
the underlying collateral. The effects of this difference between Chilean and US
GAAP have been included in the reconciliation to US GAAP in paragraph I (ee)
below.

(bb) Gain from exchange of shares in merger

Banco de Chile and Banco Edwards merged effective January 1, 2002 by way of a
share exchange. As a result of this transaction, the Company's participation in
the carrying values of the banks has changed. To the extent that there has been
a dilution of the Company's participation in the banks, as a result of the
issuance of shares by Banco de Chile, a gain has been recorded under US GAAP
equivalent to the proportionate share of the banks' equity immediately before
and immediately after the transaction. No such gain has been recorded under
Chilean GAAP. The effect of recording the gain has been included in paragraph I
(ee) below.

(cc) Minority interest

The effects on the minority interest of the US GAAP adjustments in subsidiaries
that are not wholly-owned by the Company have been reflected in Minority
interest and are included in paragraph I (ee) below.

(dd) Comprehensive income

On January 1, 1998 the Company adopted SFAS No. 130, "Reporting Comprehensive
Income", which establishes guidelines for the reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements, SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Net unrealized
losses on securities are presented in other comprehensive income net of deferred
taxes of ThCh$5,874,913 ThCh$11,723,682 and ThCh$2,952,443 for the years ended
December 31, 2000, 2001 and 2002, respectively. The disclosures required under
US GAAP are set forth in paragraph I (ee) below.


                                      F-80
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

(ee) Effects of conforming to US GAAP

The adjustments to reported net income required to conform with US GAAP are as
follows (parenthetical references are to Note 26 part I):

<TABLE>
<CAPTION>
                                                                                               Year ended December 31,
                                                                                    -----------------------------------------------
                                                                                        2000             2001              2002
                                                                                    -----------       -----------       -----------
                                                                                        ThCh$            ThCh$             ThCh$
<S>                                                                                 <C>                <C>              <C>
Net income (loss) as shown in the Chilean GAAP financial statements ..........       (5,997,883)       15,974,663       (75,480,211)
NON-FINANCIAL SERVICES
  Deferred income taxes (paragraph b) ........................................       (4,093,383)       (2,609,335)       (3,203,128)
  Reversal of depreciation of the revaluation of property, plant and
    equipment (paragraph d) ..................................................          195,561           209,833           199,054
  Available-for-sale securities, net of deferred income taxes (paragraph e) ..            2,009                --                --
  Reversal of effects for investment in Entel (paragraph e-1) ................       (5,730,396)        1,332,305           158,560
  Employee severance indemnities (paragraph f) ...............................       (2,673,282)          518,661         2,182,793
  Deficit during development stage (paragraph g) .............................       (1,007,657)       (2,217,665)       (1,382,458)
  Advertising costs (paragraph h) ............................................          239,778           259,585           519,170
  Restructuring costs (paragraph i) ..........................................       (2,084,945)        1,757,894        (2,368,960)
  Investment in Lucchetti (paragraph j) ......................................        2,414,780                --                --
  Goodwill (paragraph k) .....................................................         (117,293)          (87,940)        2,739,835
  Reversal of revenue recognition (paragraph m) ..............................          (61,899)          (17,365)         (643,501)
  Executive incentive plan (paragraph n) .....................................          257,296                --           (33,177)
  Investment in Plava Laguna (paragraph o) ...................................          209,302          (209,302)               --
  Purchase of companies with tax loss carryforwards (paragraph p) ............           54,348           (54,348)               --
  Involuntary employee termination (paragraph q) .............................               --                --           513,088
  Net effects of US GAAP adjustments in equity investees (paragraph r) .......          397,755        (1,226,360)         (838,990)
  Impairment of fixed assets in Madeco (paragraph s) .........................               --                --        (6,693,764)
  Derivatives (paragraph t-1, t-2) ...........................................               --          (570,064)          412,048

FINANCIAL SERVICES
  Deferred income taxes (paragraph b) ........................................         (899,190)       (3,135,050)        4,955,799
  Investment securities (paragraph e-2) ......................................          273,980        (5,137,164)       (7,302,000)
  Employee severance indemnities (paragraph f) ...............................               --           426,571         4,452,000
  Goodwill (paragraph k) .....................................................          693,624         7,419,942        17,690,345
  Derivatives (paragraph t-1, t-3) ...........................................       (1,344,150)       (6,800,504)        8,564,000
  Investment in SM Chile and Banco de Chile (paragraph u) ....................       (2,576,700)       (5,789,907)               --
  Core deposits, brand and other intangibles (paragraph v-1) .................       (3,224,338)      (13,465,411)      (20,590,688)
  Fair value of bank premises and equipment (paragraph v-2) ..................               --          (166,438)         (229,500)
  Fair value of loans (paragraph v-3) ........................................        3,126,324           883,413        10,028,191
  Fair value of subordinated debt obligation (paragraph v-4) .................               --         8,622,716         3,697,193
  Fair value of other financial assets and liabilities (paragraph v-5) .......       (1,501,541)         (193,241)      (14,999,221)
  Loan origination fees and costs (paragraph w) ..............................           30,900           314,150        (1,016,000)
  Investments in other companies (paragraph x) ...............................           90,640            26,780          (318,000)
  Assets received in lieu of payment (paragraph y) ...........................        2,133,130           510,880        (1,722,000)
  Mortgage finance bonds (paragraph z) .......................................               --            43,260        (1,771,000)
  Allowance for loan losses (paragraph aa) ...................................       (2,378,270)       12,924,440       (17,861,000)
  Gain from exchange of shares in merger (paragraph bb) ......................               --                --            95,130

Net effects of US GAAP adjustments on minority interest (paragraph cc) .......        3,078,576         1,696,063        20,758,056
                                                                                    -----------       -----------       -----------
Income (loss) in accordance with US GAAP before cumulative effect of change
in accounting principle ......................................................      (20,492,924)       11,241,062       (79,488,336)
                                                                                    ===========       ===========       ===========
</TABLE>


                                      F-81
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

(ee) Effects of conforming to US GAAP, continued

<TABLE>
<CAPTION>
                                                                                     2000               2001               2002
                                                                                  -----------        -----------        -----------
                                                                                     ThCh$              ThCh$              ThCh$
<S>                                                                               <C>                <C>                <C>
Net income (loss) under US GAAP before cumulative effect of change
in accounting principle ...................................................       (20,492,924)        11,241,062        (79,488,336)
Cumulative effect of change in accounting principle, net of taxes
(paragraphs s and l) ......................................................                --              2,060          5,909,751
                                                                                  -----------        -----------        -----------
Net income (loss) under US GAAP ...........................................       (20,492,924)        11,243,122        (73,578,585)
Other comprehensive income, net of tax:
Foreign currency translation adjustment ...................................         5,091,763          7,659,334         10,863,749
Net unrealized gains (losses) on securities, net of tax (paragraph e) .....        33,291,176        (63,748,808)        (5,214,928)
                                                                                  -----------        -----------        -----------
Other comprehensive income ................................................        38,382,939        (56,089,474)         5,648,821
                                                                                  -----------        -----------        -----------
Comprehensive income (loss) under US GAAP .................................        17,890,015        (44,846,352)       (67,929,764)
                                                                                  ===========        ===========        ===========
</TABLE>

The adjustments required to conform net equity amounts to US GAAP are as
follows:

<TABLE>
<CAPTION>
                                                                                                          At December 31,
                                                                                                -----------------------------------
                                                                                                    2001                   2002
                                                                                                ------------           ------------
                                                                                                    ThCh$                  ThCh$
<S>                                                                                              <C>                    <C>
Net equity as shown in the Chilean GAAP financial statements .........................           697,702,043            630,514,812
NON-FINANCIAL SERVICES
  Deferred income taxes (paragraph b) ................................................            (9,981,603)           (11,641,255)
  Minimum dividend (paragraph c) .....................................................            (4,792,399)                    --
  Reversal of the revaluation of property, plant and equipment
    Fixed assets (paragraph d) .......................................................           (15,142,890)           (14,885,579)
    Accumulated depreciation (paragraph d) ...........................................             3,525,747              3,467,490
  Available-for-sale securities, net of deferred income taxes (paragraph e) ..........            32,929,773             21,341,063
  Reversal of effects for investment in Entel (paragraph e-1) ........................            (7,338,437)            (7,309,247)
  Employee severance indemnities (paragraph f) .......................................            (4,504,925)            (2,322,132)
  Advertising costs (paragraph h) ....................................................              (519,170)                    --
  Restructuring costs (paragraph i) ..................................................             3,478,028              1,109,068
  Goodwill (paragraph k) .............................................................               466,448              3,206,283
  Negative goodwill (paragraph l) ....................................................                    --              5,909,751
  Reversal of revenue recognition (paragraph m) ......................................               (79,264)              (722,765)
  Involuntary employee termination (paragraph q) .....................................                    --                513,088
  Net effects of US GAAP adjustments in equity investees (paragraph r) ...............                57,655               (821,584)
  Impairment of fixed assets in Madeco (paragraph s) .................................                    --             (6,693,764)
  Derivatives (paragraph t-1, t-2) ...................................................              (570,064)              (158,016)

FINANCIAL SERVICES
  Deferred income taxes (paragraph b) ................................................             7,872,692             15,266,491
  Investment securities (paragraph e-2) ..............................................             7,296,996                (10,004)
  Employee severance indemnities (paragraph f) .......................................            (4,258,846)            (3,846,065)
  Goodwill (paragraph k) .............................................................            30,510,838            235,045,183
  Derivatives (paragraph t-1, t-3) ...................................................            (4,928,550)             3,635,450
  Core deposits, brand and other intangibles (paragraph v-1) .........................           158,012,852            168,569,164
  Fair value of bank premises and equipment (paragraph v-2) ..........................            10,797,832             10,653,332
  Fair value of loans (paragraph v-3) ................................................             5,467,355             (2,009,454)
  Fair value of subordinated debt obligation (paragraph v-4) .........................          (238,861,298)          (235,164,105)
  Fair value of other financial assets and liabilities (paragraph v-5) ...............               232,504            (42,261,717)
  Loan origination fees and costs (paragraph w) ......................................             1,478,050                462,050
  Investments in other companies (paragraph x) .......................................               718,940                400,940
  Assets received in lieu of payment (paragraph y) ...................................             2,329,860                607,860
  Mortgage finance bonds issued by the Bank (paragraph z) ............................              (126,690)            (1,897,690)
  Allowance for loan losses (paragraph aa) ...........................................            39,309,950             21,448,950

Net effects of US GAAP adjustments on minority interest (paragraph cc) ...............           (17,747,272)          (168,367,867)
                                                                                                ------------           ------------
Net equity in accordance with US GAAP ................................................           693,336,155            624,039,731
                                                                                                ============           ============
</TABLE>


                                      F-82
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

The changes in net equity accounts determined under US GAAP are summarized as
follows:

<TABLE>
<CAPTION>
                                                                                                                           ThCh$
<S>                                                                                                                     <C>
Balance at January 1, 2000 ...............................................................................              728,931,924
   Reversal of accrued minimum dividend at December 31, 1999 .............................................               53,471,809
   Distribution of final 1999 dividend ...................................................................              (52,552,524)
   Executive incentive plan ..............................................................................               (4,799,352)
   Net change in unrealized gains and losses on available-for-sale-securities, net of
   deferred income taxes .................................................................................               33,291,176
   Cumulative translation adjustment .....................................................................                5,091,763
   Net loss for the year .................................................................................              (20,492,924)
                                                                                                                       ------------
Balance at December 31, 2000 .............................................................................              742,941,872
                                                                                                                       ------------
   Accrued minimum dividend at December 31, 2000 .........................................................               (4,792,396)
   Executive incentive plan ..............................................................................                   33,031
   Net change in unrealized gains and losses on available-for-sale-securities, net of
   deferred income taxes .................................................................................              (63,748,808)
   Cumulative translation adjustment .....................................................................                7,659,334
   Net income for the year ...............................................................................               11,243,122
                                                                                                                       ------------
Balance at December 31, 2001 .............................................................................              693,336,155
                                                                                                                       ------------
   Reversal of accrued minimum dividend at December 31, 2001 .............................................                4,792,399
   Dividends paid ........................................................................................               (6,344,281)
   Executive incentive plan ..............................................................................                  185,222
   Net change in unrealized gains and losses on available-for-sale-securities, net of
   deferred income taxes .................................................................................               (5,214,928)
   Cumulative translation adjustment .....................................................................               10,863,749
   Net loss for the year .................................................................................              (73,578,585)
                                                                                                                       ------------
Balance at December 31, 2002 .............................................................................              624,039,731
                                                                                                                       ============
</TABLE>


                                      F-83
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

II.   Consolidation of Subsidiaries

As indicated in Note 2a) banking and insurance operations are not generally
consolidated with non-financial businesses in Chile primarily due to the
dissimilarity of both the nature of the businesses and the related accounting
policies. The information presented below, which is presented in Chilean GAAP,
shows the consolidation of those subsidiaries which under SFAS 94,
"Consolidation of All Majority-Owned Subsidiaries," the Company is required to
consolidate.

The condensed consolidated balance sheet, income statement and reconciliation of
cash flows set forth below consolidate:

For the year ended December 31, 2000:

-     Banco Edwards - a 51.17% owned banking subsidiary

-     Banedwards - a 66.30% owned insurance company

As of and for the year ended December 31, 2001:

-     Banco Edwards - a 51.17% owned banking subsidiary

-     Banedwards - a 66.30% owned insurance company

-     SM Chile - a 51.35% owned banking subsidiary, through which the Company
      owns 48.39% of Banco de Chile. Also included in this consolidation column
      is the 4.27% direct interest the Company has in Banco de Chile.

As of and for the year ended December 31, 2002:

-     SM Chile - a 51.35% owned banking subsidiary, through which the Company
      owns 31.94% of Banco de Chile subsequent to the merger with Banco Edwards.
      Also included in this consolidation column is the 20.22% direct interest
      that the Company owns in Banco de Chile subsequent to the merger with
      Banco Edwards.

-     Banchile - a 66.30% owned insurance company

-     Lucchetti Peru S.A. - a 93.69% owned food manufacturing company. Under
      Chilean GAAP and in accordance with discussions held with the SVS,
      Lucchetti Peru's balance sheet was not consolidated as of December 31,
      2002, due to the closure of its plant in Lima and the ending of its
      operations in Peru. Under US GAAP, as the plan to abandon the plant had
      not been made until after the balance sheet date, the Company must
      continue to consolidate Lucchetti Peru's balance sheet as of and for the
      year ended December 31, 2002.


                                      F-84
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                     stated)

<TABLE>
<CAPTION>
                                                                            For the year ended December 31, 2000
                                                      -----------------------------------------------------------------------------
                                                                         Banco                      Consolidation    Consolidated
                                                        Quinenco        Edwards        Banedwards    Adjustments   Income Statement
                                                      ------------    ------------    -----------   -------------  ----------------
                                                          ThCh$          ThCh$           ThCh$           ThCh$           ThCh$
<S>                                                    <C>               <C>             <C>          <C>             <C>
Non-Financial Services
Operating results:
Net sales ...........................................  479,743,594              --             --             --      479,743,594
Cost of sales ....................................... (383,003,286)             --             --             --     (383,003,286)
Administrative and selling expenses .................  (80,094,885)             --             --             --      (80,094,885)
                                                      ------------    ------------    -----------     ----------     ------------
   Operating income (loss) ..........................   16,645,423              --             --             --       16,645,423
                                                      ------------    ------------    -----------     ----------     ------------

Non-operating results:
Interest income .....................................    9,041,489              --             --       (254,907)       8,786,582
Non-operating income ................................   35,325,308              --             --     (1,725,973)      33,599,335
Interest expense ....................................  (39,242,169)             --             --        787,697      (38,454,472)
Non-operating expense ...............................  (36,139,340)             --             --             --      (36,139,340)
Price-level restatement loss, net ...................   (6,343,441)             --             --         94,822       (6,248,619)
                                                                      ------------    -----------     ----------     ------------
Non-operating results ...............................  (37,358,153)             --             --     (1,098,361)     (38,456,514)
                                                                      ------------    -----------     ----------     ------------

   Income from non-financial services
   before income taxes and minority interest ........  (20,712,730)             --             --     (1,098,361)     (21,811,091)
                                                      ------------    ------------    -----------     ----------     ------------

Financial Services
Net interest revenue ................................           --     111,253,642             --       (482,945)     110,770,697
Provision for loan losses ...........................           --     (37,519,869)            --             --      (37,519,869)
Income from services, net ...........................           --      17,803,909             --             --       17,803,909
Other operating income, net .........................           --       9,491,260        631,150             --       10,122,410
Other income and expenses ...........................           --      (1,180,337)         1,647             --       (1,178,690)
Operating expenses ..................................           --     (89,741,802)      (818,483)            --      (90,560,285)
Price-level restatement loss, net ...................           --      (7,415,616)        15,378             --       (7,400,238)
                                                      ------------    ------------    -----------     ----------     ------------
   Income (loss) from financial services
   before income taxes and minority interest ........           --       2,691,187       (170,308)      (482,945)       2,037,934
                                                      ------------    ------------    -----------     ----------     ------------

Income (loss) before income taxes ...................  (20,712,730)      2,691,187       (170,308)    (1,581,306)     (19,773,157)
                                                      ------------    ------------    -----------     ----------     ------------

Income taxes (expense) benefit ......................    7,541,236       1,056,972         25,546             --        8,623,754
                                                      ------------    ------------    -----------     ----------     ------------

   Income (loss) before minority interest ...........  (13,171,494)      3,748,159       (144,762)    (1,581,306)     (11,149,403)
Minority interest ...................................    7,173,611        (375,529)            --     (1,646,562)       5,151,520
                                                      ------------    ------------    -----------     ----------     ------------

   Net income (loss) ................................   (5,997,883)      3,372,630       (144,762)    (3,227,868)      (5,997,883)
                                                      ============    ============    ===========     ==========     ============
</TABLE>


                                      F-85
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

<TABLE>
<CAPTION>
                                                                           At December 31, 2001
                                        --------------------------------------------------------------------------------------------
                                                            Banco           SM                       Consolidation     Consolidated
                                           Quinenco        Edwards         Chile      Banedwards      Adjustments      Balance Sheet
                                        -------------   -------------  -------------  -------------  -------------    --------------
                                            ThCh$           ThCh$          ThCh$           ThCh$         ThCh$             ThCh$
<S>                                     <C>             <C>            <C>                <C>         <C>             <C>
Assets:
Non-Financial Services:
Current assets
Cash and time deposits ..............      22,155,657              --             --             --     (7,907,357)       14,248,300
Marketable securities ...............       1,453,727              --             --             --             --         1,453,727
Accounts and notes receivable, net ..     103,910,606              --             --             --             --       103,910,606
Inventories .........................      81,032,739              --             --             --             --        81,032,739
Other current assets ................      65,171,084              --             --             --             --        65,171,084
                                        -------------   -------------  -------------   ------------   ------------    --------------
      Total current assets ..........     273,723,813              --             --             --     (7,907,357)      265,816,456
                                        -------------   -------------  -------------   ------------   ------------    --------------

Net property, plant and equipment ...     430,317,962              --             --                                     430,317,962
                                        -------------   -------------  -------------   ------------   ------------    --------------

Other assets:
Investments in and advances
  to related companies ..............     489,597,930              --             --             --   (308,874,253)      180,723,677
Goodwill, net .......................     356,848,208              --             --             --                      356,848,208
Other non-current assets ............      57,592,557              --             --             --                       57,592,557
                                        -------------   -------------  -------------   ------------   ------------    --------------
      Total other assets ............     904,038,695              --             --             --   (308,874,253)      595,164,442
                                        -------------   -------------  -------------   ------------   ------------    --------------

Total non-financial services assets .   1,608,080,470              --             --             --   (316,781,610)    1,291,298,860
                                        -------------   -------------  -------------   ------------   ------------    --------------

Financial Services:
Cash and due from banks .............              --     251,237,600    543,787,439         11,845             --       795,036,884
Investments .........................              --     371,208,910  1,699,205,237      3,176,499             --     2,073,590,646
Loans, net ..........................              --   2,188,659,360  3,838,241,305             --    (24,522,323)    6,002,378,342
Other assets ........................              --     172,258,230    188,891,930        756,806             --       361,906,966
                                        -------------   -------------  -------------   ------------   ------------    --------------
      Total financial services assets              --   2,983,364,100  6,270,125,911      3,945,150    (24,522,323)    9,232,912,838
                                        -------------   -------------  -------------   ------------   ------------    --------------

      Total assets ..................   1,608,080,470   2,983,364,100  6,270,125,911      3,945,150   (341,303,933)   10,524,211,698
                                        =============   =============  =============   ============   ============    ==============
</TABLE>


                                      F-86
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

<TABLE>
<CAPTION>
                                                                    At December 31, 2001
                                                       ---------------------------------------------

                                                                           Banco            SM
                                                         Quinenco         Edwards          Chile
                                                       -------------   -------------   -------------
                                                          ThCh$            ThCh$            ThCh$
<S>                                                    <C>             <C>             <C>
Liabilities and Shareholders' Equity:
Non-Financial Services:
Current liabilities
Debt payable within one year .......................     186,644,979              --              --
Accounts and notes payable .........................      48,320,976              --              --
Accrued and other liabilities ......................      28,676,623              --              --
                                                       -------------   -------------   -------------
        Total current liabilities ..................     263,642,578              --              --
                                                       -------------   -------------   -------------

Long-term liabilities:
Long term debt .....................................     324,316,971              --              --
Other liabilities ..................................     229,853,350              --              --
                                                       -------------   -------------   -------------
        Total long-term liabilities ................     554,170,321              --              --
                                                       -------------   -------------   -------------

Total non-financial services liabilities ...........     817,812,899              --              --
                                                       -------------   -------------   -------------

Financial Services:
Deposits ...........................................              --   1,764,494,030   3,816,385,117
Borrowings .........................................              --     825,614,010   1,641,680,115
Other liabilities ..................................              --     146,703,930     401,324,938
Provision Subordinated Debt Central Bank ...........              --              --      58,135,723
                                                       -------------   -------------   -------------
        Total financial services liabilities .......              --   2,736,811,970   5,917,525,893
                                                       -------------   -------------   -------------

Minority interest ..................................      92,565,528              --      34,302,267

Shareholders' equity
Common stock .......................................     454,744,268     236,146,040     294,257,958
Reserves ...........................................      25,357,060      10,406,090      24,039,793
Retained earnings ..................................     217,600,715              --              --
                                                       -------------   -------------   -------------
        Total shareholders' equity .................     697,702,043     246,552,130     318,297,751
                                                       -------------   -------------   -------------

        Total liabilities and shareholders' equity .   1,608,080,470   2,983,364,100   6,270,125,911
                                                       =============   =============   =============

<CAPTION>
                                                                      At December 31, 2001
                                                        --------------------------------------------

                                                                     Consolidation     Consolidated
                                                        Banedwards    Adjustments      Balance Sheet
                                                        ----------   -------------    --------------
                                                           ThCh$          ThCh$            ThCh$
<S>                                                      <C>          <C>             <C>
Liabilities and Shareholders' Equity:
Non-Financial Services:
Current liabilities
Debt payable within one year .......................            --      (4,336,025)      182,308,954
Accounts and notes payable .........................            --                        48,320,976
Accrued and other liabilities ......................            --                        28,676,623
                                                        ----------    ------------    --------------
        Total current liabilities ..................            --      (4,336,025)      259,306,553
                                                        ----------    ------------    --------------

Long-term liabilities:
Long term debt .....................................            --     (20,186,299)      304,130,672
Other liabilities ..................................            --                       229,853,350
                                                        ----------    ------------    --------------
        Total long-term liabilities ................            --     (20,186,299)      533,984,022
                                                        ----------    ------------    --------------

Total non-financial services liabilities ...........            --     (24,522,324)      793,290,575
                                                        ----------    ------------    --------------

Financial Services:
Deposits ...........................................       147,438      (7,907,357)    5,573,119,228
Borrowings .........................................            --              --     2,467,294,125
Other liabilities ..................................     1,867,043              --       549,895,911
Provision Subordinated Debt Central Bank ...........            --              --        58,135,723
                                                        ----------    ------------    --------------
        Total financial services liabilities .......     2,014,481      (7,907,357)    8,648,444,987
                                                        ----------    ------------    --------------

Minority interest ..................................            --     257,906,299       384,774,094

Shareholders' equity
Common stock .......................................     2,026,595    (532,430,594)      454,744,267
Reserves ...........................................        48,837     (34,494,720)       25,357,060
Retained earnings ..................................      (144,763)        144,763       217,600,715
                                                        ----------    ------------    --------------
        Total shareholders' equity .................     1,930,669    (566,780,551)      697,702,042
                                                        ----------    ------------    --------------

        Total liabilities and shareholders' equity .     3,945,150    (341,303,933)   10,524,211,698
                                                        ==========    ============    ==============
</TABLE>


                                      F-87
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

<TABLE>
<CAPTION>
                                                                   For the year ended December 31, 2001
                                                           ------------------------------------------------
                                                                                  Banco              SM
                                                             Quinenco            Edwards           Chile
                                                           ------------      ------------      ------------
                                                              ThCh$               ThCh$            ThCh$
<S>                                                          <C>             <C>               <C>
Operating results:
Net sales ............................................      488,258,497                --                --
Cost of sales ........................................     (387,902,319)               --                --
Administrative and selling expenses ..................      (82,315,236)               --                --
                                                           ------------      ------------      ------------
    Operating income .................................       18,040,942                --                --
                                                           ------------      ------------      ------------

Non-Operating results:
Interest income ......................................        8,177,405                --                --
Non-operating income .................................      106,024,138                --                --
Interest expense .....................................      (60,779,543)               --                --
Non-operating expense ................................      (71,878,145)               --                --
Price-level restatement loss, net ....................      (10,950,796)               --                --
                                                           ------------      ------------      ------------
Non-operating results ................................      (29,406,941)               --                --
                                                           ------------      ------------      ------------
    (Loss) from non-financial services before income
    taxes and minority interest ......................      (11,365,999)               --                --
                                                           ------------      ------------      ------------

Financial Services
Net interest revenue .................................               --       124,261,260       224,068,984
Provision for loan losses ............................               --       (46,000,830)      (51,913,050)
Income from services, net ............................               --        26,251,610        50,604,640
Other operating income, net ..........................               --         4,984,170        11,046,522
Other income and expenses ............................               --         7,287,250        13,789,068
Operating expenses ...................................               --      (100,324,060)     (153,340,372)
Price-level restatement loss, net ....................               --        (4,298,190)       (5,962,508)
                                                           ------------      ------------      ------------
    Income from financial services before income taxes
    and minority interest and subordinated debt ......               --        12,161,210        88,293,284
                                                           ------------      ------------      ------------

(Loss) income before income taxes ....................      (11,365,999)       12,161,210        88,293,284
Income tax benefit (expense) .........................        4,892,540        (1,755,120)        1,373,035
                                                           ------------      ------------      ------------
        (Loss) income before minority interest .......       (6,473,459)       10,406,090        89,666,319
Minority interest ....................................       22,448,122                --        (7,490,803)
                                                           ------------      ------------      ------------
Requirement to service subordinated debt obligation ..                                 --       (58,135,724)

        Net income (loss) ............................       15,974,663        10,406,090        24,039,792
                                                           ============      ============      ============

<CAPTION>
                                                                    For the year ended December 31, 2001
                                                              -----------------------------------------------
                                                                             Consolidation     Consolidated
                                                              Banedwards      Adjustments    Income Statement
                                                              ----------     -------------   ----------------
                                                                ThCh$            ThCh$             ThCh$
<S>                                                           <C>             <C>              <C>
Operating results:
Net sales ............................................                --               --       488,258,497
Cost of sales ........................................                --               --      (387,902,319)
Administrative and selling expenses ..................                --               --       (82,315,236)
                                                              ----------      -----------      ------------
    Operating income .................................                --               --        18,040,942
                                                              ----------      -----------      ------------

Non-Operating results:
Interest income ......................................                --         (608,946)        7,568,459
Non-operating income .................................                --      (21,366,934)       84,657,204
Interest expense .....................................                --               --       (60,779,543)
Non-operating expense ................................                --               --       (71,878,145)
Price-level restatement loss, net ....................                --               --       (10,950,796)
                                                              ----------      -----------      ------------
Non-operating results ................................                --      (21,975,880)      (51,382,821)
                                                              ----------      -----------      ------------
    (Loss) from non-financial services before income
    taxes and minority interest ......................                --      (21,975,880)      (33,341,879)
                                                              ----------      -----------      ------------

Financial Services
Net interest revenue .................................                --          608,946       348,939,190
Provision for loan losses ............................                --               --       (97,913,880)
Income from services, net ............................                --               --        76,856,250
Other operating income, net ..........................         1,796,122               --        17,826,814
Other income and expenses ............................            (6,451)              --        21,069,867
Operating expenses ...................................        (1,756,618)              --      (255,421,050)
Price-level restatement loss, net ....................            22,245               --       (10,238,453)
                                                              ----------      -----------      ------------
    Income from financial services before income taxes
    and minority interest and subordinated debt ......            55,298          608,946       101,118,738
                                                              ----------      -----------      ------------

(Loss) income before income taxes ....................            55,298      (21,366,934)       67,776,859
Income tax benefit (expense) .........................            (6,459)              --         4,503,996
                                                              ----------      -----------      ------------
        (Loss) income before minority interest .......            48,839      (21,366,934)       72,280,855
Minority interest ....................................                --      (13,127,787)        1,829,532
                                                              ----------      -----------      ------------
Requirement to service subordinated debt obligation ..                --               --       (58,135,724)

        Net income (loss) ............................            48,839      (34,494,721)       15,974,663
                                                              ==========      ===========      ============
</TABLE>


                                      F-88
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

<TABLE>
<CAPTION>
                                                                   At December 31, 2002
                                                     ---------------------------------------------

                                                        Quinenco         SM Chile        Banchile
                                                         ThCh$             ThCh$           ThCh$
                                                     -------------     -------------     ---------
<S>                                                  <C>               <C>               <C>
Assets:
Non-Financial Services:
Current assets
Cash and time deposits .........................        11,767,600                --            --
Marketable securities ..........................         2,221,942                --            --
Accounts and notes receivable, net .............        74,762,941                --            --
Inventories ....................................        63,417,429                --            --
Other current assets ...........................       106,421,068                --            --
                                                     -------------     -------------     ---------
       Total current assets ....................       258,590,980                --            --
                                                     -------------     -------------     ---------

Net property, plant and equipment ..............       392,466,656                --            --
                                                     -------------     -------------     ---------

Other assets:
Investments in and advances to related companies       497,769,239                --            --
Goodwill, net ..................................       341,554,264                --            --
Other non-current assets .......................        32,856,894                --            --
                                                     -------------     -------------     ---------
       Total other assets ......................       872,180,397                --            --
                                                     -------------     -------------     ---------

Total non-financial services assets ............     1,523,238,033                --            --
                                                     -------------     -------------     ---------

Financial Services:
Cash and due from banks ........................                --       676,422,569       122,340
Investments ....................................                --     1,598,900,263     7,364,646
Loans, net .....................................                --     5,945,518,882            --
Other assets ...................................                --       375,200,459     1,404,120
                                                     -------------     -------------     ---------
       Total financial services assets .........                --     8,596,042,173     8,891,106
                                                     -------------     -------------     ---------

       Total assets ............................     1,523,238,033     8,596,042,173     8,891,106
                                                     =============     =============     =========

<CAPTION>
                                                                    At December 31, 2002
                                                      -----------------------------------------------
                                                      Lucchetti      Consolidation      Consolidated
                                                        Peru          Adjustments       Balance Sheet
                                                        ThCh$             ThCh$             ThCh$
                                                      ----------     -------------     --------------
<S>                                                   <C>            <C>               <C>
Assets:
Non-Financial Services:
Current assets
Cash and time deposits .........................       1,494,334       (4,048,442)         9,213,492
Marketable securities ..........................              --               --          2,221,942
Accounts and notes receivable, net .............       3,032,897       (2,267,215)        75,528,623
Inventories ....................................       3,307,193               --         66,724,622
Other current assets ...........................          65,380               --        106,486,448
                                                      ----------     ------------      -------------
       Total current assets ....................       7,899,804       (6,315,657)       260,175,127
                                                      ----------     ------------      -------------

Net property, plant and equipment ..............      10,514,788                         402,981,444
                                                      ----------     ------------      -------------

Other assets:
Investments in and advances to related companies              --     (308,426,498)       189,342,741
Goodwill, net ..................................              --               --        341,554,264
Other non-current assets .......................         206,718               --         33,063,612
                                                      ----------     ------------      -------------
       Total other assets ......................         206,718     (308,426,498)       563,960,617
                                                      ----------     ------------      -------------

Total non-financial services assets ............      18,621,310     (314,742,155)     1,227,117,188
                                                      ----------     ------------      -------------

Financial Services:
Cash and due from banks ........................              --               --        676,544,909
Investments ....................................              --               --      1,606,264,909
Loans, net .....................................              --      (23,681,690)     5,921,837,192
Other assets ...................................              --               --        376,604,579
                                                      ----------     ------------      -------------
       Total financial services assets .........              --      (23,681,690)     8,581,251,589
                                                      ----------     ------------      -------------

       Total assets ............................      18,621,310     (338,423,845)     9,808,368,777
                                                      ==========     ============      =============
</TABLE>


                                      F-89
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

<TABLE>
<CAPTION>
                                                                    At December 31, 2002
                                                      ---------------------------------------------


                                                        Quinenco           SM Chile       Banchile
                                                      -------------     -------------     ---------
                                                          ThCh$              ThCh$          ThCh$
<S>                                                   <C>               <C>               <C>
Liabilities and Shareholders' Equity:
Non-Financial Services:
Current liabilities
Debt payable within one year ....................       243,257,034                --            --
Accounts and notes payable ......................        37,202,901                --            --
Accrued and other liabilities ...................        23,361,817                --            --
                                                      -------------     -------------     ---------
       Total current liabilities ................       303,821,752                --            --
                                                      -------------     -------------     ---------

Long-term liabilities:
Long term debt ..................................       302,489,676                --            --
       Other liabilities ........................       207,098,184                --            --
                                                      -------------     -------------     ---------
Total long-term liabilities .....................       509,587,860                --            --
                                                      -------------     -------------     ---------

       Total non-financial services liabilities .       813,409,612                --            --
                                                      -------------     -------------     ---------

Financial Services:
Deposits ........................................                --     5,174,004,662       858,945
Borrowings ......................................                --     2,283,454,155            --
Accrued from Subordinated Central Bank ..........                --        22,545,825            --
Other liabilities ...............................                --       519,700,283     5,266,349
                                                      -------------     -------------     ---------
Total financial services liabilities ............                --     7,999,704,925     6,125,294
                                                      -------------     -------------     ---------

Minority interest ...............................        79,313,609       244,317,723            --
                                                      -------------     -------------     ---------

Shareholders' equity
Common stock ....................................       454,744,268       342,572,183     1,870,190
Reserves ........................................        41,417,911                --       557,994
Retained earnings ...............................       134,352,633         9,447,342       337,628
                                                      -------------     -------------     ---------
Total shareholders' equity ......................       630,514,812       352,019,525     2,765,812
                                                      -------------     -------------     ---------

       Total liabilities and shareholders' equity     1,523,238,033     8,596,042,173     8,891,106
                                                      =============     =============     =========

<CAPTION>
                                                                    At December 31, 2002
                                                      -------------------------------------------------

                                                       Lucchetti       Consolidation      Consolidated
                                                         Peru           Adjustments       Balance Sheet
                                                      -----------      ------------      --------------
                                                         ThCh$             ThCh$              ThCh$
<S>                                                    <C>             <C>               <C>
Liabilities and Shareholders' Equity:
Non-Financial Services:
Current liabilities
Debt payable within one year ....................       3,363,384        (7,602,110)       239,018,308
Accounts and notes payable ......................       2,466,634        (2,267,215)        37,402,320
Accrued and other liabilities ...................       3,625,088                           26,986,905
                                                      -----------      ------------      -------------
       Total current liabilities ................       9,455,106        (9,869,325)       303,407,533
                                                      -----------      ------------      -------------

Long-term liabilities:
Long term debt ..................................       2,588,427       (16,079,580)       288,998,523
       Other liabilities ........................       6,577,777                --        213,675,961
                                                      -----------      ------------      -------------
Total long-term liabilities .....................       9,166,204       (16,079,580)       502,674,484
                                                      -----------      ------------      -------------

       Total non-financial services liabilities .      18,621,310       (25,948,905)       806,082,017
                                                      -----------      ------------      -------------

Financial Services:
Deposits ........................................              --        (4,048,442)     5,170,815,165
Borrowings ......................................              --                --      2,283,454,155
Accrued from Subordinated Central Bank ..........              --                --         22,545,825
Other liabilities ...............................              --                --        524,966,632
                                                      -----------      ------------      -------------
Total financial services liabilities ............              --        (4,048,442)     8,001,781,777
                                                      -----------      ------------      -------------

Minority interest ...............................              --        46,358,839        369,990,171
                                                      -----------      ------------      -------------

Shareholders' equity
Common stock ....................................      79,769,597      (424,211,970)       454,744,268
Reserves ........................................     (45,962,469)       45,404,475         41,417,911
Retained earnings ...............................     (33,807,128)       24,022,158        134,352,633
                                                      -----------      ------------      -------------
Total shareholders' equity ......................              --      (354,785,337)       630,514,812
                                                      -----------      ------------      -------------

       Total liabilities and shareholders' equity      18,621,310      (338,423,845)     9,808,368,777
                                                      ===========      ============      =============
</TABLE>


                                      F-90
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

<TABLE>
<CAPTION>
                                                                   For the year ended December 31, 2002
                                                             ----------------------------------------------

                                                               Quinenco         SM Chile          Banchile
                                                             ------------      ------------      ----------
                                                                 ThCh$            ThCh$            ThCh$
<S>                                                           <C>                 <C>               <C>
Non-Financial Services
Operating results:
Net sales ..............................................      396,298,694                --              --
Cost of sales ..........................................     (315,941,435)               --              --
Administrative and selling expenses ....................      (70,080,374)               --              --
                                                             ------------      ------------      ----------
     Operating income ..................................       10,276,885                --              --
                                                             ------------      ------------      ----------

Non-Operating results:
Interest income ........................................        5,347,733                --              --
Non-operating income ...................................       33,542,407                --              --
Interest expense .......................................      (50,727,151)               --              --
Non-operating expense ..................................      (85,687,878)               --              --
Price-level restatement loss, net ......................        5,023,107                --              --
Foreign exchange different .............................      (13,919,044)               --              --
                                                             ------------      ------------      ----------
Non-operating results ..................................     (106,420,826)               --              --
                                                             ------------      ------------      ----------
     (Loss) from non-financial services before
     income taxes and minority interest ................      (96,143,941)               --              --
                                                             ------------      ------------      ----------

Financial Services
Net interest revenue ...................................               --       373,971,728              --
Provision for loan losses ..............................               --      (115,331,386)             --
Income from services, net ..............................               --        80,675,209              --
Other operating income, net ............................               --       (17,580,812)      5,310,506
Other income and expenses ..............................               --        (1,792,391)        (39,721)
Operating expenses .....................................               --      (258,660,452)     (4,757,766)
Price-level restatement income (loss), net .............               --        (9,610,254)          2,626
                                                             ------------      ------------      ----------
     Income (loss) from financial services before income
     taxes and minority interest and subordinated debt .               --        51,671,642         515,645
                                                             ------------      ------------      ----------

(Loss) income before income taxes ......................      (96,143,941)       51,671,642         515,645
Income taxes ...........................................          141,436         1,123,211         (82,093)
                                                             ------------      ------------      ----------
(Loss) income before minority interest .................      (96,002,505)       52,794,853         433,552
Minority interest ......................................       20,522,294       (20,801,686)             --
Provision for Subordinated Central Bank paid ...........                        (22,545,825)             --
                                                             ------------      ------------      ----------
     Net (loss) income .................................      (75,480,211)        9,447,342         433,552
                                                             ============      ============      ==========

<CAPTION>
                                                                    For the year ended December 31, 2002
                                                             ------------------------------------------------
                                                              Lucchetti     Consolidation     Consolidated
                                                                Peru         Adjustments     Income Statement
                                                             -----------    -------------    ----------------
                                                                ThCh$           ThCh$             ThCh$
<S>                                                                  <C>      <C>              <C>
Non-Financial Services
Operating results:
Net sales ..............................................              --              --       396,298,694
Cost of sales ..........................................              --              --      (315,941,435)
Administrative and selling expenses ....................              --              --       (70,080,374)
                                                             -----------     -----------      ------------
     Operating income ..................................              --              --        10,276,885
                                                             -----------     -----------      ------------

Non-Operating results:
Interest income ........................................              --      (1,675,000)        3,672,733
Non-operating income ...................................              --     (15,848,611)       17,693,796
Interest expense .......................................              --              --       (50,727,151)
Non-operating expense ..................................              --              --       (85,687,878)
Price-level restatement loss, net ......................              --              --         5,023,107
Foreign exchange different .............................              --              --       (13,919,044)
                                                             -----------     -----------      ------------
Non-operating results ..................................              --     (17,523,611)     (123,944,437)
                                                             -----------     -----------      ------------
     (Loss) from non-financial services before
     income taxes and minority interest ................              --     (17,523,611)     (113,667,552)
                                                             -----------     -----------      ------------

Financial Services
Net interest revenue ...................................              --       1,675,000       375,646,728
Provision for loan losses ..............................              --              --      (115,331,386)
Income from services, net ..............................              --              --        80,675,209
Other operating income, net ............................              --              --       (12,270,306)
Other income and expenses ..............................              --              --        (1,832,112)
Operating expenses .....................................              --              --      (263,418,218)
Price-level restatement income (loss), net .............              --              --        (9,607,628)
                                                             -----------     -----------      ------------
     Income (loss) from financial services before income
     taxes and minority interest and subordinated debt .              --       1,675,000        53,862,287
                                                             -----------     -----------      ------------

(Loss) income before income taxes ......................              --     (15,848,611)      (59,805,265)
Income taxes ...........................................                              --         1,182,554
                                                             -----------     -----------      ------------
(Loss) income before minority interest .................              --     (15,848,611)      (58,622,711)
Minority interest ......................................              --       5,967,717         5,688,325
Provision for Subordinated Central Bank paid ...........              --              --       (22,545,825)
                                                             -----------     -----------      ------------
     Net (loss) income .................................              --      (9,880,894)      (75,480,211)
                                                             ===========     ===========      ============
</TABLE>


                                      F-91
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
  (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

The effect of consolidating the banking and insurance operations as required
under US GAAP, but using amounts calculated in accordance with Chilean GAAP for
the years ended December 31, 2000, 2001 and 2002 is as follows:

<TABLE>
<CAPTION>
                                                                                              For the year ended December 31,
                                                                                   ------------------------------------------------
                                                                                       2000              2001              2002
                                                                                       ThCh$             ThCh$             ThCh$
<S>                                                                                <C>               <C>               <C>
Cash provided by (used in) operating activities reported under Chilean GAAP          (1,915,971)       14,127,719        30,006,986
Effect of combination of banking and insurance operations                            (4,472,260)       38,517,000       418,124,000
                                                                                   ------------      ------------      ------------
Cash provided by (used in) operating activities reported under US GAAP               (6,388,231)       52,644,719       448,130,986

Cash provided by (used in) investing activities reported under Chilean GAAP         (20,803,503)      (37,629,159)          877,447
Effect of combination of banking and insurance operations                          (207,755,120)      361,808,230      (250,591,000)
                                                                                   ------------      ------------      ------------
Cash provided by (used in) investing activities reported under US GAAP             (228,558,623)     (324,179,071)     (249,713,553)

Cash provided by (used in) financing activities reported under Chilean GAAP          28,371,846       (60,540,490)        5,130,157
Effect of combination of banking and insurance operations                           253,556,130       210,162,000      (260,292,000)
                                                                                   ------------      ------------      ------------
Cash provided by (used in) financing activities reported under US GAAP              281,927,976       149,621,510      (255,161,843)

Effect of inflation on cash and cash equivalents under Chilean GAAP                  (1,819,525)         (955,670)        2,571,986
Effect of combination of banking and insurance operations                           (10,431,840)      (21,213,000)      (25,844,000)
                                                                                   ------------      ------------      ------------
Effect of inflation on cash and cash equivalents under US GAAP                      (12,251,365)      (22,168,670)       23,272,014

Net change in cash and cash equivalents under Chilean GAAP                            3,832,847       (84,997,600)       38,586,576
Effect of combination of banking and insurance operations                            30,896,910       589,274,230      (118,603,000)
                                                                                   ------------      ------------      ------------
Net change in cash and cash equivalents under US GAAP                                34,729,757       504,276,630       (80,016,424)

Cash and cash equivalents at beginning of year under Chilean GAAP                   135,665,349       139,498,196        54,500,596
Effect of combination of banking and insurance operations                           174,854,860       205,751,770       795,026,000
                                                                                   ------------      ------------      ------------
Cash and cash equivalents at beginning of year under US GAAP                        310,520,209       345,249,966       849,526,596

Cash and cash equivalents at end of year under Chilean GAAP                         139,498,196        54,500,596        93,087,172
Effect of combination of banking and insurance operations                           205,751,770       795,026,000       676,423,000
                                                                                   ------------      ------------      ------------
Cash and cash equivalents at end of year under US GAAP                              345,249,966       849,526,596       769,510,172
                                                                                   ============      ============      ============
</TABLE>


                                      F-92
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

III. Additional disclosure requirements

a) Earnings per share

The following disclosure of earnings per share information is not generally
required for presentation in financial statements under Chilean accounting
principles but is required under US GAAP:

<TABLE>
<CAPTION>
                                                                                           Year ended December 31,
                                                                                    (Expressed in single Chilean pesos)
                                                                        -----------------------------------------------------------
                                                                              2000                  2001                 2002
                                                                        ----------------      ----------------     ----------------
                                                                               Ch$                   Ch$                  Ch$
<S>                                                                        <C>                   <C>                  <C>
Basic and diluted earnings (loss) per share under Chilean GAAP ....                (5.55)                14.79               (69.91)
Basic and diluted earnings (loss) per share under US GAAP
   before effect of change in accounting principle ................               (18.98)                10.41               (73.62)
Effect of accounting change on earnings per share .................                   --                  0.00                 5.48
                                                                        ----------------      ----------------     ----------------
Basic and diluted earnings (loss) per share under US GAAP .........               (18.98)                10.41               (68.14)

Dividends paid per share ..........................................                44.45                    --                 5.75

Weighted average number of shares of common stock outstanding .....        1,079,740,079         1,079,740,079        1,079,740,079
</TABLE>

The earnings (loss) per share data shown above is determined by dividing net
income for both Chilean GAAP and US GAAP purposes by the weighted average number
of shares of common stock outstanding during each year. For the years presented
the Company did not have convertible securities outstanding. Dividends paid per
share represents dividends paid on prior years' income, calculated in accordance
with Chilean GAAP.

b) Income tax

The provision for income taxes charged to the results of operations under US
GAAP was as follows:

<TABLE>
<CAPTION>
                                                                                            Year ended December 31,
                                                                           --------------------------------------------------------
                                                                              2000                  2001                    2002
                                                                           ----------            -----------            -----------
                                                                              ThCh$                  ThCh$                  ThCh$
<S>                                                                        <C>                    <C>                   <C>
Current tax expense ............................................           (4,517,309)            (6,871,892)           (10,091,245)
Deferred income tax benefit (expense) ..........................            7,160,896             (1,276,232)            13,744,126
Reassessment of previous year's tax ............................                   --                970,609             (2,845,553)
Net change in tax loss carryforwards ...........................            4,828,905             11,911,652             (1,312,300)
Changes in valuation allowance .................................                   --             (3,599,872)            (7,576,492)
Deferred tax effect of US GAAP adjustments .....................           (2,573,878)            (1,992,904)             9,562,314
Other ..........................................................              347,085               (214,308)              (503,754)
                                                                           ----------            -----------            -----------
        Total benefit (provision) under US GAAP ................            5,245,699             (1,072,947)               977,096
                                                                           ==========            ===========            ===========
</TABLE>

Substantially all of the income tax provision in each year arises from Chilean
sources.


                                      F-93
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

Deferred tax assets (liabilities) are summarized as follows:
<TABLE>
<CAPTION>
                                                                                                   Year ended December 31,
                                                                                              --------------------------------
                                                                                                  2001                2002
                                                                                              ------------        ------------
                                                                                                  ThCh$               ThCh$
<S>                                                                                            <C>                 <C>
Accounts receivable ..............................................................               1,306,476           1,509,693
Inventories ......................................................................                 492,602             701,043
Tax loss carryforwards ...........................................................              38,686,794          56,169,063
Provision for vacations ..........................................................               1,615,482           1,633,197
Leasing equipments ...............................................................               3,246,000           5,198,000
Provision fixed assets held for sale .............................................                 392,934             539,254
Derivatives ......................................................................                  91,211              26,073
Obligation with repurchase agreements ............................................               7,240,000          25,393,000
Assets at market value ...........................................................                 353,001           1,097,000
Allowance for loan losses ........................................................              20,182,999          21,479,000
Charge-offs from financial investment ............................................              15,708,910           2,312,000
Accrued interests and readjustments from risky loan portfolio ....................               1,918,000           1,595,000
Accruals interest and readjustments from past due loans ..........................                 254,000           1,060,000
Personnel provisions .............................................................                 265,000             908,000
Staff severance indemnities ......................................................               2,156,433           1,302,187
Fair value adjustments ...........................................................              10,661,492          17,141,491
Other ............................................................................               9,281,500          20,002,407
                                                                                              ------------        ------------
Gross deferred tax assets ........................................................             113,852,834         158,066,408

Depreciation .....................................................................             (20,768,664)        (22,954,554)
Inventories ......................................................................                (252,927)           (491,255)
Fixed assets under leasing contract ..............................................              (2,516,649)         (2,363,695)
Investments ......................................................................              (5,024,925)         (3,522,482)
Investment with repurchase agreements ............................................              (7,250,000)        (24,548,000)
Transitory assets ................................................................              (3,113,000)         (1,346,000)
Other ............................................................................              (4,980,280)         (5,199,760)
                                                                                              ------------        ------------
Gross deferred tax liabilities ...................................................             (43,906,445)        (60,425,746)
Deferred tax assets valuation allowance ..........................................             (29,632,767)        (37,209,259)
                                                                                              ------------        ------------
        Net deferred tax assets ..................................................              40,313,622          60,431,403
                                                                                              ============        ============
</TABLE>


                                      F-94
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

The provision for income taxes differs from the amount of income tax determined
by applying the applicable Chilean statutory income tax rate of 16% for 2002 to
pretax accounting income on a US GAAP basis as a result of the following
differences:
<TABLE>
<CAPTION>
                                                                                       Year ended December 31,
                                                                            -------------------------------------------
                                                                               2000            2001            2002
                                                                            -----------     -----------     -----------
                                                                                ThCh$           ThCh$          ThCh$
<S>                                                                          <C>             <C>              <C>
At statutory Chilean tax rate ....................................            3,669,370      (1,847,410)     11,928,909
Increase (decrease) in rates resulting from:
Price-level restatement not accepted for tax purposes ............             (423,212)      1,302,968       4,916,148
Nontaxable income ................................................           11,113,865      20,093,487       6,457,660
Nondeductible expenses ...........................................           (8,776,119)    (16,937,782)    (17,185,875)
Change in valuation allowances ...................................            2,547,347      (3,599,872)     (7,576,492)
Local taxes ......................................................             (103,067)        305,758        (552,741)
Foreign taxes ....................................................           (2,426,200)     (1,872,460)        737,300
Change in Chilean statutory tax rate .............................                   --       1,253,118       2,070,000
Other ............................................................             (356,285)        229,246         182,187
                                                                            -----------     -----------     -----------
        At effective tax rates ...................................            5,245,699      (1,072,947)        977,096
                                                                            ===========     ===========     ===========
</TABLE>

In accordance with Chilean law, the Company and each of its subsidiaries compute
and pay tax on a separate return basis and not on a consolidated basis. The
Chilean income tax rate will be 16.5% in 2003 and 17% for years thereafter.

The Argentine income tax rate was 35% for 2000, 2001 and 2002, in accordance
with currently enacted tax legislation. The Peruvian tax rate was 30% in 2000
and 27% in 2001 and 2002.

Quinenco and its subsidiaries possess tax loss carryforwards which resulted in
deferred tax assets of ThCh$55,818,174 and ThCh$37,441,494 as of December 31
2001 and 2002, respectively. The tax losses relating to the Chilean and
Uruguayan subsidiaries have no expiration date. The tax losses in Peru expire
five years from the point that the subsidiary starts to record taxable income
and in Argentina tax losses may be applied against taxable income for a period
of five years.

As of December 31, 2001 tax loss carryforwards generated by Lucchetti Peru
resulted in deferred tax assets of ThCh$ 15,708,910, which have been fully
provided for by way of a valuation allowance. Tax loss carryforwards generated
by Lucchetti Peru during 2002 are fully provided for as part of the provision of
the Company's investment in Lucchetti Peru (see Note 10).

c) Fair value of financial instruments

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments at December 31, 2001 and 2002 where an
estimation of fair value is practicable.

Cash and cash equivalents: Cash and time deposits and marketable securities that
are considered to be cash equivalents are stated at their carrying amount, which
is equivalent to fair value.

Other marketable securities: The fair value of other marketable securities is
based on the quoted market prices of the common stock or other securities held.


                                      F-95
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

Other current assets: The fair value of deposits in guarantee included within
other current assets was estimated using the interest rate currently available
for deposits of similar duration. Other current assets are stated at carrying
amount, which is equivalent to fair value.

Investments in other companies: The fair value of common stocks in other
companies is based on quoted market prices.

Other assets: The fair value of long-term accounts receivable included within
other assets was estimated using the interest rate the Company would pay for
similar credit.

Short and long-term debt and bonds payable: The fair value of short and
long-term debt and bonds payable was based on rates currently available to the
Company for debt with similar terms and similar remaining maturities.

Loans in the Company's financial services sector: For performing loans with an
original maturity of greater than one year, the fair values were calculated by
discounting contractual cash flows, using the Bank's current origination rates
for loans with similar terms and similar risk characteristics. For loans where
the Bank's management believes that the amounts outstanding will not be paid in
accordance with contractual terms, the estimated cash flows arising from the
liquidation of collateralized assets and other expected flows have been
discounted at an estimated discount rate commensurate with the risk in the
collection of these amounts.

Interest bearing liabilities in the Company's financial services sector: For
interest-bearing liabilities with an original contractual maturity, of greater
than one year, the fair values are calculated by discounting contractual cash
flows at current market origination rates with similar terms.

Derivative Instruments: The estimated fair value of foreign exchange forward
contracts was determined using quoted market prices of financial instruments
with similar characteristics. The fair value of interest rate swaps represents
the estimated amount the Company would expect to receive or pay to terminate the
contracts or agreements, taking into account current interest rates. As no
quoted market prices are available for the interest rate swap and forward
exchange rate instruments held by the Company, such estimates have been
estimated using modeling and other valuation techniques.


                                      F-96
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

The estimated fair values of the Company's financial instruments (as classified
under Chilean GAAP) are as follows:
<TABLE>
<CAPTION>
                                                                                          As of December 31
                                                                  -----------------------------------------------------------------
                                                                                2001                              2002
                                                                  -----------------------------       -----------------------------
                                                                       US GAAP                         US GAAP
                                                                      Book value     Fair value       Book value         Fair value
                                                                        ThCh$          ThCh$             ThCh$              ThCh$

                                                                  -----------------------------------------------------------------
                                                                                        Non-Financial Services
                                                                  -----------------------------------------------------------------
<S>                                                                  <C>              <C>             <C>               <C>
Cash ...........................................................        4,323,88        4,323,886        5,037,53         5,037,535
Time deposits ..................................................       17,831,77       17,831,771        6,730,06         6,730,065
Marketable securities ..........................................       22,020,13       22,020,138       11,390,70        11,390,702
Accounts receivables, net ......................................       94,492,48       94,492,489       73,995,65        73,995,657
Notes and accounts receivables from related companies ..........        9,458,53        9,458,538        7,769,43         7,769,432
Securities purchased under agreements to resell ................       31,400,25       31,400,250       79,367,78        79,367,788
Long term receivables ..........................................       24,381,22       24,085,123        2,394,34         2,394,347
Derivatives ....................................................        (570,064)        (570,064)      2,384,076         2,384,076
Accounts payable and suppliers notes payables ..................     (47,886,573)     (47,886,573)    (36,881,270)      (36,881,270)
Notes and accounts payables to related companies ...............        (434,403)        (434,403)       (321,631)         (321,631)
Short-term bank borrowings .....................................    (125,464,195)    (124,074,036)   (107,329,070)     (108,690,863)
Bonds payable ..................................................    (223,061,427)    (202,246,565)   (219,175,549)     (228,491,055)
Long-term bank borrowings ......................................    (278,230,407)    (269,345,951)   (410,422,069)     (393,927,063)
Other long-term debt ...........................................     (84,847,739)     (85,470,530)     (8,555,631)       (8,555,631)

<CAPTION>
                                                                  -----------------------------------------------------------------
                                                                                           Financial Services
                                                                  -----------------------------------------------------------------
<S>                                                               <C>              <C>             <C>              <C>
Cash and due from banks ........................................     339,940,000      339,940,000     273,443,000       273,443,000
Accounts receivable under spot foreign exchange transactions ...      22,606,000       22,606,000      29,950,000        29,950,000
Financial investments ..........................................   1,674,736,000    1,667,439,000   1,434,119,000     1,434,129,000
Loans, net .....................................................   5,714,430,000    5,751,915,000   5,610,661,000     5,735,765,000
Deposits .......................................................  (5,146,621,000)  (5,054,706,000) (4,749,702,000)  (4,751,351,0000)
Accounts payable under spot foreign exchange transactions ......     (66,108,000)     (66,108,000)    (28,200,000)      (28,200,000)
Investments under agreements to repurchase .....................    (255,275,000)    (255,275,000)   (276,675,000)     (276,675,000)
Short-term and long-term borrowings ............................  (2,058,585,000)  (2,196,798,000) (2,049,553,000)   (2,124,014,000)
Derivative instruments .........................................      (3,809,000)      (3,809,000)     (4,846,000)       (4,846,000)
</TABLE>


                                      F-97
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

d) Investment securities

The following are required disclosures for investments classified as
available-for-sale securities, using amounts determined in accordance with US
GAAP.

d-1) Non-financial services

Realized gains and losses are determined using the proceeds from sales less the
cost of the investment identified to be sold. Gross gains and losses realized on
the sale of available-for-sale securities for the years ended December 31, 2000,
2001 and 2002 are as follows:

<TABLE>
<CAPTION>
                                                                                                    Gross
                                                                                                  Unrealized            Fair
                                                                                Cost                Value               Gains
                                                                             ----------           ----------         ----------
                                                                                ThCh$                ThCh$              ThCh$
<S>                                                                          <C>                  <C>                <C>
Securities available-for-sale at December 31, 2001 ..............            21,235,970           31,405,781         52,641,751
Securities available-for-sale at December 31, 2002 ..............            21,557,013           21,341,063         42,898,076
</TABLE>

Information on sales of available-for-sale securities during the three years in
the period ended December 31, 2002 is as follow:

<TABLE>
<CAPTION>
                                                                                2000                  2001              2002
                                                                             ----------           ----------         ----------
                                                                                ThCh$                ThCh$              ThCh$
<S>                                                                          <C>                  <C>                        <C>
Proceeds from sales .............................................            13,407,764           91,422,242                 --
Gross realized gains ............................................             8,146,806           51,098,644                 --
Gross realized losses ...........................................               (24,148)              (9,940)                --
</TABLE>

The Company has no securities that are considered to be trading securities or
debt securities to be held to maturity. The cost of available-for-sale
securities is determined using the average cost method.

d-2) Financial services

<TABLE>
<CAPTION>
                                                                                           Years ended December 31,
                                                                             --------------------------------------------------
                                                                                2000                  2001              2002
                                                                             ----------           ----------         ----------
                                                                                ThCh$                ThCh$              ThCh$
<S>                                                                          <C>                  <C>                <C>
Proceeds on sales ...............................................            13,407,764           21,738,000         12,737,000
Gross realized gains ............................................             8,678,287            1,513,000          1,489,000
Gross realized  losses ..........................................                26,207              202,000          2,000,000
</TABLE>


                                      F-98
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

1)    The cost and estimated market value of securities available for sale as of
      December 31, 2001 and 2002 are as follows:

<TABLE>
<CAPTION>
                                                                                  Year ended December 31, 2002
                                                           ---------------------------------------------------------------------
                                                                                    Gross            Gross
                                                                                 Unrealized       Unrealized      Estimated Fair
Available-for-sale Instruments:                                Cost                 Gains          (Losses)            Value
                                                           -----------           ----------       -----------     --------------
                                                              ThCh$                  ThCh$           ThCh$             ThCh$
<S>                                                        <C>                    <C>               <C>             <C>
Foreign private sector debt securities .........            39,715,000            3,255,000         (628,000)        42,342,000
Foreign financial institutions debt securities .             1,286,000              808,000               --          2,094,000
Credit linked investments ......................            68,929,000                   --               --         68,929,000
                                                           -----------            ---------       ----------        -----------
      Total ....................................           109,930,000            4,063,000         (628,000)       113,365,000
                                                           ===========            =========       ==========        ===========

<CAPTION>
                                                                                 Year ended December 31, 2001
                                                           ---------------------------------------------------------------------
                                                                                    Gross           Gross
                                                                                 Unrealized       Unrealized      Estimated Fair
                                                               Cost                Gains           (Losses)            Value
                                                           -----------           ----------       -----------     --------------
                                                              ThCh$                ThCh$            ThCh$               ThCh$
<S>                                                         <C>                   <C>             <C>                <C>
Available-for-sale Instruments:
Foreign private sector debt securities .........            82,131,170            1,333,850       (6,434,410)        77,030,610
Foreign financial institutions debt securities .             4,225,060                   --       (2,601,780)         1,623,280
Latin American Brady Bonds .....................            22,096,590            1,747,910               --         23,844,500
Chilean financial institutions securities ......               256,470                   --               --            256,470
Central Bank securities ........................            31,805,370              109,180          (76,220)        31,838,330
Other securities ...............................             5,189,000                   --          (12,360)         5,176,640
                                                           -----------            ---------       ----------        -----------
      Total ....................................           145,703,660            3,190,940       (9,124,770)       139,769,830
                                                           ===========            =========       ==========        ===========
</TABLE>

The contractual maturities of available-for-sale securities held by financial
service companies, are as follows:

<TABLE>
<CAPTION>
                                                                                 As of December 31, 2002
                                                        ---------------------------------------------------------------------------
                                                                       After one      After five years
                                                         Within     year but within      but within
                                                        one year      five years          10 years      After 10 years     Total
                                                        ---------------------------------------------------------------------------
                                                          ThCh$         ThCh$               ThCh$            ThCh$          ThCh$
<S>                                                     <C>           <C>                       <C>              <C>     <C>
Available-for-sale Instruments:
Foreign private sector debt securities .........        21,062,000    18,653,000                 --               --     39,715,000
Foreign financial institutions debt securities .         1,286,000            --                 --               --      1,286,000
Credit linked investments ......................        11,449,000    57,480,000                 --               --     68,929,000
                                                       -----------    ----------         ----------      -----------    -----------
        Total carrying value ...................        33,797,000    76,133,000                 --               --    109,930,000
                                                       -----------    ----------         ----------      -----------    -----------
Unrealized gain/losses .........................         1,570,000     1,865,000                                          3,435,000
                                                       -----------    ----------         ----------      -----------    -----------
        Estimated fair value ...................        35,367,000    77,998,000                 --               --    113,365,000
                                                       ===========    ==========         ==========      ===========    ===========
</TABLE>


                                      F-99
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

(2)   The following disclosures, in addition to those required under Chilean
      GAAP, are required disclosures for investments classified as
      held-to-maturity in accordance with SFAS No. 115:

<TABLE>
<CAPTION>
                                                                                           Year ended December 31,
                                                                        ----------------------------------------------------------
                                                                                                     2002
                                                                        ----------------------------------------------------------
                                                                                              Gross Unrealized      Estimated Fair
                                                                        Amortized Cost          Gains (Losses)           Value
                                                                        --------------          --------------      --------------
                                                                             ThCh$                   ThCh$                ThCh$
<S>                                                                      <C>                         <C>             <C>
Held-to-maturity Instruments:
U.S. government debt securities ............................              39,060,000                  5,000           39,065,000
Chilean Central Bank securities ............................             274,462,000                  5,000          274,467,000
Government Securities ......................................                 295,000                     --              295,000
                                                                         -----------             ----------          -----------
      Total ................................................             313,817,000                 10,000          313,827,000
                                                                         ===========             ==========          ===========

<CAPTION>
                                                                                         Year ended December 31,
                                                                     ------------------------------------------------------------
                                                                                                  2001
                                                                     ------------------------------------------------------------
                                                                                              Gross Unrealized      Estimated Fair
                                                                        Amortized Cost          Gains (Losses)           Value
                                                                        --------------          --------------      --------------
                                                                             ThCh$                   ThCh$                ThCh$
<S>                                                                      <C>                     <C>                 <C>
Held-to-maturity Instruments:
Foreign private sector securities ..........................               8,107,130                     --            8,107,130
Foreign financial institutions securities ..................               1,841,640                 38,110            1,879,750
U.S. government debt securities ............................              37,026,440                 72,100           37,098,540
Chilean Central Bank securities ............................             408,917,000             (7,406,730)         401,510,270
                                                                         -----------             ----------          -----------
      Total ................................................             455,892,210             (7,296,520)         448,595,690
                                                                         ===========             ==========          ===========
</TABLE>

The contractual maturities of securities classified by the Bank as
held-to-maturity are as follows:

<TABLE>
<CAPTION>
                                                                                        December 31, 2002
                                                            ------------------------------------------------------------------------
                                                                                After one year
                                                            Within one          but within five      After five
                                                               year                  years             years                Total
                                                            -----------         ---------------      ----------          -----------
                                                                ThCh$               ThCh$               ThCh$               ThCh$
<S>                                                         <C>                     <C>                    <C>           <C>
Held-to-maturity Instruments:
U.S. government debt securities ...............              39,060,000                    --                --           39,060,000
Chilean Central Bank securities ...............             271,754,000             2,708,000                --          274,462,000
Government securities .........................                  99,000               196,000                --              295,000
                                                            -----------             ---------        ----------          -----------
        Total carrying value ..................             310,913,000             2,904,000                --          313,817,000
                                                            -----------             ---------        ----------          -----------
Unrealized gain/loss ..........................                  10,000                    --                --               10,000
                                                            -----------             ---------        ----------          -----------
        Total .................................             310,923,000             2,904,000                --          313,827,000
                                                            ===========             =========        ==========          ===========
</TABLE>


                                     F-100
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

e) Reclassification differences between Chilean GAAP and US GAAP

Certain non-operating income and expenses under Chilean GAAP would be considered
operating income and expenses under US GAAP for the years ended December 31,
2000, 2001 and 2002 as follows:

<TABLE>
<CAPTION>
                                                                                      2000                2001               2002
                                                                                   ----------         -----------         ----------
                                                                                      ThCh$               ThCh$              ThCh$
<S>                                                                                <C>                <C>                 <C>
Non-operating income under Chilean GAAP ..................................         35,325,308         106,024,138         33,542,407
Less:
   Amortization of negative goodwill .....................................          2,530,960           9,187,460          1,889,029
   Amortization of unrealized gain .......................................                 --             160,117            581,207
   Release of purchase price accruals ....................................                 --                  --          3,264,077
   Tax refund ............................................................          2,140,895             147,639            389,447
                                                                                   ----------         -----------         ----------
Non-operating income as classified under US GAAP, but
   calculated in accordance with Chilean GAAP ............................         30,653,453          96,528,922         27,418,647
                                                                                   ==========         ===========         ==========

Non-operating expenses under Chilean GAAP ................................         36,139,340          71,878,145         85,687,878
Less:
   Amortization of goodwill ..............................................         12,437,416          28,230,631         20,531,853
   Restructuring costs and severance indemnities .........................          1,904,992           5,563,487          6,799,292
   Losses on sales of investments, fixed assets and other ................          2,283,155             990,650          2,045,209
   Consulting services ...................................................            777,883           4,498,423            732,250
   Adjustment of market value of shares ..................................          1,160,955             104,057             34,000
   Provision for losses on loans and recoverable taxes of foreign
      subsidiaries .......................................................                 --           3,368,893          2,651,594
   Financial consulting and other expenses for sale of Argentine
      Subsidiary .........................................................                 --             539,862                 --
   Directors' compensation ...............................................            145,477             441,614            361,274
   Adjustment of property, plant and equipment to net
      realizable value (Note 9) ..........................................            530,965           2,708,432            840,277
   Losses on forward contracts (see paragraph 3 g) .......................             92,821                  --
   Allowance for uncollectible debts .....................................          4,166,772             679,351          1,155,078
   Labor lawsuits ........................................................            193,313           3,924,107            323,099
   Legal expenses for defense of Lucchetti Peru ..........................                 --           2,386,356          2,224,488
   Valuation allowance for fixed and other assets Argentina ..............                 --          12,834,224          6,140,460
   Losses on construction contracts ......................................          1,320,694             897,391                 --
   Impairment of equity investment in and account receivable
      with Lucchetti Peru ................................................                 --                  --         30,678,486
   Depreciation of property, plant and equipment involved in
      temporary shutdown (see Note 9) ....................................                 --                  --          2,995,211
   Adjustment to fair value of property, plant and equipment
      held-for-sale ......................................................                 --                  --            257,230
   Adjustment to sales price of a business ...............................                 --                  --          1,238,052
                                                                                   ----------         -----------         ----------
Non-operating expense as classified under US GAAP, but
   calculated in accordance with Chilean GAAP ............................         11,124,897           4,710,667          6,680,025
                                                                                   ==========         ===========         ==========
</TABLE>


                                     F-101
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

f) Loan covenants

At December 31, 2001 the Company was not in compliance with a covenant relating
to the Madeco Bonds series B for UF 693,000 nominal value, however waivers were
obtained before the issuance of the 2001 consolidated financial statements.

Also, at December 31, 2001, Madeco did not comply with certain covenants related
to a loan with an affiliate of Bank Boston which had approximately
ThCh$7,609,562 outstanding balance at December 31, 2001. Additionally, for the
quarter ended March 31, 2002, the Company was also in non-compliance with
respect to covenants pursuant to its loan with Citibank, which had a balance
outstanding at that date of ThCh$3,421,516 (ThCh$3,372,169 at December 31,
2001). Since the Company obtained waivers for non-compliance before the issuance
of the 2001 consolidated financial statements, for each facility, but only for
the particular quarter period in which the Company was in default, for US GAAP
purposes these facilities would be classified as a short-term liability at
December 31, 2001. Madeco is in compliance with its covenants as of December 31,
2002.

g) Goodwill

The following details what the Company's net income (loss) under US GAAP would
have been for the years ended December 31, 2001 and 2000, excluding goodwill
amortization expense:

<TABLE>
<CAPTION>
                                                             For the years ended December 31,
                                                                2000               2001
                                                                ThCh$              ThCh$
<S>                                                          <C>                 <C>
         Reported net income .....................           (20,492,924)        11,243,123
         Add back: Goodwill amortization .........             5,776,168         12,435,259
                                                             -----------         ----------
         Adjusted net income .....................           (14,716,756)        23,678,382
                                                             ===========         ==========
</TABLE>

The following details what the Company's basic and diluted earnings (loss) per
share under US GAAP would have been for the years ended December 31, 2000 and
2001, excluding goodwill amortization expense:

<TABLE>
<CAPTION>
                                                                                  For the years ended December 31,
                                                                                    2000                    2001
                                                                                     Ch$                     Ch$
<S>                                                                                <C>                      <C>
Reported basic and diluted earnings (loss) per share ............                  (18.98)                  10.41
Add back: effect of goodwill amortization on basic and
   diluted earnings (loss) per share ............................                    5.35                   11.52
                                                                                   ------                   -----
Adjusted basic and diluted earnings (loss) per share ............                  (13.63)                  21.93
                                                                                   ======                   =====
</TABLE>


                                     F-102
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

The US GAAP balance of goodwill as of December 31, 2002 and 2001 is as follows:

                                                  2001                2002
                                                 ThCh$                ThCh$

      Goodwill .........................      419,185,323          419,202,108
      Accumulated amortization .........      (19,885,781)         (19,885,781)
                                             ------------         ------------
      Goodwill, net ....................      399,299,542          399,316,327
                                             ============         ============

The changes in the carrying amount of goodwill on a segment basis for the year
ended December 31, 2002 are as follows:

<TABLE>
<CAPTION>
                                                   Financial        Foods &
                                                    services        beverage         Manufacturing     Telecommunications
                                                     ThCh$            ThCh$              ThCh$                ThCh$
                                                  -----------       --------         -------------     ------------------
<S>                                               <C>                <C>               <C>                   <C>
Balance as of January 1, 2002                     357,926,060        87,886            40,827,423            458,173
Goodwill acquired during the year                          --            --                16,785                 --
                                                  -----------        ------            ----------            -------
Balance as of December 31, 2002                   357,926,060        87,886            40,844,208            458,173
                                                  ===========        ======            ==========            =======
</TABLE>

h) Advertising costs

Advertising costs are expensed as incurred and amounted to ThCh$7,447,440,
ThCh$10,712,017 and ThCh$10,386,927 for the years ended December 31, 2000, 2001
and 2002, respectively.

i) Recently adopted accounting pronouncements

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. This statement 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 Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized and measured initially at fair value only when the liability is
incurred, not when it is "planned". The Company is required to adopt the
provisions of SFAS No. 146 for exit or disposal activities that are initiated
after December 31, 2002 and the Company is evaluating the impact that adopting
this statement will have in its financial statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities-an interpretation of ARB 51, to expand upon and
strengthen existing accounting guidance that addresses when a company should
include in its financial statements the assets, liabilities and activities of
another entity. Many variable interest entities have commonly been referred to
as special-purpose entities or off-balance sheet structures, but the guidance
applies to a larger population of entities. In general, a variable interest
entity is a corporation, partnership, trust, or any other legal structure used
for business purposes that either (a) does not have equity investors with voting
rights or (b) has equity investors that do not provide sufficient financial
resources for the entity to support its activities. The Company must apply
Interpretation No. 46 immediately to variable interest entities created after
January 31, 2003 and apply it


                                     F-103
<PAGE>

                         QUINENCO S.A. AND SUBSIDIARIES
          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
   (expressed in constant Chilean pesos of December 31, 2002, unless otherwise
                                    stated)

to existing variable interest entities in the first fiscal year or interim
period beginning after June 15, 2003. The Company is evaluating the impact that
adopting this statement will have in its financial statements.

In October 2002, the FASB issued Statement of Financial Accounting Standard No.
147, "Acquisition of Certain Financial Institutions". The provisions of the
Statement relate to the accounting for acquisitions of certain financial
institutions and the impairment or disposal of certain long-term customer
relationship intangible assets. The effective date of this statement applies to
acquisitions for which the date of acquisition is on or after October 1, 2002.
This statement may have an impact on the Company's results of operations or
financial position if a business combination involving a financial institution
were to take place after that date.

j) Recent accounting pronouncements

On January 23, 2003, the FASB Emerging Issues Taskforce issued Issue 00-21
"Issue Revenue Arrangements with Multiple Deliverables". This Issue addresses
certain aspects of the accounting by a vendor for arrangements under which it
will perform multiple revenue-generating activities. Specifically, this Issue
addresses how to determine whether an arrangement involving multiple
deliverables contains more than one unit of accounting. The Issue requires, that
revenue arrangements with multiple deliverables should be divided into separate
units of accounting if the deliverables in the arrangement meet certain
criteria, arrangement consideration should be allocated among the separate units
of accounting based on their relative fair values, and applicable revenue
recognition criteria should be considered separately for separate units of
accounting. The guidance in this Issue is effective for revenue arrangements
entered into in fiscal periods beginning after June 15, 2003. Alternatively,
entities may elect to report the change in accounting as a cumulative-effect
adjustment. The Company is currently assessing the impact of adopting this new
guidance.

In April 2003, the FASB issued Statement of Financial Accounting Standard No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities". SFAS No 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is
applied prospectively and is effective for contracts entered into or modified
after June 30, 2003, except for SFAS No. 133 implementation issues that have
been effective for fiscal quarters that began prior to June 15, 2003, and
certain provisions relating to forward purchases or sales of when-issued
securities or other securities that do not yet exist. As of the date of these
financial statements the Company is evaluating the effect, if any, that SFAS No.
149 will have on the consolidated financial statements.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which is effective for fiscal years beginning after June 15, 2002
and addresses financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset retirement
costs. The Company is evaluating the impact that adopting this statement will
have in its financial statements.


                                     F-104
<PAGE>

Index to Exhibits

   Exhibit No.                            Exhibit
   -----------                            -------

      1.1         By-Laws of Quinenco S.A. (incorporated by reference from
                  Quinenco S.A. Annual Report on Form 20-F for the year ended
                  December 31, 2000, filed on June 29, 2001).

      9.1         Amended Shareholders' Agreement, dated January 13, 2003, by
                  and between FHI Finance Holding International B.V.,
                  Schorghuber Stiftung & Co. Holding K.G. and Quinenco S.A.

      10.1        Banco de Chile's Financial Statements at December 31, 2001 and
                  2002 and for the years ended December 31, 2000, 2001 and 2002
                  (incorporated by reference from Item 18 of the Banco de Chile
                  2002 Annual Report on Form 20-F, filed on June 25, 2003).

      10.2        Banco de Chile's Guide 3 Data (incorporated by reference from
                  Item 4 "Information on the Company - Selected Statistical
                  Information" of the Banco de Chile 2002 Annual Report on Form
                  20-F, filed on June 25, 2003).

      10.3        Banco Edwards' Financial Statements at December 31, 2000 and
                  2001 and for the years ended December 31, 2000 and 2001
                  (incorporated by reference from Item 18 of the Banco Edwards
                  2001 Annual Report on Form 20-F, filed on June 28, 2002).

      10.4        Banco Edwards' Guide 3 Data (incorporated by reference from
                  Item 4 "Information on the Company - Selected Statistical
                  Information" of the Banco Edwards 2001 Annual Report on Form
                  20-F, filed on June 28, 2002).

      99.1        Certification of Chief Executive Officer of Quinenco S.A.
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

      99.2        Certification of Chief Financial Officer of Quinenco S.A.
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.