Edgar Filing: QUINENCO SA

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

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FORM 20-F

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(Mark One)

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

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 2005

|_| 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)

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

Title of each class Name of each exchange on which registered
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American Depositary Shares representing Common Stock New York Stock Exchange
Common Stock, without par value New York Stock Exchange*

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* 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|

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TABLE OF CONTENTS

Page
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INTRODUCTION.............................................................................................ii

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

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 Us......................................................................10
Item 5. Operating and Financial Review and Prospects...........................................60

Contractual Obligations and Commercial Commitments.......................................................99

Contractual Commitments.........................................................................99
Commercial Commitments..........................................................................99
Item 6. Directors, Senior Management and Employees.............................................99
Item 7. Major Shareholders and Related Party Transactions.....................................109
Item 8. Financial Information.................................................................112
Item 9. The Offer and Listing.................................................................114
Item 10. Additional Information...............................................................118
Item 11. Quantitative and Qualitative Disclosures About Market Risk...........................129
Item 12. Description of Securities Other than Equity Securities...............................131

PART II.................................................................................................131

Item 13. Defaults, Dividend Arrearages and Delinquencies......................................131
Item 14. Material Modifications of the Rights of Security Holders and Use of Proceeds.........131
Item 15. Controls and Procedures..............................................................131
Item 16. (Reserved)...........................................................................132

PART III................................................................................................133

Item 17. Financial Statements.................................................................133
Item 18. Financial Statements.................................................................133
Item 19. Exhibits.............................................................................133

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 "we", "us" and "our" are to Quinenco together with its
consolidated subsidiaries and the companies in which Quinenco holds significant
non-consolidated equity interests. References herein to "intermediate holding
companies" are to subsidiaries of Quinenco through which, in certain cases,
Quinenco holds its interest in the consolidated operating companies and certain
equity investments. Unless the context otherwise requires:

Consolidated subsidiaries as of December 31, 2005:

- "Hoteles Carrera" refers to Hoteles Carrera S.A., an 88.8%-owned
consolidated subsidiary of Quinenco.

- "Indalsa" refers to Industria Nacional de Alimentos S.A., a
99.1%-owned consolidated subsidiary of Quinenco, as of December 31,
2005. Indalsa was formerly known as Empresas Lucchetti S.A.
("Lucchetti"). On March 31, 2004, approximately 85% of Lucchetti's
assets were sold, including trademarks and other intangible assets.
As a result, on May 14, 2005, Lucchetti's name was changed. All
references herein to will be made to Indalsa.

- "LQIF" refers to LQ Inversiones Financieras S.A., a 99.8%-owned
consolidated subsidiary of Quinenco, together with LQIF's
consolidated subsidiary.

- "Madeco" refers to Madeco S.A., a consolidated subsidiary
47.8%-owned by Quinenco, together with Madeco's consolidated
subsidiaries.

- "Telefonica del Sur " refers to Compania Nacional de Telefonos,
Telefonica del Sur S.A., a consolidated subsidiary, 73.7%-owned by
Quinenco through its subsidiary VTR S.A. ("VTR"), together with
Telefonica del Sur's consolidated subsidiaries.

Non-consolidated subsidiaries and equity interests:

- "Banco de Chile" refers to Banco de Chile, a 52.5% non-consolidated
subsidiary of Quinenco, together with its consolidated subsidiaries.

- "CCU" refers to Compania Cervecerias Unidas S.A., in which Quinenco
owns an indirect 32.1% non-consolidated equity investment, together
with CCU's consolidated subsidiaries.

- "Entel" refers to Empresa Nacional de Telecomunicaciones S.A., in
which Quinenco owns a 5.7% non-consolidated equity interest.

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

Unless otherwise indicated, references herein to Quinenco's percentage
ownership of Madeco, Telefonica del Sur, Indalsa, Hoteles Carrera, CCU, Banco
Edwards, Habitaria and Entel 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 Banco de Chile and Telefonica del
Sur 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, 2005, 2004 and 2003 have been audited by Ernst & Young Servicios
Profesionales de Auditoria y Asesoria Limitada ("Ernst & Young Limitada"), a
member firm of Ernst & Young Global.

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 year ended December 31, 2005 and 2004, have been audited by Ernst &
Young Limitada. As of and for the years ended December 31,

2003, Madeco's consolidated financial statements have been audited by Deloitte &
Touche, Sociedad de Auditores y Consultores Ltda.

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, 2005, 2004 and 2003 have been audited by
PricewaterhouseCoopers, a member firm of PricewaterhouseCoopers International
Limited.

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 years
2005, 2004 and 2003, the financial statements of which, as of and for the year
ended December 31, 2005 and 2004 have been audited by Ernst & Young Limitada and
as of and for the years ended December 31, 2003 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 Quinenco's website at
www.quinenco.cl or www.quinencogroup.com. The contents of Quinenco's website are
not incorporated into this Annual Report.

INCORPORATION BY REFERENCE

We incorporate by reference into this Annual Report on Form 20-F (1) Banco
de Chile's financial statements at December 31, 2004 and 2005 and for the years
ended December 31, 2003, 2004 and 2005 which are included as Item 18 of Banco de
Chile's Annual Report on Form 20-F for the year ended December 31, 2005 ("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 in the section entitled "Information on
Us - Selected Statistical Information".

We also incorporate by reference into this Annual Report on Form 20-F (1)
CCU's financial statements at December 31, 2004 and 2005 and for the years ended
December 31, 2003, 2004 and 2005 which are included as Item 18 of CCU's Annual
Report on Form 20-F for the year ended December 31, 2005 ("CCU's Annual
Report").

EXCHANGE RATES AND CURRENCY

We prepare our financial statements in Chilean pesos and in conformity
with Chilean generally accepted accounting principles ("Chilean GAAP"). Chilean
GAAP as applied by us differs in certain important respects from generally
accepted accounting practices in the United States of America ("U.S. GAAP"). See
Note 27 to our audited Consolidated Financial Statements at December 31, 2004
and 2005 and for the years ended December 31, 2003, 2004 and 2005 (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 us and a reconciliation to U.S.
GAAP of net income and net 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

iii

of December 31, 2005. See Notes 2(b) and 3 to the Consolidated Financial
Statements. Transactions which are described herein and which have taken place
during 2006 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 in this Annual Report 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 your convenience. 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, 2005,
which was Ch$512.5 = 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 8, 2006
was Ch$545.45 = 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 us 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
Banco de Chile based on information published by the Chilean Superintendency of
Banks and Financial Institutions ("SBIF").

CCU's estimates of market share are based on estimates made by CCU of
market share data and related sales volume information. These estimates are
based on statistics published or made available by A.C. Nielsen Chile S.A., or
Nielsen, in the case of beer, soft drinks, mineral water, pisco 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
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. CCU believes that, due
to the methodologies used, the statistics provided by these sources in some
cases do not accurately reflect its market share or industry sales volumes. For
example, the Nielsen sampling frame includes only the metropolitan areas of
Chile and not the rural areas of the country, where CCU believes its beer market
share is higher than in the metropolitan areas, due to its distribution system.
Likewise, the sales of one of CCU's Argentine competitors are not reflected in
CICA's statistics because this company is not a member of CICA. 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 its sales
volume and its competitors. As a consequence, CCU has revised the share
estimates from the sources identified above 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:

o reports published by the Instituto Nacional de Estadisticas (the
Chilean National Institute of Statistics, or the INE),

o CCU's internal sales data,

o sales information filed publicly by CCU's competitors, and

o import and export reports made available by Chilean and Argentine
customs authorities.

However, CCU's revised estimates have not been confirmed by independent
sources. Certain amounts, including percentage amounts, which appear in this
annual report have been rounded and may not sum exactly to the totals shown.

Telefonica del Sur 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 fixed line telephony provider in Chile.

Madeco bases its estimates of industry size, market share and other
operating and statistical data with respect to its 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) import and export reports provided by Central Banks; (v)
production reports from Madeco's suppliers of copper rods; (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.

Unless otherwise specified, per capita consumption data for countries in
which we operate 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 us from public censuses of populations.

Outside sources may use methodologies which are not identical to ours and
may produce results that differ from our 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 our 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. We
caution you that actual results could differ materially from ours, depending on
the outcome of certain factors, including, without limitation (1) adverse
changes in the Chilean economy with respect to rates of inflation and economic
growth, currency devaluations and other factors, (2) adverse changes in the
international markets for our products, including markets in other Latin
American countries, such as Brazil, Peru 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. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. We undertake
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 our business strategy or planned capital expenditures, or
to reflect the occurrence of unanticipated events.

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 included in the following
table should be read in conjunction with, and is qualified in its entirety by
reference to, our Consolidated Financial Statements, including the notes
thereto, appearing elsewhere in this Annual Report. The summary financial data
as of and for the years ended December 31, 2001, 2002, 2003, 2004 and 2005 is
derived from our Consolidated Financial Statements, which have been audited by
Ernst & Young Limitada, independent accountants and a member firm of Ernst &
Young Global, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon such reports given on the authority of Ernst &
Young Limitada as experts in accounting and auditing.

Our Consolidated Financial Statements have been prepared in accordance
with Chilean GAAP, which differs in certain material respects from U.S. GAAP.
Note 27 to our Consolidated Financial Statements provides a description of the
principal differences between Chilean GAAP and U.S. GAAP as they relate to us
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, 2005. See Notes 2 b) and 3 to the Consolidated Financial
Statements.

At or for the Year Ended December 31,
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2001 2002 2003 2004 2005 2005
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(in millions of constant Ch$ or thousands of U.S. dollars, except per share amounts)

QUINENCO CONSOLIDATED
Income Statement Data:
Chilean GAAP:
Net sales ............................. Ch$523,667 Ch$425,038 Ch$379,501 Ch$396,282 Ch$421,968 US$823,351
Cost of sales ......................... (416,033) (338,853) (302,670) (321,298) (344,925) (673,025)
Administrative and selling expenses ... (88,285) (75,163) (63,295) (46,856) (46,397) (90,530)
Operating income (loss) ............... 19,349 11,022 13,536 28,128 30,646 59,796
Operating income (loss) per share ..... Ch$17.92 Ch$10.21 Ch$12.54 Ch$26.05 Ch$28.38 US$0.06
Interest income ....................... 8,770 5,736 3,110 2,032 3,046 5,944
Non-operating income................... 113,713 35,975 126,926 75,482 104,406 203,718
Interest expense ...................... (65,187) (54,406) (37,371) (29,757) (28,846) (56,285)
Non-operating expense ................. (77,091) (91,902) (70,551) (42,639) (36,682) (71,575)
Price-level restatement gain (loss) ... (4,178) 5,387 2,009 (370) (4,345) (8,477)
Net foreign exchange gain (loss) ...... (7,566) (14,928) 1,045 310 (1,034) (2,018)
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Non-operating results
(1)(2)(3)(4)(5)(6)(7) .............. (31,539) (114,138) 25,168 5,058 36,545 71,306
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Income (loss) before taxes and minority
interests .......................... (12,190) (103,117) 38,704 33,186 67,191 131,103
Income taxes .......................... 5,247 152 (2,728) (2,026) (6,783) (13,235)
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Income (loss) before minority interest (6,943) (102,965) 35,976 31,160 60,408 117,868
Minority interest ..................... 24,076 22,011 4,052 (6,967) (9,328) (18,201)
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Net income (loss) ..................... Ch$17,133 Ch$(80,954) Ch$40,028 Ch$24,193 Ch$51,080 US$99,667
========= ========== ========= ========= ========= =========
Net income (loss) per share ........... Ch$15.87 Ch$(74.98) Ch$37.07 Ch$22.41 Ch$47.31 US$0.09
Dividends declared per share (8) ...... Ch$-- Ch$6.32 Ch$-- Ch$18.09 Ch$13.38 US$0.03
U.S. GAAP:
Net sales (Non-financial services)
from continuing operations ......... Ch$428,362 Ch$334,472 Ch$317,502 Ch$396,272 Ch$384,854 US$750,935
Net interest revenue and expenses
(Financial services) (2)(3) ........ 257,622 279,073 241,315 278,656 424,307 827,916
Net income (loss) from continuing
operations ......................... 19,861 (51,333) 70,587 36,573 84,674 165,218
Loss from discontinuing operations,
net of taxes and minority interest . (6,467) (36,900) (7,917) 3,498 (973) (1,899)
Net income (loss) ..................... 13,394 (88,233) 62,670 40,071 83,701 163,319
Net income (loss) on continuing
operations per share ............... Ch$ 18.39 Ch$(47.54) Ch$65.37 Ch$33.87 Ch$78.41 US$0.15
Net income (loss) on discontinued
operations per share ............... Ch$ (5.99) Ch$(34.18) Ch$(7.33) Ch$3.24 Ch$(0.90) US$(0.01)
Net income (loss) per share ........... Ch$12.40 Ch$(81.72) Ch$58.04 Ch$37.11 Ch$77.52 US$0.14
Balance Sheet Data: (at year end)
Chilean GAAP:
Cash and cash equivalents ............. Ch$58,453 Ch$99,838 Ch$59,794 Ch$43,957 Ch$95,422 US$186,189
Total current assets .................. 293,469 277,240 264,473 219,451 268,428 523,763
Property, plant and equipment ......... 461,524 420,928 345,943 284,222 257,481 502,401
Total assets .......................... 1,724,592 1,633,598 1,477,486 1,384,096 1,362,522 2,658,579
Current liabilities ................... 282,657 325,751 171,934 149,397 99,752 194,639
Long-term liabilities ................. 594,358 546,543 529,960 464,559 419,462 818,462
--------- ---------- --------- --------- --------- ---------
Total liabilities ..................... 877,015 872,294 701,894 613,956 519,214 1,013,101
Minority interest ..................... 99,278 85,065 102,324 112,233 139,056 271,328
Shareholders' equity .................. 748,299 676,239 673,268 657,907 704,252 1,374,150
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 (9) ...................... Ch$11,598,286 Ch$10,251,571 Ch$10,687,759 Ch$10,732,434 Ch$11,988,312 US$23,391,828
Non-financial services long-term
liabilities ......................... 526,244 514,146 492,051 408,855 356,647 695,897
Financial services borrowings ......... 2,254,927 2,896,751 2,995,338 2,644,304 3,546,852 6,920,687
Capital stock ......................... 487,722 487,722 487,722 487,722 487,722 951,652
Shareholders' equity .................. 744,952 661,313 688,074 705,830 756,211 1,475,534

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(1) In 2001, non-operating results included gains on the sales of shares of
Entel of Ch$54,759 million.

(2) In 2001, our Consolidated Financial Statements under Chilean GAAP did not
include the financial statements of Banco Edwards because banking
operations are generally not consolidated with non-financial businesses in
Chile. Under U.S. GAAP, the financial statements of Banco Edwards were
consolidated in 2001. On January 1, 2002, Banco Edwards was merged with
Banco de Chile.

(3) On March 27, 2001, Quinenco's interest in Banco de Chile reached 52.7%.
Under Chilean GAAP, our Consolidated Financial Statements do not include
the financial statements of Banco de Chile because banking operations
generally do not consolidate 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 our proportional equity participation in the results of Banco de
Chile from January 1, 2001.

(4) For the year ended December 31, 2002, Indalsa Peru S.A. ("ex-Lucchetti
Peru") made non-recurring charges related to its plant closure in January
2003 of Ch$31,974 million. (5) In 2003, Quinenco received an arbitration
settlement payment of Ch$38,266 million, included with non-operating
results for the year ended December 31, 2003.

(6) On March 31, 2004, Lucchetti Chile S.A. ("Lucchetti Chile") was sold to a
local food company for Ch$11,810 million (net of financial debt). The gain
on sale of Ch$4,216 million was included with non-operating results for
the year ended December 31, 2004.

(7) In 2005, non-operating results included gains on the sale of shares of
Almacenes Paris/Cencosud and other investments of Ch$23,924 million.

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

(9) On November 25, 2005, our interest in Madeco decreased from 51.2% to
47.8%. Under Chilean GAAP, we continue to consolidate Madeco because we
can exercise control through our majority in the Board of Directors. Under
U.S. GAAP, we began to account for our investment in Madeco under the
equity method as of November 2005.

Dividends

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

Period (1) Cash Dividend Per Share Cash Dividend per Share
------------ ----------------------- -----------------------
(in constant Ch$) (U.S. dollars (2))

2002 ..................... 6.32 0.01
2003 ..................... -- --
2004 ..................... 18.09 0.03
2005 ..................... 13.38 0.03
2006 (on May 10) ......... 14.45 0.03 (3)

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(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.

(3) Based on the observed exchange rate in effect on May 10, 2006.

Exchange Rates

Prior to 1989, Chilean law permitted the purchase and sale of foreign
currency only in those cases explicitly authorized by the Central Bank of Chile
("the Central Bank"). The Central Bank Act, which was enacted in 1989,
liberalized the rules that govern the ability to buy and sell foreign currency.
The Central Bank Act now empowers the Central Bank to determine that certain
purchases and sales of foreign currency 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 Quinenco'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 sets a reference exchange rate (dolar acuerdo) (the "Reference Exchange
Rate"). The Reference Exchange Rate is reset monthly by the Central Bank, 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. In the past, authorized transactions by banks were
generally conducted within a certain band above or below the Reference Exchange
Rate. In January 1992, the Central Bank 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 reduced the Reference Exchange Rate
by approximately 10%. In November 1995, the Central Bank 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 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 previously 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 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 intervened by buying or selling foreign currency on the Formal Exchange
Market. In September 1999, the Central Bank 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 also committed
itself to providing 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. The Central Bank generally carries
out its transactions at the spot market rate. Before the suspension of the band,
however, when commercial banks sought to buy U.S. dollars from the Central Bank,
or sought to sell U.S. dollars to the Central Bank, the Central Bank 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 will not establish band
limits again.

Purchases and sales of foreign currency 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 8, 2006, the average exchange rate in the
Informal Exchange Market was Ch$544.50 per U.S. dollar and the U.S. dollar
Observed Exchange Rate was Ch$545.45 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 2001 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.

Daily Observed Exchange Rate
(Ch$ per US$)

Period Low(1) High(1) Average(2) Period - end
------ ------ ------- ---------- ------------

2001 .............................. 557.13 716.62 634.94 654.79
2002 .............................. 641.75 756.56 688.94 718.61
2003 .............................. 593.10 758.21 691.40 593.80
2004 .............................. 557.40 649.45 609.34 557.40
2005 .............................. 509.70 592.75 559.77 512.50
December 2005 ..................... 509.70 518.38 514.33 512.50
January 2006 ...................... 513.18 535.36 524.48 524.37
February 2006 ..................... 516.91 532.35 525.70 517.33
March 2006 ........................ 516.75 536.16 528.77 526.18
April 2006 ........................ 511.44 525.40 517.33 514.97
May 2006 .......................... 512.76 532.79 520.79 531.87
June 2006 (through June 8) ........ 529.91 545.45 535.87 545.45

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

(1) Rates shown are the low and high observed 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

We are predominantly engaged in business in Chile. Consequently, our
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 3.4%, 2.2%, 3.9%, 6.2% and 6.3% for the years 2001, 2002, 2003,
2004 and 2005, respectively. We cannot assure you of future rates of growth of
the Chilean economy. Some of the factors that would be likely to have an adverse
effect on our 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 our operations in Chile, some of our businesses operate in
and export to Argentina, Brazil, Peru and other countries in Latin America that
have at various times been characterized by volatile and frequently unfavorable
economic, political and social conditions. Our 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 we operate and Latin America in
general.

In 2001, a prolonged economic recession in Argentina culminated in an
economic crisis. Although the Argentine economy has demonstrated a recovery
during 2003, 2004 and 2005, exhibiting growth rates of 8.7%, 9.0% and 9.2%,
respectively, there can be no assurance regarding future rates of growth
relating to the Argentine economy. The economic deterioration in Argentina
materially adversely affected the operations of Quinenco's subsidiary, Madeco,
in Argentina in 2001 and 2002. See "Item 4. Information on the Company -
Business Overview - Manufacturing--Madeco" and "Item 5. Operating and Financial
Review and Prospects - E. Trend Information".

Since 2003, the Argentine government has restricted natural gas exports to
Chile due to internal supply problems. Prior to this restriction, Chile imported
virtually all of its natural gas needs from Argentina. Chile is currently
attempting to mitigate its dependence on natural gas from Argentina by using
alternative fuel sources and expanding its sources for natural gas. To date, the
Argentine gas supply restriction has not materially affected CCU or Madeco's
production costs; however we cannot assure you as to what extent the
restrictions may affect these companies' costs in the future.

Certain Considerations Relating to Us

Future Capital Needs

Our operations to date have required substantial amounts of capital, and
we expect that we 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, Quinenco and its businesses have met
capital needs through internally generated funds and issuances of debt and
equity securities. We cannot assure you that capital will be available in the
future as needed on reasonable terms. The inability to obtain capital would
constrain our ability to support and/or expand our existing businesses and to
maintain or enter new businesses. An unavailability of capital on reasonable
terms could have a material adverse effect on our financial condition and
results of operations.

Holding Company Structure

As a holding company, 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. We cannot
assure you that Quinenco's subsidiaries will continue to distribute dividends,
or that Quinenco will be able to generate the level of gains on the sale of
investments that it has in the past.

Equity Price Risk

Many of our businesses are publicly traded entities whose equity value may
vary depending on market value fluctuations. The equity value of our 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's common
stock and ADRs and those of its listed subsidiaries may also experience low
trading volumes, which could negatively affect their share price and liquidity.

In addition, the market value of securities of Chilean companies is, to
varying degrees, affected by economic and market conditions in other emerging
market countries. Although economic conditions in those countries may differ
significantly from economic conditions in Chile, investors' reactions to
developments in any of these other countries may have an adverse effect on the
market value of securities of Chilean issuers. We cannot assure you that the
Chilean stock market will continue to grow or even sustain its gains and that
the market value of Quinenco's securities would not be adversely affected by
events elsewhere, especially in emerging market countries.

Our Businesses

We believe that our businesses face an increasingly high level of
competition in the industries in which they operate. This increased competition
is in part a result of recent consolidation in some of the industries in which
these businesses operate. Increased competition is manifested in prices, costs
and sales volumes of the products and services produced and marketed by our
businesses. We cannot assure you that competition will not continue to increase
in the future, including a possible ongoing trend of consolidation in certain
industries. Increased competition could affect the profit margins and results of
operations of our businesses, which as a result, could materially and adversely
affect the dividend cash flow Quinenco receives from its businesses.

Banking Regulation Restrictions

Banco de Chile is also 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. We cannot assure you 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. Any such change could have a
material adverse effect on Banco de Chile's financial condition and results of
operations.

Banco de Chile's U.S. branches are subject to obligations imposed under
consent orders

Beginning in September 2004, the Office of the Comptroller of the
Currency, or OCC, and the Board of Governors of the Federal Reserve System
through the Federal Reserve Bank of Atlanta, together, the Federal Reserve,
conducted targeted examinations of Banco de Chile's New York and Miami branches,
respectively, to evaluate, among other things, their compliance with the U.S.
Bank Secrecy Act, the Bank Secrecy Act, and other U.S. anti-money laundering
requirements. As a result of their examinations, the OCC and the Federal Reserve
identified certain deficiencies in the bank's internal controls, particularly in
the areas of the Bank Secrecy Act and anti-money laundering compliance. As a
result, on February 1, 2005, Banco de Chile agreed to the issuance by the OCC of
a consent order, applicable to its New York branch, and the issuance by the
Federal Reserve of a cease and desist order, applicable to its Miami branch.
Pursuant to these orders, Banco de Chile has instituted an action plan that
includes the maintenance of programs geared towards strengthening its compliance
with the Bank Secrecy Act and U.S. anti-money laundering laws.

On October 12, 2005, Banco de Chile entered into agreements with the OCC,
and separately with the Financial Crimes Enforcement Network, or FinCEN,
requiring a U.S.$3 million civil penalty, payable by its New York and Miami
branches, to resolve allegations related to the Bank Secrecy Act, anti-money
laundering compliance and related matters. Failure by Banco de Chile to satisfy
the terms of the orders could result in additional supervisory actions against
its New York and Miami branches, including the assessment of additional civil
monetary penalties. See "Item 8. Financial Information--Legal Proceedings--Banco
de Chile."

SAOS may be obligated to sell shares of Banco de Chile's stock in the
public market if it does not pay sufficient dividends

As of December 31, 2005, Sociedad Administradora de la Obligacion
Subordinada SAOS S.A. ("SAOS"), a wholly-owned subsidiary of SM Chile S.A., in
which we hold a 52.8% interest, held 42.0% of Banco de Chile's shares as a
consequence of its 1996 reorganization. The reorganization was partially due to
Banco de Chile's 1989 repurchase from the Central Bank of certain non-performing
loans that it had previously sold to the Central Bank and later exchanged for
subordinated debt without a fixed term. Under the terms of a repayment
obligation in favor of the Central Bank that SAOS assumed to replace the Central
Bank subordinated debt, SAOS may be required to sell some of Banco de Chile's
shares to the public. See "Item 4. Information on the Company--Finnancial
Services--Banco de Chile."

In exchange for assuming the Central Bank indebtedness, SAOS received from
SM-Chile S.A., 63.6% of Banco de Chile's shares as collateral for this
indebtedness. As a result of Banco de Chile's merger with Banco de A. Edwards,
the percentage of the bank's shares held by SAOS decreased to 42.0%. As a result
of the share dividend paid by Banco de Chile in May 2006, the percentage further
decreased to 41.4%. Dividends received by SAOS from Banco de Chile are the sole
source of SAOS's revenue, which it must apply to repay this indebtedness.
However, under SAOS's agreement with the Central Bank, Banco de Chile has no
obligation to distribute dividends to its shareholders. To the extent
distributed dividends are not sufficient to pay the amount due on this
indebtedness, SAOS is permitted to maintain a cumulative deficit balance with
the Central Bank that SAOS commits to pay with future dividends. If the
cumulative deficit balance exceeds an amount equal to 20% of Banco de Chile's
capital and reserves, the Central Bank may require SAOS to sell a sufficient
number of shares of Banco de Chile stock owned by SAOS to pay the entire
accumulated deficit amount. As of May 2, 2006, SAOS maintained a deficit balance
with the Central Bank of Ch$10,480 million, equivalent to 1.67% of the bank's
capital and reserves. As of the same date, Ch$125,250 million would have
represented 20.0% of Banco de Chile's capital and reserves. If from time to time
in the future Banco de Chile's shareholders decide to retain and capitalize all
or part of its annual net income in order to finance the bank's future growth,
and to distribute stock dividends among its shareholders, the Central Bank may
require Banco de Chile to pay the portion of the net income corresponding to
shares owned by SAOS in cash to SAOS. If Banco de Chile distributes stock
dividends and the Central Bank does not require Banco de Chile to pay that
portion in cash, the shares received by SAOS must be sold by SAOS within the
following 12 months. The shareholders of SM-Chile will have a right of first
refusal with respect to that sale.

We are unable to determine the likelihood that the Central Bank would
require SAOS to sell shares of Banco de Chile's common stock or that SAOS will
otherwise be required to sell any stock dividends distributed by Banco de Chile,
nor can we determine the number of such shares SAOS may be required to sell. If
SAOS is required to sell shares of Banco de Chile's stock in the public market,
that sale could adversely affect the prevailing market price of Banco de Chile's
stock.

Interest Rates and Foreign Currency Positions

A portion of our debt is subject to variable interest rates, which could
have an impact on us in periods in which interest rates increase. A risk also
exists with respect to exchange rate fluctuations on assets and liabilities,
including debt instruments maintained in foreign currencies. See "Item 11
Quantitative and Qualitative Disclosures About Market Risk - Interest Rate
Risk".

Operations are Subject to Environmental Laws and Regulations

Madeco's operations are subject to laws and regulations relating to the
protection of the environment in the various jurisdictions in which Madeco
operates, such as regulations regarding the release of copper, aluminum or
plastics dust into the air. Stricter laws and regulations, or stricter
interpretations of existing laws or regulations, may impose new liabilities on
Madeco or result in the need for additional investments in pollution control
equipment, either of which could result in a material adverse effect on Madeco's
profitability.

Fluctuations in Prices of Copper and Aluminum

Historically, international prices of both copper and aluminum have
fluctuated greatly. Fluctuations in the price of copper, aluminum or both could
have a material adverse effect on Madeco's business operations. Copper and
aluminum prices are set by the London Metals Exchange, or LME. Using LME prices,
Madeco sells its copper and aluminum products based on the amount of metal each
contains. Madeco generally has been able to increase its selling prices in
response to increased raw materials costs. However, we cannot assure you that it
will be able to recover increases in the cost of copper and/or aluminum in the
future. In addition, Madeco maintains significant copper and aluminum
inventories for the production of its main products. A sharp decrease in the
price of these raw materials would affect the value of its inventory and could
result in losses for Madeco.

Certain Considerations Relating to Quinenco's Shares and ADSs

Majority Shareholder

As of the date of this Annual Report, we are controlled by the Luksic
Group. Certain members of the Luksic Group beneficially own 82.8% of the shares
of Quinenco. As long as Luksic Group members beneficially own a majority of the
outstanding shares, the group 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". We
cannot assure you that the Luksic Group's interests will not differ from your
interests.

Dividends Affected by Exchange Conditions

Quinenco'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 our financial statements
are reported in Chilean pesos, a decline in the value of the Chilean peso
against the dollar would reduce our earnings as reported in U.S. dollars. Any
dividend Quinenco 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 our earnings in Chilean
pesos and therefore the earnings reported in U.S. dollars.

Holders of ADSs

Due to the fact that you do not hold your shares directly, you 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, you may lose some or all of the value of the
distribution. We cannot assure you 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, if you are not registered on
the books of the ADS depositary, you are required to transfer your ADSs for a
certain number of days before a shareholders' meeting into a blocked account
established for that purpose by the ADS depositary. Any ADSs transferred to this
blocked account will not be available for transfer during that time. If you are
registered on the books of the ADS depositary must give instructions to the ADS
depositary not to transfer your ADSs during this period before the shareholders'
meeting. You must therefore receive voting materials from the ADS depositary
sufficiently in advance of the shareholders' meeting in order to make these
transfers or give these instructions. We cannot assure you that you will receive
voting materials in time to instruct the ADS depositary how to vote. It is
possible that you, 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.

You may not receive copies of all of Quinenco's reports or those of the
ADS depositary. You may have to go the ADS depositary's offices to inspect any
reports issued.

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

Eligibility for Investment by Chilean Pension Funds

Given that Chilean pension funds together constitute the most significant
investor group in Chilean securities, any action taken by the Risk
Classification Commission could affect the price and liquidity of our common
shares and bonds.

Madeco was notified in 2002 that the Comision Clasificadora de Riesgo (the
"Risk Classification Commission"), which regulates the investment activities of
pension funds in Chile, had ruled that as a result of the downgrading of the
credit ratings of the company's securities and the deterioration of Madeco's
financial situation, Chilean pension funds were further limited in the amount of
debt securities or common shares of Madeco that they could hold. Although the
rating agencies have since upgraded Madeco's rating and Chilean pension funds
are no longer limited in the amount of debt securities or common shares of
Madeco that they can hold, there can be no assurance that it will not be
downgraded, and the holding of Madeco's securities by Chilean pension funds
limited, in the future.

Item 4. Information on Us

A. Our History and Development

Overview

We are one of the largest diversified companies engaged in the industrial
and services sectors in Chile. We have invested in four main sectors of the
economy: financial services; food and beverage; telecommunications and
manufacturing. In addition, we hold investments in real estate development,
among other sectors.

We are among the market leaders in each of our major businesses in their
respective markets, and as of December 31, 2005 provided:

- banking and other financial services through Banco de Chile;

- beer, wine, soft drinks and other beverage production, bottling and
distribution through CCU;

- fixed line telephony and other telecommunications services through
Telefonica del Sur;

- copper and aluminum products and flexible packaging products through
Madeco.

In addition, as of December 31, 2005, we held a financial investment in
Entel, a leading Chilean telecommunications provider. Additionally, we hold
investments in Habitaria, real estate developer and Indalsa, which holds a 50%
interest in a cookie and candy manufacturer.

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 Quinenco.
Quinenco's registered office is at Enrique Foster Sur 20, 14th Floor, Las
Condes, Santiago, Chile and its telephone number is (56-2)750-7221. Quinenco's
authorized representative in the United States is CT Corporation System, located
at 111 Eighth Avenue, 13th Floor, New York, New York 10011, U.S.A. CT
Corporation System's phone number is (212)894-8500.

Our 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 its 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 that the Luksic
Group's interests in mining, railways and water continue to be held through
another company. 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.

Over the years, our holdings have included Indalsa, formerly known as
Lucchetti, which was acquired in 1965, Hoteles Carrera, acquired in 1979,
Madeco, acquired in 1983, and Telefonica del Sur, acquired in 1987. Our interest
in CCU was acquired in a joint venture in 1986. Habitaria, a joint venture with
Ferrovial Inmobiliaria Chile Ltda., was established in 1998. We 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.

DEVELOPMENTS DURING 2006

Financial Services - Banco de Chile

In an Extraordinary Shareholders' Meeting held on March 23, 2006,
shareholders agreed to capitalize 30% of Banco de Chile's 2005 net income,
equivalent to Ch$30,984 million. Subsequently, on May 11, 2006, the bank issued
957,781,060 fully paid-in shares, which were distributed at a ratio of 0.02461
shares for each Banco de Chile share held, to those shareholders registered with
the bank as of May 5, 2006. Banco de Chile's total outstanding shares increased
to 69,037,564,665 shares as of May 11, 2006. As a consequence of the share
issue, we received 488,610,258 fully paid-in shares in Banco de Chile, and our
economic rights in the bank increased from 29.2% to 29.5%.

Food and Beverage - CCU

During the month of March 2006, Inversiones y Rentas S.A.("IRSA"), the
holding company which holds a controlling interest in CCU, increased its
shareholding in CCU by 6,200,000 shares, equivalent to 2.0% of CCU's total

outstanding shares. Following the share purchase, IRSA, which is jointly owned
by Quinenco and Heineken, owned a 66.1% interest in CCU.

Manufacturing - Madeco

On May 5, 2006, in a public auction on the Santiago Stock Exchange, the
remaining 192,802,758 shares of Madeco's capital increase initiated in 2005 were
sold for Ch$9,351 million. As a result of the capital increase, Madeco's total
outstanding shares increased to 5,541,192,887. Quinenco did not subscribe for
additional shares, and as a consequence, its interest in Madeco decreased from
47.8% to 46.1%.

Telecommunications - Entel

On April 25, 2006, at Entel's General Ordinary Shareholders' Meeting,
shareholders elected a new Board of Directors for a three year term. Our
representative on the Board was not re-elected. As a consequence, Quinenco will
no longer account for its investment in Entel using the equity method investment
and will account for its investment in Entel using the cost method as of March
31, 2006.

DEVELOPMENTS DURING 2005

Quinenco

On March 22, 2005, we sold 18,718,155 shares we held in Almacenes Paris
for Ch$960 per share, equivalent to 27.33% of our total 11.41% shareholding, to
Cencosud S.A. as part of a tender offer launched in March by the retailer. Our
cash proceeds were Ch$18,760 million, resulting in a gain on sale of Ch$8,729
million. The remaining 49,771,252 shares of Almacenes Paris held by us were
exchanged for 41,926,756 shares of Cencosud, in accordance with the terms of the
tender offer. The Cencosud shares were valued on the March 22, 2005 exchange
date at Ch$38,153 million. The exchange of shares generated an additional
one-time gain of Ch$13,159 million. Between April and July 2005, we sold our
entire interest in Cencosud for Ch$40,436 million, which resulted in an
additional gain on sale of Ch$754 million.

In October 2005, Quinenco issued Series D bonds in the Chilean market for
a total amount of UF2,700,000. The term of the bonds is eight years. Proceeds
from the bond issue were used to refinance existing bond indebtedness (Series
B).

Financial Services - LQIF

In 2005, LQIF exchanged 47,866,985 shares of SM Chile Series E shares for
an equal number of shares of Banco de Chile, pursuant to the exchange program
approved by SM Chile's Board of Directors on April 28, 2005. The share exchange
did not affect LQIF's voting interest or economic interest in Banco de Chile.

Financial Services - Banco de Chile

Between March 24, 2005 and August 2, 2005, Banco de Chile sold
1,701,994,590 shares held by the bank in treasury on the open market in
accordance with its stock repurchase program for Ch$34.5 per share for a total
of Ch$57,637 million. Quinenco's voting and economic interest in Banco de Chile
following the share offering decreased from 53.5% and 29.9% to 52.2% and 29.2%,
respectively.

Food and Beverage - CCU

On March 13, 2005, CCU and its subsidiary, Pisconor S.A. ("Pisconor"),
entered into an agreement with Cooperativa Agricola Control Pisquero de Elqui y
Limari Ltda. ("Control") to produce and commercialize pisco and pisco-based
beverages in Chile. The newly established entity, Compania Pisquera de Chile
S.A., to which the companies contributed assets, commercial brands and - in the
case of Control - some financial liabilities, is 80%-owned by CCU.

During the month of July 2005, IRSA, the holding company which holds a
controlling interest in CCU, increased its shareholding in CCU by 8,099,074
shares, equivalent to 2.5% of CCU's total outstanding shares. Following the
share purchase, IRSA, which is jointly owned by Quinenco and Heineken, owned a
64.2% interest in CCU.

Manufacturing - Madeco

In April 2005, Madeco announced that it had reached an agreement with
Corning International Corporation regarding their Brazilian joint venture
subsidiary, Optel Ltda. ("Optel"). Optel is an optical fiber cable producer with
installations in Brazil and Argentina. Corning agreed to sell Madeco its 50%
share in Optel for the nominal amount of R$1 (one Brazilian Real).

In November 2005, pursuant to approval by shareholders at an extraordinary
shareholders' meeting held on September 2, 2005, Madeco initiated a Ch$52,000
million (historic value) capital increase. Quinenco subscribed for and purchased
281,781,912 shares for Ch$13,672 million (historic value). Madeco issued a total
of 907,197,242 shares for Ch$44,017 million (historic value). Total subscribed
and paid capital as of December 31, 2005 amounted to 5,348,390,129 shares. As a
result of the capital increase, Quinenco's interest in Madeco decreased from
51.2% to 47.8%.

Real Estate - Habitaria

In 2005, Habitaria substantially reduced its real estate development
activities and confined itself to selling its remaining stock of apartments and
homes. It also holds three pieces of land adjacent to existing projects that
were originally purchased to be developed as later phases of these projects. It
is currently evaluating if it will develop those properties or sell them to a
third party.

B. Business Overview

Financial Services - LQIF

Our investments in the financial services sector are held by a 99.8%-owned
intermediate holding company, 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 vehicle for Quinenco's 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, was 52.2%. In
2004, as a result of a share repurchase carried out by Banco de Chile,
Quinenco's voting rights increased from 52.2% to 53.5% and its economic rights
in Banco de Chile increased from 29.2% to 29.9%. In 2005, Banco de Chile resold
the shares it had acquired in 2004, and Quinenco's voting rights decreased from
53.5% to 52.2% and its economic rights in the bank decreased from 29.9% to
29.2%.

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 Superintendency of Securities and Insurance ("SVS"). For
further information regarding the results of Banco de Chile, whose results are
not consolidated into our financial statements, reference is made to Banco de
Chile's Annual Report on Form 20-F for the fiscal year ended December 31, 2005.

At December 31, 2005, as a percentage of Quinenco's total investments, the
investment in Banco de Chile represented approximately 68% of total investments
at the corporate level, and as a percentage of total consolidated assets, the
investment represented 46% of total consolidated assets.

Financial Services - Banco de Chile

We do not consolidate Banco de Chile's results, which are accounted for on
an equity-method investment basis in our Consolidated Financial Statements. 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, 2005.

Banco de Chile reported net income of Ch$180,724 million, of which
Ch$52,769 million corresponded to our interest in 2005.

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. Banco de Chile
offers international banking services through its branches in New York and
Miami, its trade services subsidiary in Hong Kong, 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 bank in Chile in terms of total lending (net of interbank loans),
with an 18.2% market share as of December 31, 2005.

As of December 31, 2005, we owned 13,819,171,849 ordinary shares of Banco
de Chile, which represented 20.30% of the outstanding shares of Banco de Chile,
377,528,973 shares of SM Chile's Series A shares, which represented 66.5% of the
outstanding Series A shares of SM Chile, 5,811,598,701 shares of SM Chile's
Series B shares, which represented 52.83% of the outstanding Series B shares of
SM Chile and 223,364,308 shares of SM Chile's Series D shares, which represented
52.0% of the outstanding Series D shares of SM Chile. Through the ownership of
these shares, we have a 52.2% voting interest and a 29.2% economic interest in
Banco de Chile. 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.

We began acquiring shares of Banco de Chile in 1999 and in 2001, through
our subsidiary, LQIF, we became the bank's largest shareholder with a 52.7%
voting interest and 17.8% of the total dividend rights. Our interest in Banco de
Chile is held through shares of Banco de Chile and through shares of SM Chile.
The carrying cost of our aggregate investment in Banco de Chile was Ch$411,398
million as of March 31, 2001 (historic value).

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 and Banco
Edwards, a 51.2%-owned subsidiary , 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.
Following the merger, through LQIF, we had a 52.2% interest in the voting rights
of Banco de Chile and a 29.2% economic interest corresponding to dividend
rights.

Capitalization of 30% of Banco de Chile's 2005 Net Income

Share Repurchase Program

On March 25, 2004, Banco de Chile's board of directors resolved to make a
tender offer for 1,701,994,590 of its own shares, representing 2.5% of total
capital at a purchase price of Ch$31 per share. The tender offer expired on
April 26, 2004 and 5,000,844,940 shares were tendered. As a consequence of the
share repurchase, Quinenco's economic rights in Banco de Chile increased from
29.2% to 29.9%.

On March 24, 2005, Banco de Chile's board of directors resolved to resell
1,701,994,590, or 100%, of the shares it acquired in 2004 through its share
repurchase program. On May 5, 2005, the Central Bank set a sale price of
UF0.002031, equivalent to Ch$35.10 per share. Of the shares to be resold,
968,822,755, or 1.42% of shares outstanding, were offered to shareholders for a
30-day preemptive rights period that ended June 22, 2005. 1,114,857 shares were
sold during this period. The remaining 733,171,835 shares, or 1.08% of shares
outstanding, were offered in a tender offer to SM-Chile's series A, B and D
shareholders which began on June 23, 2005 and closed on July 22, 2005. The
1,699,220,748 shares that were not resold to Banco de Chile's shareholders or
SM-Chile's series A, B or D shareholders in the preemptive offering or tender
offer, as applicable, were sold in a public offering in the Santiago Stock
Exchange from July 26, 2005 to August 1, 2005. The settlement date was August 2,
2005. Following the resale of shares, Quinenco's economic rights in Banco de
Chile decreased from 29.9% to 29.2%.

Exchange of Series E Shares

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 SBIF 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$2.17 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 Central Bank subordinated 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 in the accounts of SM Chile, which is accounted for under equity method
investments in the Chilean GAAP financial statements of Quinenco. The balance of
the subordinated debt as of May 2, 2006, including accrued interest, was
UF49,220,408.

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 of its merger with Banco Edwards
effective on January 1, 2002, the percentage of Banco de Chile shares held by
SAOS decreased to 42.0%. As a result of the share dividend paid in May 2006, the
percentage further decreased to 41.4%. 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
an amount equal to 20% of Banco de Chile's capital and reserves, SAOS may be
required by the Central Bank to sell a sufficient number of shares of the stock
owned by SAOS to pay the entire accumulated deficit amount. As of May 2, 2006,
after distribution of its annual dividend, SAOS maintained a deficit balance
with the Central Bank of Ch$10,480 million, equivalent to 1.7% of Banco de
Chile's capital and reserves. As of the same date, Ch$125,250 million would have
represented 20% of the bank'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 in order to finance the bank's
future growth, and to distribute stock dividends among its shareholders, the
Central Bank may require the bank to pay the portion of the net income
corresponding to shares owned by SAOS 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 have the right of
first refusal with respect to such shares.

The following diagram presents in summary form the ownership structure of
Banco de Chile as of May 12, 2006:

---------------

SM CHILE S.A

---------------
| |
| | 100%
| ------------------------
| |
--------------- | ---------------
|
Public |
Shareholders | 17.6% SAOS S.A.
|
--------------- | ---------------
| | |
| | |
| | |
|--------------- | |
41.0% | | -----------------------
| | | 41.4%
| | |
---------------

BANCO DE
CHILE

---------------

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. According to information provided by the SBIF, Banco de
Chile was the second-largest bank in Chile in terms of total lending (net of
interbank loans), with an 18.2% market share as of December 31, 2005.

Strategy. Banco de Chile's long-term strategy is to maintain and enhance
its position as a leading bank in Chile, providing a broad range of financial
products and services to corporations and individuals nationwide. As part of its
strategy, Banco de Chile operates under a multi-brand approach in order to
target different market segments and leverage its strongly positioned brand
names, "Banco de Chile," Banco de A. Edwards," "Banchile," "Banco CrediChile"
and "Leasing Andino". The strategy focuses on: (i) expanding its retail customer
base; (ii) expanding its fee based services; (iii) maximizing operating
efficiencies; and (iv) providing competitive international products and
services.

The following table shows selected financial information of Banco de Chile
and its subsidiaries at or for the years ended December 31, 2003, 2004 and 2005:

Banco de Chile and Subsidiaries 2003 2004 2005
---- ---- ----
(in millions of constant Ch$, except percentages)

Interest revenue............................................. Ch$455,241 Ch$562,933 Ch$680,149
Interest expense............................................. (216,876) (222,636) (310,351)
-------- -------- --------
Net interest revenue......................................... 238,365 340,297 369,798
Net interest margin.......................................... 2.8% 3.8% 4.1%

Provisions for loan losses................................... (63,830) (76,158) (55,014)
Total fees and income from services, net..................... 101,787 131,408 137,793
Total other operating income, net............................ 102,357 15,031 10,860
Total Other income and expenses (net):
Loan loss recoveries.................................... 26,963 34,950 32,986
Other income and expenses, net.......................... (11,531) (11,036) (6,394)
Minority interest............................................ (2) (1) -
Total operating expenses..................................... (236,4261 (249,623) (276,464)
Loss from price-level restatement............................ (4,286) (7,735) (11,450)
Income taxes................................................. (14,763) (19,010) (21,391)
-------- -------- --------
Net income................................................... Ch$138,634 Ch$158,123 Ch$180,724
======== ======== ========

Total assets................................................ Ch$9,822,473 Ch$9,996,575 Ch$10,692,761
Total liabilities............................................ 9,083,735 9,297,758 9,917,654
Shareholders' equity......................................... 738,738 698,817 775,107
Quinenco's interest % (1).................................... 52.2% 53.5% 52.2%

----------
(1) 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, 2005:

Consolidated net
income
Loans before tax (1)
---------------------------------- ----------------
(in millions of constant Ch$, except for percentages)

Retail market............................... Ch$3,399,892 41.4% Ch$114,556
Wholesale market............................ 4,429,620 54.0 64,992
International banking....................... 206,394 2.5 (6,101)
Treasury and money market operations........ 26,791 0.3 15,751
Operations through subsidiaries............. 143,227 1.8 26,522
Other (adjustments and eliminations)........ -- -- (13,605)
------------- --------- ------------
Total.................................... Ch$8,205,924 100.0% Ch$202,115
============= ========= ============

----------
(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. The net income before
tax breakdown shown is used for Banco de Chile's internal reporting,
planning and marketing purposes and is based on, among other things, its
estimated funding cost and direct and indirect cost allocations. This
breakdown may differ in some respects from breakdowns of its operating
income for financial reporting and regulatory purposes.

The following table provides consolidated operating revenues allocated
among Banco de Chile's principal business areas as of December 31 of each year:

Banco de Chile and Subsidiaries Operating Revenues
-----------------------------------------------------
2003 2004 2005

(in millions of constant Ch$)

Retail market............................... Ch$231,713 Ch$259,127 Ch$285,020
Wholesale market............................ 114,621 106,933 118,486
International banking....................... 16,565 12,177 13,833
Treasury and money market operations........ 22,535 28,175 18,831
Operations through subsidiaries............. 56,175 68,058 70,074
Other (adjustments and eliminations)........ 900 12,266 12,207
----------- ------------- -------------
Total.................................... Ch$442,509 Ch$486,736 Ch$518,451
=========== ============= =============

The following table provides a geographical market breakdown of Banco
de Chile's operating revenues as of December 31 of each year:

Banco de Chile and Subsidiaries Operating Revenues
-----------------------------------------------------
2003 2004 2005
(in millions of constant Ch$)

Chile....................................... Ch$426,938 Ch$475,312 Ch$504,876
Banking operations...................... 370,764 407,253 434,976
Operations through subsidiaries......... 56,174 68,059 69,900

Foreign operations.......................... 15,571 11,424 13,575
New York................................ 12,567 8,985 10,570
Miami................................... 3,004 2,439 2,831
Operations through subsidiaries......... -- -- 174
----------- ------------- -------------
Total....................................... Ch$442,509 Ch$486,736 Ch$518,451
=========== ============= =============

Retail Market

Banco de Chile's retail market business area serves the financial needs of
individuals and middle market companies through its branch network comprised of
248 branches.

As of December 31, 2005, loans to the retail market represented 41.4% of
Banco de Chile's total loans outstanding, and the retail market business area
accounted for approximately Ch $114,556 million of its net income before tax for
the year.

The following table sets forth the composition of Banco de Chile's retail
market business area's loan portfolio as of December 31, 2005:

Banco de Chile and Subsidiaries As of December 31, 2005
-------------------------------------------
(in millions of constant Ch$ as of December
31, 2005, except for percentages)

Consumer loans......................... Ch$860,186 25.3%
Commercial loans....................... 738,003 21.7
Mortgage loans......................... 585,628 17.2
Leasing contracts...................... 107,979 3.2
Contingent loans....................... 34,581 1.0
Foreign trade loans.................... 22,786 0.7
Other loans(1)......................... 1,050,729 30.9
------------- --------
Total............................... Ch$3,399,892 100.0%
============= ========

(1) Other loans include primarily mortgage loans financed by general
borrowings and factoring loans.

The retail market business area is served by two divisions: (i) the
individuals and middle market division and (ii) the Banco CrediChile division.

Individuals and Middle Market Division

The individuals and middle market division is responsible for offering
financial services to individuals with incomes of over Ch$380 thousand monthly
(or Ch$4.6 million annually) and to small and medium-sized companies with annual
sales of up to Ch$1,200 million. The individuals and middle market division
manages that portion of the branch network that operates under the brand names
Banco de Chile and Banco Edwards. Banco de Chile had 177 such branches at
December 31, 2005.

At December 31, 2005, the individuals and middle market division served
more than 385,000 individual customers and over 42,000 companies, resulting in
loans outstanding to approximately 328,000 debtors, including approximately
43,557 residential loans, 32,081 commercial loans, 296,062 approved lines of
credit, 164,523 other consumer loans and 315,244 credit card accounts. At the
same date, Banco de Chile maintained 407,813 checking accounts, 147,320 savings
accounts and 84,686 time deposits related to individuals.

As of December 31, 2005, loans originated by the individuals and middle
market division represented 38.6% of the bank's total outstanding loans. The
following table sets forth the composition of Banco de Chile's portfolio of
loans to individuals and middle market companies as of December 31, 2005:

As of December 31, 2005
-----------------------------------------------
(in millions of constant Ch$ as of December 31,
2005, except for percentages)

Consumer loans.................................. Ch$685,637 21.6%
Commercial loans................................ 737,916 23.3
Mortgage loans.................................. 537,018 17.0
Leasing contracts............................... 107,418 3.4
Contingent loans................................ 34,575 1.1
Foreign trade loans............................. 22,786 0.7
Other loans(1).................................. 1,041,573 32.9
------------ -----
Total........................................ Ch$3,166,923 100.0%
============ =====

----------
(1) Other loans include primarily mortgage loans financed by our general
borrowings and factoring loans.

The principal financial services offered to individuals include checking
accounts, automatic bill payment, debit cards, credit cards, revolving credit
lines, housing loans, consumer loans, life insurance, general insurance, savings
instruments, mutual funds, stock trading and foreign currency services.

Consumer Installment Loans

Consumer installment 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, 2005, Banco de Chile had
Ch$441,375 million in consumer installment loans, which accounted for 64.4% of
the retail market business area consumer loans.

Mortgage Loans

At December 31, 2005, there were outstanding mortgage loans to individuals
of Ch$443,375 million, which represented 13.0% of the retail market total loans
and 5.4% of the bank's total loan portfolio.

Residential mortgage loans generally have maturities between five and 30
years and are denominated in UF. To reduce the bank's exposure to interest rate
fluctuations and inflation with respect to its residential loan portfolio, a
portion of these 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.

Credit Cards

As of December 31, 2005, Banco de Chile had 317,571 valid credit card
accounts, with 458,896 credit cards issued to individuals. Total charges on its
credit cards during 2005 amounted to Ch$479,490 million, with Ch$418,804 million
corresponding to purchases and service payments in Chile and abroad and
Ch$60,686 million corresponding to cash advances (both within Chile and abroad).
These charge volumes represent a 27.2% market share in terms of volume of use of
bank credit cards issued in Chile.

As of December 31, 2005, the bank's credit card loans to individuals
amounted to Ch$92,021 million and represented 13.4% of the retail market
business area's consumer loans.

Banco de Chile is affiliated with Transbank S.A. and Nexus S.A., to
provide them with merchant acquisition and credit card processing services. As
of December 31, 2005, Transbank had 17 shareholders and Nexus had seven
shareholders, all of which are banks. As of December 31, 2005, Banco de Chile's
equity ownership in Transbank was 17.4% and its equity interest in Nexus was
25.8%.

Debit Cards

Banco de Chile has different types of debit cards. As of September 30,
2005, the bank had a 29.3% market share of debit card transactions, with
approximately 11 million transactions performed as of that date.

Lines of Credit

Banco de Chile had approximately 294,600 approved lines of credit to
individual customers as of December 31, 2005 and outstanding advances to 197,024
individuals totaling Ch$150,998 million, or 5.8% of the retail market total
loans. 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.

Deposit Products

The bank offers checking accounts, time deposits and savings accounts to
its individual customers. Checking accounts are peso-denominated and mostly
non-interest bearing (approximately 0.2% of total checking accounts of the
individual and middle market division are interest-bearing) and savings accounts
are denominated in UF and bear interest at a fixed rate. Time deposits are
denominated in pesos, UF and U.S. dollars. Most time deposits bear interest at a
fixed rate with a term of 30 to 360 days.

At December 31, 2005, the bank administered 365,443 checking accounts for
approximately 350,940 individual customers with an aggregate balance of
Ch$462,093 million. At such date, its checking account balances totaled
approximately Ch$1,516,219 million and represented 15.3% of its total
liabilities.

The principal financial services offered to small and medium size
companies with annual sales of up to Ch$1,200 million by the individuals and
middle market division include a complete range of products, such as various
financing options, support in import and export transactions, collection
services,

payments and collections, leasing agreements, factoring services, checking
account services, investment management, insurance broking, currency trading,
transfers and payments to and from abroad. At December 31, 2005, the bank had
approximately 39,460 middle market companies with checking accounts and 21,460
debtors.

Commercial Loans

The individuals and middle market divisions' commercial loans, which
mainly consist of project financing and working capital loans, are denominated
in pesos, UF or U.S. dollars. Commercial loans may have fixed or variable rates
of interest and generally mature between one and three months from the date of
the loan. At December 31, 2005, middle market companies had outstanding
commercial loans of Ch$382,776 million, representing 11.3% of the retail market
business area's total loans and 4.7% of the bank's total loans at that date.

Leasing Contracts

Leasing contracts are financing leases for capital equipment and property.
Leasing contracts may have fixed or variable rates of interest and generally
mature between one and five years for equipment and between five and twenty
years for property. Most of these contracts are denominated in UF. At December
31, 2005, middle market companies had outstanding leasing contracts of Ch$73,847
million, representing 2.2% of the retail market and 0.9% of the bank's total
loans at that date.

Mortgage Loans

Mortgage loans granted to middle market companies are non-residential
mortgage loans made to finance office, land and other real estate. Mortgage
loans are denominated in UF and generally have maturities of between eight and
12 years. At December 31, 2005, middle market companies had outstanding mortgage
loans of approximately Ch$93,643 million, representing 2.8% of the retail market
business area's total loans and 1.1% of the bank's total loans.

Banco CrediChile Division ("Banco CrediChile")

The Banco CrediChile division offers loans and other financial services to
the lower-middle to middle income portions of the Chilean population, which
historically have only been partially served by banking institutions. This
bracket includes individuals whose monthly incomes fluctuate between Ch$170
thousand and Ch$380 thousand and, recently, to micro-businesses. Banco
CrediChile represents a distinct delivery channel for the bank's products and
services in this bracket, maintaining a separate brand and network of 71 Banco
CrediChile branches. Banco CrediChile was established in 2004 from what was
formerly the bank's consumer banking division.

Banco 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,
2005, Banco CrediChile had approximately 191,453 customers and total loans
outstanding of Ch$232,969 million, representing 2.8% of the bank's total loan
portfolio.

The following table sets forth the composition of the portfolio of loans
to Banco CrediChile as of December 31, 2005:

As of December 31, 2005
-----------------------------------------------
(in millions of constant Ch$ as of December 31,
2005, except for percentages)

Consumer loans.................................. Ch$174,549 74.9%
Mortgage loans.................................. 48,610 20.9
Other loans..................................... 9,810 4.2
---------- -----
Total........................................ Ch$232,969 100.0%
========== =====

Consumer Lending

Banco CrediChile provides short- to medium-term consumer loans and credit
card services. As of December 31, 2005, Banco CrediChile had approximately
163,790 consumer loans that totaled Ch$160,553 million. As of the same date,
Banco CrediChile customers had 97,840 valid credit card accounts, with
outstanding balances of Ch$13,985 million.

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. At December 31, 2005,
Banco CrediChile had approximately 503,070 Bancuenta accounts. Bancuenta account
holders pay an annual fee, a fee related to the number of withdrawals 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.

Wholesale Market

The wholesale market business area serves the needs of corporate customers
with annual sales in excess of Ch$1,200 million. At December 31, 2005, loans
made by this business area totaled approximately Ch$4,429,620 million and
represented 54.0% of the bank's total loan portfolio. The wholesale banking
business area accounted for approximately Ch$64,992 million of the bank's net
income before tax for the year ended December 31, 2005.

The following table sets forth the composition of the portfolio of loans
to the wholesale market as of December 31, 2005:

As of December 31, 2005
-------------------------------------------
(in millions of constant Ch$ as of December
31, 2005, except for percentages)

Commercial loans...................................... Ch$2,720,444 61.4%
Foreign trade loans................................... 489,543 11.1
Contingent loans...................................... 571,742 12.9
Leasing contracts..................................... 346,824 7.8
Mortgage loans........................................ 84,719 1.9
Other................................................. 216,348 4.9
------------ -----
Total.............................................. Ch$4,429,620 100.0%
============ =====

At December 31, 2005, Banco de Chile had approximately 7,688 wholesale
debtors. Its wholesale customers are engaged in a wide spectrum of industry
sectors. As of December 31, 2005, this business area's loans were mainly related
to financial services (32.4% of all loans made by this business area),
construction (17.1%), manufacturing (14.3%), trade (12.8%) and agriculture
(6.9%).

The bank has defined two divisions within the wholesale market based on
companies' annual sales, grouping them into: (i) large corporations and (ii)
large companies.

Large Corporations Division

The large corporations division is oriented towards providing services to
corporations that sell more than Ch$32 billion annually. At December 31, 2005,
the bank had 1,858 large corporations debtors. Loans to large corporations
totaled approximately Ch$3,361,716 million at December 31, 2005, representing
41.0% of its total loans at that date.

The following table sets forth the composition of the portfolio of loans
of the large corporations division as of December 31, 2005:

As of December 31, 2005
-------------------------------------------
(in millions of constant Ch$ as of December
31, 2005, except for percentages)

Commercial loans...................................... Ch$2,202,202 65.5%
Foreign trade loans................................... 329,353 9.8
Contingent loans...................................... 445,594 13.3
Leasing contracts..................................... 165,941 4.9
Mortgage loans........................................ 31,923 0.9
Other................................................. 186,703 5.6
------------ -----
Total.............................................. Ch$3,361,716 100.0%
============ =====

The bank offers large corporation customers a wide variety of products
that include short and long-term financing, working capital loans, mortgage
loans, leasing, long-term syndicated loans and factoring, plus the investment
banking services offered by its subsidiary, Banchile Corredores de Bolsa. The
investment banking services include the underwriting of public and private
securities offerings. The bank also offers checking accounts, deposit products,
payment services (payrolls, suppliers, pensions, dividends, etc.), collection
services and connection to international funds transfer networks. It is party to
approximately 3,346 payment service contracts and approximately 1,059 collection
service contracts with large corporations.

Large Companies Division

The large companies division provides a broad range of financial products
such as electronic banking, leasing, foreign trade and financial consultancy to
companies with annual sales of between Ch$1,200 million and Ch$32,000 million.

At December 31, 2005, the bank had 5,830 large companies debtors. Loans to
large companies totaled approximately Ch$1,067,904 million at December 31, 2005,
representing 13.0% of its total loans.

The following table sets forth the composition of the portfolio of loans
of the large companies division as of December 31, 2005:

As of December 31, 2005
-------------------------------------------
(in millions of constant Ch$ as of December
31, 2005, except for percentages)

Commercial loans...................................... Ch$518,242 48.5%
Foreign trade loans................................... 160,190 15.0
Contingent loans...................................... 126,148 11.8
Leasing contracts..................................... 180,883 16.9
Mortgage loans........................................ 52,796 5.0
Other................................................. 29,645 2.8
------------ -----
Total.............................................. Ch$1,067,904 100.0%
============ =====

The products offered to these customers are mainly commercial loans, lines
of credit, foreign trade and foreign currency transactions, factoring services,
leasing, mortgage loans, syndicated loans, mergers

and acquisitions and debt restructuring assistance, payments and collections
services, checking accounts and related services, corporate credit cards, cash
and investment management, forward contracts to hedge against currency
fluctuations and insurance broking.

The leasing area is part of the large companies division and operates
under the name of Leasing Andino. The bank's factoring and financial advisory
subsidiaries, Banchile Factoring and Banchile Asesoria Financiera, respectively,
provide their services principally through the large companies division.

International Banking

Through its international banking business area, the bank offers a range
of international services, principally import and export financing, letters of
credit, guarantees and other forms of credit support, cross border payments,
foreign currency exchange and currency swaps.

The international banking business area has two main lines of business:
foreign currency products and management of our international network. As of
December 31, 2005, the bank had Ch$550,770 million in foreign trade loans,
representing 6.7% of its total loans, and Ch$150,190 million in letters of
credit and other contingent obligations related to foreign trade operations,
representing 1.8% of its total loans as of that date.

The international network is made up of branches in New York and Miami, a
trade services subsidiary in Hong Kong, three representative offices (located in
Mexico City, Sao Paulo and Buenos Aires) and approximately 1,000 correspondent
banks. The bank has established credit relations with approximately 200
correspondent banks and account relationships with approximately 45
correspondent banks. Additionally, it has recently obtained approvals from both
the Chilean Superintendency of Banks and China's Banking Regulatory Commission
to open a new representative office based in Beijing.

The following table sets forth, as of December 31, 2005, the composition
of the portfolio of loans originated through the New York and Miami branches:

As of December 31, 2005
-------------------------------------------
New York Branch Miami Branch
-------------------- -----------------
(in millions of constant Ch$ as of December
31, 2005)

Foreign trade loans................................. Ch$8,087 Ch$18,340
Commercial loans.................................... 35,016 11,162
Interbank loans..................................... -- 6
Contingent loans.................................... 3,253 1,036
Past due loans...................................... 19 --
--------- ----------
Total............................................ Ch$46,375 Ch$30,544
========= ==========

New York Branch

The New York branch was established in 1982 and provides a range of
general banking services, including deposit taking, mainly to non-residents of
the United States. At December 31, 2005, the New York branch had total assets of
Ch$444,224 million, including a loan portfolio of Ch$46,375 million,
representing 0.6% of the bank's total loan portfolio. Of the New York branch's
loans, Ch$35,016 million were commercial loans, mostly to large corporations in
Chile and, to a lesser extent, to U.S. companies. The remaining Ch$11,359
million was principally foreign trade loans, amounting to Ch$8,087 million, and
contingent loans amounting to Ch$3,253 million. In 2005, the New York branch
recognized net loss of Ch$6,342 million.

Investments in bonds and foreign securities were Ch$349,461 million at
December 31, 2005, most of which consisted of private sector bonds. As of
December 31, 2005, the New York branch had Ch$19 million in past due loans. The
New York branch's allowances for loan losses totaled Ch$159 million, which
represented 0.3% of the branch's loan portfolio at December 31, 2005. Funding
sources for the New

York branch include current accounts, money market accounts and deposits for
less than 30 days (Ch$256,331 million), time deposits (Ch$89,766 million) and
foreign borrowings (Ch$45,695 million).

As of December 31, 2005, the New York branch had Ch$14,077 million in
capital (including net loss of Ch$6,342 million for the year).

Miami Branch

The Miami branch was opened in 1995 as an agency and in 2004 expanded its
banking operations to become a branch. It provides a range of traditional
commercial banking services, mainly to non-residents of the United States,
including deposit-taking, providing credit to finance foreign trade and making
loans to individuals or Chilean companies involved in foreign trade.
Additionally, the Miami branch provides correspondent banking services to
financial institutions, including working capital loans, letters of credit and
bankers' acceptances. At December 31, 2005, the Miami branch had total assets of
Ch$145,907 million, a loan portfolio of Ch$30,544 million representing 0.4% of
the bank's total loan portfolio, and an investment portfolio of Ch$65,057
million. The Miami branch's loan portfolio at December 31, 2005 consisted
primarily of Ch$18,340 million of foreign trade loans and Ch$11,162 million of
commercial loans primarily to Latin American companies, including Chilean
companies. The branch's funding sources include demand deposits, money market
accounts and deposits for less than 30 days (Ch$68,381 million), time deposits
(Ch$69,955 million) and contingent liabilities (Ch$1,036 million). In 2005, the
Miami branch recognized net income of Ch$794 million.

Representative offices

The main activities of the bank's representative offices in Argentina,
Brazil and Mexico are to evaluate business opportunities in the areas of trade
finance and private sector financing and to monitor the development and evolving
economies of these countries.

Treasury and Money Market Operations

The treasury and money market operations business area provide a wide
range of financial services to its customers including currency intermediation,
forwards contracts, interest rate swaps, transactions under repurchase
agreements and investment products based on bonds, mortgage notes and deposits.
It also offer investments in mutual funds and stock brokerage services.

In addition to providing services, the treasury and money market
operations business area is focused on managing currency, interest rate and
maturity gaps, ensuring adequate liquidity levels and managing the bank's
investment portfolio. This business area also performs the intermediation of
fixed-income instruments, currencies and derivatives. Interest rate gap
management is aimed at generating an adequate funding structure, prioritizing
the bank's capitalization and asset and liability cost structure and funding
source diversification. This area is also responsible for the issuance of short-
and long-term bonds and the issuance of long-term subordinated bonds.

The bank's investment portfolio as of December 31, 2005 amounted to
Ch$1,450,009 million, of which 51.6% consisted of securities issued by the
Central Bank and the Chilean Government, 24.4% consisted of securities from
foreign issuers, 20.4% consisted of securities issued by local financial
institutions and 3.6% consisted of securities issued by Chilean corporate
issuers.

Operations through Subsidiaries

The bank has made several strategic long-term investments in financial
services companies, which are engaged in activities complementary to its
commercial banking activities.

The following table sets forth information with respect to our financial
services subsidiaries at December 31, 2005:

As of or for the year ended December 31, 2005
-----------------------------------------------------------
Shareholders'
Assets Equity Net Income (loss)
--------------- ------------------- -----------------
(in millions of constant Ch$ as of December 31, 2005)

Banchile Corredores de Bolsa S.A......... Ch$282,214 Ch$40,462 Ch$9,476
Banchile Administradora General de
Fondos S.A............................ 23,916 22,921 8,425
Banchile Factoring S.A................... 133,385 11,782 2,142
Banchile Corredores de Seguros Ltda...... 2,853 2,068 747
Socofin S.A.............................. 4,944 1,412 448
Banchile Asesoria Financiera S.A......... 921 697 400
Banchile Trade Services Limited.......... 168 131 134
Banchile Securitizadora S.A.............. 4,859 501 126
Promarket S.A............................ 955 451 108
---------- --------- ---------
Total................................. Ch$454,215 Ch$80,425 Ch$22,006
========== ========= =========

Each of these subsidiaries is incorporated in Chile, except for Banchile
Trade Services, which is incorporated in Hong Kong.

Securities Brokerage Services

Securities brokerage services is provided through Banchile Corredores de
Bolsa S.A.. During the year ended December 31, 2005, Banchile Corredores had an
aggregate trading volume on the Santiago Stock Exchange and the Chilean
Electronic Stock Exchange of approximately Ch$5,081,441 million. At December 31,
2005, Banchile Corredores had equity of Ch$40,462 million and, for the year
ended December 31, 2005, net income of Ch$9,476 million, which represented 5.2%
of the bank's consolidated net income.

Mutual and Investment Fund Management

Mutual fund management services are provided through Banchile
Administradora General de Fondos S.A. (formerly Banchile Administradora de
Fondos Mutuos S.A.). As of December 31, 2005, according to data prepared by the
Chilean Superintendency of Securities and Insurance, Banchile Administradora
General de Fondos was the largest mutual fund manager in Chile, managing
approximately 25.4% of all Chilean mutual funds assets. At December 31, 2005,
Banchile Administradora General de Fondos operated 45 mutual funds and managed
Ch$1,772,227 million in net assets on behalf of 163,540 corporate and individual
participants. Banchile Administradora General de Fondos also operates an
investment fund, Banchile Inmobiliario I, and manages Ch$3,522 million in net
assets on behalf of 414 participants.

At December 31, 2005, Banchile Administradora General de Fondos had equity
of Ch$22,921 million and, for the year ended December 31, 2005, net income of
Ch$8,425 million, which represented 4.7% of the bank's consolidated net income.

Factoring Services

Factoring services are provided through Banchile Factoring S.A. As of
December 31, 2005, Banchile Factoring had net income of Ch$2,142 million, with
an 18.2% return on shareholders' equity and an estimated 12.6% market share in
Chile's factoring industry.

Financial Advisory Services

Financial advisory and other investment banking services are provided
through Banchile Asesoria Financiera S.A. As of December 31, 2005, Banchile
Asesoria Financiera had shareholders' equity of Ch$697 million and, for the year
ended December 31, 2005, net income of Ch$400 million.

Insurance Brokerage

Insurance brokerage services are provided through Banchile Corredores de
Seguros Limitada. As of December 31, 2005, Banchile Corredores de Seguros had
shareholders' equity of Ch$2,068 million and, for the year ended December 31,
2005, net income of Ch$747 million. Banchile Corredores de Seguros had a 3.2%
market share, measured by amount of policies (in Chilean pesos) sold by
insurance brokerage companies during 2004, the latest year for which information
is available for insurance brokerage companies.

Securitization Services

Investment products to meet the demands of institutional investors are
provided through Banchile Securitizadora S.A. As of December 31, 2005, Banchile
Securitizadora had shareholders' equity of Ch$501 million and, for the year
ended December 31, 2005, net income of Ch$126 million. Banchile Securitizadora
had a 10.34% market share measured by volume of assets securitized as of
December 31, 2005.

Sales Services

Promarket S.A. manages the direct sales force that sells and promotes the
bank's products and services (such as checking accounts, consumer loans and
credit cards), together with those of its subsidiaries, and researches
information about potential customers. As of December 31, 2005, Promarket S.A.
had shareholders' equity of Ch$451 million and, for the year ended December 31,
2005, net income of Ch$108 million.

Collection Services

Judicial and extra-judicial loan collection services on the bank's behalf
or on behalf of third parties are provided through Socofin S.A. As of December
31, 2005, Socofin S.A. had equity of Ch$1,412 million and, for the year ended
December 31, 2005, net income of Ch$448 million.

Trade Services

In November 2004, the bank began offering direct trade services to its
customers through Banchile Trade Services Limited, which acts as its trade
finance entity in markets such as China, Hong Kong, Taiwan and South Korea. As
of December 31, 2005, Banchile Trade Services Limited had equity of Ch$131
million and, for the year ended December 31, 2005, net income of Ch$134 million.

Distribution Channels and Electronic Banking

The bank's distribution network includes branches, ATMs, on-line banking
and phone-banking. As of December 31, 2004, the bank's branch network consisted
of 248 retail branches, and it owned and operated 1,258 ATMs connected to
Redbanc, the national ATM network, covering 4,807 ATMs. A wide array of services
are also provided by Banco de Chile's Internet-based service network. In 2005,
approximately 202,971 individual customers and 35,483 corporate customers
performed close to 10.2 million transactions on a monthly basis, of which 2.0
million were monetary.

Customers are provided access to a 24-hour phone banking call center,
which permits a varied range of services. This service received approximately
826,200 calls per month in 2005.

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, commercial banking, includes 25
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 thirteen, and those that are
principally foreign-owned, of which there are 12. At December 31, 2005, three
banks, Banco Santander-Chile (22.5%), Banco de Chile (18.2%) and the
public-sector bank, Banco del Estado

(13.3%), together accounted for 54.0% of all outstanding loans by Chilean
financial institutions, net of interbank loans. All of the Chilean-owned banks
together accounted for 48.4% of total loans outstanding while foreign-owned
banks accounted for 38.3% of total loans outstanding.

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 "niche" banks. The principal commercial banks in Chile
include Banco Santander-Chile, Banco de Credito e Inversiones, BBVA and
Corpbanca, which Banco de Chile considers to be its primary competitors.
Nevertheless, Banco de Chile also faces competition from Banco del Estado, which
has a larger distribution network and larger customer base. Banco del Estado,
which operates under the same regulatory regime as Chilean private sector banks,
was the third largest bank in Chile at December 31, 2005, with outstanding
loans, net of interbank loans, of Ch$5,864,383 million, representing a 13.3%
market share, according to data published by the Chilean SBIF.

In the wholesale market, Banco de Chile considers its strongest
competitors to be Banco Santander-Chile, Banco de Credito e Inversiones, BBVA
and Corpbanca.

In the retail market, Banco de Chile competes with other private sector
Chilean banks, as well as with Banco del Estado. Among private Chilean banks,
Banco de Chile considers its strongest competitors to be Banco Santander-Chile,
Banco de Credito e Inversiones and BBVA, as each of these banks has developed
business strategies that focus on both middle market companies and lower-middle
to middle income brackets of the Chilean population. With respect to high-income
individuals, Banco de Chile 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 competition from foreign banks, which has
led to, among other things, consolidation in the industry. Consequently,
strategies have, on an overall basis, been aimed at reducing costs and improving
efficiency standards. Banco de Chile's 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 and the creation of new niche banks. 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-Chile. In
addition, Banco O' Higgins and Banco de Santiago merged in 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. In 2003, Banco del Desarrollo merged with Banco Sudameris
and in 2004, Dresdner Banque Nationale de Paris merged with Banco Security. In
2005, Banco de Credito e Inversiones merged with Banco Conosur. Although Banco
de Chile believes that it is currently large enough to compete effectively in
its target markets, any further consolidation in the Chilean financial system
may adversely affect its competitive position.

Historically, commercial banks in Chile have competed in the retail market
against each other, with finance companies and with department stores, the
latter two having traditionally been focused on consumer loans to middle- and
low-income sub segments. However, finance companies have gradually disappeared
as most of them have been merged into the largest banks.

Non-bank competition from large department stores has become increasingly
significant in the consumer lending sector. Three new consumer-oriented banks
affiliated with Chile's largest department stores have been established during
recent years. Although these new banks had a market share of less than 1.4% as
of December 31, 2005, according to the SBIF, the opening of these banks is
likely to make consumer banking more competitive. Non-bank competition including
mainly department stores, private

compensation funds and savings and credit cooperatives accounts for an estimated
34% of the total consumer market.

The following table sets forth our market share in terms of loans
(excluding interbank loans), and our principal private sector competitors, as of
the dates indicated:

Bank Loans(1)
--------------------------------------------------------
As of December 31,
--------------------------------------------------------
2001 2002 2003 2004 2005
---- ---- ---- ---- ----

Banco Santander-Chile .................... 11.7% 24.7% 22.6% 22.7% 22.5%
Banco de Chile ........................... 12.1 18.7 18.5 17.8 18.2
Banco de Credito e Inversiones(2) ....... 9.0 10.4 11.2 11.8 12.5
Conosur .................................. 0.6 0.5 0.5 0.4 --
BBVA Bilbao Vizcaya ...................... 6.0 6.7 7.3 7.8 8.1
Banco Santiago(3) ........................ 16.1 -- -- -- --
Banco de A. Edwards(4) ................... 7.4 -- -- -- --
Banco Corpbanca .......................... 4.8 5.4 6.4 6.5 6.4
----- ----- ----- ----- -----
Total market share .................... 67.7% 66.4% 66.5% 67.0% 67.7%
===== ===== ===== ===== ======

--------------------------------------------

Source: Chilean Superintendency of Banks

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

(2) Banco de Credito e Inversiones merged with Conosur in 2005.

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

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

Risk Index. At October 31, 2005, Banco de Chile's unconsolidated risk
index was 1.78%, compared to the financial system's risk index of 1.67%.

Credit Quality. At December 31, 2005, Banco de Chile had an unconsolidated
ratio of past due loans to total loans of 0.88%.

Deposits. Banco de Chile had deposits of Ch$6,048,948 million at December
31, 2005 on an unconsolidated basis, with a 16.4% market share, the
second-largest among private sector banks, according to the SBIF.

Shareholders' Equity. Banco de Chile had Ch$594,383 in shareholders'
equity as of December 31, 2005 (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, 2005 was 26.7%, according to information
published by the SBIF.

Efficiency. For the year ended December 31, 2005, the bank's efficiency
ratio (operating expenses as a percentage of operating revenues) was 50.4%.

Regulation and Supervision

General

In Chile, only banks may maintain checking accounts for their customers,
conduct foreign trade operations and, together with financial companies, accept
time deposits. The principal authorities that regulate financial institutions in
Chile are the Chilean Superintendency of Banks and the Central Bank. Chilean
banks are primarily subject to the General Banking Law and secondarily, to the
extent not inconsistent with that law, the provisions of the Chilean
Corporations Law governing public corporations, except for certain provisions
that are expressly excluded.

The Central Bank

The Central Bank is an autonomous legal entity created by the Chilean
Constitution. It is subject to the Chilean Constitution and its organic
constitutional law, the "ley organica constitucional". To the extent not
inconsistent with the Chilean Constitution or the Central Bank's organic
constitutional law, the Central Bank is also subject to private sector laws, but
is not subject to the laws applicable to the public sector. It is directed and
administered by a board of directors composed of five members designated by the
President of Chile, subject to Senate approval.

The legal purpose of the Central Bank is to maintain the stability of the
Chilean peso and the orderly functioning of Chile's internal and external
payment system. The Central Bank's powers include setting reserve requirements,
regulating the amount of money and credit in circulation, and establishing
regulations and guidelines regarding finance companies, foreign exchange
(including the Formal Exchange Market) and banks' deposit-taking activities.

The Chilean Superintendency of Banks

Banks are supervised and controlled by the Chilean Superintendency of
Banks, an independent Chilean governmental agency. The Chilean Superintendency
of Banks authorizes the creation of new banks and has broad powers to interpret
and enforce legal and regulatory requirements applicable to banks and financial
companies. Furthermore, in case of noncompliance with its legal and regulatory
requirements, the Chilean Superintendency of Banks has the ability to impose
sanctions. In extreme cases, it can appoint, with the prior approval of the
board of directors of the Central Bank, a provisional administrator to manage a
bank. It must also approve any amendment to a bank's bylaws or any increase in
its capital.

Limitations on Types of Activities

Chilean banks can only conduct those activities allowed by the General
Banking Law, including: making loans, factoring and leasing activities,
accepting deposits and, subject to limitations, making investments and
performing financial services. Investments are restricted to real estate for the
bank's own use, gold, foreign exchange and debt securities. Through
subsidiaries, banks may also engage in other specific financial service
activities such as securities brokerage services, mutual fund management,
investment fund management, financial advisory, securitization and leasing
activities. Subject to specific limitations and the prior approval of the
Chilean Superintendency of Banks and the Central Bank, Chilean banks may own
majority or minority interests in foreign banks.

Food and Beverage - CCU

We do not consolidate CCU's results, which are accounted for on an
equity-method investment basis. In 2005, CCU's net income was Ch$48,177 million,
of which Ch$15,452 million corresponded to our proportional share, included in
other non-operating income in our consolidated income statement. Our economic
interest in CCU as of December 31, 2005, 2004 and 2003 was 32.1%, 30.8% and
30.8%, respectively. Quinenco's interest in CCU is held through a holding
company, IRSA, in which it holds a 50% interest. IRSA is a joint venture between
Quinenco and Heineken Americas B.V. ("Heineken"), which as of December 31, 2005
held a 64.2% controlling interest in CCU.

CCU, a diversified beverage company, is the largest Chilean brewer, the
second largest brewer in Argentina, the third largest Chilean soft drink
producer, the largest Chilean mineral water and bottled nectar producer, the
second largest Chilean wine producer and since March 2005, one of the largest
pisco producers in Chile. In addition, CCU participates in the confectionary
industry in Chile. CCU had a domestic beer market share of approximately 88% in
2005, 90% in 2004 and 89% in 2003, and a market share in Argentina of
approximately 16% in 2005, 15% in 2004 and 14% in 2003.

In Chile, CCU's beer division produces, markets, sells and distributes
seven proprietary brands, including Cristal, the country's best-selling beer,
which represented an estimated 55% of all beer sales in Chile in 2005. CCU is
the exclusive producer in Chile of Heineken brand beer, the exclusive
distributor in Chile of the imported Budweiser brand beer and the exclusive
local producer of Paulaner brand beers.

CCU also produces under license the Austral beer brandsand distributes the
Kunstmann beer brands. In Argentina, CCU produces, markets, sells and
distributes Budweiser and Heineken brand beers, other imported brand beers and
proprietary brands.

Through its wholly-owned subsidiary 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. CCU also owns a
majority interest in Vina San Pedro, Chile's one of the country's largest
wineries and Compania Pisquera de Chile, a leading pisco producer. It has a 50%
interest in Calaf, a candy and cookie manufacturer. CCU also produces plastic
bottles for use in its businesses and manages transportation and logistics in
Chile for its different business segments through a subsidiary company.

IRSA Share Purchases. During the month of July 2005, IRSA increased its
shareholding in CCU by 8,099,074 shares, equivalent to 2.5% of CCU's total
outstanding shares. Following the share purchase, IRSA owned a 64.2% interest in
CCU.

During the month of March 2006, IRSA made additional share purchases,
increasing its shareholding in CCU by 6,200,000 shares, equivalent to 2.0% of
CCU's total outstanding shares. Following the share purchase, IRSA owned a 66.1%
interest in CCU.

The purchase of the shares was financed through capital contributions made
by IRSA to a wholly-owned subsidiary, IRSA Ltda. IRSA financed the capital
contributions with long-term bank financing and own funds. As of March 31, 2006,
IRSA's bank obligations amounted to Ch$43,486 million.

Association with Pisco Control. On March 13, 2005, CCU and its subsidiary,
Pisconor S.A. ("Pisconor"), entered into an agreement with Cooperativa Agricola
Control Pisquero de Elqui y Limari Ltda. ("Control") to produce and
commercialize pisco and pisco-based beverages in Chile. The newly established
entity, Compania Pisquera de Chile S.A., to which the companies contributed
assets, commercial brands and - in the case of Control - some financial
liabilities, is 80%-owned by CCU.

Acquisition of 50% of Calaf. On January 12, 2004, Indalsa and ECUSA
entered into a joint venture to acquire the assets of Calaf, a cookie and candy
manufacturer, for Ch$6,656 million (historic value). Distribution of Calaf's
products is being managed by ECUSA, utilizing its existing distribution network
for soft drinks. Both ECUSA and Indalsa account for Calaf as an equity-method
investment.

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. In early 2001, the Schorghuber Group announced that it had sold 49.9%
of its interest in IRSA to the Dutch brewer, 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 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 (historic value) 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 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.

Extraordinary Dividend Payment. 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 (historic value). The extraordinary dividend was paid in
three distributions between March 14, 2003 and October 10, 2003.

Sale of Interest in the Karlovacka Pivovara Brewer in Croatia. 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$21,359
million.

Strategy. CCU's strategic plan for 2005-2007 is built on three fundamental
pillars: (i) profitability, through the maximization of the value of CCU's
businesses; (ii) growth in the company's current businesses and; (iii)
sustainability.

The following table shows selected financial information of CCU and its
subsidiaries at or for the years ended December 31, 2003, 2004 and 2005:

CCU and Subsidiaries
2003 2004 2005
---- ---- ----
(in millions of constant Ch$, except percentages)

Net Sales:
Beer (1)
Chile...................................... Ch$158,937 Ch$169,158 Ch$188,431
Argentina ................................. 33,530 41,584 46,735
---------- ---------- ----------
Total Beer...................................... 192,467 210,742 235,166

Soft drinks and mineral water (2)............... 122,433 124,611 135,610
Wine (3)........................................ 87,679 84,941 83,996
Pisco ........................................ 4,572 8,596 28,544
Other (4)....................................... 687 6,793 8,731
---------- ---------- ----------
Total net sales....................... Ch$407,838 Ch$435,683 Ch$492,047
========== ========== ==========
Operating Income:
Beer (1)
Chile...................................... Ch$41,203 Ch$45,396 Ch$49,807
Argentina.................................. (3,702) (143) 2,394
Soft drinks and mineral water (2)............... 7,387 9,769 11,569
Wine (3)........................................ 3,660 5,074 1,437
Pisco ........................................ (1,962) (2,249) (1,504)
Other (4)....................................... 2,116 2,973 2,767
---------- ---------- ----------
Total operating income................ Ch$48,702 Ch$60,820 Ch$66,470
---------- ---------- ----------

Non-operating results ............................... 14,485 (6,360) (9,263)
Minority interest.................................... (466) (1,321) 85
Income taxes ........................................ (5,285) (6,111) (9,115)
---------- ---------- ----------
Net income ........................................ Ch$57,436 Ch$47,028 Ch$48,177
========== ========== ==========

Total assets......................................... Ch$612,964 Ch$613,561 Ch$643,273
Bank debt and bond obligations....................... 148,639 140,533 146,691
Other liabilities.................................... 168,297 160,049 177,552
Shareholders' equity................................. 296,028 312,979 319,030
Quinenco's effective economic interest............... 30.8% 30.8% 32.1%

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

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

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

(4) Includes sales of confectionary products, 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, 2003, 2004 and 2005:

CCU - Beer Segment 2003 2004 2005
---- ---- ----
(in millions of liters, except per capita
information and percentages)

Chile
Total Market Volume Sold............................. 418 425 479
CCU Volume Sold (1).................................. 372 381 417
CCU Market Share (2)................................. 89% 90% 88%
Beer Consumption per Capita (liters)................. 27 28 31
CCU Average Beer Production Capacity Utilization..... 58% 58% 63%
Argentina
Total Market Volume Sold............................. 1,292 1,333 1,389
CCU Volume Sold excluding exports.................... 185 205 220
CCU Market Share .................................... 14% 15% 16%
Beer Consumption per Capita (liters)................. 34 35 36
CCU Average Beer Production Capacity Utilization..... 66% 66% 61%

(1) Does not include sales of the Kunstmann and Austral beer brands

(2) Includes sales of Kunstmann and Austral beer brands

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 2005. The production and marketing of beer in Chile is
CCU's principal activity, generating net sales of Ch$188,431 million, or 38.3%
of CCU's total net sales in 2005.

CCU produces and markets super-premium, premium and popular-priced beers.
CCU's premium brand, Cristal, a premium-priced beer, is Chile's best selling
brand, accounting for approximately 55% of all 2005 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 premium-priced beer, is the second best selling beer in
Chile. Morenita, a dark beer, is also a premium-priced beer, and Dorada and
Aysen are popular-priced beers. Lemon Stones is a special lemon sweetened
low-alcohol content beer. In addition, CCU owns a 50% interest in the Austral
and Kunstmann breweries and produces Austral beer and distributes Kunstmann beer
under license with these breweries.

CCU also produces and markets Paulaner brand beer under an exclusive
renewable five-year contract with Paulaner Brauerei AG ("Paulaner"), executed in
1995. CCU also has long-standing exclusive rights to distribute Budweiser in
Chile. During 2004, CCU and Anheuser-Busch entered into a new distribution
agreement, with a 12-year term, ending December 2015.

On April 28, 2003, CCU and Heineken International signed licensing and
technical assistance agreements which provide CCU with the exclusive rights to
produce, sell and distribute Heineken 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. Heineken is the leading brand in
the super-premium segment, the beer segment with the highest growth in Chile in
the last years.

Distribution. CCU distributes beer directly throughout Chile to (i) small
and medium-sized retail establishments, that in turn sell the beverages to
consumers for take-out consumption (39% of 2005 segment volume), (ii)
restaurants, hotels, kiosks, and bars for on-premises consumption (19%), (iii)
wholesalers (21%) and (iv) supermarket chains (21%). CCU had more than 38,000
customers for its beer products in 2005, none of which accounted for more than
2% of its total beer sales by volume with the exception of two large supermarket
chains that combined represented 9% of sales. 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 bottles approximately 4 million liters per month.

Beer Business in Argentina. CCU is the second largest beer producer in
Argentina, with a 2005 market share of approximately 16%. In 2005, CCU's beer
operations in Argentina generated net sales of Ch$46,735 million, which
represented 9.5% 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 20-year
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. In November 1999, Anheuser-Busch increased its ownership interest to
10.8% through a capital increase, and CCU reduced its participation to 89.2%. In
June 2005, after the last capital expansion, Anheuser-Busch reduced its interest
in CCU Argentina to 7.9% and CCU increased its participation to 92.1%.

In Argentina, CCU produces and markets super premium-priced,
premium-priced, medium-priced and popular-priced beers. The super premium-priced
beers are Heineken, which has been produced in Argentina under license since
2003, Corona, Guinness and Negra Modelo, all of which are imported and
distributed by CCU Argentina. The premium -priced beers are Budweiser, Salta and
Santa Fe brands. The medium-priced beer brands in Argentina are Schneider and
Cordoba and the popular-priced beer brands are Rio Segundo and Rosario brands.
Schneider is CCU's principal beer brand in Argentina, comprising 41% of total
sales volume by CCU's Argentine subsidiary in 2005.

CCU began local production of Budweiser brand beer in December 1996, and
sales of Budweiser brand beer have since grown to represent 24% of CCU's
Argentine sales volume in 2005. On April 28, 2003, CCU and Heineken
International signed licensing and technical assistance agreements, which
provide CCU with the exclusive rights to produce, sell and distribute Heineken
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. Export sales represented 2.9% of CCU Argentina's beer sales
volume in 2005.

Distribution. During 2005, approximately 78% of CCU's beer volume in
Argentina was sold through wholesalers, with supermarkets and retailers
accounting for approximately 8% and 14%, respectively. In 2005, CCU sold its
products to approximately 20,400 customers in Argentina, none of which
individually accounted for more than 3% of its total beer sales by volume with
the exception of two large distributors which combined represented 16% of sales.

CCU estimates that total beer consumption in Argentina increased at a
four-year compounded annual growth rate of 3.0% between 2001 and 2005. Beer
consumption rose by 4.3% in 2005, mostly explained by a recovery in consumption
levels and increase in consumer confidence.

Production Facilities. CCU centralizes its beer production in two plants.
The Santa Fe production facility has a production capacity of 28 million liters
per month. The Salta production facility has a production capacity of 6 million
liters per month.

Beer Business in Croatia. Until March 31, 2003, CCU had an indirect 34.4%
economic interest in a Croatian brewery, Karlovacka, through SBE, 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$21,359 million.

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 2005, CCU's soft drink, nectar and mineral water
products business in Chile generated net sales of Ch$135,610 million,
representing 27.6% 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, 2003, 2004 and 2005.

CCU - Soft Drinks and Mineral Water Segment
2003 2004 2005
---- ---- ----
(in millions of liters, except per capita
information and percentages)

Soft Drinks(1)
Total market volume sold (2).................. 1,606 1,667 1,750
CCU volume sold .............................. 319 323 323
CCU market share (2).......................... 20% 19% 18%
Chilean consumption per capita (liters)....... 105 108 112
CCU average production capacity utilization... 35% 36% 36%
Mineral Water
Total market volume sold (2).................. 135 137 170
CCU volume sold (3)........................... 76 79 104
CCU market share.............................. 56% 57% 61%
Chilean consumption per capita (liters)....... 9 9 11

CCU average production capacity utilization... 29% 32% 36%

(1) Only considers carbonated soft drinks

(2) CCU company estimates

(3) Does not include sales of Glacier purified water

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
Holdings Ltd. and bottled fruit juice nectars produced under license from
Watt's. ECUSA has two soft drink 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 are owned by CCU. In addition, CCU bottles
soft drinks at one of its facilities in the northern city of Antofagasta.

Distribution. Since 2004, ECUSA operates its own sales force in all the
major cities 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 (51% of 2005
segment volume), (ii) restaurants, hotels, kiosks, and bars for on-premises
consumption (8%), (iii) wholesalers (9%) and (iv) supermarkets (32% of segment
volume).

Production Facilities. CCU centralizes its soft drink production in three
plants. The Santiago plant facility has a production capacity of 67 million
liters per month, Talcahuano, 18 million liters per month and Antofagasta, 10
million liters per month. CCU's mineral water production is carried out in two
plants located in Coinco and Casablanca with production capacity of 21 and 2
million liters per month, respectively.

Wine. CCU's total wine segment sales amounted to Ch$83,996 million in
2005, which represented 17.1% of CCU's consolidated sales. CCU is owner of 60.3%
of Vina San Pedro ("VSP"), the third-largest winery in Chile in terms of
domestic sales and the second-largest in terms of export sales.

CCU first invested 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, 2005. 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, 2003, 2004 and 2005.

CCU - Wine Segment 2003 2004 2005
---- ---- ----
(in millions of liters, except per capita
information and percentages)

Total domestic market volume sold (1)........................... 53 52 54
Total export market volume sold (2)............................. 68 54 51
Vina San Pedro's domestic market share (3) ..................... 19% 18% 20%
Vina San Pedro's share of total Chilean wine exports (4) ....... 18% 15% 12%
Chilean consumption per capita (liters)......................... 18 18 17

(1) In Chile and Argentina

(2) From Chile and Argentina

(3) CCU company estimate

(4) Does not include bulk wine

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 71 countries worldwide. Vina San
Pedro's total export sales in 2005 were Ch$49,861 million. Its primary export
markets included the United Kingdom, Sweden, Finland, the United States, Brazil
and Demark. According to industry sources, exports of Chilean wine increased
from approximately 43 million liters in 1990 to 416 million liters in 2005, a
compounded annual growth rate of 16.3%. Vina San Pedro believes that wine
exports from Chile have grown steadily due to their comparatively low price and
good international image but face significant competition on a world wide basis.

VSP's wines are segmented by product type. VSP produces and sells premium
wines, varietals and popular-priced wines within the domestic market and export
market. In addition, VSP sells bulk wine in the export market. Premium wines and
many of the varietal wines are produced from high quality grapes, aged and then
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.

Distribution. Vina San Pedro sells its wines directly in the major cities
of Chile and through CCU's sales system in the south of Chile. In the domestic
Chilean market in 2005, Vina San Pedro sold its wines through the following
channels: retailers (24% of all domestic sales); wholesalers (35%); supermarkets
(37%); and hotels, bars and restaurants (4%). San Pedro had approximately 7,000
customers in the domestic market, none of which accounted for more than 3% of
total wine sales by volume, with the exception of two supermarket chains that
represented 16% of total wine sales by volume.

Vina San Pedro has arrangements with 161 international agents, who
facilitate the export of its wine to 71 countries. VSP has a distribution
agreement with Vin & Sprit AB, a Swedish company, to distribute VSP's wines in
Sweden, Finland, Norway and Estonia. CCU has also signed distribution

agreements with Schenk, one of the largest distributors in Europe, Asian
Breweries, one of the largest beverage companies in Asia, and Shaw Ross
International, a subsidiary of Southern Wines and Spirits, the main liquor
wholesale distributor for the United States, as well as other distributors.

Pisco. In February 2003, CCU entered the pisco business under the brand
Ruta Norte. Pisco is a very popular grape-based liquor in Chile. In 2005, CCU
entered into an association with the second-largest pisco producer at that time,
Control. The new entity, Compania Pisquera de Chile, is owned 80% by CCU. CCU's
total pisco segment sales amounted to Ch$28,544 million in 2005, which
represented 5.8% of CCU's consolidated sales.

Compania Pisquera de Chile produces and markets premium, medium-priced and
popular-priced pisco brands in Chile. Its main premium brands are Mistral, Tres
Erres and Ruta Norte Anejado. Medium-priced pisco brands include Ruta Norte,
Campanario and Control and its popular-priced brand is La Serena. CCU sold
approximately 20 million liters of pisco products in 2005, 7 million liters in
2004 and 3.2 million liters in 2003. CCU estimates that its market share of
pisco products in Chile was 46%, 15% and 5% in 2005, 2004 and 2003,
respectively.

Distribution. CCU distributes its pisco products throughout Chile to (i)
supermarkets (49% of 2005 segment volume) (ii) small and medium-sized retail
establishments that in turn sell to consumers for take-out consumption (25%),
(iii) restaurants, hotels, kiosks, and bars for on-premises consumption (9%) and
(iv) wholesalers (17%.). As of December 31, 2005, it had more than 7,000
customers, none of which accounted for more than 2% of its total pisco sales by
volume, with the exception of two large supermarket chains that represented a
combined total of 27%. Production is carried out at eight plants located in the
north of Chile.

Confectionery business. In January 2004, CCU entered the confectionery
business through a joint venture between its subsidiary ECUSA and Indalsa, each
with a 50% interest each in Calaf S.A., a company that acquired the trademarks,
assets and know-how, among other things, of Calaf S.A.I.C. and Francisca Calaf
S.A., traditional Chilean candy and cookie producers. CCU distributes Calaf's
products together with its soft drinks.

Raw Materials. The principal raw materials used in CCU's production of
beer are malt, rice, water and hops. CCU obtains its supply of malt from local
growers and in the international market. In 2005, CCU signed long-term contracts
with local malt producers for approximately 46% of its requirements. 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, which permits CCU to
secure supplies for periods of up to four years. Water used in the production of
beer is obtained from CCU's wells at its plant facilities and/or from public
utilities.

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 its sugar requirements from Empresas Iansa S.A., the
sole producer of sugar in Chile, and imports. 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 49% 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.

With respect to the production of pisco, the main raw materials used are
grapes purchased under a long-term contract with members of the Control
cooperative.

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. Although there are currently no significant legal or
regulatory barriers to entering the Chilean beer market, substantial investment
would be required to establish or acquire production and distribution facilities
and bottles for use in Chile's proprietary returnable bottling system, and to
establish a critical mass in sales volumes. CCU believes that these factors
provide significant barriers to large-scale entry of new competitors and
large-scale expansion by existing competitors. 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 of Argentina, which commenced operations in Chile
during the second half of 1991, resulting in a loss of market share for CCU.
Nevertheless, since its market share low of 86% in 1994 and 1995, CCU has
regained market presence. CCU estimates that sales of Cerveceria Chile's brands
of beer by volume accounted for approximately 11% of total beer sales in Chile
in 2005, following the launching of the Brahma beer brand in September 2005.

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 does not represent significant competition in the
Chilean market. CCU's beer brands also compete directly against soft drinks,
wine and other beverages and alcoholic drinks.

Am Bev-Quilmes is the market leader in beer in Argentina and CCU's
Argentina's principal competitor. It had an estimated 78% market share during
2005 (including the Brahma brand). CCU Argentina estimates that its own market
share is approximately 16%. CCU also competes with Warsteiner (6%) 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 does not represent significant
competition in the Argentine market. CCU's beer brands also compete directly
against soft drinks, wine and other beverages and alcoholic drinks in Argentina.

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. In May 2002, AmBev purchased Quilmes and announced
a merger of their Argentine operations, which was conditionally approved by
regulatory authorities in January 2003. In March 2004, Ambev and Interbrew
announced an agreement to merge both companies. In August 2004, this merger was
completed. In addition, SAB Miller purchased Bavaria's operations in 2005.
Further consolidation in the beer industry 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 who
market soft drinks under the Coca-Cola, Coca-Cola Light, Coca-Cola Light Limon,
Quatro, Fanta, Fanta Light, Sprite, Sprite Zero, Nordic Mist, Tai, Andina
nectars and juices, and Kapo juices brand names. According to store audits
conducted by Nielsen Chile, Coca-Cola and related brands accounted for 67% of
total carbonated soft drink sales in Chile in 2005. However, figures for
Coca-Cola's market share calculated by CCU are higher than those calculated by
Nielsen Chile. CCU expects that soft drinks marketed under private labels could
experience further growth from the approximately 11% market share (according to
Nielsen estimates) they have obtained as of 2005.

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 Aguas S.A.
(a subsidiary of three of The Coca-Cola Company licensees). CCU estimates that
its mineral water products in 2005 accounted for approximately 61% of mineral
water sales by volume, while Vital accounted for approximately 33%.

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 market shares of 23% and 24%, respectively. CCU estimates that
VSP's market share in the Chilean market was approximately 20% in 2005 making it
the third largest domestic producer. In the export wine market, Concha y Toro is
the market leader with an estimated 33% market share (without considering sales
of bulk wine). According to industry sources, in 2005, Vina San Pedro was the
second-largest exporter of Chilean wines by volume with an estimated market
share of 12%. Santa Rita has an estimated 6% market share in the export wine
market. Vina San Pedro also 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 lower sales and earnings during the Southern hemisphere winter
season of June through August.

Government regulation in Chile. CCU is subject to the full range of
governmental regulation and supervision generally applicable to companies
engaged in business in Chile. These regulations include labor laws, social
security laws, public health, consumer protection and environmental laws,
securities laws, and anti-trust laws. In addition, regulations exist to ensure
healthy and safe conditions in facilities for the production, bottling, and
distribution of beverages.

Additional regulations specifically concerning the production and
distribution of "alcoholic beverages" are contained in Chilean Law N(degree)
18.455 and its Ordinance, which set the standards for human consumption of such
beverages, by minutely describing the different types of alcohol; the minimum
requirements that must be met by each class of beverage; raw materials and
additives that may be used in their manufacture; their packaging and the
information that must be provided by their labels; the procedure for their
importation, among others.

The large-scale production of alcoholic beverages does not need any
licenses or permits other than those required for the general run of commercial
and industrial enterprises engaged in the manufacture of consumer commodities.

Government regulation in Argentina. CCU is subject to the full range of
governmental regulation and supervision generally applicable to companies
engaged in business in Argentina, including social security laws, public health,
consumer protection and environmental laws, securities laws, and anti-trust
laws.

National Law 18,284 (the Argentine Food Code, or the "Code") regulates the
manufacturing and packaging of food and beverages. The Code provides specific
standards with which manufacturing plants must comply and regulates the
production of food and beverages mentioned in the Code. The Code also specifies
the different methods in which beer may be bottled as well as the information to
be provided on labels. The health authorities of each province undertake the
enforcement of the Code, and also establish the minimum age requirements for the
purchase of alcoholic beverages.

Telecommunications - Telefonica del Sur

At December 31, 2005, Telefonica del Sur was a 73.7%-owned consolidated
subsidiary.. Quinenco's interest in Telefonica del Sur is held through a
wholly-owned subsidiary, VTR. Telefonica del Sur is the principal provider of
local telephone service in Regions X and XI and the second-largest provider of
telephone services in the ninth region which includes the city of Temuco. It is
the third-largest

provider in the eighth region of the country. In addition to local telephone
services, Telefonica del Sur is also a provider of nationwide domestic and
international long distance telephone services, Internet services and other
non-regulated telecommunications services. Our economic interest in Telefonica
del Sur was 73.7% at December 31, 2005 and 2004, respectively, and 73.6% at
December 31, 2003. Telefonica del Sur's net sales as a percentage of our total
consolidated net sales was 13.0% in 2005, 13.8% in 2004 and 14.4% in 2003.

Strategy Telefonica del Sur's current strategic plan is to profitably
strengthen its bases for growth of fixed line and wireless broadband services
and the development of limited mobility PAS wireless telephony technology. In an
environment of heightened competition, Telefonica del Sur strives to be an
integrated service operator, differentiating itself by the high quality of its
services.

Local Exchange Telephony. Telefonica del Sur is the leading provider of
local telephone service in the X and XI Regions in the south of Chile, which
include the cities of Puerto Montt, Valdivia, Osorno and Coyhaique. Telefonica
del Sur 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% market share in that city. In addition, Telefonica del Sur expanded to the
VIII Region, which includes Concepcion, in late 2000, where it currently has a
13% market share. Telefonica del Sur is a facility carrier in Regions IX, 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 Telefonica del
Sur and its subsidiaries at or for the years ended December 31, 2003, 2004 and
2005:

Telefonica del Sur and Subsidiaries 2003 2004 2005
---- ---- ----
(in millions of constant Ch$)

Net Revenues ................................ Ch$54,655 Ch$54,846 Ch$54,724
Gross margin ................................ 27,827 27,589 27,517

Operating income ............................ 13,080 12,966 12,983
Non-operating results ....................... (2,860) (3,562) (2,930)
Minority interest ........................... (163) (140) (123)
Income taxes ................................ (2,167) (2,156) (2,253)
---------- ---------- ----------
Net income .................................. Ch$7,890 Ch$7,108 Ch$7,677
========== ========== ==========

Total assets ................................ Ch$139,954 Ch$143,106 Ch$128,624
Bank debt & bond obligations ................ 61,893 61,271 44,084
Other liabilities ........................... 13,373 15,536 16,847
Shareholders' equity ........................ 64,688 66,299 67,693
Quinenco's effective economic interest ...... 73.6% 73.7% 73.7%

Tariff Structure. On September 5, 2005 and October 21, 2005, Telefonica
del Sur's tariff structure for the five years starting 2005 and ending 2009 were
published in the Official Gazette ("Diario Oficial"). Where tariffs were
previously 100% variable, consisting of a monthly fixed rate plus variable
charges per minute, the new tariff structure will also incorporate tariffs for
fixed rate monthly plans with prepayment or post payment options.

The effect of the prior rate schedule for regulated services for the
period 1999 to 2004 was to reduce access charges and alter the structure of per
minute charges to per second charges for basic telephony usage.

Revenue from Telefonica del Sur's local exchange telephony business, which
for the year ended December 31, 2005 accounted for 55% of total revenues, is
generated principally by fixed monthly fees and 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). In addition, Telefonica del Sur offers prepaid fixed cost
telephone services (included with basic telephony revenues). Access charges from
other carriers in 2005 accounted for 11% of total revenues.

Telefonica del Sur'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.

The following table shows certain statistical data for Telefonica del
Sur's local exchange telephone operations at or for the years ended December 31,
2003, 2004 and 2005:

Telefonica del Sur and Subsidiaries
2003 2004 2005
---- ---- ----

Lines in Service........................... 178,168 185,970 190,971
% Growth from prior period................. 4% 4% 3%
Lines installed............................ 198,600 196,085 196,500
% Growth from prior period................. -1% -1% 0%
Utilization Ratio(1)....................... 0.90 0.95 0.97
Digitalization (2)......................... 100% 100% 100%
Automation (3)............................. 100% 100% 100%

(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.

Telefonica del Sur owns approximately 82% of the telephone lines in
service in the X and XI Regions, 45% of the telephone lines in service in Temuco
and 13% of the telephone lines in service in Concepcion, with a total of 190,971
lines in service as of December 31, 2005. 76.4% of its lines are residential,
21.8% are commercial and 1.8% are public telephones. During 2005, 15,783 new
lines were placed in service and 10,782 existing lines were retired,
representing an increase in the total number of lines in services of 3% from the
prior year. Telefonica del Sur's local telephone system penetration in recent
years has increased to an estimated 14 lines per 100 inhabitants at December 31,
2005, from 5.1 lines per 100 inhabitants at December 31, 1995. These penetration
levels are lower than those for Chile as a whole (20.4 lines per 100
inhabitants), reflecting the rural character of Telefonica del Sur's concession
area.

As a result of its extensive addition of digital exchange technology in
the last decade, Telefonica del Sur achieved full digitalization of its network,
with all of its lines connected to digital exchanges. The digitalization of its
network has allowed Telefonica del Sur 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 include public telephony
services, domestic and international long distance services. Non-regulated
services accounted for 32.4% of Telefonica del Sur's revenues as of December 31,
2005.

Telefonica del Sur's internet service subsidiary has implemented a
broadband network, which offers high speed access to the Internet, network
connections and video conferencing services, among others. As of December 31,
2005, Telefonica del Sur had 4,052 Internet subscribers and 36,542 subscribers

to high-speed broadband services with revenues of Ch$8,433 million in 2005,
equivalent to 15% of total consolidated revenues.

Telefonica del Sur's security related services subsidiary offers alarm and
telemonitoring services and access control services, oriented to individual
consumers and businesses. As of December 31, 2005, the subsidiary had 14,281
clients with revenues of Ch$2,490 million in 2005.

Subsidiary in Start-Up Phase. In October 2002, Telefonica del Sur formed a
new subsidiary, Blue Two Chile S.A. in order to develop the first public network
in Chile of wireless broadband for Internet utilizing Bluetooth and wireless LAN
technology. This subsidiary is currently in the development stage. The start-up
loss associated with Blue Two's activities was Ch$1,703 million, Ch$950 million
and Ch$310 million in 2005, 2004 and 2003, respectively. The loss was recorded
as a charge to Telefonica del Sur's net worth in 2004 and 2005 and did not
affect Telefonica del Sur's results from operations.

Long Distance Telephony. Through Telefonica del Sur Servicios Intermedios
S.A., a wholly-owned subsidiary of Telefonica del Sur, Telefonica del Sur
provides domestic long distance and international long distance services. In
2005, this subsidiary reported net revenues of Ch$4,270 million (approximately
8% of total consolidated revenues).

On March 10, 1994, an amendment to Chile's Telecommunications Law was
enacted, establishing a multiple long distance carrier system in Chile, thereby
permitting customers in Chile to select long distance carriers for both
international long distance and domestic long distance telephone services. The
multi-carrier 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. Telefonica del Sur has faced and continues to face intense
competition in every aspect of its business activities. In local telephony,
Telefonica del Sur faces competition from Telefonica CTC, which entered
Telefonica del Sur's concession area in Regions X and XI in 1996 and is the
incumbent competitor in the VIII and IX Regions. Telefonica CTC, which operates
approximately 80% of installed local service telephone lines in Chile, is
expected to continue as a strong competitor. In long distance telephony,
Telefonica del Sur competes with other national carriers, including Entel,
Telefonica CTC Mundo and Telmex (formerly Chilesat), among others. In Internet
services, Telefonica del Sur competes with Entel, Terra (a subsidiary of
Telefonica of Spain), VTR Globalcom and Telefonica CTC. This intense competition
has led to recent consolidation in the Chilean telecommunications industry.
Telefonica del Sur expects that consolidation in the industry will continue as
operators are likely to form alliances to offer bundled telecommunications
services.

Mobile telephony has experienced dramatic growth rates in Chile in recent
years, and its subscriber base now exceeds that of fixed line telephony.
However, traffic in minutes is inferior to that of fixed line telephony mainly
due to the high per minute cost associated with mobile telephony. Telefonica del
Sur believes that in the past the growth of mobile telephony has been stimulated
by artificially high access charges placed on fixed line telephony users when
they make calls to mobile phones. Starting in 2004, access charges paid to
mobile telephony operators were reduced by approximately 28% in accordance with
new tariff structures, which will be in place until 2009. The lower access
charges could, in Telefonica del Sur's opinion, result in higher prices to
consumers as mobile operators seek ways to compensate for lower revenues from
access charges. Telefonica del Sur believes that lower access charges will allow
fixed line telephony operators to better compete against mobile telephony
operators on a price basis and could revert the declining growth tendencies seen
in fixed line telephony in recent years.

Regulatory Factors. Substantially all of Telefonica del Sur'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 telecommunications industry as a whole has traditionally been, and is
likely to continue to be, subject to rapid and significant changes in
technology. Although Telefonica del Sur 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, 2005, we own a 5.7% interest in Entel, a leading
telecommunications provider in Chile. The interest in Entel, held through a
wholly-owned intermediate holding company, VTR S.A. and is accounted for using
the equity investment method. In 2005, our equity participation in Entel's net
income was Ch$4,040 million.

We have held our interest in Entel since 1999 when we acquired a 14.3%
interest. In 2000, we acquired additional shares, and our interest in Entel
reached 14.5%. In 2000 and 2001, we sold a 0.8% and 8% interest, respectively
and have since held a 5.7% interest. We do 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 currently one of the largest providers of
cellular telephony services in Chile with approximately 4.1 million clients. In
addition, Entel's digital network allows it to offer integrated
telecommunications services which include national and international long
distance multi-carrier services, Internet services, voice, data and video
communication services. Entel also operates public telephones and call centers
throughout the country.

The following table contains selected financial information derived from
Entel's 2004 and 2005 Annual Reports relating to Entel and its subsidiaries at
or for the years ended December 2003, 2004 and 2005:

Entel and subsidiaries
2003 2004 2005
---- ---- ----
(in millions of constant Ch$, except percentages)

Net Sales........................................... Ch$774,393 Ch$717,414 Ch$766,362
Gross margin........................................ 337,756 316,733 342,160

Operating income.................................... 114,910 91,432 129,353
Non-operating results............................... (42,558) (32,957) (40,538)
Minority interests.................................. (91) 3,055 (574)
Income taxes........................................ (8,571) (12,461) (17,211)
--------- --------- ---------
Net income.......................................... Ch$63,690 Ch$49,069 Ch$71,030
========= ========= =========

Total assets........................................ Ch$1,308,193 Ch$1,205,644 Ch$1,135,449
Bank debt & bond obligations........................ 390,401 333,557 417,101
Other liabilities................................... 297,838 227,012 223,105
Shareholders' equity................................ 619,954 645,075 495,243
Quinenco's effective economic interest.............. 5.7% 5.7% 5.7%

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, 2003, 2004 and 2005:

Entel and Subsidiaries 2003 2004 2005
---- ---- ----
(in millions of constant Ch$)

Net Sales:
Telephony services (including long distance & Internet) .. Ch$164,599 Ch$140,557 Ch$109,621
Private business network services......................... 63,784 63,007 61,661
Wireless telephony services............................... 363,802 372,863 458,798
Local telephony services.................................. 28,750 28,701 28,990
International subsidiaries................................ 153,457 112,286 107,292
---------- ---------- ----------
Total net sales........................................... Ch$774,392 Ch$717,414 Ch$766,362
========== ========== ==========

National multi-carrier traffic (millions of minutes)...... 614 522 452
International multi-carrier traffic (millions of minutes). 90 91 85
Americatel multi-carrier national & international traffic
(millions of minutes)................................... 674 971 958
Number of cellular telephone subscribers.................. 2,684,214 3,264,731 4,110,085

Manufacturing - Madeco

Madeco was a 47.8%-owned consolidated subsidiary as of December 31, 2005.
It was a 51.2% and 55.2%-owned consolidated subsidiary as of December 31, 2004
and 2003. Madeco's net consolidated sales as a percentage of our consolidated
net sales was 86.6% in 2005, 84.7% in 2004 and 66.5% in 2003.

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

Historically, the prices for copper and aluminum, 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. 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. For
further information, see "Item 11. - Quantitative and Qualitative Disclosures
About Market Risk - Commodity Price Risk".

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 businesses in Argentina were deeply affected by the economic
deterioration in Argentina in 2001. 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 then, it has engaged in limited production activities, however
the plants in Argentina remain largely under-utilized. Madeco expects to
increase its production activities in Argentina when levels of demand have the
scale to operate efficiently and when it believes such levels are sustainable.
Sales in Argentina of wire and cable and brass mills products represented 3.3%
and 3.7% of Madeco's 2004 and 2005 consolidated sales, respectively.

Madeco's principal activity, which accounted for 46.5%, 51.3% and 58.0% of
Madeco's consolidated sales in 2003, 2004 and 2005, respectively, is the wire
and cable business. Since 1997, Madeco has participated in the wire and cable
business in Brazil through its subsidiary, Ficap S.A., ("Ficap"). For the year
2005, sales in Brazil generated 44.6% of the total revenues of the wire and
cable business segment and 25.9% of Madeco's total consolidated revenue. Demand
for metallic and fiber optic cables by telecom customers, which until 2001
represented an important part of the unit's sales, only accounted for 1%, 5% and
5% of sales in 2003, 2004 and 2005, respectively, and is not expected to recover
in the foreseeable future due to, among other things, a lack of investment by
telecom operators and a growing use of wireless telephone communications. Madeco
has compensated for the low level of sales to the telecom sector by increased
sales to durable goods manufacturers, distributors and the energy transmission
and distribution sector. It is also attempting to developing a market in Brazil
for specialty cables used in the construction of ships and oil drilling
platforms.

Changes in Capital Structure in 2006. On May 5, 2006, in a public auction
on the Santiago Stock Exchange, the remaining 192,802,758 shares of Madeco's
capital increase initiated in 2005 were sold for Ch$9,351 million. As a result
of the capital increase, Madeco's total outstanding shares increased to
5,541,192,887. Quinenco did not subscribe for additional shares, and as a
consequence, its interest in Madeco decreased from 47.8% to 46.1%.

Changes in Capital Structure in 2005. In November 2005, pursuant to
approval by shareholders at an extraordinary shareholders' meeting held on
September 2, 2005, Madeco initiated a Ch$52,000 million (historic value) capital
increase, Madeco issued a total of 907,197,242 shares for Ch$44,017 million
(historic value). Total subscribed and paid-in capital as of December 31, 2005
amounted to 5,348,390,129 shares. Quinenco subscribed for and purchased
281,781,912 shares for Ch$13,672 million (historic value). As a result of the
capital increase, Quinenco's interest in Madeco decreased from 51.2% to 47.8%.

Changes in Capital Structure in 2004. In July 2004, Madeco sold
138,956,755 shares (at Ch$41 per share) on the Santiago Stock Exchange,
resulting in proceeds to Madeco of Ch$5,697 million (historic value). The shares
represented the remaining unsubscribed and unpaid shares of the capital increase
approved by Madeco's Board of Directors in 2002. As a result of the share
placement, Madeco's total

outstanding shares increased to 4,259,045,163 shares. Quinenco did not subscribe
for additional shares and as a consequence, its interest in Madeco was reduced
from 55.2% to 53.4%.

During the last quarter of 2004, Madeco's key executives exercised certain
of their stock options in accordance with the company's stock incentive program.
Madeco's total outstanding subscribed and paid shares increased from
4,259,045,163 shares to 4,441,192,887 shares. As a result, Quinenco's interest
in Madeco decreased from 53.4% to 51.2%.

2003 Capital Increase and Debt Restructuring. 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 and implemented a refinancing plan to fortify its capital structure
and improve its debt repayment capacity.

In February 2003, Madeco initiated a Ch$101,380 million (historic value)
capital increase. On March 4, 2003, Quinenco directly and indirectly subscribed
and paid for 2,058,353,792 shares for Ch$49,400 million (historic value). The
voluntary offering period concluded on March 22, 2003. Subscribed and paid
capital amounted to Ch$51,314 million (historic value), divided in 2,138,097,727
shares. Following the close of the pre-emptive rights offering period, Madeco
initiated an exchange offer of its bonds for shares of its stock that concluded
on March 31, 2003. Series A and Series C bondholders exchanged bonds for an
amount equivalent to Ch$3,717 million (historic value), equivalent to
154,876,051 shares valued at Ch$24 per share.

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%.

With the proceeds of the capital increase, Madeco paid 14 of its bank
lenders Ch$28,847 million (historic value), equivalent to 30% of the outstanding
debt with those lenders. The remaining 70% of outstanding debt, which amounted
to Ch$63,403 million (historic value), was refinanced over seven years with a
three year grace period.

An additional 264,800,000 shares were sold in a public auction on the
Santiago Stock Exchange in June 2003 for Ch$7,679 million (historic value). As a
result of the sale, Madeco's total outstanding shares increased to 2,963,284,806
shares. Quinenco did not subscribe for any of these additional shares. As a
consequence, its interest in Madeco decreased from 84.3% to 76.8% as of the same
date.

In August 2003, in a public auction on the Santiago Stock Exchange, an
additional 1,156,803,602 shares were sold for Ch$32,403 million (historic
value), increasing total outstanding shares to 4,120,088,408. Quinenco did not
subscribe to additional shares, and as a consequence, its interest in Madeco
decreased to 55.2%. Total funds raised in the 2003 capital increase amounted to
Ch$95,114 million (historic value). Proceeds were used to reduce liabilities and
provide additional working capital for the company.

Optical Fiber Joint Venture with Corning Inc. In June 2002, Madeco
announced that it had been notified by Corning Inc., Madeco's joint venture
partner in Optel, an optical fiber cable producer in Brazil and Argentina, of
Corning Inc.'s desire to liquidate the joint venture. Madeco believed that
Corning was attempting to unjustifiably terminate its agreements with Madeco and
filed an arbitration suit against its partner to resolve the dispute.

In November 2003, Madeco was notified that the arbitrators had resolved
the dispute in favor of Corning. The arbitral decision provided for the
termination of the investment agreement governing the joint venture, and as a
result, Madeco did not consolidate Optel in its December 31, 2003 financial
statements. In addition, Madeco recognized an impairment of Ch$4,917 million
(historic value) in the fourth quarter of 2003 in order to reflect the decline
in the value of its 50% equity share in Optel and costs associated with the
ruling.

On April 4, 2005, Madeco announced that it had reached an agreement with
Corning International Corporation regarding their Brazilian joint venture
subsidiary, Optel. Corning agreed to sell Madeco its 50% share in Optel for the
nominal amount of R$1 (one Brazilian Real). See "Item 8. Financial Information -
Legal Proceedings - Madeco". On the same date, Madeco announced that two of
Optel's creditors in Brazil had agreed to accept US$2 million as full
consideration for Optel's approximately US$7.3 million indebtedness with those
creditors.

Strategy. Madeco's current business plan is based on improvements in the
marketing, production, and administrative areas of the company, with particular
emphasis on the wire and cable business unit and its largest operation, Ficap in
Brazil.

In 2005, Madeco's consolidated net sales were Ch$365,488 million, of which
58.0% corresponded to sales of wire and cable products, 21.9% to brass mills
products, 8.0% to aluminum profile products, and 12.1% to flexible packaging
products. Export sales amounted to Ch$83,912 million, accounting for 23.0% of
consolidated sales in 2005. Export sales volume amounted to 33,634 equivalent
tons, which represented 26.8% of the total 125,615 equivalent tons sold in 2005.

The following table shows selected financial information of Madeco and its
subsidiaries at or for the years ended December 31, 2003, 2004 and 2005:

Madeco and Subsidiaries
2003 2004 2005
---- ---- ----
(in millions of constant Ch$, except percentages)

Net sales:
Wire and Cable ................................ Ch$117,367 Ch$172,256 Ch$212,062
Brass Mills ................................... 59,655 87,050 79,908
Aluminum Profiles ............................. 31,036 29,652 29,359
Flexible Packaging ............................ 44,320 46,742 44,159
---------- ---------- ----------
Total net sales .......................... Ch$252,378 Ch$335,700 Ch$365,488
========== ========== ==========
Operating income (loss):
Wire and Cable ................................ Ch$(1,084) Ch$10,873 Ch$19,390
Brass Mills ................................... 1,538 8,451 2,024
Aluminum Profiles ............................. 4,006 3,456 3,000
Flexible Packaging ............................ 3,458 3,302 3,426
---------- ---------- ----------
Total operating income (loss) .......... Ch$7,918 Ch$26,082 Ch$27,840

Non-operating results .............................. (23,383) (14,815) (13,623)
Income taxes ....................................... (1,691) (1,598) (1,467)
Minority interest .................................. (614) (850) (736)
---------- ---------- ----------
Net income (loss) .................................. Ch$(17,770) Ch$8,819 Ch$12,014
========== ========== ==========

Total assets ....................................... Ch$375,569 Ch$355,255 Ch$344,338
Bank debt & bond obligations ....................... 155,595 123,547 80,024
Other liabilities .................................. 63,271 67,489 58,934
Shareholders' equity ............................... 156,703 164,219 205,380
Quinenco's effective economic interest ............. 55.2% 51.2% 47.8%

The following table shows selected information regarding Madeco's plant
facilities, installed capacity, and average utilization in 2005:

Installed
Plant size Production Avg. Capacity
(in square Capacity (in Utilization in
Production facility Principal Use/Products meters) tons per year) 2005(1)
------------------- ---------------------- ------- -------------- -------

Wire and Cable:
San Miguel, Chile ................... Copper cable 27,650 14,640 75%
Rio de Janeiro, Brazil .............. Copper & aluminum cable 58,000 21,600 37%
Sao Paulo, Brazil ................... Copper & aluminum cable 26,500 28,500 67%
Lima, Peru .......................... Copper/aluminum cable 49,150 15,990 81%
Lima, Peru .......................... Copper sulphates 770 1,832 43%
Llavallol, Argentina (2) ............ Copper/aluminum cable 18,162 2,400 29%
Quilmes, Argentina (2) .............. Copper/aluminum cable 39,850 4,800 20%
Lo Espejo, Santiago, Chile .......... Copper rod 1,050 12,000 19%
Sao Paulo, Brazil ................... Aluminum rod 1,800 11,520 31%
Rio de Janeiro, Brazil (4) .......... Optical fiber cable 3,500 1,000,000 0%
Buenos Aires., Argentina (4) ........ Optical fiber cable 4,400 400,000 21%
Brass Mills:
San Miguel, Chile ................... Pipes, bars & sheets 32,400 36,900 69%
Lo Espejo, Santiago, Chile .......... Foundry 20,450 78,900 55%
Quilpue, Chile ...................... Coin blanks & sheets 12,100 8,400 31%
Llavallol, Argentina (3) ............ Copper sheets 30,112 10,120 0%
Llavallol, Argentina (3) ............ Foundry 1,775 22,000 5%
Barracas, Argentina (3) ............. Copper pipes 15,800 5,500 29%
San Luis, Argentina ................. Foundry, brass products 3,450 3,700 0%
Flexible Packaging:
Santiago, Chile ..................... Flexible packaging 16,600 13,200 77%
San Luis, Argentina ................. Flexible packaging 7,500 6,000 82%
Aluminum Profiles:
Santiago, Chile ..................... Aluminum profiles 33,200 16,536 72%

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

(2) The Llavallol and Quilmes plants reinitiated wire and cable production on
a limited, non-continuous basis in November 2004.

(3) The brass mills facility, in Barracas Argentina was partially reopened in
September 2003 and the Llavallol foundry activities in November 2003.

(4) Installed production capacity is measured in kilometers

The following table shows Madeco's sales volumes, in metric tons, by
business segment, in 2003, 2004 and 2005:

Sales Volume (in metric tons): 2003 2004 2005
---- ---- ----
Wire & Cable (1)(2) .............. 53,923 62,866 70,756
Brass Mills ...................... 30,360 33,319 29,513
Flexible Packaging ............... 14,821 16,361 14,527
Aluminum Profiles ................ 10,211 10,653 10,819
------- ------- -------
Total ............................ 109,315 123,199 125,615
======= ======= =======

(1) Volume sales of the wire and cable unit in 2003, 2004 and 2005
include metal only.

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

Wire and Cable Business Unit

Madeco's principal activity is its wire and cable business, which
accounted for 58.0% of consolidated sales in 2005. 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 in 2005 included
the production and sale of copper and aluminum wire and cables, is Madeco's
largest operation in this business segment with sales in 2005 of Ch$94,668
million, representing 44.6% of the total wire and cable segment sales of
Ch$212,062 million in 2005. Madeco, through an investment in Optel, also has
production facilities in Brazil and Argentina for the production of optical
fiber cables.

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 strands.
In addition to production facilities for the manufacturing of copper and/or
aluminum wire and cable products in Chile, Brazil, Peru and Argentina, Madeco
supplies the telecommunications, energy transmission and distribution, mining,
general industry and construction sectors. Copper is the primary raw material
used by the company in the production of wire and cable products. It represented
approximately 78% of total raw material costs for Madeco in 2005.

Sales of the wire and cable business unit increased by 23.1% in 2005,
mainly as a result of strong demand for copper rod and copper and aluminum
cables in Madeco's main markets of Brazil, Chile and Peru. Higher average prices
as a consequence of the increase in copper prices, and a 12.6% increase in sales
volumes more than offset the effect of the revaluation of the Chilean peso
vis-a-vis the U.S. dollar on sales of foreign subsidiaries. In general terms,
sales were stimulated by the favorable economic conditions which prevailed in
Madeco's main markets, particularly Brazil, Chile and Peru. Export sales
accounted for 14.6% of the wire and cable unit's revenue in 2005.

Madeco and Subsidiaries Wire and Cable Unit
2003 2004 2005
---- ---- ----

Revenues (in millions of constant Ch$) (1):
Chile ................................................... Ch$20,252 Ch$32,346 Ch$38,743
Brazil .................................................. 58,057 80,408 94,668
Argentina (4) ........................................... 2,280 4,814 6,722
Peru .................................................... 21,682 30,514 40,863
Exports (2) ............................................. 15,096 24,175 31,066
---------- ---------- ----------
Total ................................................... Ch$117,367 Ch$172,257 Ch$212,062
========== ========== ==========

Sales Volume of Copper & Aluminum Cable
(in metric tons) (3)
Chile ................................................... 6,253 8,993 10,718
Brazil .................................................. 28,135 31,394 31,032
Argentina ............................................... 1,138 2,011 2,256
Peru .................................................... 7,799 8,663 11,574
Exports (2) ............................................. 10,598 11,805 13,132
---------- ---------- ----------
Total ................................................... 53,923 62,866 68,712
========== ========== ==========

Sales Volume of Optical Fiber Cable (in kms) (1)
Brazil .................................................. -- -- 5,335
Argentina ............................................... -- -- 71,000
Exports (2) ............................................. -- 13,586
---------- ---------- ----------
Total (5) ............................................... -- -- 89,921
========== ========== ==========

(1) Optical fiber cable sales are not included in 2003 and 2004 as
Madeco did not consolidate Optel in its financial results.

(2) 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.

(3) Volume sales of the wire and cable unit in 2003, 2004 and 2005
include metal only.

(4) Madeco's revenues in Argentina in 2003 are the result of the
marketing and selling of imported products from Brazil. In 2004,
Madeco's revenues in Argentina are the result of the marketing and
selling of both imported products from Ficap in Brazil and
manufactured products from its Argentine subsidiary,
Decker-Indelqui.

(5) Optical fiber volume in equivalent tons was 2,044 tons in 2005 using
the conversion rate of 1 ton=44 kilometers.

Wire and Cable - Chile

Madeco produces copper wires and cables in Chile. The Chilean operations
accounted for 18.3% of the total wire and cable segment sales and 10.6% of total
consolidated sales in 2005.

Customers. Madeco has approximately 331 clients in Chile. In 2005,
products were sold to durable goods manufacturers (53%), distributors (13%),
energy transmission and distribution companies (16%), mining businesses (8%),
telecom operators (5%) and others (5%). There was no significant concentration
of sales made to any one client in 2005.

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 28,100 metric tons as of December 31, 2005. Madeco estimates that its market
share in Chile was 38% in 2005. Madeco has two main competitors in the Chilean
wire and cable industry, Cocesa, a subsidiary of Phelps Dodge Corporation with
an estimated market share of 26%, and Covisa, a local producer with an estimated
market share of 17%. In addition, there are other domestic and international
competitors in the Chilean market with market shares of 7% and 12%,
respectively.

Manufacturing facilities. Production is carried out in Madeco's plant
facilities located in Santiago. Manufacturing activities are dedicated to the
production of copper wire and cable products.

Raw materials. Madeco purchases copper supplies for its wire and cable
operations in Chile from two large Chilean mining companies, Codelco and Enami.
Madeco purchases PVC from Petroquimica Colombiana and polyethylene from Borealis
Compounds, LLC of the United States. Madeco has many suppliers for both plastic
and rubber materials, and believes it is 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 2002, as a consequence of Argentina's economic
environment and political instability, the company suspended its Argentine wire
and cable production operations. In late 2004, it reinitiated limited wire and
cable production in Argentina on a sporadic basis. When levels of demand have
the scale to operate efficiently and Madeco believes such levels are
sustainable, it will increase its production. The Argentine wire and cable
operations accounted for 3.2% of wire and cable segment sales in 2005 and 1.8%
of Madeco's consolidated sales.

Customers. In 2005, Madeco's copper and aluminum wire and cable operation
had approximately 271 clients in Argentina. Products were sold to distributors
(48%), energy transmission and distribution companies (40%), durable goods
manufacturers (6%) and exports and others (6%). There was no significant
concentration of sales made to any one client in 2005.

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 40,100 metric tons as of December 31, 2005. Madeco estimates
that its market share in Argentina was 6% in 2005. Madeco's main competitors in
the Argentine wire and cable industry are Prysmian (24%), Imsa (20%) and Cimet
(12%). In addition, there

are other domestic and international competitors in Argentina which have
estimated market shares of 35% and 3%, respectively.

Manufacturing facilities. Production facilities for copper and aluminum
cables are located in Quilmes and Llavallol, on the outskirts of Buenos Aires.
Due to the economic crisis in Argentina, production for cable and aluminum wire
and cables was halted in 2002. Limited production was reinitiated in 2004 on a
sporadic basis. Optel has production capacity of 400,000 kms. in Argentina,
although its plant has only operated on a limited basis since 2002. Commercial
activities are also conducted through imports from Madeco's Chilean and
Brazilian operations.

Raw materials.In 2005, aluminum cables were imported from Ficap in Brazil and
copper rod from Madeco in Chile. In the past, Madeco's copper has been supplied
for the Argentine operations from two large Chilean mining companies, Codelco
and Enami. Aluminum is purchased from Aluar. Madeco purchases polyethylene from
Borealis Compounds LLC of the United States. Madeco had many suppliers for both
plastic and rubber materials.

Wire and Cable - Brazil

In Brazil, Madeco has operated in the copper and aluminum wire and cable
segment through its wholly-owned subsidiary, Ficap, since 1997. The Brazilian
operations accounted for 44.6% of wire and cable segment sales in 2005 and 25.9%
of Madeco's consolidated sales.

Customers. Madeco's copper and aluminum wire and cable operation had
approximately 3,106 clients in Brazil in 2005. Products are sold to durable
goods manufacturers (44%), distributors (23%), energy transmission and
distribution companies (19%), telecom operators (5%) and others (9%). The
largest customer, a Brazilian manufacturer, accounted for 6.2% of total wire and
cable segment sales in 2005.

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 211,200 metric tons as of December 31, 2005. Madeco estimates
that its market share in Brazil was 15% in 2005. Madeco's main competitors in
the Brazilian wire and cable industry are Prysmian (ex-Pirelli) (10%), Phelps
Dodge (10%) and Invex (ex-Pirelli) (9%). In addition, there are many other
domestic and international competitors in Brazil, which have estimated market
shares of 55% and 1%, respectively.

Manufacturing facilities. Madeco has two plant facilities in Brazil, a
copper and aluminum cable and optical fiber cable plant in Rio de Janeiro and a
copper and aluminum cable plant in Sao Paulo. Optel, Madeco's optical fiber
cable subsidiary, which has production capacity of 1,000,000 kms. in Rio de
Janeiro, did not engage in production activities in 2005.

Raw materials. Most of the Brazilian operations' copper requirements are
purchased from Caraiba Metais, the main local supplier, and the remainder is
supplied by Madeco's Chilean and Peruvian operations. Aluminum is purchased from
Companhia Brasileira de Aluminio, a large local supplier in Brazil. PVC is
acquired from Karina Ind. Com. Plasticos and Dacarto Benvic S/A. Polyethylene is
purchased from Borealis Compounds LLC of the United States. Madeco has many
suppliers for both plastic and rubber materials, and believes it is not
dependent on any one supplier.

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 19.3% of wire and cable segment
sales and 11.2% of consolidated sales in 2005. 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 had
approximately 1,347 clients in Peru in 2005. Products are sold to distributors
(23%), energy transmission and distribution companies (14%), telecom operators
(11%), retailers (6%), durable goods manufacturers (5%), mining (5%) and exports
and others (36%). There was no significant concentration of sales made to any
one client in Peru in 2005.

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
16,200 metric tons as of December 31, 2005. Madeco estimates that its market
share in Peru was 71% in 2005. Madeco's main competitors in the Peruvian wire
and cable industry is Celsa (11%). In addition, there are other domestic and
international competitors with estimated market shares of 6% and 12%,
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 three main
suppliers, Southern Peru Copper Corporation, BHP Billiton Tintaya S.A. and
Sociedad Minera Cerro Verde. Aluminum is purchased from Aluar and Siderugica del
Norte. PVC is purchased from Petroquimica Colombiana S.A. Polyethylene is
purchased from Borealis Compounds LLC of the United States. 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$79,908 million, accounting
for 21.9% of Madeco's consolidated sales in 2005. 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 halted its brass mills
production in Argentina in early 2002. As a result of a gradual recovery of the
Argentine market, in 2003, Madeco partially reopened certain of its brass mills
production operations at the Barracas plant and smelting production at the
Llavallol facility and is also currently supplying the Argentine market through
imports from subsidiaries in Chile and Brazil. Madeco currently intends to
expand its brass mills operations in Argentina when levels of demand have the
scale to operate efficiently and when Madeco believes such levels are
sustainable.

Madeco's brass mills business unit is composed of: (1) pipes, bars and
sheets ("PBS") and (2) coin blanks and minted coins. Pipes, bars and sheets are
manufactured in Chile and 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 over 20
countries with exports accounting for 56.3% of total sales revenue and 59.6% of
total sales volume of the brass mills business unit in 2005.

Sales of the brass mills business unit declined by 8.2% in 2005,
attributable to a 7.1% decrease in the sale of pipes, bars and sheets and a
19.7% decrease in coin blank sales. PBS sales were affected by a 14.2% and 4.4%
decline in sales in Chile and exports, respectively, due to lower volume sold,
the effect of which was partially offset by higher average prices as a result of
the rise in copper prices. The decline in PBS unit sales was partially offset by
an 11.7% increase in revenues in Argentina as a result of higher volumes sold
and higher average prices. Coin blank sales decreased due to a 33.8% decline in
export sales volume and the effect of the appreciation of the Chilean peso on
export revenues.

Madeco and Subsidiaries Brass Mills Unit
2003 2004 2005
---- ---- ----

Revenues (in millions of constant Ch$):
Pipes, Bars and Sheets
Chile .......................................................... Ch$20,635 Ch$31,466 Ch$26,994
Argentina ...................................................... 4,347 6,143 6,863
Exports (1) .................................................... 27,453 41,599 39,752
--------- --------- ---------
Total Pipes, Bars and Sheets ................................... Ch$52,435 Ch$79,208 Ch$73,609

Coins
Chile .......................................................... Ch$668 Ch$755 Ch$1,030
Exports (2) .................................................... 6,551 7,087 5,269
--------- --------- ----------
Total Coins .................................................... Ch$7,219 Ch$7,842 Ch$6,299
--------- --------- ---------
Total Brass Mills Unit ......................................... Ch$59,654 Ch$87,050 Ch$79,908
========= ========= =========

Sales Volume of Pipes, Bars and Sheets (in metric tons)
Chile .......................................................... 9,134 9,622 9,177
Argentina ...................................................... 2,318 2,631 2,726
Exports (1) .................................................... 15,923 18,618 16,044
--------- --------- ---------
Total .......................................................... 27,375 30,871 27,947
========= ========= =========

Sales Volume of Coins (in metric tons)
Chile .......................................................... 71 97 9
Exports (2) .................................................... 2,914 2,351 1,557
--------- --------- ---------
Total .......................................................... 2,985 2,448 1,566
========= ========= =========

----------
(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$73,609 million in 2005,
accounting for 92.1% of the total brass mills business unit's sales and 20.1% of
consolidated sales in 2005. Sales in Chile accounted for 36.7% of pipes, bars
and sheets revenue in 2005, sales in Argentina accounted for 9.3%, and exports
accounted for 54.0%.

Customers. In 2005, Madeco had 371 customers in Chile, 561 in Argentina
and 121 customers in its export markets. The largest customer, a brass mills
products distributor in the United States, accounted for 10.7% of the total
pipes, bars and sheets sales in 2005. In Chile, pipes, bars and sheets are sold
to retailers and distributors (64%), durable goods manufacturers (17%), mining
(7%), electric appliance manufacturers (5%), aluminum manufacturers (3%), and
others (4%). In Argentina, pipes, bars and sheets are sold to retailers and
distributors (50%), durable goods manufacturers (24%), construction companies
(17%) and exporters and others (9%).

Competition. Madeco estimates that the total market size for pipes, bars
and sheets was approximately 15,900 metric tons in Chile and 23,300 metric tons
in Argentina, as of December 31, 2005. Madeco estimates that it has a 58% market
share in Chile and a 12% market share in Argentina. There are four main
competitors in the Chilean pipes, bars and sheets market, including Conmetal
(9%), Cembrass (4%), Tecob (3%) and Offermanns (2%). In addition, there are
international competitors in the Chilean pipes, bars and sheets market, which
have estimated market shares of 24%. There are four main competitors in the
Argentine pipes, bars and sheets market, including Pajarbol-Cembrass (21%),
Sotyl (13%), Vaspia (7%) and Quimetal (7%). In addition, there are other
domestic and international competitors in the Argentine pipes, bars and sheets
market, which have estimated market shares of 27% and 13%, respectively.

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 was halted in early 2002, was
carried out in three brass mills facilities in Argentina, in San Luis, Llavallol
and Barracas. The manufacturing plant at Barracas was partially reopened in
September 2003 and the smelting facility at Llavallol in November 2003.

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 2005, Madeco obtained most of its aluminum requirements
from Aluar in Argentina. Zinc is purchased from a Peruvian supplier,
Cajamarquilla. Nickel is mainly purchased from Inco Limited (Canada) and
Companhia Niquel Tocantins (Brazil). Tin is purchased from Minsur (Peru).

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$6,299 million in 2005, accounting for 7.9% of
the total brass mills business unit's sales and 1.7% of consolidated sales in
2005. Sales in Chile accounted for 16.4% of coin revenue in 2005 and exports
accounted for 83.6% of coins revenue. Sales of the coin blanks unit declined by
19.7% in 2005, mainly attributable to fewer international contracts and the
effect of the appreciation of the Chilean peso on US dollar exports.

Coin blanks and minted coins are produced by Madeco's wholly-owned Chilean
subsidiary, Armat. Production involves the use of four copper-based alloys. The
exact alloy mix is determined according to customer specifications.

Customers. The company's largest customers in 2005 were the National Bank
of Denmark, which accounted for 23.4% of total coin sales, the Argentine Mint,
which accounted for 22.9% and the Chilean Mint which accounted for 18.4%.

Raw materials. Madeco purchases its copper supplies from Codelco and
Enami, and most of its aluminum requirements from Aluminios Argentinos (Aluar)
in Argentina. Zinc is principally purchased from a Peruvian supplier,
Cajamarquilla.

Flexible Packaging Business Unit

Sales of the flexible packaging business unit amounted to Ch$44,159
million in 2005, accounting for 12.1% of Madeco's 2005 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 subsidiary, Alusa. In Argentina, Madeco has operated since
1993 through its subsidiary, Aluflex. Additionally, Madeco owns a 19% stake in
two manufacturers in Peru, Peruplast and Tech Pack, respectively, which together
comprise the largest flexible packaging operation in that country. Export sales
of the flexible packaging business unit amounted to Ch$6,216 million, accounting
for 14.1% of total unit sales.

In 2005, sales of the flexible packaging segment declined by 5.5% compared
to 2004, mainly due to a 7.1% decrease in sales in Chile due to the closure of
the Alufoil subsidiary in late 2004, and a 5.0% decrease in export sales.

Madeco and Subsidiaries Flexible Packaging Unit
2003 2004 2005
---- ---- ----

Revenues (in millions of constant Ch$):
Chile .................................................. Ch$29,206 Ch$29,822 Ch$27,699
Argentina .............................................. 9,739 10,375 10,244
Exports (1) ............................................ 5,375 6,545 6,216
--------- --------- ---------
Total .................................................. Ch$44,320 Ch$46,742 Ch$44,159
========= ========= =========

Sales Volume (in metric tons)
Chile .................................................. 9,674 10,171 8,581
Argentina .............................................. 3,417 3,867 3,828
Exports (1) ............................................ 1,730 2,323 2,118
--------- --------- ---------
Total .................................................. 14,821 16,361 14,527
========= ========= =========

(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$27,699
million, accounting for 62.7% of total flexible packaging segment sales and 7.6%
of Madeco's consolidated sales in 2005.

Customers. The Chilean flexible packaging operations have approximately
100 customers, including national and international consumer product
manufacturers. Exports from Chile and Argentina are made to approximately 45
customers.

Competition. Madeco estimates that the total market in Chile for flexible
packaging products was 30,000 metric tons in 2005. Madeco estimates that it has
a market share in Chile of approximately 28%. The main competitor in the Chilean
flexible packaging market is Edelpa, which had an estimated market share of 35%
in 2005. In addition, other competitors in the Chilean market have an estimated
37% market share.

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

Raw materials. Madeco's plastic film suppliers include Vitopel, Terphane
and Sigdopack. The main polyethylene resin suppliers are Dow Chemical through
PBB Polisur, Petroquimica Dow and Dow Quimica Chilena from whom Madeco purchased
approximately 22% of its requirements in 2005. Madeco obtains most of its
aluminum requirements from Aluar and Hydro Aluminum Deutschland GMBH. Ink is
purchased from Sun Chemical and Flint Ink. Paper is purchased from suppliers in
Chile, Brazil, Italy 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$10,244
million, accounting for 23.2% of total flexible packaging segment sales in 2005.

Customers. The Argentine flexible packaging operations have approximately
30 customers. Exports from Chile and Argentina are made to approximately 45
customers.

Competition. Madeco estimates that the total market in Argentina for
flexible packaging products was approximately 69,900 metric tons in 2005. Madeco
believes that the Argentine market for flexible packaging products is highly
fragmented. Based on its own internal analysis, Madeco estimates that its market
share is probably around 7% and that its five main competitors in Argentina have
a combined 48% market share as of December 31, 2005.

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

Aluminum Profiles Business Unit

Sales of the aluminum profiles segment amounted to Ch$29,359 million in
2005, accounting for 8.0% of Madeco's 2005 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.

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 1.0% in 2005, mainly
due to lower average prices, the effect of which was partially offset by a 1.6%
increase in volumes sold during the year.

Madeco and Subsidiaries Aluminum Profiles
2003 2004 2005
---- ---- ----

Revenues (in millions of constant Ch$):
Chile .............................................. Ch$29,848 Ch$27,819 Ch$27,749
Exports ............................................ 1,188 1,833 1,610
--------- --------- ---------
Total .............................................. Ch$31,036 Ch$29,652 Ch$29,359
========= ========= =========

Sales Volume (in metric tons)
Chile .............................................. 10,211 10,653 10,345
Exports ............................................ -- -- 474
--------- --------- ---------
Total .............................................. 10,211 10,653 10,819
========= ========= =========

Customers. In 2005, the aluminum profiles operation had approximately 50
active customers, of which 12 were distributors for Madeco. In 2005, Madeco's
main customers in the aluminum profiles segment were retailers (21%),
independent distributors (45%), construction companies and durable goods
manufacturers (31%) and exporters and others (3%).

Competition. The size of the aluminum profiles market in Chile was
estimated to be 14,900 metric tons per year as of December 31, 2005. Madeco
estimates that it had a 69% market share in the aluminum profiles segment in
Chile, and that its main competitor, Alcoa, had a 17% market share in 2005.
International aluminum profiles manufacturers also compete in Chile through
imported products with an estimated market share of 14%.

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

Raw Materials. Aluminum, which represents approximately 74% of the total
production cost of aluminum profiles, is purchased from Aluar and STC Intermesa
Trading Co.

Government Regulations. Madeco is subject to the full range of government
regulations and supervision generally applicable to companies engaged in
business in Chile, including labor laws, social security laws, public health
laws, consumer protection laws, environmental laws, securities laws and
anti-trust laws. These include regulations to ensure sanitary and safe
conditions in manufacturing plants.

Madeco's operations are subject to both national and local regulations
relating to the protection of the environment. The fundamental environmental law
in Chile is the Health Code, which establishes minimum health standards and
provides for regulation of air and water quality and sanitary landfills. Since
1982, the Ministerio de Salud ("Chilean Health Ministry") and the Ministerio
Secretaria General de la Presidencia ("Ministry of the General Secretary of the
Presidency of Chile") have issued regulations applicable to the control of
pollution in the Santiago Metropolitan Region, which provide that, in cases of
emergency due to high levels of air pollution, the Secretaria Regional
Ministerial de Salud ("Regional Health Ministry") has the authority to order the
temporary reduction of the activities of companies in the region that produce
particles and gas emissions. According to Decree No.16 (issued in 1998), which
establishes a contamination prevention and atmospheric decontamination plan for
the Santiago metropolitan region, in emergency situations, the Regional Health
Ministry can order the reduction or even the suspension of activities of those
companies classified as producing the highest level of particles and gas
emissions. Since Decree No.16 was issued, emissions from Madeco's plants have
remained below those that require the Regional Health Ministry to suspend
production activity. Consequently, since Decree No.16 was issued, Madeco has not
been required to reduce or halt its normal production activity.

The regulation of matters relating to the protection of the environment is
not as well developed in Chile, Argentina, Brazil and Peru as in the United
States and certain other countries. Accordingly, Madeco anticipates that
additional laws and regulations will be enacted over time with respect to
environmental matters. While Madeco believes that it will continue to be in
compliance with all applicable environmental regulations of which it is now
aware, there can be no assurance that future legislative or regulatory
developments will not impose restrictions on the company that would be material
or that would have a material adverse effect on Madeco's financial position and
results of operations.

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, 2005:

Percentage of Economic Interest
Owned by Quinenco
At December 31, 2005
---------------------------------------------
Country of Economic Control Of
Incorporation Ownership Voting Shares
------------- --------- -------------

Financial
Banco de Chile (1) ............................... Chile 29.2% 52.2%
Food and Beverage
CCU .............................................. Chile 32.1% 32.1%
Telecommunications
Telefonica del Sur................................ Chile 73.7% 73.7%
Entel ............................................ Chile 5.7% 5.7%
Manufacturing
Madeco ........................................... Chile 47.8% 47.8%

----------
(1) Economic ownership information corresponds to dividend rights.

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 2,400 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
Llavallol. In Peru, Madeco owns plants and offices in Lima. In Brazil, Madeco
owns production plants in Sao Paulo and Rio de Janeiro and Bahia.

Telefonica del Sur has its own headquarters in the city of Valdivia
(approximately 520 miles south of Santiago). In addition, Telefonica del Sur
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.

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 an approximately 65,000 square meter building and the
underlying land located in Santiago that serves as executive offices for the
bank and most of its subsidiaries. In addition, it owns a 15,000 square meter
building in Santiago where the remainder of its executive offices are located.
As of December 31, 2005, Banco de Chile owned the properties of 139 full service
branches (approximately 102,400 square meters of office space). It leases office
space for the remaining 109 full service branches and for the New York and Miami
branches, as well as representative offices. The bank also owns properties
throughout Chile for back office and administrative operations including
document storage facilities as well as a 140,000 square meter recreational
facility for employee use.

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

Item 5. Operating and Financial Review and Prospects

Executive Overview

We conduct our operations through various consolidated subsidiaries (in
which, in certain cases, minority shareholders hold significant interests), and
through significant equity investments in certain other companies. Our
Consolidated Financial Statements as of December 31, 2005 consolidate the
results of Madeco, Telefonica del Sur, Indalsa and Carrera, although following
the sale of Lucchetti Chile in 2004 and the Santiago Hotel Carrera in 2003, the
results of Indalsa and Carrera are no longer relevant to our consolidated
results. Our majority-owned investment in Banco de Chile, and our equity
investments in CCU, Entel and Habitaria are accounted for under the equity
method, and our proportional share of the net income (or loss) from these
entities is included under the caption "Non-operating results" in our income
statement.

Our consolidated net income for any period depends on: (i) the income (or
loss) generated by us, (ii) the income (or loss) generated by the companies
accounted for under the equity method and our economic interest in each such
company, (iii) dividends from other investments accounted for by the cost method
and (iv) the income (or loss) generated by Quinenco on the sale of investments.

As a holding company, Quinenco's income and cash flow and its ability to
pay debt obligations and dividends depends primarily upon the receipt of
dividends and other capital distributions from its subsidiaries, equity
investments, other investments accounted for under the cost method 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.

As of December 31, 2005, investments in the financial services sector,
represented by Quinenco's controlling interest in Banco de Chile, made up
approximately 68% of Quinenco's total investments and 60% of total assets at the
corporate level. Due to the importance of our investments in the financial
services sector, our level of income from dividends and participation in net
income will depend, to a large extent, on results from this investment. In
addition, the food and beverage sector investment, CCU, also contributes
significantly to our level of income from dividends and participation in net
income. For further information regarding these entities, whose results are not
consolidated in our financial statements under Chilean GAAP, see Banco de
Chile's and CCU's respective Annual Reports on Form 20-F for the fiscal year
ended December 31, 2005.

The Banco de Chile acquisition in 2001 involved significant cash outlays,
which were financed with debt. Although the initial debt incurred in connection
with the acquisition has been partially reduced through sales of non-strategic
assets, dividend income and other resources, we will continue to incur interest
expense associated with the remaining debt until its level is reduced, either by
payments at scheduled amortization dates or through the sale of non-strategic
assets. In addition, in connection with the acquisition of Banco de Chile, we
recognized goodwill in the amount of 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.

Our lines of business and results of operations are, to a large extent,
dependent on the overall level of economic activity and growth in Chile. Of our
total aggregate revenues (which are calculated as the sum of our consolidated
revenues and CCU's revenues), which amounted to Ch$914,014 million in 2005,
approximately 73% were from operations in Chile. Additionally, Banco de Chile
mainly operates in Chile and derived approximately 97% of its operating revenues
from domestic operations in 2005. In addition to Chile, Madeco is dependent on
the overall level of economic activity and growth in Brazil, Argentina and Peru,
and CCU is dependent on the overall level of economic activity in Argentina.

Until March 2004, we provided food production and distribution through the
interest we held in Indalsa. Indalsa's main operations have been discontinued
following the sale of its Argentine operations in 2001, the forced closure of
its Peruvian plant in early 2003 and the sale of its Chilean operation in the
first quarter of 2004. Indalsa's 2003 consolidated sales amounted to Ch$62,774
million and corresponded almost entirely to sales of Lucchetti Chile. Lucchetti
Chile, which produced pastas, creams and soups and represented approximately 85%
of Indalsa's consolidated assets, was sold on March 31, 2004 to a local food
company for Ch$11,811 million (net of financial debt). Indalsa reported a gain
on sale of Ch$4,216 million in connection with the disposal in 2004. Following
the sale, Indalsa's remaining assets include assets in liquidation in Peru and
Chile and a 50% interest in a small cookie and candy producer acquired in 2004.
As a result of the discontinuation of its main activities, Indalsa's result of
operations are no longer significant to us.

We have no plans to further develop our interest in the hotel
administration business, following the sale of the Hotel Carrera to the Chilean
government in 2003, the non-renewal of the leases on the three hotels it
operated in the north of Chile in 2004 and the sale of the remaining hotel in
Concepcion in 2005.

The competitive environment in Chile has increased significantly in recent
years. As a result, our main operating companies face high levels of competition
in their lines of business. In particular, Banco de Chile and CCU, the most
significant contributors to our dividend cash flow and results of operations,
are subject to intense competition from domestic and multinational competitors,
which has led to consolidation in their respective industries. We expect the
trend of consolidation to continue, which could affect our profit margins.

See "- D. Trend Information" for further information regarding economic
and industry-wide-factors relevant to us.

OVERVIEW OF 2005 RESULTS OF OPERATIONS

Our consolidated revenues grew by Ch$25,686 million or 6.5% to Ch$421,968
million in 2005 compared to Ch$396,282 million in 2004, mainly due to a
Ch$29,788 million increase in sales corresponding to Madeco's operations,
related to the sustained recovery of its main markets and strong demand for wire
and cable products. The increase in consolidated revenues was partially offset
by the divestment of Lucchetti Chile in early 2004 and the sale of Hoteles
Carrera's remaining hotel in mid 2005, which resulted in a reduction of Ch$2,745
million in revenues when compared to 2004.

Our operating income reached Ch$30,646 million in 2005, an increase of
9.0%, mostly attributable to Madeco's operations, which benefited from increased
sales, and a reduction in administrative expenses at the corporate level.

We reported net non-operating income of Ch$36,545 million, compared to net
non-operating income of Ch$5,058 million in 2004. The variation between the two
years is largely explained by non-recurring gains on sale of shareholdings in
the retail sector, which amounted to Ch$23,924 million in 2005.

Our 2005 non-operating results also benefited from a 12.6% increase in
income from equity investments which rose by Ch$8,254 million to Ch$73,534
million as a result of higher net earnings achieved by Banco de Chile, CCU,
Entel and others.

Our net income reached Ch$51,080 million compared to Ch$24,193 million
reported in 2004, an increase of 111.1%. The increase in net profit was mainly
attributable to the aforementioned non-recurring gains on the sale of
investments in the retail sector, higher results from equity investments and
lower non-operating expenses reported during the period.

Our cash flow from dividends amounted to Ch$69,241 million in 2004, an
increase of Ch$18,423 million compared to the Ch$50,818 million we received in
2004. It is worth mentioning that dividends received in 2005 included an
extraordinary dividend from Entel of Ch$10,622 million. In addition, Telefonica
del Sur distributed dividends of Ch$3,362 million to Quinenco, almost unchanged
from Ch$3,357 million in 2004.

The following discussion analyzes our consolidated results for the years
ended December 31, 2003, 2004 and 2005. See "Item 4. Information on Us" for
certain data regarding revenues and operating income of major product segments
of our principal businesses.

In the following discussion the term "holding company" refers to Quinenco
and the intermediate level holding companies through which, in certain cases,
Quinenco holds its interest in our consolidated operating companies and certain
equity investments.

The following table shows the percentage interests directly and indirectly
owned by Quinenco in each of the main sectors in which it participated at
December 31, 2003, 2004 and 2005:

Percentage of Economic Interest
Owned by Quinenco
as of December 31,
----------------------------------------
2003 2004 2005
---- ---- ----

Financial Services
Banco de Chile (1) ................................... 52.2% 53.5% 52.2%
Food and Beverage
Indalsa (2) .......................................... 95.9% 97.0% 99.1%
CCU (3)....................................... 30.8% 30.8% 32.1%
Telecommunications
Telefonica del Sur ................................... 73.6% 73.7% 73.7%
Entel ................................................ 5.7% 5.7% 5.7%
Manufacturing
Madeco (4) ........................................... 55.2% 51.2% 47.8%
Real Estate/Hotel Administration
Hoteles Carrera (5) .................................. 90.0% 90.0% 88.8%
Habitaria ............................................ 50.0% 50.0% 50.0%

(1) In April 2004, Banco de Chile repurchased 2.5% of its own outstanding
shares. As a result, our effective voting interest in Banco de Chile
increased from 52.2% to 53.5%. It resold these shares in August 2005, and
our effective voting interest decreased from 53.5% to 52.2%.

(2) In December 2003, we subscribed to a capital increase at Indalsa. As a
consequence, our effective economic interest increased to 95.9%. In 2004
and 2005, we subscribed for and purchased additional shares. As a result,
our effective interest increased to 97.0% and 99.1%, respectively.

(3) In July 2005, IRSA purchased an additional 2.5% of shares of CCU. As a
result, our effective interest increased from 30.8% to 32.1%.

(4) As a result of Madeco's 2003 capital increase, our ownership interest in
Madeco increased from 53.4% to 55.2%. In 2004, Madeco's key executives
exercised stock options of shares of Madeco in accordance with the
company's stock incentive program. Madeco's total outstanding subscribed
and paid shares increased from 4,259,045,163 shares to 4,441,192,887
shares. As a result, our interest in Madeco decreased from 55.2% to 51.2%.
In 2005, we subscribed for a portion of our preferential rights in
Madeco's capital increase. As a result, our interest in Madeco decreased
from 51.2% to 47.8%.

(5) In 2005, as a result of a merger of two intermediate holding companies,
our interest in Carrera decreased from 90.0% to 88.8%.

RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our
Consolidated Financial Statements included elsewhere herein. Our Consolidated
Financial Statements have been prepared in accordance with Chilean GAAP, which
differs in significant respects from U.S. GAAP. Note 27 to our Consolidated
Financial Statements provides a description of the principal differences between
Chilean GAAP and U.S. GAAP as they relate to us, and a reconciliation to U.S.
GAAP of shareholders' equity as of December 31, 2004 and 2005 and net income
(loss) for the years ended December 31, 2003, 2004 and 2005.

In accordance with Chilean GAAP, financial data included in our
Consolidated Financial Statements have been restated in constant Chilean pesos
of December 31, 2005. See Notes 2(b) and 3 to our Consolidated Financial
Statements.

NET SALES

2003 Variation % change 2004 Variation % change 2005
---- --------- -------- ---- --------- -------- ----
(in millions of constant Ch$, except percentages)

Madeco ............................. 252,378 83,322 33.0 335,700 29,788 8.9 365,488
Indalsa ............................ 62,774 (61,645) (98.2) 1,129 (1,129) (100.0) --
Telefonica del Sur ................. 54,655 191 0.3 54,846 (122) (0.2) 54,724
Hoteles Carrera .................... 7,084 (4,782) (67.5) 2,302 (1,616) (70.2) 686
Holding Co. & eliminations ......... 2,610 (305) (11.7) 2,305 (1,235) (53.6) 1,070
------- ------ ------- ------ -------
Total net sales .................... 379,501 16,781 4.4 396,282 25,686 6.5 421,968
======= ====== ======= ====== =======

2005 Compared to 2004

In 2005, we reported net consolidated sales of Ch$421,968 million, a 6.5%
increase from the net sales of Ch$396,282 million in 2004. The increase was
attributable to higher sales at Madeco, partially offset by lower sales at
Indalsa following the divestment of its Chilean operations in early 2004 and
Hoteles Carrera as a result of the sale of its remaining hotel in mid 2005.

Madeco's sales, which accounted for 86.6% of our consolidated sales in
2005, increased by 8.9% to Ch$365,488 million. The growth in sales was primarily
attributable to (i) higher average prices of the product mix, mainly related to
the increase in copper prices, which were passed on to customers and (ii) a 0.3%
increase in volumes sold on a consolidated basis.

Sales corresponding to Madeco's wire and cable business unit rose by
Ch$39,806 million or 23.1% to Ch$212,062 million due to strong demand for copper
rod and copper and aluminum cables in Chile, Brazil and Peru. The increase in
consolidated sales was partially offset by lower sales of the Brass mill
business unit, which decreased by 8.2% to Ch$79,908 million due to an 11.4%
decline in the volume sold in Chile and a lower level of exports. Likewise,
sales growth experienced by the flexible packaging unit fell by 5.5% or Ch$2,583
million, primarily due to the closure of a subsidiary in late 2004.

2004 Compared to 2003

In 2004, we reported net consolidated sales of Ch$396,282 million, a 4.4%
increase from the net sales of Ch$379,501 million in 2003. The increase was
mainly attributable to higher sales at Madeco, partially offset by lower sales
at Indalsa following the divestment of its Chilean operations in early 2004.

Madeco's sales, which accounted for 84.7% of our consolidated sales in
2004, increased by 33.0% to Ch$335,700 million. The growth in sales was
primarily attributable to (i) higher average prices of cables and brass mill
products, mainly related to the increase in copper, aluminum and zinc prices,
which were passed on to customers and (ii) a 12.7% increase in volumes sold on a
consolidated basis. The higher average prices and volumes were partially offset
by a 6.1% revaluation of the Chilean peso against the U.S. dollar during the
year, which adversely affected cable revenues from foreign operations and brass
mill exports.

Sales corresponding to Madeco's wire and cable business unit rose by
Ch$54,890 million or 46.8% to Ch$172,257 million as a consequence of strong
demand for copper rod and copper and aluminum cables in Chile, Brazil and Peru.
Brass mill sales increased by 45.9% to Ch$87,051 million due to large volume
increases in Chile and Argentina, the effect of which was partially offset by
lower coin blank sales. Sales growth experienced by the flexible packaging unit
also contributed to the increase in consolidated sales, having grown by 5.5% to
Ch$46,741 million, mainly as a result of higher exports and sales volume in
Chile. Sales of the aluminum profiles unit fell by 4.5% due to lower average
prices, the effect of which was not offset by the higher volume sold during the
year.

Indalsa's sales decreased by Ch$61,645 million to Ch$1,129 million,
accounting for less than 1% of our consolidated sales following the divestiture
of Lucchetti Chile in the first quarter of 2004.

COST OF SALES

2003 Variation % change 2004 Variation % change 2005
---- --------- -------- ---- --------- -------- ----
(in millions of constant Ch$, except percentages)

Madeco ............................. (221,340) 65,240 29.5 (286,580) 26,968 9.4 (313,548)
Indalsa ............................ (43,330) (43,330) (100.0) -- -- -- --
Telefonica del Sur ................. (26,828) 429 1.6 (27,257) (50) (0.2) (27,207)
Hoteles Carrera .................... (5,985) (3,831) (64.0) (2,154) (1,896) (88.0) (258)
Holding Co. & eliminations ......... (5,187) 120 2.3 (5,307) (1,395) (26.3) (3,912)
-------- ------ -------- ------ --------
Total cost of sales ............... (302,670) 18,628 6.2 (321,298) 23,627 7.4 (344,925)
======== ====== ======== ====== ========

2005 Compared to 2004

In 2005, our cost of sales was Ch$344,925 million, compared to cost of
sales of Ch$321,298 million in 2004, an increase of 7.4%. The increase in our
consolidated cost of sales mainly attributable to a 9.4% increase in cost of
sales at Madeco, as a result of higher raw material costs, particularly copper,
aluminum and plastics. As a percentage of sales, Madeco's cost of sales
increased slightly from 85.4% in 2004 to 85.8% in 2005.

The increase in cost of sales was partially offset by lower cost of sales
associated with Carrera following the divestment of its productive assets.

2004 Compared to 2003

In 2004, our cost of sales was Ch$321,298 million, compared to cost of
sales of Ch$302,670 million in 2003, an increase of 6.2%. The increase in our
consolidated cost of sales was in line with the increase of 4.4% in our
consolidated sales and was mainly attributable to an increase in cost of sales
at Madeco, partially offset by lower cost of sales at Indalsa following the
divestiture of its Chilean operations in the first quarter of 2004.

At Madeco, the increase in cost of sales of 29.5% was in line with its
sales revenue increase of 33.0% in 2004 as well as an increase in Madeco's
principal raw material costs. As a percentage of sales, cost of sales declined
from 87.7% in 2003 to 85.4% in 2004.

At Indalsa, the decrease in cost of sales was attributable to the
divestiture of the Chilean operations in early 2004.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

2003 Variation % change 2004 Variation % change 2005
---- --------- -------- ---- --------- -------- ----
(in millions of constant Ch$, except percentages)

Madeco ................................... (23,120) (82) (0.4) (23,038) 1,062 4.6 (24,100)
Indalsa .................................. (16,371) (14,901) (91.0) (1,470) (844) (57.4) (626)
Telefonica del Sur ....................... (14,747) (124) (0.8) (14,623) (89) (0.6) (14,534)
Hoteles Carrera .......................... (1,322) (723) (54.7) (599) (126) (21.0) (473)
Holding Co. & eliminations ............... (7,735) (609) (7.9) (7,126) (462) (6.5) (6.664)
------- ------- ------- ---- -------
Total SG&A expenses ...................... (63,295) (16,439) (26.0) (46,856) (459) (1.0) (46,397)
======= ======= ======= ==== =======

2005 Compared to 2004

In 2005, our SG&A expenses were Ch$46,397 million, compared to Ch$46,856
million in 2004, a decrease of 1.0%. The decrease was mostly entirely
attributable to lower selling, general and administrative expenses at Indalsa
following the sale of its Chilean operations in the first quarter of 2004,
partially offset by an increase in Madeco's SG&A expenses.

Madeco's SG&A expenses increased by 4.6%, mainly attributable to higher
SG&A expenses associated with the wire and cable operations as a consequence of
the higher sales level and non-recurring SG&A expenses in Brazil. To a lesser
extent, a 21.0% increase in SG&A expenses related to the brass mills business
unit also contributed to the increase in SG&A expenses in 2005. The increase was
partially

offset by lower SG&A expenses associated with the flexible packaging unit as a
result of the closure of a subsidiary in late 2004 and the aluminum profile unit
due to the discontinuation of a Bolivian distributorship. As a percentage of
sales, Madeco's SG&A expenses fell to 6.6% compared to 6.9% in 2004.

2004 Compared to 2003

In 2004, our SG&A expenses were Ch$46,856 million, compared to Ch$63,295
million in 2003, a decrease of 26.0%. The decrease was almost entirely
attributable to lower selling, general and administrative expenses at Indalsa
following the sale of its Chilean operations in the first quarter of 2004.

Madeco's SG&A expenses declined by 0.3% despite the 33.0% increase in
sales experienced during 2004. SG&A expenses as a percentage of sales fell to
6.9% compared to 9.2% in 2003, mainly due to SG&A expense reductions associated
with the brass mills business unit in Chile and lower expenses of the coin
blanks unit. In addition, SG&A expenses associated with Madeco's aluminum
profiles business unit fell as a consequence of cost saving measures aimed at
lowering salaries and personnel expenses, outsourcing, marketing and advertising
costs. These reductions were partially offset by higher SG&A expenses related to
the wire and cable business unit, which increased as a result of the higher
sales level experienced during the year.

OPERATING INCOME (LOSS)

2003 Variation % change 2004 Variation % change 2005
---- --------- -------- ---- --------- -------- ----
(in millions of constant Ch$, except percentages)

Madeco ..................................... 7,918 18,164 229.4 26,082 1,758 6.7 27,840
Indalsa .................................... 3,073 (3,414) n.a. (341) (285) 83.6 (626)
Telefonica del Sur ......................... 13,080 (114) (0.9) 12,966 17 0.1 12,983
Hoteles Carrera ............................ (223) (228) 102.2 (451) 406 (90.1) (45)
Holding Co. & eliminations ................. (10,312) 184 (1.8) (10,128) 622 (6.1) (9,506)
------- ------ ------- ----- ------
Total operating income (loss) .............. 13,536 14,592 107.8 28,128 2,518 9.0 30,646
======= ====== ======= ===== ======

2005 Compared to 2004

In 2005, we reported operating income of Ch$30,646 million, compared to
operating income of Ch$28,128 million in 2004. The increase of 9.0% in 2005 was
primarily due to an improvement in the operating performance of Madeco, lower
administrative expenses at the corporate level and a reduction in the operating
losses associated with Hoteles Carrera following the divestiture of its main
assets.

In spite of a rise in raw materials costs and SG&A expenses, the higher
sales level achieved during the year boosted Madeco's operating income by 6.7%
to Ch$27,840 million. In particular, the wire and cable business unit led the
company's growth in operating income in 2005, increasing by Ch$8,517 million to
Ch$19,390 million. The increase in operating income was partially offset by a
reduction in the operating income of the brass mills unit due to the lower sales
volume, higher energy costs, higher copper prices and lower exports as a result
of the revaluation of the Chilean peso.

Telefonica del Sur's operating profits remained stable at Ch$12,983
million, almost unchanged from the Ch$12,966 million reported in 2004. Sales,
cost of sales and SG&A expense as a percentage of sales did not vary
significantly from those reported in 2004, although the sales mix favored
non-regulated services, particularly internet services. The increase in revenues
from non-regulated services offset the reduction in revenues related to fixed
line traffic and access charges, which continued to decline as consumers
increasingly substitute mobile and other telecommunication alternatives for
traditional fixed line telephony.

2004 Compared to 2003

In 2004, we reported operating income of Ch$28,128 million, compared to
operating income of Ch$13,536 million in 2003. The increase of 107.8% in 2004
was primarily due to an improvement in the operating performance of Madeco, the
effect of which was partially offset by a reduction in Indalsa'a operating
income as a result of the divestiture of its main business in early 2004.

Madeco's operating income increased by 229.4% to Ch$26,082 million. The
increase in Madeco's operating results was mainly attributable to the higher
sales level achieved during the year and a reduction in SG&A expenses as a
percentage of sales. In particular, the wire and cable and brass mills business
units led the company's strong recovery in 2004, accounting for 41.7% and 32.4%
of consolidated operating income, respectively. The improvement in the operating
performance of these business units was a result of strong demand from the
construction, energy, mining and telecom sectors (which allowed the company to
pass on price increases to customers), efficiency gains and SG&A expenses that
increased at a lesser rate than the increase in sales.

Telefonica del Sur's operating profits remained stable at Ch$12,966
million, varying by less than 1% from 2003. Sales, cost of sales and SG&A
expense as a percentage of sales did not vary significantly from those reported
in 2003, although the sales mix favored non-regulated services, particularly
internet services. The increase in revenues from non-regulated services more
than offset the reduction in revenues related to fixed line traffic and access
charges, which continued to decline as consumers increasingly substitute mobile
and other telecommunication alternatives for traditional fixed line telephony.

NON - OPERATING RESULTS

INTEREST INCOME

2005 Compared to 2004

In 2005, interest income amounted to Ch$3,046 million, compared to
Ch$2,032 million in 2004, an increase of 50.0%. The increase in interest income
was primarily attributable to a higher average level of interest-bearing cash
and cash equivalents, as well as higher prevailing interest rates on cash
deposits.

2004 Compared to 2003

In 2004, interest income amounted to Ch$2,032 million, compared to
Ch$3,110 million in 2003, a reduction of 34.7%. The decrease in interest income
was primarily attributable to a lower average level of interest-bearing cash and
cash equivalents, as well as low prevailing interest rates on cash deposits.

NON - OPERATING INCOME

2003 2004 2005
---- ---- ----
(in millions of constant Ch$)

Gain on sale of investments:
Gain on sale of subsidiary Lucchetti Chile .......................... -- 4,216 --
Gain on sale of shares of Almacenes Paris/Cencosud .................. -- -- 21,702
Gain on sale of other investments ................................... 19 -- 2,222
-------- ------ -------
Total gain on sale of investments ........................................ 19 4,216 23,924
Proportional share of net income of equity method investments:
Banco de Chile ...................................................... 40,402 47,254 52,769
CCU ................................................................. 17,688 14,488 15,452
Entel ............................................................... 3,625 2,792 4,040
Others .............................................................. (130) 746 1,273
-------- ------ -------
Total proportional share of net income of equity method investments ...... 61,585 65,280 73,534
-------- ------ -------
Other non-operating income ............................................... 65,322 5,986 6,948
-------- ------ -------
Total non-operating income ............................................... 126,926 75,482 104,406
======== ====== =======

2005 Compared to 2004

In 2005, our non-operating income was Ch$104,406 million compared to
Ch$75,482 million reported in 2004, an increase of 38.3%. The increase in
non-operating income in 2005 was primarily due to a non-recurring gain on the
sale of investments of Ch$23,924 million and an increase of Ch$8,254 million in
the proportional share of net income of equity method investments.

2004 Compared to 2003

In 2004, non-operating income was Ch$75,482 million compared to Ch$126,926
million reported in 2003, a decrease of 40.5%. The decrease in non-operating
income in 2003 was primarily due to a reduction in other non-operating income,
which in 2003 included a non-recurring arbitration settlement payment of
Ch$38,266 million received from Quinenco's former partners in IRSA, the
controlling entity of CCU. In addition, in 2003 other non-operating income
included a one-time negative goodwill amortization credit of Ch$22,438 million
associated with the fact that Quinenco did not subscribe to Madeco's 2003
capital increase, although this credit was entirely offset by a charge of
Ch$22,438 million to other non-operating expenses in connection with the failure
to subscribe.

The reduction in other non-operating income was partially offset by a 6.0%
or Ch$3,695 million increase in Quinenco's proportionate share of net income
from equity method investments and a gain on the sale of Lucchetti Chile of
Ch$4,216 million.

GAIN ON SALE OF INVESTMENTS

2005 Compared to 2004

In 2005, gains on the sale of investments amounted to Ch$23,924 million.
We reported a gain on the sale our investment in Almacenes Paris/Cencosud of
Ch$21,702 million and a gain on the sale of other investments of Ch$2,222
million.

2004 Compared to 2003

In 2004, gains on the sale of investments amounted to Ch$4,216 million.
The gain was in connection with the sale of Indalsa's subsidiary, Lucchetti
Chile, to Corpora Tres Montes for Ch$11,811 million (net of debt). In 2003, we
did not report any material gains on the sales of investments.

PROPORTIONAL SHARE OF NET INCOME OF EQUITY METHOD INVESTMENTS

2005 compared to 2004

Our proportional share of net income of equity method investments was
Ch$73,534 million in 2005, compared to Ch$65,280 million in 2004, an increase of
12.6%. The increase can mainly be explained by a higher proportional share of
net income from our investments in Banco de Chile and to a lesser extent, CCU,
Entel and others.

2004 compared to 2003

Our proportional share of net income of equity method investments was
Ch$65,280 million in 2004, compared to Ch$61,585 million in 2003, an increase of
6.0%. The increase can mainly be explained by a higher proportional share of net
income from our investments in Banco de Chile, partially offset by a reduction
in the proportional share of net income from CCU, and to a lesser extent, from
Entel.

Banco de Chile - 2005 compared to 2004

Our investment in Banco de Chile is currently being accounted for as a
non-consolidated equity-method interest, in accordance with an express
authorization from the SVS.

Our proportional share of Banco de Chile's net income was Ch$52,769
million in 2005 and Ch$47,254 million in 2004, which represented 29.2% and 29.9%
of the net income of Banco de Chile in 2005 and 2004, respectively.

Banco de Chile's net income was Ch$180,724 million in 2005, an increase of
14.3% from the net income of Ch$158,123 million reported in 2004. The increase
in net income was primarily attributable to growth of operating revenues and
lower loan loss provisions. The increase was partially offset by higher
operating expenses, and to a lesser extent, price-level restatement losses and
higher income tax expense.

Operating revenues increased by 6.5% to Ch$518,451 million in 2005,
benefiting from an increase in net interest revenue, which rose by Ch$29,501
million to Ch$369,798 million as a result of an increase in the level of average
interest earning assets, an increase in interest rates (due to a higher
inflation rate) and a better asset mix. The growth in fee income, which
increased by Ch$6,385 million to Ch$137,793 million in 2005, mainly attributable
to the bank's subsidiary operations, particularly mutual funds, insurance
brokerage, financial advisory and stock brokerage services, also contributed to
the higher level of operating revenues. Operating revenues were partially offset
by a reduction in other operating income, net, which fell by Ch$4,171 million to
Ch$10,860 million. Other operating income was affected by a decrease in income
from foreign exchange transactions, partially offset by gains on trading
activities.

Loan loss provisions decreased from Ch$76,158 million in 2004 to Ch$55,014
million in 2005, mainly due to the favorable economic environment which
prevailed in Chile throughout the year.

Operating expenses increased by 10.8% to Ch$276,464 million in 2005,
primarily due to approximately Ch$12,700 million incurred in connection with
compliance of the bank's U.S. branches with a consent order agreed to with the
Office of the Comptroller of the Currency (OCC). To a lesser extent, higher
advertising, rental and technological advisory expenses also caused operating
expenses to increase. In addition, personnel salaries and expenses rose by 6.9%
due to an increase in headcount and employee indemnities.

Price-level restatement losses amounted to Ch$11,450 million in 2005,
compared to Ch$7,735 million in 2004, mainly as a consequence of the increase in
the inflation rate from 2.5% in 2004 to 3.6% in 2005.

Income taxes increased from Ch$19,010 million in 2004 to Ch$21,391 million
in 2005, due to a higher income tax base in 2005 as a result of the 14.1%
increase in net income before taxes.

Banco de Chile - 2004 compared to 2003

Our investment in Banco de Chile is currently being accounted for as a
non-consolidated equity-method interest, in accordance with an express
authorization from the SVS.

Our proportional share of Banco de Chile's net income was Ch$47,254
million in 2004 and Ch$40,402 million in 2003, which represented 29.9% and 29.2%
of the net income of Banco de Chile in 2004 and 2003, respectively.

Banco de Chile's net income was Ch$158,123 million in 2004, an increase of
14.1% from the net income of Ch$138,634 million reported in 2003. The increase
in net income was mainly attributable to growth in fee income, net interest
revenue and loan loss recoveries of 29.1%, 42.8% and 29.6%, respectively. The
increase in net income was partially offset by lower other operating income,
net, higher provisions for loan losses and an increase in operating expenses.

The growth in fee income, which increased by Ch$29,621 million to
Ch$131,408 million in 2004, was attributable to traditional banking services as
well as asset management, stock brokerage and insurance brokerage services.
Operating revenues further benefited from an increase in net interest revenue,
which rose by Ch$101,932 million to Ch$340,297 million as a result of an
increase in the level of average interest earning assets, higher loan spreads,
an increase in the inflation rate and a better funding

mix. The increase in operating revenues was partially offset by a reduction in
other operating income, net, which fell by Ch$87,326 million to Ch$15,031
million. The decline in other operating income, net, was attributable to lower
foreign exchange transactions, net, and losses on financial instruments, net.

Loan loss recoveries increased in 2004 by Ch$7,987 million to Ch$34,950
million, mainly due to improved economic conditions in Chile and an increase in
the bank's collection efforts.

Loan loss provisions increased from Ch$63,830 million in 2003 to Ch$76,518
million in 2004, mainly attributable to a 7.4% growth in the loan portfolio and
to the downgrading of the risk classifications of certain corporate clients,
primarily concentrated in the construction sector.

Operating expenses increased by 5.6% to Ch$249,623 million in 2004,
primarily due to higher personnel and administrative expenses.

Income taxes increased from Ch$14,763 million in 2003 to Ch$19,010 million
in 2004, due to a higher income tax base in 2004 and an increase in the
statutory tax rate of 0.5%, which was implemented in 2004.

CCU - 2005 compared to 2004

Our proportional share of CCU's income was Ch$15,452 million in 2005 and
Ch$14,488 million in 2004, which represented our 32.1% and 30.8% economic
interest in CCU's net income, respectively.

CCU's consolidated sales increased by 12.9% to Ch$492,047 million in 2005,
compared to Ch$435,683 million in 2004. The increase in CCU's consolidated sales
was mainly due to an increase in volumes sold and higher average prices. Beer in
both Chile and Argentina and the soft drinks and mineral water segments
benefited from strong sales, accounting for 62.8% of the Ch$56,364 million
increase. Worth noting is that the pisco segment also contributed Ch$19,948
million to the consolidated sales growth as a result of the creation of Cia.
Pisquera de Chile in March 2005. The increase in consolidated sales was
partially offset by a decline in wine sales, which fell by 1.1% as a consequence
of the appreciation of the Chilean peso vis-a-vis the US dollar. Sales by
segment were as follows in 2005: beer Chile (38.3%), beer Argentina (9.5%), soft
drinks/mineral water (27.6%), wine (17.1%), pisco (5.8%) and others (1.7%).

Operating income increased by 9.3% to Ch$66,470 million in 2005, mainly
due to the higher sales levels associated with the beer (Chile and Argentina),
soft drinks and mineral water segments, although higher costs and SG&A expenses
partially offset the increase. In addition, a decline of Ch$3,637 million in
operating income from the wine segment due to the aforementioned decline in
sales and higher raw material and SG&A costs also partially offset the overall
rise in operating income for the period.

CCU reported non-operating losses of Ch$9,263 million, compared to
non-operating losses of Ch$6,360 million in 2004. The deterioration in
non-operating results is mostly due to a reduction in other non-operating
income, which in 2004 included gains on the sale of fixed assets. To a lesser
extent, higher interest expense and price-level restatement losses also explain
the variation.

CCU's net income increased by 2.4% to Ch$48,177 million. The increase is
due to higher operating income, partially offset by an increase in non-operating
losses and income taxes.

CCU - 2004 compared to 2003

Our proportional share of CCU's income was Ch$14,488 million in 2004 and
Ch$17,688 million in 2003, which represented our 30.8% economic interest in
CCU's net income in both years.

CCU's consolidated sales increased by 6.9% to Ch$435,683 million in 2004,
compared to Ch$407,838 million in 2003. The increase in CCU's consolidated sales
was mainly due to a 4.2% increase in volumes sold and higher average prices.
With the exception of wines, all of CCU's beverage segments experienced volume
increases in 2004, most notably beer in Chile and Argentina. In general terms,
volumes were favorably influenced by the economic reactivation underway in
Chile, and to a certain extent, in Argentina, as well as the addition of new
products to the company's beverage portfolio. Sales by segment were as follows
in 2004: beer Chile (38.8%), beer Argentina (9.5%), soft drinks/mineral waters
(28.6%), wine (19.5%) and others (3.6%).

Operating income increased by 24.9% to Ch$60,820 million in 2004, as a
result of improvements in the operating performance of all of CCU's business
units. The increase in operating results associated with the beer segments in
Chile and Argentina accounted for 73.9% of the total Ch$12,119 million increase.
Both of these segments benefited from volume and price increases as well as
lower cost of sales related to the decline in the value of the U.S. dollar
during the year. In addition, a 19.3% and a 34.6% rise in operating income from
the soft drinks and wine segments (respectively) also contributed to the higher
profit level and was mainly the result of a reduction in cost of sales in U.S.
dollars and SG&A expenses as a percentage of sales.

Non-operating losses amounted to Ch$6,360 million in 2004, compared to
non-operating income of Ch$14,486 million in 2003. The variation in
non-operating results can mostly be explained by the non-recurring gain of
Ch$21,359 million on the sale of CCU's interest in Karlovacka, a Croatian
brewery in 2003. Net income in 2004 amounted to Ch$47,028 million, a decrease of
18.1% from the net income of Ch$57,436 million reported in 2003, due to the
aforementioned decline in non-operating results.

Entel - 2005 compared to 2004

Our proportional share of Entel's net income was Ch$4,040 million in 2005
and Ch$2,792 million in 2004. Our economic interest in Entel was 5.7% as of
December 31, 2003 and 2004.

Entel's consolidated revenues increased by 6.8% from Ch$717,414 million in
2004 to Ch$766,362 million in 2005, mostly explained by a 23.0% or Ch$85,935
million increase in revenues from mobile telephony services. Mobile telephony
revenues, which accounted for 59.9% of total revenues in 2005, rose by 25.9% due
to an increase in the number of customers, which as of December 31, 2005 totaled
4,110,085. The increase in revenues was partially offset by a Ch$27,137 million
decline in domestic and international long distance revenues which were affected
by lower traffic and tariffs, as consumers continue substituting fixed telephony
for mobile telecommunications alternatives.

Operating income amounted to Ch$129,353 million in 2005, compared to
Ch$91,432 million in 2004, an increase of 41.5%. The increase in operating
income was mainly the result of the higher sales level and a reduction in
selling, general and administrative expenses as a result of lower charge-offs
for uncollectible accounts receivable. The operating margin increased to 16.9%
in 2005 from 12.7% in 2004.

Non-operating losses amounted to Ch$40,538 million in 2005, compared to
non-operating losses of Ch$33,173 million in 2004. Non-operating losses
increased mainly due to fixed asset charge-offs, deferred bond expenses and
severance costs, partially offset by a gain of Ch$2,748 million on the sale of
investments.

Entel reported net income of Ch$71,030 million in 2005, compared to
Ch$49,069 million in 2004, an increase of 44.8%, attributable to the
aforementioned improvement in operating results, the effect of which was
partially offset by the higher non-operating losses and an increase in income
tax expense.

Entel - 2004 compared to 2003

Our proportional share of Entel's net income was Ch$2,792 million in 2004
and Ch$3,625 million in 2003. Our economic interest in Entel was 5.7% as of
December 31, 2003 and 2004.

Entel's consolidated revenues decreased by 7.4% in 2004 to Ch$717,414
million, mostly explained by a decline of 26.8% in revenues related to Entel's
international operations, which were affected by changes in the regulatory
environment in the United States and the appreciation of the Chilean peso during
the year. The mobile telephony segment, which is Entel's most important business
segment and which accounted for 52.0% of total revenues in 2004, grew by 2.5%,
partially offsetting the reduction in revenues from international subsidiaries.

Operating income amounted to Ch$91,432 million in 2004, compared to
Ch$114,910 million in 2003, a decrease of 20.4%. The reduction in operating
income was the result of the lower sales level and higher selling, general and
administrative expenses as a percentage of sales, mostly related to write-offs
of accounts receivable and impairment of assets of the company's U.S. based
subsidiary. The operating margin decreased from 14.8% in 2003 to 12.7% in 2004.

Non-operating losses amounted to Ch$33,173 million in 2004, compared to
non-operating losses of Ch$42,596 million in 2003. Non-operating losses
decreased mainly due to a reduction in interest expense and price restatement
charges.

Entel reported net income of Ch$49,069 million in 2004, compared to
Ch$63,690 million in 2003, a decline of 23.0%, attributable to the
aforementioned deterioration in the company's operating results, the effect of
which was partially offset by the lower non-operating losses reported during the
year.

OTHER NON - OPERATING INCOME

2005 compared to 2004

Other non-operating income was Ch$6,948 million in 2005, compared to
Ch$5,986 million in 2004. Other non-operating income is mainly composed of a
gain of Ch$1,709 million related to the portion of Madeco's capital increase in
2005 to which we did not subscribe. The other main items include reversals of
provisions amounting to Ch$1,570 million mostly made in connection with Madeco's
investment in Optel in Brazil, gains on the sale of fixed assets of Ch$650
million and negative goodwill amortization amounting to Ch$1,800 million.

2004 compared to 2003

Other non-operating income was Ch$5,986 million in 2004, compared to
Ch$65,322 million in 2003. In 2003, we reported a non-recurring gain of
Ch$38,266 million related to the settlement of arbitration with Quinenco's
ex-partners in IRSA, and an extraordinary credit of Ch$22,438 million to
negative goodwill amortization associated with the fact that Quinenco did not
subscribe to Madeco's 2003 capital increase, mainly explaining the difference
between the two years.

INTEREST EXPENSE

2005 Compared to 2004

Interest expense was Ch$28,846 million in 2005, a 3.1% decrease from the
Ch$29,757 million reported in 2004. The decrease in interest expense is due to a
reduction in interest expense associated with Madeco's and Telefonica del Sur's
operations as a consequence of lower indebtedness, the effect of which

was partially offset by an increase in interest expense at the corporate level
due to bond refinancing costs and higher interest rates associated with fixed
rate financing. Consolidated interest expense in 2005 is principally composed of
interest expense incurred by Quinenco and intermediate holding companies
(59.4%), Madeco (32.5%) and Telefonica del Sur (8.1%).

2004 Compared to 2003

Interest expense was Ch$29,757 million in 2004, a 20.4% decrease from the
Ch$37,371 million reported in 2003. The decrease in interest expense is
explained by a reduction in our indebtedness level, primarily attributable to
the disposal of Lucchetti Chile, as well as lower prevailing interest rates.
Consolidated interest expense in 2004 is principally composed of interest
expense incurred by Quinenco and intermediate holding companies (49.4%), Madeco
(38.3%), Telefonica del Sur (9.7%) and Indalsa (2.6%).

NON - OPERATING EXPENSES

2003 2004 2005
---- ---- ----
(in millions of constant Ch$)

Proportional share of net loss of equity method investments............. 636 4,706 1,728
Other non-operating expenses............................................ 69,915 37,933 34,954
------ ------ ------
Total non-operating expenses............................................ 70,551 42,639 36,682
====== ====== ======

PROPORTIONAL SHARE OF NET LOSS OF EQUITY METHOD INVESTMENTS

2005 compared to 2004

Our proportional share of the net loss of equity method investments was
Ch$1,728 million in 2005, compared to Ch$4,706 million in 2004. The loss was
mainly attributable to our share of Habitaria's net loss which amounted to
Ch$1,296 million and Ch$4,460 million in 2005 and 2004, respectively.

2004 compared to 2003

Our proportional share of the net loss of equity method investments was
Ch$4,706 million in 2004, compared to Ch$636 million in 2003.

OTHER NON - OPERATING EXPENSES

2005 compared to 2004

Other non-operating expenses declined from Ch$37,933 million in 2004 to
Ch$34,954 million in 2005. Other non-operating expenses include goodwill
amortization, which is primarily associated with the Banco de Chile acquisition
of Ch$22,883 million in 2005 and Ch$21,313 million in 2004.

In addition, other non-operating expenses in 2005 included charges of
Ch$3,277 million related to Madeco's operations in connection with asset
write-offs and write-downs, depreciation on unused assets, fines, interest and
taxes corresponding to its foreign subsidiaries, Ch$4,073 million corresponding
to legal and other expenses associated with Indalsa's discontinued Peruvian
operations, a loss on the sale of the Hotel Araucano in Concepcion of Ch$1,014
million and Board of Directors' remuneration expense of Ch$2,073 million.

In 2004, other non-operating expenses of Ch$7,484 million corresponded to
Indalsa's operations and included a provision on the sale of Lucchetti Chile of
Ch$1,164 million and write-offs and other expenses associated with the forced
closing of IndalsaPeru of Ch$5,938 million. Other non-operating expenses of
Ch$3,813 million were attributable to Madeco's operations and mainly included
depreciation expense on unused assets and other asset write-downs. Other
non-operating expenses corresponding to Telefonica del Sur, Quinenco and
intermediate holding companies amounted to Ch$5,323 million and was

mainly composed of a loss on Quinenco's non-subscription to Madeco's capital
increase in 2004 and board of directors' remuneration expense.

2004 compared to 2003

Other non-operating expenses declined from Ch$69,915 million in 2003 to
Ch$37,933 million in 2004. In 2003, other non-operating expenses included a
one-time charge of Ch$22,438 million related to Quinenco's non-subscription in
Madeco's capital increase (offset by a credit to negative goodwill amortization
for the same amount), a loss provision of Ch$5,221 million for the liquidation
of Madeco's Optel subsidiary in Brazil and a loss on the sale of the Hotel
Carrera in Santiago of Ch$5,005 million, mainly explaining the variation between
the two years.

Other non-operating expenses also include goodwill amortization, which is
primarily associated with the Banco de Chile acquisition of Ch$21,313 million in
2004 and Ch$21,338 million in 2003.

PRICE - LEVEL RESTATEMENT

2005 Compared to 2004

In 2005, the net charge to income to adjust for the 3.6% change in
purchasing power of the Chilean peso on our net non-monetary liability position
and income and expense accounts amounted to Ch$4,345 million, compared to a
charge of Ch$370 million in 2004.

2004 Compared to 2003

In 2004, the net charge to income to adjust for the 2.5% change in
purchasing power of the Chilean peso on our net non-monetary liability position
and income and expense accounts amounted to Ch$370 million, compared to a net
non-monetary asset position, which resulted in a credit to income of Ch$2,009
million in 2003.

FOREIGN EXCHANGE DIFFERENCES

2005 Compared to 2004

Foreign exchange losses amounted to Ch$1,034 million in 2005, compared to
foreign exchange gains of Ch$310 million in 2004. In 2005, exchange rate losses
were largely attributable to Madeco's operations, primarily due to the effect of
the devaluation of the Brazilian real on U.S. dollar-denominated liabilities in
Brazil.

2004 Compared to 2003

Foreign exchange gains amounted to Ch$310 million in 2004, compared to
foreign exchange gains of Ch$1,045 million in 2003. In 2004, exchange rate gains
mostly corresponded to Madeco's operations primarily due to the appreciation of
the Chilean peso against the U.S. dollar (which reduced the valuation of U.S.
dollar liabilities) and a reduction in Madeco's U.S. dollar dominated debt
position.

MINORITY INTEREST
2003 2004 2005
---- ---- ----
(in millions of constant Ch$)
Madeco & subsidiaries .................... 5,776 (4,888) (6,661)
Telefonica del Sur & subsidiaries ........ (2,247) (2,012) (2,144)
Indalsa & subsidiaries ................... 111 150 47
Hoteles Carrera .......................... 367 16 67
Other .................................... 45 (233) (637)
----- ------ ------
Total minority interest .................. 4,052 (6,967) (9,328)
===== ====== ======

2005 Compared to 2004

In 2005, minority interest amounted to a deduction from income of Ch$9,328
million, compared to a deduction from income of Ch$6,967 million in 2004. Madeco
reported net income of Ch$12,014 million in 2005, which resulted in a deduction
from income of the net income which did not correspond to us of Ch$6,661
million. The deduction from income of Ch$2,144 million corresponding to
Telefonica del Sur was related to the portion of Telefonica del Sur's net income
which did not correspond to our interest.

2004 Compared to 2003

In 2004, minority interest amounted to a deduction from income of Ch$6,967
million, compared to a credit to income of Ch$4,052 million in 2003. Madeco
reported net income of Ch$8,818 million in 2004, which resulted in a deduction
from income of the net income not attributable to us of Ch$4,888 million. The
deduction from income of Ch$2,012 million corresponding to Telefonica del Sur
was related to the portion of Telefonica del Sur's net income which did not
reflect our interest.

NET INCOME

2005 Compared to 2004

In 2005, we reported net income of Ch$51,080 million, compared to net
income of Ch$24,193 million in 2004. The variation is largely due to a
non-recurring gain on the sale of investments of Ch$23,924 million related to
the disposal of our interests in Almacenes Paris, Cencosud and other investments
in the retail sector. In addition, income from our equity investments increased
by Ch$8,254 million and other non-operating expenses declined by Ch$5,956
million, which also contributed to the improvement in our net earnings. The
increase in net income in 2005 was partially offset by price-level restatement
losses, exchange rate losses and a heavier income tax burden.

2004 Compared to 2003

In 2004, we reported net income of Ch$24,193 million, compared to net
income of Ch$40,028 million in 2003. The variation is largely explained by a
reduction in other non-operating income, which in 2003 included a non-recurring
arbitration settlement payment of Ch$38,266 million. This reduction was
partially offset by an improvement in the net income contribution from the main
operating companies of the group, particularly Banco de Chile, CCU and Madeco
and a decline in interest expense and lower non-operating expenses.

IMPACT OF INFLATION AND PRICE - LEVEL RESTATEMENT

As explained in detail in Notes 2 b) and c) and Notes 3 and 4 to the
Consolidated Financial Statements, we are 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.

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 our
results of operations is set forth in the following table:

Credit (charge)
Price-level Restatement Year Ended December 31,
-----------------------
2003 2004 2005
---- ---- ----
(in millions of constant Ch$)

Property, plant and equipment ............................ Ch$2,843 Ch$5,182 Ch$6,978
Shareholders' equity accounts ............................ (6,696) (16,241) (22,329)
Other assets and liabilities ............................. 11,790 20,118 27,843
Income and expense accounts in terms of period-end
constant Chilean pesos ................................ (571) (132) (139)
Net adjustment of assets and liabilities indexed in UFs .. (5,357) (9,297) (16,698)
-------- ------- ---------
Price-level restatement .................................. Ch$2,009 Ch$(370) Ch$(4,345)
======== ======= =========

Credit (Charge)
Foreign Exchange Year ended December 31,
-----------------------
2003 2004 2005
---- ---- ----
(in millions of constant Ch$)

Derivative instruments ................................... Ch$(13,539) Ch$812 Ch$213
Assets and liabilities denominated in U.S. dollars ....... 11,039 (1,585) (349)
Assets and liabilities denominated in other currencies ... (143) 18 87
Translation adjustment ................................... 5,183 2,054 843
Hedging costs Brazil ..................................... (1,495) (989) (1,828)
-------- ------- ---------
Net foreign exchange gain (loss) ......................... Ch$1,045 Ch$310 Ch$(1,034)
======== ======= =========

WORKING CAPITAL IN FOREIGN CURRENCIES

Our 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, our 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 U.S.
dollars to Chilean pesos. In 2005, approximately 46.8% of our consolidated
revenues were from sales made outside of Chile and investments in subsidiaries
outside of Chile represented approximately 12.9% of our total investments at
December 31, 2005.

We maintain foreign exchange forward and swap contracts to hedge against
the risk of fluctuations in foreign currencies. For discussion of the our use of
hedging instruments, see "Item 11. Quantitative and Qualitative Disclosures
About Market Risk - Foreign Currency Exchange Rate Risk".

The following table presents the working capital position (net) in local
currencies as of December 31, 2005. All amounts are expressed in thousands of
Chilean pesos.

Other Argentine Peruvian Brazilian
U.S. dollars Euros currencies pesos sols reals
------------ ----- ---------- ----- ---- -----
(in thousands of constant Ch$)

Working capital in
foreign currencies
(net) (1)..................... 6,281,854 372,857 (314,772) 4,560,315 6,922,544 30,870,731

(1) working capital in foreign currencies (net) is the difference between
current assets and current liabilities in each of the currencies shown in
the above table.

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. We
principally operate in four operating segments, Financial Services, Food and
Beverage, Telecommunications and Manufacturing, each with different critical
accounting policies and estimates described below.

We believe that our critical accounting policies in the preparation of our
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 management's
judgment in their application. Additionally, significant differences can exist
between Chilean GAAP and U.S. GAAP, as explained in Note 27 of our 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 our financial statements, see Note 2 and Note 27 to our Consolidated
Financial Statements.

Financial Services

Banco de Chile prepares its financial statements in accordance with
Chilean GAAP and the rules of the SBIF. It is required to make estimates and
assumptions in the application of certain rules because they are related to
matters that are inherently uncertain. Banco de Chile believes that the
following are the more critical judgment areas or are those accounting policies
that involve a higher degree of complexity and affect the bank's financial
condition and results of operations.

Allowance for Loan Losses

Chilean banks are required to maintain loan loss allowances in amounts
determined in accordance with the regulations issued by the Chilean
Superintendency of Banks. Under these regulations, Banco de Chile must classify
its portfolio based on factors such as changes in the nature and volume of our
loan portfolio, trends in forecasted portfolio credit quality and economic
conditions that may affect the borrower's payment capacity. The minimum amount
of required loan loss allowances are determined based on fixed percentages of
estimated loan losses assigned to each category.

Under U.S. GAAP, allowances for loan losses are made to account for
estimated losses in outstanding loans for which there is doubt about the
borrower's capacity to repay the principal.

The classification of the Bank's loan portfolio for Chilean GAAP purposes
and for allowances for loan losses under U.S. GAAP is determined through
statistical modeling and estimates. Informed judgments must be made when
identifying deteriorating loans, the probability of default, the expected loss,
the value of collateral and current economic conditions. Even though Banco de
Chile considers its allowances for loan losses to be adequate, the use of
different estimates and assumptions could produce different allowances for loan
losses, and amendments to the allowances may be required in the future due to
changes in the value of collateral, the amount of cash to be received or other
economic events.

On January 1, 2004, Chilean banks were required to reassess their
allowance for loan losses in accordance with Circular No.3,246 issued by the
SBIF, which contemplates a new methodology to determine allowances for loan
losses. This new regulation did not adversely affect Banco de Chile's financial
position or results of operations; however, there was an increase in the number
of categories of payment capability with the objective of more closely aligning
the allowance with the likely cash flows to be received in the future. The
classification of the bank's loan portfolio is 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. Additionally, in the past, Chilean banks were also permitted to
maintain voluntary reserves in excess of the minimum required

amount so as to provide additional coverage for potential loan losses. Under the
new regulations, banks are not permitted to have voluntary reserves in order to
reduce the subjectivity involved in the determination of the allowance.

Fair value accounting

A portion of Banco de Chile's assets and liabilities are carried at fair
value. Under both Chilean GAAP and U.S. GAAP, financial instruments are stated
at fair value, except for those classified as "held-to-maturity" under U.S.
GAAP, which are carried at amortized cost. Under U.S. GAAP, derivative financial
instruments are recorded at fair value and assets received in lieu of payment
are recorded at fair value less their estimated cost of sale. Fair values are
based on quoted market prices or, if not available, on internally developed
pricing models informed by independently obtained market information. If market
information is limited or in some instances not available, management applies
its professional judgment. Other factors that may also affect estimates are
incorrect model assumptions, market dislocations and unexpected correlations.
Notwithstanding the level of subjectivity inherent in determining fair value, we
believe our estimates of fair value are adequate. The use of different models or
assumptions could lead to changes in our reported results.

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. CCU applies a 100%
provision for those customers that are 180 days overdue.

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 Chilean 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.

The value of finished products of CCU's subsidiaries Cervecera CCU Chile
Ltda., ECUSA, Plasco S.A. and Compania Industrial Cervecera S.A. include the
cost of raw materials, labor and overhead costs.

Telecommunications

Revenue Recognition

Telefonica del Sur'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.

Manufacturing

Revenue Recognition

Madeco recognizes revenues when goods are shipped or services are provided
and recognizes provisions for anticipated losses on contracts at the time they
become known.

Inventories

Inventories of finished products, work in progress and by-products are
valued at production cost including direct manufacturing costs plus price-level
restatement ("restated cost"). Inventories of goods for resale, raw materials,
other materials and materials in transit are valued at restated cost. Work in
progress and finished goods include direct and indirect manufacturing costs.
Madeco regularly reviews inventory quantities on hand and records a provision
for excess and obsolete inventory based primarily on an estimated forecast of
product demand and production requirements. Inventory values do not exceed their
estimated net realizable value. Additionally, Madeco's estimates of future
product demand may prove to be inaccurate, in which case the company may have
understated or overstated the provision required for excess and obsolete
inventory. In the future, if inventory is determined to be overvalued, Madeco
would be required to recognize such costs in cost of goods sold at the time of
such determination. Likewise, if inventory is determined to be undervalued,
Madeco may have over-reported costs of goods sold in previous periods and would
be required to recognize such additional operating income at the time of sale.
Therefore, although Madeco makes every an effort to ensure the accuracy of its
forecasts of future product demand, any significant unanticipated changes in
demand or technological developments could have a significant impact on the
value of its inventory and reported operating results.

Accounting policies common to all segments and areas of accounting to which you
may not be accustomed.

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. Our 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. The inflation rate used for purposes of such
adjustments is the change in the Consumer Price Index during the 12 months ended
November 30 of the reported year. The change in the Consumer Price Index used
for price-level restatement purposes was 1.0% in 2003, 2.5% in 2004 and 3.6% in
2005. The actual change in the Consumer Price Index was 1.1% in the year ended
December 31, 2003, 2.4% in the year ended December 31, 2004 and 3.7% in the year
ended December 31, 2005.

For comparative purposes, the historical December 31, 2003 and 2004
Consolidated Financial Statements and their accompanying notes have been
presented in constant Chilean pesos as of December

31, 2005. 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 the effects of inflation.

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
U.S. GAAP. If we applied SFAS No. 52 instead of Technical Bulletin No. 64,
significant differences would result:

- As the methodology used to determine both Quinenco'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 our foreign subsidiaries instead of the U.S. dollar.

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

- Gains or losses recorded in net income for the period related to
foreign currency denominated assets and liabilities may vary
significantly.

Recoverability of Tangible Assets

We assess the permanent impairment of tangible assets and investments
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. Factors we consider important which could trigger an
impairment review include the following:

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

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

- significant negative industry or economic trends.

When we determine 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, we evaluate the future cash flows to
determine if we need 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, we 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

We maintain 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 and interest
rate differential at the period end, because listed forward market prices
between these currencies are not widely available in the Chilean market, and
spot rates and interest rate differentials are the accepted local standard to
estimate fair value.

Our 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, Quinenco and each of its subsidiaries
compute and pay tax on a separate basis. We estimate our 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, we 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. We then assess
the likelihood that our deferred tax assets will be recovered from future
taxable income and to the extent we believe that recovery is unlikely, we
establish a valuation allowance. Revisions to the estimated realizable value of
deferred tax assets or estimated average 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

On January 1, 2004, in accordance with Circular No.3,246 of the
Superintendency of Banks and Financial Institutions, the new standards on
determination of Loan Loss Provisions established in Chapter 7-10 of this
Superintendency's accounting rules became effective. Application of this new
criterion for determining provisions did not have a significant effect on the
financial situation of Banco de Chile and its subsidiaries. In addition, Banco
de Chile redesignated the voluntary provisions recorded as of December 31, 2003
to the additional provisions category in conformity with the new regulations.

In accordance with Circular No. 3,196, issued by the Chilean
Superintendency of Banks, effective October 31, 2002, Banco de Chile modified
its accounting treatment of financial investments in mortgage finance bonds
issued by the Bank. This change consisted of subtracting the amount recorded for
mortgage finance bonds issued by the Bank from assets, and subtracting the
respective mortgage finance bonds obligation from liabilities. Similarly, the
difference between the amount deducted from related assets and liabilities was
recognized under other assets and is amortized using the straight-line method
based on the maturity of the obligation. As of December 31, 2004 and 2005, the
Bank recorded a net amount of Ch$2,230 million and Ch$1,762 million,
respectively, under "Other assets."

U.S. GAAP RECONCILIATION

Chilean GAAP varies in certain important respects from U.S. GAAP, including some
of the methods that are used to measure the amounts shown in the audited
consolidated financial statements and certain additional disclosures required by
U.S. GAAP. Some of the significant differences are related to (i) the
consolidation of banking and insurance operations, (ii) deconsolidation of
Madeco, (iii) discontinued operations, (iv) the recognition of goodwill and
other purchase accounting resulting from the step acquisitions of our banking
operations and their subsequent merger and the subsequent amortization of such
differences, (v) investments accounted for by the equity method, (vi) price
level restatement, (vii) investment securities, (viii) deferred income taxes,
(ix) investment held in other companies and sales of interests in other
companies, and (x) derivatives instruments, which are briefly discussed below.
Those differences, as well as other significant differences between Chilean GAAP
and U.S. GAAP, are described in greater detail in Note 27 to our audited
consolidated financial statements.

(i) Consolidation of Banking and Insurance Operations

Under Chilean GAAP, 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. However, under U.S. GAAP, all majority-owned subsidiaries, including
our banking and insurance subsidiaries, must be consolidated.

(ii) Deconsolidation of Madeco

In November 2005, we exercised only 50% of our preemptive rights in the
capital increase of Madeco, as a consequence, our ownership interest in Madeco
decreased from 51.23% to 47.81%. Under Chilean GAAP, we continue to consolidate
Madeco, because we can exercise control throughout our majority in the Board of
Directors of Madeco. Although for U.S. GAAP purposes, it is acknowledged that,
as a practical matter, we are able to elect the majority of the directors,
because a portion of the minority shareholders of Madeco do not attend
shareholders meetings where the Board is elected, we do not have the legal power
to direct the actions of Madeco without regard to probabilities. As such, under
U.S. GAAP beginning in November 2005, we began to account for our investment in
Madeco under the equity method.

(iii) Discontinued Operations

Under Chilean GAAP, we record divestitures of investments or assets in the
year in which they occur and no restatement to the financial statement
information presented in previous years is required after a divestiture has
occurred. Under U.S. GAAP, in accordance with SFAS 144 Accounting for the
Impairment or Disposal of Long-Lived Assets, the discontinued operations of a
component must be retroactively separated from the continuing operations of an
entity, when the operations and cash flows of a component will be eliminated
from the ongoing operations of an entity as a result of a disposal or a sale
transaction, and the entity will not have any significant continuing involvement
in the operations of the component after the disposal transaction.

In 2003, we committed to a plan to dispose of our equity participation in
the consolidated subsidiary, Lucchetti Chile. In addition, Indalsa's operations
in Peru are considered as discontinued as of December 31, 2003 as they were
effectively abandoned due to the court case discussed in Note 20 b) of the
financial statements. Indalsa Peru was reported as part of the Food and Beverage
operating segment. As a result of the above, it was accounted for as a
discontinued operation in accordance with SFAS 144 and, accordingly, amounts in
the reconciliation of net income to U.S. GAAP and the additional disclosure
notes required under U.S. GAAP for all periods shown, reflect discontinued
accounting.

During 2004 and 2005, our then subsidiary Madeco disposed substantially
all of its assets of its subsidiary Alufoil that produced mass consumer flexible
packaging products such as aluminum foil, trash bags and plastic wrap in Chile.
It did not maintain any continuing involvement in the operations of this
component after the final disposal transaction. As a result of the disposal, the
results of operations of that component have been eliminated from the ongoing
operations of our then subsidiary Madeco.

At the end of 2003, Hoteles Carrera, sold its main hotel located in
Santiago to the Chilean government. In 2004, Hoteles Carrera did not renew the
leases it had on three hotels it operated in the north of Chile. In 2005,
Hoteles Carrera sold its remaining hotel, Hotel Araucano in Concepcion,
discontinuing its operations in the hopitality industry. As a result of above,
Hoteles Carrera was accounted for as a discontinued operation in accordance with
SFAS 144. Accordingly, amounts in the reconciliation of net income to U.S. GAAP
and the additional disclosure notes required under U.S. GAAP for all periods
shown, reflect discontinued accounting.

(iv) Recognition of purchase accounting and merger adjustments

Under Chilean GAAP, we 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 and amortized on a straight-line basis over a
maximum period of twenty years considering the expected period of return of the
investment.

Additionally, our then subsidiary Madeco through its indirect subsidiary
Madeco Brasil Ltda., acquired the remaining 50% interest in Optel and also
renegotiated and repaid indebtedness owed by Optel to its creditors. Under
Chilean GAAP, as a result of that step acquisition, our then subsidiary Madeco
regained control over Optel and reversed through 2005 net income, the impairment
previously recorded in 2003. In addition, under Chilean GAAP the excess of the
net assets acquired over the cost of acquisition referred to as "negative
goodwill" was recorded in the step acquisition of an additional 50% interest in
Optel in 2005. This negative goodwill is being amortized on a straight-line
basis over a period of 20 years.

Under U.S. GAAP, we have 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 and tested for impairment at least
annually. Included in the fair value of the assets and liabilities related to
the step acquisitions of Banco de Chile and Banco Edwards are identifiable
intangible assets, such as the brand name and the value of the banks' long-

term customer relationships as well as off-balance sheet identifiable
liabilities, such as the subordinated debt of our subsidiary SAOS (see
discussion of the"subordinated debt"in the Business Overview section).

Under U.S. GAAP, the impairment write-offs on investments are not be
reversed for improvements in the situation affecting the underlying investment.
Also the negative goodwill determined on the step acquisition of an additional
50% interest in Optel in 2005 would have been allocated as a reduction of
non-current assets (property, plant and equipment) in accordance with SFAS 141
Business Combinations.

Under U.S. GAAP, goodwill must be allocated to reporting units and tested
for impairment. We test goodwill, including those amounts related to our banking
operations, for impairment annually or more frequently if events or
circumstances, such as adverse changes in the business climate, indicate that
there may be justification for conducting an interim test. Impairment testing is
performed at the reporting-unit level, which is generally one level below the
each of business segments included in our audited consolidated financial
statements. The test consists of two parts. The first of which is a test
comparing the fair value of each reporting unit to its carrying amount,
including goodwill. If the fair value is less than the carrying value, then the
second part of the test is conducted to measure the amount of potential goodwill
impairment. The implied fair value of the reporting unit goodwill is calculated
and compared to the carrying amount of goodwill recorded in our financial
records. If the carrying value of the reporting unit goodwill exceeds the
implied fair value of that goodwill, then we would recognize an impairment loss
in the amount of the difference, which would be recorded as a charge against net
income.

The fair values of the reporting units are determined using discounted
cash flow models based on each reporting unit's internal forecasts. Based on the
above analyses, under U.S. GAAP, goodwill related to our investment in Madeco
was determined to be impaired during the years ended December 31, 2002 and 2003,
and as a result, a corresponding charge was against income. Goodwill was
determined not to have been impaired as of December 31, 2004 and 2005, nor was
any goodwill written-off during those years.

The initial goodwill and intangibles recorded and subsequent impairment
analysis requires management to make subjective judgments concerning estimates
of how the acquired asset will perform in the future using a discounted cash
flow analysis. Additionally, estimated cash flows may extend beyond ten years
and, by their nature, are difficult to determine. Events and factors that may
significantly affect the estimates include competitive forces, customer behavior
and attrition, changes in revenue growth trends, cost structures and technology
and changes in interest rates and specific industry or market sector conditions.
Impairment is recognized earlier whenever warranted.

(v) Investments accounted for by the equity method

We record certain investments using the equity method under both Chilean
and U.S. 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. Our 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, we are
required to adjust an investee's Chilean GAAP financial statements to U.S. GAAP
in order to determine our equity participation in the net income of the
investment under U.S. GAAP. There are significant differences in accounting
criteria applied under Chilean GAAP as compared to U.S. GAAP in our equity
method investments in CCU, Madeco and Banco de Chile.

In CCU, the main U.S. GAAP differences in accounting criteria relate
primarily to deferred income taxes, goodwill and trademark amortization,
employee severance indemnities and the capitalization of interest cost.

As mentioned in ii), under U.S. GAAP, beginning in November 2005, we began
to account for our investment in Madeco under the equity method.

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

(vi) 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 our
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.

Although the cumulative inflation rate in Chile as measured by the
Consumer Price Index for the three-year period ended December 31, 2005 was only
approximately 7.3%, the inclusion of price-level adjustments in our consolidated
financial statements is considered appropriate under the prolonged inflationary
conditions that have affected the Chilean economy in the past. Therefore, we
have not eliminated the effect of price-level changes in our reconciliation to
U.S. GAAP.

(vii) Investment Securities

We held a 5.7% ownership interest in Entel as of December 31, 2003, 2004
and 2005. Under Chilean GAAP, this investment is recorded based on our equity
participation in the net income and net equity of Entel. Under U.S. 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 our results from operations.

(viii) Deferred Income Taxes

On January 1, 2000, we 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 U.S. GAAP purposes, in prior years we 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, we 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 U.S. GAAP differ primarily due to the recognition for U.S. GAAP
purposes of the reversal of deferred income taxes included in the U.S. GAAP
reconciliation in prior years.

(ix) Investments held in other companies and sales of interests 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 U.S. 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 the carrying value in the interests in other
companies that we hold, when we sell such investments, there is a difference in
the amount of gain or loss that is recorded under U.S. GAAP and Chilean GAAP.

(x) Derivative Instruments

The Chilean Superintendency of Banks' guidelines require that Banco de
Chile accounts for forward contracts between foreign currencies and the U.S.
dollar, or between the U.S. dollar and the Chilean peso, or the UF, at the
closing spot exchange rate. Any initial discount or premium is amortized over
the life of the contract. Interest rate swap agreements are treated as
off-balance-sheet financial instruments. The net interest effect, which
corresponds to the difference between interest income and interest expense
arising from such agreements, is recorded in net income in the period that such
differences originate. Under U.S. GAAP, Banco de Chile's portfolio of swap
agreements are recorded at their estimated fair value and forward contracts
between the U.S. dollar and the Chilean peso, or the UF, at the fair value based
on the forward exchange rate. Additionally, the Bank separately measures
embedded derivatives included in certain contracts as freestanding derivative
instruments at their estimated fair values, recognizing changes in earnings when
they occur.

These differences are explained in greater detail in Note 27 to our
audited consolidated financial statements.

B. LIQUIDITY AND CAPITAL RESOURCES

General

Some of our loan agreements contain contractual restrictions on the
ability of subsidiaries to transfer funds to the parent company in certain
specific situations, such as negative covenants on the payment of dividends or
advances. However, Quinenco does not believe that any of these covenants or
restrictions will have any material impact on its ability to meet its cash
obligations. Note 27 to our Consolidated Financial Statements provides a
description of restrictions which limit the payment of dividends.

We own a controlling interest in most of the companies in which we invest
and have in the past and expect in the future to influence the dividend policies
of our 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 our
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.

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.

CASH AND CASH EQUIVALENTS

2003 2004 2005
---- ---- ----
(in millions of constant Ch$)

Madeco ................................. 5,757 13,335 7,791
Indalsa ................................ 8,556 1,878 254
Telefonica del Sur ..................... 2,014 8,501 2,238
Hoteles Carrera ........................ 6,465 973 3,531
Quinenco & intermediate holding co ..... 37,002 19,270 81,608
------ ------ ------
Total ........................... 59,794 43,957 95,422
====== ====== ======

At December 31, 2005, we had cash and cash equivalents totaling Ch$95,422
million on a consolidated basis and Ch$16,630 million on a non-consolidated
basis. This compares to Ch$ Ch$43,957 million on a consolidated basis and
Ch$11,102 million on a non-consolidated basis at December 31, 2004 and Ch$59,794
million on a consolidated basis and Ch$29,647 million on a non-consolidated
basis at December 31, 2003.

DIVIDEND INCOME

The following table shows dividends received by us from our investments in
2003, 2004 and 2005:

% Corresponding to Amount Corresponding to
Dividends Paid Quinenco's interest (1) Quinenco's Economic Interest
-------------- ----------------------- ----------------------------
(in millions of constant Ch$, except percentages)

2005
Banco de Chile ................ Ch$152,623 29.9% Ch$47,659
CCU ........................... 29,623 32.1 8,993
Telefonica del Sur ............ 4,577 73.7 3,362
Entel ......................... 217,727 5.7 12,353
Others ........................ n/a n/a 236
Eliminations .................. n/a n/a (3,362)
----------
Total ................. n/a n/a Ch$69,241
==========

2004
Banco de Chile ................ Ch$135,250 29.2% Ch$40,619
CCU ........................... 29,926 30.8 8,768
Telefonica del Sur ............ 4,643 73.7 3,357
Entel ......................... 22,253 5.7 1,282
Others ........................ n/a n/a 149
Eliminations .................. n/a n/a (3,357)
----------
Total ................. n/a n/a Ch$50,818
==========

2003
Banco de Chile ................ Ch$55,890 29.2% Ch$16,457
CCU ........................... 199,947 30.8 61,704
Telefonica del Sur ............ 4,482 73.6 3,208
Entel ......................... 16,580 5.7 924
Others ........................ n/a n/a 83
Eliminations .................. n/a n/a (3,208)
----------
Total ................. n/a n/a Ch$79,168
==========

(1) Directly or indirectly

OPERATING ACTIVITIES

Consolidated cash flow provided by operating activities was Ch$84,235
million in 2005, compared to cash flow provided by operating activities of
Ch$59,913 million and Ch$68,856 million in 2004 and 2003, respectively.

Operating Activities - 2005

In 2005, cash flow provided by operating activities totaled Ch$84,235
million. The main components of cash flow generated by operating activities in
2005 mainly consisted of dividend income of Ch$69,241 million (see "Dividend
Income" table in this section) and collection of accounts receivable (net of
payments to suppliers and personnel) of Ch$51,882 million. Collection of
accounts receivable (net), of which Ch$62,543 million corresponded to Telefonica
del Sur's and Madeco's operations, was partially offset by net payments to
suppliers and personnel of Ch$10,661 million made by Quinenco and intermediate
holding companies. Cash flow provided by operating activities was partially
offset by cash flow used in operating activities, which mainly consisted of
interest paid of Ch$27,406 million and VAT taxes and other similar items paid of
Ch$10,071 million.

The increase of Ch$24,322 million in cash flow provided by operating
activities between 2005 and 2004 is mainly due to an increase in dividend income
of Ch$18,423 million and a net increase of Ch$7,616 million in the collection of
accounts receivable. The variation in dividend income between the

two years is mainly due to an extraordinary dividend of Ch$10,622 million paid
by Entel in 2005 and an increase of Ch$7,040 million in dividends from Banco de
Chile. The net increase in collection of accounts receivable was attributable to
Madeco's operations.

Operating Activities - 2004

In 2004, cash flow provided by operating activities totaled Ch$59,913
million. The cash flow generated by operating activities in 2004 mainly
consisted of dividend income of Ch$50,818 million (see "Dividend Income" table
in this section) and collection of accounts receivable (net of payments to
suppliers and personnel) of Ch$44,266 million. Collection of accounts receivable
(net), of which Ch$55,536 million corresponded to Telefonica del Sur's and
Madeco's operations, was partially offset by net payments to suppliers and
personnel of Ch$11,270 million made by Quinenco and intermediate holding
companies. Cash flow provided by operating activities was partially offset by
cash flow used in operating activities, which mainly consisted of interest paid
of Ch$27,644 million and VAT taxes and other similar items paid of Ch$12,114
million.

The negative variation of Ch$8,943 million in cash flow provided by
operating activities between 2004 and 2003 is attributable to a decrease in
dividend income of Ch$28,350 million, the effect of which was partially offset
by a reduction in the amount of interest, VAT taxes and other expenses paid
during the year, as well as an increase in the collection of accounts receivable
(net), the sum of which amounted to an increase of Ch$15,675 million compared to
2003. The variation in dividend income between the two years is mainly explained
by an extraordinary dividend of Ch$55,018 million paid by CCU in 2003. Interest
paid decreased by Ch$5,291 million, mostly in relation to the divestment of
Lucchetti Chile and lower indebtedness at Madeco. The decline in VAT taxes and
other similar items paid is primarily attributable to the sale of Lucchetti
Chile. Other expenses decreased as a result of the reductions in other expenses
paid at Madeco and Telefonica del Sur. Accounts receivable collections increased
at both Madeco and Telefonica del Sur by Ch$4,827 million and Ch$5,934 million,
respectively, although at the consolidated level, this was partially offset by
the sale of Lucchetti Chile which explained a reduction in the same account of
Ch$7,661 million.

Operating Activities - 2003

In 2003, cash flow provided by operating activities totaled Ch$68,856
million. The cash flow generated by operating activities in 2003 mainly
consisted of dividend income of Ch$79,168 million (see "Dividend Income" table
in this section) and collection of accounts receivable (net of payments to
suppliers and personnel) of Ch$40,511 million. Collection of accounts receivable
(net), of which Ch$44,775 million corresponded to Telefonica del Sur's and
Madeco's operations, were partially offset by net payments to suppliers and
personnel of Ch$7,558 million made by Quinenco. Cash flow provided by operating
activities was partially offset by cash flow used in operating activities, which
mainly consisted of interest paid of Ch$32,935 million and VAT taxes and other
similar items paid of Ch$15,131 million.

INVESTING ACTIVITIES

In 2005, consolidated cash flow provided by investing activities was
Ch$51,890 million, compared to cash flow used in investing activities of
Ch$32,138 million in 2004 and Ch$12,701 million provided by investing activities
in 2003.

Investing Activities - 2005

In 2005, proceeds from the sale of investments amounted to Ch$71,795
million, attributable to the disposal of shareholdings in Almacenes Paris and
Cencosud for Ch$59,196 million and the disposal of other investments for
Ch$12,599 million (see table "Proceeds from Sales of Investments" in this
section).

Proceeds from the sale of property, plant and equipment amounted to
Ch$6,176 million, related to disposals of property, plant and equipment. The
cash flow provided by investing activities was partially

offset by investment in property, plant and equipment of Ch$18,703 million,
mainly attributable to investments made by Madeco and Telefonica del Sur, which
totaled Ch$10,398 million and Ch$8,157 million, respectively. In addition, cash
flow of Ch$10,577 million was invested in other companies, primarily by
Telefonica del Sur.

Investing Activities - 2004

In 2004, cash flow of Ch$52,551 million was used to invest in other
companies, primarily the purchase of 11.4% of the shares of Almacenes Paris for
Ch$36,672 million and Ch$15,879 million in other investments, including a 50%
interest in Calaf S.A. Investment in property, plant and equipment amounted to
Ch$19,800 million, mainly attributable to investments made by Madeco and
Telefonica del Sur, which totaled Ch$15,969 million. The cash flow used in
investing activities was partially offset by proceeds of Ch$11,811 million from
the sale of Lucchetti Chile and proceeds from the sale of other investments of
Ch$29,697 million, primarily related to the liquidation of financial instruments
held by Madeco (see table "Proceeds from Sales of Investments" in this section).

Investing Activities - 2003

In 2003, the main components of cash flow provided by investing activities
were funds provided by other investing activities (net) of Ch$40,065 million,
proceeds from the sale of investments of Ch$21,666 million and proceeds from the
sale of property, plant and equipment of Ch$16,733 million (see table "Proceeds
from Sales of Property, Plant and Equipment" in this section). Cash flow
provided by other investing activities (net) mostly consisted of a settlement
payment of Ch$38,266 million received by Quinenco from its former partner in
IRSA in connection with the arbitration process that was concluded in early
2003. Proceeds from the sale of other investments were almost entirely
attributable to the liquidation of financial instruments held by Madeco (see
table "Proceeds from Sales of Investments" in this section). Proceeds from the
sale of property, plant and equipment mainly corresponded to the sale of the
Hotel Carrera building and grounds in November 2003 for Ch$14,999 million.

Cash flow provided by investing activities was partially offset by
investments in financial instruments of Ch$51,856 million, of which Ch$51,780
million corresponded to Madeco, and additions to property, plant and equipment
of Ch$12,905 million of which Ch$7,764 million and Ch$3,694 million corresponded
to fixed asset additions at Telefonica del Sur and Madeco, respectively.

PROCEEDS FROM SALES OF PROPERTY, PLANT AND EQUIPMENT

The following table shows proceeds received by us from the sales of
property, plant and equipment in 2003, 2004 and 2005:

2003 2004 2005
==== ==== ====
(in millions of constant Ch$)

Madeco ........................................ Ch$1,138 Ch$1,022 Ch$305
Indalsa ....................................... 49 1,019 1,555
Telefonica del Sur ............................ 39 215 11
Hoteles Carrera ............................... 15,000 809 2,864
Quinenco & intermediate holding co ............ 508 1,298 1,441
--------- -------- --------
Total ................................. Ch$16,734 Ch$4,363 Ch$6,176
========= ======== ========

PROCEEDS FROM SALES OF INVESTMENTS

The following table shows proceeds received by us from the sales of
investments in 2003, 2004 and 2005:

2003 2004 2005
==== ==== ====
(in millions of constant Ch$)

Madeco ........................................ Ch$21,587 Ch$29,697 Ch$213
Indalsa ....................................... -- 11,811 --
Telefonica del Sur ............................ -- -- --
Hoteles Carrera ............................... -- -- --
Quinenco & intermediate holding co ............ 79 -- 71,582
--------- --------- ---------
Total ................................. Ch$21,666 Ch$41,508 Ch$71,795
========= ========= =========

FINANCING ACTIVITIES

Madeco, Telefonica del Sur, Indalsa, Banco de Chile, CCU, Hoteles Carrera
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 is
generally 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 Banco de Chile 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, CCU, Entel and Habitaria, which are
accounted for under the equity method, are not included in our consolidated
statements of cash flows.

In 2005, consolidated cash flow used in financing activities was Ch$81,069
million, compared to cash flow used in financing activities of Ch$42,925 million
in 2004 and cash flow provided by financing activities of Ch$105,865 million in
2003.

Financing Activities - 2005

Quinenco's treasury policy is to invest excess cash in liquid financial
instruments issued by highly rated financial institutions in Chile and abroad.
Investments are primarily made in Chilean pesos and U.S. dollars.

In 2005, the main use of cash flow from financing activities was payments
of loans (net of new borrowings), which amounted to Ch$67,648 million and mainly
corresponded to payments made by Madeco, Telefonica del Sur and intermediate
holding companies. In addition, cash flow was used to pay bonds (net) at Telsur,
Quinenco and Madeco for Ch$26,688 million. Quinenco paid cash dividends of
Ch$14,449 million in 2005. Cash flow provided by financing activities was
primarily related to a capital increase of Ch$29,510 million contributed by
minority shareholders at Madeco.

Financing Activities - 2004

In 2004, the main use of cash flow from financing activities was payments
of loans (net of new borrowings), which amounted to Ch$55,821 million and mainly
corresponded to payments made by LQIF and intermediate holding companies. In
addition, LQIF repaid a loan to a related company amounting to Ch$42,076
million. Quinenco paid cash dividends of Ch$19,528 million in 2004. Cash flow
provided by financing activities mainly consisted of a net increase of Ch$66,412
million in bonds payable. In 2004, LQIF and Madeco issued bonds (net of costs)
amounting to Ch$118,844 million and Ch$31,663 million, respectively, in the
Chilean market. Bond obligations were partially offset by payments made by

Quinenco, Madeco and Telefonica del Sur of Ch$84,095 million. Additional cash
flow provided by financing activities was primarily related to a capital
increase of Ch$10,539 million contributed by minority shareholders at Madeco.

Financing Activities - 2003

In 2003, the main use of cash flow from financing activities was payments
of loans and bonds (net of new borrowings and issuances), which amounted to
Ch$166,578 million and mainly corresponded to payments made by Madeco, Quinenco
and intermediate holding companies. Net cash flow used in financing activities
was partially offset by contributions by minority shareholders to Madeco's 2003
capital increase of Ch$47,586 million. Cash flow provided by financing
activities also included an increase of Ch$14,650 million in accounts payable to
related companies, mainly consisting of a US$19 million (value at transaction
date) loan made by a financial entity related to Quinenco's controlling
shareholder, Andsberg Finance Corporation Ltd., to an intermediate holding
company of Quinenco.

DEBT STRUCTURE

As of December 31, 2005, approximately 78.9% of our Ch$519,214 million in
outstanding liabilities consisted of long-term interest bearing debt. Our
outstanding long-term bank loans (excluding the current portion of long-term
debt of Ch$16,767 million) which totaled Ch$156,855 million in 2005, generally
consist of borrowings by Quinenco and intermediate holding companies, Madeco and
Telefonica del Sur for periods up to five years. Approximately 3.1% of these
long-term bank facilities were dollar-denominated with interest rates averaging
4.9%, 90.9% were Chilean UF-denominated with interest rates averaging 5.2% and
6.0% were in other currencies with interest rates averaging 20.1%. The average
interest rate of U.S. dollar-denominated debt was 4.1% and the average interest
rate of Chilean UF-denominated debt was 3.4% in the year 2004. Additionally, we
have long-term bond obligations denominated in Chilean UF, which at December 31,
2005 amounted to Ch$246,260 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 4.1% in 2005. 15.1% of our bond obligations will mature
within the next three years.

As of December 31, 2005, our outstanding short-term bank loans totaled
approximately Ch$24,443 million, which represented 4.7% of our outstanding
liabilities. Our outstanding short-term bank loans mostly consist of borrowings
by Madeco and Quinenco under unsecured revolving credit facilities provided by
Chilean and foreign commercial banks. At December 31, 2005, we had no committed
credit lines. Approximately 53.3% of short-term facilities were
dollar-denominated with interest rates which averaged 5.3% and 23.3% were
Chilean UF-denominated with interest rates which averaged 6.8%. In 2004,
approximately 45.6% of these short-term facilities were dollar-denominated with
interest rates which averaged 4.1% and 30.8% were Chilean UF-denominated with
interest rates which averaged 4.6%.

Our total dollar-denominated liabilities amounted to Ch$27,492 million at
December 31, 2005, compared to Ch$46,480 million at December 31, 2004. Our total
debt to capitalization ratio decreased to 35.6% at December 31, 2005 from 41.8%
at December 31, 2004.

At December 31, 2005, our net consolidated dollar-denominated assets
(after deducting dollar-denominated liabilities) were Ch$96,131 million,
compared to net consolidated dollar-denominated assets of Ch$96,152 million in
2004.

There is no seasonality with respect to Quinenco's borrowings. For a
summary of the maturities of our long-term debt, see "Item 11. Quantitative and
Qualitative Disclosures About Market Risk".

We utilize foreign exchange forward contracts and swap exchange currency
contracts in order to hedge our currency exchange exposure as part of our 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".

The following table shows our financial debt structure consisting of
interest bearing bank debt and bond debt in 2003, 2004 and 2005:

2003 2004 2005
==== ==== ====
(in millions of constant Ch$)

Madeco ........................................ Ch$155,595 Ch$123,547 Ch$80,024
Indalsa ....................................... 48,080 -- --
Telefonica del Sur ............................ 61,893 61,251 44,084
Hoteles Carrera ............................... 311 -- --
Quinenco & intermediate holding co. ........... 350,467 359,731 335,862
---------- ---------- ----------
Total ................................. Ch$616,346 Ch$544,529 Ch$459,970
========== ========== ==========

FINANCIAL COVENANTS AND OTHER RESTRICTIONS

We are subject to certain financial covenants and restrictions with
respect to our existing agreements with banks and bondholders. We believe that
we are in compliance with all of the financial covenants and restrictions
associated with its credit facilities and bond issuances as of December 31,
2005. For further information on financial covenants and other restrictions, see
Note 16 d) to our Consolidated Financial Statements.

CAPITAL EXPENDITURES AND OTHER INVESTMENTS

The following table sets forth the capital expenditures and other
investments made by each of our principal businesses for the years ended
December 31, 2003, 2004 and 2005:

Capital Expenditures and Other Investments 2003 2004 2005
==== ==== ====
(in millions of constant Ch$)
Quinenco and Consolidated Subsidiaries

Madeco (Manufacturing) .................................... Ch$3,713 Ch$6,677 Ch$10,582
Telefonica del Sur (Telecommunications) .................... 7,948 9,300 15,209
Indalsa (Food and Beverage) ............................... 345 8,001 3,254
Hoteles Carrera (Real Estate and Hotel Administration) ..... 275 19 11
Quinenco and others ........................................ 827 48,354 224
--------- --------- ---------
Total ...................................................... Ch$13,108 Ch$72,351 Ch$29,280
--------- --------- ---------
Main Equity Investments (1)
CCU (Food and Beverage) .................................... 62,583 37,372 64,373
Banco de Chile (Financial Services) ........................ 11,907 20,569 25,531
--------- --------- ---------
Total ...................................................... Ch$74,490 Ch$57,941 Ch$89,904
========= ========= =========

----------
(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.

EXPANSION PLANS; FUTURE CAPITAL EXPENDITURES

The following table sets forth the total capital expenditures currently
planned to be made by us for the years ending December 31, 2006, 2007 and 2008:

Planned Capital Expenditures 2006 - 2008 2006 2007 2008
---- ---- ----
(in millions of constant Ch$)

Quinenco and Consolidated Subsidiaries
Madeco (Manufacturing) ............................. Ch$9,793 Ch$7,320 Ch$7,320
Telefonica del Sur (Telecommunications) ............ 12,276 11,672 9,175
Quinenco and others (1) ............................ -- -- --
---------- ---------- ----------
Total .............................................. Ch$22,069 Ch$18,992 Ch$16,495
========== ========== ==========
Main Equity Investments
CCU (Food and Beverage) ............................ Ch$60,823 Ch$55,841 Ch$65,363
Banco de Chile (Financial Services) ................ 54,258 41,374 35,239
---------- ---------- ----------
Total .............................................. Ch$137,150 Ch$116,207 Ch$117,097
========== ========== ==========

(1) Capital expenditures for Quinenco, intermediate holding companies,
subsidiaries and equity investments do not include future acquisitions for
the years 2006-2008. Historically, capital expenditures used for
acquisitions have been significant, though they may vary.

We review our capital expenditures program periodically and changes are
made as needed and appropriate. Accordingly, We cannot assure you that we will
make the capital expenditures described in this annual report. 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 our
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 2006 through 2008 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 Quinenco's control.

Banco de Chile. Banco de Chile has planned capital expenditures amounting
to Ch$130,871 million for the three year period 2006-2008. Planned capital
expenditures are related to investment in information technology, including new
treasury and anti-money laundering software and the continued implementation of
its core technology system. In addition, Banco de Chile plans to maintain and
improve its existing branch network infrastructure. Capital expenditures for the
three-year period will be financed with internally generated funds.

CCU. CCU plans to make an aggregate of approximately Ch$182,027 million in
capital expenditures over the 2006-2008 period, mainly to adapt, update and
increase production capacity, install new packaging 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.

Madeco. Madeco's capital expenditures for the years 2006 to 2008 are
estimated to total Ch$24,433 million. Capital expenditures for the three year
period related to the company's wire and cable business unit are expected to be
Ch$13,125 million, to the brass mills business unit, Ch$2,974 million, to the
flexible packaging business unit, Ch$6,218 million and to the aluminum profiles
business unit, Ch$2,116 million. The planned capital expenditures are generally
to maintain and upgrade production facilities and machinery and equipment used
in production processes. Madeco intends to fund its capital expenditures with
internally generated funds, and if necessary, with debt or equity financing.

Telefonica del Sur. Telefonica del Sur's capital expenditures planned for
2006, 2007 and 2008 relate to the expansion of its client base and ADSL
technology services for businesses and the mass market in the south of Chile.
Telefonica del Sur plans to continue improving its existing infrastructure in
order to support expansion of new DSL, tele-security, long distance, WLL, Call
Center and wireless communications services. Capital expenditures are also
contemplated for the development of operations software, administration and
systems support, among others. Telefonica del Sur expects to finance its capital
expenditures mainly through internally generated funds, and if necessary, with
debt financing.

C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

We do not own patents, licenses to technology, copyrights or other
intellectual property, nor are we involved in any research and development. We
have not spent any money on research and development during the three year
period immediately preceding the date of this annual report.

D. TREND INFORMATION

Economic Overview

Chile. Terms of exchange continued improving, and excess capacity allowed
the Chilean economy to grow above its long-term potential in 2005. The Chilean
economy grew by 6.3% in 2005, internal demand by 11.4% and investment levels
expanded by 24.7%. Higher prices of copper and other exports resulted in a
commercial surplus of over US$10 billion, and a current account surplus was
achieved for the second consecutive year. Likewise, fiscal accounts registered a
surplus equivalent to 4.8% of GDP. In 2006, despite the high price of copper,
economic growth is expected to slow to about 5.5% as excess capacity is
absorbed. This is not however, expected to affect current account and fiscal
account surpluses.

Argentina. The Argentine economy experienced robust growth for the third
consecutive year. In 2005, the economy grew by 9.2%, which represented nearly a
30% recovery in three years. Nonetheless, GDP per capita remains well below its
1998 level, which indicates that only in 2006 will the economy begin to
experience real growth. Internal demand also grew rapidly in 2005, reaching
11.1%. In addition, Argentina prepaid its debt with the IMF and is now free of
the restrictions imposed by that organization. GDP growth for 2006 is estimated
at 7.5%. However, economic policy remains unstable, which has contributed to
growing inflationary pressure and the lack of a comprehensive medium and
long-term growth plan for investments, which could complicate the future
development of the country.

Brazil. Despite a strong international economy and easing of interest
rates in 2005, the Brazilian economy only grew by 2.3% in 2005, less than half
of that registered in 2004, but consistent with average growth figures over the
last 25 years. Current account surpluses were maintained for the third
consecutive

year, while public debt was stable at 51% of GDP. Inflation dropped to 5.7% in
2005. In 2006, economic growth of 3.5% is expected, which should stimulate a
more expansive monetary policy. Presidential elections in October are not
expected to dampen the economic environment.

Peru. The Peruvian economy has continued to show one of the strongest
performances in the region, with growth in 2005 of 6.7%, in line with its seven
year growth trend. High export prices and prudent macroeconomic management of
the economy have allowed Peru to maintain a stable fiscal situation, low
inflation and solid external accounts.

Quinenco

As of December 31, 2005, Quinenco's investments in the Financial Services
Sector represented approximately 68% of Quinenco's total investments and 60% of
total assets at the corporate level. Due to the importance of Quinenco's
investments in the financial services sector, the level of income from dividends
and participation in net income will depend, to a large extent, on results from
this sector.

The share acquisition of Banco de Chile involved significant cash outlays
during 2001, which amounted to Ch$340,340 million (historic value) in 2001,
which were financed with debt. Until the debt incurred in connection with the
acquisition has been further reduced through sales of non-strategic assets,
dividend income and other resources, we will continue to incur interest expense
associated with the current indebtedness.

In connection with the acquisition of Banco de Chile, we recognized
goodwill in the amount of 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.

Financial Services - 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 greater flexibility in the regulatory framework of the Chilean financial
system, and continued consolidation of the Chilean banking industry have
intensified this competition. Banco de Chile expects the trend of increased
competition to continue, particularly in connection with the formation of new
large financial groups and the creation of new niche banks. The Bank also faces
competition from non-bank competitors with respect to some of its credit
products, such as credit cards and consumer loans, mainly from large department
stores. Although we believe that Banco de Chile is currently large enough to
compete effectively in its target markets, the continued consolidation may
materially and adversely affect Banco de Chile's financial condition and results
of operations by affecting the net interest margins it is able to generate and
creating further efficiency pressures.

IRSA

In 2005 and 2006, IRSA, a 50% affiliate of Quinenco, incurred indebtedness
related to additional share purchases of CCU, which amounted to Ch$43,486
million. The debt incurred in connection with the share purchases will been
repaid from dividends received by IRSA from CCU. As a consequence, we could
receive a lower level of dividends from CCU until IRSA's indebtedness is fully
repaid.

Food and Beverage - CCU

The most significant trend affecting CCU's results of operations during
the past five years has been the prolonged recession in Argentina which
culminated in an economic crisis in late 2001, and the stagnated consumption due
to the weak economic recovery after its 1999 recession in Chile.

After four years of recession in Argentina, during 2003 the economy
stabilized, evidenced by significant increases in consumption and prices in the
beer industry. This positive trend continued throughout 2004 and 2005, when GDP
grew by 9.0% and 9.2%, respectively. However, current prices in U.S. dollar
terms are still lower than those prevailing in 2001, before the Argentine peso
devaluation. Further recovery in Argentina will depend on deep structural
reforms in many areas, including the relationship between the federal government
and the provinces, regulations in many markets, the resumption of external debt
service, as well as the solution of the local energy crisis and an increase in
investments to support the current economic growth.

Revenues from CCU Argentina in Chilean pesos are also subject to the
volatility of exchange rates of the Chilean peso, U.S. dollar and Argentine peso
in any given period, which may also affect the level of income reported from
CCU's foreign operations under Chilean GAAP.

The Chilean economy experienced significant growth of 6.3% in 2005, after
an increase of 5.9% in 2004. This positive trend has continued, but at a slower
pace, during 2006. Growth for the year is expected to be between 5.0% and 6.0%,
according to the Central Bank of Chile. On the domestic side of the economy,
internal demand increased 11.4% during 2005. In spite of the favorable economic
climate, there can be no assurance that CCU's products' consumption will grow in
the same proportion.

CCU expects that its wine business, after experiencing a decline in
results as a consequence of higher costs of raw materials and lower revenues due
to the appreciation of the Chilean peso, will improve its profitability level,
both in domestic and export markets. Measures have been taken by the company to
reduce costs and expenses, reduce SKUs, increase prices and focus on export
markets in order to adapt the organization to the effects of a stronger Chilean
peso.

In addition, CCU's beer brands in Chile may face increased competition
from other brewers as well as from alcoholic beverages such as wine and spirits,
and non-alcoholic beverages such as soft drinks. Beer consumption in Chile has
been historically 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. In fact, during 2005, beer consumption, as well as wine prices,
increased significantly. Nevertheless, during recent years, wine price increases
have not significantly influenced beer consumption levels due to factors like
awareness of the positive effects of moderate wine consumption on health and
higher wine quality. Similarly, 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, which may also affect further
growth in beer consumption. Recently, as a result of an abundant 2006 harvest,
the price of bulk wine decreased considerably. However, it is not yet known if
this will affect wine prices during the second half of 2006.

In CCU's pisco business, prices recovered during 2005 although it cannot
make any affirmation as to whether prices will continue at current levels or
will continue rising. It is expected that the industry will continue launching
new products in order to create new consumption occasions.

Since 2005, the Argentine government has restricted gas exports to Chile
due to supply problems in that country. This situation has increased the costs
of operating CCU's beer production plants in Chile and Argentina, as well as its
soft drinks plants in Chile. Additionally, it has increased electrical power
costs related to these same gas restrictions. CCU does not need additional
investments because its boilers can work with gas or with alternative fuels,
such as diesel oil. Considering current energy prices, CCU estimate that the
higher costs at a consolidated level should be approximately Ch$1,900 million
for 2006.

Manufacturing - Madeco

In 2005, Madeco carried out its second capital increase in three years.
Proceeds obtained from the capital increases have been mainly used to reduce
company indebtedness, which has resulted 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. The company believes that these steps have led to a sustainable
recovery in its results, however the cyclical nature of the company's principal
businesses will continue to make it vulnerable to the effects that reductions in
investment levels and macroeconomic conditions in its main markets could have on
its future results from operations.

At the beginning of 2002, Madeco closed its cable and brass mills
operations in Argentina as a consequence of the economic deterioration and
currency devaluation in that country, considerably reducing its exposure in that
country. As of December 31, 2005, Madeco had 15.9% of its property, plant and
equipment in Argentina and in 2005, 2004 and 2003 derived 6.5%, 6.8% and 6.9% of
its revenue from its Argentine operations, respectively. While Madeco has
partially reopened its plants for cable and brass mills production in Argentina,
it cannot determine at this time when levels of demand will have the scale to
operate efficiently and whether or not such levels will be sustainable.

Revenues from Madeco's foreign operations in Chilean pesos are also
subject to the volatility of exchange rates of the Chilean peso, U.S. dollar,
the Brazilian real, the Argentine peso and Peruvian Sole in any given period,
which may also affect the level of income reported from Madeco's foreign
operations under Chilean GAAP.

Madeco has faced and believes it will continue to face, increases in the
prices of its raw materials, particularly, copper. Thus far, Madeco has been
able to transfer cost increases to its customers, although there can be no
assurance that Madeco will be able to continue transferring cost increases to
its customers or that cost increases will be transferred within a reasonable
period of time, which could affect the further development of its businesses.

While Madeco has access to alternative energy sources, such as oil and
liquid gas, which reduce the impact of the gas restrictions which may be imposed
on Madeco as a consequence of supply problems in Argentina, the cost of such
sources could be higher than its current energy sources and Madeco may not be
able to increase its selling prices in response to this potential cost increase.

Telecommunications - Telefonica del Sur

In recent years, the rate of growth of mobile telephony has exceeded that
of fixed line telephony, and the number of mobile subscribers in Chile in 2005
was greater than the number of fixed line telephony subscribers, with an
estimated penetration rate of 64%. This substitution from fixed line telephony
has tended to diminish Telefonica del Sur's traditional fixed line telephony
revenue base, and further strong growth of mobile telephony could negatively
affect the company's future revenues associated with basic telephony services.
As a consequence, Telefonica del Sur has developed new non-regulated products
and services such as internet, telesecurity and data services to compensate for
the decline in its basic telephony services revenues. These revenues accounted
for approximately 21% of Telefonica del Sur's total revenues in 2005, up from
15% and 11% in 2004 and 2003, respectively.

In addition, in recent times, the Latin American telecommunications
industry has been characterized by the acquisition of local telecommunications
providers by large international operators, which has led to, among other
things, increased competition and consolidation in the industry. The industry is
also undergoing rapid technological change such as VoIP implementation. As
traditional fixed line telephony continues to decline, it is being replaced with
mobile service IP technology and broadband ADSL technology. This technological
convergence, as well as the introduction of new services associated

with internet, has created a highly dynamic scenario, which Telefonica del Sur
believes will contribute towards further consolidation in the telecommunications
industry in 2006.

On a regional basis, new operators offering wireless access to the
internet through WiMax technology show the same tendencies observed in the
United States, Europe and Asia. Operators in Argentina, Brazil and Mexico have
begun to develop WiMax networks within the South American region, which will
most likely lead to the development of new services oriented towards high speed
wireless technology designed to set new standards in the development of internet
access. In Chile, a similar situation is occurring, and Entel recently announced
that it will launch its WiMax network technology, initially to serve companies.
Likewise, Telmex and VTR recently won licensing rights associated with 3.5 Ghz
band width which will initially operate using WiMax technology. Telefonica del
Sur has acquired the same rights for use in its concession area in the Region X
of Chile and is currently developing plans to develop and implement this
technology.

E. OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements as of December 31, 2005.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following tables summarize our contractual and commercial obligations
as of December 31, 2005:

(in millions of constant Ch$)
Contractual Commitments Total Less than 1 year 2-3 years 4-5 years More than 5 years

Short term and long term debt 459,064 55,949 106,101 151,074 145,940
Capital lease obligations 7,134 1,316 1,377 990 3,451
Operating leases 526 273 178 50 25
Service contracts 6,029 3,895 2,134 -- --
Other short term and long term
obligations 43,286 42,488 798 -- --
-----------------------------------------------------------------------------
Total contractual cash obligations 516,039 103,921 110,588 152,114 149,416
=============================================================================

Commercial Commitments Total Less than 1 year 2-3 years 4-5 years More than 5 years

Lines of credit 46,011 7,290 38,720 -- --
Stand by letters of credit -- -- -- -- --
Guarantees 150,397 2,789 30,101 58,754 58,754
Stand by repurchase obligations -- -- -- -- --
Other commercial commitments 3,725 3,725 -- -- --
-----------------------------------------------------------------------------
Total commercial commitments 200,133 13,804 68,821 58,754 58,754
=============================================================================

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, currently consists of seven directors who are elected at the
Annual General Shareholders' Meeting. The entire Board of Directors is elected
every three years. At an Extraordinary Shareholders' Meeting held on November 5,
2004, the number of members of the Board was reduced from nine to seven. The
next election will be held in April 2008. 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.

The following table sets forth information with regard to Quinenco's
directors as of December 31, 2005:

Year First
Name Position in Quinenco Born Elected Principal Directorships
---- -------------------- ---- ------- -----------------------

Guillermo Luksic ......... Chairman of the 1956 1982 CCU (1)(3)
Board ................. Telefonica del Sur (1)(3)
Madeco (1)(3)
Banco de Chile (1)
LQIF (1)(3)
Vina San Pedro (1)(3)
Antofagasta plc (2)
Cia. Pisquera de Chile (1)
ECUSA (1)
Indalsa (1)
Andronico Luksic ......... Vice Chairman of 1954 1978 Banco de Chile (1)
the Board .............. SM Chile (1)
Madeco (1)
CCU (1)
Indalsa (1)
Hernan Buchi ............. Director ............... 1949 1990 Madeco (1)
CCU (advisor) (1)
Indalsa (1)(3)
Soquimich S.A.
Falabella S.A.
Parque Arauco S.A. (advisor)
Pilmaiquen S.A.
P&S S.A.
Alto Palermo (Argentina)
Juan Andres Fontaine ..... Director ............... 1954 1997 Banco Santander Chile
Grupo Mall Plaza
HQI Transelec
Matko Koljatic ........... Director ............... 1944 2003 Almagro S.A.
Interamericana Chile
Jean-Paul Luksic ......... Director ............... 1964 1993 Antofagasta plc (2)(3)
Antofagasta Minerals S.A. (2)(3)
Antofagasta Railway Co. (2)(3)
Aguas Antofagasta (2)(3)
Minera Los Pelambres Ltd.(2)(3)
Minera Michilla S.A. (2)(3)
Minera El Tesoro S.A.(2)(3)
Madeco (1)
Gonzalo Menendez ......... Director ............... 1949 1996 Telefonica del Sur (1)
Inversiones Vita S.A. (1)(3)
Banco de Chile (1)
SM Chile S.A. (1)
Banchile Seguros de Vida S.A. (1)
Banchile Asesorias Financieras (1)
Banchile Administradora General de Fondos (1)
Antofagasta plc (2)
Antofagasta Minerals S.A.(2)
Ferrocarril Antofagasta Bolivia (2)
Minera Michilla S.A.(2)
Banco Latinoamericano de Exportaciones (3)
Fundacion Andronico Luksic A.(2)
Aguas Antofagasta S.A. (2)
Minera Los Pelambres (2)

(1) Subsidiary or affiliate of Quinenco.

(2) Company associated with the Luksic Group.

(3) Chairman of the Board.

100

Guillermo Luksic, Andronico Luksic and Jean-Paul Luksic are brothers.
Other than such relationships, there is no family relationship between any

The following table sets forth Quinenco's key executive officers as of
December 31, 2005, their positions and years of service with Quinenco and with
the Luksic Group:

Years with Years with
Name of Executive Officer Position Quinenco Luksic Group
------------------------- -------- -------- ------------

Francisco Perez Mackenna ........ Chief Executive Officer 8 15
Luis Fernando Antunez ........... Chief Financial Officer 10 19
Manuel Jose Noguera ............. Chief Legal Counsel 6 31
Felipe Joannon................... Business Development Manager 7 7
Martin Rodriguez................. Strategic Development Manager 7 7
Fernando Silva................... Controller 25 25

Francisco Perez Mackenna,(48) Francisco Perez Mackenna has served as Chief
Executive Officer of Quinenco since 1998. He is also a Director of many Quinenco
group companies, including Banco de Chile, CCU, Inversiones y Rentas, LQIF,
ECUSA, Vina San Pedro, CCU Argentina, Calaf, Banchile Corredores de Bolsa and
Compania Pisquera de Chile S.A. Prior to joining Quinenco, between 1991 and
1998, Mr. Perez Mackenna was 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,(50) 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,(56) 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, LQIF and Calaf,
and an advisor to the Board of Madeco. 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 30 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.

Felipe Joannon Vergara,(46) Felipe Joannon has served as Business
Development Manager of Quinenco since 1999. He is also currently a Director of
Madeco, Habitaria, Vina San Pedro, Vina Tabali, LQIF, Alusa, Hoteles Carrera and
Calaf. 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.

101

Martin Rodriguez Guiraldes,(45) Martin Rodriguez has been with Quinenco
since 1999 as Manager of Mergers and Acquisitions and since late 2003, as
Manager of Strategic Development. He is also currently a Director of LQIF,
Calaf, Alusa, Indalsa and Banchile Seguros de Vida. Prior to joining Quinenco,
Mr. Rodriguez worked in key positions in Bankers Trust in Chile and the United
States between 1993 and 1998. Other work experience includes Santander
Investment where he worked in the Corporate Finance and M&A areas, Procter and
Gamble (marketing), Inverchile (debt to equity swaps) and Citibank Chile
(executive trainee program). Mr. Rodriguez holds an MBA degree from the Anderson
Graduate School of Management at UCLA and an undergraduate and master degree in
economics from the Catholic University of Chile.

Fernando Silva Lavin,(58) Fernando Silva has worked with the Luksic Group
since 1981, occupying key positions such as General Manager of Quinenco, Mergers
& Acquisitions Manager, Business Development Manager and Consultant to the Board
of Directors. He has held the position of Controller since late 2003. Mr. Silva
is also currently a member of the board of several Quinenco companies, including
Habitaria and IndalsaPeru. Mr. Silva received his degree in business
administration from the Catholic University of Chile.

The following table shows the Chief Executive Officer and Chief Financial
Officer of the principal businesses of the group as of December 31, 2005:

Years with
Current Years with
Name Position Company Luksic Group
---- -------- ------- ------------

Pablo Granifo ............ Chief Executive Officer of Banco de Chile 4 10
Arturo Concha............. Manager of the Financial Division of Banco de Chile 19 4
Arturo Tagle.............. Manager of the Planning and Research Division of Banco de Chile 10 4
Patricio Jottar .......... Chief Executive Officer of CCU 7 7
Ricardo Reyes (1) ........ Chief Financial Officer of CCU 9 9
Jorge Atton .............. Chief Executive Officer of Telefonica del Sur 21 19
Luis Vidal ............... Chief Financial Officer of Telefonica del Sur 19 19
Tiberio Dall'Olio (2)..... Chief Executive Officer of Madeco 3 12
Ricardo Bartel (3)........ Chief Financial Officer of Madeco 1 16

----------
(1) Since July 2005

(2) Contract expires on September 30, 2007

(3) Until March 2006

Pablo Granifo Lavin, (47) Pablo Granifo was appointed Chief Executive
Officer of Banco de Chile in 2001. He was Chief Executive Officer of Banco de A.
Edwards from November 2000 to October 2001, after having been a commercial
manager at Banco Santiago from 1995 to 1999 and a corporate manager at Banco
Santiago from 1999 to January 2000. Mr. Granifo is a member of the board of
directors of Banchile Administradora General de Fondos, Banchile Asesoria
Financiera, Socofin, Banchile Securitizadora, Banchile Factoring and Banchile
Trade Services Limited. He is also a member of the executive committee of
Banchile Corredores de Seguros Ltda. He holds a degree in business from the
Pontificia Universidad Catolica de Chile.

Patricio Jottar, (43) Patricio Jottar has served as Chief Executive
Officer of CCU S.A. since 1998. He is also currently a Director of CCU
Argentina, ECUSA, Vina San Pedro, Austral, Kunstmann and Calaf and is Chairman
of the Board of Compania Pisquera de Chile. Prior to joining CCU, he was Chief
Executive Officer of Santander Chile Holding. He received a degree in Business
Administration from the Catholic University of Chile, and a Masters degree in
Economics and Business Administration from IESE, in Barcelona, Spain.

102

Jorge Atton Palma,(53) 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 Servicios Intermedios
S.A, Telefonica del Sur Seguridad S.A, and Blue Two Chile S.A., all of which are
subsidiaries of Telefonica del Sur. He is a member of the board of Compania de
Telecomunicaciones Llanquihue S.A. During his career with Telefonica del Sur, 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,(69) 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 CCU between 1986 and 1990. Mr. Dall'Olio holds a
degree in law from the Universidad de Padua in Italy.

B. Compensation

Director Compensation

For the year ended December 31, 2005, compensation paid to each of
Quinenco's Directors in connection with their service on Quinenco and subsidiary
boards was the following:

Director Total Compensation
-------- ------------------
(in millions of constant Ch$)

Guillermo Luksic ........................... Ch$137
Andronico Luksic ........................... 168
Jean Paul Luksic ........................... 30
Gonzalo Menendez ........................... 276
Hernan Buchi ............................... 37
Juan Andres Fontaine ....................... 28
Joaquin Errazuriz .......................... 20
Vladimir Radic ............................. 20
Matko Koljatic ............................. 34
------
Total ................................... Ch$750
======

Executive Officer Compensation

For the year ended December 31, 2005, the aggregate amount of compensation
paid to officers and key executives of Quinenco, including bonuses, was Ch$2,816
million. For the year ended December 31, 2005 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 receives a fixed monthly salary and benefit
package. In addition, Quinenco 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
Quinenco 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 each executive was offered a predetermined
number of shares, approved in each case by the Board of Directors. Financing was
provided by Quinenco through non-interest bearing loans to each executive, the
total of which amounted to Ch$1,066 million as of December 31, 2005.

103

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. 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. The
last installment of the loans was paid in May 2006.

Quinenco does not maintain any pension plans or retirement programs for
its directors or executive officers.

C. Board Practices

The current term of office for each director expires in April 2008. At the
Annual Shareholders' Meeting held on April 28, 2005, the entire board was
reelected for a new term of three years. There are no service contracts among
Quinenco and any of the directors providing for any additional benefits upon
termination of employment.

Directors' 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 a directors' committee (the
"Directors' Committee"). If the market capitalization falls below this
threshold, the obligation to designate a Directors' Committee disappears.
However, corporations which do not reach the threshold may voluntarily assume
the obligations of the Directors' Committee, in which case they shall strictly
follow the provisions of the amendment.

The Directors' Committee shall have the following powers and duties:

(1) to examine the independent auditors' 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;

(2) to make recommendations to the Board of Directors with respect to
appointment of the independent auditors and the risk rating
agencies, which the Board must then propose to the shareholders.
Should the Board disagree with the Directors' Committee's proposal,
the Board shall be entitled to make its own proposal, submitting
both to the shareholders for their consideration;

(3) to review (i) transactions in which directors have an interest and
(ii) transactions between related or affiliated companies, and to
produce a written report on such transaction. 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 remuneration policies and compensation plans of
Quinenco's principal officers and executives; and

(5) all other matters contemplated in Quinenco's bylaws or entrusted to
the Directors' Committee by a shareholders' meeting or the Board of
Directors.

104

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
managing 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;

(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 Directors' 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 Directors' 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 Directors' Committee shall, in the exercise of their
duties, be jointly and severally liable for any damage caused to the corporation
or the shareholders.

The Directors' 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

105

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 Directors' Committee, the
Board of Directors shall elect the members of the Directors' Committee by
unanimous vote. Should the Board fail to reach an agreement, the matter shall be
decided by drawing. Quinenco's Directors' Committee is currently composed of
Guillermo Luksic, Gonzalo Menendez and Matko Koljatic.

The members of the Directors' Committee shall be remunerated. The amount
of such remuneration shall be established annually by the shareholders, taking
into consideration the duties that the Directors' Committee members shall
perform. The remuneration of the members of Quinenco's Directors' Committee was
UF25 per session in 2005.

The shareholders shall determine the budget of the Directors' Committee
and its advisors, and the Directors' 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 Directors' 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 Quinenco's Directors' Committee
and its advisors was UF2,000 in 2005.

Audit Committee

Pursuant to NYSE Rule 303A.06, in 2005, Quinenco designated an audit
committee that satisfies the requirements of Rule 10A-3 under the Exchange Act
and the additional requirements under NYSE Rule 303A. The Audit Committee is
currently composed of Matko Koljatic.

General summary of significant differences with regard to corporate
government standards

The following paragraphs provide a brief, general summary of significant
differences between corporate government practices followed by Quinenco pursuant
to its home-country rules and those applicable to U.S. domestic issuers under
New York Stock Exchange ("NYSE") listing standards.

Composition of the board of directors; independence. The NYSE listing
standards provide that listed companies must have a majority of independent
directors and that certain board committees must consist solely of independent
directors. Under NYSE rule 303A.02, a director qualifies as independent only if
the board affirmatively determines that such director has no material
relationship with the company, either directly or indirectly. In addition, the
NYSE listing standards enumerate a number of relationships that preclude
independence.

Under Chilean law there is no legal obligation to have independent
directors. However, Chilean law establishes a number of principles of general
applicability designed to avoid conflicts of interests and to establish
standards for related party transactions. Specifically, directors elected by a
group or class of shareholders have the same duties to the company and to the
other shareholders as the rest of the directors, and all transactions with the
company in which a director has an interest, either personally (which includes
the director's spouse and certain relatives) or as a representative of a third
party, require prior approval by the board of directors and must be entered into
on market terms and conditions. Furthermore, such transactions must be reviewed
by the Directors' Committee (as defined below) and disclosed at the next meeting
of shareholders. Pursuant to NYSE rule 303A.00, Quinenco may follow Chilean
practices and is not required to have a majority of independent directors.

Committees. The NYSE listing standards require that listed companies have
a Nominating/Corporate Governance Committee, a Compensation Committee and an
Audit Committee. Each of these committees must consist solely of independent
directors and must have a written charter that addresses certain matters
specified by the listing standards.

106

Under Chilean law, the only board committee that is required is the
Directors' Committee, composed of three members, such committee having a direct
responsibility to (a) review the company's financial statements and the
independent auditors' report and issue an opinion on such financial statements
and report prior to their submission for shareholders' approval, (b) make
recommendations to the board of directors with respect to the appointment of
independent auditors and risk rating agencies, (c) review transactions in which
directors have an interest and transactions between affiliated companies, and
issue a report on such transactions, (d) review the Chief Executive Officer's
("CEO") and principal executive officers, compensation policies and plans and
(e) perform other duties as defined by the company's charter, by the general
shareholders' meeting or by the board. A director who is a member of the
Directors' Committee is "independent" if, subtracting the votes of the
controlling shareholder and its affiliates from the total number of votes given
in favor of such director, he or she would have been nevertheless elected.
Directors elected with the votes of the controlling shareholder and its
affiliates may constitute the majority of the Directors' Committee if there are
not enough independent directors on the board.

Shareholder approval of equity-compensation plans. Under NYSE listing
standards, shareholders must be given the opportunity to vote on all
equity-compensation plans and material revisions thereto, with limited
exemptions. An "equity-compensation plan" is a plan or other arrangement that
provides for the delivery of equity securities of the listed company to any
employee, director or other service provider as compensation for services.

Under Chilean law, if previously approved by shareholders at an
extraordinary shareholders' meeting, up to ten percent of a capital increase in
a publicly traded company may be set aside to fund equity-compensation plans for
the company's employees and/or for the employees of the company's subsidiaries.
Pursuant to NYSE rule 303A.00, as a foreign issuer, Quinenco may follow Chilean
practices and is not required to comply with the NYSE listing standards with
respect to shareholder approval of equity-compensation plans.

Corporate Governance Guidelines. The NYSE listing standards provide that
listed companies must adopt and disclose corporate governance guidelines with
regard to (a) director qualifications standards; (b) director responsibilities;
(c) director access to management and independent advisors; (d) director
compensation; (e) director orientation and continuing education; (f) management
succession; and (g) annual performance evaluation of the board.

Chilean law does not require that such corporate governance guidelines be
adopted. Director responsibilities and access to management and independent
advisors are directly provided for by applicable law. Director compensation is
approved by the annual meeting of shareholders pursuant to applicable law. As a
foreign issuer, Quinenco may follow Chilean practices and is not required to
adopt and disclose corporate governance guidelines.

Code of Business Conduct and Ethics. The NYSE listing standards require
that listed companies adopt and disclose a code of business conduct and ethics
for directors, officers and employees, and promptly disclose any waivers of the
code for directors or executive officers.

Quinenco has adopted a code of business conduct and ethics that applies
generally to all of its executive officers and employees. A copy of the code of
ethics is filed as an exhibit to this annual report.

Executive Sessions. To empower non-management directors to serve as a more
effective check on management, NYSE listing standards provide that
non-management directors of each company must meet at regularly scheduled
executive sessions without management.

107

Under Chilean law, the office of director is not legally compatible with
that of a company officer in publicly traded companies. The board of directors
exercises its functions as a collective body and may partially delegate its
powers to executive officers, attorneys, a director or a board commission of the
company, and for specific purposes to other persons. As a foreign issuer,
Quinenco may follow Chilean practices and is not required to comply with the
NYSE listing standard for executive sessions.

Certification Requirements. Under the NYSE listing standards, Section
303A.12(a) requires that each listed company CEO must certify to the NYSE each
year that he or she is not aware of any violation by the company of NYSE
corporate governance listing standards. Section 303A.12(b) requires that each
listed company CEO must promptly notify the NYSE in writing after any executive
officer of the listed company becomes aware of any material non-compliance with
any applicable provisions of Section 303A. Section 303 A.12 (c) requires that
each listed company must submit an executed written affirmation regarding
certain board and committee practices annually and each time a change occurs to
the board or certain of its committees.

As a foreign private issuer, Quinenco is required to comply with Section
303A.12(b) and (c), but is not required to comply with the certifications
requirements set forth in Section 303A.12(a).

D. Employees

The following table sets forth the number of employees of Quinenco and its
subsidiaries as of December 31, 2003, 2004 and 2005:

2005 Executives Professional/Technical Other Personnel Total
---------- ---------------------- --------------- -----

Quinenco 11 14 15 40
Banco de Chile 362 5,269 4,526 10,157
Madeco 49 706 2,103 2,858
Telefonica del Sur 30 301 161 492
Other subsidiaries 11 52 56 119
--- ----- ----- ------
Total employees 463 6,342 6,861 13,666
=== ===== ===== ======

2004 Executives Professional/Technical Other Personnel Total
---------- ---------------------- --------------- -----

Quinenco 12 13 15 40
Banco de Chile 318 4,750 4,297 9,365
Madeco (1) 47 641 2,080 2,768
Telefonica del Sur 30 279 194 503
Other subsidiaries 19 69 99 187
--- ----- ------ ------
Total employees 426 5,752 6,6,85 12,863
=== ===== ====== ======

2003 Executives Professional/Technical Other Personnel Total
---------- ---------------------- --------------- -----

Quinenco 12 15 10 37
Banco de Chile 300 4,515 4,318 9,133
Madeco (1) 40 291 2,394 2,725
Telefonica del Sur 33 276 203 512
Indalsa 17 129 317 463
Hoteles Carrera 7 52 225 284
Other subsidiaries 14 93 41 148
--- ----- ----- ------
Total employees 423 5,371 7,508 13,302
=== ===== ===== ======

(1) Does not include employees of Optel Ltda.

In addition, at December 31, 2003, 2004 and 2005, CCU had 3,901, 3,876 and
4,317 employees, respectively.

We believe that our subsidiaries maintain productive relationships with
their employees' respective unions. Specific information regarding labor
relationships of CCU, Madeco and Banco Chile is set forth below.

108

At December 31, 2005, 2,058 employees of Banco de Chile 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. These
collective bargaining agreements were signed in December 2004 and expire in
December 2008.

At December 31, 2005, CCU's unionized employees in Chile represented
approximately 56% of the total permanent workforce. During 2005, 2,034 employees
renewed their collective contracts, all for a period of two years. In Argentina,
CCU's unionized employees represented approximately 73% of the total workforce.
Collective bargaining agreements in Argentina are carried out on an
industry-wide basis.

As of December 31, 2005, 66% of Telefonica del Sur's total workforce was
represented by labor unions, which represent their members in collective
bargaining negotiations. Approximately 9% of the workforce will renew their
collective bargaining contracts in 2006 for a four year period expiring in 2009.
Telefonica del Sur believes that its relationship with the labor unions
representing its employees is generally good.

43.7% of Madeco's total workforce was represented by 17 labor unions,
which represent their members in collective bargaining negotiations as of
December 31, 2005. Additionally, Madeco had a total of 264 temporary employees
who were hired for specific time periods to satisfy short-term needs of the
company. Madeco believes that its relationship with the labor unions
representing its employees is generally good.

E. Share Ownership

As of December 31, 2005, except as disclosed in "Item 7. Major
Shareholders and Related Party Transactions - Principal Shareholders", none of
Quinenco'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 0.2% of Quinenco's shares as
of December 31, 2005. As of May 26, 2006, the percentage of shares collectively
held by directors and executive officers was 0.1%.

Other than the long-term incentive plan for qualified executives of
Quinenco described in " - B. Compensation", Quinenco does not have any stock
option or other programs involving employees in the capital of the company.

Item 7. Major Shareholders and Related Party Transactions

A. Major Shareholders

We are controlled by the Luksic Group, whose principal members are The
Luksburg Foundation, Andronico Luksic Craig, Guillermo Luksic Craig and
Jean-Paul Luksic Fontbona. Until his death in August 2005, the Luksic Group also
included Andronico Luksic Abaroa, the father of Andronico Luksic Craig,
Guillermo Luksic Craig and Jean-Paul Luksic Fontbona. As of the date of this
Annual Report, certain members of the Luksic Group beneficially own 82.8% of the
outstanding shares of common stock of Quinenco. Jean-Paul Luksic Fontbona does
not directly or indirectly own any shares of Quinenco but exercises control
through memberships on boards of directors and managing councils of Luksic Group
companies.

Control by the Luksic Group is exercised through the Luksic Group's
control of Andsberg Inversiones Ltda., Ruana Copper A.G. Agencia Chile,
Inversiones Orengo S.A., Inversiones Consolidadas S.A., Inversiones Salta S.A
and Inmobiliaria e Inversiones Rio Claro S.A., which are the Luksic Group
companies that hold shares of Quinenco. The Luksburg Foundation beneficially
owns approximately 94.6% of the total equity interest in Andsberg Inversiones
Limitada, 100% of the outstanding shares of common stock of Ruana Copper A.G.
Agencia Chile and 97.3% of the common shares of Inversiones

109

Orengo S.A., entities which jointly hold approximately 56.0% of the outstanding
shares of common stock 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 its shares of common
stock. There was no significant change in the share ownership of Quinenco in
2003, 2004 or 2005. The following table sets forth certain information
concerning ownership of the shares with respect to the Luksic Group's companies
at December 31, 2005:

Title of Class Identity of Person or Group Amount Owned Percent of Class
-------------- --------------------------- ------------ ----------------

Common Stock Andsberg Inversiones Ltda.............................. 364,163,159 33.7%
Ruana Copper A.G. Agencia Chile........................ 240,938,000 22.3%
Inmobiliaria e Inversiones Rio Claro S.A............... 143,427,860 13.3%
Inversiones Consolidadas S.A........................... 125,427,859 11.6%
Inversiones Salta S.A. ................................ 18,000,000 1.7%

In addition, the Fundacion Andronico Luksic A., a charity foundation,
owned 1,348,247 shares of Quinenco equivalent to a 0.1% interest, and
Inversiones Carahue S.A., a company owned by Paola Luksic Fontbona, owned 7,730
shares as of December 31, 2005. Davor and Andronico Luksic Lederer, sons of
Andronico Luksic Craig, each own 128 shares of Quinenco.

Registration Rights Agreement with Antofagasta. In connection with the
reorganization of Quinenco during 1996, Quinenco entered into a registration
rights agreement with Antofagasta plc ("Antofagasta"), pursuant to which
Antofagasta has the right to demand up to five registered offerings in the
United States in respect of the common stock of Quinenco held by Antofagasta and
its subsidiaries pursuant to the 1996 reorganization. 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.

On September 2, 2003, Antofagasta announced its intention to transfer its
interest in Quinenco's shares to a wholly-owned holding company, Andsberg Ltd.
("Andsberg"). Following shareholder approval on October 1, 2003, each ordinary
shareholder of Antofagasta shares received one share of Andsberg for every share
held of Antofagasta on the record date. In addition, shareholders were granted a
share redemption right by Dolberg Finance Corporation Establishment, a company
related to the Luksic Group, Quinenco's controlling shareholder, at a fixed
price of US$1.11 per share. The Luksic Group's beneficial ownership in Quinenco
did not change as a result of the transfer. On September 4, 2003, in an ordinary
board meeting, Quinenco's Board of Directors approved to transfer the rights
associated with the registrations rights agreement with Antofagasta to Andsberg.

For information concerning the portion of Quinenco's common stock held in
the United States, see "Item 9. The Offer and Listing".

B. Related Party Transactions

Article 89 of the Chilean Corporations Law, Law No.18.046, requires that a
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,

110

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 Directors' 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 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, 2006, approximately US$68 thousand) and exceeds 1% of the
assets of the corporation, or if the amount exceeds UF20,000 (as of March 31,
2005, approximately US$681 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, we engage 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
22 to our Consolidated Financial Statements. We believe that we have complied
with the requirements of Chilean law in all transactions with related parties.

Although Quinenco 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 Banco de Chile), it 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 historically been made on an unsecured basis at
market rates of interest and, in the case of loans made by Quinenco to
affiliated companies, require the prior approval of the Directors' 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 Quinenco to affiliated companies during the years
ended December 31, 2003, 2004 and 2005 were not material to Quinenco,
individually or in the aggregate. In addition, Quinenco 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

111

in connection with acquisitions of assets and other transactions. Such loans and
advances have generally been made on a secured basis at market rates of
interest. See Note 22 to our Consolidated Financial Statements.

Quinenco 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, Quinenco 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 2005 between Quinenco and related parties were deemed to have
been material to the related party:

1. Under its executive incentive plan established in 2000, Quinenco has
made non-interest bearing loans to qualified executives in the
amount of Ch$1,066 million as of December 31, 2005. For a
description of the incentive plan, see "Item 6B. Executive
Compensation".

In June 2006, Quinenco made a secured loan of UF221,000 to its subsidiary
Indalsa. Indalsa plans to use the proceeds from the loan to pay its outstanding
debt with a Peruvian bank and fund its legal and other operating expenses in
Peru. The loan was granted on an arms' length basis.

Item 8. Financial Information

A. Consolidated Statements and Other Financial Information

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 us, except as described below.

Banco de Chile

Banco de Chile and its subsidiaries are subject to claims and are parties
to legal proceedings in the normal course of business.

On November 30, 2005, Banco de Chile was served with a civil claim filed
by Fundacion Presidente Allende, an entity organized in Spain, claiming
compensatory damages in excess of US$7 million and punitive damages of US$100
million for harm allegedly suffered as a result of Banco de Chile's alleged
assistance to former Chilean President Augusto Pinochet in concealing his
assets. Although the bank intends to contest these claims, no assurances can be
given about the outcome or timing of these claims.

Beginning in September 2004, the OCC and the Federal Reserve conducted
targeted examinations of Banco de Chile's New York and Miami branches,
respectively, to evaluate, among other things, their compliance with the U.S.
Bank Secrecy Act and other U.S. anti-money laundering requirements. As a result
of their examinations, on February 1, 2005, Banco de Chile agreed to the
issuance by the OCC of a consent order and the issuance by the Federal Reserve
of a cease and desist order. Pursuant to these orders, the bank has instituted
an action plan that includes the maintenance of programs geared towards
strengthening its compliance with the Bank Secrecy Act and U.S. anti-money
laundering laws.

On October 12, 2005, Banco de Chile entered into agreements with the OCC,
and separately with the Financial Crimes Enforcement Network, requiring a US$3
million civil penalty to resolve allegations related to the Bank Secrecy Act,
anti-money laundering compliance and related matters.

112

Telefonica del Sur

Telefonica del Sur is involved in five lawsuits related to its normal
course of business involving claims worth an aggregate of Ch$2,357 million.
Telefonica del Sur has not made provisions to cover anticipated losses because
it believes that the lawsuits will not result in significant losses.

Madeco

On March 31, 2005, Madeco, through its indirect subsidiary Madeco Brasil
Ltda., signed an agreement with Corning International Corporation whereby it
acquired, for a nominal price of one Brazilian real, Corning Inc.'s 50% holding
in Optel. Madeco and Corning had previously filed arbitration claims before the
American Arbitration Association with regard to their joint venture agreement in
Optel.

There are two lawsuits pending in Brazil, which were brought by the State
Secretary of Finance (Rio de Janeiro) against the previous owner of Ficap, prior
to Madeco's acquisition of Ficap in 1997. It is estimated that the total amount
of the lawsuits involve approximately ThR$6,950. Madeco has a personal guarantee
from the previous owner of Ficap to indemnify Madeco if the Brazilian subsidiary
were to be affected by these legal actions.

Madeco does not believe that the outcome of any of its outstanding
litigation will have a material adverse effect on its financial condition or
results of operations and has therefore not made any provisions in its financial
statements.

Indalsa Peru

In March 2000, allegations were made by certain governmental authorities
and private parties in Peru that Indalsa Peru representatives had acted
improperly to obtain a judgment in their favor with respect to legal proceedings
in 1998 arising out of a dispute between Indalsa Peru (ex-Lucchetti Peru) and
the Municipality of Lima.

In May 2001, criminal charges were filed before the Second Anti-Corruption
Court of Lima against three Indalsa Peru representatives and Peruvian government
officials, alleging influence peddling in connection with the matter described
above. Between January 2006 and April 2006, The Peruvian Supreme Court (Corte
Suprema de Justicia) dropped all charges against the three executives.

In December 2002, Indalsa Peru presented a request for arbitration to the
International Centre for Settlement of Investment Disputes ("ICSID") in
Washington D.C. Indalsa Peru was 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 a resolution to close the
plant.

On January 6, 2003, Indalsa Peru received an order by an official of the
Municipality of Chorrillos to immediately close the plant. Indalsa Peru
proceeded to close the plant and liquidate its Peruvian assets.

On February 7, 2005, the International Centre for Settlement of Investment
Disputes (ICSID) ruled that it has no jurisdiction over arbitration proceedings
between Indalsa Peru and the Republic of Peru.

On June 6, 2005, Indalsa Peru filed a petition with ICSID to annul its
earlier ruling and ICSID appointed an adhoc committee to review the case. On May
18, 2006, Indalsa Peru submitted an annulment petition and a hearing is
scheduled for February 20, 2007.

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. Quinenco's dividend policy is to distribute at least 30% of its
annual net earnings as dividends. On April 27, 2006, a general ordinary meeting
was held. At

113

that time, it was proposed and accepted that a dividend payment of Ch$14.45
pesos corresponding to the distribution of 30.5% of 2005 net income be paid. The
definitive dividend was paid on May 10, 2006.

B. Significant Changes

See "Item 4. Information on Us - Developments During 2005" for certain
developments in 2005.

Item 9. The Offer and Listing

A. and C. Offer and Listing Details and Markets

Quinenco's common stock is traded on the Santiago Stock Exchange, the
Chilean Electronic Stock Exchange and the Valparaiso Stock Exchange, and since
June 1997 has been quoted on the New York Stock Exchange (the "NYSE") in the
form of American Depositary Shares. Quinenco 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 an amended and restated Deposit
Agreement, dated as of August 19, 2003 (the "Deposit Agreement"), among
Quinenco, Bank of New York, as depositary (the "Depositary"), and the holders
from time to time of ADRs issued thereunder. Only persons in whose names ADRs
are registered on the books of the Depositary are treated by the Depositary as
owners of ADRs.

Until August 19, 2003, the ADRs were outstanding under a Deposit
Agreement, dated as of June 24, 1997, among Quinenco, Citibank N.A., as
depositary, and the holders from time to time of ADRs issued thereunder.

114

The table below shows, for the period indicated, the high and low closing
prices in Chilean pesos of Quinenco's common stock on the Santiago Stock
Exchange and the high and low closing prices of the ADS in U.S. dollars on the
NYSE:

Santiago Stock Exchange(1) NYSE
-------------------------- ----
Ch$ per Share US$ per ADS
Annual High Low High Low
---- --- ---- ---

2001 ...................... 545 347 8.00 5.48
2002 ...................... 490 245 7.40 3.30
2003 ...................... 600 325 9.50 4.51
2004 ...................... 729 495 13.00 7.40
2005 ......................

2004
1st Quarter ............... 592 500 9.98 8.40
2nd Quarter .............. 560 495 9.40 7.40
3rd Quarter ............... 700 525 11.50 8.20
4th Quarter .............. 729 670 13.00 10.84

2005
1st Quarter ............... 730 666 12.99 11.64
2nd Quarter .............. 710 650 12.01 10.80
3rd Quarter ............... 766 670 14.00 11.10
4th Quarter .............. 745 570 13.85 10.81

2006
1st Quarter ............... 675 570 12.80 11.05
January ................... 631 570 12.01 11.05
February .................. 651 625 12.40 11.30
March ..................... 675 650 12.80 11.89
April ..................... 670 630 12.80 12.30
May ....................... 650 590 12.55 11.05
June (through June 8) ..... 595 567 11.00 10.75

----------
(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, 2005, ADRs evidencing 4,505,579 ADSs were outstanding
(equivalent to 45,055,790 shares, or 4.17% of the total number of issued shares.
It is not practicable for Quinenco to determine the proportion of ADRs
beneficially owned by U.S. persons. At December 31, 2005, 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 were
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 starting in 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 have also been traded on the London Stock Exchange in the form
of American Depositary Shares and on the Madrid Latibex Stock

115

Exchange as ordinary shares. The shares of Entel and Telefonica del Sur 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,
2005, 245 companies had shares listed on the Santiago Stock Exchange. The
Santiago Stock Exchange is Chile's principal exchange, with transactions in 2005
which amounted to Ch$10,471,721 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.

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)

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)%
December 31, 2003 ............ 86,344 7,547 263.28 476.66 44.61% 46.91%
December 31, 2004 ............ 116,718 13,043 321.62 563.03 22.16% 18.12%
December 31, 2005 ............ 136,326 20,433 318.69 593.94 (0.91)% 5.49%

----------
Source: Santiago Stock Exchange

(1) Index base = 100 on December 31, 1980

(2) In nominal peso terms.

Volatility and Suspension of Trading

The IPSA has increased at an average compounded annual rate of 13.18% for
the period 2002 to 2005. During 2005, the IPSA increased by 5.49% in nominal
peso terms. As the table above shows, swings

116

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, 2005 was US$136.3 billion. The ten largest
companies in terms of market capitalization as of December 31, 2005 represented
approximately 50% of that exchange's aggregate market capitalization and
accounted for approximately 46% of total volume traded during 2004. Average
monthly trading volume for 2005 was US$1,703 million. (Comparatively, the NYSE
had an aggregate global market capitalization of approximately US$20.8 trillion
at December 31, 2005, and average daily reported share volume of approximately
1.6 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 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. 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. Law No.18,657 also
regulates foreign venture capital investment funds, which have different
investment limits than the ones set forth for the FCIFs. 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 as from the date the capital entered into Chile, 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 stock corporation may be owned by FCIFs, taken
together. In addition, a FCIF may not invest more than 40% of its assets in
securities issued or authorized by the same group. For a description of Chilean
taxation, see "Item 10. Additional Information - E. Taxation". The minimum
amount of capital that may be invested in Chile by a given FCIF is US$1,000,000.

117

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, Quinenco's articles of incorporation and
by-laws or estatutos have been registered with the Securities Register (Registro
de Valores), under entry number 0594. As set forth in the Third Article of
Quinenco's bylaws, its purposes include the acquisition, disposition and
management of all manner of assets and investments in, among other things,
industrial and financial activities.

Directors

Under the Ley de Sociedades Anonimas (Chilean Corporations Law), a
corporation may not enter into a contract or agreement in which a director has a
direct or indirect interest (i.e., a conflicting interest transaction) without
prior approval by the Board of Directors, and only if the terms of the
conflicting interest transaction are similar to those of an arm's length
transaction.

If the conflicting interest transaction involves a "material amount," the
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,
2005, approximately US$68 thousand) and exceeds 1% of the assets of the
corporation, or if the amount exceeds UF20,000 (as of March 31, 2005,
approximately US$681 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 two independent advisors to make such a determination, in all these
cases, with the exclusion of the interested directors. If the Board appoints
independent advisors, the reports 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 reports. After
this period, and with the exclusion of the interested director, 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 reports as confidential information.
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 to the next following 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.

If a suit for damages arises from such a transaction, the defendant (i.e.,
one or more directors, the controller, a related party, or all of them) bears
the burden of proof that the transaction was equally as or more beneficial to
the corporation than an arm's length transaction, unless the conflicting
interest transaction was previously approved by the shareholders.

The amount of any director's remuneration is established each year at the
annual shareholders' meeting. Directors are prohibited from borrowing or
otherwise making use of corporate money or assets for their own benefit, unless
previously authorized by the Board of Directors. Directors are also prohibited
from borrowing or otherwise making use of corporate

118

money or assets for the benefit of certain relatives or of companies in which
such directors are either directors or owners of a 10% interest or more, unless
previously authorized by the Board of Directors. However, the shareholders'
authorization is not required. These rules can only be modified by law.

It is not necessary to hold shares of Quinenco to be elected a director,
and there is no age limit established for the retirement of directors.

For a description of Quinenco'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 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 under Chapter XIV of the
Central Bank Foreign Exchange Regulations.

Effective April 19, 2001, the Central Bank 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 imposing certain restrictions and limitations on such
transactions.

With the issuance of the 2001 Foreign Exchange Regulations, the approval
by the Central Bank required for access to the Formal Exchange Market was
replaced with the requirement of disclosure of the relevant transactions to the
Central Bank. 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 other things, eliminated the
following restrictions:

(1) prior authorization by the Central Bank for the entry of capital in
connection with foreign loans, investment, capital contribution,
bonds and ADRs;

(2) prior authorization by the Central Bank 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 ADSs. Therefore, the rules
established under Chapter XXVI of the previous Foreign Exchange
Regulations were abrogated; and

(5) mandatory reserve deposits for foreign capital.

119

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 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 imposing certain restrictions and
limitations on such transactions.

The New Regulations also require the disclosure of the relevant
transaction to the Central Bank 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 the transaction.

The New Regulations have also simplified the forms required to provide the
information to the Central Bank, 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,
Quinenco 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, Quinenco 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 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 was
authorized to reject applications under such regulations without expression of
cause. In resolving on such applications, the Central Bank was required to take
into account the situation of the balance of payments and the stability of the
capitals account. However, the Central Bank was authorized to

120

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
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 a
certificate from the holder of the Withdrawn Shares (or from an institution
authorized by the Central Bank) 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 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 Quinenco to the Central Bank 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 Quinenco to the Central Bank 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 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 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 a certificate from the Depositary that
such deposit had been effected and that the related ADRs had been issued and
receipt by the

121

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 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 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. 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, 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 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.

122

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 17%. 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
17% and a distribution of 30% of the consolidated net income of Quinenco
distributable after payment of the First-Category Tax:

Quinenco's taxable income ................................................... 100
First Category Tax (17% of Ch$100) .......................................... (17)
-----
Net distributable income .................................................... 83
-----
Dividend distributed (30% of net distributable income) ...................... 24.9
Withholding Tax (35% of the sum of Ch$24.9 dividend plus Ch$5.1 First-
Category Tax paid) .............................................. (10.5)
Credit for 30% of First-Category Tax ........................................ 5.1
-----
Net additional tax withheld ................................................. (5.4)
-----
Net dividend received ....................................................... 19.5
-----
Effective dividend withholding rate ......................................... 21.69%
-----

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:

(Withholding Tax Rate) - (First Category Tax Rate)
--------------------------------------------------

Effective dividend Withholding Tax rate = 1 - (First Category Tax Rate)

Under Chilean income tax law, dividends generally are assumed to have been
paid out of Quinenco's oldest retained profits for purposes of determining the
level of First-Category Tax that was paid by Quinenco. For information as to
Quinenco's retained earnings for tax purposes and the tax credit available on
the distribution of such retained earnings, see Note 24 to our 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 Quinenco 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%, and for 2003, the First Category Tax rate was 16.5%, resulting in
an effective rate of Withholding Tax of 22.16% for the year. From 2004 onwards,
the First Category Tax rate is 17%, which results in an effective rate of
withholding tax of 21.69%.

For dividends attributable to Quinenco'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 Quinenco's
distributed profits will be 35%.

123

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

Under current tax law, 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 17%).

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$6,800) within the previous 180 business
days of the stock market, must 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 and
have a high presence in a stock exchange are also exempt from capital gains tax
in Chile when the sale is made by "foreign institutional investors", such as
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

124

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 No18.657; 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).

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

125

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 Quinenco, 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 Quinenco 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 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. Current law provides for a reduced tax rate
(currently 15%) 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 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, Quinenco may be treated as a qualified foreign
corporation. However, if Quinenco is treated as a PFIC, as discussed below, it
will not be a qualified foreign corporation. If Quinenco 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. Each U.S. Holder should consult its own tax
adviser 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

126

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. 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. The long-term capital gain tax rate for an individual U.S.
Holder is currently15%. 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 PFIC for United
States federal income tax purposes, although this conclusion is subject to some
uncertainty. In particular, this conclusion depends on the valuation of its
ownership interests in certain related companies and interpretations of the
special rules for companies engaged in an active banking business (relevant to
certain of Quinenco's subsidiaries) and the rules characterizing certain of its
intangible assets, which assumptions Quinenco believes are reasonable but are
not free from doubt due to the absence of authority directly addressing
situations closely comparable to those of Quinenco. In addition, Quinenco
maintains its financial books and records and presents its financial statements
in accordance with Chilean GAAP rather than based on U.S. federal income tax
principles. Quinenco has assumed in determining its PFIC status that a
determination regarding its assets and income based on federal income tax
principles would not differ materially from Chilean GAAP principles.

127

In general, Quinenco will be a PFIC with respect to a U.S. Holder if, for
any taxable year in which the U.S. Holder held Quinenco's ADSs or Shares, either
(i) at least 75% of Quinenco's gross income for the taxable year is passive
income or (ii) at least 50% of the value (determined on the basis of a quarterly
average) of Quinenco'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 Quinenco 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 Quinenco 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 Quinenco is treated as a PFIC, a U.S. Holder may be able to make a
mark-to-market election if Quinenco'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
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 Quinenco 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 Quinenco 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 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.

128

H. Documents on Display

All Company documents referred to in this Annual Report may be inspected
at Quinenco'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 our 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.

We face 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 us for trading purposes.

Interest Rate Risk

Of our long-term interest bearing debt at December 31, 2005, Ch$297,391
million was fixed rate and Ch$145,161 million was variable rate; 98.7% of our
long-term interest bearing debt with fixed rate was indexed to the UF, 0.7% was
indexed to foreign currencies and 0.6% to the dollar-denominated. Our long-term
interest bearing debt with variable rates was 91.5% indexed to the UF, 2.3% was
dollar-denominated and tied to the LIBOR, 5.5% was indexed to foreign currencies
and 0.7% to the Chilean peso.

The following table summarizes the debt obligations held by us at December
31, 2005. 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, 2005, which was US$1.00 = Ch$512.50.

129

Expected Maturity Date
----------------------------------------------------------------------------

On Balance Sheet 2011 and Fair
Financial Instruments 2006 2007 2008 2009 2010 thereafter Total Value
--------------------- ---- ---- ---- ---- ---- ---------- ----- -----
(in thousands)

LONG-TERM DEBT

Fixed rate

US$-denominated Ch$ 1,905 1,836,871 95,478 11,767 -- -- 1,946,021 1,946,021

Weighted average
interest rate 0.41% 1.85% 0.05% 0.41% -- -- 1.75%

UF-denominated Ch$ 22,355,063 18,468,368 18,711,786 55,605,926 52,158,494 126,106,447 293,406,084 274,114,866

Weighted average
interest rate 3.84% 3.84% 3.85% 3.47% 3.59% 4.52% 4.02%

Other-denominated Ch$ -- 2,039,153 -- -- -- -- 2,039,153 2,039,153

Weighted average
interest rate -- 14.55% -- -- -- -- 14.55%

Sub-total Ch$ 22,356,968 22,344,392 18,807,264 55,617,693 52,158,494 126,106,447 297,391,258 278,100,040
---------- ---------- ---------- ---------- ---------- ----------- ----------- -----------

Variable rate

US$-denominated Ch$ 33,408 3,331,250 -- -- -- -- 3,364,658 3,364,658

Weighted average
interest rate 6.16% 6.16% -- -- -- -- 6.16%

UF-denominated Ch$ 10,169,467 9,939,939 27,508,943 26,723,413 20,799,626 37,618,011 132,759,399 128,688,737

Weighted average
interest rate 4.44% 4.39% 6.29% 6.29% 6.97% 7.06% 6.33%

Ch$-denominated Ch$ 261,709 749,542 -- -- -- -- 1,011,251 1.011,251

Weighted average
interest rate Ch$ 6.02% 6.02% -- -- -- -- 6.02%

Other-denominated Ch$ -- 2,139,937 5,885,348 -- -- -- 8,025,285 8,025,285

Weighted average
interest rate -- 20.00% 20.00% -- -- -- 20.00%

Sub-total Ch$ 10,464,584 16,160,668 33,394,291 26,723,413 20,799,626 37,618,011 145,160,593 141,089,931
---------- ---------- ---------- ---------- ---------- ----------- ----------- -----------

Total Ch$ 32,821,552 38,505,060 52,201,555 82,341,106 72,958,120 163,724,458 442,551,851 419,189,971
========== ========== ========== ========== ========== =========== =========== ===========

Foreign Currency Exchange Rate Risk

At December 31, 2005, approximately 3.9% of our short and long-term
interest bearing debt of Ch$466,995 million was exposed to risk from exchange
rate fluctuations between the Chilean peso and the U.S. dollar. As of December
31, 2005, we had entered into 90 day forward contracts for Ch$6,267 million
(equivalent to US$12.2 million) to limit the exposure to fluctuations between
the Chilean peso and the U.S. dollar. As of the same date, we had entered into
swap contracts with maturities of 90 days to two years for Ch$8,247 million
(equivalent to US$16.1 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 us at December 31, 2005 by maturity date. The
table presents principal payment obligations in thousands of Chilean pesos by
maturity date. The U.S. dollar-denominated debt, which have been converted to
Chilean pesos based on the observed exchange rate of December 31, 2005, was
US$1.00 = Ch$512.50.

130

Expected Maturity Date
-------------------------------------------------------------------------
On Balance Sheet
Financial 2011 and
Instruments 2006 2007 2008 2009 2010 thereafter Total Fair Value
----------- ---- ---- ---- ---- ---- ---------- ----- ----------
(in thousands)

US$-denominated Ch$ 13,069,365 5,168,121 95,478 11,767 -- -- 18,344,731 18,344,731

Other currencies Ch$ 5,724,773 4,179,090 5,885,348 -- -- -- 15,789,211 15,789,211
----------------- --------- --------- ------ ---------- ----------
Total Ch$ 18,794,138 9,347,211 5,980,826 11,767 -- -- 34,133,942 34,133,942
================= ========= ========= ====== ========== ==========

Equity Price Risk

At December 31, 2005, the carrying value of our investments under the cost
method was Ch$2,686 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, 2005, a 10% decrease in the fair
market value of these investments would not have a material impact on our
results of operations.

Commodity Price Risk

Madeco uses significant amounts of copper and aluminum to manufacture its
products. Exposure to commodity price risk relates primarily to Madeco's metal
inventories of copper and aluminum. Madeco fixes product prices taking into
consideration the market value of the principal raw materials it purchases in
such a way that prices should normally follow trends in raw material costs (with
a short time lag), thereby reducing commodity price risks. Depending on the
competitive price environment and general economic conditions, Madeco from time
to time is unable to pass along raw material cost increases to its customers.

During 2005, Madeco sold on a consolidated basis 85,700 tons of copper and
20,628 tons of aluminum. As of December 31, 2005, Madeco held inventories of
copper of 16,280 tons with a fair value of Ch$36,241 million and aluminum of
7,449 tons with a fair value of Ch$8,887 million.

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. Controls and Procedures

Quinenco's Chief Executive Officer ("CEO") and Chief Financial Officer
("CFO") have evaluated the effectiveness of Quinenco's "disclosure controls and
procedures" (as defined in Exchange Act rules 13a-14(c) and 15d-14(c)). These
controls and procedures were designed to ensure that material information
relating to Quinenco and its subsidiaries are communicated to the CEO and the
CFO. Based on such evaluation, Quinenco's CEO and CFO concluded that, as of
December 31, 2004, its disclosure controls and procedures were effective in
timely alerting them to material information required to be included in periodic
SEC reports. There have been no significant changes in Quinenco's internal
controls and

131

procedures or in other factors that could significantly affect these controls
and procedures subsequent to the date of this evaluation.

Item 16. (Reserved)

A. Audit Committee Financial Expert

Pursuant to NYSE Rule 303A.06, Quinenco has an audit committee that
satisfies the requirements of Rule 10A-3 under the Exchange Act and certain
additional requirements under NYSE Rule 303A, including a financial expert.

Code of Ethics

Quinenco has adopted a code of ethics that applies to all of its executive
officers and employees. This code of ethics was filed as an exhibit to the 2003
annual report and is available for viewing on Quinenco's website. Quinenco's
code of ethics has not been amended and no waivers, either explicit or implicit,
of provisions of the code of ethics have been granted to the Chief Executive
Officer, Chief Financial Officer or Chief Accounting Officer.

C. Principal Accountant Fees and Services

The aggregate fees billed by Ernst & Young Limitada, independent auditor,
for professional services related to Quinenco and its intermediate holding
companies in 2005 and 2004 were as follows:

2004 2005
---- ----
(in millions of historic Ch$)
Audit Fees (1) 960 844
Tax Fees (2) 53 15
All Other Fees (3) 45 5
----- ---
Total Fees 1,058 864

(1) Provides aggregate fees billed for professional services rendered by Ernst
& Young for the audit of Quinenco and its subsidiaries' separate annual
financial statement filings required by each country's regulatory
authorities and annual financial statement filings required by the United
States Securities and Exchange Commission. Also included are aggregate
fees billed in each of the last two fiscal years for assurance and related
services by Ernst & Young, for the performance of the audit or review of
Quinenco's financial statements, related to financial structure activities
and other auditing related activities.

(2) Provides aggregate fees billed in each of the last two fiscal years for
professional services rendered by external auditors for tax compliance,
tax advice and tax planning.

(3) Provides aggregate fees billed in each of the last two fiscal years for
products and services provided, other than the services reported in (1)
and (2) above and which were approved by Quinenco's Board of Directors.

Pre-approval by Audit Committee

Quinenco's Audit Committee pre-approves all audit and non-audit services
provided by the independent auditors, presently provided by Ernst & Young.

D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

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

Not applicable.

132

PART III

Item 17. Financial Statements

Not applicable.

Item 18. Financial Statements

Reference is made to pages F-1 through F-117

Item 19. Exhibits

Index to the Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firms:

Report of Ernst & Young................................................................. F-2
Report of Deloitte & Touche............................................................. F-4
Report of PricewaterhouseCoopers........................................................ F-5

Consolidated Financial Statements:
Consolidated Balance Sheets at December 31, 2004 and 2005................................ F-6
Consolidated Statements of Income for each of the three years in the
Period ended December 31, 2005........................................................ F-7
Consolidated Statements of Cash Flows for each of the three years in the
Period ended December 31, 2005........................................................ F-8
Notes to the Consolidated Financial Statements........................................... F-10
Schedule 1 .................................................................................. F-114

133

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).

1.2 Amendment to the 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, 2004, filed on June 30, 2005).

9.1 List of Subsidiaries

11.1 Code of Ethics (incorporated by reference from Quinenco S.A. Annual
Report on Form 20-F for the year ended December 31, 2003, filed on
June 30, 2004).

12.1 Certification of Chief Executive Officer of Quinenco S.A. pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.

12.2 Certification of Chief Financial Officer of Quinenco S.A. pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.

13.1 Certification of Chief Executive Officer of Quinenco S.A. pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.

13.2 Certification of Chief Financial Officer of Quinenco S.A. pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.

15.1 Banco de Chile's Financial Statements at December 31, 2004 and 2005
and for the years ended December 31, 2003, 2004 and 2005
(incorporated by reference from Item 18 of the Banco de Chile 2005
Annual Report on Form 20-F, filed on June 26, 2006).

15.2 Banco de Chile's Guide 3 Data (incorporated by reference from Item 4
"Information on Us - Selected Statistical Information" of the Banco
de Chile 2005 Annual Report on Form 20-F, filed on June 26, 2006).

15.3 CCU's Financial Statements at December 31, 2004 and 2005 and for the
years ended December 31, 2003, 2004 and 2005 (incorporated by
reference from Item 18 of the CCU 2005 Annual Report on Form 20-F,
filed on June 28, 2006).

134

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.

QUINENCO S.A.

By: /s/ Luis Fernando Antunez
-------------------------------------

Name: Luis Fernando Antunez
Title: Authorized Representative

Dated: June 29, 2006

QUINENCO S.A. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Item 18. Financial Statements

Page
----

Report of Independent Registered Public Accounting Firm:
Report of Independent Registered Public Accounting Firm Ernst & Young Limitada................................ F-2
Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers................................ F-4
Report of Independent Registered Public Accounting Firm Report of Deloitte & Touche........................... F-5

Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2004 and 2005.................................................. F-6
Consolidated Statements of Income for each of the three years in the
period ended December 31, 2005............................................................................. F-7
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 2005............................................................................. F-8
Notes to the Consolidated Financial Statements................................................................ F-10

Schedule 1
Condensed Financial Information of Quinenco S.A............................................................... F-114

Ch$ - Chilean pesos
ThCh$ - Thousands of Chilean pesos
MCh$ - Millions 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 2 b))

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Quinenco S.A.:

We have audited the accompanying consolidated balance sheets of Quinenco S.A.
and subsidiaries (the "Company") as of December 31, 2004 and 2005 and the
related consolidated statements of income and cash flows for each of the three
years in the period ended December 31, 2005. Our audits also included the
financial statement Schedule 1 - Condensed financial information. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule, based on our audits. We did not audit the consolidated
financial statements of the subsidiary Madeco S.A. and subsidiaries for the year
ended December 31, 2003, which statements reflect total revenues of ThCh$
248,114,594 for the year ended. In addition, we did not audit the consolidated
financial statements of Compania Cervecerias Unidas S.A.(a corporation in which
the Company has a 30.8%, 30.8% and 32.1% indirect interest as of December 31,
2003, 2004 and 2005, respectively), which represented ThCh$ 94,801,460 and ThCh$
97,693,683 of total assets as of December 31, 2004 and 2005, respectively, and
accounted for ThCh$ 18,057,986, ThCh$ 14,490,418 and ThCh$ 15,281,895 of net
income for the years ended December 31, 2003, 2004 and 2005, 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 these
companies, is based solely on the reports of the other auditors.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the reports of other auditors provide a reasonable basis for our
opinion.

F-2

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, 2004 and 2005 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2005, in conformity with accounting principles generally
accepted in Chile, which differ in certain respects from accounting principles
generally accepted in the United States of America (see Note 27 to the
consolidated financial statements). Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects, the
information set forth therein.

ERNST & YOUNG LTDA.

Santiago, Chile February 24, 2006
(except for Notes 26 and 27 for which the date is June 21, 2006)

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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, 2005 and
2004, and the related consolidated statements of income and of cash flows
for each of the three years in the period ended December 31, 2005,
expressed in 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 audits.

2 We conducted our audits of these statements in accordance with generally
accepted auditing standards in both Chile and the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes 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 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, 2005
and 2004, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2005, in
conformity with accounting principles generally accepted in Chile.

4 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,
2003 and 2004 and for the years then ended have been restated in terms of
constant Chilean pesos of December 31, 2005 purchasing power.

5 Accounting principles generally accepted in Chile vary in certain
important respects from accounting principles generally accepted in the
United States of America. Information relating to the nature and effect of
such differences is presented in Note 24 to the consolidated financial
statements.

PRICEWATERHOUSECOOPERS

Santiago, Chile
June 22, 2006

F-4

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of
Madeco S.A.

We have audited the accompanying consolidated statements of operations and of
cash flows of Madeco S.A. and subsidiaries (the "Company") for the year ended
December 31, 2003 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 audit.

We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (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 audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of Madeco S.A. and
subsidiaries for the year ended December 31, 2003, 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 year ended December 31, 2003 to the extent summarized in Note
32.

DELOITTE

Santiago, Chile
February 22, 2004, except for Note 32 as
to which the date is June 24, 2004
and except for restatement to constant Chilean
pesos as to which the date is June 8, 2006

F-5

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

As of December 31,
---------------------------------------------------------
2004 2005 2005
---------------- ----------------- ----------------
Note (Note 2v)
Assets ThCh$ ThCh$ ThUS$

Current assets
Cash.................................................. 2 (d) 4,297,671 5,787,088 11,292
Time deposits......................................... 5 14,286,050 24,123,185 47,070
Marketable securities................................. 6 675,921 1,511,708 2,950
Accounts receivable, net.............................. 7 75,408,885 78,975,080 154,098
Notes and accounts receivable from related companies.. 22 (a) 9,473,634 5,207,554 10,161
Inventories, net...................................... 8 74,407,562 75,135,351 146,606
Other current assets, net............................. 9 40,901,256 77,688,014 151,586
---------------- ----------------- ----------------
Total current assets........................... 219,450,979 268,427,980 523,763
---------------- ----------------- ----------------

Property, plant and equipment , net................... 10 284,221,552 257,480,738 502,401
---------------- ----------------- ----------------

Other assets
Long-term notes and accounts receivable from related
companies.......................................... 22 (b) 861,920 1,580,929 3,085
Investments in related and other companies............ 11 531,980,365 519,695,293 1,014,040
Goodwill, net......................................... 12 313,317,268 283,696,470 553,554
Other non-current assets.............................. 13 34,264,113 31,640,179 61,736
---------------- ----------------- ----------------
Total other assets............................. 880,423,666 836,612,871 1,632,415
---------------- ----------------- ----------------

Total assets................................... 1,384,096,197 1,362,521,589 2,658,579
================ ================= ================

Liabilities and Shareholders' Equity:
Current liabilities
Short-term bank loans................................. 14 24,498,398 24,443,092 47,694
Current portion of long-term liabilities.............. 16 73,730,224 32,821,551 64,042
Accounts payable and supplier notes payable........... 29,131,094 21,822,318 42,580
Notes and accounts payable to related companies....... 22 (c) 355,323 423,141 826
Accrued expenses and other liabilities................ 15 (a) 21,682,149 20,242,225 39,497
---------------- ----------------- ----------------
Total current liabilities...................... 149,397,188 99,752,327 194,639
---------------- ----------------- ----------------

Long-term liabilities
Long-term debt........................................ 16 (a) 203,963,491 163,470,102 318,966
Bonds payable......................................... 16 (b) 251,072,289 246,260,198 480,508
Notes and accounts payable to related companies....... 22 (d) 9,053 8,017 16
Accrued expenses and other liabilities................ 15 (b) 9,514,012 9,723,364 18,972
---------------- ----------------- ----------------
Total long-term liabilities.................... 464,558,845 419,461,681 818,462
---------------- ----------------- ----------------

Minority interest..................................... 23 112,233,440 139,055,457 271,328
---------------- ----------------- ----------------

Commitments and contingencies......................... 20

Shareholders' Equity
Common stock 1,079,740,079 shares authorized, issued
and outstanding with no par value)................. 18 487,721,867 487,721,867 951,652
Reserves.............................................. 18 (17,009,016) (5,701,739) (11,125)
Retained earnings..................................... 18 187,193,873 222,231,996 433,623
---------------- ----------------- ----------------
Total Shareholders' Equity..................... 657,906,724 704,252,124 1,374,150
---------------- ----------------- ----------------

Total Liabilities and Shareholders' Equity..... 1,384,096,197 1,362,521,589 2,658,579
================ ================= ================

F-6

The accompanying notes 1 to 27 are an integral
part of these consolidated financial statements.

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Years ended December 31,
--------------------------------------------------------------------
2003 2004 2005 2005
-------------- -------------- -------------- --------------
Note (Note 2v)
ThCh$ ThCh$ ThCh$ ThUS$

Operating Results:
Net sales ........................................ 379,501,213 396,281,486 421,967,509 823,351
Cost of sales .................................... (302,670,572) (321,297,567) (344,925,253) (673,025)
-------------- -------------- -------------- --------------

Gross margin .............................. 76,830,641 74,983,919 77,042,256 150,326
Administrative and selling expenses .............. (63,294,638) (46,855,993) (46,396,572) (90,530)
-------------- -------------- -------------- --------------

Operating income .......................... 13,536,003 28,127,926 30,645,684 59,796
-------------- -------------- -------------- --------------

Non-Operating Results:
Interest income .................................. 3,109,688 2,032,154 3,046,382 5,944
Non-operating income ............................. 21 126,925,715 75,481,399 104,405,590 203,718
Interest expense ................................. (37,370,784) (29,756,835) (28,846,231) (56,285)
Non-operating expense ............................ 21 (70,551,370) (42,638,596) (36,682,003) (71,575)
Price-level restatement gain (loss), net ......... 3 2,009,045 (369,852) (4,344,718) (8,477)
Foreign exchange differences gain (loss), net .... 4 1,045,317 309,615 (1,034,451) (2,018)
-------------- -------------- -------------- --------------

Non-operating results ..................... 25,167,611 5,057,885 36,544,569 71,307
-------------- -------------- -------------- --------------

Income before taxes ....................... 38,703,614 33,185,811 67,190,253 131,103
Income taxes ..................................... 17 (2,727,768) (2,025,876) (6,782,862) (13,235)
-------------- -------------- -------------- --------------

Income before minority interest ........... 35,975,846 31,159,935 60,407,391 117,868
Minority interest ............................... 23 4,052,311 (6,966,523) (9,327,865) (18,201)
-------------- -------------- -------------- --------------

Net income ................................ 40,028,157 24,193,412 51,079,526 99,667
============== ============== ============== ==============

F-7

The accompanying notes 1 to 27 are an integral
part of these consolidated financial statements.

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Years ended December 31,
----------------------------------------------------------
2003 2004 2005 2005
------------ ------------ ------------ ----------
(Note 2v)
ThCh$ ThCh$ ThCh$ ThUS$

Cash Flow From Operating Activities:
Collection from customers ............................................ 433,333,746 485,927,202 521,077,333 1,016,736
Financial income receivable .......................................... 2,980,199 2,210,602 4,812,106 9,389
Other income received ................................................ 81,135,630 57,596,157 71,641,957 139,789
Payments to suppliers and personnel .................................. (392,823,050) (441,661,478) (469,194,863) (915,502)
Interest paid ........................................................ (32,934,850) (27,643,596) (27,406,432) (53,476)
Income taxes paid .................................................... (1,593,441) (1,901,661) (3,365,584) (6,567)
Other expenses ....................................................... (6,111,254) (2,500,344) (3,258,360) (6,360)
Value added taxes (VAT) and other similar items paid ................. (15,131,358) (12,114,096) (10,071,383) (19,651)
------------ ------------ ------------ ----------
Net cash flow provided by operating activities .................. 68,855,622 59,912,786 84,234,774 164,358
------------ ------------ ------------ ----------

Cash Flow From Investing Activities:
Proceeds from sales of investments ................................... 21,665,744 41,507,720 71,795,204 140,088
Proceeds from sales of property, plant and equipment ................. 16,733,899 4,362,501 6,176,178 12,051
Additions to property, plant and equipment ........................... (12,905,117) (19,799,969) (18,703,426) (36,494)
Investments in other companies ....................................... (203,012) (52,550,972) (10,577,011) (20,638)
Investments in financial instruments ................................. (51,855,758) -- -- --
(Increase) decrease in accounts receivable from related companies ... (799,439) (5,041,970) 4,823,638 9,412
Other investing activities (net) ..................................... 40,064,820 (615,215) (1,624,927) (3,171)
------------ ------------ ------------ ----------
Net cash flow provided by (used in) investing activities ........ 12,701,137 (32,137,905) 51,889,656 101,248
------------ ------------ ------------ ----------

Cash Flow From Financing Activities:
Borrowings from banks and others ..................................... 45,378,298 54,791,357 114,114,308 222,662
Dividends paid ....................................................... (1,341,223) (20,980,895) (15,706,522) (30,647)
Payments of loans .................................................... (177,607,712) (110,612,230) (181,762,453) (354,658)
Increase in bonds payable ............................................ -- 153,998,655 46,710,168 91,142
Decrease in bonds payable ............................................ (34,348,374) (87,587,250) (73,399,245) (143,218)
Capital increase in subsidiaries contributed by minority shareholders 47,585,839 10,538,809 29,509,703 57,580
Capital decrease ..................................................... (583,026) (295,890) (4,439) (9)
Increase (decrease) in accounts payable to related companies ......... 14,649,859 (42,107,714) -- --
Other financing activities (net) ..................................... 401,661 (669,751) (530,991) (1,036)
------------ ------------ ------------ ----------
Net cash flow used by financing activities ...................... (105,864,678) (42,924,909) (81,069,471) (158,184)
------------ ------------ ------------ ----------
Net increase (decrease) in cash and cash equivalents .......... (24,307,919) (15,150,028) 55,054,959 107,422
------------ ------------ ------------ ----------
Price-level restatement of cash and cash equivalents .......... (15,735,692) (687,060) (3,590,321) (7,006)
------------ ------------ ------------ ----------
Cash and cash equivalents at beginning of year ................ 99,837,761 59,794,150 43,957,062 85,770
------------ ------------ ------------ ----------
Cash and cash equivalents at end of year ...................... 59,794,150 43,957,062 95,421,700 186,186
============ ============ ============ ==========

Supplemental cash flow information:
Interest paid, net of amounts capitalized ............................ (32,934,850) (27,643,596) (27,406,432) (53,476)
Income taxes paid .................................................... (1,593,441) (1,901,661) (3,365,584) (6,567)
Assets acquired under capital leases ................................. (23,881) (120,831) -- --

F-8

The accompanying notes 1 to 27 are an integral
part of these consolidated financial statements.

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Years ended December 31,
------------------------------------------------------------
2003 2004 2005 2005
------------ ------------ ------------ ------------
(Note 2v)
ThCh$ ThCh$ ThCh$ ThUS$

Reconciliation of net income (loss) for the year to net cash
provided by operating activities
Net income ......................................................... 40,028,157 24,193,412 51,079,526 99,667
Adjustments to reconcile net income to net cash provided by
operating activities that do not represent cash flows:
Depreciation ....................................................... 32,354,613 28,551,947 27,386,928 53,438
Amortization of goodwill, net ...................................... (3,640,697) 18,389,014 21,083,222 41,138
Minority interest .................................................. (4,052,311) 6,966,523 9,327,865 18,201
Price-level restatement gain (loss), net ........................... (2,009,045) 369,852 4,344,718 8,477
Foreign exchange differences gain (loss), net ...................... (1,045,317) (309,615) 1,034,451 2,018
Losses on sales of property, plant and equipment ................... 3,108,426 1,214,275 1,383,165 2,699
Participation in earnings of investments under equity method, net .. (60,949,203) (60,573,710) (71,806,226) (140,110)
Dividends received from unconsolidated investments ................. 79,167,366 50,817,603 69,240,520 135,103
(Gains) losses on sales of investments ............................. 72,683 (4,360,934) (23,712,429) (46,268)
Write-offs and provisions .......................................... 9,427,623 7,271,594 2,943,816 5,744
Other .............................................................. 33,732,013 8,059,548 4,001,112 7,806
Decrease (increase) in accounts and notes receivable ............... (20,590,002) (6,491,551) (7,919,725) (15,453)
Decrease (increase) in inventories ................................. 1,703,896 (18,286,524) (2,472,389) (4,824)
Decrease (increase) in other assets ................................ (58,869,135) 8,313,812 (18,848,715) (36,778)
Increase in accounts and notes payable ............................. 15,103,933 2,158,017 9,420,196 18,381
Increase (decrease) in other accrued and current liabilities ....... 5,312,622 (6,370,477) 7,748,739 15,119
------------ ------------ ------------ ------------
Net cash flow provided by operating activities ................ 68,855,623 59,912,786 84,234,774 164,358
------------ ------------ ------------ ------------

F-9

The accompanying notes 1 to 27 are an integral
part of these consolidated financial statements.

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 1 - The Company

Quinenco S.A. and subsidiaries ("The Company") is a diversified company engaged
in the industrial and financial services sectors primarily in Chile and the
Southern Cone countries of South America. The Company has invested in four main
sectors of the economy: financial services; food and beverage;
telecommunications and manufacturing. In addition, Quinenco holds investments in
the real estate development sector, among others.

As of December 31, 2005, 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"); is
involved in the production and distribution of beer, soft drinks, mineral water,
wine and pisco through an equity method investment in Compania Cervecerias
Unidas S.A. ("CCU"); provides telecommunications services through its
subsidiary, Compania Nacional de Telefonos, Telefonica del Sur S.A. ("Telefonica
del Sur") and manufactures copper and aluminum products and consumer packaging
products through its affiliate Madeco S.A. ("Madeco").

In addition, through its subsidiary, Industria Nacional de Alimentos S.A.,
("Indalsa"), the Company processes and distributes food through an equity
investment in Calaf S.A. ("Calaf"); and is involved in the development of
residential real estate in Chile through its equity method 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 banking and financial
services in Chile is an equity method investment of LQ Inversiones Financieras
S.A. ("LQIF"), a consolidated subsidiary.

As of December 31, 2003, 2004 and 2005, Quinenco held a voting interest of
52.16%, 53.49% and 52.17% in Banco de Chile, respectively. Hereafter, interest
will refer to the voting interest held, unless otherwise specified. Banco de
Chile, a private Chilean bank with branches in New York and Miami, provides a
range of services through its nationwide service network in Chile.

As of December 31, 2003, the Company owned 52.16% of the voting rights and was
entitled to 29.15% of the dividend rights in the merged bank. In 2004, Banco de
Chile repurchased 2.5% of its own shares in accordance with its share repurchase
program. As a result, the Company's voting rights and dividend rights in Banco
de Chile increased to 53.49% and 29.89%, respectively.

Between May and August of 2005, Banco de Chile resold the shares it had acquired
in accordance with its share repurchase program in 2004. In addition, 2005, SM
Chile offered Series E shareholders the opportunity to redeem their shares and
receive in payment shares of Banco de Chile on a one-for-one basis. The Company
exchanged 47,866,985 Series E shares for the same number of Banco de Chile
shares. As of December 31, 2005, the Company's voting rights and dividend rights
in Banco de Chile were 52.17% and 29.17%, respectively.

Food and Beverage. CCU, an equity method investee, is a diversified beverage
company. It is the largest beer producer in Chile with an wide product offering
of own domestic and international beer brands. It also produces and distributes
own domestic brand soft drinks, PepsiCo and Schweppes Holdings Ltd. brand soft
drinks and nectars, mineral water and pisco. CCU owns a majority interest in
Vina San Pedro S.A. ("Vina San Pedro"), Chile's second-largest winery. In
Argentina, CCU is the second-largest brewer where it produces and distributes
domestic and international beer brands. CCU produces plastic bottles for use in
its businesses.

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 Americas B.V. ("Heineken"), a Dutch brewer. As a result, Heineken is a
50% partner in IRSA. As of December 31, 2003 and

F-10

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 1 - The Company (continued)

2004, IRSA owned a 61.62% controlling interest in CCU. In 2005, IRSA purchased
an additional 1.95% interest in CCU. As a result, IRSA's interest in CCU
increased to 64.17%

Indalsa, formerly Empresa Lucchetti S.A., is a 99.07% owned consolidated
subsidiary of the Company. Until March 31, 2004 it produced pasta, edible oil
and packaged soups for the Chilean market. On this date, Indalsa sold its
subsidiary, Lucchetti Chile S.A. ("Lucchetti Chile"), to Empresas Corpora
Tresmontes S.A. ("Corpora Tresmontes") for ThCh$56,074,000 (historic pesos) less
financial debt, generating a gain on sale of ThCh$4,216,298. The sale
represented approximately 85% of Indalsa's consolidated net assets but did not
include Indalsa's 50% interest in a chocolate and cookie maker acquired in
January 2004, two real estate properties in Chile, deferred tax credits or its
interest in Indalsa Peru S.A. ("Indalsa Peru", formerly Lucchetti Peru).
Following the sale, Empresas Lucchetti S.A. changed its name to Industria
Nacional de Alimentos S.A. on May 14, 2004.

Indalsa Peru produced pasta products in Peru until early 2003 when its plant was
forcibly closed by the Peruvian authorities for alleged environmental
violations. Since that date, Indalsa has been in the process of liquidating its
assets in Peru in order to repay its bank loans and amounts due to suppliers and
personnel. In accordance with accounting principles generally accepted in Chile,
the Company made a provision against the entire investment and a part of the
accounts receivable of Indalsa Peru amounting to a total of ThCh$30,678,486
(historic pesos) as of December 31, 2002.

In 2003, 2004 and 2005, Indalsa carried out capital increases. As a result,
Quinenco's ownership interest in Indalsa was 95.91%, 97.02% and 99.07% as of
December 31, 2003, 2004 and 2005, respectively.

Telecommunications. Telefonica del Sur, a consolidated subsidiary, provides
local telephone service in Regions VIII, IX, X and XI of Chile. At December 31,
2005, Telefonica del Sur was a 73.67%-owned consolidated subsidiary of the
Company. The Company's interest in Telefonica del Sur is held through a
wholly-owned subsidiary, VTR S.A. ("VTR").

Telefonica del Sur is the principal provider of local telephone service in
Regions X and XI. It is the second-largest provider of telephone services in the
ninth region which includes the city of Temuco. It is the third-largest provider
in the eighth region of the country. In addition to local telephone services,
Telefonica del Sur 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 Telefonica del Sur
was 73.56% at December 31, 2003 and 73.67% at December 31, 2004 and 2005.

Manufacturing. Madeco, a consolidated subsidiary, is a regional manufacturer of
copper and aluminum based cable, brass mills products principally used in the
telecommunications, construction, mining, energy and general industrial products
sectors. Madeco is also a manufacturer of packaging for mass consumer products.
Madeco has production facilities in Chile, Peru, Brazil and Argentina. In
Brazil, Madeco owns a 100% interest in Ficap S.A. ("Ficap"), a manufacturer of
copper and aluminum wire and cable products. As a result of the economic crisis
in Argentina which culminated in 2001, Madeco closed its Argentine subsidiary,
Decker-Indelqui S.A. ("Decker Indelqui"). Thereafter, it partially reopened its
plant facilities for wire and cable and brass mills production. In Peru, Madeco
owns Indeco S.A. ("Indeco"), a wire and cable manufacturer. Madeco's
manufacturing activities of flexible product packaging are carried out through
its subsidiaries in Chile and Argentina, Alusa S.A. ("Alusa") and Aluflex S.A.
("Aluflex").

During 2003 and 2004, Madeco increased its paid-in capital in several stages.
Quinenco subscribed directly and indirectly for shares totaling ThCh$51,402,480,
but did not participate proportionally in these capital increases. As of
December 31, 2003, and 2004, Quinenco held a 55.22% and 51.23% interest in
Madeco.

F-11

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 1 - The Company (continued)

In November 2005, the Company exercised 50% of its preemptive rights in the
capital increase of the subsidiary Madeco. As a consequence, the Company's
ownership interest in Madeco decreased from 51.23% to 47.81%. Quinenco
subscribed directly for shares totaling historic ThCh$13,672,058 (historic
pesos).

As of December 31, 2003, 2004 and 2005, Quinenco held a 55.22%, 51.23% and
47.81% interest in Madeco, respectively.

Real Estate and Hotel Administration. Hoteles Carrera previously operated a
chain of five hotels in Chile. At the end of 2003, it sold its main hotel
located in Santiago to the Chilean government. Hoteles Carrera recognized a loss
on the sale of Ch$4,831 million (historic pesos) associated with the disposal in
2003. In 2004, it did not renew the leases it had on three hotels it operated in
the north of Chile. In 2005, Hotel Carrera divested its remaining hotel, Hotel
Araucano in Concepcion, and recognized a loss on the sale of Ch$1,060 million
(historic pesos). As of December 31, 2003 and 2004, Quinenco held an 89.95%
interest in Hoteles Carrera. As of December 31, 2005, Quinenco's interest was
88.81%.

Quinenco owns a 50% equity method interest in Habitaria, a developer of
residential real estate. Habitaria is a joint venture between the Company and
Ferrovial Inmobiliaria Chile Ltda., a subsidiary of the Spanish company
Ferrovial S.A.. Habitaria has developed real estate projects in Santiago and the
fifth Region of Chile. As of December 31, 2005, it has no further plans to
develop further real estate projects and is in the process of selling its
remaining units of existing projects.

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 as of
December 31, 2004 and 2005 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 52,666,687.87 (approximately ThCh$946,673,700) as of December 31, 2005. Under
Chilean GAAP, as permitted by law, such liabilities are not included in SM
Chile's financial statements. See note 11 for details.

In November 2005, the Company exercised 50% of its preemptive rights in the
capital increase of the subsidiary Madeco. As a consequence, the Company
ownership interest in Madeco decreased from 51.23% to 47.81%. In accordance with
Technical Bulletin No. 72 of the Chilean Association of Accountants ("BT 72")
and clause 86 of the Chilean Corporations Law 18,046, the Parent Company
continues to have effective control of the subsidiary by maintaining a majority
of the Board of Directors, a situation which is not expected to change in the
near future. Consequently, the financial statements of Madeco and subsidiaries
have been included in the consolidated financial statements of Quinenco.

F-12

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 2 - Summary of Significant Accounting Policies (continued)

Indalsa has not consolidated the subsidiary Indalsa Peru as of December 31, 2004
and 2005 as a result of the action taken by the Peruvian government as detailed
in Note 20 b). This action resulted in the shut-down of the plant and the
initiation 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 ("BT64") and SVS Resolution No.01642 dated March 11, 2003, which
expressly authorized the non-consolidation of Indalsa Peru.

The consolidated financial statements as of and for the years ended December 31,
2003, 2004 and 2005 include the following subsidiaries:

At December 31,
-------------------------------
2003 2004 2005
----- ----- -----
% % %

Percentage of Direct and Indirect Ownership:

Indalsa (formerly Empresa Lucchetti) and subsidiaries............... 95.91 97.02 99.07
Telefonica del Sur and subsidiaries................................. 73.56 73.67 73.67
Madeco and subsidiaries............................................. 55.22 51.23 47.81
Hoteles Carrera..................................................... 89.95 89.95 88.81

All significant intercompany balances and transactions have been eliminated in
the consolidation, as well as any unrealized gains or losses arising from such
transactions. The participation of non-controlling 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 the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. In addition,
certain minor reclassifications have been made in the 2003 and 2004 amounts to
conform to 2005 presentations.

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 1.0%, 2.5% and 3.6% for the
years ended December 31, 2003, 2004 and 2005, respectively. The index is based
on the "prior month rule"; pursuant to which the inflation adjustments are based
on the Consumer Price Index at the close of the month preceding the close of the
respective period 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, 2003 and 2004 and the amounts disclosed in the
related footnotes have also been restated using the same index in terms of
Chilean pesos of December 31, 2005 purchasing power.

F-13

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 2 - Summary of Significant Accounting Policies (continued)

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$16,920.00, Ch$17,317.05, and Ch$17,974.81 as of December 31,
2003, 2004 and 2005, respectively.

c) Assets and liabilities in foreign currency

Balances in foreign currency included in the Consolidated Balance Sheets and
detailed in Note 19 have been translated into Chilean pesos at the Observed
Exchange Rates determined by the Central Bank of Chile in effect at each year
end. The exchange rates as of December 31 2003, 2004 and 2005 of most relevant
foreign currencies are as follows:

As of December 31,
2003 2004 2005
------------ ------------ ------------

United States Dollar (US$) .......................................... $ 593.80 $ 557.40 $ 512.50
Argentinian Pesos (AR$) ............................................. 201.97 187.36 169.42
Brazilian Reals (BR$) ............................................... 205.47 209.99 219.35

The net adjustment of assets and liabilities denominated in foreign currency is
also detailed in Note 4.

d) Cash and cash equivalents

The Company considers all short-term, highly liquid investment securities with
remaining maturities of three months or less to be cash equivalents for the
purposes of the Consolidated Statements of Cash Flows:

As of December 31,
----------------------------------------------
2003 2004 2005
------------ ------------ ------------
ThCh$ ThCh$ ThCh$

Cash ................................................................ 6,759,081 4,297,671 5,787,088
Time deposits that are cash equivalents ............................. 25,081,867 14,286,050 24,123,185
Mutual funds (Note 6) ............................................... 6,284,882 427,643 1,123,494
Securities purchased under agreements to resell that are cash
equivalents (Note 9) .............................................. 21,668,320 24,945,698 64,387,933
------------ ------------ ------------
Total ........................................................ 59,794,150 43,957,062 95,421,700
============ ============ ============

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 are stated 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.

Mutual funds are stated at market value at the end of each balance sheet date.

F-14

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 2 - Summary of Significant Accounting Policies (continued)

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 specific
identification and those balances considered to be of doubtful recovery based on
the age of the receivable.

g) Inventories

Inventories of finished products, work in progress and by-products are valued at
production cost including indirect manufacturing costs plus price-level
restatement ("restated cost"). Inventories of raw materials, materials in
warehouse and materials in transit are valued at price-level restated cost.
Inventory values do not exceed their estimated net realizable value. The related
obsolescence allowances have been deducted from inventories.

Inventories with a turnover exceeding one year are shown under other long-term
assets net of obsolescence allowance.

h) Other current assets

Other current assets correspond principally to recoverable income taxes,
deferred income taxes, prepaid expenses, disposable assets held for sale 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 agreements to resell at a fixed
price. They are valued at their present value calculated on the basis of the
interest yield used to determine the price of each instrument on the date of
acquisition.

i) Property, plant and equipment

Property, plant and equipment is 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.

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
capital leases serve as collateral of the related liability until the Company
decides to exercise the related purchase option. Therefore, the Company cannot
freely dispose of them.

Certain subsidiaries record the sale and leaseback of assets maintaining the
value of the assets prior to the transaction. The assets will legally belong to
the Company and its subsidiaries after they exercise the purchase option. Losses
arising from these transactions are amortized over the useful lives of the
related asset and are shown in other property, plant and equipment as part of
capital leases.

Software included is shown at price-level restated acquisition cost and is
amortized over 4 years in conformity with Circular No. 981 of the SVS.

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.

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 10).

F-15

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 2 - Summary of Significant Accounting Policies (continued)

The estimated useful lives of the principal categories of property, plant and
equipment are as follows:

Years
--------

Buildings and installations............................. 25 to 60
Machinery and equipment................................. 10 to 20
Telephone plant and equipment........................... 10 to 30
Other property, plant and equipment..................... 5 to 20

The revaluation from technical appraisals is being amortized over the remaining
lives of the respective assets.

Depreciation of temporarily inactive property, plant and equipment is classified
under other non-operating expenses in the consolidated Statement of Income.

j) Investments in related companies

Investments in related companies over which the Company has significant
influence, are included under the caption 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 companies in the development stage are 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 cost plus
price-level restatement. They are shown under the caption Other assets.
Dividends from such investments are recognized as income when received.

l) Goodwill and negative goodwill

Prior to January 1, 2004, goodwill arose from the excess of the purchase price
of companies acquired over their net book value; negative goodwill arose when
net book value exceeded the purchase price of companies acquired. Goodwill and
negative goodwill are also accounted for in the purchase of investments
accounted for by the equity method. Chilean GAAP also provides that goodwill and
negative goodwill amortization may be accelerated if the proportional net income
or net loss of the investee exceeds the respective straight-line amortization
amount. Beginning January 1, 2004, the Company adopted Technical Bulletin No.72
of the Chilean Association of Accountants, which changes the basis for
determining accounting for goodwill and negative goodwill generated in
transactions after January 1, 2004, based on an allocation of the purchase price
based on the fair value of the identifiable assets acquired and identifiable
liabilities assumed. Both goodwill and negative goodwill are normally amortized
over the maximum period of twenty years considering the expected period of
return of the investments.

F-16

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 2 - Summary of Significant Accounting Policies (continued)

m) Other non-current assets

Other non-current assets correspond principally to long-term receivables,
deferred income taxes, trademarks, capitalized bond issuance cost, fixed assets
held-for-sale and slow movement inventories. Trademarks are presented at their
price-level restated registration value, and are amortized over the period in
which they are expected to benefit the Company, as established in Technical
Bulletin No. 55 of the Chilean Association of Accountants.

n) Bonds payable

Bonds payable include bonds that have been issued by the Company and its
subsidiaries LQIF, Madeco and Telefonica del Sur. They are shown at their face
value as of each year end. Accrued interest is included in current liabilities.
Capitalized issuance costs and bond discounts are amortized over the term of the
bonds using the straight-line method.

o) Employee severance indemnities

Severance indemnities that subsidiaries have agreed to pay to their employees
for years of service have been calculated on a present value basis (accrued cost
of the benefit), considering the terms of the contracts, discount rates between
6% and 7% and the estimated remaining service period of each employee until
retirement.

p) Employee vacations

The cost of employee vacations is recognized in the financial statements on an
accrual basis.

q) Deferred income tax

Beginning January 1, 2000, the Company records deferred income taxes in
accordance with Technical Bulletin No.60 and its related amendments issued by
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 to the extent that they were considered to be offsetting and
temporary in nature.

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 assets or liabilities relate.

r) Revenue recognition

Revenue is recognized when goods are delivered to customers or the services are
rendered. Unearned income related to sales that the Company has invoiced and
collected in advance and is not recognized as revenue until the related goods
are delivered.

The subsidiaries in the telecommunications sector follow a policy of recognizing
revenues when the services are provided. They include an estimate of accrued
traffic and service which are not billed as of the balance sheet date, based on
a calculation of unbilled domestic and international calls and data
transmission. The estimated related costs of services provided are shown under
cost of sales.

F-17

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 2 - Summary of Significant Accounting Policies (continued)

s) Translation of foreign currency financial statements

In accordance with BT 64, the financial statements of foreign subsidiaries whose
activities do not constitute an extension of the Chilean operation and which
operate in countries that are exposed to significant risks, restrictions or
inflation/exchange fluctuations are remeasured using the U.S. dollar as the
functional currency and then translated into Chilean pesos at the year end
exchange rate. Accordingly, the financial statements of the Company's
subsidiaries in South America (principally Argentina, Brazil and Peru) are
prepared in accordance with Chilean GAAP, with the exception of price-level
restatement, which is not applied, and are then remeasured into U.S. dollars as
follows:

o Monetary assets and liabilities are translated at year-end rates of
exchange between the U.S. dollar and the local currency.

o All non-monetary assets and liabilities and shareholders' equity are
translated at historical rates of exchange between the U.S. dollar and the
local currency.

o Income and expense accounts are translated at average rates of exchange
between the U.S. dollar and the local currency.

o Any exchange differences are included in the results of operations for the
period.

Banco de Chile's branches in the United States of America use the U.S. dollar as
the measurement currency as they are not considered an extension of their parent
company and function in a country with a stable currency.

On the Parent Company's books, price-level restatement 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 U.S. dollars, or
in the case of Banco de Chile's branches which were already in U.S. dollars and
translated into Chilean pesos at the prevailing rate as of the balance sheet
date. The difference is recorded as an adjustment to the investment account with
a corresponding adjustment to the Cumulative Translation Adjustment account in
Shareholders' equity.

In addition, as permitted by BT64, the Company records the effect of foreign
exchange adjustments arising from financial instruments that hedge the exposure
of foreign investments. Accordingly, the excess of foreign exchange losses over
related price-level restatement is also charged to the Cumulative Translation
Adjustment account.

Certain subsidiaries incorporated in the Cayman Islands prepare financial
statements in U.S. dollars. These financial statements are translated to Chilean
pesos at the Observed Exchange Rate at the closing date of each period. Foreign
exchange gains or losses arising from the translation of these financial
statements are included in the results of operations as part of the foreign
exchange differences.

t) Changes of interest when investee issues 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.

F-18

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 2 - Summary of Significant Accounting Policies (continued)

u) Accumulated deficit during development stage

In accordance with Circular No.981 of the SVS, 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 Stage (see also Note 2
j)).

v) Convenience translation to U.S. dollars

The Company maintains its accounting records and prepares its financial
statements in Chilean pesos. The U.S. dollar amounts disclosed in the
accompanying Consolidated Financial Statements (except the footnotes) as of and
for the year ended December 31, 2005 are presented solely for the convenience of
the reader at the December 31, 2005 exchange rate of Ch$512.50 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 U.S.
dollars at such rate or any other rate.

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, U.S. 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 and also to cover U.S. dollar denominated debt or deposits.

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.

x) Compensations plans

Effective January 1, 2005, Madeco accounts for stock-based compensation plans in
accordance with the International Financial Reporting Standard No. 2 Share-based
payments, showing the effect of recording the fair value of the options granted
as administrative and selling expenses on a straight-line basis over the period
between the date of granting of these options to the date that these become
vested.

With respect to compensation plans implemented prior to December 31, 2004, the
Company did not record any effect at the time of granting the option and only
recognized the eventual increase in capital once the respective options were
exercised and the payment of the capital increase has been received in the
amount represented by the option strike price. This accounting treatment was
based on the provisions of International Accounting Standard No. 19, as Chilean
GAAP had not established any rules on this subject.

F-19

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

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 effect of which is summarized as follows:

Credit (charge) Year ended December 31,
---------------------------------------------------
2003 2004 2005
------------- ------------- -------------
ThCh$ ThCh$ ThCh$

Property, plant and equipment, net ........................................ 2,842,764 5,182,495 6,978,135
Inventories, net .......................................................... 2,460,010 595,764 547,252
Other current assets ...................................................... 193,366 435,314 1,393,606
Other assets .............................................................. 10,413,861 22,170,615 30,411,618
Other non-monetary liabilities ............................................ (1,278,379) (3,084,036) (4,509,017)
Shareholders' Equity, net ................................................. (6,695,437) (16,240,620) (22,329,182)
Income and expense accounts in terms of period-end constant
Chilean pesos .......................................................... (570,338) (132,427) (139,056)
Net adjustment of assets and liabilities indexed in UF .................... (5,356,802) (9,296,957) (16,698,074)
------------- ------------- -------------
Price-level restatement gain (loss), net ........................... 2,009,045 (369,852) (4,344,718)
============= ============= =============

Note 4 - Foreign Exchange Differences

The application of foreign exchange differences as described in Note 2 c)
resulted in net (charges)/credits to income, the effect of which is summarized
as follows:

Credit (charge) Year ended December 31,
---------------------------------------------------
2003 2004 2005
------------- ------------- -------------
ThCh$ ThCh$ ThCh$

Cash and financial investment ............................................. (5,070,649) (349,511) (304,040)
Accounts receivable ....................................................... 1,016,888 (636,389) (369,403)
Notes and accounts receivable from related companies ...................... -- -- (26,505)
Other assets .............................................................. (1,586,877) 630,584 (289,803)
Bank loans ................................................................ 16,491,021 (784,450) 460,273
Other liabilities ......................................................... 45,648 (426,564) 267,573
Results from financial derivative contracts ............................... (13,539,137) 811,440 212,923
Results from conversion, net .............................................. 3,688,423 1,064,505 (985,469)
------------- ------------- -------------
Foreign exchange differences gain (loss), net ........................ 1,045,317 309,615 (1,034,451)
============= ============= =============

Note 5 - Time Deposits

Time deposits are summarized as follows:

As of December 31,
--------------------------------
2004 2005
------------- -------------
ThCh$ ThCh$

Time deposits in UF ...................................................... 9,710,412 17,073,302
Time deposits in Chilean pesos ........................................... 462,294 6,768,588
Time deposits in U.S. dollars ............................................ 4,113,344 187,167
Time deposits in other foreign currencies ................................ -- 94,128
------------- -------------
Total ............................................................. 14,286,050 24,123,185
============= =============

F-20

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 6 - Marketable Securities

Marketable securities are summarized as follows:

As of December 31,
------------------------------
2004 2005
----------- -----------
ThCh$ ThCh$

Marketable equity securities .................................. 248,278 388,214
Mutual funds .................................................. 427,643 1,123,494
----------- -----------
Total marketable securities ............................ 675,921 1,511,708
=========== ===========

Note 7 - Accounts Receivable

a) Accounts receivable are summarized as follows:

As of December 31,
------------------------------
2004 2005
----------- -----------
ThCh$ ThCh$

Trade accounts receivable ..................................... 72,598,467 76,400,838
Notes receivable .............................................. 8,772,169 6,346,656
Other accounts receivable ..................................... 3,784,266 7,546,611
Allowance for doubtful accounts ............................... (9,746,017) (11,319,025)
----------- -----------
Total .................................................. 75,408,885 78,975,080
=========== ===========

b) Changes in the allowance for doubtful accounts for the years ended
December 31, 2003, 2004 and 2005 are as follows:

As of December 31,
-----------------------------------------------
2003 2004 2005
----------- ----------- -----------
ThCh$ ThCh$ ThCh$

Balance at beginning of year .................................. 15,378,717 15,438,399 9,746,017
Price-level restatement ....................................... (4,324) (292,462) (282,061)
Effect of devaluation of foreign currencies ................... (190,352) (260,385) (649,747)
Reclassification from non-current portion .................... -- -- 3,184,963
Charged to expenses ........................................... 2,925,248 1,268,297 2,288,009
Effect of sales subsidiaries .................................. -- (571,857) --
Release of provisions ......................................... -- (337,111) --
Transfer to other long-term assets ............................ -- (1,551,269) --
Write-offs .................................................... (2,670,890) (3,947,595) (2,968,156)
----------- ----------- -----------
Balance at end of year .................................. 15,438,399 9,746,017 11,319,025
=========== =========== ===========

F-21

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 8 - Inventories

a) Inventories are summarized as follows:

As of December 31,
---------------------------------
2004 2005
----------- -----------
ThCh$ ThCh$

Raw materials ......................................................... 21,748,709 20,451,507
Finished goods ........................................................ 19,996,178 27,077,621
Work-in-process ....................................................... 17,666,556 16,048,966
Supplies .............................................................. 6,787,488 5,648,913
Other ................................................................. 8,208,631 5,908,344
----------- -----------
Inventories, net ............................................... 74,407,562 75,135,351
=========== ===========

Inventories are presented net of the allowance for obsolescence (ThCh$3,024,170
and ThCh$2,774,677 in 2004 and 2005, respectively).

b) Changes in the allowance for obsolescence for the year ended December 31,
2003, 2004 and 2005 are as follows:

As of December 31,
-----------------------------------------------------
2003 2004 2005
----------- ----------- -----------
ThCh$ ThCh$ ThCh$

Balance at beginning of year ........................................ 4,898,898 4,415,689 3,024,170
Price level restatement ............................................. (48,637) (18,640) (105,087)
Foreign exchange rate differences ................................... (76,520) (60,061) (45,020)
Transfer to long term other assets .................................. 427,900 -- --
Effect of sales of subsidiaries ..................................... -- (375,838) --
Release of provisions ............................................... (462,197) (861,404) --
Charged to expenses ................................................. 196,780 3,833 32,835
Write-offs .......................................................... (520,535) (79,409) (132,221)
----------- ----------- -----------
Balance at end of year ........................................ 4,415,689 3,024,170 2,774,677
=========== =========== ===========

Note 9 - Other Current Assets

Other current assets are summarized as follows:

As of December 31,
-------------------------------
2004 2005
----------- -----------
ThCh$ ThCh$

Securities purchased under agreements to resell ..................... 24,945,698 64,387,933
Recoverable income taxes, net (see Note 17 a) ....................... 5,278,495 3,915,268
Prepaid expenses .................................................... 969,049 1,072,449
Deferred income taxes, net (see Note 17 b) ) ........................ 3,148,047 3,914,755
Property, plant and equipment held for sale, net .................... 4,968,553 2,913,535
Other ............................................................... 1,591,414 1,484,074
----------- -----------
Total ........................................................ 40,901,256 77,688,014
=========== ===========

Property, plant and equipment held for sale are recorded at their net realizable
values. The adjustments to show such property, plant and equipment at their net
realizable value amounted to ThCh$2,005,038 and ThCh$1,124,091 as of December
31, 2004 and 2005, respectively.

F-22

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 10 - Property, Plant and Equipment

Property, plant and equipment are summarized as follows:

As of December 31,
----------------------------------
2004 2005
------------- -------------
ThCh$ ThCh$

Land ..................................................................................... 15,460,113 14,305,584
------------- -------------
Buildings and infrastructure ............................................................. 161,813,465 151,276,250
Accumulated depreciation ................................................................. (56,241,795) (59,495,357)
------------- -------------
Subtotal buildings and infrastructure, net ........................................ 105,571,670 91,780,893
------------- -------------
Machinery and equipment .................................................................. 330,989,633 328,202,724
Accumulated depreciation ................................................................. (208,441,981) (212,536,241)
------------- -------------
Subtotal machinery and equipment, net ............................................. 122,547,652 115,666,483
------------- -------------

Other property, plant and equipment:
Leased assets ............................................................................ 18,613,251 18,523,770
Construction in progress ................................................................. 1,303,825 2,042,563
Furniture and fixtures ................................................................... 7,911,328 7,542,510
Office equipment ......................................................................... 3,675,992 6,806,283
Tools and others ......................................................................... 2,169,617 3,720,703
Computer software ........................................................................ 5,206,355 5,990,251
Computers ................................................................................ 306,316 319,642
Materials and replacement parts .......................................................... 1,711,167 550,361
Other property, plant and equipment ...................................................... 9,089,279 3,447,348
Accumulated depreciation ................................................................. (19,253,753) (21,254,276)
------------- -------------
Subtotal other property, plant and equipment, net ................................. 30,733,377 27,689,155
------------- -------------

Revaluation from technical appraisals:
Land ..................................................................................... 3,184,014 3,002,238
Buildings and infrastructure ............................................................. 9,727,983 7,992,962
Machinery and equipment .................................................................. 2,209,271 2,193,943
Accumulated depreciation ................................................................. (5,212,528) (5,150,520)
------------- -------------
Subtotal revaluation from technical appraisals, net ............................... 9,908,740 8,038,623
------------- -------------
Total property, plant and equipment, net ...................................... 284,221,552 257,480,738
============= =============

Depreciation expense for the years ended December 31, are summarized as follows:

Year ended December 31,
---------------------------------------------------
2003 2004 2005
----------- ----------- -----------
ThCh$ ThCh$ ThCh$

Operating expenses ..................................................... 26,541,112 23,896,456 24,268,424
Administration and sales expenses ...................................... 3,901,348 2,422,927 1,783,087
Non-Operating Expenses ................................................. 1,912,153 2,232,564 1,335,417
----------- ----------- -----------
Total ....................................................... 32,354,613 28,551,947 27,386,928
=========== =========== ===========

Depreciation expense included depreciation of the revaluation from technical
appraisals of ThCh$535,729, ThCh$422,616 and ThCh$391,662 in 2003, 2004, and
2005, respectively.

The revaluation from technical appraisals is being amortized over the remaining
lives of the respective assets.

No financing costs were capitalized during 2003, 2004 and 2005, respectively.

F-23

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 11 - Investments in related and other companies

The carrying value of investments in related companies and other companies at
cost are as follows:

As of December 31,
---------------------------------
2004 2005
------------ ------------
ThCh$ ThCh$

Investments in related companies ......................................................... 484,939,034 517,009,298
Investments in other companies at cost (1) ............................................... 47,041,331 2,685,995
------------ ------------
Total ............................................................................. 531,980,365 519,695,293
============ ============

(1) During 2005, the Company sold shares of Almacences Paris recording a gain
on sale of ThCh$23,924,204.

a) The carrying value of investments in related companies is as follows:

Percentage owned As of December 31,
------------------------------------------------------
2004 2005 2004 2005
------ ------ ------------ ------------
% % ThCh$ ThCh$

Related Companies
IRSA (1) ............................................. 50.00% 50.00% 96,578,342 98,049,510
Banco de Chile (2) ................................... 20.23% 20.30% 142,177,360 157,334,916
SM Chile series "A","B","D" and "E" (2) .............. 51.35% 52.83% 186,920,333 204,139,712
Entel S.A. ("Entel") ................................. 5.69% 5.68% 36,707,416 28,154,159
Habitaria ............................................ 50.00% 50.00% 4,509,583 3,213,562
Other ................................................ Various Various 18,046,000 26,117,439
------------ ------------
Total ......................................... 484,939,034 517,009,298
============ ============

b) Proportional share of net income (losses) of equity method investment are
as follows:

Year ended December 31,
------------------------------------------------------
Company 2003 2004 2005
------------- ------------- -------------
ThCh$ ThCh$ ThCh$

Proportional share of net income
IRSA (1) .......................................... 16,982,356 14,412,901 14,479,546
Banco de Chile (2) ................................ 28,031,280 32,804,889 36,684,189
SM Chile series "A","B","D" and "E" (2) ........... 12,370,524 14,448,734 16,084,447
Entel ............................................. 3,625,307 2,792,254 4,039,920
Other ............................................. 575,218 821,188 2,245,901
------------- ------------- -------------
Subtotal ...................................... 61,584,685 65,279,966 73,534,003
------------- ------------- -------------
Proportional share of net loss
Habitaria ......................................... (357,027) (4,459,507) (1,296,021)
Other ............................................. (278,455) (246,749) (431,756)
------------- ------------- -------------
Subtotal ...................................... (635,482) (4,706,256) (1,727,777)
------------- ------------- -------------
Total ................................... 60,949,203 60,573,710 71,806,226
============= ============= =============

(1) IRSA is a joint venture holding company through which the Company's
ownership interest in CCU is held.

(2) Financial Services

F-24

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 11 - Investments, (continued)

The voting rights and the economic interest in Banco de Chile held by Quinenco,
directly and indirectly are summarized as follows:

2003 2004 2005
% % %

Voting Rights 52.16 53.49 52.17
Economic Interest (1) 29.15 29.89 29.17

(1) The Company calculates economic interest as its share in the earnings or
losses of the subsidiary through dividends, which is not equal to the
Company's voting interest.

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 nonperforming 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 No.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 2003, related to income earned during 2002 and was
based on the participation of the Company in Banco de Chile's total dividends,
which at the time was 29.15%.

In March 2004, the Company received dividends related to income earned during
2003 for an amount of ThCh$40,607,846, based on the participation of the Company
in Banco de Chile, which was 29.15%. In 2005, it received dividends of
ThCh$47,637,734, equivalent to a 29.9% participation, related to the
distribution of 2004 net income.

F-25

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 11 - Investments (continued)

Entel

The Company accounts for this investment under the equity method as it exerts
significant influence through Board of Director representation.

Indalsa Peru

Indalsa has not consolidated the subsidiary Indalsa Peru as of December 31, 2005
and 2004 as a result of action taken by Peruvian government as detailed in Note
20 b). This action resulted in the shut-down of the plant and the start of a
process to liquidate its assets. This decision is based on the provisions of
BT64 and Resolution No.01642 of the SVS dated March 11, 2003, which authorized
the non-consolidation of Indalsa 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 Indalsa's net loss
incurred during the year-ended December 31, 2004 and 2005 and the charge for
impairment are included in non-operating expenses.

IRSA

IRSA is a joint-venture between the Company and Heineken in which both parties
own 50%. As of December 31, 2004 and 2005, IRSA held a 61.62% and 64.17%
interest in CCU, respectively. The increase in the participation in CCU is due
to an additional purchase of 1.95% shares of CCU in 2005.

Note 12 - Goodwill

Goodwill and negative goodwill are summarized as follows:

As of December 31,
---------------------------------
2004 2005
------------ ------------
ThCh$ ThCh$

Goodwill ................................................................. 324,564,887 300,247,654
Negative goodwill ........................................................ (11,247,619) (16,551,184)
------------ ------------
Goodwill, net ..................................................... 313,317,268 283,696,470
============ ============

Goodwill as of December 31 of each year arose from the purchase of the following
investments:

As of December 31,
---------------------------------
Company 2004 2005
------------ ------------
ThCh$ ThCh$

Banco de Chile and SM Chile Series B, D and E ............................ 296,849,751 278,657,387
Madeco and subsidiaries .................................................. 26,475,608 20,433,376
Others ................................................................... 1,239,528 1,156,891
------------ ------------
Total ............................................................. 324,564,887 300,247,654
============ ============

F-26

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 12 - Goodwill (continued)

The amortization of goodwill is included in non-operating expense each year
(ThCh$21,338,709, ThCh$21,312,769, ThCh$22,882,697 in 2003, 2004 and 2005
respectively).

Negative goodwill (net) as of December 31 of each year arose from the purchase
of the following investments:

As of December 31,
--------------------------------
Company 2004 2005
------------ ------------
ThCh$ ThCh$

Banco de Chile y SM Chile Series A .................................... 440,970 6,670,866
VTR and subsidiaries .................................................. 3,136,887 2,426,649
Madeco and subsidiaries ............................................... 4,152,586 4,418,304
Entel S.A. and subsidiaries ........................................... 2,328,665 2,162,222
Agricola El Penon S.A ................................................. 688,349 409,515
Other ................................................................. 500,162 463,628
------------ ------------
Total .......................................................... 11,247,619 16,551,184
============ ============

The amortization of negative goodwill is included in non-operating income in
each year (ThCh$24,979,406, ThCh$2,923,755, ThCh$1,799,475 in 2003, 2004 and
2005 respectively).

Note 13 - Other Non-Current Assets

Other non-current assets are summarized as follows:

As of December 31,
--------------------------------
2004 2005
------------ ------------
ThCh$ ThCh$

Long-term notes and account receivable ................................ 3,233,366 2,125,088
Recoverable tax incentives in Argentina ............................... 516,882 337,014
Recoverable VAT in Indalsa Peru, VTR and Comatel S.A .................. 6,602,622 290,118
Intangibles, net ...................................................... 333,609 369,281
Bond issuance costs and capitalized bond discounts .................... 6,148,204 11,836,704
Fixed assets held-for-sale ............................................ 7,216,046 8,479,788
Promissory notes in judicial collection, net .......................... 463,220 788,556
Recoverable VAT in Argentina .......................................... 311,719 219,707
Deferred income taxes, net (see Note 17 b)) ........................... 8,855,197 6,429,090
Non-current inventories, net .......................................... 269,987 293,694
Other ................................................................. 313,261 471,139
------------ ------------
Total other non-current assets ................................. 34,264,113 31,640,179
============ ============

F-27

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 14 - Short-Term Bank Loans

Short-term bank loans are summarized as follows:

As of December 31,
-------------------------------
2004 2005
------------ ------------
ThCh$ ThCh$

Payable in:
United States dollars ........................................................... 11,166,612 13,034,052
Other foreign currencies ........................................................ 5,789,755 5,724,773
Inflation-linked units (UFs) .................................................... 6,927 14,372
Chilean pesos (not indexed) ..................................................... 7,535,104 5,669,895
------------ ------------
Total short-term bank loans .............................................. 24,498,398 24,443,092
============ ============

As of December 31,
-------------------------------
2004 2005
------------ ------------
% %

Year-end weighted average interest rates:
Loans in United States dollars .................................................. 4.08 5.26
Loans in other foreign currencies ............................................... 21.19 14.02
Loans in Chilean pesos (not inflation indexed) .................................. 4.63 6.78

Note 15 - Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities are summarized as follows:

a) Current liabilities

As of December 31,
-------------------------------
2004 2005
------------ ------------
ThCh$ ThCh$

Withholdings .................................................................... 3,136,634 2,603,333
Accrued employee vacation expenses .............................................. 2,498,160 2,596,819
Unearned revenues ............................................................... 370,974 1,703,293
Restructuring expenses .......................................................... 1,004,915 860,636
Provision for anticipated losses on construction contracts ...................... 29,049 --
Staff severance indemnities ..................................................... 1,148,443 1,001,331
Remuneration and consulting services ............................................ 2,755,260 3,228,123
Project expenses and suppliers .................................................. 2,291,042 2,703,181
Dividends payable ............................................................... 344,178 401,596
Employee benefits ............................................................... 373,416 142,223
Property, municipal and other taxes ............................................. 577,566 842,447
Import and export costs ......................................................... 156,366 136,073
Telephone access charges ........................................................ 1,345,849 1,528,488
Effect of carrying derivative financial instruments at fair value ............... 1,093,257 227,015
Provisions for pending lawsuits ................................................. 1,572,878 267,155
Provision for liquidation of Optel Ltda. (Brazil) ............................... 445,695 --
Other ........................................................................... 2,538,467 2,000,512
------------ ------------
Total accrued expenses and other liabilities ............................. 21,682,149 20,242,225
============ ============

F-28

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 15 - Accrued and Other Liabilities (continued)

b) Long-term liabilities

As of December 31,
---------------------------------
2004 2005
------------ ------------
ThCh$ ThCh$

Provisions for contingencies ............................................................. 5,159,168 6,210,616
Staff severance indemnities (1) .......................................................... 1,203,138 1,135,830
Provisions for pending lawsuits (Note 20) ................................................ 1,661,791 1,559,720
Subsidiaries with accumulated deficits ................................................... 890,026 148,268
Other .................................................................................... 599,889 668,930
------------ ------------
Total accrued expenses ............................................................ 9,514,012 9,723,364
============ ============

(1) Madeco and Indalsa 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. The long-term liability is stated at present
value applying an annual discount rate of 7% considering the years
remaining to retirement dates.

Note 16 - Long-Term Debt and Bonds Payable

a) Long-term debt

Long-term debt is summarized as follows:

As of December 31,
---------------------------------
2004 2005
------------ ------------
ThCh$ ThCh$

Long-term bank loans ..................................................................... 237,564,975 173,622,268
Long-term accounts payable ............................................................... 943,589 410,074
Other long-term liabilities .............................................................. 7,791,624 6,614,915
------------ ------------
Total ............................................................................. 246,300,188 180,647,257
Less: Current portion (1) ................................................................ (42,336,697) (17,177,155)
------------ ------------
Long-term debt .................................................................... 203,963,491 163,470,102
============ ============

(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$31,393,527 and ThCh$15,644,396,at December 31, 2004 and 2005,
respectively.

2004 2005
------------ ------------
% %

Percentage of debt denominated in foreign currencies ..................................... 9.53% 9.38%
Percentage of debt denominated in local currency ......................................... 90.47% 90.62%
------------ ------------
Total .............................................................................. 100.00% 100.00%
============ ============

Year-end weighted average interest rates:

Long-term bank loans in United States dollars and others currencies ...................... 4.57% 14.30%
Long-term bank loans in UF ............................................................... 2.54% 5.03%
Long-term accounts payable ............................................................... 4.16% 6.78%
Other long-term liabilities .............................................................. 2.27% --

F-29

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 16 - Long-Term Debt and Bonds Payable (continued)

b) Bonds payable

Bonds have been issued by the following subsidiaries:

Original
issuance in UFs As of December 31,
--------------- ----------------------------------
Subsidiary: 2004 2005
------------- -------------
ThCh$ ThCh$

Telefonica del Sur (1) ......................................... 300,000 3,919,488 --
Telefonica del Sur (2) ......................................... 500,000 5,170,592 --
Telefonica del Sur (3) ......................................... 500,000 8,233,597 7,817,446
Telefonica del Sur (4) ......................................... 400,000 2,403,456 --
Telefonica del Sur (5) ......................................... 600,000 10,815,547 10,784,886
Madeco (6) ..................................................... 1,800,000 32,385,874 28,462,633
Quinenco (7) ................................................... 2,000,000 36,248,128 36,628,379
Quinenco (8) ................................................... 4,500,000 57,090,802 --
Quinenco (9) ................................................... 2,700,000 -- 49,301,084
LQIF (10) ..................................................... 3,000,000 54,142,484 55,538,469
LQIF (11) ..................................................... 4,000,000 72,055,848 73,371,697
------------- -------------
Total ................................................... 282,465,816 261,904,594
Less: Current portion .......................................... (31,393,527) (15,644,396)
------------- -------------
Long-term portion ....................................... 251,072,289 246,260,198
============= =============

(1) In March 1995, Telefonica del Sur issued bonds under the following terms:

Amount issued : UF300,000 composed of 300 Series D bonds of UF1,000 each.
Term : Twenty-one years (three years of grace and eighteen years of principal repayment).
Principal amortization : Thirty-six equal semi-annual installments starting June 1, 1998. As of
December 31, 2005, the entirety of this obligation has been paid.
Interest rate : 5.8% real annual rate, calculated and paid semi-annually on the
outstanding UF-denominated principal.
Advance redemption : Telefonica del Sur has the right to redeem the entire bond issue on any coupon
payment date after June 1, 2000.

(2) In May 1997, Telefonica del Sur issued bonds under the following terms:

Amount issued : UF500,000 composed of 500 Series E bonds of UF1,000 each,
Term : Twelve years (three years of grace and nine years of principal repayment).
Principal amortization : Eighteen equal semi-annual installments starting August 1, 2000.
As of December 31, 2005, the entirety of this obligation has been paid.
Interest rate : 5.8% real annual rate, calculated and paid semi-annually on the outstanding
UF-denominated principal.
Advance redemption : Telefonica del Sur has the right to redeem the entire bond issue on any
coupon payment date after August 1, 2000.

F-30

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 16 - Long-Term Debt and Bonds Payable (continued)

(3) In May 1997, Telefonica del Sur issued bonds under the following terms:

Amount issued : UF500,000 composed of 500 Series F bonds of UF1,000 each.
Term : Twenty-one years (five years of grace and sixteen years of principal repayment).
Principal amortization : Thirty-two equal semi-annual installments starting August 1, 2002. As of December
31, 2005, seven principal installments amounting to UF 75,000 have been paid.
Interest rate : 5.8% real annual rate, calculated and paid semi-annually on the outstanding
UF-denominated principal.
Advance redemption : Telefonica del Sur has the right to redeem the entire bond issue on any coupon
payment date after August 1, 2002.

(4) In April 2001, Telefonica del Sur issued bonds under the following terms:

Amount issued : UF400,000 composed of 200 Series G1 bonds of UF 500 each and 60 Series G2
bonds of UF5,000 each.
Term : Five years (two years of grace and three years of principal repayment).
Principal amortization : Six equal semi-annual payments starting June 1, 2003. As of December 31, 2005, the
entirety of this obligation has been paid.
Interest rate : 6.00% real annual rate calculated and paid semi-annually on the outstanding
UF-denominated principal.

(5) In April 2001, Telefonica del Sur issued bonds under the following terms:

Amount issued : UF600,000 composed of 300 Series H1 bonds of UF1,000 each and 60 Series H2 bonds
of UF 5,000 each.
Term : Twenty-one years (six years of grace and fifteen years of principal repayment).
Principal amortization : Thirty equal semi-annual payments starting June 1, 2007.
Interest rate : 6.00% real annual rate calculated and paid semi-annually on the outstanding
UF-denominated principal.

(6) In December, 2004, Madeco issued bonds under the following terms:

Amount issued : UF1,800,000 composed of 360 Series D bonds of UF5,000 each.
Term : Seven years (fourteen semi-annual installments of principal repayment).
Principal amortization : Fourteen semi-annual installments starting June 10, 2005. As of December 31, 2005,
one principal installment amounting to UF 221,076 has been paid.
Interest rate : 5.00% real annual rate calculated and paid semi-annually on the outstanding
UF-denominated principal.

(7) In July 2005, Quinenco carried out a modification of existing bonds under
the following terms:

Amount issued : UF2,000,000 composed of 180 Series A1 bonds of UF10,000 each and 200 Series A2
bonds of UF1,000 each.
Terms : Twenty-one years (five years of grace and sixteen years of principal repayment).
Principal amortization : Twenty-one equal annual payments starting July 21, 2011.
Interest rate : 4.17% real annual rate calculated and paid annually on the outstanding
UF-denominated principal.

F-31

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 16 - Long-Term Debt and Bonds Payable (continued)

(8) In April 2001, Quinenco issued bonds under the following terms:

Amount issued : UF4,500,000 composed of 400 Series B1 bonds of UF10,000 each and 500 Series B2
bonds of UF1,000 each.
Terms : Eight years (three years of grace and five years of principal repayment).
Principal amortization : Ten equal semi-annual payments starting October 30, 2003. As of December 31,
2005, the entirety of this obligation has been paid.
Interest rate : 6.20% real annual rate calculated and paid semi-annually on the outstanding
UF-denominated principal.

(9) In October 2005, Quinenco issued bonds under the following terms:

Amount issued : UF2,7000,000 composed of 2,700 Series D bonds of UF1,000 each.
Terms : Eight years (eight years of principal repayment).
Principal amortization : Eight equal annual payments starting July 21, 2006.
Interest rate : 3.50% real annual rate calculated and paid annually on the outstanding
UF-denominated principal.

(10) In October 2004, LQIF issued bonds under the following terms:

Amount issued : UF3,000,000 composed of 6,000 Series B bonds of UF500 each.
Terms : Twenty years and six month (5.5 years of grace and fifteen years of principal
repayment).
Principal amortization : Fifteen equal annual payments starting May 15, 2011.
Interest rate : 4.75% real annual rate calculated and paid semi-annually on the outstanding
UF-denominated principal.

(11) In October 2004, LQIF issued bonds under the following terms:

Amount issued : UF4,000,000 composed of 8,000 Series A bonds of UF500 each.
Terms : five years and six months (3.5 years of grace and two years of principal
repayment).
Principal amortization : Two equal annual payments starting May 15, 2009.
Interest rate : 3.25% real annual rate calculated and paid semi-annually on the outstanding
UF-denominated principal.

c) The scheduled principal payments on long-term debt and bonds payable at
December 31, 2005 are summarized as follows:

At December 31, 2005
--------------------
ThCh$

Principal payments during the fiscal years ending December 31,
2007............................................................. 56,206,234
2008............................................................. 52,069,338
2009............................................................. 82,341,113
2010............................................................. 69,722,641
2011 and thereafter.............................................. 149,390,974
--------------
Total..................................................... 409,730,300
==============

F-32

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 16 - Long-Term Debt and Bonds Payable (continued)

Long-term debt and bonds payable, including the current portion, are payable in
the following currencies:

At December 31,
------------------------------
2004 2005
----------- -----------
ThCh$ ThCh$

United States dollars ...................................... 18,974,943 5,310,679
Inflation linked-units (UF's) .............................. 506,254,161 426,165,483
Chilean pesos (not indexed) ................................ 1,519,363 1,011,251
Other currencies (1) ....................................... 2,017,537 10,064,438
----------- -----------
Total ............................................... 528,766,004 442,551,851
=========== ===========

(1) Other currencies include Peruvian Sols, Argentine Pesos, Brazilian Reals
and Euros.

d) Financial covenants

Quinenco and its group companies were in compliance with their financial
covenants related to current bond issuances and bank loan agreements as of
December 31, 2005.

d-1) Quinenco is subject to certain financial covenants, which as of
December 31, 2005, are as follows:

o Maintain a ratio of unencumbered assets at book value to unsecured
debt of at least 1.3:1.

o Unconsolidated financial debt to total capitalization ratio no
greater than 0.45:1.

o Consolidated financial debt to total capitalization ratio no greater
than 0.6:1.

o Minimum shareholders' equity of UF 33 million.

o Luksic Group to maintain control of Quinenco.

o Quinenco to maintain control of Banco de Chile (through its
investment in LQIF).

d-2) Telefonica del Sur and subsidiary are subject to certain financial
covenants and restrictions related to its bond issuances and bank
loan agreements. The main financial covenants are as follows:

Telefonica del Sur

o Maintain a liquidity ratio of at least 0.50:1 on both an
unconsolidated and consolidated basis.

o Leverage (liabilities/shareholders' equity) no greater than 1.5:1 on
both an unconsolidated and consolidated basis.

o Minimum shareholders' equity of UF2 million.

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 shareholders' equity.

o Maintain a ratio of unencumbered assets to unsecured debt of at
least 1.3:1.

d-3) LQIF is subject to certain financial covenants and restrictions
related to its bond issuance and bank loan agreements, the principal
ones being:

Until LQIF has repaid the total principal and interest on the bonds
in circulation to bondholders, and effective starting with its
financial statements as of June 30, 2004, LQIF must maintain a debt
to asset ratio no greater than 0.50:1, as measured in its quarterly
unconsolidated financial statements. Starting September 30, 2004,
LQIF must maintain a debt to asset ratio no greater than 0.40:1 in
its quarterly unconsolidated financial statements.

For the three month period prior to the annual payment of its bond
coupons, LQIF must maintain a liquid reserve greater than or equal
to the amount to be paid to the bondholders on the installment date.

F-33

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 16 - Long-Term Debt and Bonds Payable (continued)

d-4) Madeco is subject to certain financial covenants and restrictions as
of December 31, 2005, the most restrictive of which are :

Bonds Series D:

o Maintain a current ratio of at least 1.0:1.

o Minimum shareholders' equity equivalent to UF 7 million.

o Debt to equity ratio (third-party liabilities/Shareholder's equity
plus Minority interest) may not exceed 1.8:1.

o Unencumbered assets to be at least 1.2 times the total amount of
bonds outstanding.

o Quinenco must remain as the controlling entity of Madeco, with a
direct or indirect shareholding of at least 40%, in accordance with
clause 97 of the Capital Markets Law, notwithstanding that Quinenco
must at all times directly hold at least 35% of the shares.

Bank loans:

On September 5, 2005, Madeco prepaid all of its rescheduled loans signed with
creditor banks on December 18, 2002. The prepayment was financed with the
proceeds of a short-term loan from Banco Bilbao Vizcaya Argentaria Chile. While
this loan remains outstanding, Madeco must comply with the following
restrictions:

Covenants:

(1) Maintain ownership of the following subsidiaries and their essential
assets: Alusa, Indalum, Ficap and Indeco.

(2) Madeco must grant an exclusive mandate to Banco Bilbao Vizcaya
Argentaria Chile. To structure the refinancing of the loan under
current market conditions should it not be able to repay the balance
of the loan at its maturity date on June 30, 2006.

Negative covenants:

a) Madeco may not enter into contracts to liquidate, dissolve or divide
its businesses without the prior consent of the bank.

b) Madeco may not significantly alter the nature of its principal
businesses.

c) Madeco may not grant real guarantees to present or future creditors
which would weaken the bank's position with respect to those
creditors.

On December 5, 2005, Madeco repaid part of the loan granted by Banco Bilbao
Vizcaya Argentaria and on the same date the contract was redenominated in
Chilean pesos (previously the loan was denominated in UF). As of December 31,
2005, the debt outstanding with Banco Bilbao Vizcaya Argentaria was
ThCh$7,932,485.

o The indirect subsidiary Alusa maintains a syndicated loan with Banco
de Chile and Banco Estado for UF300,000 as of December 31, 2005, for
which it must comply with the following covenants:

o Maintain the following financial indicators based on its
consolidated and unconsolidated financial statements: leverage
(liabilities to shareholders' equity) not to exceed 0.75:1
(equity for these purposes being net of intangible assets and
technical appraisals of assets).

o Minimum shareholders' equity of UF1,765,000.

o In the event of the disposal of the real estate properties
located at Avda. Vicuna Mackenna 2935 and 2585, Alusa must use
at least 35% of the proceeds to prepay on a prorata basis, the
participant banks in the syndicated loan.

F-34

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 16 - Long-Term Debt and Bonds Payable (continued)

o Alusa may not encumber its assets or give guarantees to creditors
other than to the participant banks, without their prior written
consent, unless such security is also granted in favor of the
participant banks on the same terms and conditions and with equal
degree of preference as to other creditors. Excluded from this
prohibition is the collateral given by Alusa over assets it acquires
in the future in order to cover the financing obtained for their
acquisition.

o No accounts receivable with its Argentine subsidiary, Aluflex
relating to non-business operations, except with the prior written
consent of the participant banks. Business-related accounts
receivable with Aluflex, may not exceed US$600,000 except with the
prior written consent of the participant banks.

With respect to export advances made by Banco Security of UF163,000:

o In order to guarantee the credits obtained, Alusa should ensure that
Madeco remains the direct or indirect owner of at least 50.1% of the
capital with voting rights of Alusa during the term of the credits.

o Alusa was in compliance with all of these covenants as of December
31, 2005.

Note 17 - Income Taxes and Other Taxes

a) Income taxes payable and receivable

Income taxes payable are summarized as follows:

As of December 31,
---------------------------------
2004 2005
------------ ------------
ThCh$ ThCh$

Income taxes payable ..................................................................... (2,808,678) (7,703,830)
Monthly income tax installments .......................................................... 1,868,602 2,186,272
Other credits against taxes .............................................................. 4,534,336 5,683,512
Others tax recoverable ................................................................... 1,684,235 3,749,314
------------ ------------
Recoverable income taxes, net (Note 9) ........................................... 5,278,495 3,915,268
============ ============

The income tax liability has been determined for each legal entity included in
the consolidated financial statements based on enacted tax laws in each country
in which the Company operates. The net credit (charge) to the results of
operations for each year is summarized as follows:

As of December 31,
-----------------------------------------------
2003 2004 2005
----------- ----------- -----------
ThCh$ ThCh$ ThCh$

Current year provision for income tax ........................................ (2,203,981) (2,808,678) (7,703,830)
Deferred income tax .......................................................... 2,231,646 (3,458,488) (1,705,993)
Amortization of complementary accounts ....................................... 229,087 2,059,780 856,315
Valuation allowance on deferred tax assets ................................... (8,596,223) (4,151,282) (3,625,266)
Tax benefit from (use of) tax loss carry forwards ............................ 5,516,955 2,730,470 2,815,541
Other ........................................................................ 94,748 3,602,322 2,580,371
----------- ----------- -----------
Net income tax benefit (expense) ...................................... (2,727,768) (2,025,876) (6,782,862)
=========== =========== ===========

F-35

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 17 - Income Taxes and Other Taxes (continued)

b) Deferred income taxes

Current portion Long-term portion
------------------------------- -------------------------------
Timing differences 2004 2005 2004 2005
----------- ----------- ----------- -----------
ThCh$ ThCh$ ThCh$ ThCh$

Assets
Accrued vacation expense ........................... 261,537 277,785 -- 11,177
Allowance for doubtful accounts .................... 1,078,055 1,478,863 2,448,231 1,723,177
Allowance for obsolescence of inventories .......... 525,331 644,268 187,020 91,386
Unearned income .................................... -- 10,013 -- --
Property, plant and equipment held for sale ........ 246,866 49,026 985,206 423,377
Property, plant and equipment under leasing ........ 113,391 19,743 223,497 223,071
Accelerated depreciation of fixed assets ........... -- -- 348 943
Tax loss carryforwards ............................. 3,680,575 3,473,741 36,923,158 39,945,533
Other provisions ................................... 9,181,699 7,781,732 7,143,167 7,156,799

Liabilities
Fixed assets under leasing ......................... -- -- (3,214,985) (3,324,704)
Production costs (inventories) ..................... (502,641) (511,547) -- --
Accelerated depreciation of fixed assets ........... (261,000) -- (16,802,456) (16,198,239)
Employee severance indemnities ..................... -- -- (662,762) (675,082)
Other provisions ................................... (347,658) (241,000) (317,357) (361,288)
----------- ----------- ----------- -----------
Subtotal ..................................... 13,976,155 12,982,624 26,913,067 29,016,150
Complementary accounts, net of amortization ........ (31,968) (19,704) 7,333,430 8,177,481
Valuation allowance ................................ (10,796,140) (9,048,165) (25,391,300) (30,764,541)
----------- ----------- ----------- -----------
Total deferred income taxes, net ............. 3,148,047 3,914,755 8,855,197 6,429,090
=========== =========== =========== ===========

F-36

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 18 - Shareholders' Equity

a) The changes in Shareholders' Equity during the years 2003, 2004 and 2005
in historical amounts are summarized as follows:

----------------------------------------------
Reserves
----------------------------------------------

Cumulative Executive
Paid in Other translation incentive
Number of capital reserves adjustment plan
shares ThCh$ ThCh$ ThCh$ ThCh$
------------- ----------- ----------- ----------- ----------

Balances at January 1, 2003 1,079,740,079 454,744,268 17,569,380 28,578,409 (4,729,878)
Allocation of 2002 net income -- -- -- -- --
Deficit from development period -- -- -- -- --
Price-level restatement of equity accounts -- 4,547,443 175,694 285,784 (47,299)
Proportional share of variations in equity of
subsidiaries and investees -- -- (1,592,645) -- --
Cumulative translation adjustment -- -- -- (28,107,388) --
Executive incentive plan -- -- -- -- 1,628,193
Payment of interim dividend on 2003 net income -- -- -- -- --
Net income for the year -- -- -- -- --
------------- ----------- ----------- ----------- ----------
Balances at December 31, 2003 1,079,740,079 459,291,711 16,152,429 756,805 (3,148,984)
============= =========== =========== =========== ==========
Restatement of December 31, 2003 balances
to December 31, 2005 constant pesos -- 487,721,867 17,152,264 803,651 (3,343,906)
============= =========== =========== =========== ==========
Balances at January 1, 2004 1,079,740,079 459,291,711 16,152,429 756,805 (3,148,984)
Allocation of 2003 net income -- -- -- -- --
Payment of final dividend on 2003 net income -- -- -- -- --
Deficit from development period -- -- -- -- --
Price-level restatement of equity accounts -- 11,482,292 403,811 18,920 (78,725)
Proportional share of variations in equity of
subsidiaries and investees -- -- (22,878,276) -- --
Cumulative translation adjustment -- -- -- (8,801,818) --
Executive incentive plan -- -- -- -- 1,157,869
Net income for the year -- -- -- -- --
------------- ----------- ----------- ----------- ----------
Balances at December 31, 2004 1,079,740,079 470,774,003 (6,322,036) (8,026,093) (2,069,840)
============= =========== =========== =========== ==========
Restatement of December 31, 2004 balances
to December 31, 2005 constant pesos -- 487,721,867 (6,549,629) (8,315,033) (2,144,354)
============= =========== =========== =========== ==========
Balances at January 1, 2005 1,079,740,079 470,774,003 (6,322,036) (8,026,093) (2,069,840)
Allocation of 2004 net income -- -- -- -- --
Payment of final dividend on 2004 net income -- -- -- -- --
Deficit from development period -- -- -- -- --
Price-level restatement of equity accounts -- 16,947,864 (227,594) (288,939) (74,514)
Proportional share of variations in equity of
subsidiaries and investees -- -- 22,569,877 -- --
Cumulative translation adjustment -- -- -- (12,341,282) --
Executive incentive plan -- -- -- -- 1,078,682
Net income for the year -- -- -- -- --
------------- ----------- ----------- ----------- ----------
Balances at December 31, 2005 1,079,740,079 487,721,867 16,020,247 (20,656,314) (1,065,672)
============= =========== =========== =========== ==========

--------------------------------------------------------------
Retained earnings
--------------------------------------------------------------
Accumulated
deficit during Net Income
Retained Interim development (loss) for
earnings dividends period the year Total
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$
------------ ----------- -------------- ----------- ------------

Balances at January 1, 2003 211,215,302 -- (1,382,458) (75,480,211) 630,514,812
Allocation of 2002 net income (76,862,669) -- 1,382,458 75,480,211 --
Deficit from development period -- -- (276,463) -- (276,463)
Price-level restatement of equity accounts 1,343,527 -- -- -- 6,305,149
Proportional share of variations in equity of
subsidiaries and investees -- -- -- -- (1,592,645)
Cumulative translation adjustment -- -- -- -- (28,107,388)
Executive incentive plan -- -- -- -- 1,628,193
Payment of interim dividend on 2003 net income -- (12,144,323) -- -- (12,144,323)
Net income for the year -- -- -- 37,694,846 37,694,846
------------ ----------- ----------- ----------- ------------
Balances at December 31, 2003 135,696,160 (12,144,323) (276,463) 37,694,846 634,022,181
============ =========== =========== =========== ============
Restatement of December 31, 2003 balances
to December 31, 2005 constant pesos 144,095,754 (12,896,057) (293,576) 40,028,157 673,268,154
============ =========== =========== =========== ============
Balances at January 1, 2004 135,696,160 (12,144,323) (276,463) 37,694,846 634,022,181
Allocation of 2003 net income 25,274,060 12,144,323 276,463 (37,694,846) --
Payment of final dividend on 2003 net income (6,703,102) -- -- -- (6,703,102)
Deficit from development period -- -- (780,742) -- (780,742)
Price-level restatement of equity accounts 3,849,976 -- -- -- 15,676,274
Proportional share of variations in equity of
subsidiaries and investees -- -- -- -- (22,878,276)
Cumulative translation adjustment -- -- -- -- (8,801,818)
Executive incentive plan -- -- -- -- 1,157,869
Net income for the year -- -- 23,352,714 23,352,714
------------ ----------- ----------- ----------- ------------
Balances at December 31, 2004 158,117,094 -- (780,742) 23,352,714 635,045,100
============ =========== =========== =========== ============
Restatement of December 31, 2004 balances
to December 31, 2005 constant pesos 163,809,309 -- (808,848) 24,193,412 657,906,724
============ =========== =========== =========== ============
Balances at January 1, 2005 158,117,094 -- (780,742) 23,352,714 635,045,100
Allocation of 2004 net income 22,571,972 -- 780,742 (23,352,714) --
Payment of final dividend on 2004 net income (14,011,625) -- -- -- (14,011,625)
Deficit from development period -- -- (1,497,336) -- (1,497,336)
Price-level restatement of equity accounts 5,972,365 -- -- -- 22,329,182
Proportional share of variations in equity of
subsidiaries and investees -- -- -- -- 22,569,877
Cumulative translation adjustment -- -- -- -- (12,341,282)
Executive incentive plan -- -- -- -- 1,078,682
Net income for the year -- -- 51,079,526 51,079,526
------------ ----------- ----------- ----------- ------------
Balances at December 31, 2005 172,649,806 -- (1,497,336) 51,079,526 704,252,124
============ =========== =========== =========== ============

F-37

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 18 - Shareholders' Equity (continued)

b) The Accumulated deficit during the development period for the years ended
December 31, 2003, 2004 and 2005 includes the recognition of the
proportional share of the results of operations of certain companies in
the development stage, losses from which are charged directly against
shareholders' equity and are not included in the statement of income.

c) As required by 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, excluding amortization of
negative goodwill in the Parent Company as determined in accordance with
Chilean GAAP, unless and except to the extent that the Company has
accumulated losses.

d) As required by Chilean Law, paid-in capital has been modified to reflect
the proportional capitalization of the price-level restatement of equity
accounts.

e) During March 2000, Quinenco established an executive incentive plan in
which an aggregate loan of ThCh$4,659,565 (historic pesos) 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.

f) On December 22, 2003, the Directors approved the payment of an interim
dividend on net income for the year 2003 amounting to ThCh$12,144,323
(historic pesos).

g) At the Ordinary Shareholders' Meeting held on April 30, 2004, shareholders
approved the payment of a final dividend distribution of net income for
the year 2003 amounting to ThCh$6,703,102 (historic pesos).

h) At the Ordinary Shareholders' Meeting held on April 28, 2005, shareholders
approved the payment of a final dividend distribution of net income for
the year 2004 amounting to ThCh$14,011,625 (historic pesos).

i) Certain U.S. dollar-denominated obligations are designated as economic
hedges covering the exposure of foreign investments as permitted by BT64.
The exchange differences that arise from such obligations are charged
directly against Shareholders' equity to the Cumulative translation
account within Shareholders' equity. If the investment balance is lower
than debt balance the difference related with exchange effect is recorded
through income. The cumulative foreign exchange adjustments charged to
equity were as follows:

As of December 31,
---------------------------------------------
2003 2004 2005
----------- ----------- -----------
ThCh$ ThCh$ ThCh$

Foreign exchange adjustments arising from liabilities
designated as hedges of foreign investments......................... (32,260,447) (11,708,625) (14,272,719)

F-38

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 19 - Foreign Currency, UF-Indexed and CPI-Restated Assets and Liabilities

a) Balances denominated or measured in foreign currency (principally U.S.
dollars) at December 31, 2004 and 2005 are included in these financial
statements in thousands of Chilean peso equivalents as follows:

At December 31,
-------------------------------
2004 2005
------------ ------------
ThCh$ ThCh$

Current assets:
Cash and time deposits .................................................. 7,048,010 4,368,015
Accounts receivable, net ................................................ 35,858,440 42,952,795
Inventories, net ........................................................ 31,492,907 33,471,736
Other current assets .................................................... 6,970,944 7,058,072
Long-term assets:
Property, plant and equipment and other non-monetary assets ............. 113,953,767 103,182,873
Other non-monetary assets ............................................... 456,787 305,078
------------ ------------
Total assets ........................................................ 195,780,855 191,338,569
------------ ------------
Current liabilities:
Short-term bank loans and current portion of long-term liabilities ...... 18,516,820 18,794,138
Accounts payable and supplier notes payable ............................. 17,709,177 12,739,043
Other ................................................................... 6,895,263 7,623,908
Long-term liabilities
Long-term debt .......................................................... 19,432,030 15,339,804
Other ................................................................... 1,345,595 2,155,901
------------ ------------
Total liabilities ................................................... 63,898,885 56,652,794
------------ ------------
Net asset position in foreign currencies ...................... 131,881,970 134,685,775
============ ============

Certain of the U.S. dollar-denominated obligations included in the above table
are designated as economic hedges covering the exposure of foreign investments
as permitted by BT64. As a result, portions of the exchange losses that arise
from such obligations are charged directly against Shareholders' Equity to the
Cumulative translation adjustment account within Shareholders' equity (see Note
18 i)).

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 U.S. dollars in accordance with BT64, described in Note 2 s).
Accordingly, there is exposure to variations in the exchange rate between the
U.S. dollar and the Chilean peso, from an accounting perspective.

F-39

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 19 - Foreign Currency, UF-Indexed and CPI-Restated Assets and Liabilities
(continued)

b) Balances denominated in UFs are included in the accompanying December 31,
2004 and 2005 financial statements as follows:

At December 31,
------------------------------------
2004 2005
--------------- ---------------
ThCh$ ThCh$

Current assets:
Cash and time deposits ................................................. 12,211,632 27,053,966
Accounts receivable, net ............................................... 49,024,079 41,229,839
Inventories, net ....................................................... 42,914,655 41,663,615
Other current assets ................................................... 33,976,628 70,629,942
Long-term assets:
Property, plant and equipment and other non-monetary assets ............ 1,047,411,769 988,785,648
Other monetary assets .................................................. 2,776,579 1,820,010
--------------- ---------------
Total assets ....................................................... 1,188,315,342 1,171,183,020
--------------- ---------------
Current liabilities:
Short-term bank loans and current portion of long-term liabilities ..... 79,711,802 38,470,505
Accounts payable and supplier notes payable ............................ 12,121,418 9,908,012
Other .................................................................. 14,442,708 12,216,721
Long-term liabilities
Long-term debt ......................................................... 435,612,803 394,398,513
Other .................................................................. 8,168,417 7,567,463
--------------- ---------------
Total liabilities .................................................. 550,057,148 462,561,214
--------------- ---------------
Net asset position in UFs and indexed to CPI ....................... 638,258,194 708,621,806
=============== ===============

Note 20 - Commitments and Contingencies

a) Pledges of shares

The Company has pledged shares of subsidiaries and equity investees as
collateral for bank obligations as of December 31, 2005 as follows:

Amount of
Beneficiary Currency securities pledge Number of Shares Company
----------- -------- ----------------- ---------------- -------
ThCh$

Banco del Estado de Chile UF 92,128,651 245,676,403 Telefonica del Sur
Banco del Estado de Chile UF 89,719,640 2,161,919,046 Madeco

b) Indalsa Peru and related extraordinary allowance

On August 22, 2001, the Metropolitan Council of the Municipality of Lima
published in the Diario El Peruano (the Official Gazette newspaper) two council
resolutions (Nos. 258 and 259) declaring the public need to preserve the
ecological area adjoining the production plant of Indalsa. 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 Indalsa Peru for its industrial facilities and to order the final
closure of the plant and its complete eradication within twelve months.

In Management's opinion, the municipal actions lacked any basis because the Lima
Municipal Council has no legal power to revoke operating licenses granted by
another municipality, in this case Chorrillos, and because the revocation
process did not allow the company the opportunity to present its comments or
defense, thus depriving it of a basic right.

F-40

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 20 - Commitments and Contingencies (continued)

Consequently, on October 3, 2001, Indalsa 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 January 6, 2003, Indalsa Peru was ordered by the municipality of Chorrillos
to close the plant and threatened with the use of public proceedings and the
national police. Consequently, the Board of Directors of Indalsa agreed to
comply with the order as quickly as possible in order to protect the
subsidiary's employees and installations, and to begin an orderly liquidation of
the assets of the Peruvian subsidiary. On January 16, 2003, an official and the
Mayor of Chorrillos personally witnessed the closure of the plant.

As a result of these events, Indalsa proceeded to make an allowance for the
entire investment and for part of the accounts receivable from its subsidiary
Indalsa Peru of ThCh$30,678,486 (historic pesos). The accounting treatment was
in accordance with the specific provisions of Technical Bulletins Nos. 33 and 64
of the Chilean Association of Accountants, and the instructions of the SVS (in
particular, Circular 150 dated January 31, 2003) which require public companies
to make allowances for estimated losses in the value of their assets, especially
with regard to investments in other Latin American countries.

In the opinion of the management of Indalsa, the allowance made reflected only
the accounting effect of the non-recovery of the investment but did not take
into account the intangible assets, such as the distribution networks, customer
portfolio, brand image, know-how, market share, sale of distribution services to
third parties and the whole business project designed by Indalsa Such intangible
assets are not reflected in the accounts, nor are they shown in the balance
sheet. Therefore, this allowance, which had to be constituted to comply with the
aforementioned accounting rules, will not in any way reflect the amount of the
assets and rights invested in Peru by Indalsa, which is also the amount of
damages that Indalsa may demand from the Peruvian state. Consequently, the
amount of the allowance only formed a part of the total amount claimed from the
Republic of Peru.

The management of Indalsa, supported by legal reports and analyses, considers
that the actions carried out by the Peruvian authorities constituted an indirect
expropriation of the investment made by Indalsa in Peru, and as a consequence,
believes that there is a reasonable legal basis under international law to
obtain a favorable settlement for damages. Likewise, the legal advisers to
Indalsa, the firm Herberth & Smith, Mr. Francisco Orrego Vicuna and the firm
Eluchans y Cia., believe that the arbitration with the ICSID has a high
likelihood of success in obtaining a just indemnity, considering, among other
factors, the amounts invested by the company in Peru. Despite these opinions,
and in accordance with current accounting regulations, including Technical
Bulletin No. 6 of the Chilean Association of Accountants, Indalsa decided not to
record the potential settlement gain that might result from the international
arbitration process.

On March 25, 2003, the General Secretary of the ICSID registered the arbitration
request presented by the subsidiary Indalsa on December 23, 2002. On August 1,
2003, the ICSID arbitration tribunal was constituted to assess and resolve the
lawsuit brought against the Republic of Peru at which time it began formal
procedures. The arbitration tribunal consists of the following arbitrators: Mr.
Thomas Buergenthal (Chairman of the tribunal, appointed by the ICSID General
Secretary), Mr. Bernardo M. Cremades, named by the Republic of Peru state and
Mr. Jan Paulsson, appointed by Indalsa.

The first meeting of the arbitration tribunal was held on September 15, 2003,
when the tribunal formally rejected the request of the Republic of Peru to
suspend the arbitration proceedings. The tribunal also set forth the procedures
to be followed for the lawsuit brought by Indalsa against the Republic of Peru.

F-41

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 20 - Commitments and Contingencies (continued)

The arbitration tribunal established the procedure contemplated the presentation
of a request by Peru to rule that it had no jurisdiction over the case, the
response by Indalsa, the replication by the Republic of Peru and finally a
rejoinder by Indalsa. Oral arguments were heard on September 2 and 3, 2004.

Despite the sound legal arguments made by Indalsa, the tribunal issued its
findings on February 7, 2004, accepting the request made by the Republic of Peru
without entering into the merits of the case. The international tribunal ruled
that it has no jurisdiction over arbitration proceedings between Indalsa and the
Republic of Peru.

On June 6, 2005, Indalsa presented a petition to the General Secretary of the
ICSID for the annulment of the ruling which, after being duly registered, was
initiated. In order to hear the annulment petition, ICSID appointed an ad hoc
committee consisting of three arbitrators, Hans Danelius, Franklin Berman and
Andrea Giordina. On February 16, 2006, procedures were established for the
presentation of the annulment petition, another for replication and rejoinder,
and finally the oral hearings.

c) Civil liability

Indalsa Peru, subsidiary of Indalsa, is involved in criminal proceedings brought
in Peru against the chief executive officer, a former manager and a director of
Indalsa (hereinafter the "Executives") for alleged crimes relating to the
trafficking of influence, which could result in legal contingencies for Indalsa.

On August 31, 2005, the First Special Criminal Court of the Supreme Court of
Justice of Lima, by its Resolution 89, ordered the start of oral hearings for
September 29, 2005. The Executives did not attend because of the discriminatory
and partial treatment the court has given them. The court then declared the
Executives in contempt of court and issued an order for their international
arrest, which was later annulled by a ruling of the Peruvian Supreme Court of
Justice under constitutional proceedings.

In addition, the Peruvian Supreme Court of Justice, in a ruling on January 27,
2006, applied the statute of limitations with respect to the criminal action
against Andronico Luksic Craig. Later, the First Special Court of the Supreme
Court applied the statute of limitations with respect to the criminal actions
against Gonzalo Menendez Duque and Fernando Pacheco Novoa, and the case was
closed. As a result, the potential liability of the Peruvian subsidiary is also
extinguished. Lawyers representing the Peruvian state have appealed against this
last resolution and the appeal remains pending. In the opinion of the legal
advisers, the ruling is not likely to be overturned.

d) Lawsuits

In 1999, VTR appealed a judgment of the Tax Tribunal of the Santiago Center
Metropolitan Regional Authority of the Chilean Internal Revenue Service that
rejected on October 26, 1999, a claim made by the company (Demand No. 29 of
January 21, 1998) with respect to the taxability of (Clause 21 of the Tax Law) a
foreign currency futures contract signed on January 2, 1995 between VTR and
Citibank N.A..

Inapplicability proceedings were brought in this case, which entered the Supreme
Court (Case No. 3150-05), and remains pending. As a result of these proceedings,
a desist order was issued in the case before the Appeals Court by which the
collection of the taxes is suspended.

The subsidiary VTR has a case before the Santiago Appeals Court (Case No.
6692-04) and is awaiting its consideration. This appeal was made against the
sentence in the first instance by the Santiago East Metropolitan Regional
Authority of the Chilean Internal Revenue Service, Resolution 1025, ordered by
the Regional Director of the Internal Revenue Service concerning a tax claim
dated December 16, 1999.

F-42

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 20 - Commitments and Contingencies (continued)

As of December 31, 2005, 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 risk 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 amount to approximately
ThR$6,950. Madeco has personal guarantees from the previous owner of Ficap to
indemnify Madeco should the Brazilian subsidiary be affected by such legal
actions.

Madeco and its subsidiary, Madeco Brasil Ltda., filed an arbitration claim in
New York City before the American Arbitration Association, against Corning
International Corporation ("Corning Inc.") based on the allegation that Corning
Inc. had tried to terminate its agreements with Madeco relating to Optel
(Brazil), in which Corning Inc. and Madeco Brasil Ltda. were joint owners.
Corning, in turn, made a counter-claim against Madeco seeking, among other
things, that Corning be allowed to terminate its agreements with Madeco.

In 2003, the subsidiary Madeco was notified of the arbitration panel's judgment
which, amongst other issues, ruled that the investment agreement signed between
the parties on June 12, 1999, and its amendments, be terminated. As a
consequence, Madeco lost its management rights in Optel and a put option to sell
its shares in Optel to Corning Inc. for US$18 million.

As of December 31, 2003, following the unfavorable judgment, Madeco, through its
indirect subsidiary Metal Overseas S.A., made an allowance against income for
its 50% holding in Optel (Brazil), held through Madeco Brasil Ltda., and it also
made provisions for other expenses.

On March 31, 2005, Madeco, through its indirect subsidiary Metal Overseas S.A.,
signed an agreement with Corning International Corporation whereby it acquired,
for the nominal price of one Brazilian real, Corning Inc.'s 50% interest in
Optel.

On the same date, an agreement was reached with Optel's two principal bank
creditors, whereby Optel's financial debt, equivalent to US$7.3 million, was
settled upon the payment of US$2 million by Optel.

As of December 31, 2005, Armat, a subsidiary of Madeco, has lawsuits pending
against it in relation to its normal course of business. The legal advisers of
Armat believe there is no risk of significant losses.

As of December 31, 2005, Telefonica del Sur and its subsidiaries have the
following lawsuits pending against them:

1) Case No. 2525-2001 in the Second Civil Court of Valdivia, with Ms. Regina
Barra Arias, for damages amounting to ThCh$553,143. The lawsuit was
rejected in the first and second instances and is now pending an appeal to
the Supreme Court. Telefonica del Sur has not made a provision for this
case because it believes that it will not result in any significant
damages.

2) Case No. 2831-2001 in the Second Civil Court of Valdivia with Mr. Marcelo
Bastidas Villaroel for damages amounting to ThCh$1,500,000. The case is
awaiting judgment. The company has not made a provision for this case
because it believes that it will not result in any significant damages.

3) Case No. 192-04 in the Second Civil Court of Valdivia with Nayadet Infante
Anabalon for damages due to a work accident amounting to ThCh$193,000. A
hearing set for January 10, 2006 was not held due to lack of legal
notification. The company has not made a provision for this case because
it believes that it will not result in any significant unfavorable
outcome.

F-43

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 20 - Commitments and Contingencies (continued)

e) Other contingencies

The indirect guarantees of the Parent Company, as shown in the following table,
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 relative loan agreements
include clauses regarding the use of the funds and financial covenants that are
usual for this type of agreement.

Quinenco has signed option contracts with all of the above companies, except
LQIF, which are exercisable between February 28, 2003 and February 28, 2006 and
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 the
shares and borrowing costs, plus an additional 2.0% calculated on
such amounts.

2) The above companies may require Quinenco. to purchase shares of LQIF
at a price to be determined based on the purchase price of the
shares and borrowing costs, plus an additional 0.5% calculated on
such amounts.

Telefonica del Sur and Telcoy, are in compliance with all the regulations
applicable to them as telecommunications companies.

Certain obligations were reciprocally agreed upon between the parties with
respect to a share purchase agreement between VTR S.A. and SBC International
dated June 16, 1999, which could result in adjustments to the sale price.

On August 19, 2002, Inersa S.A. and the subsidiaries Inversiones Vita S.A. and
Inmobiliaria Norte Verde S.A., the committed sellers, signed a share sale
commitment with Banco de Chile whereby the committed sellers promise to sell,
assign and transfer to Banco de Chile (the committed buyer) all of their
shareholdings in Banchile Seguros de Vida S.A. (the company).

The sales price shall be:

1) The sum of any capital contributions subscribed for in the company
prior to December 31, 2001, expressed in UF.

2) The capital contributions made to the company by its shareholders in
accordance with the "risk equity" requirements for the business.

3) The above amounts expressed in UF at the date of each contribution
plus a real compounded interest rate of 12% annually.

The sales contract should be signed no later than December 31, 2011, provided
that the following conditions are met:

a) That the law and/or regulations authorize banks and/or their
subsidiary companies to participate in the life insurance business,
acquire shareholdings in a life insurance company or form financial
conglomerates that can participate in the life insurance business.

b) That the respective authority, whether it be the Superintendency of
Banks and Financial Institutions and/or the Superintendency of
Securities and Insurance authorizes the participation of Banco de
Chile and/or its subsidiary companies or its respective financial
conglomerate or Parent Company in the ownership of a life insurance
company and/or the purchase of shares in such business.

c) That the respective authority, whether it be the Superintendency of
Banks and Financial Institutions and/or the Superintendency of
Securities and Insurance authorizes the participation of Banco de
Chile and/or its subsidiary companies or its respective financial
conglomerate or Parent Company, to purchase the shares referred to
in the sales commitment.

F-44

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 20 - Commitments and Contingencies (continued)

d) That the Company complies with the law and that the shares are sold
free of any type of prohibition, encumbrances or pledges of any
kind, embargoes, litigation, precautionary measures or other kind of
limitation on the ownership. This condition is stipulated for the
benefit of the committed buyer.

Because of the nature of this transaction, it is impossible to estimate the
probability of its occurrence and/or its effect on these financial statements.

The following restrictions were established under negotiations carried out by
Indalum, a subsidiary of Madeco, on December 29, 2003 with Banco de Chile, Banco
de Credito e Inversions, Banco Estado and Banco Security, to cover the period
from that date until December 26, 2010:

Indalum must comply with the following covenants as of June 30 and December 31
of each year, on a consolidated basis:

o Debt ratio or leverage not to exceed 1.2:1.

o Minimum shareholders' equity equivalent to UF 1,630,000.

o Maintain the ownership of its property, plant and equipment
necessary for the normal development of its operations and business
and maintain its ownership of the subsidiary Alumco S.A.

o May not pledge, mortgage or grant any charge or right over any
property, plant and equipment of Indalum or its subsidiaries except
for those over assets it acquires in the future and which are
granted for financing their acquisition.

o May not grant guarantees to cover the compliance of any obligation,
debt, liability or commitment contracted by a person other than
Indalum or its subsidiaries, without the prior written consent of
the creditors.

o Indalum may not pay or distribute dividends that exceed 30% of the
net income of any given year, without the prior written consent of
the creditors.

o May not grant direct financing to third parties outside of its
business. This shall not include the trade accounts receivable of
Indalum with its customers or loans to the executives and personnel
of Indalum or its subsidiaries.

o In the event of the disposal of the real estate located at Vitacura
Avenue 2726, Office 301, Vitacura, and Santa Marta Street 1313,
Maipu, the sales proceeds should be used to prepay the rescheduled
obligations on a pro rata basis. For this calculation, the principal
amount of outstanding financial loans due to Madeco shall be added
to the rescheduled obligations. For this purpose, financial debt
shall be defined as the sum of all loans made by Madeco, which
amounted to ThCh$873,951 as of December 31, 2005.

o Indalum may repay the financial loan currently owed to its Parent
Company Madeco only if it has paid all of the amounts due to the
banks and has fully complied with the covenants and negative
covenants assumed under the agreement, or that the proceeds come
from the sale of the properties mentioned above.

o Madeco must directly and indirectly control Indalum during the term
of the agreement or have a shareholding of at least 50.1% in the
company.

As of December 31, 2005, Indalum has fully complied with these restrictions.

Sale of subsidiary:

On March 31, 2004, the subsidiary Indalsa signed a contract to sell its
subsidiary Lucchetti Chile to Corpora Tresmontes which, given the nature and
complexity of the transaction, established certain commitments and guarantees in
favor of each of the parties.

In particular, there is the obligation of the sellers to pay indemnities with
respect to taxation matters and certain responsibilities with respect to third
party lawsuits, with a liability limited to Ch$10,000 million.

F-45

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 20 - Commitments and Contingencies (continued)

With respect to the sale of Lucchetti Chile, Quinenco, in a document dated July
8, 2005, agreed with the buyer to modify the following obligations assumed in
the sales contract signed on March 31, 2004, to remain in force for three years
from the date of sale:

o Quinenco, either directly or indirectly, must keep i) ownership of
shares issued by Indalsa representing at least 51% of the capital of
the company, and ii) control of Indalsa, by a majority of votes at
shareholder meetings and the ability to elect a majority of the
Directors of the company.

o Indalsa's shareholders equity, determined without considering
trademarks, intellectual and industrial property rights and goodwill
(except that of Calaf at that date), must be at least
ThCh$10,000,000. However, Quinenco shall not be responsible under
this obligation should the equity of Indalsa be reduced to below
that figure after June 30, 2005 due to i) operational and
non-operational losses incurred in the business of Indalsa and its
subsidiaries and affiliates; ii) acquisitions or disposals of assets
carried out under fair market conditions similar to those normally
prevailing in the market; or iii) provisions ordered by an authority
or in compliance with applicable regulations.

As of December 31, 2005, the subsidiary Madeco has received notification of
income tax differences for the tax years 2001, 2002 and 2003 relating to the
first category income tax, tax refunds and additional tax for a total of
ThCh$3,331,253 (value of the tax). Madeco's management has, through its legal
advisers, begun the proceedings to counter the claims made by Chilean tax
authorities.

In addition, for the 2004 and 2005 tax year, Madeco is requesting a refund of
ThCh$1,613,597 and ThCh$1,545,224, respectively, which corresponds to the
remainder retained by the Chilean Internal Revenue Service of the ThCh$3,038,789
originally requested as part of tax loss absorption.

As of December 31, 2005, Alusa has received two notifications of taxes due with
respect to the tax years 2001 and 2002 with respect to income tax and income
refunds (Value of tax ThCh$94,085 and ThCh$42,195 respectively) from the Chilean
Internal Revenue Service. The company's management has, through its legal
advisers, begun proceedings to counter the claims made by the Chilean tax
authorities.

As of December 31, 2005, the subsidiary Inversiones Rio Grande S.A. has received
a notification of taxes due, N(degree) 62, (historic value of tax ThCh$484,329,
corresponding to the 1999 tax year) from the Chilean Internal Revenue Service.
The company has filed a complaint with the tax tribunal, objecting to the
notification of taxes due, claiming that it is inappropriate.

In February 2005, the subsidiary Inversiones Rio Grande S.A. received demand
N(0) 64 for the tax year 2002 amounting to ThCh$518,146 (historic tax amount).
The company has filed a complaint with the tax tribunal, objecting to the
notification of taxes due, claiming that it is inappropriate.

On August 26, 2005, the subsidiary VTR received demand N(0) 156 from the
Internal Revenue Service for special taxes for the tax year 2003, amounting to
ThCh$484,269 (historic tax amount). The company appealed against this demand on
November 4, 2005.

On September 1, 2004, the Chilean Internal Revenue Service issued Resolution No.
Ex. 221, in which it rejected the loss produced by the sale of shares of Indalsa
Peru to the subsidiary Lucchetti Chile in 2000, on the grounds that the loss is
not "needed to produce income because it is not essential to the company's line
of business".

Indalsa filed a complaint against the aforementioned resolution, which is
presently in process, claiming statute of limitations and that the resolution
does not take into consideration the existence of an economic loss with respect
to this investment. Indalsa estimates that the complaint will be accepted by the
tax authorities.

F-46

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 20 - Commitments and Contingencies (continued)

Following a sentence in the first instance, as of December 31, 2005, Ingewall
S.A., a subsidiary of Madeco, has a tax claim and on appeal with respect to
certain VAT refunds for the periods July through December 1999 and February and
August 2001, amounting to ThCh$261,288.

Note 21 - Non-Operating Income and Expenses

Non-operating income and expenses for each year are summarized as follows:

Year ended December 31,
--------------------------------------------
2003 2004 2005
----------- ---------- -----------
ThCh$ ThCh$ ThCh$

Non-operating income:
Proportional share of net income of equity method investments (Note 11) .......... 61,584,685 65,279,966 73,534,003
Gain on sale of other investments ................................................ 18,912 -- 23,924,204
Amortization of negative goodwill ................................................ 24,979,406 2,923,755 1,799,475
Tax refunds ...................................................................... 517,032 93,358 6,212
Release of purchase price accruals ............................................... -- 756,192 1,570,332
Investment recovery .............................................................. 550,940 -- --
Amount received from settlement payment (1) ...................................... 38,265,593 -- --
Gain on sale of Lucchetti Chile .................................................. -- 4,216,298 --
Gain on sale of brands "Alufoil" ................................................. 650,765 --
Gain originated in non participation in capital increase of subsidiary ........... -- 104,053 1,708,555
Other ............................................................................ 1,009,147 1,457,012 1,862,809
----------- ---------- -----------
Total ..................................................................... 126,925,715 75,481,399 104,405,590
=========== ========== ===========
Non-operating expenses:
Proportional share of net loss of equity method investments (Note 11) ............ 635,482 4,706,256 1,727,777
Amortization of goodwill ......................................................... 21,338,709 21,312,769 22,882,697
Restructuring costs and severance indemnities .................................... 235,137 249,173 272,622
Loss on sales of investments, fixed assets and other ............................. 1,784,667 1,036,928 2,810,382
Directors' compensation .......................................................... 4,425,729 1,416,131 2,073,403
Adjustment of property, plant and equipment to net realizable value (Note 9) ..... 519,445 407,796 --
Provision for losses on loans and recoverable taxes of foreign subsidiaries ...... 513,041 79,178 --
Labor lawsuits ................................................................... 405,596 266,687 98,395
Legal expenses for defense of Indalsa Peru ....................................... 1,482,345 1,633,825 1,599,466
Valuation allowance for fixed and other assets, Argentina ........................ 872,026 293,265 --
Depreciation of property, plant and equipment involved in temporary shutdown
(Note 10) ..................................................................... 1,912,153 2,232,564 1,355,417
Loss on non participation in capital increase of subsidiary ...................... 22,437,964 1,415,315 --
Valuation allowance for account receivable to Indalsa Peru ....................... 1,261,112 2,467,145 1,101,414
Provision for liquidation of Optel ............................................... 5,221,877 -- --
Loss on sale of building Hotel Carrera ........................................... 5,004,757 -- --
Loss on sale of machinery Indalsa Peru ........................................... -- 1,837,356 --
Tax contingencies ................................................................ -- 702,911 1,191,323
Provision for loss on guarantee granted .......................................... -- 1,164,268 --
Other ............................................................................ 2,501,330 1,417,029 1,569,107
----------- ---------- -----------
Total ..................................................................... 70,551,370 42,638,596 36,682,003
=========== ========== ===========

1) Relates to the US $50 million payment made to Quinenco by FHI Finance
Holding International during 2003, as part of the Settlement and Release
Agreement signed on January 13, 2002 between Quinenco and the companies
Schorghuber Stiftung & Co. Holding K.G., Bayerische BrauHolding A.G. and
FHI Finance Holding International B.V. to settle arbitration proceedings
concerning the joint investment in the equity method investment CCU.

F-47

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 22 - Balances and Transactions with Related Parties

Balances with related parties as of December 31 of each year are as follows:

a) Current assets

Notes and accounts receivable from related companies:

As of December 31,
-----------------------------
2004 2005
------------ ------------
Company Nature of relationship Nature of transaction ThCh$ ThCh$

Transportes y Servicios Aereos S.A. Equity method investment Services 1,289,304 9,797
Blue Two Chile S.A. Subsidiary in development stage Services 4,988,317 1,174,697
IRSA Equity method investment Dividends receivable 2,713,970 2,946,168
Other related companies Various Various 482,043 1,076,892
------------ ------------
Total 9,473,634 5,207,554
============ ============

b) Long-Term assets

Notes and accounts receivable from related companies:

As of December 31,
-----------------------------
2004 2005
------------ ------------
Company Nature of relationship Nature of transaction ThCh$ ThCh$

Electromecanica Industrial S.A. Related company Services 261,274 --
Transportes y Servicios Aereos S.A. Equity method investment Services -- 1,351,642
Other related companies Various Various 600,646 229,287
------------ ------------
Total 861,920 1,580,929
============ ============

c) Current Liabilities

Notes and accounts payable to related companies:

As of December 31,
-----------------------------
2004 2005
------------ ------------
Company Nature of relationship Nature of transaction ThCh$ ThCh$

Colada Continua Chilena S.A Equity method Investment Sales of products and services 196,534 286,338
Other related companies Various Various 158,789 136,803
------------ ------------
Total 355,323 423,141
============ ============

The December 31, 2004 and 2005 balances maintained with Banco de Chile are
included in bank loans for an amount of ThCh$8,000,681 and ThCh$3,657,959
respectively. Time deposits amounted to ThCh$11,806,764 and ThCh$19,048,458 as
of December 31, 2004 and 2005, respectively.

F-48

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 22 - Balances and Transactions with Related Parties (continued)

d) Long-Term liabilities

As of December 31,
----------------------
2004 2005
--------- ---------
Company Nature of relationship Nature of transaction ThCh$ ThCh$

Compania de Telecomunicaciones Equity method
de Llanquihue S.A.............. Investment Sales of products and services 9,053 --
Other related companies........... Various Various -- 8,017
--------- ---------
Total.................... 9,053 8,017
========= =========

Significant transactions with related parties are summarized as follows:

Revenue (Expenses) for the year-ended December 31,
--------------------------------------------------
Company Transaction 2003 2004 2005
------- ----------- ------------ ---------- ------------
ThCh$ ThCh$ ThCh$

Minera Los Pelambres S.A ................ Services 344,777 425,578 182,938
Andsberg Finance Corp. Ltd. ............. Financing and interest 8,189,783 (2,462,395) --
Banco de Chile .......................... Investment income 342,434 354,339 (246,082)
Compania de Telecomunicaciones de
Llanquihue S.A ....................... Services (190,105) -- --
Embotelladoras Chilenas Unidas S.A ...... Sales of products and services 808,850 817,109 647,619
Almagro S.A ............................. Sales of properties -- (190,380) --
Inmobiliaria Adriatico S.A .............. Sales of properties -- 369,257 --
Sodimac S.A ............................. Sales of products -- 5,112,285 4,120,570

In accordance with Article 89 of the Chilean Companies Act, the Company's
transactions with related parties have been carried out on an "arm's length" or
market basis.

F-49

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 23 - Minority Interest

Minority interest is summarized as follows:

As of December 31,
----------------------------------
2004 2005
------------ ------------
ThCh$ ThCh$

Balance Sheet:
Madeco and subsidiaries ................................................................ 90,793,062 117,391,804
Telefonica del Sur and subsidiaries .................................................... 18,321,937 18,704,242
Indalsa and subsidiaries ............................................................... 759,967 185,657
Hoteles Carrera ........................................................................ 302,035 20,013
Other .................................................................................. 2,056,439 2,753,741
------------ ------------
Total ........................................................................... 112,233,440 139,055,457
============ ============

Year ended December 31,
------------------------------------------------
2003 2004 2005
------------ ------------ ------------
ThCh$ ThCh$ ThCh$

Income Statement:
Madeco and subsidiaries ...................................................... 5,776,123 (4,888,286) (6,661,229)
Telefonica del Sur and subsidiaries .......................................... (2,246,837) (2,012,209) (2,144,087)
Indalsa and subsidiaries ..................................................... 110,858 149,915 46,583
Hoteles Carrera .............................................................. 366,770 16,709 67,562
Other ........................................................................ 45,397 (232,652) (636,694)
------------ ------------ ------------
Minority interest participation in net income (loss) .................. 4,052,311 (6,966,523) (9,327,865)
============ ============ ============

F-50

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 24 - Condensed Financial Statements

Set forth below are condensed financial statements for the significant
investment in CCU held through Quinenco's 50% owned company, IRSA.

CCU Condensed Consolidated Balance Sheet

The condensed consolidated financial statements of CCU as of December 31, 2004
and 2005 and for the years ended December 31, 2003, 2004 and 2005 are as
follows:

As of December 31,
---------------------------------
2004 2005
------------ ------------
ThCh$ ThCh$

Assets
Current assets ....................................................... 231,264,298 240,876,940
Property, plant and equipment, net ................................... 312,103,148 320,479,320
Other assets ......................................................... 70,193,947 81,916,563
------------ ------------
Total assets ......................................................... 613,561,393 643,272,823
============ ============

Liabilities and Shareholders' Equity
Current liabilities .................................................. 129,725,172 109,006,389
Long-term liabilities ................................................ 130,760,217 174,868,959
Minority interest .................................................... 40,096,524 40,366,992
Shareholders' equity ................................................. 312,979,480 319,030,483
------------ ------------
Total liabilities and shareholders' equity ........................... 613,561,393 643,272,823
============ ============

CCU Condensed Consolidated Statements of Income

Year ended December 31,
-----------------------------------------------
2003 2004 2005
------------ ------------ ------------
ThCh$ ThCh$ ThCh$

Net sales ............................................... 407,837,807 435,683,127 492,046,912
Cost of sales ........................................... (200,915,658) (209,818,710) (235,708,927)
Administrative and selling expenses ..................... (158,220,458) (165,044,035) (189,868,073)
Non-operating income and expenses, net .................. 14,486,291 (6,360,290) (9,262,950)
Minority interest ....................................... (466,698) (1,321,082) 85,004
Income tax .............................................. (5,285,105) (6,110,965) (9,114,839)
------------ ------------ ------------
Net income .............................................. 57,436,179 47,028,045 48,177,127
============ ============ ============

F-51

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 24 - Condensed Financial Statements (continued)

CCU Condensed Consolidated Statements of Cash Flows

Year ended December 31,
-----------------------------------------------------
2003 2004 2005
------------- ------------- -------------
ThCh$ ThCh$ ThCh$

Cash Flows From Operating Activities
Net income ............................................................. 57,436,179 47,028,045 48,177,127
Income from sales of assets ............................................ (1,449,108) (3,452,675) (813,519)
Charges to income that do not represent cash flows ..................... 24,460,240 45,094,540 43,046,718
Changes in assets ...................................................... (20,284,830) (9,206,464) (27,442,307)
Changes in liabilities ................................................. 6,625,717 390,916 18,148,978
Minority interest ...................................................... 466,698 1,321,082 (85,004)
------------- ------------- -------------
Cash flows from operating activities ................................... 67,254,896 81,175,444 81,031,993
Cash flows from investing activities ................................... (103,812,298) (46,136,350) (67,451,860)
Cash flows from financing activities ................................... 9,690,441 (41,111,646) (22,935,902)
Price-level restatement of cash and cash equivalents ................... (1,531,744) (2,024,394) (389,158)
------------- ------------- -------------
Net increase in cash and cash equivalents .............................. (28,398,705) (8,096,946) (9,744,927)
Cash and cash equivalents at beginning of year ......................... 98,861,953 70,463,248 62,366,302
------------- ------------- -------------
Cash and cash equivalents at end of year ............................... 70,463,248 62,366,302 52,621,375
============= ============= =============

The reconciliation between the equity holding in IRSA and the net assets and
income of CCU is as follows:

As of and for the year ended December 31,
-----------------------------------------------------
2003 2004 2005
------------- ------------- -------------
ThCh$ ThCh$ ThCh$

Balance sheet data:
Net worth of CCU ....................................................... 296,027,560 312,979,480 319,030,483
Minority interest in CCU (1) ........................................... (113,658,451) (120,113,773) (122,283,378)
Minority interest in IRSA (2) .......................................... (91,383,949) (96,578,341) (98,049,511)
Other movements of balance sheet of IRSA ............................... 398,789 290,976 (648,084)
------------- ------------- -------------
Investment in IRSA under equity method (Note 11) ....................... 91,383,949 96,578,342 98,049,510
============= ============= =============

Income statement data:
Net income of CCU ...................................................... 57,436,179 47,028,045 48,177,127
Minority interest in CCU (3) ........................................... (22,060,979) (18,051,074) (18,475,879)
Minority interest in IRSA (4) .......................................... (16,982,356) (14,412,902) (14,479,547)
Other income and expenses of IRSA ...................................... (1,410,488) (151,168) (742,155)
------------- ------------- -------------
Equity in net earnings of IRSA (Note 11) ............................... 16,982,356 14,412,901 14,479,546
============= ============= =============

IRSA's investment in CCU ............................................... 61.61% 61.62% 61.67%
Quinenco's investment in IRSA .......................................... 50.00% 50.00% 50.00%

(1) Corresponds to the difference between the shareholders' equity of CCU and
the amount recognized via the equity method in IRSA.

(2) Corresponds to the difference between the shareholders' equity of IRSA and
the amount recognized via the equity method in Quinenco.

(3) Corresponds to the difference between the net income of CCU and the net
income recognized in IRSA.

(4) Corresponds to the proportion of IRSA's net income of IRSA applicable to
the joint venture partner.

F-52

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 25 - Segment Reporting

Quinenco provides disclosures in accordance with Statement of Financial
Accounting Standards 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 four segments: Financial Services (Banco de Chile), Food and
Beverage (CCU-Indalsa), Telecommunications (Telefonica del Sur), and
Manufacturing (Madeco). All other amounts are included in the column "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, with respect to the Financial Services segment, 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 in the period in which the services are performed.

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 generally recognizes
revenues relating to export sales of wine when the wine is shipped, which in
accordance with established sales terms, is at the moment the title passes to
the customer.

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.

Consistent with US GAAP reporting requirements of financial information reviewed
by the chief operating decision maker, the following segment information
presented has been determined in accordance with Chilean GAAP. In accordance
with Chilean GAAP, and as described in Note 11, Investments, Indalsa Peru was
consolidated until the year ended December 31, 2002 but the balance sheet as of
and subsequent to that date was not consolidated.

F-53

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 25 - Segment Reporting (continued)

Segment information is presented below:

Year ended December 31, 2003
------------------------------------------------------

Financial Services Food and beverage

Banco de Chile (1) CCU Indalsa
ThCh$ ThCh$ ThCh$
------------------------------------------------------

Statement of Income Data:
Sales to unaffiliated customers .............................. -- 407,813,773 62,774,490
Intersegment sales ........................................... -- 24,034 1,054
------------------------------------------------------
Total revenues ......................................... -- 407,837,807 62,775,544
------------------------------------------------------
Cost of sales ................................................ -- (200,915,658) (43,330,473)
Operating income before general corporate expenses .......... -- 206,922,149 19,445,071
General corporate expenses ................................... -- (158,220,458) (16,371,761)
------------------------------------------------------
Operating income (loss) ...................................... -- 48,701,691 3,073,310
Interest income .............................................. -- 2,685,552 33,004
Non-operating income ......................................... -- 23,320,336 143,161
Interest expense ............................................. -- (6,011,586) (3,068,337)
Non-operating expense ........................................ -- (6,847,742) (4,375,582)

Financial Services
Net interest revenue and expenses ............................ 236,228,513 -- --
Provision for loan losses .................................... (40,243,109) -- --
Income from services, net .................................... 103,924,475 -- --
Other operating income, net .................................. 102,716,292 -- --
Other income and expenses, net ............................... (6,796,574) -- --
Operating expenses ........................................... (238,145,216) -- --

Price-level restatement, net ................................. (4,285,932) 1,339,730 118,045
Income tax ................................................... (14,762,482) (5,285,104) 1,808,720
Minority interest ............................................ (1,761) (466,698) (70)
------------------------------------------------------
Net income (loss) ...................................... 138,634,206 57,436,179 (2,267,749)
======================================================

Balance Sheet Data (at December 31):
Identifiable assets .......................................... 8,906,974,931 505,640,998 74,089,682
Cash and cash equivalents .................................... 909,872,025 70,463,248 8,556,000
Accounts receivable from related companies ................... -- 718,259 1,544,382
Investments in related and other companies and goodwill, net . 5,623,822 36,141,209 185,187
------------------------------------------------------
Total assets ........................................... 9,822,470,778 612,963,714 84,375,251
======================================================

Year ended December 31, 2003
----------------------------------------------------------

Elimination of
Companies not
Telecommunications Manufacturing Consolidated

Telefonica del Sur Madeco (2)
ThCh$ ThCh$ ThCh$
----------------------------------------------------------

Statement of Income Data:
Sales to unaffiliated customers .............................. 54,654,671 252,155,158 (407,813,773)
Intersegment sales ........................................... -- 222,400 (24,034)
----------------------------------------------------------
Total revenues ......................................... 54,654,671 252,377,558 (407,837,807)
----------------------------------------------------------
Cost of sales ................................................ (26,828,205) (221,339,660) 200,915,658
Operating income before general corporate expenses .......... 27,826,466 31,037,898 (206,922,149)
General corporate expenses ................................... (14,747,265) (23,119,552) 158,220,458
----------------------------------------------------------
Operating income (loss) ...................................... 13,079,201 7,918,346 (48,701,691)
Interest income .............................................. 75,132 1,183,246 (2,685,552)
Non-operating income ......................................... 941,616 874,680 (23,320,336)
Interest expense ............................................. (3,214,897) (13,233,058) 6,011,586
Non-operating expense ........................................ (511,221) (14,055,804) 6,847,742

Financial Services
Net interest revenue and expenses ............................ -- -- (236,228,513)
Provision for loan losses .................................... -- -- 40,243,109
Income from services, net .................................... -- -- (103,924,475)
Other operating income, net .................................. -- -- (102,716,292)
Other income and expenses, net ............................... -- -- 6,796,574
Operating expenses ........................................... -- -- 238,145,216

Price-level restatement, net ................................. (149,905) 1,847,413 2,946,202
Income tax ................................................... (2,166,839) (1,690,982) 20,047,586
Minority interest ............................................ (163,366) (614,020) 468,460
----------------------------------------------------------
Net income (loss) ...................................... 7,889,721 (17,770,179) (196,070,384)
==========================================================

Balance Sheet Data (at December 31):
Identifiable assets .......................................... 137,019,848 332,921,423 (9,412,615,929)
Cash and cash equivalents .................................... 2,014,100 5,756,658 (980,335,273)
Accounts receivable from related companies ................... 307,946 1,092,779 (718,259)
Investments in related and other companies and goodwill, net . 612,220 35,797,461 (41,765,031)
----------------------------------------------------------
Total assets ........................................... 139,954,114 375,568,321 (10,435,434,492)
==========================================================

Year ended December 31, 2003
------------------------------------------------

Other Eliminations Consolidated

(3) (4)
ThCh$ ThCh$ ThCh$
------------------------------------------------

Statement of Income Data:
Sales to unaffiliated customers .............................. 9,916,894 -- 379,501,213
Intersegment sales ........................................... 101,061 (324,515) --
------------------------------------------------
Total revenues ......................................... 10,017,955 (324,515) 379,501,213
------------------------------------------------
Cost of sales ................................................ (11,172,234) -- (302,670,572)
Operating income before general corporate expenses .......... (1,154,279) (324,515) 76,830,641
General corporate expenses ................................... (9,705,090) 649,030 (63,294,638)
------------------------------------------------
Operating income (loss) ...................................... (10,859,369) 324,515 13,536,003
Interest income .............................................. 14,228,048 (12,409,742) 3,109,688
Non-operating income ......................................... 124,966,258 -- 126,925,715
Interest expense ............................................. (30,264,234) 12,409,742 (37,370,784)
Non-operating expense ........................................ (51,608,763) -- (70,551,370)

Financial Services
Net interest revenue and expenses ............................ -- -- --
Provision for loan losses .................................... -- -- --
Income from services, net .................................... -- -- --
Other operating income, net .................................. -- -- --
Other income and expenses, net ............................... -- -- --
Operating expenses ........................................... -- -- --

Price-level restatement, net ................................. 1,238,809 -- 3,054,362
Income tax ................................................... (678,667) -- (2,727,768)
Minority interest ............................................ 4,829,766 -- 4,052,311
------------------------------------------------
Net income (loss) ...................................... 51,851,848 324,515 40,028,157
================================================

Balance Sheet Data (at December 31):
Identifiable assets .......................................... 34,100,245 -- 578,131,198
Cash and cash equivalents .................................... 43,467,392 -- 59,794,150
Accounts receivable from related companies ................... 5,354,907 -- 8,300,014
Investments in related and other companies and goodwill, net . 794,665,331 -- 831,260,199
------------------------------------------------
Total assets ........................................... 877,587,875 -- 1,477,485,561
================================================

(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) The net equity investments in CCU and Banco de Chile are included in the
column entitled "Other" in the caption "Non-Operating income".

F-54

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 25 - Segment Reporting (continued)

Year ended December 31, 2004
--------------------------------------------------

Financial Services Food and beverage

Banco de Chile (1) CCU Indalsa
ThCh$ ThCh$ ThCh$
--------------------------------------------------

Statement of Income Data:
Sales to unaffiliated customers .............................. -- 435,683,127 1,128,904
Intersegment sales ........................................... -- 8,486
--------------------------------------------------
Total revenues ......................................... -- 435,691,613 1,128,904
--------------------------------------------------

Cost of sales ................................................ -- (209,818,710) --
Operating income before general corporate expenses ........... -- 225,872,903 1,128,904
General corporate expenses ................................... -- (165,052,521) (1,470,162)
--------------------------------------------------
Operating income ............................................. -- 60,820,382 (341,258)
Interest income .............................................. -- 114,776 189,135
Non-operating income ......................................... -- 4,413,767 4,525,429
Interest expense ............................................. -- (6,143,470) (781,111)
Non-operating expense ........................................ -- (4,801,686) (7,484,119)

Financial Services
Net interest revenue and expenses ............................ 349,131,100 -- --
Provision for loan losses .................................... (43,636,000) -- --
Income from services, net .................................... 122,574,000 -- --
Other operating income, net .................................. 15,031,900 -- --
Other income and expenses, net ............................... (7,151,300) -- --
Operating expenses ........................................... (251,082,600) -- --

Price-level restatement, net ................................. (7,734,500) 56,323 272,813
Income tax ................................................... (19,009,100) (6,110,965) (635,529)
Minority interest ............................................ (1,100) (1,321,082) 147
--------------------------------------------------
Net income (loss) ...................................... 158,122,400 47,028,045 (4,254,493)
==================================================

Balance Sheet Data (as of December 31):
Identifiable assets .......................................... 9,068,289,500 512,984,048 13,366,795
Cash and cash equivalents .................................... 922,677,900 62,366,302 1,878,179
Accounts receivable from related companies ................... -- 1,402,139 6,332,056
Investments in related and other companies and goodwill, net . 5,606,500 36,808,904 4,367,814
--------------------------------------------------
Total assets ........................................... 9,996,573,900 613,561,393 25,944,844
==================================================

Year ended December 31, 2004
------------------------------------------------------------

Elimination of
Companies not
Telecommunications Manufacturing Consolidated

Telefonica del Sur Madeco (2)
ThCh$ ThCh$ ThCh$
------------------------------------------------------------

Statement of Income Data:
Sales to unaffiliated customers .............................. 54,845,715 335,373,216 (435,683,127)
Intersegment sales ........................................... -- 326,999 (8,486)
------------------------------------------------------------
Total revenues ......................................... 54,845,715 335,700,215 (435,691,613)
------------------------------------------------------------

Cost of sales ................................................ (27,257,186) (286,579,800) 209,818,710
Operating income before general corporate expenses ........... 27,588,529 49,120,415 (225,872,903)
General corporate expenses ................................... (14,623,270) (23,038,065) 165,052,521
------------------------------------------------------------
Operating income ............................................. 12,965,259 26,082,350 (60,820,382)
Interest income .............................................. 110,757 977,368 (114,776)
Non-operating income ......................................... 174,174 1,526,517 (4,413,767)
Interest expense ............................................. (2,870,323) (11,397,565) 6,143,470
Non-operating expense ........................................ (701,866) (5,662,044) 4,801,686

Financial Services
Net interest revenue and expenses ............................ -- -- (349,131,100)
Provision for loan losses .................................... -- -- 43,636,000
Income from services, net .................................... -- -- (122,574,000)
Other operating income, net .................................. -- -- (15,031,900)
Other income and expenses, net ............................... -- -- 7,151,300
Operating expenses ........................................... -- -- 251,082,600

Price-level restatement, net ................................. (274,581) (259,878) 7,678,177
Income tax ................................................... (2,155,780) (1,597,767) 25,120,065
Minority interest ............................................ (140,011) (850,169) 1,322,182
------------------------------------------------------------
Net income (loss) ...................................... 7,107,629 8,818,812 (205,150,445)
============================================================

Balance Sheet Data (as of December 31):
Identifiable assets .......................................... 129,037,182 309,031,217 (9,581,273,548)
Cash and cash equivalents .................................... 8,501,139 13,334,948 (985,044,202)
Accounts receivable from related companies ................... 4,989,597 1,755,434 (1,402,139)
Investments in related and other companies and goodwill, net . 578,208 31,133,441 (42,415,404)
------------------------------------------------------------
Total assets ........................................... 143,106,126 355,255,040 (10,610,135,293)
============================================================

Year ended December 31, 2004
------------------------------------------------
Other Eliminations Consolidated

(3) (4)
ThCh$ ThCh$ ThCh$
------------------------------------------------

Statement of Income Data:
Sales to unaffiliated customers .............................. 4,933,651 -- 396,281,486
Intersegment sales ........................................... (74,321) (252,678) --
------------------------------------------------
Total revenues ......................................... 4,859,330 (252,678) 396,281,486
------------------------------------------------

Cost of sales ................................................ (7,460,581) -- (321,297,567)
Operating income before general corporate expenses ........... (2,601,251) (252,678) 74,983,919
General corporate expenses ................................... (7,977,174) 252,678 (46,855,993)
------------------------------------------------
Operating income ............................................. (10,831,103) 252,678 28,127,926
Interest income .............................................. 9,554,460 (8,799,566) 2,032,154
Non-operating income ......................................... 69,255,279 -- 75,481,399
Interest expense ............................................. (23,507,402) 8,799,566 (29,756,835)
Non-operating expense ........................................ (28,790,567) -- (42,638,596)

Price-level restatement, net ................................. 201,409 -- (60,237)
Income tax ................................................... 2,363,200 -- (2,025,876)
Minority interest ............................................ (5,976,490) -- (6,966,523)
------------------------------------------------
Net income (loss) ...................................... 12,268,786 252,678 24,193,412
================================================

Balance Sheet Data (as of December 31):
Identifiable assets .......................................... 33,070,754 -- 484,505,948
Cash and cash equivalents .................................... 20,242,796 -- 43,957,062
Accounts receivable from related companies ................... (2,741,533) -- 10,335,554
Investments in related and other companies and goodwill, net . 809,218,170 -- 845,297,633
------------------------------------------------
Total assets ........................................... 859,790,187 -- 1,384,096,197
================================================

(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) The net equity investments in CCU and Banco de Chile are included in the
column entitled "Other" in the caption "Non-Operating income".

F-55

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 25 - Segment Reporting (continued)

Year ended December 31, 2005
----------------------------------------------------

Financial Services Food and beverage

Banco de Chile (1) CCU Indalsa
ThCh$ ThCh$ ThCh$
----------------------------------------------------

Statement of Income Data:
Sales to unaffiliated customers .............................. -- 492,046,912 --
Intersegment sales ........................................... --
---------------------------------------------------
Total revenues ......................................... -- 492,046,912 --
---------------------------------------------------

Cost of sales ................................................ -- (235,708,927) --
Operating income before general corporate expenses .......... -- 256,337,985 --
General corporate expenses ................................... -- (189,868,073) (625,779)
---------------------------------------------------
Operating income (loss) ...................................... -- 66,469,912 (625,779)
Interest income .............................................. -- 800,023 242,570
Non-operating income ......................................... -- 2,447,456 12,206
Interest expense ............................................. -- (7,412,355) (981)
Non-operating expense ........................................ -- (4,905,522) (4,289,429)

Financial Services
Net interest revenue and expenses ............................ 366,985,800 -- --
Provision for loan losses .................................... (23,663,700) -- --
Income from services, net .................................... 140,605,000 -- --
Other operating income, net .................................. 10,859,200 -- --
Other income and expenses, net ............................... (3,474,400) -- --
Operating expenses ........................................... (277,747,100) -- --

Price-level restatement, net ................................. (11,449,800) (192,552) (4,340)
Income tax ................................................... (21,390,900) (9,114,839) (338,957)
Minority interest ............................................ (400) 85,004 (2)
---------------------------------------------------
Net income (loss) ...................................... 180,723,700 48,177,127 (5,004,712)
===================================================

Balance Sheet Data (as of December 31):
Identifiable assets .......................................... 10,026,292,600 541,001,090 9,751,983
Cash and cash equivalents .................................... 659,308,100 52,621,375 253,562
Accounts receivable from related companies ................... 3,257,435 2,910,394
Investments in related and other companies and goodwill, net . 7,160,300 46,392,923 7,389,923
---------------------------------------------------
Total assets ........................................... 10,692,761,000 643,272,823 20,305,862
===================================================

Year ended December 31, 2005
----------------------------------------------------------

Elimination of
Companies not
Telecommunications Manufacturing Consolidated

Telefonica del Sur Madeco (2)
ThCh$ ThCh$ ThCh$
----------------------------------------------------------

Statement of Income Data:
Sales to unaffiliated customers .............................. 54,724,063 365,470,754 (492,046,912)
Intersegment sales ........................................... -- 16,746 --
----------------------------------------------------------
Total revenues ......................................... 54,724,063 365,487,500 (492,046,912)
----------------------------------------------------------

Cost of sales ................................................ (27,207,313) (313,547,675) 235,708,927
Operating income before general corporate expenses .......... 27,516,750 51,939,825 (256,337,985)
General corporate expenses ................................... (14,534,086) (24,099,429) 189,868,073
----------------------------------------------------------
Operating income (loss) ...................................... 12,982,664 27,840,396 (66,469,912)
Interest income .............................................. 396,807 805,116 (800,023)
Non-operating income ......................................... 189,639 2,620,753 (2,447,456)
Interest expense ............................................. (2,349,486) (9,359,495) 7,412,355
Non-operating expense ........................................ (703,493) (4,937,365) 4,905,522

Financial Services
Net interest revenue and expenses ............................ -- -- (366,985,800)
Provision for loan losses .................................... -- -- 23,663,700
Income from services, net .................................... -- -- (140,605,000)
Other operating income, net .................................. -- -- (10,859,200)
Other income and expenses, net ............................... -- -- 3,474,400
Operating expenses ........................................... -- -- 277,747,100

Price-level restatement, net ................................. (462,969) (2,751,903) 11,642,352
Income tax ................................................... (2,253,043) (1,466,780) 30,505,739
Minority interest ............................................ (122,795) (736,399) (84,604)
----------------------------------------------------------
Net income (loss) ...................................... 7,677,324 12,014,323 (228,900,827)
==========================================================

Balance Sheet Data (as of December 31):
Identifiable assets .......................................... 120,798,775 306,878,237 (10,567,293,690)
Cash and cash equivalents .................................... 2,238,252 7,791,027 (711,929,475)
Accounts receivable from related companies ................... 1,174,697 941,655 (3,257,435)
Investments in related and other companies and goodwill, net . 4,394,894 28,726,763 (53,553,223)
----------------------------------------------------------
Total assets ........................................... 128,606,618 344,337,682 (11,336,033,823)
==========================================================

Year ended December 31, 2005
------------------------------------------------

Other Eliminations Consolidated

(3) (4)
ThCh$ ThCh$ ThCh$
------------------------------------------------

Statement of Income Data:
Sales to unaffiliated customers .............................. 1,772,692 -- 421,967,509
Intersegment sales ........................................... 138,938 (155,684) --
------------------------------------------------
Total revenues ......................................... 1,911,630 (155,684) 421,967,509
------------------------------------------------

Cost of sales ................................................ (4,170,265) -- (344,925,253)
Operating income before general corporate expenses .......... (2,258,635) (155,684) 77,042,256
General corporate expenses ................................... (7,292,962) 155,684 (46,396,572)
------------------------------------------------
Operating income (loss) ...................................... (9,707,281) 155,684 30,645,684
Interest income .............................................. 8,123,701 (6,521,812) 3,046,382
Non-operating income ......................................... 101,582,992 -- 104,405,590
Interest expense ............................................. (23,658,081) 6,521,812 (28,846,231)
Non-operating expense ........................................ (26,751,716) -- (36,682,003)

Price-level restatement, net ................................. (2,159,957) -- (5,379,169)
Income tax ................................................... (2,724,082) -- (6,782,862)
Minority interest ............................................ (8,468,669) -- (9,327,865)
------------------------------------------------
Net income (loss) ...................................... 36,236,907 155,684 51,079,526
================================================

Balance Sheet Data (as of December 31):
Identifiable assets .......................................... 19,490,648 -- 456,919,643
Cash and cash equivalents .................................... 85,138,859 -- 95,421,700
Accounts receivable from related companies ................... 1,761,737 -- 6,788,483
Investments in related and other companies and goodwill, net . 762,880,183 -- 803,391,763
------------------------------------------------
Total assets ........................................... 869,271,427 -- 1,362,521,589
================================================

(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) The net equity investments in CCU and Banco de Chile are included in the
column entitled "Other" in the caption "Non-Operating income".

F-56

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 25 - Segment Reporting (continued)

Depreciation for each of the segments is as follows:

Year ended December 31,
-------------------------------------------------------
2003 2004 2005
------------- ------------- -------------
ThCh$ ThCh$ ThCh$

Segment
Financial Services
Banco de Chile ................................................... 14,615,168 13,044,800 12,900,000
Food and Beverage
CCU .............................................................. 42,647,046 42,352,396 40,592,251
Indalsa .......................................................... 3,118,154 82,374 10,673
Telecommunications
Telefonica del Sur ............................................... 13,482,679 13,484,257 13,537,296
Manufacturing
Madeco ........................................................... 13,670,021 13,405,760 12,578,663
Other (1) ........................................................... 2,083,760 1,579,556 1,260,296
Elimination of non-consolidated companies (2) ....................... (57,262,215) (53,165,032) (52,156,834)
------------- ------------- -------------
Total depreciation ........................................... 32,354,613 28,551,547 27,386,928
============= ============= =============

(1) Includes real estate and hotel administration as well as Quinenco and
intermediate holding companies.

(2) Includes the elimination of non-consolidated companies CCU and Banco de
Chile.

Capital expenditures, comprised of additions to property, plant and equipment,
for each of the segments were as follows:

Year ended December 31,
-------------------------------------------------------
2003 2004 2005
------------- ------------- -------------
ThCh$ ThCh$ ThCh$

Segment:
Financial Services
Banco de Chile ................................................... 7,226,514 12,752,800 18,271,500
Food and Beverage
CCU .............................................................. 26,306,415 33,027,584 44,228,640
Indalsa .......................................................... 345,150 3,654,808 --
Telecommunications
Telefonica del Sur ............................................... 7,689,425 9,208,572 8,162,132
Manufacturing
Madeco ........................................................... 3,694,158 6,668,922 10,397,948
Other (1) ........................................................... 1,094,232 176,248 95,438
Elimination of non-consolidated companies (2) ....................... (33,450,777) (45,688,965) (62,452.232)
------------- ------------- -------------
Total capital expenditures ..................................... 12,905,117 19,799,969 18,703,426
============= ============= =============

(1) Includes real estate and hotel administration as well as Quinenco and
intermediate holding companies.

(2) Includes the elimination of non-consolidated companies CCU and Banco de
Chile.

F-57

QUINENCO S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Restated for general price-level changes and expressed
in constant December 31, 2005 Chilean pesos (Ch$) and US dollars (US$)

Note 25 - Segment Reporting (continued)

Property, plant and equipment for each of the segments were as follows:

Years ended December 31,
------------------------------------
2004 2005
------------- -------------
ThCh$ ThCh$

Segment:
Financial Services
Banco de Chile ............................................. 137,446,300 142,449,600
Food and Beverage
CCU ........................................................ 312,103,148 320,479,320
Indalsa .................................................... 2,841,032 46,631
Telecommunications
Telefonica del Sur ......................................... 105,501,762 99,726,955
Manufacturing
Madeco ..................................................... 155,676,533 144,864,028
Other (1) ..................................................... 20,202,225 12,843,124
Elimination of non-consolidated companies (2) ................. (449,549,448) (462,928,920)
------------- -------------
Total property, plant and equipment ...................... 284,221,552 257,480,738
============= =============

(1) Includes real estate and hotel administration as well as Quinenco and
intermediate holding companies.

(2) Includes the elimination of CCU and Banco de Chile.

Sales, which relate to non-Financial Service companies, detailed by major
geographic areas, were as follows:

Sales (1) Years ended December 31,
-------------------------------------------------------
2003 2004 2005
ThCh$ ThCh$ ThCh$

Chile ......................................................... 648,009,942 647,180,159 669,587,814
Argentina ..................................................... 58,796,300 68,087,027 99,344,926
Peru .......................................................... 26,332,433 42,293,280 57,438,179
Brazil ........................................................ 54,200,346 74,502,085 87,643,502
------------- ------------- -------------
Sub-total ..................................................... 787,339,020 832,062,550 914,014,421
Elimination of non-consolidated companies (2) ................. (407,837,807) (435,781,064) (492,046,912)
------------- ------------- -------------
Total .................................................... 379,501,213 396,281,486 421,967,509
============= ============= =============

(1) The table above does not include Banco de Chile.

(2) Includes the elimination of CCU.

Note 26 - Subsequent Event

As of April 25, 2006, the Company lost their member of the board of directors of
its equity investee Entel S.A. and subsidiaries and consequently, the Company
discontinued to account for this investment under the equity method. As of April
2006, the investment in Entel S.A. and subsidiaries is accounted for at cost.

Management is unaware of any other significant subsequent events that have
occurred after December 31, 2005, which may affect the Company's financial
position or the interpretation of these consolidated financial statements.

F-58

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

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 (U.S. GAAP). Such differences involve certain methods for
measuring the amounts shown in the financial statements, as well as additional
disclosures required by U.S. GAAP.

The principal differences between Chilean GAAP and U.S. 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 U.S. 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 U.S. 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 U.S. GAAP separated between the Company's banking operations and
non-financial businesses.

As described in Note 1, on November 25, 2005, the Company exercised only 50% of
its preemptive rights in the capital increase of the then subsidiary Madeco. As
such, the Company's ownership interest in Madeco decreased from 51.23% to
47.81%. Under Chilean GAAP, the Company continues to consolidate Madeco, because
it has control through the majority of the Board of Directors of Madeco. For
U.S. GAAP purposes, while the Company is currently represented though the
majority of the Board of Directors of Madeco, it does not legally have the power
to elect more than 50% of the Board members should all minority shareholders
participate in the election. Thus, under U.S. GAAP beginning on November 25,
2005, the Company no longer consolidates Madeco and began to account for this
investment under the equity method.

Additional disclosure required under U.S. GAAP of the consolidation of majority
owned subsidiaries and the effects of deconsolidating Madeco is provided in part
II to 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 tot "FASB" are to the Financial Accounting
Standards Board.

Certain disclosures related to the financial service companies are presented in
millions of Chilean Pesos ("MCh$").

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 U.S. 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 2 b), 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.

F-59

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

(a) Inflation accounting, (continued)

Although the cumulative inflation rate in Chile as measured by the Consumer
Price Index for the three-year period ended December 31, 2005 was approximately
7.3%, 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 U.S. GAAP.

(b) Deferred income taxes

Under Chilean GAAP, until December 31, 1999, deferred income taxes were recorded
based on non-recurring timing differences between the recognition of income and
expense items for financial statement and tax purposes. Accordingly, there was
an orientation toward the income statement focusing on differences in the timing
of recognition of revenues and expenses in pre-tax accounting income and taxable
income. At the time, Chilean GAAP also permitted not providing for deferred
income taxes where a deferred tax asset or liability was either offsetting or
not expected to be realized.

Beginning January 1, 2000, the Company recorded income taxes in accordance with
Technical Bulletin No. 60 and its related amendments issued by the Chilean
Association of Accountants, recognizing, using the liability method, the
deferred tax effects of temporary differences between the financial and tax
values of assets and liabilities. As a transitional provision, a contra
(referred to as "complementary") asset or liability has been recorded offsetting
the effects of the deferred tax assets and liabilities not recorded prior to
January 1, 2000. Such complementary assets or liabilities 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.

Under U.S. GAAP, companies must account for deferred taxes in accordance with
SFAS 109 "Accounting for income taxes" ("SFAS 109"), which requires an asset and
liability approach for financial accounting and reporting of income taxes, under
the following basic principles:

o A deferred tax liability or asset is recognized for the estimated
future tax effects attributable to temporary differences and tax
loss carry forwards.

o The measurement of deferred tax liabilities and assets is based on
the provisions of the enacted tax law. The effects of future changes
in tax laws or rates are not anticipated.

o The measurement of deferred tax assets are reduced by a valuation
allowance if based on the weight of available evidence, it is more
likely than not that some portion of the deferred tax assets will
not be realized.

Temporary differences are defined as any difference between the financial
reporting basis and the tax basis of an asset and liability that at some future
date will reverse, thereby resulting in taxable income or expense. Temporary
differences ordinarily become taxable or deductible when the related asset is
recovered or the related liability is settled. A deferred tax liability or asset
represents the amount of taxes payable or refundable in future years as a result
of temporary differences at the end of the current year.For the years ended
December 31, 2003, 2004 and 2005 the difference between Chilean GAAP and U.S.
GAAP relates to the amortization of the contra asset and liability recorded as a
transitional provision for unrecorded deferred taxes as of January 1, 2000.

To the extent that the U.S. GAAP adjustments generate temporary differences
(i.e. that they will reverse in the future) between the tax basis and the U.S.
GAAP basis of assets and liabilities then an adjusting entry to record the
appropriate deferred tax impact must be made. For the years ended December 31,
2003, 2004 and 2005, the purchase accounting adjustments, staff severance
indemnities, derivatives, the impairment of property, plant and equipment,
investment securities, exchange of debt instruments, negative goodwill and
certain adjustments relating to the restructuring provisions generated temporary
differences and therefore the deferred income tax effect of such adjustments has
been recorded. The effect of differences in accounting for deferred taxes on net
income and shareholders' equity is included in paragraph I (dd) below and
certain disclosures required under SFAS 109 are set forth under paragraph II c)
below.

F-60

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

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 less negative goodwill amortization in the parent company
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 U.S. GAAP reconciliation in I (bb)
below to recognize this effect as of December 31, 2004 and 2005.

The effects of the accounting for the minimum dividend are shown in the
paragraph I (dd) below.

(d) Reversal of the 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 (dd)
below, as follows:

(d-1) Reversal of the revaluation of property, plant and equipment.

(d-2) Reversal of the accumulated depreciation of the revalued property,
plant and equipment.

(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 U.S. GAAP, SFAS 115, Accounting for Certain Investments in Debt and Equity
Securities ("SFAS 115"), requires that debt and equity securities be classified
in accordance with the Company's intent and ability to hold the security, as
follows:

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 5.68% ownership interest in Entel at December 2005 (5.69% at
December 2003 and 2004). Under Chilean GAAP, the Company has recorded its equity
participation in the net income of Entel under the equity method and has
recorded goodwill and negative goodwill arising from the various acquisitions of
shares. Under U.S. GAAP, this investment would be classified as
available-for-sale marketable securities and held at fair value. The effect of
the differences in the accounting method is included in paragraph I (dd) below
as follows:

F-61

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

(e) Investment securities (continued)

(e-1-1) The effects of recording the investments in other companies
classified as available-for-sale under U.S. GAAP at their fair
value.

(e-1-2) The reversal of the equity method participation in the net
income of Entel.

(e-1-3) The reversal of negative goodwill and accumulated amortization
recorded on certain acquisitions of Entel shares.

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 U.S. GAAP, based upon the criteria above, the Company's banking operations
have determined that under U.S. GAAP, their 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 (dd) below.

(f) Employee severance indemnities

For U.S. 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) in accordance with Emerging Issue Task
Force 88-1, Determination of Vested Benefit Obligation for a Defined Benefit
Pension Plan ("EITF").

The effect of differences in the accounting for employee severance indemnities
is included in paragraph I (dd) below as follows:

(f-1) The effect of recognizing the short-term portion of the additional
liability.

(f-2) The effect of recognizing the long-term portion of the additional
liability.

(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 U.S. GAAP
purposes, the deficit in subsidiaries in the development stage isis consolidated
and the results of their operations charged directly to income. The effect of
differences in accounting methods is included in paragraph I (dd) below.

F-62

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

(h) Exchange of Debt Instrument

As discussed in Note 16, in July 2005, the Company modified the terms of its UF
2,000,000 long-term bonds payable. Originally, these bonds accrued a real annual
interest rate of 6.2% paid semi-annually and had an original maturity of
twenty-one years. Under the new terms, these bonds accrue a real annual interest
rate of 4.17% paid annually and mature in twenty-one years. The new bonds have a
five year grace period on the principal and the balance is paid in sixteen
years.

Under Chilean GAAP, this transaction was not deemed an extinguishment of debt
and therefore, no deferred issuance costs and debt discount were written off and
the debt was recorded in accordance with the new terms. Under U.S. GAAP, in
accordance with Emerging Issue Task Force No. 96-19, Debtor's Accounting for a
Modification or Exchange of Debt Instrument ("EITF 96-19"), a modification of a
debt instrument by a creditor in a nontroubled debt situation is deemed to have
been accomplished with debt instruments that are substantially different if the
present value of the cash flows under the terms of the new debt instrument,
discounted at the effective interest rate of the original debt, is at least 10
percent different from the present value of the original debt. Accordingly, for
U.S. GAAP purposes, the debt was considered to be substantially modified and
thus issuance costs and debt discount which had been capitalized related to the
original debt have been written off.

The effect for the differences in these accounting methods is included in
paragraph I (dd) below.

(i) Restructuring costs

During 1999, the Company 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 staff severance indemnities 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.

The recognition of liabilities related to a restructuring process under U.S.
GAAP is prescribed by SFAS 146 Accounting for Costs Associated with Exit or
Disposal Activities ("SFAS 146"), effective for disposal activities after
December 31, 2002, and EITF 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring), applicable prior to the application of SFAS
146. In order to recognize a liability for employee termination benefits and
other restructuring costs under both EITF 94-3 and SFAS 146, prior to the date
of the financial statements, certain specific conditions must be met or exist.

At December 31, 2003, 2004 and 2005, some of the required conditions had not
been met or did not exist with respect to the restructuring process of the
Company and certain of its subsidiaries; therefore, an adjustment to reverse a
portion of the restructuring provisions was included in the reconciliation to
U.S. GAAP in each of those years. The adjustment to reverse the restructuring
provisions in each of the three years ended December 31, 2005 is included in
paragraph I (dd) below.

(j) Goodwill

Under Chilean GAAP, prior to the implementation of BT 72, which is mandatory for
periods beginning after December 31, 2003, the excess of cost over the net book
value of a purchased company was 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.

F-63

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

(j) Goodwill (continued)

Under U.S. GAAP, assets acquired and liabilities assumed are recorded at their
estimated fair values, and the excess of the purchase price over the estimated
fair value of the net identifiable assets and liabilities acquired isis recorded
as goodwill. Prior to July 1, 2001, under U.S. GAAP, the Company amortized
goodwill on a straight-line basis over the estimated useful lives of the assets,
ranging from 20 to 40 years.

Under Chilean GAAP, goodwill is amortized over the estimated period of return of
the investment made, which may not exceed 20 years. Impairment tests are only
performed if there is evidence of impairment. In 2003, the Company performed its
annual impairment test under SFAS 142, as a result of that test, the Company
booked an amount of ThCh$6,305,562 as of December 31, 2003, related to goodwill
impairment in its then subsidiary Madeco, specifically related to its Ficap
plant in Brazil. In 2004 and 2005, the impairment test did not result in any
write off.

In July and October 2004, the Company's then subsidiary Madeco increased its
capital as part of its financial restructuring plan. The Company, however, did
not participate in these capital increases, which resulted in a decline of
Quinenco's interest held in Madeco from 55.22% to 51.23%, as of December 31,
2003 and 2004, respectively. The non-concurrence to the July 2004 increase
generated a gain which under Chilean GAAP was offset by an extraordinary
amortization of goodwill. As indicated above, under Chilean GAAP, this
extraordinary amortization is accepted, however for U.S. GAAP purposes it needs
to be reversed.

As a result of the capital increase made in November 2005 by the then subsidiary
Madeco, in which the Company partially participated, the Company amortized
ThCh$1,154,875 (historic pesos) of goodwill in Madeco, equivalent to the
dilution gain for non-concurrence. The subsidiary Rio Grande also partially
participated in this share issue. Therefore it amortized ThCh$546,142 (historic
pesos) of goodwill in Madeco, equivalent to the dilution gain for
non-concurrence.

The effect of differences in accounting methods for goodwill is included in
paragraph I (dd) below.

(k) 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 U.S. GAAP, prior to the adoption of SFAS 142, negative goodwill was
considered as a reduction of the long-term non-monetary assets (excluding
long-term investments in marketable securities) of the acquired company, and 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. Quinenco adopted SFAS 142 in 2002. The effect of
writing-off negative goodwill not allocated to non-monetary assets as recorded
under U.S. GAAP in 2002 and the subsequent reversal of negative goodwill
amortization recorded under Chilean GAAP in 2003, 2004 and 2005 is set-forth in
paragraph I (dd) below.

Additionally, during 2003, Madeco completed a capital increase in several stages
as part of its financial restructuring. Quinenco subscribed to the first stage
of the capital increase in March, however did not subscribe to the second and
third share issues in June and August. Under Chilean GAAP Quinenco treated the
capital increase as three separate transactions as described below:

o In March 2003, Quinenco recognized negative goodwill arising from
the increase in its participation in Madeco from 53.41% to 84.30%.

o In June and August 2003, Quinenco recognized non-operating losses
corresponding to the dilution in its participation in Madeco from
84.30% to 55.22% and at the same time accelerated the amortization
of negative goodwill in an equal proportion to the loss. In overall
terms, there was no net effect on income.

o The remaining negative goodwill balance was amortized on a straight
line basis over 20 years.

F-64

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

(k) Negative goodwill (continued)

Under U.S. GAAP, Quinenco has treated the succession of transactions as a single
pre-planned event resulting in the acquisition of an additional 1.8% of Madeco.
Under U.S. GAAP, the share purchase has been accounted for as a step acquisition
in accordance with SFAS 141 recording assets acquired and liabilities assumed at
their estimated fair values, and the excess of the allocated purchase price over
the estimated fair value of the net identifiable assets and liabilities acquired
recorded as goodwill. To the extent that the fair values of the net assets
acquired is higher than the purchase price, the resulting amount is referred to
as negative goodwill, which would be considered as a reduction of the long-term
non-monetary assets acquired.

This different accounting treatment under U.S. GAAP resulted in the
determination of negative goodwill which has been allocated to long-term
non-monetary assets. This allocation results in lower carrying values of
property, plant and equipment under U.S. GAAP and therefore a lower subsequent
depreciation and the reversal of the effects of negative goodwill amortization
recorded under Chilean GAAP.

Additionally, in 2005, SM Chile offered Series E shareholders the opportunity to
redeem their shares and receive in payment shares of Banco de Chile on a
one-for-one basis. The Company exchanged 47,866,985 Series E shares for the same
number of Banco de Chile shares. As result of this transaction, under Chilean
GAAP, Quinenco recorded a negative goodwill amounting to ThCh$6,593,761. Under
U.S. GAAP, the negative goodwill recorded under Chilean GAAP was reversed and
the related amortization as recorded under Chilean GAAP has been eliminated from
the income statement.

The effects of the U.S. GAAP adjustments related to negative goodwill are
included in paragraph I (dd) below as follows:

(k-1) The write-off of negative goodwill as a cumulative change in
accounting principle.

(k-2) The reversal of negative goodwill amortization on negative goodwill
already written off under U.S. GAAP.

(k-3) The allocation of negative goodwill to the property, plant and
equipment

(k-4) The depreciation of long-term non-monetary assets.

(k-5) Result from non-concurrence in subsidiary's and investee's capital
increase

In July and October 2004, the Company's then subsidiary Madeco increased its
capital as part of its financial restructuring plan. The Company, however, did
not participate in these capital increases, which resulted in a decline of
Quinenco's interest held in Madeco from 55.22% to 51.23%, as of December 31,
2003 and 2004, respectively. The non-concurrence to the October 2004 increase
generated a loss which under Chilean GAAP was offset by an extraordinary
amortization of negative goodwill. This net loss was calculated using the net
investment values in Madeco determined under Chilean GAAP, which differ from
those investment values determined under U.S. GAAP to be used in this
calculation.

In November 2005, the Company, exercised only 50% of their preemptive rights in
the capital increase of the then subsidiary Madeco, subscribing for 281,781,913
shares. As a consequence, the Company's direct and indirect ownership interest
in Madeco decreased from 51.23% to 47.81%, as of December 2004 and 2005
respectively. The non-concurrence to the November 2005 capital increase
generated a loss under Chilean GAAP. This loss was calculated using the Madeco's
shareholders equity determined under Chilean GAAP. For U.S. GAAP purposes,
Madeco's shareholders equity determined under U.S. GAAP has to be used in this
calculation.

The effect for differences in the basis of calculation is included in paragraph
I (dd) below.

F-65

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

(l) 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 U.S. GAAP and in accordance with SEC
Staff Accounting Bulletin ("SAB") 104, 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 the customer has taken
title and the customer assumes risks and rewards of ownership of the products.
The company's subsidiary Telsur has performed an evaluation of itss revenue
recognition as of December 2003, 2004 and 2005, and concluded that revenues
under Chilean GAAP are recognized with no significant differences to EITF 00-21
"Revenue Arrangements with multiple deliverables", therefore no U.S. GAAP
adjustment was made. The Company's then subsidiary, Madeco, recorded revenue on
certain export sales, whose terms are CIF, for which delivery had not occurred
under U.S. GAAP, in 2002. Following the issuance of Technical Bulletin No.70
this U.S. GAAP difference reversed in 2003 and the U.S. GAAP adjustment to
shareholders' equity as of December 31, 2004 and 2005 is zero.

The effect of the differences in the accounting method is included in paragraph
I (dd) below.

(m) 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 U.S. GAAP, the aggregate loan was deducted
from equity. However, under U.S. 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 (dd) below.

(n) Effects of U.S. 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 U.S. GAAP, in accordance with Accounting Principles Board Opinion ("APB")
18, the Equity Method for accounting for Investments in Common Stock, 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 U.S. 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.

On November 25, 2005, the Company exercised only 50% of its preemptive rights in
the capital increase of the investee Madeco. As such, the Company's ownership
interest in Madeco decreased from 51.23% to 47.81%. Under Chilean GAAP, the
Company continues to consolidate Madeco, because it has control through the
majority of the Board of Directors of Madeco. For U.S. GAAP purposes, while the
Company is currently represented though the majority of the Board of Directors
of Madeco, it does not legally have the power to elect more than 50% of the
Board members should all minority shareholders participate in the election.
Thus, under U.S. GAAP, the Company consolidated eleven months of operations of
Madeco and one month under the equity method.

F-66

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

(n) Effects of U.S. GAAP adjustments in equity investees (continued)

The differences between recognizing the investor's share of the earnings of
investees under Chilean GAAP and under U.S. GAAP for the Company's investments
in Madeco and CCU, in which the Company had a 47.81% and a 30.8% economic
interest, respectively, as of December 31, 2005 is included in paragraph I (dd)
below. The significant differences between Chilean and U.S. GAAP relate to the
following:

(n-1) Revaluations of property, plant and equipment

(n-2) Fixed assets held for sale

(n-3) Gain on sale of land

(n-4) Deferred income taxes

(n-5) Goodwill

(n-6) Trademarks

(n-7) Staff severance indemnities

(n-8) Capitalization of interest

(n-9) Capitalization of financing costs

(n-10) Comprehensive income

(n-11) Development stage results of operations

(n-12) Investment in Vina Dassault San Pedro S.A.

(n-13) Acquisition of additional interest in Optel

(n-14) Reversal of impairment loss

(n-15) Stock option plan

(o) 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 reassessed this
impairment provision based on an improvement in the economic situation in
Argentina and reversed ThCh$7,177,457 related to this provision. Under U.S.
GAAP, SFAS 144 does not allow the reversal of impairment losses for such assets.
Therefore, the income relating to the release of the provision was included in
the reconciliation to U.S. GAAP for the year ended December 31, 2002. In the
years ended December 31, 2003, 2004 and 2005, Madeco has reversed the
depreciation of the incremental value of these fixed assets as they are recorded
under Chilean GAAP.

The effects of this difference between Chilean and U.S. GAAP have been included
in the reconciliation to U.S. GAAP in paragraph I (dd) below.

(p) Derivatives

(p-1) Accounting under SFAS 133

The Company uses derivatives for hedging purposes. These derivatives are
considered accounting hedges under Chilean GAAP. Under Chilean GAAP the
accounting treatment of hedging activity is similar to the accounting treatment
of fair value hedges and cash flow hedges under SFAS 133 Accounting for
Derivative Instruments and Hedging Activities, however, the documentation and
hedge effectiveness requirements under Chilean GAAP are not as burdensome as
under SFAS 133. Under SFAS 133 to qualify for hedge accounting strict
requirements need to be met, including hedge documentation and effectiveness
tests. The Company does not have the documentation and hedge effectiveness
requirements in place to qualify for hedge accounting. Therefore, all derivative
instruments have been accounted at fair value with changes in fair value
recognized in earnings for U.S. GAAP purposes.

F-67

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

(p-1) Accounting under SFAS 133 (continued)

The Company has designated under Chilean GAAP certain non-derivative financial
instruments as hedges of the foreign currency exposure of net investments in
foreign operations. The gain or loss on the non-derivative financial instrument
that is designated as a hedging instrument in a net investment hedge is reported
as a translation adjustment to the extent it is effective as a hedge, any
ineffectiveness is recorded in earnings. This accounting treatment is consistent
with SFAS 133.

SFAS 133 also requires that certain embedded derivatives be separated and
reported on the balance sheet at fair value and be subject to the same rules as
other derivative instruments. Current Chilean accounting rules do not consider
the existence of derivative instruments embedded in other contracts and
therefore they are not reflected in the financial statements under Chilean GAAP.
As of December 2003, 2004 and 2005, the Company has no embedded derivatives.

The effects of the adjustment with respect to derivatives for the years ended
December 31, 2003, 2004 and 2005 is included in the net income and shareholders'
equity reconciliation to U.S. GAAP under paragraph I (dd) below.

(p-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 U.S. dollar and the Chilean peso and
the U.S. 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 using an estimate of
forward exchange rates as of the balance sheet date, 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 U.S. GAAP, contracts that are designated by 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. Accordingly, for U.S. GAAP purpose
these contracts have been recorded at fair value with changes in fair value
recorded directly in the consolidated statement of income as of December 31,
2003, 2004 and 2005.

(p-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 U.S. dollars and other major foreign
currencies. Additionally, The Chilean Superintendency of Banks' guidelines
require that the Company's banking operations accounts for forward contracts
between foreign currencies and the U.S. dollar, or between the U.S. dollar and
the Chilean peso, or the UF, at the closing spot exchange rate. Any initial
discount or premium is amortized over the life of the contract. Interest rate
swap agreements are treated as off-balance-sheet financial instruments. The net
interest effect, which corresponds to the difference between interest income and
interest expense arising from such agreements, is recorded in net income in the
period that such differences originate.Currently, Chilean banks are permitted to
use foreign exchange forward contracts (covering either foreign currencies
against the U.S. dollar, the UF against the Chilean peso or the UF and the
Chilean peso against the U.S. dollar), forward rate agreements and interest rate
swaps.

The Company's banking operations enter into derivative transactions for their
own account and to meet customers' risk management needs. Generally, the
Company's banking operations enter into forward contracts in U.S. dollars
against the Chilean peso or the UF, however, occasionally, forward contracts are
also made in other currencies, but only when the Company's banking operations
act as intermediary.

F-68

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

(p-3) Financial Services (continued)

Under U.S. GAAP, the Company's banking operations applies SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended by
SFAS No.138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities" and SFAS No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities" (collectively "SFAS 133"), which established
comprehensive accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. The Standard requires that all derivative instruments be
recorded in the balance sheet at fair value. However, the accounting for changes
in fair value of the derivative instrument depends on whether the derivative
instrument qualifies as a hedge. The standards also require formal documentation
procedures for hedging relationships and effectiveness testing when hedge
accounting is to be applied. If the derivative instrument does not qualify as a
hedge, changes in fair value are reported in earnings when they occur. If the
derivative instrument qualifies as a hedge, the accounting treatment varies
based on the type of risk being hedged.

Under U.S. GAAP, the Company's banking operations record their entire portfolio
of swap agreements at their estimated fair value and forward contracts between
the U.S. dollar and the Chilean peso or UF at the fair value based on the
forward exchange rate.

While the Company's banking operations enter into derivatives for the purpose of
mitigating their global interest and foreign currency risks, these operations do
not meet the strict documentation requirements to qualify for hedge accounting
under U.S. GAAP, except for certain option contracts, which as of December 31,
2004 and 2005, had been designated by the Company's banking operations' U.S.
branches as fair value hedges. As of December 31, 2003, the branches abroad did
not designate any derivatives as hedges. Changes in the fair values of all
derivative instruments are reported in earnings when they occur.

Current Chilean accounting rules do not consider the existence of derivative
instruments embedded in other contracts and therefore they are not reflected in
the financial statements. For U.S. GAAP purposes, certain implicit or explicit
terms included in host contracts that affect some or all of the cash flows or
the value of other exchanges required by the contract in a manner similar to a
derivative instrument, must be separated from the host contract and accounted
for at fair value. The Company's banking operations separately measures embedded
derivatives as freestanding derivative instruments at their estimated fair
values recognizing changes in earnings when they occur. Currently the only host
contracts and instruments that the Company's banking operations has, which have
implicit or explicit terms that must be separately accounted for at fair value,
are service type contracts related to computer and other service agreements.

The effects of the differences in accounting for derivative instruments between
Chilean and U.S. GAAP on the consolidated net income and shareholders' equity of
the Company's banking operations are included in paragraph I (dd) below.

(q) 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 purchase price over the carrying value is recorded
as goodwill. Under U.S. 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.

F-69

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

(q) Fair value of Financial Service assets and liabilities acquired in business
combinations (continued)

Two significant business combinations have taken place, which affect 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 U.S. 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 U.S.
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:

(q-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 (dd) below as follows:

(q-1-1) The effect of recording the initial fair value of core
deposits, brand and other intangibles.

(q-1-2) The effect of recording their subsequent amortization.

(q-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 (dd) below as follows:

(q-2-1) The effect of recording the initial fair value of bank
premises and equipment.

(q-2-2) The effect of recording their subsequent amortization.

(q-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 Company's
banking operations' 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 (dd) below.

F-70

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

(q-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 was undertaken under 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, as explained in Note 2 a), 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 U.S. GAAP, the Company recorded 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 is recorded in
paragraph I (dd) below.

(q-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 (dd) below as
follows:

(q-5-1) The effect of recording other interest bearing liabilities at
fair value.

(q-5-2) The effect of recording other liabilities at fair value.

(q-5-3) The effect of recording other assets at fair value.

(q-5-4) The effect of recording deposits at fair value.

(r) Loan origination fees and costs

Under Chilean GAAP, in accordance with regulations issued by the SBIF, beginning
January 1, 2001, the Company's banking operations 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 Company's banking operations 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 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. As of December 31, 2002, the accounting treatment applied
under Chilean GAAP is considered similar to U.S. GAAP and therefore this
difference has reversed. The effect of accounting for net loan origination fees
in accordance with U.S. GAAP is included in the reconciliation of consolidated
net income in paragraph I (dd) below.

(s) Investments in other companies

The Company's banking operation participates 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
U.S. 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 U.S. GAAP is included in the reconciliation of consolidated net
income and shareholders' equity in paragraph I (dd) below.

F-71

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

(t) Assets received in lieu of payment

Under Chilean GAAP, assets received in lieu of payment by the Company's banking
operations 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. 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 12-month period.

Under U.S. 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
U.S. GAAP is included in the reconciliation of consolidated net income and
shareholders' equity in paragraph I (dd) below.

(u) Mortgage finance bonds

Under Chilean GAAP, other financial investments include mortgage finance bonds
issued by the Company's banking operations and held for future sale. Effective
October 31, 2002, the Company's banking operations modified their accounting
treatment of financial investments in mortgage finance bonds issued by the
Company's banking operations in accordance with the instructions of the SBIF,
reducing from assets the amount recorded for mortgage finance bonds issued by
the Company's banking operations, including a market value adjustment, and from
liabilities, the respective mortgage finance bond obligation. Under U.S. GAAP,
this accounting treatment has always been applied.

In addition, as under U.S. 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 U.S. GAAP.

The effects of this difference between Chilean and U.S. GAAP have been included
in the reconciliation to U.S. GAAP in paragraph I (dd) below.

(v) Allowance for loan losses

The following note relates to the Company's banking operations and amounts
stated are rounded to millions of Chilean pesos.

1) 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 Superintendency of Banks. Under
U.S. GAAP allowances for loan losses should be in amounts adequate to cover
inherent losses in the loan portfolio at the respective balance sheet dates. The
Company's banking operations have estimated their required reserve under U.S.
GAAP in the following manner:

o Allowances for commercial loans and leasing operations classified in
loan risk category A1, A2, A3 and B (A and B under regulations in
effect until January 1, 2004), which were not considered impaired
under SFAS 114, Accounting by Creditors for Impairment of a Loan,
were analyzed and adjusted, if necessary, to reflect the estimated
losses not identified based on individual credit analysis. The
estimations were performed using historical loan data, in order to
estimate the inherent losses in the Company's banking operations'
loan portfolio, using patterns and trends based upon historical
changes in loan classifications ("migration analysis").

F-72

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

o In addition, specific allowances were determined for loans on the
following basis:

i) Commercial loans and leasing operations greater than UF5,000
(approximately MCh$90), which were considered impaired in accordance
with the criteria established by SFAS 114, 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 that were considered to be collateral
dependent.

ii) Allowances for commercial loans and leasing operations which were
under UF5,000 (approximately MCh$90) (i.e. those loans which were
not considered in the above SFAS 114 analysis), were calculated
using the weighted average loan provision, by loan classification,
as determined in i).

iii) Allowances for loan losses for mortgage and consumer loans were
determined based on historical loan charge-offs, after considering
the recoverability of the underlying collateral.

Based on the preceding estimation process, the Company's banking operations
computed their allowance for loan losses under U.S. GAAP and compared this
estimate with the reported allowance determined in accordance with the
guidelines established by the Superintendency of Banks. The additional loan loss
allowance (voluntary allowances under previous regulations) was deducted from
the reserve requirements under U.S. GAAP to arrive at a cumulative U.S. GAAP
adjustment, as follows:

As of December 31,
----------------------
2004 2005
MCh$ MCh$

U.S. GAAP loan loss reserve ................................................. 119,998 102,970
Less: Chilean GAAP loan loss allowance as required by the SBIF (1) .......... (159,318) (141,305)
----------------------
U.S. GAAP adjustment ........................................................ (39,320) (38,335)
======================

----------
(1) A reclassification of MCh$(42) was made to the 2004 Chilean GAAP amounts
in order to conform with the 2005 presentation.

The effects of adopting SFAS 114 are included in the reconciliation included in
paragraph I (dd) below.

2) Recognition of income

As of December 31, 2003, 2004 and 2005, the recorded investment in loans for
which impairment had been recognized in accordance with SFAS 114 totaled
MCh$343,006, MCh$464,508 and MCh$379,239, respectively, with a corresponding
valuation allowance of MCh$129,947, MCh$97,297 and MCh$71,135, respectively. For
the years ended December 31, 2003, 2004 and 2005, the average recorded
investment in impaired loans was MCh$363,142, MCh$522,770 and MCh$409,282,
respectively. For the years ended December 31, 2004 and 2005, the Bank
recognized interest on impaired loans of MCh$40,405 and MCh$44,121,
respectively. Comparative information for the year ended December 31, 2003 is
not available. The Bank recognizes interest on impaired loans on an accrual
basis, except for past due loans for which the Bank recognizes interest on a
cash basis. As of December 31, 2004 and 2005, the Bank had made provisions
against all loans which it considered to be impaired.

3) Loan loss recoveries

Under U.S. GAAP, recoveries of loans previously charged-off are presented as a
reduction of the provision for loan losses. Under Chilean GAAP, until 2003, such
recoveries were recognized as other income. Beginning 2004, such recoveries are
presented as a reduction of the provision for loan losses.

The following presents an analysis under U.S. GAAP of the changes in the
allowance for loan losses during the periods presented.

F-73

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

(v) Allowance for loan losses (continued)

2003 2004 2005
MCh$ MCh$ MCh$

Allowance for loan losses in accordance with U.S. GAAP, as of January 1, ....... 208,727 159,795 119,998
Price-level restatement (1) .................................................... (2,918) (4,774) (5,684)
Loan loss recoveries ........................................................... 26,963 34,950 32,986
Charge-offs .................................................................... (102,082) (102,626) (67,343)
Allowances for loan losses established ......................................... 30,650 34,266 24,605
Allowances for loan losses released ............................................ (1,545) (1,613) (1,592)
----------------------------------
Balances as of December 31, ............................................... 159,795 119,998 102,970
==================================

----------
(1) Reflects the effect of inflation and exchange rate changes of branches
abroad on the allowance for loan losses under Chilean GAAP at the
beginning of each period, adjusted to constant pesos of December 31, 2005.

4) Charge-offs

Under Chilean GAAP, the Company's banking operations charges-off loans when
collection efforts have been exhausted. Under the rules and regulations
established by the Superintendency of Banks, charge-offs must be made within the
following maximum prescribed limits:

- 24 months after a loan is past due (3 months after past due for
consumer loans) for loans without collateral;

- 36 months after a loan is past due for loans with collateral.

Under U.S. GAAP, loans should be written-off in the period that they are deemed
uncollectible. Company's banking operations believes that the charge-off
policies it applies in accordance with Chilean GAAP are generally the same as
those required under U.S. GAAP.

(w) Minority interest

The effects on the minority interest of the U.S. GAAP adjustments in
subsidiaries that are not wholly-owned by the Company have been reflected in
Minority interest and are included in paragraph I (dd) below.

(x) Interest on Subordinated Debt

Through acquisitions, the Company has assumed a portion of the subordinated debt
obligation owed to the Chilean Central Bank by the predecessor company of Banco
de Chile relating to the economic crisis in Chile during 1982 - 1983. The
Company's indirect subsidiary Sociedad Administradora de la Obligacion
Subordinada S.A., or SAOS, is solely responsible for this Central Bank
indebtedness and there is no recourse to either the Company's banking operations
or its immediate parent company SM Chile. The Central Bank indebtedness has a
term of 40 years providing for equal annual installments and a pledge of certain
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.

In exchange for originally assuming the Central Bank indebtedness, SAOS received
shares of Banco de Chile, which serve as collateral for the Central Bank
indebtedness. 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 an amount equal
to 20% of the total capital of Banco de Chile, SAOS would 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.

F-74

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

(x) Interest on Subordinated Debt (continued)

Under Chilean GAAP, the charge made against income is limited to the amount of
dividends that will be paid by Banco de Chile the following April without
consideration as to whether such amount is considered sufficient to cover the
installment due, principal or interest repayments. Any capital and interest
payments are charged to the income statement of SM Chile. Instead dividends and
consequently the subordinated debt provision are recorded based on the net
income of the operations of Banco de Chile.

Under U.S. GAAP, long-term liabilities meeting the definition described in
Concepts Statement 6, including the subordinated debt obligation, must be
recorded on the balance sheet and accrue interest. To the extent that the
subordinated debt obligation was assumed as part of the consideration paid for
the acquisition of the Bank based on fair values, the resulting discount on the
liability should be reported in the balance sheet as a direct deduction from the
face amount of the obligation. Under U.S. GAAP any repayments of principal serve
to reduce the liability and are not to be included in net income for the period,
while interest repayments are recorded based on the effective interest rate.

(y) Elimination of discontinued operations

Lucchetti Chile

As of December 31, 2003, the Company was in negotiation with a third party to
sell its subsidiary in the food and beverage operating segment, Lucchetti Chile.
As of that date, the group of assets to be disposed of was considered as
discontinued, as the following conditions had been met in accordance with SFAS
144 Accounting for the Impairment or Disposal of Long Lived Assets.

o Management had the authority to approve the disposal and was
committed to the plan to carry out the disposal of its Chilean
operations;

o The operations were available for immediate sale in their present
condition subject only to terms that are usual and customary for
such sales;

o A buyer had been identified and other actions required to complete
the plan to sell the operations had been initiated;

o The sale of the operations has subsequently been completed;

o The sale of the operations was at a price that is reasonable in
relation to its fair value.

Accordingly, Lucchetti Chile was considered as "discontinued" and an assessment
was made of the difference between the purchase price and the book value of the
subsidiary. Under Chilean GAAP, as the purchase price was higher than the
carrying value, no provision has been made, as of December 31, 2003, for the
difference between the final purchase price and the book value at the date of
the sale. Under U.S. GAAP, no adjustment has been made to reduce the subsidiary
to its fair value less selling costs. Lucchetti Chile was sold in March 2004.

Indalsa Peru (formerly Lucchetti Peru)

As of December 31, 2003 the Company had been forced to abandon the operations of
its overseas subsidiary Indalsa Peru due to the government action described in
Note 20 b). Accordingly, Indalsa Peru was considered abandoned and therefore
disclosed as discontinued operations as of December 31, 2003, 2004 and 2005,
respectively.

F-75

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

(y) Elimination of discontinued operations (continued)

Hoteles Carrera

As discussed in Note 1, Hoteles Carrera previously operated a chain of five
hotels in Chile. At the end of 2003, it sold its main hotel located in Santiago
to the Chilean government. In 2004, Hoteles Carrera did not renew the leases it
had on three hotels it operated in the north of Chile. In 2005, Hoteles Carrera
sold its remaining hotel, Hotel Araucano in Concepcion, on June 29, 2005, and
subsequent to this date, the Company ceased to maintain any significant
continuing involvement in the operations of this business. Therefore under U.S.
GAAP, Hoteles Carrera, has been considered a discontinued operation.

Alufoil

During 2004 and 2005 the Company's then subsidiary Madeco disposed substantially
all of its assets of its subsidiary Alufoil S.A., a Chilean subsidiary that
produced mass consumer flexible packaging products such as aluminum foil, trash
bags and plastic wrap and did not maintain any continuing involvement in the
operations of this component after the final disposal transaction. As a result
of the disposal under U.S. GAAP, the results of operations of that component
have been accounted for as discontinued operation.

The relevant disclosures relating to such operations for both current and prior
periods have been included in paragraph II (j) below. The effect of restating
for discontinued operations is included in the net income reconciliation to U.S.
GAAP under paragraph I (dd) below.

(z) Recoverable taxes in Madeco

At December 31, 2003, under Chilean GAAP the then subsidiary Madeco S.A.
provided for the amount of the tax refund resulting from the 2003 tax loss
carry-forward, given the fact that, at the date of issuance of the Chilean GAAP
financial statements, the tax refund requested for the prior year had not been
received, as it was under review by the Chilean Internal Revenue Service.

In June 2004, the Chilean Internal Revenue Service authorized the partial refund
of the request submitted for 2003 amounting to ThCh$1,613,445. Under U.S. GAAP
purposes, the partial refund represented a subsequent event to the issuance of
the Chilean GAAP financial statements that provided additional evidence with
respect to conditions that existed at the date of the balance sheet. As a
result, considering this information that became available prior to the issuance
of the financial statements included in the 2003 Form 20-F, the reconciliation
to U.S. GAAP included this change in the allowance for doubtful recovery of such
tax loss carry-forward based on the new evidence available. Under Chilean GAAP,
this refund was recorded during the year ended December 31, 2004.

(aa) Acquisition of additional interest in Optel Ltda.

Prior to March 31, 2005 the Company's then subsidiary, Madeco held a 50%
participation in the fiber-optic company Optel Ltda. ("Optel") joint venture
with Corning International Corporation. In November 2003 based on arbitration
ruling the joint venture agreement was declared lawfully terminated. As a
result, the Company's then subsidiary Madeco lost the ability to appoint Optel's
management and was required to initiate the liquidation of Optel. Madeco
deconsolidated this entity and recorded a write-down of its investment in Optel
in December 2003 and provided for expected costs related to the litigation with
Corning and the forced liquidation of Optel .

On March 31, 2005, through its indirect subsidiary Madeco Brasil Ltda., Madeco
signed an agreement with Corning whereby it acquired, for the nominal price of 1
Brazilian real, Corning's 50% interest in Optel and also renegotiated and repaid
indebtedness owed by Optel to its creditors. Under Chilean GAAP, as a result of
that step acquisition Madeco once again gained control over Optel and reversed
through 2005 net income the impairment previously recorded in 2003. Under BT 72
the excess of the net assets acquired over the cost of acquisition referred to
as "negative goodwill" was recorded in the step acquisition of an additional 50%
interest in Optel in 2005.

F-76

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

(aa) Acquisition of additional interest in Optel Ltda. (continued)

This negative goodwill is being amortized on a straight-line basis over a period
of 20 years.

Under U.S. GAAP the impairment write-offs on investments are not be reversed for
improvements in the situation affecting the underlying investment, also the
negative goodwill determined on the step acquisition of an additional 50%
interest in Optel in 2005 would have been allocated as a reduction of the
non-current assets (property, plant and equipment) in accordance with SFAS 141
Business Combinations..

In addition, under Chilean GAAP, certain payables due to then Quinenco Group
companies were considered identifiable liabilities assumed during the additional
50% step acquisition in Optel. Those payables resulted principally from
reimbursements payable for expenses incurred by other entities controlled by
Madeco on behalf of Optel during the period when this investment was not
controlled by the Company. In addition, as a result of regaining control and
renegotiating Optel's indebtedness the Company released into income the
allowances against receivables due from Optel that were recorded in the moment
of losing control over it in 2003. Under U.S. GAAP, purposes the above mentioned
payables represented no additional benefit or incremental liability to the
acquirer and therefore no portion of the purchase price would be allocated to
such amounts. Consequently, the amount of the net assets acquired under U.S.
GAAP is different than under Chilean GAAP. This difference also affected the
determination of the amount of excess of the net assets acquired over the cost
of acquisition that reduced the amount of property, plant and equipment.

The differences between Chilean GAAP and U.S. GAAP as of and for the year ended
December 31, 2005 related to the accounting for the acquisition of 50%
participation in Optel are included in paragraph I (dd) below and are as
follows:

(i) The reversal of negative goodwill and its amortization recorded under
Chilean GAAP in the amounts of ThCh$509,281 and ThCh$(19,098),
respectively;

(ii) The reversal of the impairment write-up recognized under Chilean GAAP in
the amount of ThCh$(509,281);

(iii) The effects of reducing depreciation expense, due to the proportionate
allocation of the excess of acquisition cost (including effect of
elimination of intercompany balances and its effect in income) to
property, plant and equipment in the net amount of ThCh$(1,299,275)

(bb) Gain on sale of subsidiary shares

On March 20, 2003, at an extraordinary shareholders' meeting, Banco de Chile's
shareholders approved the establishment of a share repurchase program to be
conducted on the various Chilean stock exchanges on which its shares are listed
and/or through a tender offer conducted in accordance with the Chilean
Corporations Law. The program began on April 26, 2004 and was scheduled to last
for 24 months.

In April 2004, Banco de Chile repurchased 2.5% (1,702 million shares) of
treasury stock for Ch$31 per share. As the Company did not participate in the
repurchase transaction (i.e. did not sell any of the shares it owned back to
Banco de Chile) its effective ownership interest increased following the
acquisition of the shares from other non-controlling shareholders.

In 2005, Banco de Chile placed the same number of shares which had been
repurchased in 2004 to the market over the stock exchange at a price of
Ch$33.86. The Company did not participate in the repurchase transaction (i.e.
did not acquire the treasury stock placed to the market in during 2005) and as a
result the Company's effective ownership interest decreased following the
acquisition of the shares by the other non-controlling shareholders;

As described in Note 18, under Chilean GAAP, the acquisition of treasury shares
and their subsequent resale resale by Banco de Chile did not impact net income.
In accordance with BT 72 as these changes are not the result of a capital
increase of the investee they do not have an effect on profit and loss.

F-77

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

(bb) Gain on sale of subsidiary shares (continued)

Under U.S. GAAP, in accordance with SAB 5, sales of stock by a subsidiary that
decrease the investor's ownership of the subsidiary in which the offering price
per share exceeded the investor's carrying amount per share of subsidiary stock
are reflected as a gain in the consolidated income statement of the parent. The
effects of the differences in accounting between Chilean GAAP and U.S. GAAP are
included in paragraph I (dd) below.

(cc) Stock option plan

At the Extraordinary Meeting of Shareholders of the Company's then subsidiary,
Madeco, held on November 14, 2002, shareholders approved a stock option plan,
which was adopted by Madeco's Board of Directors on January 28, 2003. This
incentive plan authorized the issuance of up to 493,334,000 shares of Madeco
common stock in connection with the plan.

On April 24, 2003, the Company's then subsidiary Madeco granted stock options to
certain employees to purchase 182,147,724 shares of Madeco stock. The options
exercise period was from September 30, 2004 to November 30, 2004, assuming the
employee continued service to that date, with an exercise price of Ch$24 per
share. On October 29, 2004, the executives exercised the portion of the stock
options and subscribed 182,147,724 shares at the price of Ch$24 per share, which
was paid with their own resources on that same date. The corresponding capital
increase of ThCh$4,371,545 (historic) was recognized in the financial
statements.

At an Extraordinary Shareholders' Meeting held on December 22, 2004, it was
agreed to modify the placement value of the remaining 311,186,276 shares of the
compensation plans, setting a new strike price of Ch$60 per share.

On January 25, 2005 Madeco's Board of Directors agreed to a separate stock
option plan of 130,000,000 shares for certain executives. The exercise price was
set at Ch$ 60 per share. This plan commenced on May 20, 2005 when the stock
option contracts were issued. Under Chilean GAAP, the stock options were
recognized at the fair value of ThCh$263,500 determined using the
"Black-Scholes-Merton" model as of the grant date (January 25, 2005).

On August 31, 2005, the above mentioned contracts signed on May 20, 2005 were
nullified and Madeco recorded in income the unamortized amount of the fair value
of the options. The cancellation of these options resulted in the Company's
former subsidiary Madeco S.A. being required to recorded in income the
unamortized amount of the fair value of the options.

Under U.S. GAAP the Company applies APB 25, which requires the recognition of
the compensation cost to the extent of the excess, if any, of the quoted market
price of the stock at grant date or other measurement date over the amount an
employee must pay to acquire the stock. Consequently fair value of the stock
options recorded in income under Chilean GAAP was reversed.

The difference between Chilean GAAP and U.S. GAAP are included in paragraph (dd)
below.

F-78

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

(dd) Effects of conforming to U.S. GAAP

The adjustments to reported net income required to conform with U.S. GAAP are as
follows (parenthetical references are to Note 27 part I):

Year ended December 31,
-----------------------------------------
2003 2004 2005
----------- ----------- -----------
ThCh$ ThCh$ ThCh$

Net income (loss) as shown in the Chilean GAAP financial statements ............. 40,028,157 24,193,412 51,079,526
NON-FINANCIAL SERVICES
Deferred income taxes (paragraph b) ........................................... 1,616,911 (1,253,836) (2,036,025)
Reversal of depreciation of the revaluation of property, plant and
equipment (paragraph d) .................................................... 9,536,246 (90,929) 202,771
Reversal of effects for investment in Entel (paragraph e-1-2) ................. (3,712,238) (1,745,598) 8,142,878
Employee severance indemnities (paragraph f) .................................. (1,440,241) (628,886) 90,253
Deficit during development stage (paragraph g) ................................ (293,577) (808,849) (1,497,336)
Exchange of Debt Instruments (paragraph h) .................................... -- -- (1,362,947)
Restructuring costs (paragraph i) ............................................. (113,196) (45,539) (170,125)
Goodwill (paragraph j)
Impairment of goodwill ..................................................... (6,305,562) -- --
Reversal of goodwill amortization (paragraph j) ............................ 2,320,407 2,286,849 3,610,059
Negative goodwill (paragraph k) ............................................... (2,339,040) (1,841,975) (234,328)
Result from non-concurrence in subsidiary's capital increase
(paragraph k-5) ........................................................... -- 527,423 415,273
Reversal of revenue recognition (paragraph l) ................................. 775,180 -- --
Executive incentive plan (paragraph m) ........................................ (44,128) (32,736) (16,439)
Net effects of U.S. GAAP adjustments in equity investees
(paragraph n) ............................................................ 366,556 490 644,343
Impairment of fixed assets in Madeco (paragraph o) ............................ 784,302 754,352 329,527
Derivatives (paragraph p-1, p-2) .............................................. 169,475 -- --
Elimination of discontinued operations (paragraph y) .......................... 7,636,937 (4,887,360) 1,033,979
Allowance for recoverable taxes in Madeco (paragraph z) ....................... 1,613,445 (1,613,445) --
Acquisition of additional interest in Optel (paragraph aa) .................... -- -- (1,318,373)
Stock option plan Madeco (paragraph cc) ....................................... -- -- 263,500

FINANCIAL SERVICES
Deferred income taxes (paragraph b) ........................................... (2,204,828) (7,164,801) (1,223,634)
Investment securities (paragraph e-2) ......................................... 10,619 4,144 48,000
Employee severance indemnities (paragraph f) .................................. 129,552 198,912 (1,230,000)
Goodwill (paragraph j) ........................................................ 18,856,134 18,997,928 19,108,917
Derivatives (paragraph p-1, p-3) .............................................. 3,641,968 (1,244,236) (4,886,821)
Core deposits, brand and other intangibles (paragraph q-1) .................... (18,631,964) (16,486,393) (13,710,000)
Fair value of bank premises and equipment (paragraph q-2) ..................... (245,270) (244,133) (305,630)
Fair value of loans (paragraph q-3) ........................................... (148,467) (727,601) 48,000
Fair value of other financial assets and liabilities (paragraph q-5) .......... 4,483,560 4,461,183 3,978,556
Loan origination fees and costs (paragraph r) ................................. (495,558) -- --
Investments in other companies (paragraph s) .................................. 104,066 25,900 85,018
Assets received in lieu of payment (paragraph t) .............................. 404,585 1,059,828 2,832,000
Mortgage finance bonds (paragraph u) .......................................... 2,035,309 -- --
Allowance for loan losses (paragraph v) ....................................... 7,761,427 8,554,252 (984,783)
Fair value amortization and interest on subordinated debt
(paragraph q-4) .......................................................... 10,458,615 15,293,490 12,159,675
Gain from treasury stock transaction (paragraph bb) ........................... -- . 8,516,767
----------- ----------- -----------
Net effects of U.S. GAAP adjustments on minority interest (paragraph w) ....... (6,171,957) (968,468) 1,061,807
----------- ----------- -----------
Income (loss) from continuing operations in accordance with
U.S. GAAP before cumulative effect of change in accounting
principle and discontinued operations ..................................... 70,587,425 36,573,378 84,674,408
=========== =========== ===========

F-79

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

(dd) Effects of conforming to U.S. GAAP, continued

2003 2004 2005
----------- ----------- -----------
ThCh$ ThCh$ ThCh$

----------- ----------- -----------

Net income from continuing operations under U.S. GAAP ............................. 70,587,425 36,573,378 84,674,408
(Loss) income from discontinued operations, net of taxes and minority interest .... (7,917,608) 3,498,424 (972,611)
----------- ----------- -----------
Net income under U.S. GAAP ........................................................ 62,669,817 40,071,802 83,701,797
Other comprehensive income, net of tax:
Foreign currency translation adjustment ........................................... (28,200,327) (6,741,941) (11,806,365)
Net unrealized (losses) gains on securities, net of tax (paragraph e) ............. 3,414,587 20,401,585 (6,918,829)
----------- ----------- -----------
Other comprehensive (loss) income ................................................. (24,785,740) 13,659,644 (18,725,194)
----------- ----------- -----------
Comprehensive income under U.S. GAAP .............................................. 37,884,077 53,731,446 64,976,603
=========== =========== ===========

F-80

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

The adjustments required to conform net equity amounts to U.S. GAAP are as
follows:

As of December 31,
-----------------------------
2004 2005
------------ ------------

ThCh$ ThCh$

Net equity as shown in the Chilean GAAP financial statements .......................... 657,906,724 704,252,124
NON-FINANCIAL SERVICES
Deferred income taxes (paragraph b) ................................................. (19,230,167) (15,469,790)
Reversal of the revaluation Property, plant and Equipment (d-1) ..................... (2,864,105) --
Accumulated depreciation (d-2) .................................................... 63,305 --
Available-for-sale securities, net of deferred income taxes (paragraph e-1-1) ....... 76,457,967 68,174,527
Reversal of effects for investment in Entel (paragraph e-1)
Reversal of equity method participation in net income of Entel (e-1-2) ........... (36,707,416) (28,154,159)
Reversal of negative goodwill, net (e-1-3) ............................................ 2,328,678 2,162,235
Minimum dividend (paragraph c) .................................................... (6,380,897) (14,784,015)
Employee severance indemnities (paragraph f)
Short-term (f-1) ................................................................. (2,559,809) (379,741)
Long-term (f-2) .................................................................. (2,002,317) (428,220)
Exchange of Debt Instruments (paragraph h) ........................................ -- (1,318,373)
Restructuring costs (paragraph i) ................................................... 1,030,761 860,636
Goodwill (paragraph j)
Goodwill ......................................................................... (5,774,665) --
Accumulated amortization ......................................................... 8,046,055 4,223,562
Negative goodwill (paragraph k)
Negative goodwill (k-1) .......................................................... 6,338,321 6,779,278
Negative goodwill amortization (k-2) ............................................. (2,012,938) (3,259,987)
Property, plant and equipment (k-3) ............................................. (3,121,555) --
Accumulated depreciation (k-4) ................................................... 953,475 741,157
Result from non-concurrence in subsidiary's capital increase (k-5) .................. 527,423 --
Net effects of U.S. GAAP adjustments in equity investees (paragraph n) .............. (400,977) (7,323,290)
Impairment of fixed assets in Madeco (paragraph o)
Property, plant and equipment (paragraph o) ..................................... (3,906,410) --

FINANCIAL SERVICES
Deferred income taxes (paragraph b) ................................................. 7,994,603 6,771,969
Investment securities (paragraph e-2) ............................................... 6,002 49,002
Employee severance indemnities (paragraph f) ........................................ (3,796,514) (5,026,514)
Goodwill (paragraph j) .............................................................. 289,944,492 308,667,242
Derivatives (paragraph p-1, p-3) .................................................... 6,296,821 1,410,000
Core deposits, brand and other intangibles (paragraph q-1)
Fair value of intangibles (q-1-1) ................................................. 217,321,008 217,321,008
Amortization of intangibles (q-1-2) ............................................... (71,645,734) (85,355,734)
Fair value of bank premises and equipment (paragraph q-2)
Fair value of premises and equipment (q-2-1) ...................................... 11,852,348 11,852,347
Amortization of fair value of premises and equipment (q-2-2) ...................... (915,851) (1,221,481)
Fair value of loans (paragraph q-3) ................................................. (3,031,248) (2,983,248)
Fair value of subordinated debt obligation (paragraph q-4)
Fair value of subordinated debt obligation (q-4) .................................. (236,022,905) (223,863,231)
Fair value of other financial assets and liabilities (paragraph q-5)
Fair value of other interest bearing liabilities (q-5-1) .......................... (35,830,060) (31,584,000)
Fair value of other liabilities (q-5-2) ........................................... (1,111,108) (819,196)
Fair value of other assets (q-5-3) ................................................ 559,416 --
Investments in other companies (paragraph s) ........................................ 559,982 645,000
Assets received in lieu of payment (paragraph t) .................................... 2,116,353 4,948,353
Allowance for loan losses (paragraph v) ............................................. 39,320,086 38,335,303
Net effects of U.S. GAAP adjustments on minority interest (paragraph w) ............... (186,479,109) (199,001,734)
------------ ------------
Net equity in accordance with U.S. GAAP ............................................... 705,830,035 756,221,030
============ ============

F-81

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

The changes in net shareholders' equity accounts determined under U.S. GAAP are
summarized as follows:

ThCh$

Balance as of January 1, 2003 ............................................................ 661,312,934
Interim dividends paid ................................................................ (12,851,927)
Executive incentive plan .............................................................. 1,728,978
Other comprehensive income, net of tax:
Net change in unrealized gains and losses on available-for-sale-securities,
net of deferred income taxes ..................................................... 3,414,587
Cumulative translation adjustment .................................................. (28,200,327)
Net income for the year ............................................................... 62,669,817
------------
Balance as of December 31, 2003 .......................................................... 688,074,062
------------
Definitive dividend paid related to prior year ........................................ (7,092,233)
Addition to accrued minimum dividend at year end ...................................... (6,380,897)
Executive incentive plan .............................................................. 1,199,551
Proportional share of variations in equity of subsidiaries and investees .............. (23,701,894)
Other comprehensive income, net of tax:
Net change in unrealized gains and losses on available-for-sale-securities,
net of deferred income taxes ..................................................... 20,401,585
Cumulative translation adjustment .................................................. (6,741,941)
Net income for the year ............................................................... 40,071,802
------------
Balance as of December 31, 2004 .......................................................... 705,830,035
------------
Definitive dividend paid related to prior year ........................................ (14,791,128)
Addition to accrued minimum dividend at year end ...................................... (8,403,119)
Executive incentive plan .............................................................. 1,078,682
Proportional share of variations in equity of subsidiaries and investees .............. 7,529,957
Other comprehensive income, net of tax:
Net change in unrealized gains and losses on available-for-sale-securities,
net of deferred income taxes ..................................................... (6,918,829)
Cumulative translation adjustment .................................................. (11,806,365)
Net income for the year ............................................................... 83,701,797
------------
Balance as of December 31, 2005 .......................................................... 756,221,030
============

F-82

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

II. Additional disclosure requirements

a) Consolidation and deconsolidation of subsidiaries

As indicated in Note 2 a), 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, the related accounting
policies and the fact that they do not use a classified balance sheet. The
information presented below, which is presented using a U.S. GAAP presentation
and amounts determined in accordance with U.S. 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 reflect the consolidation of those entities
consolidated for Chilean GAAP purposes (see Note 2 a) plus the following
entities:

As of December 31, 2003, 2004 and 2005, and for the years then ended:

o SM Chile - a 52.83% owned banking subsidiary, through which the
Company owns 31.61% of Banco de Chile subsequent to the merger with
Banco Edwards. Also included is the 20.29% direct interest that the
Company owns in Banco de Chile subsequent to the merger with Banco
Edwards.

o Banchile Seguros de Vida- a 99.99% owned insurance company.

o Indalsa Peru - a 93.69% owned food manufacturing company. Under
Chilean GAAP and in accordance with discussions held with the SVS,
Indalsa Peru's balance sheet was not consolidated as of December 31,
2004 and 2005, due to the closure of its plant in Lima and the
ending of its operations in Peru. Under U.S. GAAP the operations are
considered as abandoned and disclosed as discontinued operations,
therefore the assets and liabilities have been consolidated as of
December 31, 2004 and 2005 and then re-classified as short-term in
accordance with SFAS 144.

In addition and as explained in the introductory paragraph of this note, the
condensed consolidated balance sheet, income statement and reconciliation of
cash flows set forth below reflect the deconsolidation of Madeco from November
25, 2005.

F-83

QUINENCO S.A. AND SUBSIDIARIES
SCHEDULE 1- CONDENSED FINANCIAL INFORMATION OF QUINENCO S.A,
("QUINENCO INDIVIDUAL")
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

The following are balance sheets of the Company using amounts determined in
accordance with U.S. GAAP:

As of December, 31
--------------------------------
2004 2005
-------------- --------------
ThCh$ ThCh$

Assets:
Non-Financial Services:
Current assets
Cash and time deposits ................................... 14,837,105 5,517,574
Marketable securities .................................... 675,921 1,361,708
Accounts and notes receivable, net ....................... 84,854,913 29,924,836
Inventories .............................................. 74,776,632 904,407
Other current assets ..................................... 131,701,491 132,392,181
-------------- --------------
Total current assets ............................. 306,846,062 170,100,706
-------------- --------------

Net property, plant and equipment ........................ 280,255,113 123,244,772

Other assets:
Investments in and advances to related companies ......... 163,652,592 199,604,131
Goodwill, net ............................................ 30,678,939 10,281,797
Other non-current assets ................................. 13,837,459 6,417,909
-------------- --------------
Total other assets ............................... 208,168,990 216,303,837
-------------- --------------

Total non-financial services assets ...................... 795,270,165 509,649,315
-------------- --------------

Financial Services:
Cash and due from banks .................................. 632,566,433 658,447,068
Investments .............................................. 1,641,011,425 1,455,773,755
Loans, net ............................................... 6,465,426,967 8,135,709,965
Premises and equipment ................................... 177,107,816 160,982,023
Goodwill, net ............................................ 586,754,993 587,028,308
Other assets ............................................. 434,295,891 480,721,854
-------------- --------------
Total financial services assets .................. 9,937,163,525 11,478,662,973
-------------- --------------

Total assets ..................................... 10,732,433,690 11,988,312,288
============== ==============

F-84

QUINENCO S.A. AND SUBSIDIARIES
SCHEDULE 1- CONDENSED FINANCIAL INFORMATION OF QUINENCO S.A,
("QUINENCO INDIVIDUAL")
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

The following are balance sheets of the Company using amounts determined in
accordance with U.S. GAAP:

As of December, 31
--------------------------------
2004 2005
-------------- --------------
ThCh$ ThCh$

Liabilities and Shareholders' Equity:
Non-Financial Services:
Current liabilities
Debt payable within one year ............................... 93,247,743 24,777,935
Accounts and notes payable ................................. 29,248,806 5,989,681
Accrued and other liabilities .............................. 52,693,301 28,852,653
-------------- --------------
Total current liabilities .......................... 175,189,850 59,620,269
-------------- --------------

Long-term liabilities:
Long term debt ............................................. 406,156,208 339,786,349
Other liabilities .......................................... 2,699,209 16,861,044
-------------- --------------
Total long-term liabilities ........................ 408,855,417 356,647,393
-------------- --------------

Total non-financial services liabilities ........... 584,045,267 416,267,662
-------------- --------------

Financial Services:
Deposits ................................................... 5,673,110,453 6,298,590,389
Short-term borrowings ...................................... 524,930,193 1,842,094,932
Investments sold under agreements to repurchase ............ 361,653,096 270,749,600
Other liabilities .......................................... 418,832,835 402,483,230
Long-term debt ............................................. 2,091,511,403 1,698,766,915
-------------- --------------
Total financial services liabilities .............. 9,070,037,980 10,512,685,066
-------------- --------------

Minority interest .......................................... 372,520,408 303,138,530

Shareholders' equity ....................................... 705,830,035 756,221,030

Total liabilities and shareholders' equity ......... 10,732,433,690 11,988,312,288
============== ==============

F-85

QUINENCO S.A. AND SUBSIDIARIES
SCHEDULE 1- CONDENSED FINANCIAL INFORMATION OF QUINENCO S.A,
("QUINENCO INDIVIDUAL")
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

The condensed consolidated statements of income for the years ended December 31
under U.S. GAAP and classified in accordance with U.S. GAAP are presented as
follows:

Year ended December, 31
----------------------------------------------
2003 2004 2005
------------ ------------ ------------
ThCh$ ThCh$ ThCh$

Non-Financial Services
Operating results:
Net sales .................................................................. 306,155,289 390,069,935 384,853,901
Cost of sales .............................................................. (239,283,924) (317,212,563) (318,353,955)
Administrative and selling expenses ........................................ (66,220,202) (46,306,798) (49,132,816)
------------ ------------ ------------
Operating income ..................................................... 651,163 26,550,574 17,367,130
------------ ------------ ------------

Non-Operating results:
Interest income ............................................................ 3,076,684 2,340,500 2,331,865
Non-operating income ....................................................... 57,186,072 19,147,607 65,558,471
Interest expense ........................................................... (34,302,447) (29,756,922) (29,490,057)
Non-operating expense ...................................................... (3,788,302) (35,308,842) (27,584,160)
Price-level restatement gain (loss), net ................................... 2,936,317 (60,237) (4,869,625)
------------ ------------ ------------
Non-operating results ...................................................... 25,108,324 (43,637,894) 5,946,494
------------ ------------ ------------
(Loss) from non-financial services before income taxes
and minority interest ............................................. 25,759,487 (17,087,320) 23,313,624
------------ ------------ ------------

Financial Services
Total interest income ...................................................... 487,166,062 604,973,134 887,559,055
Total interest expense ..................................................... (226,695,355) (308,152,985) (438,603,387)
Net interest income .................................................... 260,470,707 296,820,149 448,955,668
Provision for loan losses .................................................. (29,063,528) (32,653,684) (24,648,483)
Net interest income after provision for loan losses .................... 231,407,179 264,166,465 424,307,185
Other income ............................................................... 202,683,091 142,985,476 3,288,170
Other expenses ............................................................. (329,850,043) (273,216,177) (280,512,374)
------------ ------------ ------------
Income (loss) from financial services before Income taxes
and minority interest ............................................. 104,240,227 133,935,764 147,082,981
------------ ------------ ------------

Income from continuing operations before income taxes and
minority interest ....................................................... 129,999,714 116,848,444 170,396,605
Income taxes ............................................................... (18,485,001) (31,742,494) (31,404,165)
------------ ------------ ------------
Income from continuing operations before minority interest ................. 111,514,713 85,105,950 138,992,440
Minority interest .......................................................... (40,927,288) (48,532,572) (54,318,032)
------------ ------------ ------------
Income from continuing operations .................................... 70,587,425 36,573,378 84,674,408
Income (loss) from discontinued operations, net of income taxes
and minority interest ............................................. (7,917,608) 3,498,424 (972,611)
------------ ------------ ------------
Net income ........................................................... 62,669,817 40,071,802 83,701,797
============ ============ ============

F-86

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

The effect of consolidating the banking and insurance operations as required
under U.S. GAAP, but using amounts calculated in accordance with Chilean GAAP
for the years ended December 31, 2003, 2004 and 2005 is as follows:

Year ended December, 31
----------------------------------------------------
2003 2004 2005
-------------- -------------- --------------
ThCh$ ThCh$ ThCh$

Cash provided by operating activities reported under Chilean GAAP ...... 68,855,622 59,912,787 84,234,774
Cash provided by operating activities Blue Two S.A. (1) ................ -- 6,602,295 518,044
Cash provided by operating activities Indalsa Peru ..................... 2,732,992 5,251,272 105,527
Effect of consolidation of banking and insurance operations ............ (117,517,450) 598,980,867 434,064,555
Effect of deconsolidation of Madeco .................................... -- -- (1,023,447)
-------------- -------------- --------------
Cash provided by (used in) operating activities reported under
U.S. GAAP ............................................................ (45,928,836) 670,747,221 517,899,453

Cash provided by (used in) investing activities reported under
Chilean GAAP ......................................................... 12,701,137 (32,137,904) 51,889,656
Cash (used in) investing activities Blue Two S.A. (1) .................. -- (6,646,203) (1,741,030)
Cash provided by investing activities Indalsa Peru ..................... -- -- 85,093
Effect of consolidation of banking and insurance operations ............ (180,263,782) (670,060,917) (1,227,499,091)
Effect of deconsolidation of Madeco .................................... -- 1,138,314
-------------- -------------- --------------
Cash provided (used in)) investing activities reported under
U.S. GAAP ............................................................ (167,562,645) (708,845,024) (1,176,127,058)

Cash (used in) financing activities reported under Chilean GAAP ........ (105,864,678) (42,924,911) (81,069,471)
Cash provided by financing activities Blue Two S.A. (1) ................ -- 1,236 1,334,936
Cash (used in) financing activities Indalsa Peru ....................... (4,409,977) (5,295,465) (194,845)
Effect of consolidation of banking and insurance operations ............ 490,408,782 102,196,220 568,446,300
Effect of deconsolidation of Madeco .................................... -- -- 402,113
-------------- -------------- --------------
Cash provided by financing activities reported under U.S. GAAP ......... 380,134,127 53,977,080 488,919,033

Effect of exchange rate differences on cash and cash equivalents
under Chilean GAAP ................................................... (15,735,693) (687,060) (3,590,322)
Effect of exchange rate differences on cash and cash equivalents
Blue Two S.A. (1) .................................................... -- 3,246 541
Effect of exchange rate differences on cash and cash equivalents
Indalsa Peru ......................................................... 68,326 -- --
Effect of consolidation of banking and insurance operations ............ (8,061,548) (19,111,104) (38,110,379)
Effect of deconsolidation of Madeco .................................... -- -- 29,818
-------------- -------------- --------------
Effect of exchange rate differences on cash and cash equivalents
under U.S. GAAP ...................................................... (23,728,915) (19,794,918) (41,670,342)

Net change in cash and cash equivalents under Chilean GAAP ............. (40,043,612) (15,837,088) 51,464,637
Net change in cash and cash equivalents Blue Two S.A. (1) .............. -- (39,426) 112,491
Net change in cash and cash equivalents Indalsa Peru ................... (1,608,659) (44,193) (4,225)
Effect of consolidation of banking and insurance operations ............ 184,566,002 12,005,066 (263,098,615)
Effect of deconsolidation of Madeco .................................... -- -- 546,798
-------------- -------------- --------------
Net change in cash and cash equivalents under U.S. GAAP ................ 142,913,731 (3,915,641) (210,978,914)
-------------- -------------- --------------

Effect of deconsolidation of Madeco .................................... -- -- (7,905,843)
-------------- -------------- --------------

F-87

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

Year ended December, 31
--------------------------------------------
2003 2004 2005
------------ ------------ ------------
ThCh$ ThCh$ ThCh$

Cash and cash equivalents at beginning of year under Chilean GAAP ............. 99,837,762 59,794,150 43,957,062
Cash and cash equivalents at the beginning of the year Blue Two S.A. (1) ...... -- 44,792 5,366
Cash and cash equivalents at the beginning of the year Indalsa Peru ........... 1,672,873 64,214 20,021
Effect of consolidation of banking and insurance operations ................... 726,283,239 910,849,241 922,854,307
------------ ------------ ------------
Cash and cash equivalents at beginning of year under U.S. GAAP ................ 827,793,874 970,752,397 966,836,756

Cash and cash equivalents at end of year under Chilean GAAP (2) ............... 59,794,150 43,957,062 87,515,856
Cash and cash equivalents at the end of the year Blue Two S.A. (1) ............ -- 5,366 117,857
Cash and cash equivalents at the end of the year Indalsa Peru ................. 64,214 20,021 15,796
Effect of consolidation of banking and insurance operations ................... 910,849,241 922,854,307 659,755,691
------------ ------------ ------------
Cash and cash equivalents at end of year under U.S. GAAP ...................... 970,707,605 966,836,756 747,405,200
============ ============ ============

(1) In 2004, the company Blue Two S.A. was consolidated for the first
time under U.S. GAAP.

(2) As of December 31, 2005, cash and cash equivalents do not include
Madeco.

F-88

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

II. Additional disclosures requirements (continued)

The Company considers all highly liquid investments purchased with an original
maturity of three month or less to be cash equivalents.

As of December 31 2003, 2004 and 2005, cash and cash equivalents were composed
as follows:

As of December 31,
--------------------------------------------
2003 2004 2005
------------ ------------ ------------
ThCh$ ThCh$ ThCh$

Cash .................................................... 7,800,269 4,499,551 1,856,925
Non-interest bearing cash and due from banks ............ 683,946,568 559,063,569 638,604,000
Interbank deposits interest bearing ..................... 225,925,700 363,614,244 20,704,000
Time deposits ........................................... 25,081,865 14,286,051 24,029,057
Mutual funds ............................................ 6,284,882 427,643 973,521
Securities purchased under agreements to resell ......... 21,668,321 24,945,698 61,237,697
------------ ------------ ------------
Total ................................................... 970,707,605 966,836,756 747,405,200
============ ============ ============

b) 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 U.S. GAAP:

Year ended December 31,
(Expressed in single Chilean pesos)
--------------------------------------------------------------
2003 2004 2005 2005
------------- ------------- ------------- -------------
Ch$ Ch$ Ch$ Note 2(v)
U.S.$

Basic and diluted earnings per share under Chilean GAAP .......... 37.07 22.41 47.31 0.09
Basic and diluted earnings per share under U.S. GAAP:
Basic and diluted earnings per share from continuing operations ... 65.37 33.87 78.42 0.15
Basic and diluted earnings (loss) per share from discontinued
operations ...................................................... (7.33) 3.24 (0.90) (0.01)
Basic and diluted earnings per share under
U.S. GAAP ..................................................... 58.04 37.11 77.52 0.14

Dividends paid per share .......................................... 11.90 6.57 13.70 0.03

Weighted average number of shares of common
stock outstanding ............................................. 1,079,740,079 1,079,740,079 1,079,740,079

F-89

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

II. Additional disclosure requirements (continued)

The earnings (loss) per share data shown above is determined by dividing net
income for both Chilean GAAP and U.S. 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.

c) Income taxes

The income taxes charged to the results of operations under U.S. GAAP were as
follows:

Year ended December 31,
--------------------------------------------
2003 2004 2005
------------ ------------ ------------
ThCh$ ThCh$ ThCh$

Current tax expense ....................................................... (20,420,001) (23,972,254) (22,880,462)
Deferred income tax benefit (expense) ..................................... 4,245,008 923,733 (5,243,147)
Net change in tax loss carryforwards ...................................... 6,115,866 2,730,470 2,561,152
Changes in valuation allowance ............................................ (3,672,350) (4,151,282) (3,434,818)
Deferred tax effect of U.S. GAAP adjustments .............................. (3,955,429) (10,294,765) (3,259,659)
Reclassification of income taxes related to discontinued operations ....... (1,787,382) 1,032,727 6,743
Other ..................................................................... 989,287 1,988,877 846,026
------------ ------------ ------------
Total income taxes under U.S. GAAP ............................... (18,485,001) (31,742,494) (31,404,165)
============ ============ ============

Substantially all of the income tax provision in each year arises from Chilean
sources.

F-90

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

II. Additional disclosure requirements (continued)

Deferred tax assets (liabilities) are summarized as follows:

Year ended December 31,
-------------------------------
2004 2005
------------- -------------
ThCh$ ThCh$

Accounts receivable .................................................. 3,210,564 1,467,997
Inventories .......................................................... 11,401 --
Tax loss carryforwards ............................................... 43,964,073 18,397,614
Vacation provision ................................................... 1,986,478 1,968,022
Leasing equipment .................................................... 7,843,245 6,807,600
Provision fixed assets held for sale ................................. 305,700 --
Obligation with repurchase agreements ................................ 10,948,137 11,828,600
Allowance for loan losses ............................................ 22,008,784 19,116,000
Charge-offs from financial investment ................................ -- 65,700
Accrued interests and readjustments from risky loan portfolio ........ 1,130,794 927,600
Accrueded interest and readjustments from past due loans ............. 842,786 425,500
Personnel provisions ................................................. 2,150,425 2,170,000
Staff severance indemnities .......................................... 2,153,441 1,802,628
Assets at market value ............................................... -- 983,700
Deferred expenses .................................................... -- 2,287,636
Fair value adjustments ............................................... 15,463,821 13,522,187
Provision for impairment in Brazil ................................... 8,172,660 --
Other ................................................................ 19,097,283 14,023,385
------------- -------------
Total deferred tax assets ................................... 139,289,592 95,794,169
------------- -------------
Depreciation ......................................................... (13,347,137) (12,929,347)
Inventories .......................................................... (565,062) --
Property, plant and equipment under leasing contract ................. (7,069,239) --
Property, plant and equipment ........................................ (5,086,656) (6,224,900)
Investments .......................................................... (12,997,854) (11,589,670)
Investment with repurchase agreements ................................ (10,784,553) (10,842,200)
Other ................................................................ (6,583,832) (4,598,240)
------------- -------------
Total deferred tax liabilities .............................. (56,434,333) (46,184,357)
Deferred tax assets valuation allowance .............................. (34,331,244) (9,322,001)
------------- -------------
Total net deferred tax assets ............................... 48,524,015 40,287,811
============= =============

F-91

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

II. Additional disclosure requirements (continued)

Deferred tax assets (liabilities) provided by non-financial and financial
services are composed as follows:

Non-financial services:

As of December 31, 2004
--------------------------------------------------------------
Deferred tax assets Deferred tax liabilities
Short-term Long-term Short-term Long-term
------------ ------------ ------------ ------------
ThCh$ ThCh$ ThCh$ ThCh$

Temporary differences
Accrued vacation expense ................................ 261,538 -- -- --
Allowance for doubtful accounts ......................... 1,136,570 2,073,994 -- --
Allowance for obsolescence of inventories ............... 11,401 -- -- --
Investments ............................................. -- -- -- 12,997,854
Fixed assets held for sale .............................. 184,413 121,287 -- --
Fixed assets under leasing .............................. 113,391 223,497 -- 7,406,128
Production costs (inventories) .......................... -- -- -- 565,062
Accelerated depreciation of fixed assets ................ -- 348 763,642 12,583,843
Employee severance indemnities .......................... -- 775,561 36,134 98,757
Provision for impairment ................................ 8,172,660 -- -- --
Tax loss carryforwards .................................. 4,003,067 39,961,006 -- --
Other provisions ........................................ 1,588,838 6,553,997 311,525 3,057,397
------------ ------------ ------------ ------------
Total ................................................... 15,471,878 49,709,690 1,111,301 36,709,041
Valuation allowance ..................................... (10,865,959) (23,465,285) -- --
------------ ------------ ------------ ------------
Total deferred income taxes ..................... 4,605,919 26,244,405 1,111,301 36,709,041
============ ============ ============ ============

Non-financial services:

As of December 31, 2005
--------------------------------------------------------------
Deferred tax assets Deferred tax liabilities
Short-term Long-term Short-term Long-term
------------ ------------ ------------ ------------
ThCh$ ThCh$ ThCh$ ThCh$

Temporary differences
Accrued vacation expense ................................ 155,122 -- -- --
Allowance for doubtful accounts ......................... 533,058 934,939 -- --
Investments ............................................. -- -- -- 11,589,670
Fixed assets under leasing .............................. 19,743 223,071 -- --
Accelerated depreciation of fixed assets ................ -- -- -- 12,930,290
Employee severance indemnities .......................... -- 138,296 -- 139,725
Deferred expenses ....................................... -- 2,287,636 -- 25,554
Tax loss carryforwards .................................. -- 18,397,614 -- --
Other provisions ........................................ 130,507 3,930,101 224,179 61,926
------------ ------------ ------------ ------------
Total ................................................... 838,430 25,911,657 224,179 24,747,165
Valuation allowance ..................................... (6,178) (9,315,823) -- --
------------ ------------ ------------ ------------
Total deferred income taxes ..................... 832,252 16,595,834 224,179 24,747,165
============ ============ ============ ============

F-92

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

II. Additional disclosure requirements (continued)

Financial services:

As of December 31,
-----------------------------
2004 2005
ThCh$ ThCh$
------------ ------------

Deferred tax assets
Accrued interests and readjustments from risky loan portfolio .......... 1,130,794 927,600
Accruals interest and readjustments from past due loans ................ 842,786 425,500
Assets at fair value ................................................... 2,870,549 983,700
Leasing equipment ...................................................... 7,843,245 6,807,600
Obligation with repurchase agreements .................................. 10,948,137 11,828,600
Allowance for loan losses .............................................. 22,008,784 19,116,000
Fair value adjustments, net ............................................ 15,463,183 13,522,187
Other personnel related provision ...................................... 2,150,425 2,170,100
Provision for employee vacations ...................................... 1,724,940 1,812,900
Staff severance indemnities ............................................ 1,377,880 1,805,000
Other .................................................................. 8,712,362 10,314,616
------------ ------------
Total deferred tax assets .............................................. 75,073,085 69,713,803
------------ ------------

Deferred tax liabilities
Property, plant and equipment .......................................... (5,086,656) (6,224,900)
Fixed assets in transit ................................................ (1,845,220) (2,292,200)
Investments with repurchase agreements ................................. (10,784,553) (10,842,200)
Other .................................................................. (1,862,624) (2,523,300)
------------ ------------
Total deferred tax liabilities ......................................... (19,579,053) (21,882,600)
------------ ------------
Net deferred tax ............................................... 55,494,032 47,831,203
============ ============

Non-financial services: The provision for income taxes differs from the amount
of income tax determined by applying the applicable Chilean statutory income tax
rate of 17 % for 2005 to pretax accounting income on a U.S. GAAP basis as a
result of the following differences:

Year ended December 31,
----------------------------------------------
2003 2004 2005
------------ ------------ ------------
ThCh$ ThCh$ ThCh$

At statutory Chilean tax rate ......................................... (10,085,394) (11,678,292) (19,568,014)
Increase (decrease) in rates resulting from:
Price-level restatement not accepted for tax purposes ................. 1,173,215 106,933 971,013
Nontaxable income ..................................................... 11,370,889 695,346 841,304
Nondeductible expenses ................................................ (22,138,728) (17,042,995) (9,742,198)
Change in valuation allowances ........................................ 2,153,584 3,928,344 (3,434,818)
Other local taxes ..................................................... 396,269 (1,423,353) 379,699
Differences in tax rates in foreign jurisdictions ..................... (267,368) (5,128,755) (1,732,564)
Change in Chilean statutory tax rate .................................. 586,169 (391,044) --
Reclassification income taxes related to discontinued operations ...... (1,787,382) 1,032,727 6,743
Other ................................................................. 113,745 (1,841,405) 874,670
------------ ------------ ------------
At effective tax rates ....................................... (18,485,001) (31,742,494) (31,404,165)
============ ============ ============

F-93

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

II. Additional disclosure requirements (continued)

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.

Quinenco and its subsidiaries possess tax loss carryforward balances which
resulted in deferred tax assets of ThCh$43,964,073 and ThCh$18,397,614 of
December 31 2004 and 2005, respectively. The tax losses relate to Chile and have
no expiration date.

Tax loss carry forward and expiration date by country as of December 31, 2005,
are as follows:

2005
ThCh$ Expiration Date
------------- -------------------
Chile ................. 108,221,251 Do not expire
-------------
Total.................. 108,221,251
=============

d) Fair value of financial instruments

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments as of December 31, 2004 and 2005 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.

Other current assets: The fair value of deposits that serve as collateral
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 that 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.

F-94

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

II. Additional disclosure requirements (continued)

Loans in the Company's financial services sector: For performing loans with
fixed rates and an original maturity of greater than one year, the fair values
were calculated by discounting contractual cash flows, using the Company's
banking operations' current origination rates for loans with similar terms and
similar risk characteristics. For loans where the management of the Company's
banking operations 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's banking operations 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's banking
operations, such estimates have been estimated using modeling and other
valuation techniques.

F-95

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

II. Additional disclosure requirements (continued)

The estimated fair values of the Company's financial instruments are as follows:

As of December 31
-----------------------------------------------------------------
2004 2005
------------------------------- -------------------------------
U.S. GAAP U.S. GAAP
Book value Fair value Book value Fair value
ThCh$ ThCh$ ThCh$ ThCh$
-----------------------------------------------------------------
Non-Financial Services
-----------------------------------------------------------------

Cash ........................................................... 4,499,551 4,499,551 1,856,925 1,856,925
Time deposits .................................................. 14,286,051 14,286,051 24,029,057 24,029,057
Mutual Funds ................................................... 427,643 427,643 973,521 973,521
Accounts and notes receivable, net ............................. 75,415,266 75,415,266 17,280,144 17,280,144
Securities purchased under agreements to resell ................ 24,945,698 24,945,698 61,237,697 61,237,697
Securities classified as available for sale .................... 146,587,328 146,587,328 93,945,158 93,945,158
Long term receivables .......................................... 3,233,366 3,233,366 1,777,786 1,777,786
Accounts payable and suppliers notes payables .................. (28,892,203) (28,892,203) (5,987,455) (5,987,455)
Notes and accounts payables to related companies ............... (8,869,893) (8,869,893) (4,994,294) (4,994,294)
Short-term bank borrowings ..................................... (98,228,622) (98,752,263) (25,657,691) (24,233,569)
Derivatives .................................................... (1,662,065) (1,662,065) (579,979) (579,979)
Bonds payable .................................................. (251,072,289) (255,260,154) (222,051,816) (194,288,433)
Long-term bank borrowings ...................................... (205,984,624) (180,392,361) (134,521,011) (152,049,409)
Other long-term debt ........................................... (9,523,064) (9,523,064) (5,770,790) (5,770,790)

-----------------------------------------------------------------
Financial Services
-----------------------------------------------------------------
Cash and due from banks ........................................ 592,337,517 592,337,517 496,630,866 496,630,866
Interest bearing deposits in other banks ....................... 40,233,060 40,233,060 74,104,657 74,104,657
Term federal funds ............................................. 58,010,820 58,010,820 231,351,000 231,351,000
Accounts receivable under spot foreign exchange transactions ... 52,300,388 52,300,388 127,763,000 127,763,000
Financial investments .......................................... 1,582,838,706 1,582,832,490 1,185,439,819 1,185,391,819
Loans, net ..................................................... 6,519,287,589 6,675,909,033 7,442,916,000 7,378,358,000
Deposits ....................................................... (5,665,334,900) (5,732,761,924) (6,471,977,000) (6,217,399,000)
Accounts payable under spot foreign exchange transactions ...... (53,908,260) (53,908,260) (99,080,000) (99,080,000)
Investments under agreements to repurchase ..................... (361,653,096) (361,653,096) (270,750,000) (270,750,000)
Short-term and long-term borrowings ............................ (2,130,988,121) (2,284,460,125) (2,004,879,000) (1,896,112,000)
Derivative instruments ......................................... (39,891,180) (39,891,180) (58,607,000) (58,607,000)

F-96

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

II. Additional disclosure requirements (continued)

e) Investment securities

The following are required disclosures for investments classified as
available-for-sale securities, using amounts determined in accordance with U.S.
GAAP.

e-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, 2003,
2004 and 2005 are as follows:

Gross
unrealized Fair
Cost gains value
------------ ------------ ------------
ThCh$ ThCh$ ThCh$

Securities available-for-sale at December 31, 2003 ......... 23,087,825 29,091,764 52,179,589
Securities available-for-sale at December 31, 2004 ......... 70,129,361 76,457,967 146,587,328
Securities available-for-sale at December 31, 2005 ......... 25,745,442 68,199,716 93,945,158

Information on sales of available-for-sale securities during the three years in
the period ended December 31, 2005 is as follows:

2003 2004 2005
------------ ------------ ------------
ThCh$ ThCh$ ThCh$

Proceeds from sales ........................................ -- -- 107,679,986
Gross realized gains ....................................... -- -- 23,924,204
Gross realized losses ...................................... -- -- --

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.

e-2) Financial services

Year ended December 31,
--------------------------------------------
2003 2004 2005
------------ ------------ ------------
ThCh$ ThCh$ ThCh$

Proceeds on sales .......................................... 8,171,321 1,495,984 --
Gross realized gains ....................................... 5,778,860 26,936 --
Gross realized losses ..................................... 155,037 -- --

F-97

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

e) Investment securities (continued)

(1) The cost and estimated market value of securities available for sale as of
December 31, 2004 and 2005 are as follows:

Year ended December 31, 2005
-------------------------------------------------------------
Gross Gross
unrealized unrealized Estimated fair
Available-for-sale instruments: Cost gains (losses) value
------------ ------------ ------------ --------------
ThCh$ ThCh$ ThCh$ ThCh$

U.S. Government securities ..................... 21,993,000 1,000 -- 21,994,000
Chilean private sector debt securities ......... 1,591,000 4,000 -- 1,595,000
------------ ------------ ------------ ------------
Total .................................. 23,584,000 5,000 -- 23,589,000
============ ============ ============ ============

Year ended December 31, 2004
-------------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated Fair
Available-for-sale instruments: Cost Gains (Losses) Value
------------ ------------ ------------ --------------
ThCh$ ThCh$ ThCh$ ThCh$

Foreign private sector debt securities ......... 9,930,060 -- -- 9,930,060
U.S. Government securities ..................... 11,584,552 2,072 -- 11,586,624
Chilean private sector debt securities ......... 6,687,380 96,348 -- 6,783,728
------------ ------------ ------------ ------------
Total .................................. 28,201,992 98,420 -- 28,300,412
============ ============ ============ ============

The contractual maturities of available-for-sale securities held by financial
service companies are as follows:

As of December 31, 2005
---------------------------------------------------------------------------------
After one year After five years
but within five but within 10
Within one year years years After 10 years Total
---------------------------------------------------------------------------------
ThCh$ ThCh$ ThCh$ ThCh$ ThCh$

Available-for-sale instruments:
U.S. Government debt securities ................ 21,994,000 -- -- -- 21,994,000
Chilean private sector debt securities ......... 1,595,000 -- -- -- 1,595,000
---------------------------------------------------------------------------------
Estimated fair value .................. 23,589,000 -- -- -- 23,589,000
=================================================================================

F-98

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

e) Investment securities (continued)

(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 115:

Year ended December 31,
---------------------------------------------------
2005
---------------------------------------------------
Gross Unrealized Estimated Fair
Amortized Cost Gains (Losses) Value
---------------------------------------------------
ThCh$ ThCh$ ThCh$

Held-to-maturity instruments:
U.S. government debt securities ............. 15,364,000 (1,000) 15,363,000
-------------------------------------------------
Total ............................... 15,364,000 (1,000) 15,363,000
=================================================

Year ended December 31,
---------------------------------------------------
2004
---------------------------------------------------
Gross Unrealized Estimated Fair
Amortized Cost Gains (Losses) Value
---------------------------------------------------
ThCh$ ThCh$ ThCh$

Held-to-maturity instruments:
U.S. government debt securities ............. 17,424,484 (2,072) 17,422,412
-------------------------------------------------
Total ............................... 17,424,484 (2,072) 17,422,412
=================================================

The contractual maturities of securities classified by the Company's banking
operations as held-to-maturity are as follows:

December 31, 2005
------------------------------------------------------------------
After one year
Within one but within five After five
year years years Total
------------------------------------------------------------------
ThCh$ ThCh$ ThCh$ ThCh$

Held-to-maturity instruments:
U.S. government debt securities ......... 15,363,000 -- -- 15,363,000
------------------------------------------------------------------
Estimated fair value ........... 15,363,000 -- -- 15,363,000
==================================================================

F-99

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

f) Reclassification differences between Chilean GAAP and U.S. GAAP

Certain non-operating income and expenses under Chilean GAAP would be considered
operating income and expenses under U.S. GAAP for the years ended December 31,
2003, 2004 and 2005 as follows:

2003 2004 2005
------------- ------------- -------------
ThCh$ ThCh$ ThCh$

Non-operating income under Chilean GAAP ................................... 126,925,716 75,395,934 104,405,590
Less:
Amortization of negative goodwill ...................................... (24,979,405) (2,923,755) (1,799,475)
Tax refund ............................................................. (517,032) (93,358) (6,212)
------------- ------------- -------------
Non-operating income as classified under U.S. GAAP, but
calculated in accordance with Chilean GAAP ........................... 101,429,279 72,378,821 102,599,903
============= ============= =============

Non-operating expenses under Chilean GAAP ................................. 70,551,370 42,601,215 36,682,003
Less:
Amortization of goodwill ............................................... (21,338,709) (21,312,769) (22,882,697)
Restructuring costs and severance indemnities .......................... (235,137) (249,173) (272,622)
Losses on sales of investments, fixed assets and other ................. (1,784,667) (1,036,928) (2,810,382)
Provision for losses on loans and recoverable taxes of foreign
subsidiaries ....................................................... (513,041) (79,178) --
Directors' compensation ................................................ (4,425,729) (1,416,131) (2,073,403)
Adjustment of property, plant and equipment to net
realizable value (Note 10) .......................................... (519,445) (407,796) --
Labor lawsuits ......................................................... (405,596) -- --
Loss on sale of machinery of Indalsa Peru ............................. -- (1,837,356) --
Legal expenses for defense of Indalsa Peru ............................. (1,482,345) (1,633,825) (1,599,466)
Valuation allowance for fixed and other assets Argentina ............... (872,026) (293,265) --
Provision for loss on guarantee granted ................................ -- (1,164,268) --
Impairment of equity investment in and account receivable
with Indalsa Peru ................................................... (1,261,112) (2,467,145) (1,101,414)
Depreciation of property, plant and equipment involved in
temporary shutdown (see Note 10) .................................... (1,912,153) (2,232,564) (1,353,459)
------------- ------------- -------------
Non-operating expense as classified under U.S. GAAP, but
calculated in accordance with Chilean GAAP ............................. 35,801,410 8,470,817 4,588,560
============= ============= =============

F-100

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

g) Loan covenants

The Company and its subsidiaries were in compliance with their covenants as of
December 31, 2004 and 2005.

h) Goodwill

The net U.S. GAAP balance of goodwill as of December 31, 2004 and 2005 was
ThCh$617,433,932 and ThCh$597,310,105 respectively.

The changes in the carrying amount of goodwill on a segment basis for the years
ended December 31, 2004 and 2005 are as follows:

Financial Foods &
services beverage Manufacturing Telecommunications
ThCh$ ThCh$ ThCh$ ThCh$
------------- ------------- ------------- ------------------

------------- ------------- ------------- -------------

Balance as of January 1, 2004 586,754,993 422,483 30,156,227 631,126
Cumulative translation adjustment -- -- (530,897) --
------------- ------------- ------------- -------------
Balance as of December 31, 2004 586,754,993 422,483 29,625,330 631,126
Goodwill acquired during the year -- -- -- --
Madeco's deconsolidation effect 273,315 -- (20,397,142) --
------------- ------------- ------------- -------------
Balance as of December 31, 2005 587,028,308 422,483 9,228,188 631,126
============= ============= ============= =============

i) Insurance Operations

The Company participates in certain insurance brokerage and other operations.
There are no material differences in the accounting for these operations between
Chilean GAAP and U.S. GAAP.

j) Discontinued operations

In October of 2001, the FASB issued SFAS 144 Accounting for the Impairment or
Disposal of Long-Lived Assets which is effective for fiscal years beginning
after December 15, 2001. SFAS 144 establishes accounting and reporting standards
for the impairment and disposal of long-lived assets and discontinued
operations. The Company adopted SFAS 144 in 2002. All prior year reporting
periods have been restated to reflect the adoption. The application of this
statement resulted in the classification, and separate financial presentation of
certain entities as discontinued operations, the results of which are not
included in continuing operations.

In 2003, the Company committed to a plan to dispose of the equity participation
it held in the consolidated subsidiary, Lucchetti Chile In addition, Indalsa's
operations in Peru are considered as discontinued as of December 31, 2003 as
they were effectively abandoned due to the court case discussed in Note 20 b).
There was an impairment of assets related to these discontinued operations in
the year ended December 31, 2002 which resulted in a loss of ThCh$32,903,260.

Indalsa Peru was reported as part of the Food and Beverage operating segment. It
was accounted for as discontinued operations in accordance with SFAS 144 and,
accordingly, amounts in the reconciliation of net income to U.S. GAAP and the
additional disclosure notes required under U.S. GAAP for all periods shown,
reflect discontinued accounting.

During 2004 and 2005, the Company's then subsidiary Madeco disposed of
substantially all of its assets of its subsidiary Alufoil S.A. that produced in
Chile mass consumer flexible packaging products such as aluminum foil, trash
bags and plastic wrap and did not maintain any continuing involvement in the
operations of this component after the final disposal transaction. As a result
of the disposal, the results of operations of that component have been
eliminated from the ongoing operations of the Company's then subsidiary Madeco.

F-101

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

j) Discontinued operations (continued)

Alufoil was accounted for as discontinued operations in accordance with SFAS
144, accordingly, amounts in the reconciliation of net income to U.S. GAAP and
the additional disclosure notes required under U.S. GAAP for all periods shown,
reflect discontinued accounting.

Hoteles Carrera previously operated a chain of five hotels in Chile. At the end
of 2003, it sold its main hotel located in Santiago to the Chilean government.
In 2004, Hoteles Carrera did not renew the leases it had on three hotels it
operated in the north of Chile. In 2005, the Company sold its remaining hotel,
Hotel Araucano in Concepcion, discontinuing its operations in the hospitality
business.Hoteles Carrera has been accounted for as discontinued operation in
accordance with SFAS 144, accordingly, amounts in the reconciliation of net
income to U.S. GAAP and the additional disclosure notes required under U.S. GAAP
for all periods shown, reflect discontinued accounting.

The major classes of aggregate assets and liabilities from operations which have
been discontinued included in the U.S. GAAP Quinenco S.A. consolidated Balance
Sheet are as follows:

At December, 31
----------------------------
2004 2005
------------ ------------
ThCh$ ThCh$

Assets:
Cash ............................................................. 245,134 65,768
Account receivable, net .......................................... 1,155,054 18,626
Other current assets ............................................. 3,155,641 6,480,156
Property, plant and equipment, net ............................... 9,993,530 5,547,629
Other assets ..................................................... 4,219,633 18,018
------------ ------------

Total assets of discontinued operations .......................... 18,768,992 12,130,197
============ ============

Liabilities:
Current liabilities .............................................. 5,826,977 5,211,487
Long term liabilities ............................................ 5,500,943 3,818,733

------------ ------------
Total liabilities of discontinued operations ..................... 11,327,920 9,030,220
Minority interest ................................................ 2,011,099 1,800,733
------------ ------------
Quinenco's net investment in discontinued operations (1) ......... 5,429,973 1,299,244
============ ============

(1) As of December 31, 2005, Indalsa Peru, Hoteles Carrera and Alufoil were
considered as discontinued operations. As of December 31, 2004, only
Indalsa Peru was considered as discontinued. Under Chilean GAAP, the
amount of Quinenco's investment in discontinued operation in Indalsa Peru
is ThCh$0 as a result of the provision made in previous years.

F-102

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

j) Discontinued operations (continued)

The following major classes of aggregated revenues and expenses are included in
the U.S. GAAP Quinenco consolidated Income Statement, presented net of taxes as
discontinued operations, are as follows:

Year Ended December 31,
--------------------------------------------
2003 2004 2005
------------ ------------ ------------
ThCh$ ThCh$ ThCh$

Sales ...................................................... 74,121,103 6,202,608 923,243
Costs of sales ............................................. (52,854,324) (5,233,290) (529,597)
Gross profit ............................................... 21,266,779 969,318 393,646
Administrative and selling expenses ........................ (20,040,493) (1,210,816) (491,393)
------------ ------------ ------------
Operating income ........................................... 1,226,286 (241,498) (97,747)
============ ============ ============

Non operating loss ......................................... (11,317,147) 916,915 (936,232)
Gain on sale of subsidiary (1) ............................. -- 4,216,298 --
------------ ------------ ------------
(Loss) gain before taxes and minority interest ............. (10,090,861) 4,891,715 (1,033,979)
============ ============ ============

Income tax ................................................. 1,787,382 (1,032,727) (6,743)
Minority interest .......................................... 385,871 (360,564) 68,111
------------ ------------ ------------
Net loss for the year in discontinued operations ........... (7,917,608) 3,498,424 (972,611)
============ ============ ============

(1) Lucchetti Chile was sold in March 2004, generating a gain on sale of
ThCh$4,216,298.

F-103

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

k) Comprehensive income

In accordance with U.S. GAAP, the Company reports a measure of all changes in
shareholders' equity that result from transactions and other economic events of
the period other than transactions with owners ("comprehensive income").
Comprehensive income is the total of net income and other non-owner equity
transactions that result in changes in net shareholders' equity. Comprehensive
income is as follows:

Before tax amount Tax (expense) Net of tax amount
or benefit
----------------- ---------------- -----------------
ThCh$ ThCh$ ThCh$

Balance as of December 31, 2003 ................................ (52,500,834) (4,833,494) (57,334,328)
Cumulative Translation adjustment .............................. (6,741,941) -- (6,741,941)
Unrealized gains and losses on available-for-sale
Securities ................................................... 24,580,224 (4,178,639) 20,401,585
------------- ------------- -------------
Balance as of December 31, 2004 ................................ (34,662,551) (9,012,133) (43,674,684)
Cumulative Translation adjustment .............................. (11,806,365) -- (11,806,365)
Unrealized gains and losses on available-for-sale
Securities ................................................... (8,333,061) 1,414,232 (6,918,829)
------------- ------------- -------------
Balance as of December 31, 2005 ................................ (54,801,977) (7,597,901) (62,399,878)

The gains and losses on debt classified as a net investment hedge covering the
exposure of foreign investments as permitted by SFAS 133 and presented in other
comprehensive income are as follows:

2003 2004 2005
ThCh$ ThCh$ ThCh$
----------- ---------- ----------

Gain (loss) on debt classified as net investment hedge .......... (43,476,077) 20,551,823 (2,564,095)

l) Restrictions which limit the payment of dividends by the registrant

The Company has subsidiaries that must abide by certain financial ratios and
covenants that require minimum equity levels or that contain other
characteristics that restrict the transfer of assets to the parent company. The
amounts of Quinenco's proportionate share of restricted net assets in
consolidated subsidiaries as of December 31, 2005 are as follows:

Subsidiary Proportionate Share of
Restricted Net Assets
ThCh$
Telefonica del Sur .................... 29,440,104

LQIF .................................. 403,790,930

Banco de Chile ........................ 168,568,450

The amount of consolidated retained earnings which represents undistributed
earnings of investments accounted for under the equity method as of December 31,
2005 is ThCh$14,418,253.

F-104

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

m) Contingent Liabilities

Indirect guarantees for non-financial services are as follows:

Pledged Assets Balances pending payment
------------------------------------------------------------------------------------------------------------------------------------
Creditor of Guarantee Name Type of Book 2004 2005
collateral value
------------------------------------------------------------------------------------------------------------------------------------
ThCh$ ThCh$ ThCh$

Banco del Estado de Chile Empresa El Penon S.A. General -- 19,789,400 18,281,520
Banco del Estado de Chile VTR S.A. General -- 5,037,301 4,653,478
Banco del Estado de Chile Inversiones Punta Brava S.A. General -- 17,886,219 16,486,607
Banco del Estado de Chile Inversiones Ranquil S.A. General -- 18,224,465 16,802,616
Banco del Estado de Chile Inmobiliaria e Inver. Hidroindustriales S.A. General -- 17,495,900 16,134,949
Banco del Estado de Chile Inversiones y Bosques S.A. General -- 17,398,500 16,042,524
Banco del Estado de Chile Empresa El Penon S.A. Shares 27,987,981 19,789,400 18,281,520
Banco del Estado de Chile VTR S.A. Shares 19,082,709 5,037,301 4,653,478
Banco del Estado de Chile Inversiones Punta Brava S.A. Shares 25,091,994 17,886,219 16,486,607
Banco del Estado de Chile Inversiones Ranquil S.A. Shares 25,693,777 18,224,465 16,802,616
Banco del Estado de Chile Inmobiliaria e Inver. Hidroindustriales S.A. Shares 24,589,574 17,495,900 16,134,949
Banco del Estado de Chile Inversiones y Bosques S.A. Shares 24,438,198 17,398,500 16,042,524

Release of Guarantees
----------------------------------------------------------------------------------------------------------------------
Creditor of Guarantee Name 2006 2007 2008

----------------------------------------------------------------------------------------------------------------------
ThCh$ ThCh$ ThCh$

Banco del Estado de Chile Empresa El Penon S.A. -- -- --
Banco del Estado de Chile VTR S.A. -- -- --
Banco del Estado de Chile Inversiones Punta Brava S.A. -- -- --
Banco del Estado de Chile Inversiones Ranquil S.A. -- -- --
Banco del Estado de Chile Inmobiliaria e Inver. Hidroindustriales S.A. -- -- --
Banco del Estado de Chile Inversiones y Bosques S.A. -- -- --
Banco del Estado de Chile Empresa El Penon S.A. -- -- 5,597,596
Banco del Estado de Chile VTR S.A. -- -- 3,816,542
Banco del Estado de Chile Inversiones Punta Brava S.A. -- -- --
Banco del Estado de Chile Inversiones Ranquil S.A. -- -- --
Banco del Estado de Chile Inmobiliaria e Inver. Hidroindustriales S.A. -- -- --
Banco del Estado de Chile Inversiones y Bosques S.A. -- -- --

F-105

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

m) Contingent Liabilities (continued)

The following relates to the Company's banking operations and amounts stated are
rounded to millions of Chilean pesos.

The Company's banking operations have contingent liabilities which consist of
open and unused letters of credit, together with guarantees granted in Chilean
pesos, UF and foreign currencies (principally U.S. dollars). Under U.S. GAAP
these transactions represent off-balance sheet activities. The following is a
summary of instruments that are considered financial guarantees in accordance
with FIN 45:

Year ended As of
December 31, December 31,
2005 2005
------------ ---------------
Fees Contract amount
MCh$ MCh$

Standby letters of credits .......... 11 11,074
Foreign office guarantees ........... 133 21,976
Performance bonds ................... 3,154 539,385
------------ ------------
Total ...................... 3,298 572,435
============ ============

Guarantees in the form of performance bonds are issued in connection with
agreements made by customers to counterparties. If the customer fails to comply
with the agreement, the counterparty may enforce the performance bond as a
remedy. Credit risk arises from the possibility that the customer may not be
able to repay the Bank for performance bonds. To mitigate credit risk, the Bank
generally determines the need for specific covenant, guarantee and collateral
requirements on a case-by-case basis, depending on the nature of the financial
instrument and the customer's creditworthiness.

Guarantees expiration periods are as follows:

Due within Due after 1 year Due after 3 Due after 5
1 year but within 3 years but years Total
years within 5 years
------------ ---------------- -------------- ------------ ------------
MCh$ MCh$ MCh$ MCh$ MCh$

Standby letters of credits ........ 8,965 1,914 195 -- 11,074
Foreign office guarantees ......... 21,976 -- -- -- 21,976
Performance bonds ................. 354,325 158,882 22,898 3,280 539,385
------------ ------------ ------------ ------------ ------------
Total .................... 385,266 160,796 23,093 3,280 572,435
============ ============ ============ ============ ============

F-106

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

n) Other Interest Bearing Liabilities

The following note relates to the Company's banking operations and amounts
stated are rounded to millions of Chilean pesos.

The Company's banking operations long-term and short-term borrowings are
summarized below. In accordance with the guidelines established by the SBIF, the
Company's banking operations do not present a classified balance sheet.
Borrowings are described as short-term when they have original maturities of
less than one year or are due on demand. All other borrowings are described as
long-term, including the amounts due within one year on such borrowings.

As of December 31, 2004 As of December 31, 2005
----------------------------------- -----------------------------------
Long-term Short-term Total Long-term Short-term Total
MCh$ MCh$ MCh$ MCh$ MCh$ MCh$

Central Bank Credit lines for renegotiation of loans ... 1,999 -- 1,999 1,407 -- 1,407
Other Central Bank borrowings .......................... -- 111,518 111,518 -- -- --
Mortgage finance bonds (1) ............................. 853,117 -- 853,117 588,088 -- 588,088
Bonds .................................................. 188,050 -- 188,050 324,704 -- 324,704
Subordinated bonds ..................................... 275,891 -- 275,891 305,284 -- 305,284
Borrowings from domestic financial institutions ........ -- 27,349 27,349 -- 90,160 90,160
Foreign borrowings ..................................... 263,986 353,002 616,988 647,510 13,983 661,493
Investments under agreements to repurchase ............. -- 361,653 361,653 -- 270,750 270,750
Other obligations ...................................... 11,488 34,973 46,461 1,338 32,405 33,743
-------------------------------------------------------------------------
Total other interest bearing liabilities ........... 1,594,531 888,495 2,483,026 1,868,331 407,298 2,275,629
=========================================================================

(1) Mortgage finance bonds

These bonds are used to finance the granting of mortgage loans. The outstanding
principal amounts of the bonds are amortized on a quarterly basis. The range of
maturities of these bonds is between five and twenty years. The bonds are linked
to the UF index and carry a weighted average annual rate of interest of 4.07% as
of December 31, 2005.

The maturities of outstanding mortgage bond amounts as of December 31, 2005 are
as follows:

As of December 31,
2005
------------------
MCh$

Due within 1 year ................................... 72,128
Due after 1 year but within 2 years ................. 55,128
Due after 2 years but within 3 years ................ 53,566
Due after 3 years but within 4 years ................ 52,419
Due after 4 years but within 5 years ................ 51,023
Due after 5 years ................................... 303,824
----------
Total mortgage finance bonds .................... 588,088
==========

F-107

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

o) Fees and income from services

The following note relates to the Company's banking operations and amounts
stated are rounded to millions of Chilean pesos.

The Company's banking operations' fees and income from services and
non-operating income and expenses for the years ended December 31, 2003, 2004
and 2005 are summarized as follows:

Years ended December 31,
-----------------------------------------------------------------
2003 2004 2005
-----------------------------------------------------------------
Income Expenses Income Expenses Income Expenses
MCh$ MCh$ MCh$ MCh$ MCh$ MCh$

Fees and income from services
Mutual funds ................................................... 15,569 (1,480) 21,182 (1,896) 25,472 (2,286)
Insurance ...................................................... 11,140 (1,198) 14,925 (178) 20,023 (157)
Debit accounts and ATMs ........................................ 16,243 (7,567) 18,203 (7,395) 19,812 (7,367)
Stock brokerage ................................................ 10,526 (650) 13,321 (803) 15,131 (32)
Receipts and payment of services ............................... 7,623 (7) 8,258 (10) 9,380 (230)
Collection of overdue loans .................................... 9,155 -- 8,877 -- 8,656 --
Financial advisory services .................................... 5,681 -- 4,799 -- 8,134 --
Credit lines ................................................... 5,863 -- 6,990 -- 7,272 --
Demand deposits ................................................ 5,213 -- 5,572 -- 5,272 --
Income and revenue from assets received in lieu of payment ..... 4,438 (1,861) 5,688 (1,675) 5,072 (1,553)
Contingent fees ................................................ 3,464 -- 3,864 -- 4,349 --
Foreign trade and currency exchange ............................ 3,461 -- 3,533 -- 3,336 --

Letters of credit guarantees, collaterals and other
contingent loans ............................................. 1,845 -- 3,083 -- 3,020 --
Collection services ............................................ 3,052 -- 3,689 -- 2,527 --
Prepaid loans .................................................. 2,091 -- 3,436 -- 2,352 --
Custody and trust services ..................................... 967 -- 1,449 -- 1,762 --
Leasing ........................................................ 1,739 (546) 1,684 (89) 1,590 (307)
Factoring ...................................................... 780 (3) 657 (52) 619 (9)
Sales force expenses ........................................... -- (11,536) -- (11,596) -- (15,015)
Cobranding expenses ............................................ -- (6,314) -- (3,764) -- (5,817)
Teller services expenses ....................................... -- (3,369) -- (3,510) -- (3,960)
Other .......................................................... 4,433 (2,606) 6,645 (3,206) 7,863 (4,999)
-----------------------------------------------------------------
Total ...................................................... 113,283 (37,137) 135,855 (34,174) 151,642 (41,732)
=================================================================

F-108

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

p) Non-operating income and expense

The following note relates to the Company's banking operations and amounts
stated are rounded to millions of Chilean pesos.

The Company's banking operations' non-operating income and expenses for the
years ended December 31, 2003, 2004 and 2005 are summarized as follows:

Non-operating income and expenses
Gains on sales of assets received in lieu of payment ........... 1,361 -- 873 -- 4,386 --
Asset received in lieu of payment .............................. 403 -- 1,060 -- 2,832 --
Rental income .................................................. 2,514 -- 2,441 -- 2,353 --
Income (losses) attributable to investments in
other companies .............................................. -- (1,192) 477 -- 579 --
Recoveries of expenses ......................................... 552 -- 604 -- 295 --
Foreign trade income ........................................... 6 -- 151 -- 131 --
Income from sale of fixed assets ............................... 559 -- 308 -- 122 --
Dividends received ............................................. 21 -- 58 -- 91 --
Leasing income ................................................. 1 -- 78 -- 56 --
Insurance claims ............................................... 115 -- 1 -- 5 --
Amortization of intangibles .................................... -- (18,634) -- (16,486) -- (13,710)
Charge-offs assets received in lieu of payment ................. -- (7,811) -- (8,515) -- (10,826)
Charge-offs .................................................... -- (2,396) -- (1,375) -- (1,284)
Provision for recovered leased assets .......................... -- (1,458) -- (1,506) -- (1,062)
Write-offs for frauds .......................................... -- (114) -- (1,101) -- (546)
Expenses on charge-off for leasing ............................. -- (642) -- (251) -- (359)
Fair Value Other ............................................... 19 -- -- (77) -- (347)
Advertising expenses ........................................... -- (47) -- (55) -- (62)
Reversal of adjustments and interest from previous years ....... -- (720) -- (128) -- (48)
Charge-offs and provision related to fixed assets .............. -- (132) -- (45) -- (24)
Legal contingencies provision .................................. -- (156) -- (189) -- (20)
Charge-off obsolete materials .................................. -- (341) -- (1) -- --
Provision and charge-offs other assets ......................... -- (701) -- (423) -- --
Amortization of negative goodwill .............................. -- (57) -- -- -- --
Tax expenses from previous years ............................... -- -- -- (2,328) -- --
Other .......................................................... 497 (1,286) 481 (566) 420 (703)
-----------------------------------------------------------------
Total ...................................................... 6,048 (35,687) 6,532 (33,046) 11,270 (28,991)
=================================================================

F-109

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

q) Lease commitments:

The Company's subsidiary CNT Telefonica del Sur, leases certain property under
long-term non-cancelable leases, which are accounted for as capital leases. The
related future minimum lease payments as of December 31, 2005 were as follows:

As of
December 31,
2005
ThCh$

2006....................................................... 906,451
2007....................................................... 365,058
2008....................................................... 365,058
-----------
Total...................................................... 1,636,567
===========

The Company's banking operations schedules cash flow from lease receivables as
follows:

As of December 31, 2005
-------------------------------------------
Maturity Total Unearned Net lease
-------- Receivable Income Receivable
------------ ------------ ------------
MCh$ MCh$ MCh$

2006.................................. 147,793 (21,446) 126,347
2007.................................. 111,951 (15,844) 96,107
2008.................................. 79,854 (11,439) 68,415
2009.................................. 58,085 (8,293) 49,792
2010.................................. 36,540 (6,033) 30,507
Thereafter............................ 97,245 (13,608) 83,637
---------------------------------------
Total leasing contracts....... 531,468 (76,663) 454,805
=======================================

Leased assets consist principally of real estate, industrial machinery, vehicle
and computer equipment. The allowance for uncollectible lease receivable was
MCh$5,856 as of December 31, 2005 (MCh$6,072 as of December 31, 2004), which
forms part of the allowance for loan losses.

The rental expense on premises of the Company's banking operations was
MCh$7,430, MCh$7,335 and MCh$8,354 for the years ended December 31, 2003, 2004
and 2005, respectively.

r) Recent accounting pronouncements

Stock Based Compensation

In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment" ("SFAS 123R"), which replaces SFAS No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123") and supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees." SFAS 123R requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
financial statements based on their fair values beginning with the first interim
or annual period after June 15, 2005, with early adoption encouraged. The
proforma disclosures previously permitted under SFAS 123 no longer will be an
alternative to financial statement recognition. The Company is required to adopt
SFAS 123R, beginning January 1, 2006. Under SFAS 123R, the Company must
determine the appropriate fair value model to be used for valuing share-based
payments, the amortization method for compensation cost and the transition
method to be used at date of adoption. The transition methods include
prospective and retroactive adoption options. Under the retroactive option,
prior periods may be restated either as of the beginning of the year of adoption
or for all periods presented.

F-110

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

r) Recent accounting pronouncements (continued)

The prospective method requires that compensation expense be recorded for all
unvested stock options and restricted stock at the beginning of the first
quarter of adoption of SFAS 123R. The retroactive method would record
compensation expense for all unvested stock options and restricted stock
beginning with the first period restated. The Company is evaluating the
requirements of SFAS 123R and expects that the adoption of SFAS 123R will have
an impact on its consolidated results of operations and earnings per share. The
impact of adoption of Statement 123(R) cannot be measured at this time because
it will depend on levels of share-based payments granted in the future.

Accounting for certain hybrid financial instruments

In February 2006, the FASB issued Statement of Financial Accounting Standards
No. 155 "Accounting for Certain hybrid Financial Instruments an amendment of
FASB Statements No. 133 and 140". This Statement amends FASB Statements No. 133,
Accounting for Derivative Instruments and Hedging Activities, and No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. This Statement resolves issues addressed in Statement 133
Implementation Issue No. D1, "Application of Statement 133 to Beneficial
Interests in Securitized Financial Assets. This Statement permits fair value
remeasurement for any hybrid financial instrument that contains an embedded
derivative that otherwise would require bifurcation, clarifies which
interest-only strips and principal-only strips are not subject to the
requirements of Statement 133, establishes a requirement to evaluate interests
in securitized financial assets to identify interests that are freestanding
derivatives or that are hybrid financial instruments that contain an embedded
derivative requiring bifurcation, clarifies that concentrations of credit risk
in the form of subordination are not embedded derivatives and amends Statement
140 to eliminate the prohibition on a qualifying special-purpose entity from
holding a derivative financial instrument that pertains to a beneficial interest
other than another derivative financial instrument. This Statement is effective
for all financial instruments acquired or issued after the beginning of an
entity's first fiscal year that begins after September 15, 2006. Management is
currently evaluating the effect of the statement on the Bank's results of
operations and financial condition.

s) Concentration of credit risk

s1) Non-financial services

Financial instruments, which potentially subject the Company to significant
concentrations of credit risk, consist principally of cash investments and trade
accounts receivable. The Company maintains cash and cash equivalents, marketable
securities, and certain other financial instruments with various financial
institutions. These financial institutions are located in Chile and other parts
of the world, and the Company's policy is designed to limit exposure to any
institution, the Company performs periodic evaluations of the relative credit
standing of these financial institutions as part of the Company's investment
strategy.

Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of entities comprising the Company's customer
base being located in Chile; and no customer has outstanding receivables of more
than 10%. The Company does not require collateral or security for its accounts
receivable.

s2) Financial services

In order to manage any credit risk associated with its derivative products, the
Company's banking subsidiary grants lines of credit to transaction
counterparties, in accordance with its credit policies, for each derivative
transaction. The counterparty risk exposure is a function of the type of
derivative, the term to maturity of the transaction and the volatility of the
risk factors that affect the derivative's market value, which are managed by the
Company's banking subsidiary on an on-going basis as market conditions warrant.

F-111

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

s2) Financial services (continued)

Guarantees in the form of performance bonds, stand by letters of credit and
foreign office guarantees are issued in connection with agreements made by
customers to counterparties. If the customer fails to comply with the agreement,
the counterparty may enforce the performance bond as a remedy. Credit risk
arises from the possibility that the customer may not be able to repay the Bank
for performance bonds. To mitigate credit risk, the Bank generally determines
the need for specific covenant, guarantee and collateral requirements on a
case-by-case basis, depending on the nature of the financial instrument and the
customer's creditworthiness.

t) Sale and leaseback transactions

Leaseback transactions as of December 31, 2005 are detailed as follows:

On March 30, 2001, the Company's indirect subsidiary Alusa, entered into a
sale and leaseback contract on the Quilicura assets with Corpbanca in
connection with restructuring its liabilities. The leaseback contract is
repayable over 15 years and the following are the main features of the
contract:

Seller : Alusa
Purchaser : Corpbanca
Assets involved : Buildings and plant located in Quilicura
Purchase price : UF 414,597
Final value of contract : UF 641,265
Number of installments : 180 months
Contract period : From March 30, 2001 to March 30, 2016
Interest rate : 6.53% semiannual (variable)

This transaction had no effect on results.

u) Stock option plan

A summary of stock option activity for the Plan is as follows:

For the Year Ended December 31,
--------------------------------
2004 2005
--------------------------------
Number Number
-------------- --------------

Authorized at beginning of period 493,334,000 311,186,276
Granted during the period -- (130,000,000)
Cancelled during the period -- 130,000,000
Exercised during the period (182,147,724) --
-------------- --------------
Authorized at end of period 311,186,276 311,186,276
============== ==============

The Company applies Accounting Principles Board Opinion No.25 when accounting
for stock options, and no compensation cost is recognized for grants made to
employees when the grant price is greater than or equal to the market price of a
common share on the date of grant. Had the Company determined compensation cost
based on the fair value at the grant date for its stock options under SFAS No.
123(R), "Accounting for Stock-Based Compensation", as amended by SFAS No. 148,
net loss would have been increased to the proforma amounts indicated below:

F-112

QUINENCO S.A. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Note 27 - Differences Between Chilean and United States Generally Accepted
Accounting Principles (continued)

u) Stock option plan (continued)

------------------
Proforma net loss
for the year ended
December 31, 2003
------------------
ThCh$

Net loss attributable to common shareholders, as reported ....... (20,877,661)
Add: Stock based employee compensation expense included in
reported net loss, net of tax related effects ................. --
Deduct: total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effect ..................................... (4,054,633)
Proforma net loss ............................................... (24,932,294)
Loss per share .................................................. (7.31)
As reported ..................................................... (8.73)

The per share weighted-average fair value of stock options granted during 2003
was ThCh$ 25.89. Such amount was determined using the Black-Scholes option
pricing model with the following weighted-average assumptions: 2003 - expected
dividend yield of 0%, risk-free rate of 18 months, volatility of 27.16%.

v) Employees collective bargaining agreements

As of December 31, 2005, approximately 22.05% of the Company's employees are
covered by collective bargaining agreements. Of the employees covered by
collective agreements, 0.41% of them are covered by collective agreements which
will expire within one year.

F-113

QUINENCO S.A. AND SUBSIDIARIES
SCHEDULE 1- CONDENSED FINANCIAL INFORMATION OF QUINENCO S.A,
("QUINENCO INDIVIDUAL")
(expressed in constant Chilean pesos of December 31, 2005,
unless otherwise stated)

Schedule I - Condensed financial information of Quinenco S.A. ("Quinenco
Individual")

1) Condensed balance sheets of Quinenco Individual under U.S. GAAP as of
December 31, 2004 and 2005 are as follows:

As of December, 31
----------------------------
2004 2005
------------ ------------
ThCh$ ThCh$

Assets:
Current assets
Cash and time deposits ....................................... 438,053 418,945
Other current assets ......................................... 18,774,113 28,523,606
------------ ------------
Total current assets ................................. 19,212,166 28,942,551
------------ ------------

Net property, plant and equipment ............................ 5,148,456 4,843,029
------------ ------------

Other assets:
Investments in and advances to related companies ............. 564,673,377 644,931,071
Other non-current assets ..................................... 241,068,123 196,449,040
------------ ------------
Total other assets ................................... 805,741,500 841,380,111
------------ ------------

Total assets ......................................... 830,102,122 875,165,691
============ ============

Liabilities and Shareholders' Equity:

Current liabilities .......................................... 34,330,532 25,528,887
Long-term liabilities ........................................ 89,941,555 93,415,774

Shareholders' equity
Common stock ................................................. 487,721,867 487,721,867
Reserves ..................................................... 218,108,168 268,499,163
------------ ------------
705,830,035 756,221,030

Total Liabilities and Shareholders' equity ........... 830,102,122 875,165,691
============ ============

F-114

Schedule I - Condensed financial information of Quinenco S.A. ("Quinenco
Individual") (continued)

2) Condensed income statements of Quinenco Individual under U.S. GAAP for the
years ended December 31, 2003, 2004 and 2005 are as follows:

Year ended December, 31
--------------------------------------------
2003 2004 2005
------------ ------------ ------------
ThCh$ ThCh$ ThCh$

Operating results:
Net sales ............................................................ -- -- --
Cost of sales ........................................................ -- -- --
Administrative and selling expenses .................................. (5,695,310) (5,069,361) (1,860,917)
Other operating results .............................................. 770,213 -- --
------------ ------------ ------------
Operating income ............................................... (4,925,097) (5,069,361) (1,860,917)

Non-Operating results:
Non-operating income and expenses, net ............................... 35,681,381 (571,445) 6,063,556
Income taxes ......................................................... (188,939) (2,705,476) 220,797
Equity participation in income (loss) of related companies, net ...... 40,020,080 44,919,660 80,250,972

Income (loss) before cumulative change in accounting
principle ..................................................... 70,587,425 36,573,378 84,674,408
Income (loss) from discontinued operations, net of taxes
and minority interest .............................................. (7,917,608) 3,498,424 (972,611)
------------ ------------ ------------
Net (loss) income .............................................. 62,669,817 40,071,802 83,701,797
============ ============ ============

F-115

Schedule I - Condensed financial information of Quinenco S.A. ("Quinenco
Individual") (continued)

3) Condensed statements of cash flows of Quinenco Individual under U.S. GAAP
for the years ended December 31, 2003, 2004 and 2005 are as follows:

Year ended December 31,
-----------------------------------------------
2003 2004 2005
------------- ------------- -------------
ThCh$ ThCh$ ThCh$

Net cash provided by (used in) operating activities .............. 50,843,763 (2,531,447) 3,192,089
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from loans obtained from related companies .................. 45,626,241 12,913,759 --
Proceeds from bond issuances ......................................... -- -- 46,710,168
Dividends paid ....................................................... (20,809) (19,527,956) (14,448,930)
Payment of debt ...................................................... (16,917,960) -- (6,174,000)
Payment of bonds ..................................................... (11,633,563) (16,122,513) (56,384,310)
Payment of loans obtained from related companies ..................... -- -- --
Other disbursements for financing .................................... (55,738) 6,229,551 (872,692)
------------- ------------- -------------
Net cash provided by (used in) financing activities .............. 16,998,171 (16,507,159) (31,169,764)
------------- ------------- -------------
Cash flows from investing activities:
Proceeds from sales of property, plant and equipment ................. 48,916 923,046 32,233
Proceeds from sales of permanent investments ......................... 16,624,583 -- 7,052
Payments received on loans to related companies ...................... -- -- 58,638,096
Other receipts from investments ...................................... 39,724,180 -- --
Additions to property, plant and equipment ........................... (592,073) (43,114) (60,226)
Long-term investments ................................................ (46,061,290) (4,442) (13,647,755)
Other loans granted to related companies ............................. (108,042,859) -- (10,890,236)
Other investment disbursements ....................................... -- -- --
------------- ------------- -------------
Net cash provided by (used in) investing activities .............. (98,298,543) 875,490 34,079,164
------------- ------------- -------------
Net cash flow for the year ........................................... (30,456,609) (18,163,116) 6,101,489
Effect of price-level restatement on cash and cash equivalents ....... (4,217,568) (377,413) (564,742)
Effect of exchange rate differences in cash and cash equivalents ..... (6,411) (5,569) (8,548)
Net (decrease) increase in cash and cash equivalents ............. (34,680,588) (18,546,098) 5,528,199
Cash and cash equivalents beginning of year .......................... 64,328,223 29,647,635 11,101,537
------------- ------------- -------------
Cash and cash equivalents end of year ................................ 29,647,635 11,101,537 16,629,736
============= ============= =============

4) As of December 2004 and 2005, Quinenco Individual, under U.S. GAAP, has no
payable long-term debt.

F-116

Schedule I - Condensed financial information of Quinenco S.A. ("Quinenco
Individual") (continued)

5) The following table presents bonds payable as of December 31, 2004 and
2005:

Face value Interest
Series outstanding Currency rate Maturity Par value as of
December 31,
--------------------------
2004 2005
----------- -----------
% ThCh$ ThCh$

A -- UF 4.17 21/07/2026 1,488,480 678,759
B -- UF 6.2 30/04/2008 16,724,758 --
D 337,500 UF 3.5 21/07/2013 -- 6,835,595
----------- -----------
Total current portion 18,213,238 7,514,354
=========== ===========

A 2,000,000 UF 4.17 21/07/2026 34,759,648 35,949,620
B -- UF 6.2 30/04/2008 40,366,044 -
D 2,362,500 UF 3.5 21/07/2013 -- 42,465,489
----------- -----------
Total long-term portion 75,125,692 78,415,109
=========== ===========

6) The following table presents a schedule of debt maturity in each of the
next five years and thereafter as of December 31, 2005:

As of December 31,
2005
------------------
ThCh$

2006.......................................... 8,313,350
2007.......................................... 8,313,350
2008.......................................... 8,313,350
2009.......................................... 8,313,350
2010.......................................... 8,313,350
Thereafter ................................... 41,791,433
-------------
Total ................................ 83,358,183
=============

7) The following table presents the dividends received by Quinenco Individual
in the years ended December 31, 2003, 2005 and 2005:

Year ended December 31,
--------------------------------------------
2003 2004 2005
------------ ------------ ------------
ThCh$ ThCh$ ThCh$

Dividends received ............... 61,706,072 8,784,092 12,039,191

F-117