Annual Report 2005

Financial HighlightsRelevant BusinessesReport of the Board of Directors• Industrial• Grupo Condumex• Porcelanite• Cigatam• Infrastructure and Construction• CICSA• Installation of Telecommunications• SWECOMEX• Constructora de Infraestructura Latinoamericana• Grupo PC Consultores• Commercial• Grupo Sanborns• Sanborns and Sanborns Café• Sears• Dorian´s• Mix UpBoard of DirectorsReport of the Auditing, Finance and Planning CommitteeReport of the Evaluation and Compensation CommitteeReport of the Statutory AuditorsConsolidated Financial Statements

12468

101112141415151516181920212223

24

252627

Contents

Vincent Van Gogh(1853 - 1890)

Cottage with Peasant Coming Home, 1885

oil on canvas63.5 x 76 cm

Increase in consolidated sales

1

03 04 05

78.1

69.7

61.6

2004Sales

Operating Income

Majority Net Income

EBITDA

Total Assets

Total Liabilities

Stockholders’ Equity

Shares Outstanding

Earnings per Share

61,614,843

7,840,739

2,140,662

10,274,372

71,681,607

39,268,815

32,412,792

2,512,381,500

2.53

69,722,936

8,847,566

6,931,976

11,246,824

78,769,637

41,329,383

37,440,254

2,392,109,254

2.83

78,092,313

9,268,939

8,603,912

11,622,161

83,642,344

37,128,642

46,513,702

2,364,540,000

3.61

Thousands of pesos as of December 31, 2005, except for shares outstanding and earnings per share

2003 2005

12%

Sales Contributionby Subsidiary

(millions of pesos)

Grupo Sanborns ($ 27,336)Grupo Condumex ($ 21,951)CICSA ($ 10,708)Porcelanite ($ 3,649)Cigatam ($ 14,344)Other ($ 105)

Financialhighlights

0.1%

18.4%

4.7%

13.7%

28.1%

35.0%

Operating Income by Subsidiary

(millions of pesos)

Grupo Sanborns ($ 3,857)Grupo Condumex ($ 1,934)CICSA ($ 1,342)Porcelanite ($ 691)Cigatam ($ 784)Other ($ 661)7.1%

8.5%

7.5%

14.5%

20.9%

41.6%

Sales(billions of pesos)

* Outstanding shares were restructured, for the 2003 and 2004 years. (Note 10).

Grupo Carso plays an

important role in various

sectors of the domestic

economy. Although its

primary business divisions

are: Industrial, Construction

and Infrastructure, and

Commercial, Carso also

operates in other sectors

such as automotive and

mining industries.

COMPANIES· Grupo Condumex· Porcelanite· Cigatam

SERVICES / PRODUCTS· Copper telephone cable· Electronic cable· Coaxial cable· Power cable· Fiber optic cable· Design and installation of telecommunication networks· Installation of mobile phone radio bases· Construction cables

MARKETS· Fixed and mobile phone companies in Mexico and Latin America· Construction industry, from housing to heavy construction· Home Remodeling Domestic· Energy Related Companies· Low and high end segments

MAIN BRANDS· CONDUMEX· CDM· SELMEC· NACOBRE· ALMEXA· EQUITER· GRUPO PORCELANITE· CONTICON· PROCISA· SINERGIA· MICROM· MARLBORO

GRUPO CARSO

Industrial

· Installations· Copper products (strips, sheets, coils, tubes, pipes, valves)· Aluminum products (strips, coils, extruded shapes, etc.)· PVC (tubes, joints, water tanks, etc.)· Magnet Wire· Transformers· Power Plants· Ceramic tile· Cigarettes

2

3

COMPANIES· Carso Infraestructura y Construcción· Swecomex· Grupo PC Constructores· Constructora de Infraestructura Latinoamericana· Precitubo

COMPANIES· Grupo Sanborns· Sanborns Hermanos· Sanborns Café· Promotora Musical· Dorian´s

SERVICES / PRODUCTS· Oil platform construction· Shopping Center, Industrial

facilities, Corporate Buildings and Construction

· Highway construction· Water treatment plants· Steel tubes

SERVICES / PRODUCTS· Department Stores· Store and Restaurant· Restaurant· Music Stores

MARKETS· Domestic oil related

companies· Retail and Industrial

Companies

MARKETS· Middle and high end

segments

MAIN BRANDS· PRECITUBO· SWECOMEX

MAIN BRANDS· GRUPO SANBORNS· SANBORNS· MIXUP· SEARS· DORIAN´S

Infrastructure and construction

Commercial

4

ECONOMIC PANORAMAIn 2005, the Gross Domestic Product reflected a 3.0% increase, to stand at

MX.PS.$8 trillion 347 million at year end. The GDP owed its improvement

mainly to the construction, communications and service sectors, which

reflected growth rates of 3.3% and 4.2%, respectively.

Mexico’s manufacturing sector was affected by a slowdown of the US eco-

nomy, which reflected a 3.5% increase in its GDP. Mexico’s manufacturing

industry reflected a real increase of only 1.2%.

The stronger economy allowed for the generation of new jobs; in 2005, the

total number of insured in the Mexican Social Security Institute increased

by close to 576 thousand. This growth compensated for the entry of new

potential workers in the labor market, which in turn reflected in a reduction

of the General Unemployment Rate from 3.9% in 2004 to 3.6% in 2006.

The exchange rate dropped by 4.6% during the year from a parity of 11.14

Pesos per Dollar at the close of 2004 to 10.63 Pesos at the close of 2005.

Direct foreign investment dropped by 2.4% percent in comparison with

2004 to US$17,804 million. Emigrants’ remittances in 2005 rose by 20.6%

over last year, reaching US$20 billion 35 million. The current account deficit

stood at US$5 billion 708 million equivalent to .7% of the GDP.

The Commercial Balance registered a deficit of US$7 billion 559 million,

14.2% lower than in 2004, mainly the result of a 34.8% increase of oil ex-

ports, compensated by a 24.3% increase in the import of consumer goods.

The average price of the Mexican Oil Mixture rose by 6.3%. in 2005; that is,

US$42.00 in 2005 compared with US$39.50 in 2004.

The Banco de Mexico met its inflation goal in 2005. The National Consumer’s

Price Index showed an increase of 3.33% in the year, lower than the 5.19%

in 2004. The continuation of the Banco de México’s restrictive monetary

policy compensated for the lack of price controls of government services.

The underlying inflation was 3.12% in the year, an increase of 3.8% over

last year.

The rate of 28-day CETES maintained an average level of 9.18% throug-

hout the year. The 28-day CETES closed the year 2005 at an 8.02% rate,

mainly the result of end- of-the-year inflationary pressures.

Economically speaking, 2005 was a better year for Mexico. In the future,

the Country must consolidate the macroeconomic stability it has attained

and promote measures to obtain the economic, social and state reforms

needed to modernize the country and stimulate the internal market and

the generation of jobs.

GRUPO CARSOFor Grupo Carso, 2005 was another year of consolidation in the strategy to

confirm our position as one of the most important Groups in the country. The

revenue mixture of Grupo Carso offers our investors a sound diversification

and exposure to highly dynamic economic sectors. Grupo Condumex, toge-

ther with Porcelanite and Cigatam, conform the results of the manufacturing

companies; the commercial sector is attended by Grupo Sanborns; lastly, Car-

so Infraestructura y Construcción, which in 2005 completed its regrouping of

assets to become consolidated in the infrastructure sector.

The continued restructuring of the Carso assets portfolio, which in 2005 inclu-

ded inter-company purchases and sales, as well as the disposal of non-strate-

gic assets, will give us more flexibility in meeting profitable growth goals.

In October, we completed the placement of Carso Infraestructura y Construc-

ción (CICSA). 620 million company shares representing 25.93% of the capital

Report of the Board of Directors

2004

PIB 4.4% 3.0% INPC 5.19% 3.33%Dollar* 11.28 10.89Cete* 6.83 9.18

* Annual average

2005Relevant Economic Figures

5

stock were placed through a public offer. Grupo Carso maintains the majority

ownership of CICSA but through the placement, we offered the market the

possibility of investing directly in Carso’s Infrastructure sector. CICSA closes the

year with a sound financial structure and with very interesting work contracts

related to the installation of telecommunications, manufacturing and services

for the chemical and petroleum industries, highway construction and water

treatment plants, as well as other civil construction projects.

In 2005, Grupo Carso completed the refinancing of the Group’s liabilities through

a syndicated loan of US$700 million, in which 19 financial institutions participa-

ted, and the Group obtained very favorable rate and term conditions. The Group’s

debt at year-end stood at MXPs$15 billion 206 million with a balance in cash

and securities of MXPs$8 billion 572 million, resulting in a net debt of MXPs$6

billion 634 million, that is, a 54% reduction in comparison with year-end of 2004.

We consider that the Group’s financial structure is adequate and will allow us to

undertake expansion projects in the various subsidiaries.

Consolidated Group sales reached MXPs$78 billion, a 12% growth in real ter-

ms over last year. Operating profit was MXPs$9 billion 268 million, while ge-

neration of operating flow (EBITDA) was MXPs$11 billion 622 million. These

figures were 4.8% and 3.3%, respectively, higher than 2004 results which too

were sound. The 2005 figures reflect, on the one hand, a constant growth of

the commercial subsidiaries, which continued to consolidate formats, and the

incorporation of new formats with the acquisition of Dorian’s.

The manufacturing companies faced the year 2005 with significant cha-

llenges, such as higher prices of raw materials, energy and fuel and strong

competition from domestic and foreign companies, which increased their

presence in the country due to the strength of the Peso against the principal

currencies. However, thanks to the recognition of our trademarks, Grupo Carso

was able to maintain its production volumes and in most cases, the market

participation of its principal products.

The infrastructure division became consolidated as an important player at

the national level, both individually, particularly in the construction of oil

platforms, and in the installation of telecommunication networks, jointly

with IDEAL (Impulsora para el Desarrollo y el Empleo de América Latina),

which had been awarded significant contracts and has granted CICSA works

contracts for various projects, among which is the construction of the Tepic

Villa Unión highway and the Northern Bypass in Mexico City.

On behalf of the Board of Directors, I wish to express my appreciation to the

staff of directors of Grupo Carso for their vision and generous participation,

fundamental for maintaining the success of the Group; to all our officers and

employees for their commitment and efforts in reaching our goals; and to our

shareholders, who year after year place their trust in us. We will make every

attempt in the future to hold our course and continue contributing to the

successful development of our country.

Very truly yours,

Carlos Slim Domit

Chairman of the Board of Directors

6

The industrial division maintained the

efficiency levels of its principal businesses.

Industrial

7

$39,944 million

The Grupo Carso industrial division is formed mainly by three subsidiaries:

Grupo Condumex, Porcelanite and Cigatam.

As part of the strategy to divest non-strategic businesses in order to con-

centrate on the Grupo Carso divisions, this year Grupo Condumex sold its

Sales of this Division amounted to

66.7% participation in the capital stock of Ferrosur to Infraestructura y

Transportes Ferroviarios (ITF), a subsidiary of Infraestructura y Transportes

México (ITM), which is a subsidiary of Grupo México. The sale price was

MXPs$2 billion173.4 million. Grupo Carso also subscribed a capital stock

increase of ITM, becoming the holder of 16.75% of its capital stock.

8

Grupo Condumex reported annual consolidated sales of MXPs$21 billion 951 mi-

llion; in comparison with the MXPs$21 billion 253 million of last year, an increase

of 3.3%. The higher price of metals, partially transferred to the sales price, and the

good performance of the Mining Division offset the lower volumes in most pro-

ducts lines. The operating margins and EBITDA, however, dropped approximately

one percentage point in comparison with 2004, due to highly competitive market

conditions during the year.

The Telecommunications Division reported lower volumes in copper cable but a

significant growth in fiber optic cable. At the end of 2005, the Brazil plant initiated

production of cable for telecommunications .

The Construction and Energy division reflected lower volumes in energy cable, me-

tals and transformers and integrated projects, in comparison with last year.

The Automotive Division reported reductions in volumes of autoparts, automotive

cable and harness lines as a result of a lower customer demand.

Nacobre reported sales in 2005 3.9% higher than 2004, and within an operating

margin of 6.3%, 256 basis points power than last year, while the EBITDA margin

diminished 320 basis points.

The copper and plastics division reflected a volume reduction of 3.4% and 7.6% in

2005, while the aluminum division reported a 2.7% increase in volume.

GRUPOCONDUMEX

9

Milling volumes in the mining division rose 65.8% over 2004. Minera Tay-

ahua continued its good performance, with higher production volumes and

better laws. Division sales rose by 60.3% during the year, while the opera-

ting margin rose by 23.9%, 1,410 basis points in comparison with 2004.

Increased volumes combined with higher prices of metals resulted in higher

sales and the improved operating results.

Capital investments in the year were approximately US$77 million, used mainly to

increase capacity in the mining sector and begin the production of cable for tele-

communications in the Brazil plant.

21,2

54

21,9

51

Sales(Million Pesos)

9.6

8.8

Operating Margin(%)

14.0

13.0

EBITDA Margin(%)

PORCELANITEIn 2005, Porcelanite maintained its participation in the domestic market of above

40%, while strengthening its presence in the US market. During the year, 10.1%

of all sales were exports, mainly the result of the opening of a new plant in the

northwestern part of the country.

Sales of Porcelanite en 2005 were a stable MXPs$3 billion 649 million, in com-

parison with last year. Operating profit was MXPs$691 million, a 0.7% increase

over the previous year due to an increase in the sales margin of 17 basis points in

comparison with 2004. Operating flow (EBITDA) was MXPs$1 billion 51 million,

a growth of 3.2%, while the EBITDA margin was 28.8%, 95 basis points over the

figure obtained last year. These results were obtained by the implementation of

operating improvements.

The line of adhesives produced by Solutec Soluciones Técnicas para la Construcción,

a subsidiary of Porcelanite Holding, continued projecting its image and increasing

its participation in the market. In 2005, Porcelanite made capital investments of

approximately US$7.8 million, used mainly to complement the equipping and re-

conversion of the plants.

3,65

6

3,64

9

Sales(Million Pesos)

18.8

18.9

Operating Margin(%)

27.8

28.8

EBITDA Margin(%)

10

CIGATAMCigatam, a subsidiary of which Grupo Carso owns 50.01%, is the cigarette manu-

facturer company that sells all its production to Philip Morris Mexico, an affiliate of

which Grupo Carso owns 49.99%, for further commercialization.

Grupo Carso consolidates Cigatam’s results at 100%.

During 2005, Cigatam maintained its leadership position in the market, focused in

the high price and low price segments. While market volumes decreased 1.5% du-

ring the year, Cigatam increased its estimated market share from 60.2% to 62.1%,

190 basis points higher than the previous year. Marlboro remained as the leading

brand of the Mexican market, with a 110 basis points market share increase re-

aching over 46%.

As of January 1, 2005, excise tax rates were increased from 100% to 110% for non-

filter cigarettes, while the excise tax rate for filter cigarettes remained in 110%.

The contribution to the Fund for Protection Against Catastrophic Expenditures re-

mained in 2.5 cents per cigarette sold in Mexico.

Cigatam posted sales of $14,344 million pesos, a 11% increase when compared to

2004; operating margin was 5.5%, 110 basis points lower than the previous year,

a result of the higher excise tax rate for non-filter cigarettes and the annual impact

of the contribution to the Fund for Protection Against Catastrophic Expenditures.

During 2005, Cigatam’s fixed asset investments reached approximately

US$18.6 million dollars, basically from investment in machinery and equi-

pment, and building.

12,9

18

14,3

44

Sales(Million Pesos)

6.6

5.5

Operating Margin(%)

7.6

6.4

EBITDA Margin(%)

11

12

$10,708 million, revenue obtained by

CICSA in 2005.

and constructionInfrastructure

13

29.1%

On October 2005, Carso Infraestructura y Construcción (CICSA) made a

primary public offer of shares through which it placed 620 million shares

in the Mexican Securities Exchange, obtaining MXPs$4 billion 712 million.

Prior to the public offer, CICSA grouped its businesses into four sectors:

Installation of Telecommunications, Manufacturing and Services for the

Chemical and Oil Industries, through Swecomex, Infrastructure Projects, to

its subsidiary Constructora de Infraestructura Latinoamericana (CICSA) and

Civil Construction, through its subsidiary Grupo PC Constructores.

Carso Infraestructura y Construcción reported consolidated annual sales of

MXPs$10 billion 708 million, 20.7% above 2004 sales. Operating profit

was MXPs$1 billion 342 million, a 29.1% growth during the year with a

sales margin of 12.5%, while the EBITDA margin stood at 14%.

Growth in Operating Profit in respect to 2004

14

CICSA used the funds obtained from its public offer for working capital, to pay debt

and to construct a new steel pipe plant in Veracruz. At year-end, CICSA had a total

debt of MXPs$857 million, with an availability of MXPs$2 billion 719 million.

In 2005, CICSA made capital investments of approximately US$80 million, used

basically to purchase construction equipment.

INSTALLATION OF TELECOMMUNICATIONS

The installation of telecommunications sector reported sales of MXPs$5 billion 904

million during the year, 7.5% lower than 2004. Operating profit was MXPs$656

million, 1.2% lower than last year, with a sales margin of 11.1%, 72 basis points

higher than 2004. Operating flow diminished by 3.2% in comparison with 2004;

the EBITDA margin was 12.7%, 58 basis points above 2004.

At the close of 2005, this sector had contracts for works to be executed in 2006

amounting to MXPs$43 billion 400 million.

SWECOMEX

The Manufacturing and Services sector for the Chemical and Oil Industries reported

revenue of MXPs$3 billion 94 million, 81.1% higher than last year. The operating

profit was MXPs$505 million, 77.8% above the 2004 period; on the other hand,

operating flow was MXPs$533 million, 77.3% higher than 2004. Operating and

EBITDA margins of 16.3% and 17.2% respectively diminished 31 and 37 basis po-

ints in comparison with the 2004 fiscal year.

In 2005, three oil rigs were timely completed and delivered and two production

platforms are being constructed and will be finished in 2006.

CICSA

8,87

3 10,7

08

Sales(Million Pesos)

11.7 12

.5

Operating Margin(%)

13.1 14

.0

EBITDA Margin (%)

15

Among the works begun in 2006 is a telecommunications platform which is being

constructed in the yard of Pueblo Viejo, Veracruz, and a vacuum plant that is being

built at the PEMEX facilities in Dos Bocas, Tabasco.

In October 2005, an investment was approved of approximately US$40 million

to purchase machinery and equipment that will be used for the construction of a

structural piping plant for marine platforms and bridges, pressure piping for ducts

(poli-ducts and gas ducts). It is expected that this plant will start operating in the

first half of 2007.

At year-end, the backlog in this sector is MXPs$3 billion 49 million.

CONSTRUCTORA DE INFRAESTRUCTURA LATINOAMERICANA

The CICSA infrastructure projects sector reported sales of MXPs$717 million during

the year, with an operating profit of MXPs$47 million. The operating and EBITDA

margins were 6.5% and 6.6%, respectively.

The main projects in which this CICSA subsidiary is currently participating are the

construction of the Tepic – Villa Unión highway, the Northeastern Bypass of the

Metropolitan zone of Toluca, and the Northern Bypass of Mexico City, as well as the

construction of two water treatment plants in Saltillo, Coahuila.

At the close of 2005, this sector had an approximate backlog of MXPs$2 billion 600

million. In addition, in January 2006, a contract was signed for the construction of

the Mexico City Northern Bypass, for approximately MXPs$2 billion 700 million;

consequently, the projects pending at January 31, 2006 represent MXPs$5 billion

303 million.

GRUPO PC CONSTRUCTORES

Grupo PC Constructores reported annual sales of MXPs$1 billion 201 million,

85.9% higher than last year. Operating profit was MXPs$71 million, 66.8% hig-

her than in 2004. Operating flow rose by 67.4%, amounting to MXPs$71 million

during the year.

Among the works executed is a 90,000 square meter building located in downtown

Mexico City, which is the new headquarters of the Foreign Affairs Ministry.

At year-end, Grupo PC Construcciones had a backlog of approximately MXPs$1 bi-

llion 274 million. Highlighted are the following: the construction of a sports com-

plex in Ciudad Nezahualcoyotl, a new office area and parking lot at the National

Palace, and a Triara Data Center in the city of Querétaro.

16

Grupo Sanborns reflected a continued

growth of its principal commercial formats.

Commercial

17

The commercial division of Grupo Carso is formed by Grupo Sanborns and

its subsidiaries, which jointly operate almost 380 points of sale, with more

than 750,000 square meters of sales area.

In 2005, consumer activity was more dynamic than in 2004, due to a better

economy and despite the fact that unemployment levels remained high

and that interest rates tended to rise throughout the year.

18.9%Growth of consolidated Sales

Commercial

18

Annual sales of Grupo Sanborns of MXPs$27 billion 336 million were reported, re-

presenting a 19.0% increase over the previous year. Operating profit was MXPs$3

billion 857 million, 13.8% higher than the previous year. The operating margin was

reported as 14.1%, 65 basis points lower than 2004, resulting mainly from the con-

solidation of Dorian’s. Operating flow (EBITDA) was MXPs$4 billion 559 million, a

12.7% increase over 2004. The EBITDA margin was 16.7%, 94 basis points lower

than the EBITDA margin in 2004. Greater consumer activity contributed to higher

sales, although the consolidation of the Dorian’s Tijuana-owned formats resulted in

lower operating and EBITDA margins.

In 2005, Grupo Sanborns increased the rhythm of organic growth observed in re-

cent years, with the expansion of its principal formats, emphasizing the location

of its new units. As part of the expansion plan, in 2005 Grupo Sanborns opened

its first establishment outside of Mexico, consisting of a Sanborns store, a Dorian’s

department store and a Mix-up music store located in a new shopping mall in San

Salvador, El Salvador.

During the year, Grupo Sanborns sold the chain of El Globo pastry shops to Grupo

Bimbo. Grupo Sanborns received MXPs$1 billion 350 million which were used

mainly to reduce debt. In addition, Dorian’s Tijuana closed the sale of the 23 Solo

un Precio stores.

Grupo Sanborns strengthened its financial structure during the year as a result of

its solid generation of cash, combined with the divestiture of assets. At year-end,

the company had a total debt of MXPs$3 billion 401 million, which was reduced

by MXPs$754 million during the year. The net debt was reduced by MXPs$1 billion

764 million, closing at MXPs$1,641 million at year-end.

During the year, Grupo Sanborns made capital investments of US$89 million, with

the opening of new points of sales.

GRUPO SANBORNS

22,9

64

27,3

36Sales

(Million Pesos)

14.8

14.1

Operating Margin(%)

17.6

16.7

EBITDA Margin (%)

Sales Contributionby Subsidiary

(millions of pesos)

Sears ($ 12,205)Sanborns ($ 9,016)Music Stores ($ 1,815)Dorian’s ($ 2,997)Other ($ 1,303)4.8%

11.0%

6.6%

33.0%

44.6%

19

Combined sales of Sanborns and Sanborns Café were MXPs$9 billion 16 mi-

llion, 4.4% higher than last year. Same store sales rose by 1.3% during the year.

Operating profit was MXPs$940 million, a 4.7% increase over 2004. Operating

margin remained stable in comparison with 2004. Operating flow was MXPs$1

billion 181 million, 3.7% higher than in 2004, with a sales margin of 13.1%, a

slight decrease compared with last year.

Growth trends of Sanborns continued on its cardholder base, reporting an in-

crease of 15.8% in the number of active accounts during the year.

In 2005, seven Sanborn Hermanos stores were opened, to total 137 units at the

close of 2005, including the first store outside Mexico, which was opened in San

Salvador, El Salvador. Likewise, 31 Sanborns Café’s were in operation at year-

end; one was opened during the year while another unit was closed temporarily

following the hurricane Wilma.

SANBORNSAND SANBORNS CAFÉ

9,01

6

8,63

3

Sales(Million Pesos)

10.4

10.4

Operating Margin(%)

13.2

13.1

EBITDA Margin (%)

20

Sears sales increased by 9.5% during the year, while same store sales increased by

7.6% over 2004. Operating margin rose by 16.1%, reaching MXPs$2 billion 32 mi-

llion, while operating flow, MXPs$2 billion 273 million, rose by 13.8%. Operating

and EBITDA margins increased by 94 and 70 basis points, respectively.

The Sears credit card held stable as a valuable sales instrument for this chain of

stores. At year-end, the number of active accounts was 1,386,061, a 25.6% in-

crease over the previous year; the credit portfolio had a value at the close of 2005

of MXPs$6 billion 599 million, while the level of overdue portfolio remained low

and stable throughout the year, closing at 1.43%. In 2005, approximately 63.5% of

total sales of Sears were effected with the Sears Credit Card.

Throughout the year, two new Sears stores opened their doors, located in Ecatepec,

Estado de México, and Monterrey, Nuevo León. At year-end, one store was tem-

porarily closed as a result of the hurricane Wilma; consequently, at December 31,

2005, 50 stores and 1 Pier 1 Boutique were operating.

SEARS11

,142

12,2

05

Sales(million pesos)

15.7 16

.7

Operating Margin(%)

17.9 18

.6

EBITDA Margin (%)

21

During the year, Dorian’s reported sales of MXPs$2 billion 997 million; operating

profit was MXPs$79 million, with a margin on sales of 2.6%. Operating flow was

MXPs$147 million, with an EBITDA margin of 5%.

At year-end, Dorian’s Tijuana operated 54 units under the Dorian’s, Dax and Más

formats, including one store in El Salvador.

DORIAN´S

22

In 2005, the music store division of Grupo Sanborns remained the distributor with

the greatest and most varied musical supply in the country, complemented by the

wide range of entertainment products, among which motion pictures and videoga-

mes are significant.

Total sales of this division were MXPs$1 billion 815 million during the year, with a

6.5% increase in real terms, while same store sales increased by 2.4% in compari-

son with 2004. Operating profit rose by 5.7%, while EBITDA diminished slightly in

real terms during the year 2005.

At year-end, this division operated 71 units, including a store in El Salvador under

the Mix-up, No Problem, Tower Records and Discolandia formats.

MIX-UP

1,81

5

1,70

4

Sales(million pesos)

8.48.

5

Operating Margin(%)

10.8

11.6

EBITDA Margin (%)

23

YEARS AS TYPE OF BOARD BOARD MEMBERS POSITION** BOARD MEMBER* MEMBER**CARLOS SLIM HELÚ COB Emeritus - Teléfonos de México SIXTEEN Patrimonial COB Emeritus - Carso Global Telecom Related COB Emeritus- Grupo Financiero Inbursa COB Emeritus - América Móvil COB Emeritus - América Telecom COB Emeritus - Grupo Carso COB - Impulsora del Desarrollo y el Empleo en América Latina COB - Carso Infraestructura y Construcción CARLOS SLIM DOMIT COB - Grupo Carso FIFTEEN Patrimonial COB - Grupo Sanborns Related COB - U.S. Commercial Corp. COB - Teléfonos de México Vicechairman - América Telecom Vicechairman - Carso Global Telecom CEO - Sanborn Hermanos RUBÉN AGUILAR MONTEVERDE Member of National Advisory Board - Banco ONE Independent Nacional de México, S.A. ANTONIO COSÍO ARIÑO CEO - Cía. Industrial de Tepeji del Río FOURTEEN IndependentJAIME CHICO PARDO Vicechairman and CEO - Teléfonos de México SIXTEEN Related COB and CEO - Carso Global Telecom Vicechairman - América Telecom ARTURO ELÍAS AYUB Director of Strategical Alliances, Communication EIGHT Related and Institucional Relations - Teléfonos de México CLAUDIO X. GONZALEZ LAPORTE COB - Kimberly Clark de México FIFTEEN IndependentRAFAEL MOISÉS KALACH MIZRAHI COB and CEO - Grupo Kaltex TWELVE IndependentJOSÉ KURI HARFUSH COB - Janel SIXTEEN IndependentJUAN ANTONIO PÉREZ SIMÓN Vicechairman - Teléfonos de México SIXTEEN Independent COB - Sanborn Hermanos AGUSTIN SANTAMARINA VÁZQUEZ Board Member - Santamarina y Steta FOURTEEN IndependentPATRICK SLIM DOMIT COB - América Telecom TEN Patrimonial COB - Grupo Telvista Related COB - América Móvil Vicechairman - Grupo Carso Director of Retail - Teléfonos de México FERNANDO SOLANA MORALES CEO - Solana y Asociados, S.C. ONE Independent

ALTERNATE BOARD MEMBERSMARCO ANTONIO SLIM DOMIT COB and CEO - Grupo Financiero Inbursa FIFTEEN Patrimonial COB - Inversora Bursátil Related COB - Seguros InbursaDANIEL HAJJ ABOUMRAD CEO - América Móvil ELEVEN Related CEO - América TelecomJULIO GUTIÉRREZ TRUJILLO Business Consultant ONE IndependentANTONIO COSíO PANDO General Manager - Cía. Industrial de Tepeji del Río FOUR IndependentFERNANDO G. CHICO PARDO CEO - Promecap, S.C. SIXTEEN Independent EDUARDO VALDES ACRA Vicechairman - Grupo Financiero Inbursa FOURTEEN Related COB - Banco Inbursa CEO - Inversora Bursátil DAVID IBARRA MUÑOZ CEO - Despacho David Ibarra Muñoz FOUR IndependentALEJANDRO ABOUMRAD GABRIEL COB - Porcelanite FIFTEEN IndependentIGNACIO COBO GONZÁLEZ COB - Grupo Calinda FOUR Independent ANTONIO GÓMEZ GARCÍA CEO - Porcelanite TWO Related CEO - U.S. Commercial Corp.ALFONSO SALEM SLIM CEO - Impulsora del Desarrollo y el Empleo FIVE Independent en América Latina JOSÉ HUMBERTO CEO - Grupo Carso FIFTEEN Related GUTIERREZ-OLVERA ZUBIZARRETA CEO - Carso Infraestructura y Construcción COB and CEO - Grupo CondumexCARLOS HAJJ ABOUMRAD CEO - Sears Roebuck de México EIGHT Independent STATUTORY AUDITORCARLOS FRÍAS LÓPEZ Member - PricewaterhouseCoopers TWO Member - Colegio de Contadores Públicos de México, A.C. Board Member - Patronato del Museo de la Ciudad de México SECRETARYCARLOS SERGIO CASAÑA ESPERÓN Member - PricewaterhouseCoopers TWO

TREASURERQUINTÍN HUMBERTO BOTAS HERNÁNDEZ Comptroller - Grupo Condumex THREE

SECRETARYSERGIO F. MEDINA NORIEGA Legal Director - Teléfonos de México SIXTEEN

PRO-SECRETARYALEJANDRO ARCHUNDIA BECERRA Legal General Manager - Grupo Condumex FOUR

* Years as board member are considered since 1990, year of inscription in the Bolsa Mexicana de Valores.** Based on Board Members Information.

Board of

Directors

24

March 15, 2006

To the Board of Directors:

In the terms of the Securities Market Law, general provisions applicable to issuers of securities and other participants in the securi-ties market promulgated by the National Banking and Securities Commission, and the recommendations contained in the Code of the Best Corporate Practices, we hereby inform the Board of our activities in the 2005 fiscal year.

AUDITING FUNCTIONSIn respect to our auditing functions, we reviewed the accounting policies, procedures and practices of the Company, as well as the financial information it prepared and filed with the Bolsa Mexicana de Valores, S.A. de C.V. and the National Banking and Securities Commission, supported in our review by Company administration and its internal auditing and external auditing departments. As a result of this revision: (i) we have not considered it necessary to submit to the consideration of the Board any change in respect to said accounting policies, except for the changes and additions to the policies adopted in the terms of various bulletins issued by the Mexican Institute of Public Accountants; and (ii) we verified that the intermediate public financial information is prepared by using the same accounting principles, criteria and practices as those with which the annual information will be prepared.

In respect to external auditors, in addition to reviewing their performance, we verified that: a) the partner of the external auditing firm that certified the results of the Company had been performing said function for less than six years; b) the person who signed the certification of the audited financial statements of Grupo Carso, S.A. de C.V., was someone other than the Company Statutory Auditor; and c) the external auditors’ fees were adequate and represent less than 20% of their total revenues.

As to internal control standards, the internal auditing areas of the Company are permanently in charge of verifying that they are being satisfied and for this purpose, they review and in such case revise that any deviations detected and reported are corrected. On the other hand, and as a result of the revision they effected in this respect, the external auditors presented to the Company a report with certain recommendations, none of which was material. In view of the foregoing, we conclude that the internal control system of Grupo Carso, S.A. de C.V. satisfies the principles of effectiveness for which it was created.

We further verified that the Company has controls that allow for determining that the applicable provisions of the securities market are satisfied and that the internal auditors and the legal department conduct a review at least once a year to verify if the company complies with them. In this respect, there were no comments and no adverse changes in its legal situation.

Lastly, we reviewed the financial statements as of December 31, 2005 of Grupo Carso, S.A. de C.V. and subsidiaries and we agree with them.

FINANCE AND PLANNING FUNCTIONSAs to our finance and planning functions, we mention that during the 2005 fiscal year, Grupo Carso, S.A. de C.V. and some of its subsidiaries made significant investments. We verified that the financing of these investments was carried out consistently with the medium and long term strategic plan of the Company. In addition, we evaluated from time to time that the strategic position of the Company conformed to the premises of said plan.

We also revised and evaluated the budget for the 2005 fiscal year together with financial projections that were taken into ac-count for their preparation. The principal investments and financing transactions of the Company were included in such budget and we consider that they are viable and consistent with the investment and finance policies and with the strategic vision of the Company.

Lastly, we point out that for duly performing our activities, we used as a basis the information provided to us by the Grupo Carso, S.A. de C.V. management and its external auditors.

José Kuri Harfush Antonio Cosío AriñoPresident Claudio X. González Laporte Rafael Moisés Kalach Mizrahi Juan Antonio Pérez Simón

Grupo Carso, S.A. de C.V. and Subsidiaries

Annual Report of the Auditing and Finance and Planning Committee

Investor informationInvestor Relations

Jorge Serrano Espondajserranoe@inbursa.com

Jesús Granillo Rodríguezjgranill@inbursa.com.mx

ADR’s Information

Symbol: GPOVYChange: 2 stocks: 1 ADR

CUSIP Number: 400485207

Depositary BankThe Bank of New York

Investor RelationsP.O. Box 11258

Church Street StationNew York, NY 10286-1258

Phone 1-888-BNY-ADRS (269-2377)Phone (International) 1-610-312-5315

shareowner-svcs@bankofny.comDesi

gn: S

igni

, S.C

. • P

rintin

g: A

rtes

Grá

ficas

Pan

oram

a

Miguel de Cervantes Saavedra 255Col. GranadaMexico City, 11520

gcarso.com.mx