<PAGE>
THE CHILE FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 1996
<PAGE>
CONTENTS
Letter to Shareholders 1
Portfolio Summary 6
Schedule of Investments 7
Statement of Assets and Liabilities 10
Statement of Operations 11
Statement of Changes in Net Assets 12
Financial Highlights 13
Notes to Financial Statements 14
Results of Annual Meeting of Shareholders 18
Description of Dividend Reinvestment and Cash Purchase Plan 19
PICTURED ON THE COVER IS THE INTERIOR OF THE SANTIAGO STOCK EXCHANGE, BOLSA
DE COMERCIO DE SANTIAGO (""BOLSA''). THE EXCHANGE, FOUNDED ON NOVEMBER 27, 1893,
CURRENTLY LISTS MORE THAN 300 COMPANIES. PHOTOGRAPH PROVIDED COURTESY OF BOLSA.
- ------------------------------------------------------------------------------
<PAGE>
LETTER TO SHAREHOLDERS
August 20, 1996
DEAR SHAREHOLDER:
We are pleased to report on the activities of The Chile Fund, Inc. (the "Fund")
for the six months ended June 30, 1996.
PERFORMANCE
At June 30, 1996, the Fund's net assets were $379.7 million. The Fund's net
asset value ("NAV"), was $27.09 per share, as compared to $26.45 on December 31,
1995.
For the period January 1, 1996 through June 30, 1996, the Fund's total return
based on NAV was 2.42%. By comparison, the total return of the IGPA Index, a
broad index of Chilean equities, was down 3.39%. According to the Lipper
International Closed-End Funds Service, the Fund's performance was the best
posted during the period among the four Chile specific funds followed by the
service.
WHY CHILE?
It is helpful to periodically review our fundamental reasons for investing in
Chile. With this in mind, we engage in a brief discussion of why we continue to
view Chile as a very positive environment for investors.
Our principal rationale has been, and continues to be, that Chile is one of the
"safe havens" among emerging capital markets generally and those of Latin
America particularly. This status is well-deserved, as is indicated by numerous
substantial factors:
- - following 16 years of military dictatorship that ended in 1990, political
stability has become firmly rooted in democracy.
- - Chile has pursued an emphatically pro-market economic direction years before
its regional counterparts.
- - economic growth has been strong and consistent (E.G., 6.8% average annual
growth in GDP during 1990-95, according to Morgan Stanley).
- - Chile's economic health has become far more reliant on its high rate of
domestic savings (the highest in the region) and investment than on
international capital flows, as in the past.
- - increasing diversification within the important export sector, high and
growing foreign exchange reserves and manageable levels of external debt.
- - regulatory oversight of the economy and capital markets is strict and
vigorous.
- - along with Colombia, Chile is the only Latin American nation with an
investment-grade credit rating. Its A- rating from Standard & Poor's,
moreover, is the region's highest.
- - many important social indicators (E.G., life expectancy, literacy and school
enrollment) are among the highest in Latin America and comparable to those of
other financially strong countries elsewhere.
- --------------------------------------------------------------------------------
1
<PAGE>
LETTER TO SHAREHOLDERS
CURRENT STRATEGY
The Fund's basic approach is to buy securities of well managed, profitable and
cash-generating companies across a wide spectrum of industries. In addition, we
identify strong investment themes to help guide industry allocation and stock
selection.
An especially compelling theme for Chile, one which also is applicable to most
of the rest of Latin America, is the development and expansion of the nation's
infrastructure. Accordingly, about two-thirds of the Fund's portfolio consisted
of infrastructure-related equities as of June 30, 1996. These include companies
in electricity, construction, telecommunications, mining or forestry.
Prospects for infrastructure development are bright. In order to maintain
economic growth, Chile needs to greatly increase its number and quality of
roads, ports, airports, energy and water treatment plants, public transportation
services and more. This will require large investments of capital and offers
tremendous opportunity to companies that can provide the necessary goods and
services. The government is strongly committed to infrastructure, moreover, and
is in the initial stages of implementing a $10+ billion plan to be completed by
the year 2000. Active participation by the private sector is being encouraged
through attractive incentives.
To best illustrate how we have put our approach to work, we'd like to talk in
greater detail about two of our largest holdings.
COMPANIA DE TELECOMUNICACIONES DE CHILE S.A.
The Fund's single largest position is in Compania de Telecomunicaciones de Chile
S.A. ("CTC"), Chile's largest full-service telecommunications company. It is
among the top players within its universe and fits well into our infrastructure
theme.
A key element in CTC's appeal is the unusually constructive regulatory
environment in Chile. The independent telecommunications regulatory body has
fashioned a clear, well-planned framework unlike the somewhat arbitrary nature
of telecom regulation elsewhere in Latin America. Among its many pluses, the
framework provided companies with strong incentives to increase phone lines in
service and reduce costs; a coherent, five-year program to fairly adjust the
tariff (I.E., rate) structure; and made Chile, in 1994, the first country in the
world to completely deregulate both domestic and international long-distance
service.
There are several other substantial positive attributes that make CTC an
impressive opportunity:
- - RISING TELEDENSITY, HIGH DEMAND BACKLOG. The potent confluence of rising
teledensity and high demand is a significant part of the positive growth
outlook for many of the Latin American phone companies. CTC shares these
characteristics, which will remain its core growth drivers over the next few
years.
- - INCREASING PROFITABILITY. An enviable combination of vigorous revenue growth,
tight expense controls and static non-operating costs should boost profit
margins over the next few years.
- --------------------------------------------------------------------------------
2
<PAGE>
LETTER TO SHAREHOLDERS
- - HIGHEST REGIONAL EFFICIENCY/PRODUCTIVITY. As measured by the industry-wide
standard of phone lines per employee, CTC is the most efficient/productive
phone company in Latin America. This reflects the competitive advantage of
CTC's 100% network digitization and should help to keep future costs in check.
- - CELLULAR TELEPHONY AND CABLE TV POTENTIAL. CTC has substantial equity stakes
in prominent cellular/mobile telephony and cable TV companies. Both should
benefit from sector consolidation as well as their strong market shares and
growing penetration of the population.
- - VALUE-ADDED SERVICES. With Chilean tariffs highly regulated, CTC is very
focused on enlarging its array of value-added, high-margined,
non-tariff-regulated services. These include call waiting, call forwarding,
collect calls, Internet access and more. CTC's strategy is to bundle these
services with others so as to offer customers more attractive service
packages. This level of diversity is unmatched by any other Chilean phone
company.
- - POSITIVE MACROECONOMIC OUTLOOK. Prospects for Chilean GDP in the next few
years are quite favorable (see OUTLOOK section). Since usage of
telecommunications services is highly correlated with economic growth, CTC
should benefit accordingly.
- - AFFILIATION WITH TISA. The Telefonica Internacional de Espana ("TISA"), a
subsidiary of Telefonica de Espana, the Spanish telecommunications company,
holds a 43.6% stake in CTC. Through its numerous equity holdings, TISA has
become the largest international investor in Latin American telecom
privatizations. It has built an impressive track record in the operation of
the region's telecom companies and assembled the largest Pan-American telecom
network. Access to this quality of resources and expertise can be a tremendous
competitive advantage to CTC.
ENERSIS S.A.
Enersis S.A. ("Enersis"), a Chilean electricity holding company, has been held
in the Fund for some time. It is among the top players within its universe and
fits well with our preference for companies that provide basic goods and
services.
Enersis is the largest and most powerful electricity company in Latin America.
By acquiring and combining providers of generation, transmission and
distribution services, it has assembled a vertically integrated electricity
network extending throughout Chile and into Argentina and Peru. This enables it
to realize operating synergies and economies of scale and enhances its ability
to expand further.
To achieve most of its growth, Enersis acquires less efficient companies (mostly
via foreign privatization) and raises their efficiency and profitability to
levels it has achieved in its own domestic operations. While this is a strategy
that may not be familiar to United States investors, it is not one that they
would typically associate with an electricity company.
Here is a brief summary of why we like Enersis and are inclined to maintain it
as a long-term holding:
- - SHREWD RISK-CONTROL VIA DIVERSIFICATION. By acquiring other regional
utilities, it reduces its reliance for revenues on any one country or
territory, widens its utility specialization into different segments (I.E.,
generation, transmission and distribution), builds a fairly predictable
revenue stream and remains focused on a relatively low-risk business.
- --------------------------------------------------------------------------------
3
<PAGE>
LETTER TO SHAREHOLDERS
- - ATTRACTIVE SERVICE TERRITORY. Electricity demand is increasing in Enersis'
markets. Furthermore, regulation is relatively favorable; unlike in the United
States, utilities are not limited to fixed rates of return, meaning that the
potential for profitability is much higher.
- - HIGH-QUALITY, EXPERIENCED MANAGEMENT TEAM.
- - MULTI-DIMENSIONAL EQUITY PLAY. Enersis shares are a very effective way of
investing in the growing Latin American utility privatization trend; the
strong projected regional demand for electricity and the "safe haven" of the
Chilean economy also make the shares attractive to investors.
- - PRIVATIZATION. Enersis' deep acquisition and operational experience make it a
likely and highly desirable participant in the numerous upcoming privatization
opportunities among Latin American utilities (particularly in Brazil). It is
also the only regional utility company with access to the level of capital
required in the privatization process.
- - DOMESTIC DOMINANCE. Through its controlling equity interests in Chilectra S.A.
and Compania Electrica del Rio Maipo S.A. (Chile's largest and fourth-largest
electricity distribution companies, respectively) as well as Empresa Nacional
de Electricidad S.A. (Chile's largest electricity generation company), Enersis
is Chile's dominant electricity company.
- - STABLE DOMESTIC OWNERSHIP BASE. Chilean pension funds and employee-owned funds
own approximately 64% of Enersis shares and likely to hold them for the very
long term.
OUTLOOK
Our near-term outlook on Chilean equities remains favorable, despite a clear
slowing in the market's yearly appreciation. We feel that, while the 15-20%
annualized growth rate of recent years is no longer sustainable, a rate of
10-12% is realistic. Even at the lower growth rate, though, we continue to find
the market's risk/reward profile attractive and anticipate no meaningful changes
in the Fund's strategy or composition.
Our macroeconomic view also is positive:
- - We expect GDP to rise about 7.0% in 1996, somewhat higher than the Chilean
Central Bank's 6.5% target.
- - We expect inflation to also be about 7.0%, considerably lower than the
double-digit levels of the last few years.
- - Interest rates are likely to fall both in this year's second half and next
year, as growth eases.
- - The economy's vulnerability, via exports, to fluctuations in the price of
copper (one of Chile's most abundant natural resources) is declining. The
proportion of total exports accounted for by copper should continue to lessen
as proportions of other products increase.
- - Chilean companies should maintain their rising trend of investing both capital
and economic expertise in other Latin American nations.
Overall, we remain quite confident in the long-term potential of Chilean
equities.
- --------------------------------------------------------------------------------
4
<PAGE>
LETTER TO SHAREHOLDERS
We wish to remind shareholders whose shares are registered in their own name
that they automatically participate in the Fund's dividend reinvestment program.
The automatic Dividend Reinvestment Plan (the "Plan") can be of value to
shareholders in maintaining their proportional ownership interest in the Fund in
an easy and convenient way. A shareholder whose shares are held in the name of a
broker/dealer or nominee should contact that party for details about
participating in the Plan. The Fund also offers shareholders a voluntary Cash
Purchase Plan. The Plan and the Cash Purchase Plan are described on pages 19 and
20 of this report.
We appreciate your continued confidence in the Fund and would be pleased to
respond to your questions and comments.
Respecfully,
[SIG]
Emilio Bassini*
President and Chief Investment Officer
- --------------------------------------------------------------------------------
*Emilio Bassini, who is a member of the Executive Committee and Executive
Director of BEA Associates, is primarily responsible for management of the
Fund's assets. He has served in such capacity since the commencement of the
Fund's operations. Mr. Bassini joined BEA Associates (formerly Basic Appraisals,
Inc. and BEA Associates, Inc.) in 1984. Mr. Bassini is a Director, Chairman of
the Board, President and Chief Investment Officer of the Fund and is also a
Director, Chairman of the Board, President and Chief Investment Officer of The
Emerging Markets Infrastructure Fund, Inc., The Emerging Markets
Telecommunications Fund, Inc., The First Israel Fund, Inc., The Latin America
Equity Fund, Inc., The Latin America Investment Fund, Inc. and The Portugal
Fund, Inc. He is also the President and Secretary of The Indonesia Fund, Inc.,
and Director, Chairman of the Board, President and Investment Officer of The
Brazilian Equity Fund, Inc. He is also the managing principal of Bassini,
Playfair + Associates LLC.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
PORTFOLIO SUMMARY - AS OF JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
6/30/96 12/31/95
<S> <C> <C>
Banking 2.17% 2.26%
Consumer Goods 2.18% 3.18%
Electric Distribution 23.72% 22.52%
Electric Generation 13.99% 15.10%
Engineering & Construction 2.87% 2.98%
Fertilizer 2.80% 2.58%
Financial Services 3.87% 4.72%
Food & Beverages 12.57% 12.10%
Forestry 11.19% 12.08%
Mining 2.14% 2.10%
Telecommunications 13.82% 12.57%
Other 7.66% 8.68%
Cash & Cash Equivelants 1.02% -0.87%
</TABLE>
TOP 10 HOLDINGS, BY ISSUER
<TABLE>
<CAPTION>
Percent of Net
Holding Sector Assets
<C> <S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
1. Compania de Telecomunicaciones de Chile S.A. Telecommunications 11.6
- --------------------------------------------------------------------------------------------------------------------
2. Empresa Nacional de Electricidad S.A. Electric Generation 9.5
- --------------------------------------------------------------------------------------------------------------------
3. Enersis S.A. Electric Distribution 8.6
- --------------------------------------------------------------------------------------------------------------------
4. Chilectra S.A. Electric Distribution 8.4
- --------------------------------------------------------------------------------------------------------------------
5. Embotelladora Andina S.A. Food & Beverages 6.2
- --------------------------------------------------------------------------------------------------------------------
6. Compania de Petreoleos de Chile S.A. Forestry 5.5
- --------------------------------------------------------------------------------------------------------------------
7. Chilgener S.A. Electric Generation 4.1
- --------------------------------------------------------------------------------------------------------------------
8. Compania Manufacturera de Papeles y Cartones S.A. Forestry 3.3
- --------------------------------------------------------------------------------------------------------------------
9. Empresas Emel S.A. Electric Distribution 3.1
- --------------------------------------------------------------------------------------------------------------------
10. Compania Cervecerias Unidas S.A. Food & Beverages 3.0
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
<S> <C> <C>
- -----------------------------------------------------
EQUITY OR EQUITY-LINKED SECURITIES-98.98%
CHILE-98.98%
AGRICULTURE-0.11%
Inversiones Agricolas e
Industriales S.A........ 1,003,524 $ 420,120
-----------
BANKING-2.17%
Banco de Credito e
Inversiones............. 721,628 6,217,751
Banco Osorno y La Union,
Class A................. 25,706,975 1,520,456
BiceCorp S.A............. 117,258 485,186
-----------
8,223,393
-----------
BASIC METALS-0.71%
Ceramicas Cordillera
S.A..................... 316,132 2,692,335
-----------
CONSUMER DURABLES-0.05%
Companias Cic S.A........ 974,398 206,335
-----------
CONSUMER GOODS-2.18%
Compania Tecno Industrial
S.A..................... 203,162,821 8,282,773
-----------
ELECTRIC DISTRIBUTION-23.72%
Chilectra S.A............ 4,931,691 27,248,238
Chilectra S.A. ADS++..... 80,400 4,463,456
Chilquinta S.A.(a)....... 273,343 1,340,602
Compania de Inversiones
Los Almendros, Class
A....................... 1,540,000 603,481
Compania General de
Electricidad S.A........ 1,502,814 6,181,710
Empresa Electrica de
Antofagasta S.A......... 380,447 217,610
Empresa Electrica de
Arica S.A............... 6,241,491 1,595,124
Empresa Electrica de
Iquique S.A............. 5,913,829 2,187,908
Empresas Emel S.A........ 536,777 11,627,882
Enersis S.A.............. 54,583,012 32,615,625
Sociedad Austral de
Electricidad S.A........ 84,081 1,974,885
-----------
90,056,521
-----------
<CAPTION>
No. of Value
Description Shares (Note A)
- -----------------------------------------------------
<S> <C> <C>
ELECTRIC GENERATION-13.99%
Chilgener S.A............ 2,570,395 $15,390,463
Empresa Electrica
Pilmaiquen S.A.......... 1,758,084 1,647,468
Empresa Nacional de
Electricidad S.A........ 52,227,708 36,102,395
-----------
53,140,326
-----------
ENGINEERING & CONSTRUCTION-2.87%
Besalco S.A.............. 427,764 2,733,067
Cemento Polpaico S.A..... 51,502 2,695,127
Empresas Pizarreno
S.A..................... 98,267 212,870
Inversiones Industriales
San Jose S.A............ 26,609 6,477
Maderas y Sinteticos
Sociedad Anonima........ 9,316,048 5,237,939
-----------
10,885,480
-----------
FERTILIZER-2.80%
Sociedad Quimica y Minera
de Chile S.A., Class
A....................... 1,446,507 7,604,856
Sociedad Quimica y Minera
de Chile S.A., Class
B....................... 570,322 3,012,289
-----------
10,617,145
-----------
FINANCIAL SERVICES-3.87%
Administradora de Fondos
de Pensiones Provida
S.A. ADS................ 68,600 1,706,425
Antarchile S.A., Class
A....................... 493,805 2,043,368
Antarchile S.A., Class
C....................... 302,021 1,293,798
Compania de Inversiones
Luz y Fuerza S.A., Class
A....................... 1,540,000 603,481
Duncan Fox S.A........... 45,274 42,976
Elecmetal S.A............ 766,757 5,048,260
Empresas Conosur S.A..... 240,909 474,957
Invercap S.A............. 1,594,008 1,726,502
Maritima de Inversiones
S.A..................... 4,068,627 782,333
Quemchi S.A.............. 691,164 925,253
Sipsa Sociedad de
Inversiones Industriales
y Pesqueras S.A......... 45,274 39,671
-----------
14,687,024
-----------
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
- -----------------------------------------------------
<S> <C> <C>
FISHERY-0.78%
Empresas Pesquera Eperva
S.A., Class A........... 1,518,489 $ 595,051
Pesquera Itata S.A....... 4,819,291 1,513,176
Sociedad Pesquera Coloso
S.A..................... 1,293,879 866,050
-----------
2,974,277
-----------
FOOD & BEVERAGES-12.57%
Compania Cervecerias
Unidas S.A.............. 2,258,304 10,443,660
Compania Cervecerias
Unidas S.A. ADR......... 41,000 963,500
Embotelladora Andina
S.A..................... 3,952,506 23,665,972
Embotelladora Arica*..... 6,887,442 2,972,364
Embotelladora Polar
S.A..................... 4,801,231 3,914,841
Empresas Iansa S.A....... 12,906,344 2,952,894
Empresas Santa Carolina
S.A., Series A.......... 2,486,850 2,390,911
Empresas Santa Carolina
S.A., Series B.......... 248,685 251,197
Jugos Concentrados
S.A..................... 3,148,050 183,895
-----------
47,739,234
-----------
FORESTRY-11.19%
Compania Chilena de
Fosforos S.A............ 635,009 1,931,998
Compania de Petreoleos de
Chile S.A............... 4,863,505 20,952,668
Compania Manufacturera de
Papeles y Cartones
S.A..................... 1,047,197 12,616,831
Forestal Cholguan........ 302,327 294,343
Forestal Terranova....... 2,430,030 3,193,906
Industrias Forestales
S.A..................... 9,385,866 2,398,724
Maderas Prensadas
Cholguan S.A............ 3,292,764 1,106,003
-----------
42,494,473
-----------
HEALTH CARE-0.79%
Banmedica S.A............ 8,266,362 2,997,902
-----------
INFRASTRUCTURE-0.46%
Infra Structura 2000*+... 7,845,946 1,750,047
-----------
<CAPTION>
No. of Value
Description Shares (Note A)
- -----------------------------------------------------
<S> <C> <C>
INSURANCE-0.24%
Compania de Seguros La
Prevision Vida S.A...... 818,209 $ 916,091
-----------
MACHINERY & ELECTRIC-0.37%
Madeco S.A. NPV.......... 109,324 300,684
Madeco S.A. NPV ADR...... 38,700 1,088,437
-----------
1,389,121
-----------
MANUFACTURING-0.07%
Cintac S.A............... 475,002 260,133
-----------
MINING-2.14%
Antofagasta Holdings
P.L.C................... 1,338,500 6,653,951
Empresa Minera de Mantos
Blancos S.A............. 486,098 1,177,236
Minera Lo Valdes Ltda.... 30,415 8,587
Sociedad Punta del Cobre
S.A., Class A........... 2,423 271,286
-----------
8,111,060
-----------
PACKAGING-0.44%
Contenedores Redes y
Envases S.A............. 4,335,542 1,065,920
Envases del Pacifico
S.A..................... 940,909 613,761
-----------
1,679,681
-----------
PHARMACEUTICALS-0.56%
Laboratorio Chile S.A.... 3,205,566 2,130,022
-----------
REAL ESTATE-0.22%
Inmobiliaria Urbana
S.A..................... 407,310 817,892
-----------
RETAIL-0.13%
Santa Isabel S.A......... 278,190 501,060
-----------
SHIPPING-0.54%
Compania Sud Americana de
Vapores S.A............. 1,632,577 1,291,439
Portuaria Puchoco S.A.... 8,212,350 509,711
Puerto de Lirquen S.A.... 76,440 78,254
Puerto Ventanas S.A...... 112,988 173,257
-----------
2,052,661
-----------
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
- -----------------------------------------------------
<S> <C> <C>
STEEL-1.61%
Compania de Aceros del
Pacifico S.A............ 1,594,008 $ 6,130,054
-----------
TELECOMMUNICATIONS-13.82%
Compania de
Telecomunicaciones de
Chile S.A. ADS.......... 12,400 1,216,750
Compania de
Telecomunicaciones de
Chile S.A., Class A..... 7,456,737 41,199,447
Compania de
Telecomunicaciones de
Chile S.A., Class B..... 287,490 1,483,458
Compania Nacional de
Telefonos S.A........... 951 741
Empresa Nacional de
Telecomunicaciones
S.A..................... 890,731 8,563,679
-----------
52,464,075
-----------
TEXTILES-0.13%
Coats Cadena S.A......... 1,038,030 252,654
Zalaquett S.A............ 1,496,767 244,124
-----------
496,778
-----------
TOBACCO-0.41%
Empresas CCT S.A......... 222,137 1,567,962
-----------
WHOLESALE-0.04%
Zona Franca de Iquique
S.A..................... 289,797 146,715
-----------
TOTAL EQUITY OR EQUITY-LINKED SECURITIES
(Cost $115,966,253).................... 375,830,690
-----------
SHORT-TERM INVESTMENTS-1.34%
CHILEAN INFLATION-ADJUSTED
TIME DEPOSITS-0.62%
<CAPTION>
Units (000)
-------------
<S> <C> <C>
Banco de O'Higgins,
7.25%, 08/27/96**....... CLP 5 146,039
Banco de O'Higgins,
7.25%, 08/28/96**....... 16 486,796
<CAPTION>
Units Value
Description (000) (Note A)
- -----------------------------------------------------
<S> <C> <C>
CHILEAN INFLATION-ADJUSTED
TIME DEPOSITS (CONTINUED)
Banco de O'Higgins,
7.25%, 09/02/96**....... CLP 16 $ 486,796
Banco de O'Higgins,
7.25%, 09/12/96**....... 36 1,095,290
Banco de O'Higgins,
7.15%, 09/16/96**....... 5 153,341
-----------
TOTAL CHILEAN INFLATION-ADJUSTED TIME
DEPOSITS (Cost $2,376,827)............. 2,368,262
-----------
CHILEAN MUTUAL FUNDS-0.72%
<CAPTION>
No. of
Shares
-------------
<S> <C> <C>
Fondo Mutuo Operacional
BanChile................ 219,220 2,362,569
Fondo Mutuo Security
Premium................. 64,684 355,169
-----------
TOTAL CHILEAN MUTUAL FUNDS
(Cost $2,709,568)...................... 2,717,738
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost
$5,086,395)............................ 5,086,000
-----------
TOTAL INVESTMENTS-100.32%
(Cost $121,052,648) (Notes A,D)........ 380,916,690
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS-(0.32)%......................... (1,204,565)
-----------
NET ASSETS-100.00%...................... $379,712,125
-----------
-----------
- ---------------------------------------------------------
* Not readily marketable security.
** Effective yield on the date of purchase.
+ Security is non-income producing.
++ SEC Rule 144A security. Such securities are traded
only among "qualified institutional buyers."
(a) With an additional 19,636 rights attached, expiring
07/26/96, with no market value.
ADR American Depositary Receipts.
ADS American Depositary Shares.
CLP Chilean Pesos.
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost
$121,052,648) (Note A)................. $380,916,690
Cash (including $90,499 of foreign
currencies with a cost of $89,987)
(Note A)............................... 192,904
Receivables:
Investments sold...................... 486,796
Dividends............................. 139,280
Interest.............................. 9,868
Prepaid expenses........................ 37,747
------------
Total Assets............................ 381,783,285
------------
LIABILITIES
Payables:
Investments purchased................. 486,796
Advisory fees (Note B)................ 1,033,634
Administration fees (Note B).......... 41,929
Other accrued expenses................ 508,801
------------
Total Liabilities....................... 2,071,160
------------
NET ASSETS (applicable to 14,018,673
shares of common stock outstanding)
(Note C)............................... $379,712,125
------------
------------
NET ASSET VALUE PER SHARE ($379,712,125
DIVIDED BY 14,018,673)................ $27.09
------------
------------
NET ASSETS CONSIST OF
Capital stock, $0.001 par value;
14,018,673 shares issued and
outstanding
(100,000,000 shares authorized)........ $ 14,019
Paid-in capital......................... 114,720,449
Undistributed net investment income..... 5,409,927
Distributions in excess of net realized
gain on investments and foreign
currency related transactions.......... (302,702)
Net unrealized appreciation in value of
investments and translation of other
assets and liabilities denominated in
foreign currencies..................... 259,870,432
------------
Net assets applicable to shares
outstanding............................ $379,712,125
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Income (Note A):
Dividends............................. $7,941,581
Interest.............................. 125,275
Less: Foreign taxes withheld.......... (81,612)
----------
Total Investment Income............... 7,985,244
----------
Expenses:
Investment advisory fees (Note B)..... 2,046,022
Custodian fees........................ 263,992
Administration fees (Note B).......... 147,413
Accounting fees....................... 81,243
Audit and legal fees.................. 37,161
Printing.............................. 35,828
Insurance............................. 23,182
NYSE listing fees..................... 12,081
Transfer agent fees................... 11,401
Directors' fees....................... 11,189
Other................................. 14,853
----------
Total Expenses........................ 2,684,365
----------
Net Investment Income................. 5,300,879
----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized gain from:
Investments........................... 782,213
Foreign currency related
transactions......................... 111,900
Net change in unrealized appreciation in
value of investments and translation of
other assets and liabilities
denominated in foreign currencies...... 2,692,325
----------
Net realized and unrealized gain on
investments and foreign currency
related transactions................... 3,586,438
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................ $8,887,317
----------
----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
11
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six
Months For the Year
Ended June Ended
30, 1996 December 31,
(unaudited) 1995*
<S> <C> <C>
------------------------------------
INCREASE IN NET ASSETS
Operations:
Net investment income................. 5$,300,879 $ 9,074,945
Net realized gain on investments and
foreign currency related
transactions......................... 894,113 2,624,661
Net change in unrealized appreciation
in value of investments and
translation of other assets and
liabilities denominated in foreign
currencies........................... 2,692,325 3,280,611
------------- -----------------
Net increase in net assets resulting
from operations.................... 8,887,317 14,980,217
------------- -----------------
Dividends and distributions to
shareholders:
Net investment income................. -- (9,024,230)
Net realized gain on investments and
foreign currency related
transactions......................... -- (3,152,971)
------------- -----------------
Total dividends and distributions to
shareholders....................... -- (12,177,201)
------------- -----------------
Capital share transactions (Note C):
Proceeds from 21,755 and 18,580
shares, respectively, issued in
reinvestment of dividends............ 549,313 425,598
------------- -----------------
Total increase in net assets........ 9,436,630 3,228,614
------------- -----------------
NET ASSETS
Beginning of period..................... 370,275,495 367,046,881
------------- -----------------
End of period (including undistributed
net investment income of $5,409,927 and
$109,048, respectively)................ 37$9,712,125 $370,275,495
------------- -----------------
------------- -----------------
</TABLE>
- --------------------------------------------------------------------------------
* References to shares outstanding prior to July 17, 1995, have been restated to
reflect the two-for-one stock split (See Note C).
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
FINANCIAL HIGHLIGHTS @
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share of common
stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each period indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Period
For the Six September
Months Ended 27, 1989*
June 30, For the Years Ended December 31, through
1996 ------------------------------------------------------------------------------ December
(unaudited) 1995 1994+ 1993 1992 1991 1990 31, 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of
period............ $26.45 $26.26 $20.13 $15.55 $14.84 $8.72 $7.40 $6.88**
------------ ---------- --------- --------- --------- --------- --------- ---------
Net investment
income............ 0.38 0.65 0.42 0.35 0.39 0.49 0.78 0.02
Net realized and
unrealized gain on
investments and
foreign currency
related
transactions....... 0.26 0.41++ 6.24 5.96 1.93 7.21 1.17 0.67
------------ ---------- --------- --------- --------- --------- --------- ---------
Net increase in net
assets resulting
from operations.... 0.64 1.06 6.66 6.31 2.32 7.70 1.95 0.69
------------ ---------- --------- --------- --------- --------- --------- ---------
Dividends and
distributions to
shareholders:
Net investment
income........... -- (0.65) (0.47) (0.31) (0.39) (0.49) (0.63) (0.03)
Net realized gain
on investments
and foreign
currency related
transactions..... -- (0.22) (0.06) (0.26) (1.22) (1.09) -- --
In excess of net
investment
income........... -- -- -- -- -- -- -- (0.14)
In excess of net
realized gain on
investments and
foreign currency
related
transactions..... -- -- -- (0.16) -- -- -- --
------------ ---------- --------- --------- --------- --------- --------- ---------
Total dividends and
distributions to
shareholders....... -- (0.87) (0.53) (0.73) (1.61) (1.58) (0.63) (0.17)
------------ ---------- --------- --------- --------- --------- --------- ---------
Dilution due to
capital share
rights offering... -- -- -- (1.00) -- -- -- --
------------ ---------- --------- --------- --------- --------- --------- ---------
Net asset value, end
of period......... $27.09 $26.45 $26.26 $20.13 $15.55 $14.84 $8.72 $7.40
------------ ---------- --------- --------- --------- --------- --------- ---------
------------ ---------- --------- --------- --------- --------- --------- ---------
Market value, end of
period............ $24.500 $26.000 $23.063 $22.250 $16.563 $11.938 $7.750 $7.813
------------ ---------- --------- --------- --------- --------- --------- ---------
------------ ---------- --------- --------- --------- --------- --------- ---------
Total investment
return(a)......... (5.77)% 16.66% 6.05% 38.82% 53.80% 71.05% 7.07% 14.17%
------------ ---------- --------- --------- --------- --------- --------- ---------
------------ ---------- --------- --------- --------- --------- --------- ---------
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
period (000
omitted).......... $379,712 $370,275 $367,047 $281,031 $168,580 $160,360 $93,744 $79,494
Ratio of expenses to
average net
assets............ 1.48%(b) 1.46% 1.39% 1.72% 2.15%(d) 2.13%(d) 2.04% 1.98%(b)
Ratio of net
investment income
to
average net
assets............. 2.91%(b) 2.39% 1.74% 2.47% 2.17% 3.41% 9.56% 1.44%(b)
Portfolio turnover
rate.............. 0.20%(c) 2.38% 0.86% 11.29% 6.29% 19.32% 12.63% 2.38%(c)
Average commission
rate per
share(e).......... $0.0084 -- -- -- -- -- -- --
</TABLE>
- ---------------------------------------------------------------------------
@ Per share amounts prior to July 17, 1995, have been restated to
reflect the two-for-one stock split (See Note C).
* Commencement of operations.
** Initial public offering price of $7.50 per share less underwriting
discount of $0.52 per share and offering expenses of $0.10 per share.
+ Based on average shares outstanding.
++ Includes a $0.01 per share decrease to the Fund's net asset value per
share resulting from the dilutive impact of shares issued pursuant to
the Fund's automatic Dividend Reinvestment Plan in 1995.
(a) Total investment return at market value is based on the changes in
market price of a share during the period and assumes reinvestment of
dividends and distributions, if any, at actual prices pursuant to the
Fund's Dividend Reinvestment Plan. Total investment return does not
reflect brokerage commissions or initial underwriting discounts and
has not been annualized. In addition, such returns have been restated
to reflect the reinvestment of dividends and distributions, if any, on
the ex-dividend date.
(b) Annualized.
(c) Not annualized.
(d) Ratios include effect of repatriation taxes. The ratios of expenses to
average net assets would have been 1.71% for the year ended December
31, 1992; and 1.75% for the year ended December 31, 1991,
respectively, exclusive of repatriation tax.
(e) Disclosure is required for fiscal years beginning on or after
September 1, 1995.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
13
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE A. SIGNIFICANT ACCOUNTING POLICIES
The Chile Fund, Inc. (the "Fund") was incorporated in Maryland on January 30,
1989 and commenced investment operations on September 27, 1989. The Fund is
registered under the Investment Company Act of 1940, as amended, as a
closed-end, non-diversified management investment company. Significant
accounting policies are as follows:
PORTFOLIO VALUATION: Investments are stated at value in the accompanying
financial statements. All securities for which market quotations are readily
available are valued at the last sales price or lacking any sales, at the
closing price last quoted for the securities (but if bid and asked quotations
are available, at the mean between the current bid and asked prices). Securities
that are traded over-the-counter are valued at the mean between the current bid
and the asked prices, if available. All other securities and assets are valued
at fair value as determined in good faith by the Board of Directors. Short-term
investments having a maturity of 60 days or less are valued on the basis of
amortized cost. The preparation of financial statements requires the use of
estimates by management, principally the valuation of non-publicly traded
securities. Accordingly, the Board of Directors has established general
guidelines for calculating fair value of non-publicly traded securities. At June
30, 1996, the Fund held 1.24% of its net assets in securities valued in good
faith by the Board of Directors with an aggregate cost of $4,722,411 and fair
value of $4,722,411. The net asset value per share of the Fund is calculated
weekly, at the end of each month and at any other times determined by the Board
of Directors.
CASH: Deposits held at Brown Brothers Harriman & Co., the Fund's custodian, in a
variable rate account are classified as cash. At June 30, 1996, the interest
rate was 4.687%, which resets on a daily basis. Amounts on deposit are generally
available on the same business day.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
income tax purposes. Interest income is recorded on an accrual basis; dividend
income is recorded on the ex-dividend date.
TAXES: No provision is made for U.S. federal income or excise taxes as it is the
Fund's intention to continue to qualify as a regulated investment company and to
make the requisite distributions to its shareholders which will be sufficient to
relieve it from all or substantially all U.S. federal income and excise taxes.
The Fund is subject to and accrues a 10% Chilean repatriation tax with respect
to all remittances from Chile in excess of original invested capital. The Fund
has no current intention of remitting currency from Chile, except to the extent
necessary to pay future U.S. dollar denominated expenses and to make required
U.S. tax distributions.
FOREIGN CURRENCY TRANSLATIONS: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(I) market value of investment securities, assets and liabilities at the
current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
The Fund does not isolate that portion of gains and losses in investments in
equity securities which is due to changes in the foreign exchange rates from
that which is due to changes in market prices of equity
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
securities. Accordingly, realized and unrealized foreign currency gains and
losses with respect to such securities are included in the reported net realized
and unrealized gains and losses on investment transactions balances.
The Fund reports certain foreign currency related transactions as components of
realized gains for financial reporting purposes, whereas such components are
treated as ordinary income for U.S. federal income tax purposes.
Net currency gains from valuing foreign currency denominated assets and
liabilities at period end exchange rates are reflected as a component of net
unrealized appreciation/depreciation on investments, foreign currency holdings,
and other assets and liabilities denominated in foreign currencies.
Net realized foreign exchange gains represent foreign exchange gains and losses
from sales and maturities of debt securities, transactions in foreign currencies
and forward foreign currency contracts, exchange gains or losses realized
between the trade date and settlement dates on security transactions, and the
difference between the amounts of interest and dividends recorded on the Fund's
books and the U.S. dollar equivalent of the amounts actually received.
DISTRIBUTIONS OF INCOME AND GAINS: The Fund distributes at least annually to
shareholders, substantially all of its net investment income and net realized
short-term capital gains, if any. The Fund determines annually whether to
distribute any net realized long-term capital gains in excess of net realized
short-term capital losses, including capital loss carryovers, if any. An
additional distribution may be made to the extent necessary to avoid the payment
of a 4% U.S. federal excise tax. Dividends and distributions to shareholders are
recorded by the Fund on the ex-dividend date.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for U.S.
federal income tax purposes due to U.S. generally accepted accounting
principles/tax differences in the character of income and expense recognition.
OTHER: Securities denominated in currencies other than U.S. dollars are subject
to changes in value due to fluctuations in exchange rates.
The Chilean securities markets are substantially smaller, less liquid and more
volatile than the major securities markets in the United States. Consequently,
acquisition and disposition of securities by the Fund may be inhibited. A
significant proportion of the aggregate market value of equity securities listed
on the Santiago Exchange are held by a small number of investors and are not
publicly traded. This may limit the number of shares available for acquisition
or disposition by the Fund.
Investments in Chile may involve certain considerations and risks not typically
associated with investments in the United States including the possibility of
future political and economic developments and the level of Chilean governmental
supervision and regulation of its securities markets.
NOTE B. AGREEMENTS
BEA Associates ("BEA") serves as the Fund's investment adviser with respect to
all investments. As compensation for its advisory services, BEA receives from
the Fund an annual fee, calculated weekly and paid quarterly, equal to 1.20% of
the first $50 million of the Fund's average weekly net assets, 1.15% of the next
$50 million of the Fund's average weekly net assets, and 1.10% of amounts over
$100 million. For the six months ended June 30, 1996, BEA earned $2,046,022 for
advisory services. BEA also provides certain administrative services to the Fund
and is reimbursed
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
by the Fund for costs incurred on behalf of the Fund. For the six months ended
June 30, 1996, BEA was reimbursed $19,461 for administrative services rendered
to the Fund.
Celfin Servicios Financieros Limitada (formerly Celfin Agente de Valores
Limitada) ("Celfin") serves as the Fund's Chilean sub-adviser. In return for its
services, Celfin is paid a fee, out of the advisory fee payable to BEA, computed
weekly and paid quarterly at an annual rate of 0.15% of the first $50 million of
the Fund's average weekly net assets, 0.10% of the next $50 million of the
Fund's average weekly net assets and 0.05% of amounts over $100 million. For the
six months ended June 30, 1996, these sub-advisory fees amounted to $128,258.
Bear Stearns Funds Management Inc. ("BSFM") serves as the Fund's U.S.
administrator. The Fund pays BSFM a monthly fee that is computed weekly at an
annual rate of 0.08% of the first $100 million of the Fund's average weekly net
assets, 0.06% of the next $50 million of the Fund's average weekly net assets
and 0.04% of amounts in excess of $150 million. For the six months ended June
30, 1996, BSFM earned $97,634 for administrative services.
BEA Administration, Administradora de Fondos de Inversion de Capital Extranjero
S.A. ("AFICE") serves as the Fund's Chilean administrator. For its services,
AFICE is paid a fee, out of the advisory fee payable to BEA, that is calculated
weekly and paid quarterly at an annual rate of 0.05% of the value of the Fund's
average weekly net assets and an annual reimbursement of out-of-pocket expenses.
In addition, AFICE receives a supplemental administration fee and an accounting
fee. Such fees are paid by AFICE to Celfin for certain administrative services.
For the six months ended June 30, 1996, the administration fees, supplemental
administration fees and accounting fees amounted to $98,506, $30,318 and $3,259,
respectively.
NOTE C. CAPITAL STOCK
The authorized capital stock of the Fund is 100,000,000 shares of common stock,
$0.001, par value. Of the 14,018,673 shares outstanding at June 30, 1996, BEA
owned 14,615 shares.
The Board of Directors of the Fund approved a two-for-one stock split on May 16,
1995. The record date, payment date and ex-date were set for July 5, 1995, July
12, 1995 and July 17, 1995, respectively. For each share held of record,
including shares held through the Fund's Dividend Reinvestment and Cash Purchase
Plan, a shareholder received one additional share of the Fund's common stock,
par value $0.001 per share. Shareholders holding fractional shares received a
cash payment for their fractional share interest based on the reported closing
price of the common stock on the New York Stock Exchange on the ex-distribution
date. Certificates were first mailed to shareholders on or about July 14, 1995.
Shareholders holding shares through the Fund's dividend reinvestment and cash
purchase plan did not receive certificates evidencing such additional shares but
instead had such additional shares credited to their plan account.
NOTE D. INVESTMENT TRANSACTIONS
For U.S. federal income tax purposes, the cost of securities owned at June 30,
1996 was $122,430,490. Accordingly, the net unrealized appreciation of
investments (including investments denominated in foreign currencies) of
$258,486,200, was composed of gross appreciation of $275,891,091 for those
investments having an excess of value over cost and gross depreciation of
$17,404,891 for those investments having an excess of cost over value.
For the six months ended June 30, 1996, purchases and sales of securities, other
than short-term obligations, were $721,977 and $1,925,637, respectively.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
NOTE E. CREDIT AGREEMENT
The Fund, along with 17 other U.S. regulated investment companies for which BEA
serves as investment adviser, has a credit agreement with The First National
Bank of Boston. The agreement provides that each fund is permitted to borrow an
amount equal to the lesser of $50,000,000 or 25% of the net assets of the fund.
However, at no time shall the aggregate outstanding principal amount of all
loans to any of the 18 funds exceed $50,000,000. The line of credit will bear
interest at (i) the greater of the bank's prime rate or the Federal Funds
Effective Rate plus 0.50% or (ii) the Adjusted Eurodollar Rate plus 1.50%. The
Fund had no amounts outstanding under the credit agreement at June 30, 1996.
- --------------------------------------------------------------------------------
17
<PAGE>
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
On April 23, 1996, the annual meeting of shareholders of The Chile Fund, Inc.
(the "Fund") was held and the following matters were voted upon:
(1) To re-elect three directors to the Board of Directors of the Fund.
<TABLE>
<CAPTION>
NAME OF DIRECTOR FOR WITHHELD NON-VOTES
- --------------------------------------------------------------------------------- ------------ --------- ----------
<S> <C> <C> <C>
Enrique R. Arzac* 10,642,284 121,306 3,255,083
Emilio Bassini 10,673,340 90,250 3,255,083
James J. Cattano 10,639,391 124,199 3,255,083
</TABLE>
- --------------
* On February 13, 1996, the Board of Directors increased the size of the Fund's
Board of Directors to 6 and Dr. Enrique R. Arzac was elected to fill the newly
created vacancy. The election of Dr. Arzac was submitted to the Fund's
shareholders for their ratification at the annual meeting of shareholders.
In addition to the directors re-elected at the meeting, George W. Landau, Daniel
Sigg and Jose Luiz Ibanez continue to serve as directors of the Fund.
(2) To ratify the selection of Coopers & Lybrand L.L.P. as independent public
accountants for the year ending December 31, 1996.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTES
------------ ------------ --------- ----------
<S> <C> <C> <C> <C>
10,685,509 41,647 36,434 3,255,083
</TABLE>
- --------------------------------------------------------------------------------
18
<PAGE>
DESCRIPTION OF DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to The Chile Fund, Inc.'s (the "Fund") Dividend Reinvestment and Cash
Purchase Plan (the "Plan"), each shareholder will be deemed to have elected,
unless the Fund's transfer agent as the Plan Agent (the "Plan Agent"), is
otherwise instructed by the shareholder in writing, to have all dividends and
distributions, net of any applicable U.S. withholding tax, automatically
reinvested in additional shares of the Fund. Shareholders who do not participate
in the Plan will receive all dividends and distributions in cash, net of any
applicable U.S. withholding tax, paid in dollars by check mailed directly to the
shareholder by the Plan Agent, as dividend-paying agent. Shareholders who do not
wish to have dividends and distributions automatically reinvested should notify
the Plan Agent for the Fund, at the address set forth below. Dividends and
distributions with respect to shares registered in the name of a broker-dealer
or other nominee (i.e., in "street name") will be reinvested under the Plan
unless such service is not provided by the broker or nominee or the shareholder
elects to receive dividends and distributions in cash. A shareholder whose
shares are held by a broker or nominee that does not provide a dividend
reinvestment program may be required to have his shares registered in his own
name to participate in the Plan. Investors who own shares of the Fund's common
stock registered in street name should contact the broker or nominee for details
concerning participation in the Plan.
Certain distributions of cash attributable to (a) some of the dividends and
interest amounts paid to the Fund and (b) certain capital gains earned by the
Fund that are derived from securities of certain foreign issuers are subject to
taxes payable by the Fund at the time amounts are remitted. Such taxes, if any,
will be borne by the Fund and allocated to all shareholders in proportion to
their interests in the Fund.
The Plan Agent serves as agent for the shareholders in administering the Plan.
If the Board of Directors of the Fund declares an income dividend or a capital
gains distribution payable either in the Fund's common stock or in cash, as
shareholders may have elected, nonparticipants in the Plan will receive cash and
participants in the Plan will receive common stock to be issued by the Fund. If
the market price per share on the valuation date equals or exceeds net asset
value per share on that date, the Fund will issue new shares to participants
valued at net asset value or, if the net asset value is less than 95% of the
market price on the valuation date, then valued at 95% of the market price. If
net asset value per share on the valuation date exceeds the market price per
share on that date, participants in the Plan will receive shares of stock from
the Fund valued at the market price.
The valuation date is the dividend or distribution payment date or, if that date
is not a New York Stock Exchange trading day, the next preceding trading day. If
the Fund should declare an income dividend or capital gains distribution payable
only in cash, the Plan Agent will, as agent for the participants, buy Fund
shares in the open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts on, or shortly after, the payment date.
Participants in the Plan have the option of making additional cash payments to
the Plan Agent, semiannually, in any amount from $100 to $3,000, for investment
in the Fund's common stock. The Plan Agent will use all funds received from
participants to purchase Fund shares in the open market on or about February 15
and August 15 of each year. Any voluntary cash payments received more than 30
days prior to these dates will be returned by the Plan Agent and interest will
not be paid on any uninvested cash payments. To avoid unnecessary cash
accumulations, and also to allow ample time for receipt and processing by the
Plan Agent, it is suggested that participants send in voluntary cash payments to
be received by the Plan Agent approximately 10 days before February 15 or August
15, as the case may be. A participant may withdraw a voluntary cash payment by
written notice, if
- --------------------------------------------------------------------------------
19
<PAGE>
DESCRIPTION OF DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (CONTINUED)
the notice is received by the Plan Agent not less than 48 hours before the
payment is to be invested. A participant's tax basis in his shares acquired
through his optional investment right will equal his cash payments to the Plan,
including any cash payments used to pay brokerage commissions allocable to his
acquired shares.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in the name of the
participant and each shareholder's proxy will include those shares purchased
pursuant to the Plan.
In the case of a shareholder, such as a bank, broker or nominee, that holds
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are to participate in the
Plan.
There is no charge to participants for reinvesting dividends or capital gains
distributions payable in either stock or cash. The Plan Agent's fees for the
handling of reinvestment of such dividends and capital gains distributions will
be paid by the Fund. There will be no brokerage charges with respect to shares
issued directly by the Fund as a result of dividends and capital gains
distributions payable either in stock or in cash. However, each participant will
be charged by the Plan Agent a pro rata share of brokerage commissions incurred
with respect to the Plan Agent's open market purchases in connection with
voluntary cash payments made by the participant or the reinvestment of dividends
and capital gains distributions payable only in cash. Brokerage charges for
purchasing small amounts of stock for individual accounts through the Plan are
expected to be less than the usual brokerage charges for such transactions
because the Plan Agent will be purchasing stock for all participants in blocks
and prorating the lower commission thus obtainable. Brokerage commissions will
vary based on, among other things, the broker selected to effect a particular
purchase and the number of participants on whose behalf such purchase is being
made. The Fund cannot predict, therefore, whether the cost to a participant who
makes a voluntary cash payment will be less than if a participant were to make
an open market purchase on the Fund's common stock on his own behalf.
The receipt of dividends and distributions in stock under the Plan will not
relieve participants of any income tax (including withholding tax) that may be
payable on such dividends and distributions.
Experience under the Plan may indicate that changes in the Plan are desirable.
Accordingly the Fund and the Plan Agent reserve the right to terminate the Plan
as applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to notice of the termination sent to the members of the Plan at
least 30 days before the semiannual contribution date, in the case of voluntary
cash payments, or the record date for dividends or distributions. The Plan also
may be amended by the Fund or the Plan Agent, but (except when necessary or
appropriate to comply with applicable law, rules or policies of a regulatory
authority) only by at least 30 days' written notice to members of the Plan. All
correspondence concerning the Plan should be directed to the Plan Agent, The
First National Bank of Boston, Investor Relations Department, P.O. Box 644, Mail
Stop 45-02-09, Boston, Massachusetts 02102-0644 or by telephone at
1-800-730-6001.
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20
<PAGE>
SUMMARY OF GENERAL INFORMATION
The Fund-The Chile Fund, Inc.--is a closed-end, non-diversified management
investment company whose shares trade on the New York Stock Exchange. Its
investment objective is total return, consisting of long-term capital
appreciation and current income through investments primarily in Chilean
equity and debt securities. The Fund is managed and advised by BEA Associates
(""BEA''). BEA is a diversified asset manager, handling equity, balanced, fixed
income, international and derivative based accounts. Portfolios include
international and emerging market investments, common stocks, taxable and
non-taxable bonds, options, futures and venture capital. BEA manages money
for corporate pension and profit-sharing funds, public pension funds, union
funds, endowments and other charitable institutions and private individuals.
As of June 30, 1996, BEA managed approximately $28.7 billion in assets. BEA
also advises eight other international closed-end funds: The Brazilian Equity
Fund, Inc., The First Israel Fund, Inc., The Emerging Markets Infrastructure
Fund, Inc., The Emerging Markets Telecommunications Fund, Inc., The Indonesia
Fund, Inc., The Latin America Equity Fund, Inc., The Latin America Investment
Fund, Inc. and The Portugal Fund, Inc.
SHAREHOLDER INFORMATION
The market price is published in: THE NEW YORK TIMES (daily) under the
designation ""Chile'' and THE WALL STREET JOURNAL (daily), and BARRON'S (each
Monday) under the designation ""ChileFd''. The Fund's New York Stock Exchange
trading symbol is CH. Weekly comparative net asset value (NAV) and market
price information about The Chile Fund, Inc.'s shares are published each
Sunday in THE NEW YORK TIMES and each Monday in THE WALL STREET JOURNAL and
BARRON'S, as well as other newspapers, in a table called ""Closed End Funds.''
To request an annual report, or to be placed on the Fund's mailing list,
shareholders should call 1-800-293-1232.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN-SUMMARY
An automatic Dividend Reinvestment and Cash Purchase Plan (the ""Plan'') is
available to provide shareholders with automatic reinvestment of their
dividend income and capital gain distributions in additional shares of the
Fund's common stock.
As per the Plan, each shareholder will be automatically reinvested in
additional shares of the Fund by The First National Bank of Boston, unless
otherwise instructed by the shareholder in writing. Shareholders who do not
participate in the Plan will receive all dividends and distributions in cash
paid by check in U.S. dollars. Shares registered in street name will be
reinvested under the Plan, unless the broker-dealer or other nominee does not
provide a dividend reinvestment plan or the shareholder elects to receive
their dividends in cash.
<PAGE>
DIRECTORS AND CORPORATE OFFICERS
Emilio Bassini Chairman of the Board
of Directors, President
and Chief Investment Officer
Enrique R. Arzac Director
James J. Cattano Director
Jose Luiz Ibanez Director
George W. Landau Director
Daniel Sigg Director and
Senior Vice President
Richard Watt Senior Vice President
and Investment Officer
Paul P. Stamler Senior Vice President
Michael A. Pignataro Chief Financial Officer
and Secretary
Rachel D. Manney Vice President and Treasurer
INVESTMENT ADVISER
BEA Associates
One Citicorp Center
153 East 53rd Street
New York, NY 10022
ADMINISTRATOR
Bear Stearns Funds Management Inc.
245 Park Avenue
New York, NY 10167
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
SHAREHOLDER SERVICING AGENT
The First National Bank of Boston
P.O. Box 1865
Mail Stop 45-02-62
Boston, MA 02105-1865
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, PA 19103
LEGAL COUNSEL
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022
This report, including the financial statements herein, is sent to the
shareholders of the Fund for their information. The financial information
included herein is taken from the records of the Fund without examination by
independent accountants who do not express an opinion thereon. It is not a
prospectus, circular or representation intended for use in the purchase or
sale of shares of the Fund or of any securities mentioned in this report.
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