<PAGE>
THE CHILE FUND, INC.
- ----------------------------------------
ANNUAL REPORT
DECEMBER 31, 1996
[PHOTO]
<PAGE>
CONTENTS
<TABLE>
<S> <C>
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
Report of Independent Accountants............................................................. 18
Results of Annual Meeting of Shareholders..................................................... 19
Tax Information............................................................................... 19
Description of Dividend Reinvestment and Cash Purchase Plan................................... 20
</TABLE>
PICTURED ON THE COVER IS THE SANTIAGO STOCK EXCHANGE LOCATED IN CHILE.
- --------------------------------------------------------------------------------
<PAGE>
LETTER TO SHAREHOLDERS
February 14, 1997
DEAR SHAREHOLDER:
We are pleased to report on the activities of The Chile Fund, Inc. (the "Fund")
for the year ended December 31, 1996.
PERFORMANCE
At December 31, 1996, the Fund's net assets were $317.0 million. The Fund's net
asset value ("NAV") was $22.59 per share (net of dividends and distributions
paid of $0.89 per share), as compared to $26.45 at December 31, 1995.
For the period January 1, 1996 through December 31, 1996, the Fund's total
return based on NAV and assuming the reinvestment of dividends and
distributions, declined by 11.1%. By comparison, the total return of the IGPA
Index (the "Index"), a broad index of Chilean equities, declined by 18.1%.
The Fund outperformed the Index primarily due to very positive stock selection
in the important utilities and telecommunications sectors. According to the
Lipper International Closed-End Funds Service (the "Service"), the Fund's
performance was the best generated during the period among the five
Chile-specific funds that the Service follows.
From the commencement of investment operations on September 27, 1989 through
December 31, 1996, the Fund's total return, based on NAV and assuming the
reinvestment of dividends and distributions, was 433.3%. The Index returned
436.5% during this period.
INVESTMENT PERSPECTIVE
Chile was one of only two Latin markets to post a negative return in 1996 (the
other, Peru, fell 0.47%). The downturn in Chilean stocks is attributable to a
number of factors, mainly the tight monetary policy of the nation's central
bank. Beginning in mid-1995, the bank raised interest rates to reduce the
inflation caused by an overheating domestic economy. The ensuing slowdown hurt
industrial production, exports, consumer spending, corporate earnings and, as a
result, stock prices. Other factors included:
- - The country's worst drought in 30 years compressed margins for the electricity
sector, which accounts for a substantial weighting in Chilean stock indices;
- - Unfavorable terms of trade resulted from a simultaneous fall in the price of
copper (which is Chile's largest export and most important domestic product)
and rise in the price of oil (which Chile must import); and
- - A big drop in wood pulp prices greatly depressed earnings of forest products
companies, another meaningful index component.
Among investors, the widely hoped-for solution to the economy's (and, hence, the
market's) problems has been an easing in monetary policy via a reduction in
interest rates. Conditions began to improve enough by year-end for analysts to
forecast a rate cut by 1997's second quarter. In a surprise move, the central
bank eased rates by 25 basis points in early February.
- --------------------------------------------------------------------------------
1
<PAGE>
LETTER TO SHAREHOLDERS
Although we believe that a rate cut of 100-200 basis points would be optimal for
equities, we are not disappointed by this first, relatively small, step. In our
view, the February cut is the first of more to come in a gradual process that
should enable the central bank to achieve a "soft landing" for the economy.
We regard current conditions as quite favorable for stocks' performance. Chief
among them is the improved interest-rate climate, which will help to keep
inflation in check. In addition, we note that the drought will likely end in the
next few months, allowing for much better performance by the electricity sector;
the level of foreign investment in Chile, both direct and through the capital
markets, continues to reach new highs; the peso has appreciated and is now more
directly aligned with the strong U.S. dollar, which should make further rate
cuts more viable; and the Argentine economy, which is an important growth market
for many of the largest Chilean companies, is rebounding from its own recent
downturn.
A potentially huge source of demand for equities is the requirement that all
Chilean employees contribute 10% of their annual wages to any of 13 private
pension funds approved by the government. Collectively known by their Spanish
acronym, "AFPs," these funds are the largest institutional investors in Chile:
at the end of 1996, they managed $27.5 billion in assets, including over 10% of
the market value of all Chilean stocks.
Two factors should serve as catalysts to boost AFP demand for equities. First,
the fixed return on debt instruments has been high enough to discourage an
aggressive equity allocation. This risk/reward balance will begin to tilt in
favor of stocks as interest rates decline. Second, AFPs have only about 26% of
assets invested in stocks, much lower than the maximum 37% allowed by government
guidelines. Even a modest increase in the current equity allocation will inject
considerable upward pressure into the market.
HIGHLIGHTED COMPANIES
To best illustrate our approach to selecting stocks, we'd like to talk in
greater detail about several of the Fund's holdings.
COMPANIA DE PETREOLEOS DE CHILE S.A.
One of the original stocks in the portfolio is Compania de Petreoleos de Chile
S.A., more conveniently referred to as "Copec." Copec is a holding company for a
variety of businesses, principally forestry and forest products. Other
operations include fuel distribution, electricity, fishmeal production and
retailing.
Copec is the largest private-sector company in Chile and accounts for roughly 5%
both of Chilean GDP and total Chilean exports. In terms of market
capitalization, it is the largest company listed on Chile's Santiago Stock
Exchange.
Copec's investment appeal lies in its combination of several factors, including
an anticipated turnaround in its forest products operation; its wide exposure to
the resurgent Chilean economy; its comfortable balance of cyclical, export-
oriented and stable domestic businesses; and its consistent market-share
leadership.
- --------------------------------------------------------------------------------
2
<PAGE>
LETTER TO SHAREHOLDERS
We briefly discuss Copec's favorable prospects by business line:
FORESTRY. By far, Copec's main business (approximately 66% of total
consolidated assets) is its Arauco forest products subsidiary. Including its
recent purchase of the dominant Argentine pulp company, Arauco is both the
world's third-largest pulp producer and the largest in Latin America's Southern
Cone.
The keys to Arauco's success are its low-cost pulp production, huge resources
and conservative capital structure. These served Copec well during the decline
in world pulp prices throughout most of 1996 and will prove even more important
when, as we expect, Arauco can leverage increased production volume onto
rebounding pulp prices to generate superior earnings growth in 1997 and 1998.
FUEL DISTRIBUTION. This is Copec's original line of business, dating back to
the company's inception in the mid-1930s. Its two distribution companies hold a
leading 52% market share of the Chilean liquid-fuel market. Roughly 60% of sales
volume goes to industrial customers and the remainder to the public via Copec's
nearly 600 nationwide service stations. Fuel distribution is a very solid,
stable business that acts as a counterweight to the cyclicality of the forest
products sector.
ELECTRICITY. Copec participates in the growth of Chile's electricity sector
through its ownership of Sociedad Austral de Electricidad S.A. ("Saesa") (the
nation's fifth-largest electricity distributor), minority interest in Compania
General de Electricidad S.A ("CGE") (the second-largest distributor) and 9.5%
stake in Chilgener S.A. (the second-largest generator). Investment in
electricity has risen in the last few years and, in our view, should make a
meaningful contribution to earnings in 1997 and 1998.
FISHMEAL. Through its controlling stake in Chile's largest fishing company,
Igemar, Copec meets about one-third of the world's fishmeal demand. Igemar
suffered through most of the early 1990s from the worldwide fishing recession,
but reversed its losses in 1996 via improved efficiency in cost management and
production. We believe that Igemar's performance will continue to improve as
fishmeal prices keep rising above their recessionary levels.
RETAIL. Copec owns ABC, the largest retailer of appliances in the domestic
market. ABC benefits from rising Chilean disposable income, the improving
economy and relatively low market penetration. Its main source of earnings,
however, is the interest income from its consumer credit operations. [Note: We
will see this again in our discussion of Falabella.]
COMPANIA MANUFACTURERA DE PAPELES Y CARTONES S.A.
We believe that Chilean forestry stocks will experience a major turnaround this
year as investors' negative perceptions of the worldwide paper industry slump
begin to give way to greater optimism about prospects for 1998. With this in
mind, we have positioned the portfolio accordingly. In addition to Copec, one of
the Fund's oldest and biggest holdings is Compania Manufacturera de Papeles y
Cartones S.A. ("CMPC"), Chile's second-largest forest products company.
Other factors enhance CMPC's significant appreciation potential:
- - Its shares have been unduly pummeled along with those of the many forestry
companies that concentrate on producing relatively low-value, commodity raw
materials. By contrast, CMPC adds value to its domestic production by using it
to make consumer paper products, packaging materials and newsprint. Its stock
price should reflect this important distinction.
- - Because it has less flexibility in setting its paper prices, CMPC tends to
have a revenue stream that is somewhat less vulnerable to fluctuations in pulp
prices than that of Copec.
- --------------------------------------------------------------------------------
3
<PAGE>
LETTER TO SHAREHOLDERS
- - It has moved to increase its presence in the domestic market by acquiring the
20% equity interests in two paper and forestry companies previously held by
Scott Paper.
- - It is aggressively pursuing regional and product diversification within Latin
America. This is most prominent in Argentina, where CMPC has complete or
significant ownership stakes in makers of industrial bags, flexible packaging
and disposable diapers. New facilities also are planned for locations in Peru
and Brazil.
SOCIEDAD ANONIMA COMERCIAL E INDUSTRIAL FALABELLA
Sociedad Anonima Comercial e Industrial Falabella ("Falabella") is Chile's
largest department store chain, with an approximately 40% share of the
department store market. It is a very new listing on the Santiago Stock
Exchange, having sold a 5% stake to the public in its December 1996 initial
public offering.
As we noted in our comments on Copec's ABC subsidiary, conditions for retailers
in Chile are favorable. Disposable income is increasing, the overall economy is
improving and store penetration is relatively low, all of which suggest that
there is much growth potential for the industry. Falabella certainly benefits
from all of these factors, particularly the increase in disposable income, since
its target sector is middle-income consumers (whose disposable income is rising
most quickly).
Perhaps the most important element in Falabella's success is its consumer credit
operation. This aspect of the business achieves profit margins exceeding 15% and
represents about 40% of consolidated earnings. It also serves as a substantial
competitive advantage: Falabella offers the cheapest credit in the market and
has the lowest cost of funds, enabling it both to generate higher profitability
than its competitors and reduce margins sufficiently to force smaller
competitors out of the business.
Another major positive for Falabella is its ownership of much of the land on
which its stores reside. For example, it owns a 50% stake in three shopping
malls whose store units contribute about 8% of consolidated earnings. In
addition, its stores already occupy Chile's most desirable retail sites, meaning
that major foreign competitors such as Wal-Mart and France's Carrefour are
effectively shut out of the Chilean market.
Along with regional expansion into Peru and Argentina, the preceding factors
make a formidable case for investment in Falabella shares. We see great
potential for long-term appreciation.
OUTLOOK
Looking ahead, we feel quite positively about the future prospects for Chilean
equities. By several measures, valuations are very attractive. The
interest-rate/inflation environment is becoming more favorable. The climate for
corporate earnings is improving. Terms of trade are returning to an agreeable
status quo. The central bank's commitment to reduce inflation is strongly
supportive of equity growth over the long term. AFPs, virtually inevitably, will
provide tremendous liquidity to the market.
- --------------------------------------------------------------------------------
4
<PAGE>
LETTER TO SHAREHOLDERS
We would like to take this opportunity to reiterate our principal investment
rationale: that Chile is one of the "safe havens" among emerging capital markets
generally and those of Latin America particularly. Its fundamental soundness
rests on a foundation of stable democracy, pro-market economic direction, strict
economic vigilance, moderate-yet-sustainable GDP growth and superior social
indicators relative to other Latin American nations.
In an important organizational development, Richard Watt of BEA Associates has
been named as the Fund's President and Chief Investment Officer as of January 1,
1997. Richard has contributed his expertise in emerging equity markets to the
Fund and several other BEA closed-end funds since joining BEA in 1995. He
succeeds Emilio Bassini, who guided the Fund from its 1989 inception through the
end of 1996. Emilio resigned his position in order to focus his efforts
exclusively on private equity investments through his recently organized firm,
Bassini, Playfair + Associates LLC, and will continue to serve BEA as a
consultant.
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 20 and
21 of this report.
As developments occur in Chile or at BEA that we believe would be of interest to
you, we will be sure to keep you informed. Meanwhile, if you have questions,
please feel free to call upon us at any time.
Respecfully,
[SIG]
Richard W. Watt
President and Chief Investment Officer*
- --------------------------------------------------------------------------------
* Richard Watt, who is a Managing Director of BEA Associates, is primarily
responsible for management of the Fund's assets. Mr. Watt has served the Fund in
such capacity since January 1, 1997. He joined BEA on August 2, 1995. Mr. Watt
was formerly associated with Gartmore Investment Limited in London, where he was
head of emerging markets investments and research. In this capacity, he led a
team of four portfolio managers and was manager of a closed-end Latin American
fund focusing on smaller companies. Before joining Gartmore in 1992, Mr. Watt
was a director of Kleinwort Benson International Investments in London, where he
was responsible for research, analysis and trading of equities in Latin America
and other regions. Mr. Watt is a Director, President and Chief Investment
Officer of the Fund. Mr. Watt is also Director, President and Chief Investment
Officer of The Brazilian Equity Fund, Inc., 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.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
PORTFOLIO SUMMARY - AS OF DECEMBER 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
12/31/1996 12/31/1995
<S> <C> <C>
Banking 1.98% 2.26%
Consumer Goods 1.45% 3.18%
Electric Distribution 16.39% 13.79%
Electric Generation 22.00% 23.68%
Engineering & Construction 3.20% 2.98%
Fertilizer 3.06% 2.58%
Financial Services 3.07% 4.87%
Food & Beverages 12.42% 12.10%
Forestry 10.85% 12.08%
Mining 2.80% 2.10%
Telecommunications 15.95% 12.57%
Other 6.83% 7.81%
</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 14.0
- ---------------------------------------------------------------------------------------------------------------------
2. Chilectra S.A. Electric Distribution 9.1
- ---------------------------------------------------------------------------------------------------------------------
3. Enersis S.A. Electric Generation 9.0
- ---------------------------------------------------------------------------------------------------------------------
4. Empresa Nacional de Electricidad S.A. Electric Generation 8.2
- ---------------------------------------------------------------------------------------------------------------------
5. Embotelladora Andina S.A. Food & Beverages 5.7
- ---------------------------------------------------------------------------------------------------------------------
6. Compania de Petreoleos de Chile S.A. Forestry 5.3
- ---------------------------------------------------------------------------------------------------------------------
7. Chilgener S.A. Electric Generation 4.0
- ---------------------------------------------------------------------------------------------------------------------
8. Empresas Emel S.A. Electric Distribution 3.8
- ---------------------------------------------------------------------------------------------------------------------
9. Compania Manufacturera de Papeles y Cartones S.A. Forestry 3.6
- ---------------------------------------------------------------------------------------------------------------------
10. Sociedad Quimica y Minera de Chile S.A. Fertilizer 3.1
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
<S> <C> <C>
- -----------------------------------------------------
EQUITY OR EQUITY-LINKED SECURITIES-101.88%
AGRICULTURE-0.11%
Inversiones Agricolas e
Industriales S.A........ 1,003,524 $ 354,704
-----------
BANKING-1.98%
Banco de Credito e
Inversiones............. 721,628 4,608,488
Banco Santander Chile+... 25,706,975 1,675,027
-----------
6,283,515
-----------
BASIC METALS-0.50%
Ceramicas Cordillera
S.A..................... 316,132 1,571,906
-----------
CONSUMER DURABLES-1.04%
Companias Cic S.A........ 974,398 126,292
Empresas Almacenes
Paris+.................. 4,075,714 3,169,520
-----------
3,295,812
-----------
CONSUMER GOODS-1.45%
Compania Tecno Industrial
S.A..................... 203,162,821 4,596,119
-----------
ELECTRIC DISTRIBUTION-16.38%
Chilectra S.A............ 4,748,691 24,507,207
Chilectra S.A. ADS++..... 80,400 4,351,650
Compania General de
Electricidad S.A........ 1,502,814 5,985,049
Empresa Electrica de
Antofagasta S.A......... 380,447 162,274
Empresa Electrica de
Arica S.A............... 6,241,491 1,323,752
Empresa Electrica de
Iquique S.A............. 5,913,829 1,532,983
Empresas Emel S.A........ 536,777 11,890,430
Sociedad Austral de
Electricidad S.A........ 84,081 2,179,547
-----------
51,932,892
-----------
<CAPTION>
No. of Value
Description Shares (Note A)
- -----------------------------------------------------
<S> <C> <C>
ELECTRIC GENERATION-22.00%
Chilgener S.A............ 2,570,395 $12,720,230
Chilquinta Energia
S.A..................... 108,303 1,204,643
Empresa Electrica
Pilmaiquen S.A.......... 1,758,084 1,408,622
Empresa Nacional de
Electricidad S.A........ 52,227,708 25,969,239
Enersis S.A.............. 54,233,012 28,436,067
-----------
69,738,801
-----------
ENGINEERING & CONSTRUCTION-3.20%
Besalco S.A.............. 470,540 2,993,892
Cemento Polpaico S.A..... 51,502 2,753,691
Empresas Pizarreno
S.A..................... 98,267 185,256
Inversiones Industriales
San Jose S.A............ 26,609 5,706
Maderas y Sinteticos
Sociedad Anonima........ 9,316,048 4,193,155
-----------
10,131,700
-----------
FERTILIZER-3.06%
Sociedad Quimica y Minera
de Chile S.A., Class
A....................... 1,446,507 6,715,256
Sociedad Quimica y Minera
de Chile S.A., Class
B....................... 570,322 2,976,937
-----------
9,692,193
-----------
FINANCIAL SERVICES-3.07%
Administradora de Fondos
de Pensiones Provida
S.A. ADS................ 68,600 1,286,250
Antarchile S.A., Class
A....................... 493,805 1,512,776
Antarchile S.A., Class
C....................... 302,021 996,417
Compania de Inversiones
Los Almendros, Class
A....................... 1,540,000 522,587
Compania de Inversiones
Luz y Fuerza S.A., Class
A....................... 1,540,000 522,587
Elecmetal S.A............ 378,598 2,230,458
Invercap S.A............. 1,594,008 1,070,560
Inversiones Litani
S.A.+................... 795,826 82,499
Maritima de Inversiones
S.A..................... 4,068,627 651,977
Quemchi S.A.............. 691,164 832,296
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
- -----------------------------------------------------
<S> <C> <C>
FINANCIAL SERVICES (CONTINUED)
Sipsa Sociedad de
Inversiones Industriales
y Pesqueras S.A......... 45,274 $ 31,314
-----------
9,739,721
-----------
FISHERY-0.69%
Empresas Pesquera Eperva
S.A., Class A........... 1,518,489 379,667
Pesquera Itata S.A....... 4,819,291 1,005,084
Sociedad Pesquera Coloso
S.A..................... 1,293,879 792,762
-----------
2,177,513
-----------
FOOD & BEVERAGES-12.42%
Compania Cervecerias
Unidas S.A.(a).......... 2,258,304 7,077,988
Compania Cervecerias
Unidas S.A. ADR......... 41,000 661,125
Distribucion y
Servicio+............... 3,211,264 1,785,927
Embotelladora Andina
S.A.(b)................. 3,744,969 18,179,890
Embotelladora Arica*..... 6,887,442 2,972,364
Embotelladora Polar
S.A..................... 4,801,231 3,620,582
Empresas Iansa S.A....... 12,906,344 2,767,709
Empresas Santa Carolina
S.A., Series A.......... 2,486,850 2,051,131
Empresas Santa Carolina
S.A., Series B.......... 248,685 205,113
Jugos Concentrados
S.A..................... 1,520,788 63,613
-----------
39,385,442
-----------
FORESTRY-10.85%
Compania Chilena de
Fosforos S.A............ 500,585 1,368,395
Compania de Petreoleos de
Chile S.A............... 4,688,202 16,848,140
Compania Manufacturera de
Papeles y Cartones
S.A..................... 1,047,197 11,277,696
Forestal Cholguan........ 302,327 220,859
Forestal Terranova....... 2,430,030 2,462,385
Industrias Forestales
S.A..................... 9,385,866 1,393,448
<CAPTION>
No. of Value
Description Shares (Note A)
- -----------------------------------------------------
<S> <C> <C>
FORESTRY (CONTINUED)
Maderas Prensadas
Cholguan S.A............ 3,292,764 $ 814,752
-----------
34,385,675
-----------
HEALTH CARE-0.86%
Banmedica S.A............ 8,266,362 2,727,208
-----------
INFRASTRUCTURE-0.70%
Infra Structura 2000*+... 9,915,191 2,211,593
-----------
INSURANCE-0.27%
Compania de Seguros La
Prevision Vida S.A...... 818,209 852,241
-----------
MACHINERY & ELECTRIC-0.30%
Madeco S.A. NPV ADR...... 38,700 938,475
-----------
MINING-2.80%
Antofagasta Holdings
P.L.C................... 1,338,500 7,796,147
Empresa Minera de Mantos
Blancos S.A............. 486,098 836,224
Minera Lo Valdes Ltda.... 30,415 5,304
Sociedad Punta del Cobre
S.A., Class A........... 2,423 229,824
-----------
8,867,499
-----------
PACKAGING-0.15%
Envases del Pacifico
S.A..................... 940,909 470,066
-----------
PHARMACEUTICALS-0.83%
Laboratorio Chile S.A.... 3,205,566 2,643,921
-----------
REAL ESTATE-0.23%
Inmobiliaria Urbana
S.A..................... 407,310 734,281
-----------
RETAIL-1.05%
Santa Isabel S.A......... 278,190 396,618
Sociedad Anonima
Comercial e Industrial
Falabella............... 3,656,195 2,929,436
-----------
3,326,054
-----------
SHIPPING-0.46%
Compania Sud Americana de
Vapores S.A............. 1,632,577 1,231,117
Puerto de Lirquen S.A.... 76,440 72,054
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
- -----------------------------------------------------
<S> <C> <C>
SHIPPING (CONTINUED)
Puerto Ventanas S.A...... 112,988 $ 157,097
-----------
1,460,268
-----------
STEEL-0.98%
Compania de Aceros del
Pacifico S.A............ 1,594,008 3,117,772
-----------
TELECOMMUNICATIONS-15.95%
Compania de
Telecomunicaciones de
Chile S.A. ADS.......... 12,400 1,253,950
Compania de
Telecomunicaciones de
Chile S.A., Class A..... 7,279,417 41,775,808
Compania de
Telecomunicaciones de
Chile S.A., Class B..... 287,490 1,490,463
Empresa Nacional de
Telecomunicaciones
S.A..................... 890,731 6,045,258
-----------
50,565,479
-----------
TEXTILES-0.08%
Zalaquett S.A............ 1,496,767 247,327
-----------
TOBACCO-0.44%
Empresas CCT S.A......... 222,137 1,413,385
-----------
WHOLESALE-0.03%
Zona Franca de Iquique
S.A..................... 289,797 99,706
-----------
TOTAL EQUITY OR EQUITY-LINKED SECURITIES
(Cost $121,312,130).................... 322,961,268
-----------
SHORT-TERM INVESTMENTS-2.47%
CHILEAN INFLATION-ADJUSTED TIME DEPOSIT-0.03%
<CAPTION>
Units (000)
-------------
<S> <C> <C>
Banco de O'Higgins,
7.00%, 01/08/97** (Cost
$101,707)............... CLP 3 98,975
-----------
<CAPTION>
No. of Value
Shares (Note A)
- -----------------------------------------------------
<S> <C> <C>
CHILEAN MUTUAL FUNDS-1.68%
Fondo Bancredito
Redimiento.............. 21,717 $ 826,799
Fondo Mutuo Banco
Santander............... 260,094 883,434
Fondo Mutuo Operacional
BanChile................ 194,912 2,143,518
Fondo Mutuo Security
Check................... 363,411 1,468,675
-----------
TOTAL CHILEAN MUTUAL FUNDS (Cost
$5,323,812)............................ 5,322,426
-----------
TIME DEPOSIT-0.76%
<CAPTION>
Par (000)
-------------
<S> <C> <C>
The Chase Manhattan Bank,
N.A., 7.00%, 01/06/97
(Cost $2,428,790)....... USD 2,429 2,428,790
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost
$7,854,309)............................ 7,850,191
-----------
TOTAL INVESTMENTS-104.35%
(Cost $129,166,439) (Notes A,D)........ 330,811,459
LIABILITIES IN EXCESS OF CASH AND OTHER
ASSETS-(4.35)%......................... (13,799,651)
-----------
NET ASSETS-100.00%...................... $317,011,808
-----------
-----------
- ---------------------------------------------------------
* 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 493,385 rights attached, expiring
01/18/97, with no market value.
(b) With an additional 482,018 rights attached, expiring
01/14/97, with no market value.
ADR American Depositary Receipts.
ADS American Depositary Shares.
CLP Chilean Pesos.
USD United States Dollars.
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost
$129,166,439) (Note A)................. $330,811,459
Cash (including $450,204 of foreign
currencies with a cost of $450,204)
(Note A)............................... 1,757,253
Receivables:
Investments sold...................... 1,114,133
Dividends............................. 26,638
Interest.............................. 1,643
Prepaid expenses........................ 4,079
------------
Total Assets............................ 333,715,205
------------
LIABILITIES
Payables:
Dividend (Note A)..................... 12,071,000
Investments purchased................. 1,780,458
Advisory fees (Note B)................ 1,013,334
Administration fees (Note B).......... 29,943
Other accrued expenses................ 253,662
Chilean repatriation tax (Note A)..... 1,555,000
------------
Total Liabilities....................... 16,703,397
------------
NET ASSETS (applicable to 14,036,046
shares of common stock outstanding)
(Note C)............................... $317,011,808
------------
------------
NET ASSET VALUE PER SHARE ($317,011,808
DIVIDED BY 14,036,046)................ $22.59
------------
------------
NET ASSETS CONSIST OF
Capital stock, $0.001 par value;
14,036,046 shares issued and
outstanding (100,000,000 shares
authorized)............................ $ 14,036
Paid-in capital......................... 115,120,016
Distribution in excess of net investment
income................................. (2,224,031)
Accumulated net realized gain on
investments and foreign currency
related transactions................... 2,461,355
Net unrealized appreciation in value of
investments and translation of other
assets and liabilities denominated in
foreign currencies..................... 201,640,432
------------
Net assets applicable to shares
outstanding............................ $317,011,808
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Income (Note A):
Dividends............................. $ 13,281,018
Interest.............................. 521,024
Less: Foreign taxes withheld.......... (101,969)
------------
Total Investment Income............... 13,700,073
------------
Expenses:
Investment advisory fees (Note B)..... 4,104,153
Custodian fees........................ 564,298
Administration fees (Note B).......... 277,047
Accounting fees....................... 151,186
Printing.............................. 91,984
Audit and legal fees.................. 73,464
Insurance............................. 44,636
Transfer agent fees................... 29,759
Directors' fees....................... 26,822
NYSE listing fees..................... 24,295
Other................................. 27,952
Chilean repatriation tax (Note A)..... 1,741,341
------------
Total Expenses........................ 7,156,937
------------
Net Investment Income................. 6,543,136
------------
NET REALIZED AND UNREALIZED LOSS ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized gain/(loss) from:
Investments........................... 7,378,958
Foreign currency related
transactions......................... (105,443)
Net change in unrealized appreciation in
value of investments and translation of
other assets and liabilities
denominated in foreign currencies...... (55,537,675)
------------
Net realized and unrealized loss on
investments and foreign currency
related transactions................... (48,264,160)
------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................ $(41,721,024)
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
11
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended December
31,
-----------------------------
1996 1995*
<S> <C> <C>
-----------------------------
INCREASE/(DECREASE) IN NET ASSETS
Operations:
Net investment income................. $ 6,543,136 $ 9,074,945
Net realized gain on investments and
foreign currency related
transactions......................... 7,273,515 2,624,661
Net change in unrealized appreciation
in value of investments and
translation of other assets and
liabilities denominated in foreign
currencies........................... (55,537,675) 3,280,611
------------ ------------
Net increase/(decrease) in net
assets resulting from operations... (41,721,024) 14,980,217
------------ ------------
Dividends and distributions to
shareholders:
Net investment income................. (6,546,741) (9,024,230)
In excess of net investment income.... (2,224,031) --
Net realized gain on investments and
foreign currency related
transactions......................... (3,720,788) (3,152,971)
------------ ------------
Total dividends and distributions to
shareholders....................... (12,491,560) (12,177,201)
------------ ------------
Capital share transactions (Note C):
Proceeds from 39,128 shares and 18,580
shares, respectively, issued in
reinvestment of dividends............ 948,897 425,598
------------ ------------
Total increase/(decrease) in net
assets............................. (53,263,687) 3,228,614
------------ ------------
NET ASSETS
Beginning of year....................... 370,275,495 367,046,881
------------ ------------
End of year (including undistributed net
investment income of $109,048 for the
year ended December 31, 1995.)......... $317,011,808 $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 Years Ended For the Period
December 31, September 27, 1989*
-------------------------------------------------------------------------------- through
1996 1995 1994+ 1993 1992 1991 1990 December 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.... 0.47 0.65 0.42 0.35 0.39 0.49 0.78 0.02
Net realized and
unrealized gain/(loss)
on investments and
foreign currency related
transactions............ (3.44) 0.41++ 6.24 5.96 1.93 7.21 1.17 0.67
--------- -------- -------- -------- --------- --------- -------- --------
Net increase/(decrease)in
net assets resulting
from operations......... (2.97) 1.06 6.66 6.31 2.32 7.70 1.95 0.69
--------- -------- -------- -------- --------- --------- -------- --------
Dividends and
distributions to
shareholders:
Net investment
income................ (0.47) (0.65) (0.47) (0.31) (0.39) (0.49) (0.63) (0.03)
In excess of net
investment income..... (0.16) -- -- -- -- -- -- (0.14)
Net realized gain on
investments and
foreign currency
related
transactions.......... (0.26) (0.22) (0.06) (0.26) (1.22) (1.09) -- --
In excess of net
realized gains on
investments and
foreign currency
related
transactions.......... -- -- -- (0.16) -- -- -- --
--------- -------- -------- -------- --------- --------- -------- --------
Total dividends and
distributions to
shareholders............ (0.89) (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.................. $22.59 $26.45 $26.26 $20.13 $15.55 $14.84 $8.72 $7.40
--------- -------- -------- -------- --------- --------- -------- --------
--------- -------- -------- -------- --------- --------- -------- --------
Market value, end of
period.................. $20.875 $26.000 $23.063 $22.250 $16.563 $11.938 $7.750 $7.813
--------- -------- -------- -------- --------- --------- -------- --------
--------- -------- -------- -------- --------- --------- -------- --------
Total investment
return(a)............... (16.43)% 16.66% 6.05% 38.82% 53.80% 71.05% 7.07% 14.17%
--------- -------- -------- -------- --------- --------- -------- --------
--------- -------- -------- -------- --------- --------- -------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted)........... $317,012 $370,275 $367,047 $281,031 $168,580 $160,360 $93,744 $79,494
Ratio of expenses to
average net assets...... 1.96%(d) 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.................. 1.79% 2.39% 1.74% 2.47% 2.17% 3.41% 9.56% 1.44%(b)
Portfolio turnover
rate.................... 4.82% 2.38% 0.86% 11.29% 6.29% 19.32% 12.63% 2.38%(c)
Average commission rate
per share(e)............ $0.0027 -- -- -- -- -- -- --
</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 investment 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.
(b) Annualized.
(c) Not annualized.
(d) Ratios include effect of repatriation taxes. The ratio of expenses to
average net assets would have been 1.48% for the year ended December
31, 1996; 1.71% for the year ended December 31, 1992; and 1.75% for
the year ended December 31, 1991, respectively, excluding repatriation
taxes.
(e) Disclosure is required for fiscal years beginning on or after
September 1, 1995. Represents average commission rate per share
charged to the Fund on purchases and sales of investments during the
period.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
13
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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:
MANAGEMENT ESTIMATES: The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make certain
estimates and assumptions that may affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
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 Board of Directors has established general guidelines for
calculating fair value of non-publicly traded securities. At December 31, 1996,
the Fund held 1.64% of its net assets in securities valued in good faith by the
Board of Directors with an aggregate cost of $5,178,491 and fair value of
$5,183,957. 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 December 31, 1996, the interest
rate was 5.00%, 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 will be subject to and accrues a 10% Chilean repatriation tax with
respect to all known and estimated remittances from Chile. The Fund does not
accrue repatriation tax with respect to all net unrealized gains on Chilean
securities as the Fund does not intend to realize and remit such unrealized
gains in the foreseeable future. If all unrealized gains on Chilean securities
had been realized and repatriated at December 31, 1996, the Fund would have to
pay a repatriation tax of approximately $19,330,452 or $1.38 per share.
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
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
(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 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.
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 in value of investments and translation of
other assets and liabilities denominated in foreign currencies.
Net realized foreign exchange gains represent foreign exchange gains and losses
from 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.
On December 12, 1996, a distribution in the aggregate amount of $12,071,000,
equal to $0.86 per share was declared. The distribution was comprised of $0.62
per share from net investment income and $0.24 per share from net realized
long-term capital gains. The distribution is payable on January 10, 1997 to
shareholders of record as of December 31, 1996.
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.
At December 31, 1996, the Fund reclassified $105,443 of net realized losses from
foreign currency related transactions to distribution in excess of net
investment income.
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
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 year ended December 31, 1996, BEA earned $4,104,153 for
advisory services. BEA also provides certain administrative services to the Fund
and is reimbursed by the Fund for costs incurred on behalf of the Fund. For the
year ended December 31, 1996, BEA was reimbursed $20,000 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
year ended December 31, 1996, these sub-advisory fees amounted to $257,256.
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 year ended December 31,
1996, BSFM earned $195,963 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 year ended December 31, 1996, the administration fees, supplemental
administration fees and accounting fees amounted to $198,279, $61,084 and
$4,776, 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 14,036,046 shares outstanding at December 31, 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
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Purchase Plan did not receive certificates evidencing such additional shares but
instead had such additional shares credited to their plan account.
NOTE D. INVESTMENT IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at December
31, 1996 was $130,449,842. Accordingly, the net unrealized appreciation of
investments (including investments denominated in foreign currencies) of
$200,361,617, was composed of gross appreciation of $203,465,490 for those
investments having an excess of value over cost and gross depreciation of
$3,103,873 for those investments having an excess of cost over value.
For the year ended December 31, 1996, purchases and sales of securities, other
than short-term investments, were $17,208,275 and $19,608,040, respectively.
NOTE E. CREDIT AGREEMENT
The Fund, along with 18 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 19 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 December 31, 1996.
- --------------------------------------------------------------------------------
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of The Chile Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of The
Chile Fund, Inc., including the schedule of investments, as of December 31, 1996
and the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Chile Fund, Inc., as of December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 21, 1997
- --------------------------------------------------------------------------------
18
<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>
Dr. 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 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.
** Resigned effective January 1, 1997.
In addition to the directors re-elected at the meeting, George W. Landau
continues to serve as a director of the Fund. Jose Luiz Ibanez and Daniel Sigg
resigned as directors of the Fund effective January 30, 1997 and February 11,
1997, respectively.
(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>
TAX INFORMATION (UNAUDITED)
The Fund is required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise its shareholders within 60 days of the Fund's fiscal year end
(December 31, 1996) as to the U.S. federal tax status of distributions received
by the Fund's shareholders in respect of such fiscal year. Of the $0.89 per
share dividend and distribution paid in respect of such fiscal year, $0.63 was
derived from net investment income and $0.26 was from net realized long-term
capital gains. There were no dividends which would qualify for the dividend
received deduction available to corporate shareholders.
The Fund does not intend to make an election under Section 853 to pass through
foreign taxes paid by the Fund to its shareholders. This information is given to
meet certain requirements of the Internal Revenue Code of 1986, as amended.
Shareholders should refer to their Form 1099-DIV to determine the amount
includable on their respective tax returns for 1996.
Notification for calendar year 1996 was mailed in January 1997. The notification
reflected the amount to be used by calendar year taxpayers on their U.S. federal
income tax returns along with Form 1099-DIV.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of their dividend and distributions. They will generally not be entitled
to a foreign tax credit or deduction for the foreign withholding taxes paid by
the Fund.
In general, dividends and distributions received by tax-exempt recipients (e.g.,
IRAs and Keoghs) need not be reported as taxable income for U.S. federal income
tax purposes. However, some retirement trusts (e.g., corporate, Keoghs and
403(b)(7) plans) may need this information for their annual information
reporting.
Shareholders are advised to consult their own tax advisers with respect to the
tax consequences of their investment in the Fund.
- --------------------------------------------------------------------------------
19
<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 the
notice is received by the Plan Agent not less than
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20
<PAGE>
DESCRIPTION OF DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (CONTINUED)
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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21
<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 to seek total return, consisting of 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 December 31, 1996,
BEA managed approximately $31.3 billion in assets.
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."
THE BEA GROUP OF FUNDS
LITERATURE REQUEST--Call today for free descriptive information on the
closed-end funds or a prospectus on any of the open-end mutual funds listed
below. The prospectus contains more complete information, including fees,
charges and expenses, and should be read carefully before investing or sending
money.
<TABLE>
<S> <C>
CLOSED-END FUNDS BEA ADVISOR FUNDS
SINGLE COUNTRY OPEN-END MUTUAL FUNDS
The Brazilian Equity Fund, Inc. (BZL) BEA Emerging Markets Equity Fund
The First Israel Fund, Inc. (ISL) BEA Global Telecommunications
The Indonesia Fund, Inc. (IF) Fund
The Portugal Fund, Inc. (PGF) BEA High Yield Fund
BEA International Equity Fund
MULTIPLE COUNTRY
The Emerging Markets Infrastructure Fund, Inc. (EMG)
The Emerging Markets Telecommunications Fund, Inc.
(ETF)
The Latin America Equity Fund, Inc. (LAQ)
The Latin America Investment Fund, Inc. (LAM)
For shareholder information or a
FIXED INCOME copy of a prospectus for any of
BEA Income Fund, Inc. (FBF) the open- end mutual funds,
BEA Strategic Income Fund, Inc. (FBI) please call, 1-800-401-2230.
For closed-end fund information Visit our website on the
please call, 1-800-293-1232. Internet:
http://www.beafunds.com
</TABLE>
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<PAGE>
DIRECTORS AND CORPORATE OFFICERS
William W. Priest, Chairman of the Board of Directors
Jr.
Richard W. Watt President, Chief Investment Officer
and Director
Dr. Enrique R. Arzac Director
James J. Cattano Director
George W. Landau Director
Paul P. Stamler Senior Vice President
Michael A. Pignataro Chief Financial Officer and
Secretary
Rachel D. Manney Vice President and Treasurer
Wendy S. Setnicka Assistant 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. 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. [LOGO]
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