<PAGE>
The Chile Fund, Inc.
- --------------------
ANNUAL REPORT
DECEMBER 31, 1997
[ART]
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders........................................................................ 1
Portfolio Summary............................................................................. 5
Schedule of Investments....................................................................... 6
Statement of Assets and Liabilities........................................................... 9
Statement of Operations....................................................................... 10
Statement of Changes in Net Assets............................................................ 11
Financial Highlights.......................................................................... 12
Notes to Financial Statements................................................................. 13
Report of Independent Accountants............................................................. 18
Results of Annual Meeting of Shareholders..................................................... 19
Tax Information............................................................................... 20
Description of Dividend Reinvestment and Cash Purchase Plan................................... 21
</TABLE>
PICTURED ON THE COVER IS A SCENIC VIEW OF THE ANDES MOUNTAINS LOCATED IN CHILE.
- --------------------------------------------------------------------------------
<PAGE>
LETTER TO SHAREHOLDERS
February 9, 1998
DEAR SHAREHOLDER:
I am writing to report on the activities of The Chile Fund, Inc. (the "Fund")
for the year ended December 31, 1997.
At December 31, 1997, the Fund's net assets were $303.9 million. The Fund's net
asset value ("NAV") was $21.61 per share (net of distributions paid of $3.40 per
share), as compared to $22.59 at December 31, 1996.
PERFORMANCE
For the year ended December 31, 1997, the Fund's total return, based on NAV and
assuming the reinvestment of dividends and distributions, was 16.1%. By
comparison, Morgan Stanley Capital International's Chile Index ("MSCI") returned
5.5% during the same period.
The Fund's outperformance of the MSCI benchmark is primarily attributable to a
combination of judicious weighting of industry sectors and effective stock
selection. Relative to the benchmark, for example, I overweighted the portfolio
in electric utilities, which rallied sharply early in the year. Good returns
also were recorded in consumer-oriented sectors, particularly merchandising and
beverages. In merchandising, the top-performing stocks were the Distribucion y
Servicio D&S S.A. ("D&S") and Sociedad Anonima Comercial e Industrial Falabella
("Falabella") store chains, while the bottlers Embotelladora Andina S.A.
("Andina") and Embotelladora Arica generated the best returns among the
portfolio's beverage holdings. [Note: D&S and Andina are the two companies that
I have chosen to highlight later in this report.]
INVESTMENT PERSPECTIVE
Developments in Asia and the domestic economy have been the predominant
influences on the Chilean equity market since our last report. More
specifically, economic conditions in Asia are deteriorating just as consumer
activity at home has increased. This combination bodes negatively for Chile's
current account and, as a result, the nation's inflation outlook.
Asia's problems are particularly significant for Chile both because Asia
consumes approximately one-third of total Chilean exports, and it is one of
Chile's main competitors in the production of copper, pulp and other raw
materials. Asia also affects Chile indirectly in that its problems have
contributed to sluggishness in economies elsewhere in Latin America, which is
Chile's other primary regional trading partner.
Another cause for concern lies in the price of copper, of which Chile is the
world's largest producer. Coincident expectations of falling Asian demand and
rising global oversupply have caused copper's market price to plummet in recent
weeks to lows not reached since 1994. Because copper accounts for a
disproportionate 42% share of the nation's total exports and is the primary
source of revenues to finance the Chilean national budget, moreover, such a drop
in price has major implications for the Chilean economy.
On the domestic side, the economy has surged ahead of expectations on the basis
of four interest-rate cuts in 1997. I expect Gross Domestic Product for the year
to grow 6-6.5%, considerably higher than the government's target rate of 5.5-6%.
Along with volatile food prices and a tightening job market, this helped to push
annualized 1997 inflation to 6%, above the 5.5% target.
- --------------------------------------------------------------------------------
1
<PAGE>
LETTER TO SHAREHOLDERS
The government's response to the situation thus far in 1998 has been swift. In
only a few weeks, the central bank has raised overnight interest rates sharply
and moved forcefully to defend the weakening peso against the dollar. Further
rate hikes and cuts in fiscal spending may also prove necessary as the year
progresses.
FEATURED STOCKS
To better illustrate my investment approach and highlight individual stocks in
the portfolio, I'd like to take this opportunity to discuss two of the Fund's
current holdings.
DISTRIBUCION Y SERVICIO D&S S.A.
Distribucion y Servicio D&S S.A. is Chile's largest food retailer, with a market
share of around 20%. In December 1996, the controlling Ibanez family took the
company public by selling 7.5% of D&S's equity on the Santiago Stock Exchange.
This was followed in October 1997 by the sale of an additional 16.8% in an
offering of American Depositary Shares. I regard D&S as one of the best
companies of its kind in all of Latin America as well as a core holding in any
comprehensive Chilean or Latin equity portfolio.
Perhaps the key to D&S's success is its strategy of segmenting its customer base
in terms of purchasing power and targeting it accordingly with a multi-format
approach. In all, the company operates four store formats. These include the
Lider hypermarkets (30% of 1996 revenues), considered the crown jewel of the D&S
empire; Super Ekono stores (16.2%), which are value-oriented supermarkets
offering a variety of merchandise at low prices; the Hiper Ekono discount chain
(23%), an extension of the Super Ekono brand name; and Almac (14%), traditional
supermarkets with high-quality goods.
My optimism about D&S is further underscored by several factors:
MANAGEMENT--Under the leadership of the Ibanezes, D&S has succeeded in combining
the strategic vision and significant resources of a large company with the
flexibility of a small business. Corporate culture emphasizes retail excellence
as well as training, motivating and promoting employees from within. Not only
does this place D&S well above its competition in terms of service and employee
productivity, but it also helps to build a nucleus of company management for the
future.
REAL ESTATE--D&S views real estate as a strategic weapon and wields it as a
competitive advantage. Because it owns 90% of its current store sites outright,
it acts as its own landlord and thus pays little rent and other tenant-related
expenses. It buys future sites prospectively and currently owns nearly all the
sites it plans to develop over the next three years. This practice also enables
it both to manage its costs with greater certainty and lock out potential
competitors.
EFFICIENCY--Cost-cutting is a priority for D&S. To this end, it has invested
considerable capital in technology and distribution. I expect that this will
result in much higher levels of efficiency and, hence, lower expense margins. In
addition, the recent equity offering served to enhance financial efficiency by
reducing D&S's debt level to 25% of equity from a staggering 128%.
EXPANSION--Most of D&S's stores are located in and around Santiago, which is the
nation's most heavily concentrated territory in terms of population, Gross
Domestic Product and supermarket sales. Management recognizes that ultimate
growth lies elsewhere and has already opened several stores in Argentina, where
demographics are more favorable. Further expansion is planned for Argentina as
well as other parts of Chile in which there is much less competition.
- --------------------------------------------------------------------------------
2
<PAGE>
LETTER TO SHAREHOLDERS
PROFITABILITY--Fueled by expansion, rising operational leverage and cost savings
from upgraded technology and logistics, D&S's profitability should experience
solid gains. I see revenues, earnings and cash flow all greatly increasing over
the next few years.
EMBOTELLADORA ANDINA S.A.
Embotelladora Andina S.A. is the largest soft-drink bottler in Chile and one of
the largest soft-drink producers in Brazil and Argentina. Its product line is
dominated by Coca-Cola Co. ("Coke"), whose soft drinks account for about 85% of
total sales. Coke currently owns 11.4% of the company's equity.
The Chilean market is Andina's biggest and, by far, most profitable. In 1997,
Chile accounted for an estimated 44% of sales and 71% of operating profits.
Andina's disproportionate success in Chile is due both to the nation's unusually
high per-capita consumption of soft drinks and the relative absence of
competition. Since 1994, there has been only one other Chilean soft-drink
bottler (which has experienced significant setbacks) and Chile is the only Latin
American soft drink market without a third (I.E., after Coke and Pepsico, Inc.)
brand or any private label products.
As I noted earlier in the report, Andina was one of the Fund's best stocks in
1997. More generally, its shares have outperformed the benchmark MSCI in each of
the last three years. Given such success, it is reasonable to wonder whether the
stock continues to offer further upside.
I believe it does. My thesis in this regard is quite simple. The Coca-Cola
bottling business in Latin America, which is surprisingly large, is in the early
stages of what promises to be a major process of consolidation. In addition to
their own fundamentals, companies in consolidating businesses often are
appealing as acquisition candidates or survivors. I see Andina as extremely
well-positioned not only to survive consolidation, but to thrive.
Andina's prospects as a survivor are bright as a result both of the structural
profiles of its major markets and its own competitive strategy. I have already
mentioned the benefits of the Chilean market to Andina. The Argentine franchises
possess great potential in that, among Andina's service territories, their
per-capita income is highest and per-capita consumption is lowest, suggesting
significant scope for growth. Soft-drink prices in Argentina also are the
highest in Latin America, which augurs well for Andina's profitability there as
it focuses on reducing costs. In Brazil, there simply are far too many Coke
bottlers, and harsh conditions in the Brazilian economy will likely prompt a
number of them to sell. Sellers' asking prices could decline should the economy
remain weak.
As for Andina's strategy, its intention is to broaden geographic reach while
strengthening existing markets. To do so, it is investing heavily in technology
as part of an overall plan to build mass, raise productivity and lower costs.
Its strong cash position, furthermore, will enable it to be an aggressive
acquirer.
I am confident that the realization of my high expectations for Andina will be
reflected in the long-term appreciation of its shares.
OUTLOOK
Investors have reacted to Chile's weakening economic environment by pushing down
share prices and reducing general expectations of corporate earnings growth.
Clearly, caution is the most appropriate stance for the Fund in the near term.
- --------------------------------------------------------------------------------
3
<PAGE>
LETTER TO SHAREHOLDERS
Looking further ahead, I am more positive for the future. Based on recent
meetings with several Chilean companies, I think sentiment may be overly
pessimistic. I also consider the extent of the market's correction as being
somewhat too severe, which may create new opportunities for the Fund. It is a
clear advantage for a closed-end fund to be able to invest selectively in
good-quality, less-liquid names at such times of market weakness, and I fully
intend to do so.
It is important for investors to not allow today's less favorable conditions to
obscure the solid fundamentals that should drive Chilean stock prices higher
over the next few years. Most prominent in this regard are the fact that Chile
long ago endured the harsh fiscal austerity now being experienced by other
developing nations, and the government's mature and highly proactive approach to
today's problems. Commodity prices will stabilize and recover in due course,
furthermore, and the quality of companies in Chile remains among the highest in
Latin America.
Hence my belief that it is unfair for investors to abruptly write Chile off. The
current weakness in stock prices, then, represents an attractive buying
opportunity for those with a longer-term investment horizon.
I appreciate your interest in the Fund, and would be pleased to respond to your
questions or comments.
Respectfully,
[SIGNATURE]
Richard W. Watt
President and Chief Investment Officer*
I 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 21 and
22 of this report.
- --------------------------------------------------------------------------------
* Richard W. 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 Associates on August 2, 1995.
Mr. Watt formerly was 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 fund focusing on smaller Latin American companies. Before joining
Gartmore Investment Limited 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. He also is
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.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
PORTFOLIO SUMMARY - AS OF DECEMBER 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AS A PERCENT OF NET ASSETS
<S> <C> <C>
December-31-1997 December-31-1996
Banking 1.38% 1.98%
Consumer Durables 2.19% 1.04%
Consumer Goods 1.45% 1.45%
Electric Distribution 14.96% 16.38%
Electric Generation 15.98% 22.00%
Engineering & Construction 2.00% 3.20%
Fertilizer 2.66% 3.06%
Financial Services 1.64% 3.07%
Food & Beverages 19.00% 12.42%
Forestry 9.58% 10.85%
Mining 2.39% 2.80%
Pharmaceuticals 3.09% 0.83%
Real Estate Investment & Management 1.79% 0.23%
Retail 3.38% 1.05%
Telecommunications 15.05% 15.95%
Other 8.53% 7.02%
Cash & Cash Equivalents -3.62% -1.88%
</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 15.0
- --------------------------------------------------------------------------------------------------------------------------------
2. Empresa Nacional de Electricidad S.A. Electric Generation 9.1
- --------------------------------------------------------------------------------------------------------------------------------
3. Chilectra S.A. Electric Distribution 9.1
- --------------------------------------------------------------------------------------------------------------------------------
4. Compania de Petroleos de Chile S.A. Forestry 6.1
- --------------------------------------------------------------------------------------------------------------------------------
5. Enersis S.A. Electric Generation 5.6
- --------------------------------------------------------------------------------------------------------------------------------
6. Compania Cervecerias Unidas S.A. Food & Beverages 5.4
- --------------------------------------------------------------------------------------------------------------------------------
7. Embotelladora Andina S.A. Food & Beverages 3.6
- --------------------------------------------------------------------------------------------------------------------------------
8. Empresas Emel S.A. Electric Distribution 3.4
- --------------------------------------------------------------------------------------------------------------------------------
9. Distribucion y Servicio D&S S.A. Food & Beverages 3.4
- --------------------------------------------------------------------------------------------------------------------------------
10. Sociedad Anonima Comercial e Industrial Falabella Retail 3.3
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
<S> <C> <C>
- ------------------------------------------------------------------------------------------
EQUITY OR EQUITY-LINKED SECURITIES-103.62%
AIRLINES-1.42%
Linea Aerea Nacional de Chile S.A.+......................... 1,612,023 $ 4,301,179
-------------
BANKING-1.38%
Banco de Credito e Inversiones.............................. 387,628 2,607,760
Banco Santander Chile....................................... 25,706,975 1,582,870
-------------
4,190,630
-------------
BASIC METALS-0.69%
Ceramicas Cordillera S.A.................................... 316,132 2,090,725
-------------
CONSUMER DURABLES-2.19%
Companias Cic S.A.+......................................... 640,846 53,781
Empresas Almacenes Paris.................................... 5,957,093 6,602,388
-------------
6,656,169
-------------
CONSUMER GOODS-1.45%
Compania Tecno Industrial S.A............................... 203,162,821 4,401,475
-------------
ELECTRIC DISTRIBUTION-14.96%
Chilectra S.A............................................... 3,885,531 24,810,688
Chilectra S.A. ADS++........................................ 108,600 2,822,514
Compania General de Electricidad S.A........................ 1,625,652 5,412,661
Empresas Emel S.A........................................... 536,777 10,405,027
Sociedad Austral de Electricidad S.A........................ 84,081 2,013,342
-------------
45,464,232
-------------
ELECTRIC GENERATION-15.98%
Chilgener S.A............................................... 2,715,383 959,828
Chilquinta Energia S.A...................................... 108,303 1,431,032
Empresa Electrica Pilmaiquen S.A............................ 1,753,284 1,259,486
Empresa Nacional de Electricidad S.A........................ 48,296,515 27,755,352
Enersis S.A................................................. 30,988,158 17,172,457
-------------
48,578,155
-------------
ENGINEERING & CONSTRUCTION-2.00%
Besalco S.A................................................. 697,580 2,783,957
<CAPTION>
No. of Value
Description Shares (Note A)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ENGINEERING & CONSTRUCTION (CONTINUED)
Cemento Polpaico S.A........................................ 49,987 $ 729,571
Maderas y Sinteticos Sociedad Anonima....................... 8,191,738 2,578,016
-------------
6,091,544
-------------
FERTILIZER-2.66%
Sociedad Quimica y Minera de Chile S.A., Class A............ 1,446,507 5,640,883
Sociedad Quimica y Minera de Chile S.A., Class B............ 570,322 2,445,166
-------------
8,086,049
-------------
FINANCIAL SERVICES-1.64%
Invercap S.A................................................ 5,692,087 4,997,613
-------------
FISHERY-0.54%
Pesquera Itata S.A.......................................... 8,503,824 1,357,509
Sociedad Pesquera Coloso S.A................................ 444,739 289,055
-------------
1,646,564
-------------
FOOD & BEVERAGES-19.00%
Compania Cervecerias Unidas S.A............................. 2,238,304 12,761,140
Compania Cervecerias Unidas S.A. ADR........................ 122,000 3,583,750
Distribucion y Servicio D&S S.A............................. 8,570,677 10,359,085
Embotelladora Andina S.A., Series A......................... 1,681,773 5,618,694
Embotelladora Andina S.A., Series B......................... 1,681,773 5,369,401
Embotelladora Arica*........................................ 6,900,813 6,274,820
Embotelladora Polar S.A..................................... 6,355,280 6,087,155
Empresas Iansa S.A.......................................... 15,224,759 2,083,205
Supermercados Unimarc S.A................................... 11,695,381 2,933,847
Vina Concha y Toro S.A...................................... 5,750,000 2,688,141
-------------
57,759,238
-------------
FORESTRY-9.58%
Compania Chilena de Fosforos S.A............................ 490,183 1,341,436
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
FORESTRY (CONTINUED)
Compania de Petroleos de Chile S.A.......................... 5,473,975 $ 18,600,280
Compania Manufacturera de Papeles y Cartones S.A............ 1,047,197 8,836,098
Industrias Forestales S.A................................... 3,039,602 346,591
-------------
29,124,405
-------------
HEALTH CARE-1.23%
Banmedica S.A............................................... 10,103,312 3,744,101
-------------
INFRASTRUCTURE-1.32%
Infra Structura 2000*+...................................... 17,940,519 4,003,301
-------------
INSURANCE-0.25%
Compania de Seguros La Prevision Vida S.A.+................. 818,209 761,298
-------------
MINING-2.39%
Antofagasta Holdings plc.................................... 1,338,500 7,254,342
-------------
PHARMACEUTICALS-3.09%
Laboratorio Chile S.A....................................... 8,661,713 9,402,452
-------------
REAL ESTATE INVESTMENT & MANAGEMENT-1.79%
Parque Arauca S.A.+......................................... 10,000,000 5,427,594
-------------
RETAIL-3.38%
Santa Isabel S.A............................................ 242,926 273,119
Sociedad Anonima Comercial e Industrial Falabella........... 9,145,456 10,010,989
-------------
10,284,108
-------------
SHIPPING-0.45%
Puerto Ventanas S.A......................................... 1,111,992 1,356,706
-------------
STEEL-1.10%
Compania de Aceros del Pacifico S.A......................... 1,594,008 3,326,151
-------------
TELECOMMUNICATIONS-15.05%
Compania de Telecomunicaciones de Chile S.A. ADR............ 52,700 1,574,413
Compania de Telecomunicaciones de Chile S.A., Class A....... 6,096,737 44,074,473
<CAPTION>
No. of Value
Description Shares (Note A)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
Empresa Nacional de Telecomunicaciones S.A.................. 21,294 $ 87,410
-------------
45,736,296
-------------
TEXTILES-0.08%
Zalaquett S.A.*............................................. 1,496,767 256,003
-------------
TOTAL EQUITY OR EQUITY-LINKED SECURITIES (Cost $151,145,685)...............
314,940,330
-------------
SHORT-TERM INVESTMENTS-6.92%
CHILEAN MUTUAL FUNDS-2.85%
Bice Manager Investment Fund................................ 321,360 821,927
Fondo Mutuo Bancredito Redimiento........................... 25,120 1,036,635
Fondo Mutuo Corp Selecto.................................... 496,649 1,236,252
Fondo Mutuo Operacional BanChile............................ 229,627 2,702,520
Fondo Mutuo Santander....................................... 158,049 695,924
Fondo Mutuo Security Check.................................. 489,512 2,155,769
-------------
TOTAL CHILEAN MUTUAL FUNDS (Cost $8,736,132)...............................
8,649,027
-------------
CHILEAN REPURCHASE AGREEMENTS-4.07%
<CAPTION>
Par (000)
-------------
<S> <C> <C>
Citibank, N.A., (Agreement dated 12/29/97, to be repurchased
at $11,678,269), 6.90%, 01/05/98 (Note F).................. CLP 5,120,921 11,669,250
Citibank, N.A., (Agreement dated 12/30/97, to be repurchased
at $714,796), 7.20%, 01/06/98 (Note F)..................... 313,438 713,940
-------------
TOTAL CHILEAN REPURCHASE AGREEMENTS (Cost $12,347,835).....................
12,383,190
-------------
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
SCHEDULE OF INVESTMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Description (Note A)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL SHORT-TERM INVESTMENTS (Cost $21,083,967)............................
$ 21,032,217
-------------
TOTAL INVESTMENTS-110.54%
(Cost $172,229,652) (Notes A,D)........................................... 335,972,547
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS-(10.54)%....................
(32,028,840)
-------------
NET ASSETS-100.00%......................................................... $ 303,943,707
-------------
-------------
- ---------------------------------------------------------
* Not readily marketable security.
+ Security is non-income producing.
++ SEC Rule 144A security. Such securities are traded
only among "qualified institutional buyers."
ADR American Depositary Receipts.
ADS American Depositary Shares.
CLP Chilean Pesos.
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost
$172,229,652) (Note A)................. $335,972,547
Cash (including $2,601 of foreign
currency with a cost of $2,601) (Note
A)..................................... 17,809,513
Receivables:
Investments sold...................... 2,731,753
Dividends............................. 52,553
Prepaid expenses........................ 26,866
------------
Total Assets............................ 356,593,232
------------
LIABILITIES
Payables:
Dividend (Note A)..................... 44,170,235
Investment advisory fees (Note B)..... 1,059,613
Investments purchased................. 53,705
Administration fees (Note B).......... 27,337
Other accrued expenses................ 292,263
Chilean repatriation taxes (Note A)... 7,046,372
------------
Total Liabilities....................... 52,649,525
------------
NET ASSETS (applicable to 14,066,953
shares of common stock outstanding)
(Note C)............................... $303,943,707
------------
------------
NET ASSET VALUE PER SHARE ($303,943,707
DIVIDED BY 14,066,953)................ $21.61
------------
------------
NET ASSETS CONSIST OF
Capital stock, $0.001 par value;
14,066,953 shares issued and
outstanding (100,000,000 shares
authorized)............................ $ 14,067
Paid-in capital......................... 115,810,878
Accumulated net realized gain on
investments and foreign currency
related transactions................... 24,370,052
Net unrealized appreciation in value of
investments and translation of other
assets and liabilities denominated in
foreign currencies..................... 163,748,710
------------
Net assets applicable to shares
outstanding............................ $303,943,707
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Income (Note A):
Dividends............................. $ 14,113,685
Interest.............................. 310,638
Less: Foreign taxes withheld.......... (110,882)
------------
Total Investment Income............... 14,313,441
------------
Expenses:
Investment advisory fees (Note B)..... 4,327,593
Custodian fees........................ 618,562
Administration fees (Note B).......... 285,849
Accounting fees....................... 162,681
Printing.............................. 128,155
Audit and legal fees.................. 100,513
Transfer agent fees................... 39,573
Directors' fees....................... 34,917
Insurance............................. 26,066
NYSE listing fees..................... 24,330
Other................................. 28,096
Chilean repatriation taxes (Note A)... 7,078,170
------------
Total Expenses........................ 12,854,505
------------
Net Investment Income................. 1,458,936
------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized gain/(loss) from:
Investments........................... 71,005,479
Foreign currency related
transactions......................... (505,732)
Net change in unrealized appreciation in
value of investments and translation of
other assets and liabilities
denominated in foreign currencies...... (37,891,722)
------------
Net realized and unrealized gain on
investments and foreign currency
related transactions................... 32,608,025
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................ $ 34,066,961
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended December
31,
-----------------------------
1997 1996
<S> <C> <C>
-----------------------------
INCREASE/(DECREASE) IN NET ASSETS
Operations:
Net investment income................. $ 1,458,936 $ 6,543,136
Net realized gain on investments and
foreign currency related
transactions......................... 70,499,747 7,273,515
Net change in unrealized appreciation
in value of investments
and translation of other assets and
liabilities denominated
in foreign currencies................ (37,891,722) (55,537,675)
------------ ------------
Net increase/(decrease) in net
assets resulting from operations... 34,066,961 (41,721,024)
------------ ------------
Dividends and distributions to
shareholders:
Net investment income................. -- (6,546,741)
In excess of net investment income.... -- (2,224,031)
Net realized gain on investments and
foreign currency related
transactions......................... (47,825,955) (3,720,788)
------------ ------------
Total dividends and distributions to
shareholders....................... (47,825,955) (12,491,560)
------------ ------------
Capital share transactions (Note C):
Proceeds from 30,907 shares and 39,128
shares, respectively, issued in
reinvestment of dividends............ 690,893 948,897
------------ ------------
Total decrease in net assets........ (13,068,101) (53,263,687)
------------ ------------
NET ASSETS
Beginning of year....................... 317,011,808 370,275,495
------------ ------------
End of year............................. $303,943,707 $317,011,808
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
11
<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
September
For the Years Ended 27, 1989*
December 31, through
-------------------------------------------------------------------------------------------- December 31,
1997 1996 1995 1994+ 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of
period............... $22.59 $26.45 $26.26 $20.13 $15.55 $14.84 $8.72 $7.40 $6.88**
----------- -------- -------- -------- -------- -------- -------- ------ ------------
Net investment
income............... 0.10 0.47 0.65 0.42 0.35 0.39 0.49 0.78 0.02
Net realized and
unrealized gains/
(losses) on
investments and
foreign currency
related
transactions......... 2.32 (3.44) 0.41++ 6.24 5.96 1.93 7.21 1.17 0.67
----------- -------- -------- -------- -------- -------- -------- ------ ------------
Net
increase/(decrease)
in net assets from
operations........... 2.42 (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)
Net realized gain on
investments and
foreign currency
related
transactions....... (3.40) (0.26) (0.22) (0.06) (0.26) (1.22) (1.09) -- --
In excess of net
investment
income............. -- (0.16) -- -- -- -- -- -- (0.14)
In excess of net
realized gain on
investments and
foreign currency
related
transactions....... -- -- -- -- (0.16) -- -- -- --
----------- -------- -------- -------- -------- -------- -------- ------ ------------
Total dividends and
distributions to
shareholders......... (3.40) (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............ $21.61 $22.59 $26.45 $26.26 $20.13 $15.55 $14.84 $8.72 $7.40
----------- -------- -------- -------- -------- -------- -------- ------ ------------
----------- -------- -------- -------- -------- -------- -------- ------ ------------
Market value, end of
period .............. $17.813 $20.875 $26.000 $23.063 $22.250 $16.563 $11.938 $7.750 $7.813
----------- -------- -------- -------- -------- -------- -------- ------ ------------
----------- -------- -------- -------- -------- -------- -------- ------ ------------
Total investment
return(a)............ 3.56% (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)............. $303,944 $317,012 $370,275 $367,047 $281,031 $168,580 $160,360 $93,744 $79,494
Ratio of expenses to
average net assets... 3.34%(c) 1.96%(c) 1.46% 1.39% 1.72% 2.15%(c) 2.13%(c) 2.04% 1.98%(b)
Ratio of net
investment income to
average net assets... 0.38% 1.79% 2.39% 1.74% 2.47% 2.17% 3.41% 9.56% 1.44%(b)
Portfolio turnover
rate................. 35.59% 4.82% 2.38% 0.86% 11.29% 6.29% 19.32% 12.63% 2.38%
Average commission
rate per share(d).... $0.0012 $0.0027 -- -- -- -- -- -- --
</TABLE>
- ---------------------------------------------------------------------------
@ Per share amounts prior to July 17, 1995 have been restated to reflect
a two-for-one stock split on July 17, 1995.
* 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) Ratios include effect of repatriation taxes. The ratio of expenses to
average net assets would have been 1.50% for the year ended December
31, 1997; 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.
(d) Computed by dividing the total amount of brokerage commissions paid by
the total shares of investment securities purchased and sold during
the respective periods for which commissions were charged, as required
by the SEC for fiscal years beginning on or after September 1, 1995.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
12
<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, 1997,
the Fund held 3.38% of its net assets in securities valued in good faith by the
Board of Directors with an aggregate cost of $7,013,923 and fair value of
$10,278,121. The net asset value per share of the Fund is currently 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, 1997, 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.
For U.S. federal income tax purposes, realized foreign currency losses incurred
after October 31, 1997, within the Fund's current fiscal year, are deemed to
arise on the first day of the following fiscal year. For the year ended December
31, 1997, the Fund incurred and elected to defer $473,169 of post October
currency losses.
The Fund will be subject to and accrues a 10% Chilean repatriation tax with
respect to all known and estimated remittances from Chile in excess of original
invested capital. The Fund does not accrue repatriation tax with respect to all
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,
1997, the Fund would have to pay a repatriation tax of approximately $20,082,000
or $1.43 per share.
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 on 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. However, the Fund does isolate the
effect of fluctuations in foreign exchange rates when determining the gain or
loss upon the sale or maturity of foreign currency denominated debt obligations
pursuant to U.S. federal income tax regulations, with such amount categorized as
foreign exchange gain or loss for both financial reporting and U.S. federal
income tax reporting purposes.
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 in the value of investments and translation
of other assets and liabilities denominated in foreign currencies.
Net realized foreign exchange losses 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 10, 1997, a distribution in the aggregate amount of $44,170,235,
equal to $3.14 per share was declared from net realized long-term capital gains.
The distribution is payable on January 16, 1998 to shareholders of record as of
December 31, 1997.
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, 1997 the Fund reclassified $765,095 of distribution in excess of
net investment income to
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
accumulated net realized gain on investments and foreign currency related
transactions.
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 Stock 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.
The Fund, subject to local investment limitations, may invest up to 20% of its
assets in non-publicly traded equity securities, which may involve a high degree
of business and financial risk and may result in substantial losses. Because of
the current absence of any liquid trading market for these investments, the Fund
may take longer to liquidate these positions than would be the case for publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could be less than
those originally paid by the Fund. Further, companies whose securities are not
publicly traded may not be subject to the disclosure and other investor
protection requirements applicable to companies whose securities are publicly
traded.
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.
The Fund may enter into repurchase agreements on U.S. Government securities with
primary government securities dealers recognized by the Federal Reserve Bank of
New York and member banks of the Federal Reserve System and on securities issued
by the governments of foreign countries, their instrumentalities and with
creditworthy parties in accordance with established procedures. Repurchase
agreements are contracts under which the buyer of a security simultaneously buys
and commits to resell the security to the seller at an agreed upon price and
date. Repurchase agreements are deposited with the Fund's custodian and,
pursuant to the terms of the repurchase agreement, the collateral must have an
aggregate market value greater than or equal to the repurchase price plus
accrued interest at all times. If the value of the underlying securities fall
below the value of the repurchase price plus accrued interest, the Fund will
require the seller to deposit additional collateral by the next business day. If
the request for additional collateral is not met, or the seller defaults on its
repurchase obligation, the Fund maintains the right to sell the underlying
securities at market value and may claim any resulting loss against the seller;
collectibility of such claims may be limited (see Note F).
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, 1997, BEA earned $4,327,593 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 (up to
$20,000 per annum). For the year ended
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
December 31, 1997, BEA was reimbursed $20,000 for administrative services
rendered to the Fund.
Celfin Servicios Financieros 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, 1997, these
sub-advisory fees amounted to $267,595.
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,
1997, BSFM earned $204,076 for administrative services.
BEA Administration, Administradora de Fondos de Inversion de Capital Extranjero
S.A. ("AFICE"), an affiliate of BEA, 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, 1997, the
administration fees, supplemental administration fees and accounting fees
amounted to $208,097, $61,829 and $6,781, 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 14,066,953 shares outstanding at December 31, 1997,
BEA owned 14,615 shares.
NOTE D. INVESTMENT IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at December
31, 1997 was $173,199,303. Accordingly, the net unrealized appreciation of
investments (including investments denominated in foreign currencies) of
$162,773,244, was composed of gross appreciation of $168,466,914 for those
investments having an excess of value over cost and gross depreciation of
$5,693,670 for those investments having an excess of cost over value.
For the year ended December 31, 1997, purchases and sales of securities, other
than short-term investments, were $133,116,045 and $170,925,449, 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
maximum amount outstanding under the credit agreement for the Fund was
$4,600,000 with an average balance of $37,808 and an interest rate of 8.25%
during the year ended December 31, 1997. The Fund had no amounts outstanding
under the credit agreement at December 31, 1997.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
THE CHILE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE F. COLLATERAL FOR REPURCHASE AGREEMENTS
Listed below is the collateral associated with the repurchase agreement with
Citibank, N.A., 6.90%, 01/05/98 outstanding at December 31, 1997:
<TABLE>
<CAPTION>
INTEREST MATURITY MARKET ACCRUED
SECURITY SERIES RATE DATE CLP PAR VALUE INTEREST TOTAL VALUE
- ----------------------------------- ------ -------- -------- --------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Pagares Descontables Banco Central
de Chile.......................... -- 7.81% 01/14/98 3,700,000 $ 8,409 $ 307 $ 8,716
Pagares Reajustable Banco Central
de Chile.......................... 1C 6.95 02/01/00 5,000 52,299 -- 52,299
Pagares Reajustable Banco Central
de Chile.......................... 1D 7.00 05/01/99 110,000 713,858 3 713,861
Pagares Reajustable Banco Central
de Chile.......................... 1D 6.91 05/01/07 120,000 3,701,603 3 3,701,606
Pagares Reajustable Banco Central
de Chile.......................... 4D 6.91 04/01/05 80,000 2,459,804 3 2,459,807
Pagares Reajustable Banco Central
de Chile.......................... 5D 6.91 05/01/09 60,000 1,864,905 2 1,864,907
Pagares Reajustable Banco Central
de Chile.......................... 6B 6.91 03/01/09 100,000 2,851,389 5 2,851,394
----------- ------- ------------
$11,652,267 $ 323 $11,652,590
----------- ------- ------------
----------- ------- ------------
</TABLE>
Listed below is the collateral associated with the repurchase agreement with
Citibank, N.A., 7.20%, 01/06/98 outstanding at December 31, 1997:
<TABLE>
<CAPTION>
INTEREST MATURITY MARKET ACCRUED
SECURITY SERIES RATE DATE CLP PAR VALUE INTEREST TOTAL VALUE
- ---------------------------------------- ------ -------- -------- --------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Pagares Descontables Banco Central de
Chile.................................. E 6.05% 01/05/04 20,000 $645,818 $ 1 $ 645,819
Pagares Reajustable Banco Central de
Chile.................................. 1A 6.95 02/01/00 6,500 67,995 -- 67,995
--
-------- ------------
$713,813 $ 1 $ 713,814
--
--
-------- ------------
-------- ------------
</TABLE>
- --------------------------------------------------------------------------------
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,
1997, 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, 1997 by correspondence with the custodian, brokers and issuers. 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, 1997, the results of its operations for the
year then ended, the changes in net assets for each of the two years in the
period then ended, and its 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 18, 1998
- --------------------------------------------------------------------------------
18
<PAGE>
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
On April 22, 1997, 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 9,448,082 143,314 4,469,062
William W. Priest, Jr. 9,418,601 172,795 4,469,062
Richard W. Watt 9,421,657 169,739 4,469,062
</TABLE>
In addition to the directors re-elected at the meeting, James J. Cattano and
George W. Landau continue to serve as directors of the Fund. At the August 12,
1997, regular meeting of the Board of Directors, it was resolved that the number
of directors on the Board of the Fund, be increased to six and that Mr. Jorge E.
Desormeaux be elected as a director of the Fund to serve until the next annual
meeting of shareholders.
(2) To ratify the selection of Coopers & Lybrand L.L.P. as independent public
accountants for the year ending December 31, 1997.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
9,460,145 54,169 77,082 4,469,062
</TABLE>
(3) To approve an amendment to the Fund's investment restrictions to permit the
Fund to issue "senior securities" to the extent permitted by the Investment
Company Act of 1940, as amended.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
4,228,510 663,961 311,189 8,856,798
</TABLE>
The Fund did not receive the required votes to approve the above proposal.
(4) To approve an amendment to the Fund's Articles of Incorporation relating to
the size of the Board of Directors and the removal of Directors.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
8,701,281 581,664 308,451 4,469,062
</TABLE>
- --------------------------------------------------------------------------------
19
<PAGE>
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 year end
(December 31, 1997) as to the U.S. federal tax status of dividends and
distributions received by the Fund's shareholders in respect of such year. The
$3.40 per share distribution paid in respect of such year was derived entirely
from net realized long-term capital gains. Of the $3.40 per share distribution
paid from net realized long-term capital gains, $1.30 per share was derived from
28 Percent Rate Gains and $2.10 per share was derived from 20 Percent Rate
Gains. There were no distributions 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 1997.
Notification for calendar year 1997 was mailed in January 1998. 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 distribution. They will generally not be entitled to a foreign
tax credit or deduction for the withholding taxes paid by the Fund.
In general, 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, Keogh 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.
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<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 48
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21
<PAGE>
DESCRIPTION OF DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (CONTINUED)
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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<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, 1997,
BEA managed approximately $34.2 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 Global 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, Jr. Chairman of the Board of Directors
Richard W. Watt President, Chief Investment Officer
and Director
Emily Alejos Investment Officer
Dr. Enrique R. Arzac Director
Jorge E. Desormeaux Director
James J. Cattano Director
George W. Landau Director
Hal Liebes Senior Vice President
Michael A. Pignataro Chief Financial Officer and
Secretary
Rocco A. Del Guercio Vice President
Wendy S. Setnicka 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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3911-AR-97
