THE CHILE FUND, INC.
ANNUAL REPORT
DECEMBER 31, 2002
[CH LISTED NYSE(R) LOGO]
3911-AR-02
CONTENTS
Letter to Shareholders...........................................................1
Portfolio Summary................................................................5
Schedule of Investments..........................................................6
Statement of Assets and Liabilities..............................................8
Statement of Operations..........................................................9
Statement of Changes in Net Assets..............................................10
Financial Highlights............................................................12
Notes to Financial Statements...................................................14
Report of Independent Accountants...............................................19
Results of Annual Meeting of Shareholders.......................................20
Tax Information.................................................................20
Description of InvestLink(SM) Program...........................................21
Information Concerning Directors and Officers...................................24
================================================================================
LETTER TO SHAREHOLDERS
February 7, 2003
DEAR SHAREHOLDER:
We are writing to report on the activities of The Chile Fund, Inc. (the "Fund")
for the year ended December 31, 2002.
At December 31, 2002, the Fund's net assets were $85.1 million. The Fund's net
asset value ("NAV") was $8.39 per share (net of dividends paid of $0.09 per
share), compared to $9.93 at December 31, 2001.
PERFORMANCE
For the year ended December 31, 2002, the Fund's total return, based on NAV and
assuming the reinvestment of dividends, was down 14.46%. By comparison, the
Morgan Stanley Capital International Chile Index* (the "Index") declined 19.81%
for the same period.
The Fund had a loss, beset by the economic and geopolitical worries that weighed
on stocks globally and locally, though it outperformed the Index. Stocks that
contributed positively to the Fund's relative return included its utilities,
materials and bank holdings. The Fund was also aided by its overweighting in the
capital goods sector, which was one of the country's best performing sectors for
the year. Stocks that hindered the Fund relative to the Index were scattered
across a range of sectors.
2002: THE WEIGHT OF THE WORLD
One could not help but admire Chile's grit and competitive spirit during 2002, a
year of many advances and a few setbacks, the latter the result of rising
regional and geopolitical tensions.
The year began with a bang, as Chile's economy grew in the 3% annual range
during the first quarter--more than double the previous quarter's growth rate.
Commodity prices surged on expectations of a growing global economy and low
inflation allowed the central bank to cut rates twice to 4.75%, a record low.
The second quarter, on the other hand, witnessed the negative impact that
regional economic and international political tensions would have on most
economies, worldwide, during the year. Regionally, despite its fiscal discipline
and sound economic management, Chile was victimized once again by its neighbors.
This time, however, instead of uncertainties arising from Argentina's ongoing
crises, pronounced economic weakness and political uncertainty in Brazil sent
regional equity markets tumbling, including Chile's.
Beginning in the second quarter and continuing through the year, weakness in the
U.S. economy and accounting-related scandals in its equity markets resulted in a
slowing global economy. During the same period, rising geopolitical tensions,
notably a potential U.S.-led war with Iraq, encouraged many investors to avoid
risk in any form. In combination, these developments--regional event risk, a
slowing global economy and rising geopolitical risks--eventually undermined the
Chilean economy and equity market.
================================================================================
1
LETTERS TO SHAREHOLDERS
Even so, although Chilean equities had a negative 2002 as did most global stock
markets, they ended the year on a solid note. This was due in part to an easing
of risk concerns regarding its neighbors as well as the hope for future rewards
from major new trade pacts. Highlights included:
BRAZIL AND ARGENTINA. Brazil became less of a problem, following October's
election of a new leftist government, when the administration of new president
Lula da Silva announced that Brazil intended to honor its international
commitments. He also appointed centrists to his cabinet, auguring well for a
more market-friendly economic agenda. Chile's currency appreciated on this news.
Argentina, on the other hand, continued to struggle politically, socially and
economically. Even so, in our opinion Chile appears to have decoupled, finally,
from the long standing and debilitating overhang from Argentina's problems.
FREE TRADE AGREEMENTS. President Lagos' administration was quite successful in
broadening Chile's trading capabilities and greatly improving its future
prospects, signing ground breaking free trade agreements in 2002 with both
Europe and the United States. The former is in effect now and the latter will
take effect at the end of 2003. These agreements will likely result in an
increase in Chilean exports to these economies, and an increase in foreign
direct investment in Chile from these economies. These pacts could eliminate the
risk of the government following a non-market agenda, thereby stabilizing the
political and economic environment in Chile, to the envy of its neighbors.
PORTFOLIO STRUCTURE AND STRATEGY: PRE-RECOVERY MODE
TOP 10 HOLDINGS, BY ISSUER#
% OF
HOLDING SECTOR NET ASSETS
------- ------ ----------
1. CPC Diversified Operations 17.1
2. CTC Telephone-Integrated 14.2
3. CMPC Paper & Related Products 9.1
4. Nacional de Electric Electric-Integrated 7.8
5. S.A.C.I. Retail-Major Department Stores 4.9
6. Banco Santander Banking 4.7
7. Aguas Andina Water 4.6
8. Infraestructura 2000 Infrastructure 4.1
9. Quimica y Minera Chemicals-Diversified 4.0
10. Embot Andina Food & Beverages 3.3
----
Total 73.8
====
----------
# Company names are abbreviations of those found in the chart on page 5.
[CHART]
SECTOR ALLOCATION
(% of net assets)
Banking 8.31
Electric-Integrated 11.97
Retail-Major Department Stores 4.90
Food & Beverages 10.66
Telephone-Integrated 17.28
Other## 16.16
Paper & Related Products 9.10
Diversified Operations 17.07
Water 4.55
----------
## Includes sectors below 4.5% of net assets.
================================================================================
2
LETTER TO SHAREHOLDERS
In the present environment, we are maintaining our exposure to exporters that
tend to benefit from a weak currency (e.g., wine and fertilizer exporters). We
are also slightly reducing our exposure to commodity producers, at least through
the first half of the year, in reflection of our view that global trade will
remain somewhat weak during this period.
We are underweight in retail stocks, and plan to continue to be so until the
economy picks up. We are underweight in banks, as well; recent mergers have
reduced the attractiveness to us of the sector. We will remain overweight in
electricity generation, because we see meaningful growth there, aided by the
lack of tariffs and pricing pressures and by a supportive supply backdrop.
Finally, we intend to keep an overall underweight to the telecommunications
sector, which is subject to increasing competition and investor uncertainty
about 2003 tariffs. We will also be looking for opportunities amongst the
smaller companies that have been severely affected by the recent recession and
overpunished by investor anxiety about neighboring Argentina.
OUTLOOK: GUARDEDLY OPTIMISTIC
Barring an unexpected settling of international tensions, 2003 should roughly
mirror 2002 in our view, as far as Chile's economy is concerned.
We believe that the price of copper and pulp (Chile's two main exports) should
stabilize at or around present levels, as the global economy remains quite weak
and demand for these commodities will probably not increase much in the coming
year, if at all. One would also not expect to see the benefits of the
aforementioned free trade agreements until 2004, and thereafter.
All this said, a major risk facing Chile and, indeed, many economies globally is
the possibility of a U.S.-led war with Iraq. Chile imports all of the oil it
consumes, so any price increase will directly hinder its financial condition. As
of the end of the fourth quarter, the relationship between the price of copper
(Chile's principal export) and the price of oil (Chile's primary import) was
deteriorating. If it continues to do so, Chile's currency stands to lose some
value.
On the plus side, interest rates are at an all time low and, in the absence of
inflationary pressures, they should remain low, providing a positive backdrop
for equities. We may also see an up tick in equity valuations, which, with
recent declines, are near their 1994 levels.
================================================================================
3
LETTER TO SHAREHOLDERS
Beyond this, Chile has low-to-no dependence on foreign financing, and the
country's trade balance is running a surplus. In sum, we expect to see Chile's
economy grow in 2003, with most of this growth occurring in the second half when
the potential positive effects of low borrowing costs, rising foreign capital
inflows, increasing trade prospects and improving business and consumer
confidence could begin to kick in.
Sincerely yours,
/s/ Yaroslaw Aranowicz
Yaroslaw Aranowicz
Chief Investment Officer**
FROM CREDIT SUISSE ASSET MANAGEMENT, LLC:
We wish to remind shareholders whose shares are registered in their own name
that they automatically participate in the Fund's reinvestment program known as
the InvestLink(SM) Program (the "Program"). The Program 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 nominees should contact the Fund's Transfer Agent for details
about participating in the Program. The Program is described on pages 21 through
23 of this report.
--------------------------------------------------------------------------------
* The Morgan Stanley Capital International Chile Index is an unmanaged index
(with no defined investment objective) of Chilean equities that includes
reinvestment of dividends, and is the exclusive property of Morgan Stanley
Capital International Inc. Investors cannot invest directly in an index.
** Yaroslaw Aranowicz, who is a Vice President of Credit Suisse Asset
Management, LLC ("CSAM"), is a Portfolio Manager specializing in Global Emerging
Markets equities. He is Chief Investment Officer of The Chile Fund, Inc. and The
Emerging Markets Telecommunications Fund, Inc. He joined CSAM in 1998 from
Trans-National Research Corporation, a proprietary securities research firm,
where he was Director of Research for Europe and the Middle East. Previously, he
was an analyst for domestic equities and fixed income at John Hancock Financial
Services in New York. Mr. Aranowicz completed a five-year integrated program in
International Business Relations from the Central School of Commerce in Warsaw,
and holds an M.B.A. in Finance and International Business from New York
University's Stern School of Business. He is a Chartered Financial Analyst.
================================================================================
4
--------------------------------------------------------------------------------
THE CHILE FUND, INC.
PORTFOLIO SUMMARY - AS OF DECEMBER 31, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
[CHART]
SECTOR ALLOCATION
31-DEC-01 31-DEC-02
Banking 8.31% 7.05%
Chemicals-Diversified 4.00% 0.88%
Diversified Operations 17.07% 13.96%
Electric-Integrated 11.97% 24.44%
Food & Beverages 10.66% 11.76%
Food-Retail 2.82% 4.54%
Infrastructure 4.10% 2.60%
Paper & Related Products 9.10% 6.47%
Retail-Major Department Stores 4.90% 3.96%
Telephone-Integrated 17.28% 18.24%
Water 4.55% 0.00%
Other 5.24% 6.10%
TOP 10 HOLDINGS, BY ISSUER
PERCENT OF
HOLDING SECTOR NET ASSETS
---------------------------------------------------------------------------------------------------------------------
1. Compania de Petroleos de Chile S.A. Diversified Operations 17.1
---------------------------------------------------------------------------------------------------------------------
2. Compania de Telecomunicaciones de Chile S.A. Telephone-Integrated 14.2
---------------------------------------------------------------------------------------------------------------------
3. Empresas CMPC S.A. Paper & Related Products 9.1
---------------------------------------------------------------------------------------------------------------------
4. Empresa Nacional de Electricidad S.A. Electric-Integrated 7.8
---------------------------------------------------------------------------------------------------------------------
5. S.A.C.I. Falabella, S.A. Retail-Major Department Stores 4.9
---------------------------------------------------------------------------------------------------------------------
6. Banco Santander Chile S.A. Banking 4.7
---------------------------------------------------------------------------------------------------------------------
7. Aguas Andina S.A. Water 4.6
---------------------------------------------------------------------------------------------------------------------
8. Infraestructura 2000 Infrastructure 4.1
---------------------------------------------------------------------------------------------------------------------
9. Sociedad Quimica y Minera de Chile S.A. Chemicals-Diversified 4.0
---------------------------------------------------------------------------------------------------------------------
10. Embotelladora Andina S.A. Food & Beverages 3.3
---------------------------------------------------------------------------------------------------------------------
================================================================================
5
--------------------------------------------------------------------------------
THE CHILE FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2002
--------------------------------------------------------------------------------
NO. OF
DESCRIPTION SHARES VALUE
----------------------------------------------------------------------------------
EQUITY SECURITIES-100.87%
AIRLINES-0.23%
Lan Chile S.A................................... 162,304 $ 193,796
------------
BANKING-8.31%
Banco de Chile.................................. 43,125,240 1,149,607
Banco Santander Chile S.A....................... 225,442,993 4,006,484
Corpbanca S.A................................... 666,895,656 1,916,659
------------
7,072,750
------------
CERAMIC PRODUCTS-0.65%
Ceramicas Cordillera S.A........................ 63,465 555,126
------------
CHEMICALS-DIVERSIFIED-4.00%
Sociedad Quimica y Minera de
Chile S.A., Class B............................ 1,543,000 3,406,276
------------
CONTAINERS-METAL/GLASS-1.68%
Cristalerias de Chile S.A....................... 230,756 1,425,705
------------
DIVERSIFIED OPERATIONS-17.07%
Compania de Petroleos
de Chile S.A................................... 4,054,586 14,523,890
------------
ELECTRIC-INTEGRATED-11.97%
Colbun S.A...................................... 41,729,049 2,665,097
Empresa Nacional de
Electricidad S.A............................... 26,870,781 6,678,056
Enersis S.A.+................................... 10,263,786 840,768
------------
10,183,921
------------
FOOD & BEVERAGES-10.66%
Coca-Cola Embonor S.A.,
Class A+....................................... 3,168,592 813,870
Compania Cervecerias
Unidas S.A..................................... 788,794 2,328,325
Compania Cervecerias
Unidas S.A., ADR............................... 15,500 226,300
Embotelladora Andina S.A., PNA.................. 1,140,000 1,313,711
Embotelladora Andina S.A., PNB.................. 1,311,129 1,510,916
Vina Concha y Toro S.A.......................... 3,458,487 2,372,083
Vina Concha y Toro S.A., ADR.................... 6,500 219,830
Vina San Pedro S.A.............................. 26,745,297 282,213
------------
9,067,248
------------
FOOD-RETAIL-2.82%
Distribucion y Servicio
D&S S.A........................................ 3,521,801 $ 2,395,949
------------
INFRASTRUCTURE-4.10%
Infraestructura 2000*+.......................... 19,568,922 3,489,687
------------
INSURANCE-0.39%
Compania de Seguros La
Prevision Vids S.A............................. 500,000 329,747
------------
MINING-2.55%
Antofagasta plc................................. 215,903 2,171,984
------------
PAPER & RELATED PRODUCTS-9.10%
Empresas CMPC S.A............................... 877,835 7,739,330
------------
RETAIL-MAJOR DEPARTMENT STORES-4.90%
S.A.C.I. Falabella, S.A......................... 5,453,284 4,171,828
------------
STEEL-0.55%
Compania Acero del
Pacifico S.A.+................................. 826,642 470,563
------------
TELEPHONE-INTEGRATED-17.28%
Compania de Telecomunicaciones
de Chile S.A., ADR............................. 63,700 610,883
Compania de Telecomunicaciones
de Chile S.A., Class A......................... 4,869,151 11,492,616
Empresa Nacional de
Telecomunicaciones S.A......................... 594,487 2,599,978
------------
14,703,477
------------
TEXTILES-0.06%
Zalaquett S.A.+................................. 1,496,767 51,953
------------
WATER-4.55%
Aguas Andina S.A., Class A...................... 20,000,000 3,866,713
------------
TOTAL EQUITY SECURITIES-100.87%
(Cost $78,629,317)............................. 85,819,943
------------
================================================================================
6
--------------------------------------------------------------------------------
THE CHILE FUND, INC.
SCHEDULE OF INVESTMENTS (CONCLUDED)
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
DESCRIPTION (000'S) VALUE
----------------------------------------------------------------------------------
SHORT-TERM INVESTMENT-0.03%
GRAND CAYMAN-0.03%
Brown Brothers Harriman & Co.,
overnight deposit, 0.35%,
01/02/03** (Cost $31,000)...................... $31 $ 31,000
-----------
TOTAL INVESTMENTS-100.90%
(Cost $78,660,317) (Notes A, D, F)............. 85,850,943
-----------
LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS-(0.90)%........................... (769,119)
-----------
NET ASSETS-100.00%.............................. $85,081,824
===========
--------------------------------------------------------------------------------
+ Security is non-income producing.
* Not readily marketable security; security is valued at fair value as
determined in good faith by the Board of Directors. (See Note A.)
** Variable rate account. Rate resets on a daily basis; amounts are available
on the same business day.
ADR American Depositary Receipts.
PNA Preferred Shares, Class A.
PNB Preferred Shares, Class B.
================================================================================
See accompanying notes to financial statements.
7
--------------------------------------------------------------------------------
THE CHILE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - DECEMBER 31, 2002
--------------------------------------------------------------------------------
ASSETS
Investments, at value (Cost $78,660,317) (Notes A, D, F)........................ $85,850,943
Dividends receivable............................................................ 134,672
Prepaid expenses................................................................ 9,647
-----------
Total Assets.................................................................... 85,995,262
-----------
LIABILITIES
Due to custodian................................................................ 121,098
Payables:
Investment advisory fees (Note B)........................................... 207,825
Dividend (Note A)........................................................... 202,798
Administration fees (Note B)................................................ 32,019
Directors' fees............................................................. 270
Other accrued expenses...................................................... 164,484
Chilean repatriation taxes (Note A)......................................... 184,944
-----------
Total Liabilities............................................................... 913,438
-----------
NET ASSETS (applicable to 10,139,926 shares of common stock
outstanding) (Note C)......................................................... $85,081,824
===========
NET ASSET VALUE PER SHARE ($85,081,824 DIVIDED BY 10,139,926)................... $8.39
=====
NET ASSETS CONSIST OF
Capital stock, $0.001 par value; 10,139,926 shares issued and outstanding
(100,000,000 shares authorized)................................................ $ 10,140
Paid-in capital................................................................. 81,038,027
Undistributed net investment income............................................. 686,054
Accumulated net realized loss on investments and foreign currency related
transactions.................................................................. (3,853,872)
Net unrealized appreciation in value of investments and translation of other
assets and liabilities denominated in foreign currencies....................... 7,201,475
-----------
Net assets applicable to shares outstanding..................................... $85,081,824
===========
================================================================================
See accompanying notes to financial statements.
8
--------------------------------------------------------------------------------
THE CHILE FUND, INC.
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2002
--------------------------------------------------------------------------------
INVESTMENT INCOME
Income (Note A):
Dividends................................................................................ $ 2,279,670
Interest................................................................................. 6,564
Less: Foreign taxes withheld............................................................. (9,102)
------------
Total Investment Income.................................................................. 2,277,132
------------
Expenses:
Investment advisory fees (Note B)........................................................ 980,190
Custodian fees........................................................................... 205,297
Administration fees (Note B)............................................................. 143,521
Legal fees............................................................................... 135,499
Audit fees............................................................................... 127,215
Printing................................................................................. 95,000
Tender offer fees (Note G)............................................................... 87,169
Accounting fees.......................................................................... 36,733
Transfer agent fees...................................................................... 33,597
NYSE listing fees........................................................................ 33,251
Directors' fees.......................................................................... 29,216
Insurance................................................................................ 4,325
Other.................................................................................... 11,865
Chilean repatriation taxes (Note A)...................................................... (866,726)
------------
Total Expenses........................................................................... 1,056,152
------------
Net Investment Income.................................................................... 1,220,980
------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND
FOREIGN CURRENCY RELATED TRANSACTIONS
Net realized loss from:
Investments.............................................................................. (1,416,073)
Foreign currency related transactions.................................................... (244,007)
Net change in unrealized appreciation in value of investments and translation
of other assets and liabilities denominated in foreign currencies.......................... (17,368,255)
------------
Net realized and unrealized loss on investments and foreign currency related
transactions............................................................................... (19,028,335)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS........................................ $(17,807,355)
============
================================================================================
See accompanying notes to financial statements.
9
--------------------------------------------------------------------------------
THE CHILE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
2002 2001
-------------- --------------
DECREASE IN NET ASSETS
Operations:
Net investment income........................................................ $ 1,220,980 $ 2,816,823
Net realized loss on investments and foreign currency related transactions... (1,660,080) (1,603,285)
Net change in unrealized appreciation in value of investments and translation
of other assets and liabilities denominated in foreign currencies........... (17,368,255) (7,742,224)
------------ ------------
Net decrease in net assets resulting from operations....................... (17,807,355) (6,528,686)
------------ ------------
Dividends and distributions to shareholders:
Net investment income........................................................ (912,593) (2,039,539)
Net realized gain on investments............................................. -- (11,615,562)
------------ ------------
Total dividends and distributions to shareholders.......................... (912,593) (13,655,101)
------------ ------------
Capital share transactions:
Cost of 3,379,976 shares purchased under tender offer (Note G)............... (30,487,384) --
------------ ------------
Total decrease in net assets............................................... (49,207,332) (20,183,787)
------------ ------------
NET ASSETS
Beginning of year............................................................... 134,289,156 154,472,943
------------ ------------
End of year*.................................................................... $ 85,081,824 $134,289,156
============ ============
----------
* Includes undistributed net investment income of $686,054 and $620,359,
respectively.
================================================================================
See accompanying notes to financial statements.
10
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11
--------------------------------------------------------------------------------
THE CHILE FUND, INC.
FINANCIAL HIGHLIGHTS SECTION
--------------------------------------------------------------------------------
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 year indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
--------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------
2002 2001 2000
------------ ------------ ------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year...................................... $9.93 $11.43 $15.22
------- -------- --------
Net investment income/(loss) 0.09* 0.21 (0.06)+
Net realized and unrealized gain/(loss) on investments and
foreign currency related transactions................................. (1.70) (0.70) (3.36)
------- -------- --------
Net increase/(decrease) in net assets resulting from operations......... (1.61) (0.49) (3.42)
------- -------- --------
Dividends and distributions to shareholders:
Net investment income................................................. (0.09) (0.15) (0.01)
Net realized gain on investments and foreign currency
related transactions................................................ -- (0.86) (0.58)
In excess of net investment income.................................... -- -- --
In excess of net realized gains on investments and foreign
currency related transactions....................................... -- -- --
------- -------- --------
Total dividends and distributions to shareholders....................... (0.09) (1.01) (0.59)
------- -------- --------
Dilution due to capital share rights offering........................... -- -- --
------- -------- --------
Anti-dilutive impact due to capital shares tendered or repurchased...... 0.16 -- 0.22
------- -------- --------
Net asset value, end of year............................................ $8.39 $9.93 $11.43
======= ======== ========
Market value, end of year............................................... $7.25 $8.43 $8.438
======= ======== ========
Total investment return (a)............................................. (12.93)% 13.18% (20.04)%
======= ======== ========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted)................................... $85,082 $134,289 $154,473
Ratio of expenses to average net assets (b)............................. 1.11% 2.71% 2.98%
Ratio of expenses to average net assets, excluding taxes................ 2.01% 1.54% 1.73%
Ratio of net investment income/(loss) to average net assets............. 1.28%(c) 1.91% (0.45)%
Portfolio turnover rate................................................. 31.94% 29.81% 24.25%
================================================================================
See accompanying notes to financial statements.
12
--------------------------------------------------------------------------------
THE CHILE FUND, INC.
FINANCIAL HIGHLIGHTS SECTION
--------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1999 1998 1997 1996
----------- --------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year.................................. $12.59 $21.61 $22.59 $26.45
-------- -------- -------- --------
Net investment income/(loss)........................................ 0.09 0.38 0.10 0.47
Net realized and unrealized gain/(loss) on investments and
foreign currency related transactions............................. 3.19 (6.88)++ 2.32 (3.44)
-------- -------- -------- --------
Net increase/(decrease) in net assets resulting from operations..... 3.28 (6.50) 2.42 (2.97)
-------- -------- -------- --------
Dividends and distributions to shareholders:
Net investment income............................................. (0.07) (0.32) -- (0.47)
Net realized gain on investments and foreign currency
related transactions............................................ (0.58) (2.20) (3.40) (0.26)
In excess of net investment income................................ -- -- -- (0.16)
In excess of net realized gains on investments and foreign
currency related transactions................................... -- -- -- --
-------- -------- -------- --------
Total dividends and distributions to shareholders................... (0.65) (2.52) (3.40) (0.89)
-------- -------- -------- --------
Dilution due to capital share rights offering....................... -- -- -- --
-------- -------- -------- --------
Anti-dilutive impact due to capital shares tendered or repurchased.. -- -- -- --
-------- -------- -------- --------
Net asset value, end of year........................................ $15.22 $12.59 $21.61 $22.59
======== ======== ======== ========
Market value, end of year........................................... $11.250 $9.063 $17.813 $20.875
======== ======== ======== ========
Total investment return (a)......................................... 31.45% (33.00)% 3.56% (16.43)%
======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted)............................... $218,027 $180,357 $303,944 $317,012
Ratio of expenses to average net assets (b)......................... 2.16% -- 3.34% 1.96%
Ratio of expenses to average net assets, excluding taxes............ 1.64% 1.62% 1.50% 1.48%
Ratio of net investment income/(loss) to average net assets......... 0.61% 2.29% 0.38% 1.79%
Portfolio turnover rate............................................. 12.01% 5.39% 35.59% 4.82%
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993
----------- ----------- ---------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year.................................. $26.26 $20.13 $15.55
-------- -------- --------
Net investment income/(loss)........................................ 0.65 0.42+ 0.35
Net realized and unrealized gain/(loss) on investments and
foreign currency related transactions............................. 0.41++ 6.24 5.96
-------- -------- --------
Net increase/(decrease) in net assets resulting from operations..... 1.06 6.66 6.31
-------- -------- --------
Dividends and distributions to shareholders:
Net investment income............................................. (0.65) (0.47) (0.31)
Net realized gain on investments and foreign currency
related transactions............................................ (0.22) (0.06) (0.26)
In excess of net investment income................................ -- -- --
In excess of net realized gains on investments and foreign
currency related transactions................................... -- -- (0.16)
-------- -------- --------
Total dividends and distributions to shareholders................... (0.87) (0.53) (0.73)
-------- -------- --------
Dilution due to capital share rights offering....................... -- -- (1.00)
-------- -------- --------
Anti-dilutive impact due to capital shares tendered or repurchased.. -- -- --
-------- -------- --------
Net asset value, end of year........................................ $26.45 $26.26 $20.13
======== ======== ========
Market value, end of year........................................... $26.000 $23.063 $22.250
======== ======== ========
Total investment return(a).......................................... 16.66% 6.05% 38.82%
======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $370,275 $367,047 $281,031
Ratio of expenses to average net assets(b) -- -- --
Ratio of expenses to average net assets, excluding taxes 1.46% 1.39% 1.72%
Ratio of net investment income/(loss) to average net assets 2.39% 1.74% 2.47%
Portfolio turnover rate 2.38% 0.86% 11.29%
--------------------------------------------------------------------------------
SECTION Per share amounts prior to July 17, 1995 have been restated to reflect
a two-for-one stock split on July 17, 1995.
* Based on actual shares outstanding on February 4, 2002 (prior to the
tender offer) and December 31, 2002.
+ Based on average shares outstanding.
++ Includes a $0.08 and $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 1998
and 1995, respectively.
(a) Total investment return at market value is based on the changes in
market price of a share during the year and assumes reinvestment of
dividends and distributions, if any, at actual prices pursuant to the
Fund's dividend reinvestment program.
(b) Ratios include the effect of Chilean repatriation taxes.
(c) Ratio includes the effect of a reversal of Chilean repatriation tax
accrual; excludng the reversal, the ratio would have been 0.18%.
================================================================================
13
--------------------------------------------------------------------------------
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.
USE OF ESTIMATES: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates.
SECURITY VALUATION: The net asset value of the Fund is determined daily as of
the close of regular trading on The New York Stock Exchange, Inc. The Fund's
investments are valued at market value, which is generally determined using the
last reported sales price. If no sales are reported, investments are generally
valued at the last reported bid price. Debt securities are valued on the basis
of broker quotations or valuations provided by a pricing service which may use a
matrix, formula or other objective method that takes into consideration market
indices, yield curves and other specific adjustments. Debt obligations that will
mature in 60 days or less are valued on the basis of amortized cost, which
approximates market value, unless the Board of Directors determines that using
this method would not reflect an investment's value.
Securities and other assets for which market quotations are not readily
available are valued at fair value as determined in good faith by the Board of
Directors under procedures established by the Board of Directors in the absence
of readily ascertainable market values. At December 31, 2002, the Fund held
4.10% of its net assets in a security valued at fair value as determined in good
faith by the Board of Directors with an aggregate cost of $4,384,163 and fair
value of $3,489,687. Although this security may be resold in privately
negotiated transactions, the prices realized on such sales could differ from the
price originally paid by the Fund or the current carrying value, and the
difference could be material.
SHORT-TERM INVESTMENT: The Fund sweeps available cash into a short-term deposit
issued by Brown Brothers Harriman & Co., the Fund's custodian. The short-term
time deposit is a variable rate account classified as a short-term investment.
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 accrued as earned; dividend income is
recorded on the ex-dividend date.
TAXES: No provision is made for U.S. federal income or excise taxes as it is the
Fund's intention to continue to qualify as a regulated investment company and to
make the requisite distributions to its shareholders which will be sufficient to
relieve it from all or substantially all U.S. federal income and excise taxes.
The Fund is subject to a 10% Chilean repatriation tax with respect to certain
remittances from Chile and on net realized gains on certain securities held in
Chilean pesos. Realized capital gains on certain liquid securities will not be
subject to the tax. Realized capital gains on illiquid securities, interest and
dividends received are subject to the remittance tax. For the year ended
December 31, 2002, the Fund incurred $184,944 of such expense. As a result of a
change in Chilean tax laws concerning taxes on repatriation of gains, during
================================================================================
14
--------------------------------------------------------------------------------
THE CHILE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
2002 the Fund reversed $1,051,670 of previously accrued Chilean repatriation
taxes.
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 valuation date rate of exchange; and
(II) purchases and sales of investment securities, income and expenses
at the relevant rates of exchange prevailing on the respective dates
of such transactions.
The Fund does not isolate that portion of gains and losses in investments in
equity securities which is due to changes in the foreign exchange rates from
that which is due to changes in market prices of equity securities. Accordingly,
realized and unrealized foreign currency gains and losses with respect to such
securities are included in the reported net realized and unrealized gains and
losses on investment transactions balances.
The Fund reports certain foreign currency related transactions and foreign taxes
withheld on security transactions as components of realized gains for financial
reporting purposes, whereas such foreign currency related transactions are
treated as ordinary income for U.S. federal income tax purposes.
Net currency gains or losses 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 losses represent foreign exchange gains and losses
from sales and maturities of debt securities, transactions in foreign currencies
and forward foreign currency contracts, exchange gains or losses realized
between the trade date and settlement dates on security transactions, and the
difference between the amounts of interest and dividends recorded on the Fund's
books and the U.S. dollar equivalent of the amounts actually received.
DISTRIBUTIONS OF INCOME AND GAINS: The Fund distributes at least annually to
shareholders substantially all of its net investment income and net realized
short-term capital gains, if any. The Fund determines annually whether to
distribute any net realized long-term capital gains in excess of net realized
short-term capital losses, including capital loss carryovers, if any. An
additional distribution may be made to the extent necessary to avoid the payment
of a 4% U.S. federal excise tax. Dividends and distributions to shareholders are
recorded by the Fund on the ex-dividend date.
On December 13, 2002, a dividend in the aggregate amount of $202,798, equal to
$0.02 per share from net investment income was declared. This dividend was
payable on January 10, 2003 to shareholders of record as of December 23, 2002.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for U.S.
federal income tax purposes due to U.S. generally accepted accounting
principles/tax differences in the character of income and expense recognition.
OTHER: Securities denominated in currencies other than U.S. dollars are subject
to changes in value due to fluctuations in exchange rates.
The Chilean securities markets are substantially smaller, less liquid and more
volatile than the major securities markets in the United States. Consequently,
acquisition and disposition of securities by the Fund may be inhibited. A
significant proportion of the aggregate
================================================================================
15
--------------------------------------------------------------------------------
THE CHILE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
market value of equity securities listed on the Santiago Exchange are held by a
small number of investors and are not publicly traded. This may limit the number
of shares available for acquisition or disposition by the Fund.
Investments in Chile may involve certain considerations and risks not typically
associated with investments in the United States, including the possibility of
future political and economic developments and the level of Chilean governmental
supervision and regulation of its securities markets.
The Fund, subject to local investment limitations, may invest up to 20% of its
assets (at the time of commitment) in illiquid equity securities, including
securities of private equity funds (whether in corporate or partnership form)
that invest primarily in emerging markets. When investing through another
investment fund, the Fund will bear its proportionate share of the expenses
incurred by the fund, including management fees. Such securities are expected to
be illiquid, 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 substantially less than those originally paid by
the Fund or the current carrying values and this difference could be material.
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.
NOTE B. AGREEMENTS
Credit Suisse Asset Management, LLC ("CSAM") serves as the Fund's investment
adviser with respect to all investments. CSAM receives as compensation for its
advisory services 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
market value or net assets (whichever is lower), 1.15% of the next $50 million
and 1.10% of amounts in excess of $100 million. For the year ended December 31,
2002, CSAM earned $980,190 for advisory services. CSAM 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
December 31, 2002, CSAM was reimbursed $9,101 for administrative services
rendered to the Fund.
CELFIN CAPITAL Servicios Financieros S.A. ("Celfin") serves as the Fund's
Chilean sub-adviser. Celfin receives as compensation for its sub-advisory
services, an annual fee, out of the advisory fee payable to CSAM, computed
weekly and paid quarterly, equal to 0.15% of the first $50 million of the Fund's
average weekly market value or net assets (whichever is lower), 0.10% of the
next $50 million and 0.05% of amounts in excess of $100 million. For the year
ended December 31, 2002, these sub-advisory fees amounted to $107,008.
For the year ended December 31, 2002, Celfin earned approximately $31,500 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
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,
2002, BSFM earned $75,210 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 CSAM, that is computed
weekly and paid quarterly at an
================================================================================
16
--------------------------------------------------------------------------------
THE CHILE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
annual rate of 0.05% of the Fund's average weekly market value or net assets
(whichever is lower) 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, 2002, the administration fees, supplemental
administration fees and accounting fees amounted to $41,657, $59,210 and $4,830,
respectively.
Merrill Corporation ("Merrill"), an affiliate of CSAM, has been engaged by the
Fund to provide certain financial and tender related printing services. For the
year ended December 31, 2002, Merrill was paid $66,714 for its services to the
Fund.
On May 8, 2000, the Fund's Board of Directors unanimously approved a proposal by
the Independent Directors to partially compensate Independent Directors in
shares of the Fund. Under this policy, such directors receive fifty percent
(50%) of their annual retainer in the form of shares purchased by the Fund's
transfer agent in the open market. Directors as a group own less than 1% of the
Fund's outstanding shares.
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 10,139,926 shares outstanding at December 31, 2002,
CSAM owned 14,615 shares.
NOTE D. INVESTMENT IN SECURITIES
For the year ended December 31, 2002, purchases and sales of securities, other
than short-term investments, were $30,070,434 and $61,658,673, respectively.
NOTE E. CREDIT FACILITY
The Fund, together with other funds advised by CSAM (collectively, the
"Participating Funds"), participates in a $150 million committed, unsecured line
of credit facility ("Credit Facility") with Deutsche Bank, A.G. as
administrative agent and syndication agent and State Street Bank and Trust
Company as operations agent for temporary or emergency purposes. Under the terms
of the Credit Facility, the Participating Funds pay an aggregate commitment fee
at a rate of 0.10% per annum on the average unused amount of the Credit
Facility, which is allocated among the Participating Funds in such manner as is
determined by the governing Boards of the Participating Funds. In addition, the
Participating Funds pay interest on borrowings at the Federal Funds rate plus
0.50%. At December 31, 2002 and during the year ended December 31, 2002, the
Fund had no borrowings under the Credit Facility.
NOTE F. FEDERAL INCOME TAXES
Income and capital gains distributions are determined in accordance with federal
income tax regulations, which may differ from GAAP. These differences are
primarily due to differing treatments of foreign currency transactions, losses
deferred due to wash sales and Post-October losses (as later defined), and
excise tax regulations.
The tax characteristic of dividends paid during the years ended December 31, for
the Fund were as follows:
ORDINARY INCOME LONG-TERM CAPITAL GAINS
------------------------- -----------------------
2002 2001 2002 2001
--------- ----------- ------- -------------
$912,593 $2,040,842 - $11,614,259
At December 31, 2002, the components of distributable earnings on a tax basis,
for the Fund were as follows:
Undistributed ordinary income $ 686,054
Accumulated net realized loss (1,177,915)
Unrealized appreciation 4,525,518
----------
Total distributable earnings $4,033,657
==========
Under current tax law, certain capital losses realized after October 31 within a
taxable year may be deferred
================================================================================
17
--------------------------------------------------------------------------------
THE CHILE FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
--------------------------------------------------------------------------------
and treated as occurring on the first day of the following tax year
("Post-October losses"). For the tax period ended December 31, 2002, the Fund
elected to defer net realized losses of $592,036 from investments.
At December 31, 2002, the Fund had a capital loss carryforward for U.S. federal
income tax purposes of $585,879 of which $349,317 expires in 2009 and $236,562
expires in 2010.
At December 31, 2002, the identified cost for federal income tax purposes, as
well as the gross unrealized appreciation from investments for those securities
having an excess of value over cost, gross unrealized depreciation from
investments for those securities having an excess of cost over value and the net
unrealized appreciation from investments were $81,336,274, $17,546,080,
$(13,031,411) and $4,514,669, respectively.
At December 31, 2002, the Fund reclassified from accumulated net realized loss
on investments and foreign currency related transactions of $244,007 to
undistributed net investment income. In addition, the Fund reclassified $1,315
from undistributed net investment income to paid-in capital, to adjust for
current period permanent book/tax differences. Net assets were not affected by
these reclassifications.
NOTE G. SELF-TENDER OFFER
On November 27, 2001, the Fund's Board of Directors approved a tender offer to
acquire up to 25% of the outstanding shares of the Fund's common stock at a per
share cash purchase price equal to 95% of the Fund's net asset value as of the
expiration date of the tender offer period. The Board's actions were taken in
light of the significant discounts at which the Fund's shares were trading.
On January 4, 2002, the Fund commenced a tender offer to acquire up to 25% of
its outstanding shares of common stock at a per share cash purchase price equal
to 95% of net asset value per share as of February 4, 2002, the day the offer
expired. Upon expiration of the offer, the Fund accepted for payment 3,379,976
shares of common stock of the Fund at a price of $9.02 per share.
================================================================================
18
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of The Chile Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Chile Fund, Inc. (the "Fund")
at December 31, 2002, 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 indicated, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2002 by correspondence with the
custodian and issuers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Two Commerce Square
Philadelphia, Pennsylvania
February 24, 2003
================================================================================
19
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
On April 25, 2002, 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 two directors to the Board of Directors of the Fund.
NAME OF DIRECTOR FOR WITHHELD
---------------- --------- ---------
James J. Cattano 4,057,500 3,530,895
Richard W. Watt 6,724,930 863,465
In addition to the directors re-elected at the meeting, Enrique R. Arzac, George
W. Landau and William W. Priest, Jr. continued as directors of the Fund.
Effective May 13, 2002, Laurence R. Smith was elected as Chairman of the Fund
and Chief Executive Officer. Effective January 17, 2003, Mr. Watt resigned as
President and Director of the Fund.
(2) A non-binding shareholder recommendation that the Board of Directors
take the steps necessary to convert the Fund to an open-end structure or
otherwise permit shareholders to realize net asset value for their shares.
FOR AGAINST ABSTAIN
--------- --------- -------
4,243,030 1,578,892 88,313
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, 2002) as to the U.S. federal tax status of dividends and
distributions received by the Fund's shareholders in respect of such year. The
$0.09 per share dividend paid in respect of such year is represented entirely by
net investment income. There were no distributions which qualified 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 Form1099-DIV to determine the amount
includable on their respective tax returns for 2002.
Notification for calendar year 2002 was mailed in January 2003. The notification
along with Form 1099-DIV reflects the amount to be used by calendar year
taxpayers on their U.S. federal income tax returns.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of the actual ordinary dividends paid by the Fund. They will generally
not be entitled to 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.
================================================================================
20
DESCRIPTION OF INVESTLINK(SM) PROGRAM (UNAUDITED)
The InvestLink(SM) Program is sponsored and administered by EquiServe, L.P., not
by The Chile Fund, Inc. (the "Fund"). EquiServe, L.P. will act as program
administrator (the "Program Administrator") of the InvestLink(SM) Program (the
"Program"). The purpose of the Program is to provide interested investors with a
simple and convenient way to invest funds and reinvest dividends in shares of
the Fund's common stock ("Shares") at prevailing prices, with reduced brokerage
commissions and fees.
An interested investor may join the Program at any time. Purchases of Shares
with funds from a participant's cash payment or automatic account deduction will
begin on the next day on which funds are invested. If a participant selects the
dividend reinvestment option, automatic investment of dividends generally will
begin with the next dividend payable after the Program Administrator receives
his enrollment form. Once in the Program, a person will remain a participant
until he terminates his participation or sells all Shares held in his Program
account, or his account is terminated by the Program Administrator. A
participant may change his investment options at any time by requesting a new
enrollment form and returning it to the Program Administrator.
A participant will be assessed certain charges in connection with his
participation in the Program. First-time investors will be subject to an initial
service charge which will be deducted from their initial cash deposit. All
optional cash deposit investments will be subject to a service charge. Sales
processed through the Program will have a service fee deducted from the net
proceeds, after brokerage commissions. In addition to the transaction charges
outlined above, participants will be assessed per share processing fees (which
include brokerage commissions.) Participants will not be charged any fee for
reinvesting dividends.
The number of Shares to be purchased for a participant depends on the amount of
his dividends, cash payments or bank account or payroll deductions, less
applicable fees and commissions, and the purchase price of the Shares. The
Program Administrator uses dividends and funds of participants to purchase
Shares of the Fund's common stock in the open market. Such purchases will be
made by participating brokers as agent for the participants using normal cash
settlement practices. All Shares purchased through the Program will be allocated
to participants as of the settlement date, which is usually three business days
from the purchase date. In all cases, transaction processing will occur within
30 days of the receipt of funds, except where temporary curtailment or
suspension of purchases is necessary to comply with applicable provisions of the
Federal Securities laws or when unusual market conditions make prudent
investment impracticable. In the event the Program Administrator is unable to
purchase Shares within 30 days of the receipt of funds, such funds will be
returned to the participants.
The average price of all Shares purchased by the Program Administrator with all
funds received during the time period from two business days preceding any
investment date up to the second business day preceding the next investment date
shall be the price per share allocable to a participant in connection with the
Shares purchased for his account with his funds or dividends received by the
Program Administrator during such time period. The average price of all Shares
sold by the Program Administrator pursuant to sell orders received during such
time period shall be the price per share allocable to a participant in
connection with the Shares sold for his account pursuant to his sell orders
received by the Program Administrator during such time period.
EquiServe, L.P., as Program Administrator, administers the Program for
participants, keeps records, sends statements of account to participants and
performs other duties relating to the Program. Each participant in the Program
will receive a statement of his account following each purchase of Shares. The
statements will also show the amount of dividends credited to such
================================================================================
21
DESCRIPTION OF INVESTLINK(SM) PROGRAM (UNAUDITED) (CONTINUED)
participant's account (if applicable), as well as the fees paid by the
participant. In addition, each participant will receive copies of the Fund's
annual and semi-annual reports to shareholders, proxy statements and, if
applicable, dividend income information for tax reporting purposes.
If the Fund is paying dividends on the Shares, a participant will receive
dividends through the Program for all Shares held on the dividend record date on
the basis of full and fractional Shares held in his account, and for all other
Shares of the Fund registered in his name. The Program Administrator will send
checks to the participants for the amounts of their dividends that are not to be
automatically reinvested at no cost to the participants.
Shares of the Fund purchased under the Program will be registered in the name of
the accounts of the respective participants. Unless requested, the Fund will not
issue to participants certificates for Shares of the Fund purchased under the
Program. The Program Administrator will hold the Shares in book-entry form until
a Program participant chooses to withdraw his Shares or terminate his
participation in the Program. The number of Shares purchased for a participant's
account under the Program will be shown on his statement of account. This
feature protects against loss, theft or destruction of stock certificates.
A participant may withdraw all or a portion of the Shares from his Program
account by notifying the Program Administrator. After receipt of a participant's
request, the Program Administrator will issue to such participant certificates
for the whole Shares of the Fund so withdrawn or, if requested by the
participant, sell the Shares for him and send him the proceeds, less applicable
brokerage commissions, fees, and transfer taxes, if any. If a participant
withdraws all full and fractional Shares in his Program account, his
participation in the Program will be terminated by the Program Administrator. In
no case will certificates for fractional Shares be issued. The Program
Administrator will convert any fractional Shares held by a participant at the
time of his withdrawal to cash.
Participation in any rights offering, dividend distribution or stock split will
be based upon both the Shares of the Fund registered in participants' names and
the Shares (including fractional Shares) credited to participants' Program
accounts. Any stock dividend or Shares resulting from stock splits with respect
to Shares of the Fund, both full and fractional, which participants hold in
their Program accounts and with respect to all Shares registered in their names
will be automatically credited to their accounts.
All Shares of the Fund (including any fractional share) credited to his account
under the Program will be voted as the participant directs. The participants
will be sent the proxy materials for the annual meetings of shareholders. When a
participant returns an executed proxy, all of such Shares will be voted as
indicated. A participant may also elect to vote his Shares in person at the
Shareholders' meeting.
A participant will receive tax information annually for his personal records and
to help him prepare his U.S. federal income tax return. The automatic
reinvestment of dividends does not relieve him of any income tax which may be
payable on dividends. For further information as to tax consequences of
participation in the Program, participants should consult with their own tax
advisors.
The Program Administrator in administering the Program will not be liable for
any act done in good faith or for any good faith omission to act. However, the
Program Administrator will be liable for loss or damage due to error caused by
its negligence, bad faith or willful misconduct. Shares held in custody by the
Program Administrator are not subject to protection under the Securities
Investors Protection Act of 1970.
================================================================================
22
DESCRIPTION OF INVESTLINK(SM) PROGRAM (UNAUDITED) (CONCLUDED)
The participant should recognize that neither the Fund nor the Program
Administrator can provide any assurance of a profit or protection against loss
on any Shares purchased under the Program. A participant's investment in Shares
held in his Program account is no different than his investment in directly held
Shares in this regard. The participant bears the risk of loss and the benefits
of gain from market price changes with respect to all of his Shares. Neither the
Fund nor the Program Administrator can guarantee that Shares purchased under the
Program will, at any particular time, be worth more or less than their purchase
price. Each participant must make an independent investment decision based on
his own judgment and research.
While the Program Administrator hopes to continue the Program indefinitely, the
Program Administrator reserves the right to suspend or terminate the Program at
any time. It also reserves the right to make modifications to the Program.
Participants will be notified of any such suspension, termination or
modification in accordance with the terms and conditions of the Program. The
Program Administrator also reserves the right to terminate any participant's
participation in the Program at any time. Any question of interpretation arising
under the Program will be determined in good faith by the Program Administrator
and any such good faith determination will be final.
Any interested investor may participate in the Program. To participate in the
Program, an investor who is not already a registered owner of the Shares must
make an initial investment of at least $250.00. All other cash payments or bank
account deductions must be at least $100.00, up to a maximum of $100,000.00
annually. An interested investor may join the Program by reading the Program
description, completing and signing the enrollment form and returning it to the
Program Administrator. The enrollment form and information relating to the
Program (including the terms and conditions) may be obtained by calling the
Program Administrator at one of the following telephone numbers: First Time
Investors--(800) 337-1944; Current Shareholders--(800) 730-6001. All
correspondence regarding the Program should be directed to: Fleet National Bank,
InvestLink(SM) Program, P.O. Box 43010, Providence, RI 02940.
InvestLink is a service mark of EquiServe, L.P.
================================================================================
23
INFORMATION CONCERNING DIRECTORS AND OFFICERS (UNAUDITED)
PRINCIPAL NUMBER OF
TERM OF OFFICE AND OCCUPATION(S) PORTFOLIOS IN FUND OTHER
NAME, ADDRESS AND POSITION(S) HELD LENGTH OF TIME DURING PAST FIVE COMPLEX OVERSEEN DIRECTORSHIPS HELD
AGE WITH FUND SERVED YEARS BY DIRECTOR BY DIRECTOR
-------------------- ------------------- -------------------- ------------------- -------------------- ------------------------
INDEPENDENT
DIRECTORS
Enrique R. Arzac Directorand Audit Since 1996; current Professor of 8 Director of The
Credit Suisse Asset Committee Member term ends at the Finance and Adams Express
Management, LLC 466 2003 annual meeting Economics, Company (a closed-
Lexington Avenue Graduate School of end investment
New York, New York Business, Columbia company); Director
10017-3140 University since of Petroleum and
1971 Resources Corpora-
Age: 61 tion (a closed-end
investment company)
James J. Cattano 55 Director and Audit Since 1989; current President, Primary 4 None
Old Field Point Committee Member term ends at the Resources Inc. (an
Road Greenwich, 2005 annual meeting international
Connecticut 06830 trading and manu-
facturing company
specializing in
Age: 59 the sale of
agricultural
commodities
throughout Latin
American markets)
since October 1996
George W. Landau Director and Audit Since 1989; current Senior Advisor, 5 Director of
Two Grove Isle Committee Member term ends at the Latin America, The Emigrant Savings
Drive Coconut 2004 annual meeting Coca-Cola Company Bank, Director of
Grove, Florida 33133 since 1988 GAM Funds, Inc.
Age: 83
================================================================================
24
INFORMATION CONCERNING DIRECTORS AND OFFICERS (UNAUDITED) (CONTINUED)
TERM OF NUMBER OF
OFFICE AND PORTFOLIOS IN FUND
NAME, ADDRESS AND POSITION(S) HELD LENGTH OF PRINCIPAL OCCUPATION(S) DURING COMPLEX OVERSEEN OTHER DIRECTORSHIPS
AGE WITH FUND TIME SERVED PAST FIVE YEARS BY DIRECTOR HELD BY DIRECTOR
-------------------- -------------------- ------------ ------------------------------ ------------------- --------------------
INTERESTED DIRECTORS
Joseph D. Director Since 2003; Managing Director and Chief 2 None
Gallagher* Credit current Executive Officer of CSAM
Suisse Asset term ends since 2003; Chief Executive
Management, LLC 466 at the 2003 Officer and Director of Credit
Lexington Avenue annual Suisse Asset Management
New York, New York meeting Limited, London, England, from
10017-3140 June 2000 to 2003; Director of
Credit Suisse Asset
Management Funds (UK)
Age: 40 Limited, London,
England, from June 2000
to 2003; Managing Director,
Head-Asian Corpo-
rate Finance and M&A's,
Credit Suisse First
Boston, Hong Kong, China,
from January 1998 to May
1999; and Director,
Head-Asian Corporate
Finance, Credit Suisse
First Boston, Hong Kong,
China, from October 1993
to December 1997
William W. Priest, Director Since 1997; Co-Managing Partner, Steinberg 59 None
Jr.* Steinberg current Priest & Sloane Capital
Priest & Sloane term ends Management since March 2001;
Capital Management at the 2004 Chairman and Managing Director
12 East 49th Street annual of CSAM from 2000 to February
12thFloor New York, meeting 2001, Chief Executive Officer
New York 10017 and Managing Director of CSAM
from 1990 to 2000
Age: 61
Richard W. Watt*+ Director and N/A Managing Director of CSAM from N/A N/A
Credit Suisse Asset President July 1996 to January 2003
Management, LLC 466
Lexington Avenue
New York, New York
10017-3140
Age: 44
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25
INFORMATION CONCERNING DIRECTORS AND OFFICERS (UNAUDITED) (CONTINUED)
POSITION(S) HELD WITH LENGTH OF
NAME, ADDRESS AND AGE FUND TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
------------------------- ----------------------- ------------ ----------------------------------------------
OFFICERS
Laurence R. Smith Credit Chairman of the Fund, Since 2002 Managing Director and Global Chief Investment
Suisse Asset Management, Chief Executive Officer of CSAM; Associated with JP Morgan
LLC 466 Lexington Avenue Officer and President Investment Management from 1981 to 1999; Officer
New York, New York of other Credit Suisse Funds
10017-3140
Age: 44
Hal Liebes, Esq. Credit Senior Vice President Since 1997 Managing Director and Global General Counsel of
Suisse Asset Management, CSAM; Associated with Lehman Brothers, Inc. from
LLC 466 Lexington Avenue 1996 to 1997; Associated with CSAM from 1995 to
New York, New York 1996; Associated with CS First Boston Investment
10017-3140 Manage- ment from 1994 to 1995; Associated with
Division of Enforcement, U.S. Securities and
Exchange Commission from 1991 to 1994; Officer of
other Credit Suisse Funds
Age: 38
YaroslawAranowicz Credit Chief Investment Since 2000 Vice President of CSAM since 1998; Director
Suisse Asset Management, Officer of Research for Europeand the Middle East,
LLC 466 Lexington Avenue Trans-National Research Corporation from1995 to
New York, New York March 1998
10017-3140
Age: 39
EmilyAlejos Credit Investment Officer Since 1999 Director of CSAM since 1999; Vice President of
Suisse Asset Management, CSAM from 1997 to January 1999
LLC 466 Lexington Avenue
New York, New York
10017-3140
Age: 39
Michael A. Pignataro Chief Financial Officer Since 1993 Director and Director of Fund Administration of
Credit Suisse Asset and Secretary CSAM; Associated with CSAM since 1984; Officer of
Management, LLC 466 other Credit Suisse Funds
Lexington Avenue New
York, New York 10017-3140
Age: 43
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26
INFORMATION CONCERNING DIRECTORS AND OFFICERS (UNAUDITED) (CONCLUDED)
POSITION(S) LENGTH
HELD WITH OF TIME
NAME, ADDRESS AND AGE FUND SERVED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
----------------------- -------------- ----------- ----------------------------------------------
OFFICERS - (CONCLUDED)
Rocco A. Del Guercio Vice President Since 1997 Vice President and Administrative Officer of CSAM; Associated with
Credit Suisse Asset CSAM since June 1996; Assistant Treasurer, Bankers Trust Co.--Fund
Management, LLC Administration from March1994 to June1996; Mutual Fund Accounting
466 Lexington Avenue Supervisor, Dreyfus Corporation from April 1997 to March 1994; Officer
New York, New York of other Credit Suisse Funds
10017-3140
Age: 39
Robert M. Rizza Treasurer Since 1999 Assistant Vice President of CSAM since January 2001; Administrative
Credit Suisse Asset Officer of CSAM from March 1998 to December 2000; Assistant Treasurer
Management, LLC of Bankers Trust Co. from April 1994 to March 1998; Officer of other
466 Lexington Avenu Credit Suisse Funds
New York, New York e
10017-3140
Age: 37
--------------------------------------------------------------------------------
* Designates a Director who is an "interested person"of the Fund as defined
under the Investment Company Act of 1940, as amended ("1940 Act"). Messrs.
Gallagher and Watt are/were interested persons of the Fund by virtue of their
current or former positions as directors and/or officers of CSAM. Mr. Priest
is an interested person because he provided consulting services to CSAM
within the last two years.
+ Effective January 17, 2003, Mr. Watt resigned as President and Director
of the Fund.
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27
OTHER FUNDS MANAGED BY CREDIT SUISSE ASSET MANAGEMENT, LLC
Credit Suisse Capital Appreciation Fund
Credit Suisse Cash Reserve Fund
Credit Suisse Emerging Growth Fund
Credit Suisse Emerging Markets Fund
Credit Suisse European Equity Fund
Credit Suisse Fixed Income Fund
Credit Suisse Global Financial Services Fund
Credit Suisse Global Fixed Income Fund
Credit Suisse Global Health Sciences Fund
Credit Suisse Global Post-Venture Capital Fund
Credit Suisse Global Technology Fund
Credit Suisse High Income Fund
Credit Suisse International Focus Fund
Credit Suisse International Fund
Credit Suisse Investment Grade Bond Fund
Credit Suisse Japan Growth Fund
Credit Suisse Large Cap Value Fund
Credit Suisse Municipal Bond Fund
Credit Suisse Municipal Money Fund
Credit Suisse New York Municipal Fund
Credit Suisse New York Tax Exempt Fund
Credit Suisse Select Equity Fund
Credit Suisse Short Duration Bond Fund
Credit Suisse Small Cap Growth Fund
Credit Suisse Small Cap Value Fund
Credit Suisse Strategic Small Cap Fund
Credit Suisse Strategic Value Fund
Credit Suisse Tax Efficient Fund
Credit Suisse U.S. Government Money Fund
Fund shares are not deposits or other obligations of Credit Suisse Asset
Management, LLC or any affiliate, are not FDIC-insured and are not guaranteed by
Credit Suisse Asset Management, LLC or any affiliate. Fund investments are
subject to investment risks, including loss of your investment. There are
special risk considerations associated with international, global,
emerging-market, small-company, high-yield debt, single-industry, single-country
and other special, aggressive or concentrated investment strategies. Past
performance cannot guarantee future results.
More complete information about a fund, including charges and expenses, is
provided in the Prospectus, which should be read carefully before investing. You
may obtain copies by calling Credit Suisse Funds at 800-927-2874. For up-to-date
performance, please look in the mutual fund section of your newspaper under
Credit Suisse.
Credit Suisse Asset Management Securities, Inc., Distributor.
================================================================================
28
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. Credit Suisse Asset Management, LLC (New York), the Fund's
investment adviser, is part of Credit Suisse Asset Management ("CSAM"), the
institutional and mutual-fund asset-management arm of Credit Suisse First
Boston. As of September 30, 2002, CSAM managed over $55 billion in the U.S. and,
together with its global affiliates, managed assets of over $284 billion in 14
countries.
SHAREHOLDER INFORMATION
The market price is published in: THE NEW YORK TIMES (daily), 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 CSAM GROUP OF FUNDS
LITERATURE REQUEST--Call today for free descriptive information on the
closed-end funds listed below at 1-800-293-1232 or visit our website on the
Internet: http://www.cefsource.com.
CLOSED-END FUNDS
SINGLE COUNTRY
The Brazilian Equity Fund, Inc. (BZL)
The First Israel Fund, Inc. (ISL)
The Indonesia Fund, Inc. (IF/INDF)
MULTIPLE COUNTRY
The Emerging Markets Telecommunications Fund, Inc. (ETF)
The Latin America Equity Fund, Inc. (LAQ)
FIXED INCOME
Credit Suisse Asset Management Income Fund, Inc. (CIK)
Credit Suisse High Yield Bond Fund (DHY)
--------------------------------------------------------------------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that The Chile Fund, Inc. may from time to time
purchase shares of its capital stock in the open market.
--------------------------------------------------------------------------------
================================================================================
DIRECTORS AND CORPORATE OFFICERS ADMINISTRATOR
Enrique R. Arzac Director Bear Stearns Funds
Management Inc.
383 Madison Avenue
James J. Cattano Director New York, NY 10179
Joseph D. Gallagher Director CUSTODIAN
George W. Landau Director Brown Brothers Harriman
& Co.
40 Water Street
William W. Priest, Jr. Director Boston, MA 02109
Laurence R. Smith Chairman of the Fund, SHAREHOLDER SERVICING
Chief Executive Officer AGENT
and President Fleet National Bank
(c/o EquiServe, L.P.)
P.O. Box 43010
Yaroslaw Aranowicz Chief Investment Officer Providence, RI 02940
Emily Alejos Investment Officer INDEPENDENT ACCOUNTANTS
Hal Liebes Senior Vice President PricewaterhouseCoopers
LLP
Two Commerce Square
Michael A. Pignataro Chief Financial Officer and Philadelphia, PA 19103
Secretary
LEGAL COUNSEL
Rocco A. Del Guercio Vice President
Willkie Farr & Gallagher
Robert M. Rizza Treasurer 787 Seventh Avenue
New York, NY 10019
INVESTMENT ADVISER
Credit Suisse Asset Management, LLC
466 Lexington Avenue
New York, NY 10017
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.
[CH LISTED NYSE(R) LOGO]
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3911-AR-02