UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File No. 811-05770
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THE CHILE FUND, INC.
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(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue, New York, New York 10017-3140
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(Address of Principal Executive Offices) (Zip Code)
J. Kevin Gao, Esq.
The Chile Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3140
Registrant's telephone number, including area code: (212) 875-3500
Date of fiscal year end: December 31
Date of reporting period: January 1, 2004 to December 31, 2004
ITEM 1. REPORTS TO STOCKHOLDERS.
THE CHILE FUND, INC.
ANNUAL REPORT
DECEMBER 31, 2004
[CH LISTED NYSE(R) LOGO]
3911-AR-04
CONTENTS
Letter to Shareholders 1
Portfolio Summary 4
Schedule of Investments 5
Statement of Assets and Liabilities 7
Statement of Operations 8
Statement of Changes in Net Assets 9
Financial Highlights 10
Notes to Financial Statements 12
Report of Independent Registered Public Accounting Firm 17
Results of Annual Meeting of Shareholders 18
Tax Information 19
Description of InvestLink(SM) Program 20
Information Concerning Directors and Officers 23
Annual Certifications 26
Proxy Policy and Portfolio Holdings Information 26
LETTER TO SHAREHOLDERS
February 2, 2005
DEAR SHAREHOLDER:
For the year ended December 31, 2004, The Chile Fund, Inc. (the "Fund") had an
increase in its net asset value ("NAV"), assuming the reinvestment of dividends
and distributions, of 25.43% vs. an increase of 28.0% (with net dividends) for
the Morgan Stanley Capital International Chile Index*. Based on market price,
the Fund's shares rose 14.93% during the year ended December 31, 2004. As a
result, the Fund's discount to its NAV stood at 10.78% on December 31, 2004,
compared with a discount of 2.62% at the beginning of the year. Over the year,
the Fund's average discount to NAV was 10.37%.
In terms of noteworthy performance attribution, our position in Cencosud S.A.
(5.0% of the Fund's net assets as of December 31, 2004), a retailer, added
significantly to returns, and our avoidance of Distribucion y Servicio D&S S.A.
in the same sector was also positive. In the food and beverages sector, our
overweight position in wine maker Vina Concha y Toro S.A. (4.7% of the Fund's
net assets as of December 31, 2004) contributed to returns. In the
transportation sector, our positions in Lan Chile S.A. and Compania SudAmericana
de Vapores S.A. (0.0% and 4.8% of the Fund's net assets, respectively, as of
December 31, 2004) also contributed positively to performance. On the negative
side, almost all the relative underperformance is attributable to the absence of
steel company, CAP S.A., in the portfolio, which had a strong gain. Our
underweights in department stores Almacenes Paris S.A. and S.A.C.I. Falabella,
S.A. (0.0% and 3.4% of the Fund's net assets, respectively, as of December 31,
2004) also hurt performance, as did our underweight in electricity generator
Empresa Nacional de Electricidad S.A. (10.1% of the Fund's net assets as of
December 31, 2004).
THE STOCK MARKET IN CHILE: INVESTOR SENTIMENT TURNS POSITIVE.
The global environment was broadly favorable for emerging markets. Ample
liquidity conditions as a result of low global interest rates, robust global
growth and high investor appetite for higher-return and higher-risk assets drove
outperformance versus developed markets for the year as a whole, notwithstanding
a mid-period downturn. Chile's stock market had a good showing in absolute and
relative terms for the 12 months, reflecting a strong second half of the year as
investors took note of the country's improving macroeconomic backdrop. In
addition to benefiting from high commodity prices and export revenues (for
copper in particular), domestic demand strengthened during the course of the
year.
Chile's Gross Domestic Product grew 5.7% in 2004, about a full percentage point
higher than what was generally expected as the year began. Although inflation is
still at historically low levels and below the Central Bank's 3% target rate,
this growth resulted in a building of inflationary pressures, prompting the
country's Central Bank to raise short-term interest rates in the latter part of
the year, ending a four year easing cycle. Higher rates, coupled with strong
export revenues, contributed to a rise in Chile's currency vs. the U.S. dollar.
The Chilean peso appreciated by 5.7% during 2004, averaging CLP609.55 to the
U.S. dollar. Sovereign debt yields also reflected the strengthening of Chile's
economy. The spread between Chile's sovereign debt and U.S. Treasuries narrowed
from 110 basis points in May to a low of 61 basis points in December 2004.
1
THE PORTFOLIO: STRATEGIC MANAGEMENT
The Fund paid a distribution of U.S. $1.87 per share, on January 7, 2005,
equivalent to 11.4% of the NAV at the time of the announcement, of which $1.47
per share was comprised of long-term capital gains. The majority of this
long-term capital gain distribution was related to the realization of a gain on
the sale of Compania de Telecomunicaciones de Chile S.A. (NYSE: CTC, 6.9% of the
Fund's net assets as of December 31, 2004), Chile's leading telecommunications
company. Earlier in 2004, CTC announced that it would sell its wireless division
to Telefonica de Espana and distribute the cash to CTC's shareholders. We opted
not to receive the cash, as it would have been taxed at a higher rate than the
prevailing capital gains tax in Chile. Instead, we sold the stock pre-dividend,
realizing a significant long-term gain, and purchased it back after the
ex-dividend date.
Our portfolio activity in the latter part of the period was mainly limited to
taking profits on stocks which have performed well, in order to raise cash for
the dividend distribution. For example, we reduced our exposure to Compania
SudAmericana de Vapores S.A., a shipping stock that had performed well, after we
purchased it in early 2004. A noteworthy recent purchase was adding to Enersis
S.A. (8.1% of the Fund's net assets as of December 31, 2004), an electricity
generation and distribution company with interests principally in Argentina,
Brazil and Chile that we think might benefit from both rising domestic demand as
well as demand in Brazil and Argentina.
Liquidity conditions have improved, with average daily traded volumes doubling
in the year. The market has also been active with respect to issuance, including
IPOs and issuance from existing companies. We purchased a significant stake in
retailer Cencosud S.A. early in the year as well as adding to our position in
Compania Cervecerias Unidas S.A. (4.9% of the Fund's net assets as of December
31, 2004) as part of a large block trade later in the year.
Looking ahead, our outlook on Chile and its stock market remains generally
positive. The economy made significant progress in 2004, and we think it could
generate similar growth in 2005, driven primarily by expanding domestic
consumption; we believe that commodity prices are likely to remain firm in 2005
which could underpin key macroeconomic variables, including the current account
balance and the currency. Market liquidity, which was so supportive for most of
2004, may become a headwind in 2005 as interest rates rise to head off
inflation. The pension funds are unlikely to be as a significant source of
demand as they were in 2004.
Valuations, as has been the case in Chile for many years now, are stretched
relative to most emerging market countries, and are now at the top end of the
range relative to Chile's own trading range. However, as long as Chile can
maintain good economic performance, we believe that stocks in the country could
continue to enjoy premium valuations.
For our part, we will continue to look for reasonably valued companies we think
can deliver consistent earnings growth. From a sector perspective, we are
overweight in consumer areas such as beverages and specific retail stocks, as we
think the consumer will be a key driver of Chile's economy over the next several
years. We are also overweight in utilities, where we see good growth prospects
at reasonable valuations.
We continue to see the main risks as external: notably an upward spike in U.S.
interest rates or a hard landing in China. Both of these risks of course are
common to most emerging markets and Chile. Thanks to Chile's robust internal
capital markets and diversified trading patterns, it may be less exposed than
most. Our basic view is benign: that U.S.
2
rates rise only modestly as 2005 progresses and China's growth remains robust.
Domestic risks include the Presidential elections in November 2005. However, the
market has largely discounted a continuation of the ruling coalition government,
and we do not foresee major surprises. One negative development which we expect
to reemerge in the next government is the possibility of a new royalty tax on
mining; while we see such an event as a negative for mining companies, we think
it would have limited impact on investor sentiment toward Chile as a whole.
Respectfully,
/s/ Matthew J.K. Hickman
Matthew J.K. Hickman**
Chief Investment Officer
INTERNATIONAL INVESTING ENTAILS SPECIAL RISK CONSIDERATIONS, INCLUDING CURRENCY
FLUCTUATIONS, LOWER LIQUIDITY, ECONOMIC AND POLITICAL RISKS, AND DIFFERENCES IN
ACCOUNTING METHODS. THERE ARE ALSO RISKS ASSOCIATED WITH INVESTING IN CHILE AND
THE RISK OF INVESTING IN A SINGLE-COUNTRY FUND.
IN ADDITION TO HISTORICAL INFORMATION, THIS REPORT CONTAINS FORWARD-LOOKING
STATEMENTS, WHICH MAY CONCERN, AMONG OTHER THINGS, DOMESTIC AND FOREIGN MARKETS,
INDUSTRY AND ECONOMIC TRENDS AND DEVELOPMENTS AND GOVERNMENT REGULATION AND
THEIR POTENTIAL IMPACT ON THE FUND'S INVESTMENT PORTFOLIO. THESE STATEMENTS ARE
SUBJECT TO RISKS AND UNCERTAINTIES AND ACTUAL TRENDS, DEVELOPMENTS AND
REGULATIONS IN THE FUTURE AND THEIR IMPACT ON THE FUND COULD BE MATERIALLY
DIFFERENT FROM THOSE PROJECTED, ANTICIPATED OR IMPLIED. THE FUND HAS NO
OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS.
----------
* The Morgan Stanley Capital International Chile Index is an unmanaged index
(with no defined investment objective) of Chilean equities that includes
reinvestment of dividends (net of taxes), and is the exclusive property of
Morgan Stanley Capital International Inc. Investors cannot invest directly in an
index.
** Matthew J.K. Hickman, Vice President, is a portfolio manager specializing in
Latin American equities and is primarily responsible for management of the
Fund's assets. He joined in 2003 from Compass Group Investment Advisors, where
he was general manager of the private wealth management division based in
Santiago, Chile. Previously, he was a financial advisor in Credit Suisse First
Boston's Private Client Services channel; an equity analyst focusing on Latin
American telecommunications companies and several Latin American country markets
at ABN AMRO, Lehman Brothers, Bear, Stearns & Co. Inc. and James Capel; and an
equity analyst and member of the management team for the Five Arrows Chile Fund
at Rothschild Asset Management. Mr. Hickman holds a B.A. in modern languages
from Cambridge University and a diploma in corporate finance from London
Business School. He is fluent in Spanish, Portuguese and French, and is a
candidate for Level II of the Chartered Financial Analyst Examination in 2005.
He is also the Co-Chief Investment Officer of The Latin American Equity Fund,
Inc.
3
THE CHILE FUND, INC.
PORTFOLIO SUMMARY - AS OF DECEMBER 31, 2004 (UNAUDITED)
[CHART]
SECTOR ALLOCATION
AS A PERCENT OF NET ASSETS
DECEMBER 31, 2004 DECEMBER 31, 2003
Banking 5.49% 9.52%
Chemicals-Diversified 4.35% 3.02%
Diversified Operations 16.86% 18.09%
Electric-Integrated 18.24% 18.30%
Food & Beverages 16.48% 8.88%
Food-Retail 4.98% 1.89%
Infrastructure 1.91% 2.38%
Paper & Related Products 11.78% 10.89%
Retail-Major Department Stores 3.36% 3.89%
Shipping 4.80% 4.81%
Telephone-Integrated 8.44% 14.91%
Other 3.31% 3.42%
TOP 10 HOLDINGS, BY ISSUER
PERCENT OF
HOLDING SECTOR NET ASSETS
--------------------------------------------------------------------------------------------------------------------
1. Empresas Copec S.A. Diversified Operations 16.9
2. Empresas CMPC S.A. Paper & Related Products 11.8
3. Empresa Nacional de Electricidad S.A. Electric-Integrated 10.1
4. Enersis S.A. Electric-Integrated 8.1
5. Compania de Telecomunicaciones de Chile S.A. Telephone-Integrated 6.9
6. Embotelladora Andina S.A. Food & Beverages 5.5
7. Banco Santander Chile S.A. Banking 5.5
8. Cencosud S.A. Food-Retail 5.0
9. Compania Cervecerias Unidas S.A. Food & Beverages 4.9
10. Compania SudAmericana de Vapores S.A. Shipping 4.8
4
THE CHILE FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
NO. OF
DESCRIPTION SHARES VALUE
--------------------------------------------------------------------------------------------
EQUITY SECURITIES-98.51%
BANKING-5.49%
Banco de Chile 49,566 $ 3,157
Banco Santander Chile S.A 268,914,500 8,733,975
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8,737,132
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CERAMIC PRODUCTS-0.53%
Ceramicas Cordillera S.A 67,165 839,940
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CHEMICALS-DIVERSIFIED-4.35%
Enaex S.A 110,000 560,144
Sociedad Quimica y Minera
de Chile S.A., Class B 843,544 5,221,397
Sociedad Quimica y Minera
de Chile S.A., Class B, ADR 18,200 1,126,580
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6,908,121
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CONTAINERS-METAL/GLASS-0.72%
Cristalerias de Chile S.A 109,787 1,145,775
-------------
COSMETICS & TOILETRIES-0.54%
Laboratorios Andromaco S.A 7,477,011 861,992
-------------
DIVERSIFIED OPERATIONS-16.86%
Empresas Copec S.A 3,384,802 26,798,252
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ELECTRIC-INTEGRATED-18.24%
Colbun S.A 505,235 67,728
Empresa Nacional de
Electricidad S.A 25,400,000 15,310,841
Empresa Nacional de
Electricidad S.A., ADR 41,900 764,256
Enersis S.A.+ 76,375,294 12,849,465
-------------
28,992,290
-------------
FOOD & BEVERAGES-16.48%
Coca-Cola Embonor S.A.,
Class A+ 3,118,592 1,935,968
Compania Cervecerias
Unidas S.A 1,370,000 7,005,920
Compania Cervecerias
Unidas S.A., ADR 30,500 769,515
Embotelladora Andina S.A., PNA 1,571,855 $ 3,478,869
Embotelladora Andina S.A., PNB 2,307,036 5,168,259
Embotelladora Andina S.A.,
Series B, ADR 11,900 154,819
Vina Concha y Toro S.A 5,214,672 7,440,819
Vina San Pedro S.A 21,000,000 238,435
-------------
26,192,604
-------------
FOOD-RETAIL-4.98%
Cencosud S.A.+ 3,589,052 6,328,873
Cencosud S.A., ADR 60,300 1,594,977
-------------
7,923,850
-------------
INFRASTRUCTURE-1.91%
Infraestructura 2000*+ 19,568,922 3,044,513
-------------
PAPER & RELATED PRODUCTS-11.78%
Empresas CMPC S.A 788,522 18,728,728
-------------
RETAIL-MAJOR DEPARTMENT STORES-3.36%
S.A.C.I. Falabella, S.A 2,200,000 5,340,171
-------------
SHIPPING-4.80%
Compania SudAmericana
de Vapores S.A 3,121,191 7,638,002
-------------
TELEPHONE-INTEGRATED-8.44%
Compania de Telecomunicaciones
de Chile S.A., Class A 3,900,000 10,947,368
Empresa Nacional de
Telecomunicaciones S.A 320,000 2,464,418
-------------
13,411,786
-------------
TEXTILES-0.03%
Zalaquett S.A 1,496,767 48,478
-------------
TOTAL EQUITY SECURITIES
(Cost $90,896,988) 156,611,634
-------------
See accompanying notes to financial statements.
5
SCHEDULE OF INVESTMENTS (CONCLUDED)
NO. OF
DESCRIPTION SHARES VALUE
--------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS-8.21%
CHILEAN MUTUAL FUNDS-7.72%
Fondo Mutuo Bice
Dreyfus Manager 2,080,010 $ 6,724,099
Fondo Mutuo Citicorp Cash 254,039 689,217
Fondo Mutuo Cruz
Moneda Liquidez (A) 192,841 360,240
Fondo Mutuo Security Check 882,946 4,497,450
-------------
TOTAL CHILEAN MUTUAL FUNDS
(Cost $11,973,841) 12,271,006
-------------
PRINCIPAL
DESCRIPTION AMOUNT (000'S) VALUE
--------------------------------------------------------------------------------------------
UNITED KINGDOM-0.49%
Bank of America N.A.,
overnight deposit, 1.35%,
01/03/05** (Cost $783,000) $ 783 $ 783,000
-------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $12,756,841) 13,054,006
-------------
TOTAL INVESTMENTS-106.72%
(Cost $103,653,829) (Notes A,D,F) 169,665,640
-------------
LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS-(6.72)% (10,682,684)
-------------
NET ASSETS-100.00% $ 158,982,956
=============
----------
+ Non-income producing security.
* Not readily marketable security; security is valued at fair value as
determined in good faith by, or under the direction of, the Board of
Directors under procedures established 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 Depository Receipts.
PNA Preferred Shares, Class A.
PNB Preferred Shares, Class B.
See accompanying notes to financial statements.
6
THE CHILE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - DECEMBER 31, 2004
ASSETS
Investments, at value (Cost $103,653,829) (Notes A,D,F) $ 169,665,640
Cash (including $1,229,133 of foreign currencies with a cost of $1,232,490) 1,230,086
Receivables:
Investments sold 8,007,049
Dividends 182,313
Prepaid expenses 4,286
-------------
Total Assets 179,089,374
-------------
LIABILITIES
Payables:
Dividends and distributions (Note A) 18,961,663
Investments purchased 355,713
Investment advisory fees (Note B) 416,009
Administration fees (Note B) 42,303
Directors' fees 5,098
Other accrued expenses 136,656
Deferred Chilean repatriation taxes (Note A) 188,976
-------------
Total Liabilities 20,106,418
-------------
NET ASSETS (applicable to 10,139,926 shares of common stock outstanding) (Note C) $ 158,982,956
=============
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 81,037,892
Undistributed net investment income 239,469
Accumulated net realized gain on investments and foreign currency related transactions 11,675,363
Net unrealized appreciation in value of investments and translation of other
assets and liabilities denominated in foreign currencies 66,020,092
-------------
Net assets applicable to shares outstanding $ 158,982,956
=============
NET ASSET VALUE PER SHARE ($158,982,956 DIVIDED BY 10,139,926) $ 15.68
=============
MARKET PRICE PER SHARE $ 13.99
=============
See accompanying notes to financial statements.
7
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 2004
INVESTMENT INCOME
Income (Note A):
Dividends $ 4,377,811
Interest 2,367
Less: Foreign taxes withheld (7,405)
-------------
Total Investment Income 4,372,773
-------------
Expenses:
Investment advisory fees (Note B) 1,543,910
Custodian fees 297,167
Administration fees (Note B) 199,164
Audit fees 80,503
Legal fees 54,637
Accounting fees 51,370
Directors' fees 45,100
Printing (Note B) 37,559
NYSE listing fees 23,751
Transfer agent fees 23,633
Insurance 19,858
Miscellaneous 10,432
Chilean repatriation taxes (Note A) 335,617
-------------
Total Expenses 2,722,701
-------------
Net Investment Income 1,650,072
-------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND
FOREIGN CURRENCY RELATED TRANSACTIONS
Net realized gain/(loss) from:
Investments 30,896,313
Foreign currency related transactions (11,725)
Net change in unrealized appreciation in value of investments and translation of
other assets and liabilities denominated in foreign currencies (net of $27,712
of deferred Chilean repatriation taxes on unrealized gains) (Note A) 2,220,880
-------------
Net realized and unrealized gain on investments and foreign currency related transactions 33,105,468
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 34,755,540
=============
See accompanying notes to financial statements.
8
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2004 2003
------------- -------------
INCREASE IN NET ASSETS
Operations:
Net investment income $ 1,650,072 $ 725,373
Net realized gain on investments and foreign currency related transactions 30,884,588 8,997,484
Net change in unrealized appreciation in value of investments and
translation of other assets and liabilities denominated in
foreign currencies 2,220,880 56,597,737
------------- -------------
Net increase in net assets resulting from operations 34,755,540 66,320,594
------------- -------------
Dividends and distributions to shareholders:
Net investment income (2,027,985) (811,194)
Net realized gain on investments and foreign currency related transactions (20,584,050) (3,751,773)
------------- -------------
Total dividends and distributions to shareholders (22,612,035) (4,562,967)
------------- -------------
Total increase in net assets 12,143,505 61,757,627
------------- -------------
NET ASSETS
Beginning of year 146,839,451 85,081,824
------------- -------------
End of year* $ 158,982,956 $ 146,839,451
============= =============
----------
* Includes undistributed net investment income of $239,469 and $629,107,
respectively.
See accompanying notes to financial statements.
9
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 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,
--------------------------------------
2004 2003 2002
---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $ 14.48 $ 8.39 $ 9.93
---------- ---------- ----------
Net investment income/(loss) 0.16 0.07 0.09*
Net realized and unrealized gain/(loss) on investments
and foreign currency related transactions 3.27 6.47 (1.70)
---------- ---------- ----------
Net increase/(decrease) in net assets resulting from operations 3.43 6.54 (1.61)
---------- ---------- ----------
Dividends and distributions to shareholders:
Net investment income (0.47) (0.08) (0.09)
Net realized gain on investments and
foreign currency related transactions (1.76) (0.37) --
In excess of net investment income -- -- --
---------- ---------- ----------
Total dividends and distributions to shareholders (2.23) (0.45) (0.09)
---------- ---------- ----------
Anti-dilutive impact due to capital shares tendered or repurchased -- -- 0.16
---------- ---------- ----------
Net asset value, end of year $ 15.68 $ 14.48 $ 8.39
========== ========== ==========
Market value, end of year $ 13.99 $ 14.10 $ 7.25
========== ========== ==========
Total investment return (a) 14.93% 100.72% (12.93)%
========== ========== ==========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $ 158,983 $ 146,839 $ 85,082
Ratio of expenses to average net assets (b) 1.85% 1.74% 1.11%
Ratio of expenses to average net assets, excluding taxes 1.62% 1.74% 2.01%
Ratio of net investment income/(loss) to average net assets 1.12% 0.65% 1.28%(c)
Portfolio turnover rate 35.54% 31.94% 31.94%
----------
* 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;
excluding the reversal, the ratio would have been 0.18%.
See accompanying notes to financial statements.
10
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
2001 2000 1999
---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $ 11.43 $ 15.22 $ 12.59
---------- ---------- ----------
Net investment income/(loss) 0.21 (0.06)+ 0.09
Net realized and unrealized gain/(loss) on investments
and foreign currency related transactions (0.70) (3.36) 3.19
---------- ---------- ----------
Net increase/(decrease) in net assets resulting from operations (0.49) (3.42) 3.28
---------- ---------- ----------
Dividends and distributions to shareholders:
Net investment income (0.15) (0.01) (0.07)
Net realized gain on investments and
foreign currency related transactions (0.86) (0.58) (0.58)
In excess of net investment income -- -- --
---------- ---------- ----------
Total dividends and distributions to shareholders (1.01) (0.59) (0.65)
---------- ---------- ----------
Anti-dilutive impact due to capital shares tendered or repurchased -- 0.22 --
---------- ---------- ----------
Net asset value, end of year $ 9.93 $ 11.43 $ 15.22
========== ========== ==========
Market value, end of year $ 8.43 $ 8.438 $ 11.250
========== ========== ==========
Total investment return (a) 13.18% (20.04)% 31.45%
========== ========== ==========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $ 134,289 $ 154,473 $ 218,027
Ratio of expenses to average net assets (b) 2.71% 2.98% 2.16%
Ratio of expenses to average net assets, excluding taxes 1.54% 1.73% 1.64%
Ratio of net investment income/(loss) to average net assets 1.91% (0.45)% 0.61%
Portfolio turnover rate 29.81% 24.25% 12.01%
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995
---------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $ 21.61 $ 22.59 $ 26.45 $ 26.26
---------- ---------- ---------- ----------
Net investment income/(loss) 0.38 0.10 0.47 0.65
Net realized and unrealized gain/(loss) on investments
and foreign currency related transactions (6.88)++ 2.32 (3.44) 0.41++
---------- ---------- ---------- ----------
Net increase/(decrease) in net assets resulting from operations (6.50) 2.42 (2.97) 1.06
---------- ---------- ---------- ----------
Dividends and distributions to shareholders:
Net investment income (0.32) -- (0.47) (0.65)
Net realized gain on investments and
foreign currency related transactions (2.20) (3.40) (0.26) (0.22)
In excess of net investment income -- -- (0.16) --
---------- ---------- ---------- ----------
Total dividends and distributions to shareholders (2.52) (3.40) (0.89) (0.87)
---------- ---------- ---------- ----------
Anti-dilutive impact due to capital shares tendered or repurchased -- -- -- --
---------- ---------- ---------- ----------
Net asset value, end of year $ 12.59 $ 21.61 $ 22.59 $ 26.45
========== ========== ========== ==========
Market value, end of year $ 9.063 $ 17.813 $ 20.875 $ 26.000
========== ========== ========== ==========
Total investment return (a) (33.00)% 3.56% (16.43)% 16.66%
========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $ 180,357 $ 303,944 $ 317,012 $ 370,275
Ratio of expenses to average net assets (b) -- 3.34% 1.96% --
Ratio of expenses to average net assets, excluding taxes 1.62% 1.50% 1.48% 1.46%
Ratio of net investment income/(loss) to average net assets 2.29% 0.38% 1.79% 2.39%
Portfolio turnover rate 5.39% 35.59% 4.82% 2.38%
11
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 revenues 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
"Exchange") on each day the Exchange is open for business. The Fund's equity
investments are valued at market value, which is generally determined using the
closing price on the exchange or market on which the security is primarily
traded at the time of valuation (the "Valuation Time"). If no sales are
reported, equity investments are generally valued at the most recent bid
quotation as of the Valuation Time or at the lowest ask quotation in the case of
a short sale of securities. Debt securities with a remaining maturity greater
than 60 days are valued in accordance with the price supplied 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 it is determined that
this method would not represent fair value.
Securities and other assets for which market quotations are not readily
available, or whose values have been materially affected by events occurring
before the Fund's Valuation Time, but after the close of the securities' primary
market, are valued at fair value as determined in good faith by, or under the
direction of, the Board of Directors under procedures established by the Board
of Directors. The Fund may utilize a service provided by an independent third
party which has been approved by the Board of Directors to fair value certain
securities. At December 31, 2004, the Fund held 1.91% of its net assets in a
security valued at fair value as determined in good faith under procedures
established by the Board of Directors with an aggregate cost of $4,296,118 and
fair value of $3,044,513. The Fund's estimate of fair value assumes a willing
buyer and a willing seller neither acting under a compulsion to buy or sell.
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 Bank of America N.A. 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 a trade date basis. The cost of investments sold is determined
by use of the specific identification method for both financial reporting and
U.S. 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. 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 sufficient to
12
relieve it from all or substantially all U.S. income and excise taxes.
The Fund accrues foreign taxes on realized gains and repatriation taxes in an
amount equal to what the Fund would owe if the securities were sold and the
proceeds repatriated on the valuation date as a liability and reduction of
realized/unrealized gains. Taxes on foreign income are recorded when the related
income is recorded. For the year ended December 31, 2004, the Fund incurred
$335,617 of such expense.
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 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.
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. income tax purposes.
Net unrealized 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 gains or 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 date on security transactions, and the difference between the amounts
of interest and dividends recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received.
DISTRIBUTIONS OF INCOME AND GAINS: The Fund distributes at least annually to
shareholders substantially all of its net investment income and net realized
short-term capital gains, if any. The Fund determines annually whether to
distribute any net realized long-term capital gains in excess of net realized
short-term capital losses, including capital loss carryovers, if any. An
additional distribution may be made to the extent necessary to avoid the payment
of a 4% U.S. federal excise tax. Dividends and distributions to shareholders are
recorded by the Fund on the ex-dividend date.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for U.S.
income tax purposes due to U.S. generally accepted accounting principles/tax
differences in the character of income and expense recognition.
OTHER: The Fund may invest in securities of foreign countries and governments
which involve certain risks in addition to those inherent in domestic
investments. Such risks generally include, among others, currency risks
(fluctuations in currency exchange rates),
13
information risk (key information may be inaccurate or unavailable) and
political risk (expropriation, nationalization or the imposition of capital or
currency controls or punitive taxes). Other risks of investing in foreign
securities include liquidity and valuation risks.
Securities denominated in currencies other than U.S. dollars are subject to
changes in value due to fluctuations in exchange rates.
The Chilean securities markets are substantially smaller, less liquid and more
volatile than the major securities markets in the United States. Consequently,
acquisition and disposition of securities by the Fund may be inhibited. A
significant proportion of the aggregate market value of equity securities listed
on the Santiago Exchange are held by a small number of investors and are not
publicly traded. This may limit the number of shares available for acquisition
or disposition by the Fund.
Investments in Chile may involve certain considerations and risks not typically
associated with investments in the United States, including the possibility of
future political and economic developments and the level of Chilean governmental
supervision and regulation of its securities markets.
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 the emerging markets. When investing through another
investment fund, the Fund will bear its proportionate share of the expenses
incurred by that 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 these 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,
2004, CSAM earned $1,543,910 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, 2004, CSAM was reimbursed $19,563 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, calculated
weekly and paid quarterly, equal to 0.20% of the Fund's average weekly market
value or net assets (whichever is lower). For the year ended December 31, 2004,
these sub-advisory fees amounted to $267,172.
For the year ended December 31, 2004, Celfin earned approximately $181,100 in
brokerage commissions from portfolio transactions executed on behalf of the
Fund.
14
Bear Stearns Funds Management Inc. ("BSFM") serves as the Fund's U.S.
administrator. The Fund pays BSFM a monthly fee that is calculated 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 and 0.04% of amounts in excess of $150
million. For the year ended December 31, 2004, BSFM earned $108,601 for
administrative services.
Celfin Capital S.A. Administradora de Fondos de Capital Extranjero ("AFCE")
serves as the Fund's Chilean administrator. For its administrative services,
AFCE is paid a fee, out of the advisory fee payable to CSAM, that is calculated
weekly and paid quarterly at an annual rate of 0.05% of the Fund's average
weekly market value or net assets (whichever is lower). In addition, AFCE
receives a supplemental administration fee, an annual reimbursement of
out-of-pocket expenses and an accounting fee. For the year ended December 31,
2004, the administration fees, supplemental administration fees and accounting
fees amounted to $67,179, $71,000 and $5,999, respectively.
Merrill Corporation ("Merrill"), an affiliate of CSAM, has been engaged by the
Fund to provide certain financial printing services. For the year ended December
31, 2004, Merrill was paid $43,492 for its services to the Fund.
The Independent 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, 2004,
CSAM owned 14,615 shares.
NOTE D. INVESTMENT IN SECURITIES
For the year ended December 31, 2004, purchases and sales of securities, other
than short-term investments, were $52,895,277 and $79,838,417, respectively.
NOTE E. CREDIT FACILITY
The Fund, together with other funds/portfolios advised by CSAM (collectively,
the "Participating Funds"), participates in a $75 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%. The maximum amount outstanding under the Credit Facility for the Fund was
$2,700,000 with an average daily balance of $22,449 and an average daily
interest rate of 1.50% during the year ended December 31, 2004. The Fund had no
borrowings under the Credit Facility at December 31, 2004.
NOTE F. FEDERAL INCOME TAXES
Income and capital gain 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 and
losses deferred due to wash sales.
15
The tax character of dividends and distributions paid during the years ended
December 31, for the Fund were as follows:
ORDINARY INCOME LONG-TERM CAPITAL GAINS
------------------------- --------------------------
2004 2003 2004 2003
----------- --------- ------------ -----------
$ 4,765,765 $ 811,194 $ 17,846,270 $ 3,751,773
At December 31, 2004, the components of distributable earnings on a tax basis,
for the Fund were as follows:
Undistributed ordinary income $ 1,474,158
Accumulated net realized gain 11,277,994
Unrealized appreciation 65,182,772
------------
Total distributable earnings $ 77,934,924
============
At December 31, 2004, 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 $104,491,149, $66,454,356,
$(1,279,865) and $65,174,491, respectively.
At December 31, 2004, the Fund reclassified from accumulated net realized gain
on investments and foreign currency related transactions of $11,725 to
undistributed net investment income. Net assets were not affected by this
reclassification.
NOTE G. CONTINGENCIES
In the normal course of business, the Fund may provide general indemnifications
pursuant to certain contracts and organizational documents. The Fund's maximum
exposure under these arrangements is dependent on future claims that may be made
against the Fund and, therefore, cannot be estimated; however, based on
experience, the risk of loss from such claims is considered remote.
16
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2004, 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 ten years in the period then ended,
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 the standards of the Public Company Accounting
Oversight Board (United States). Those standards 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, 2004 by correspondence with the custodian and issuers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 18, 2005
17
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
On April 21, 2004, the Annual Meeting of Shareholders of The Chile Fund, Inc.
(the "Fund") (the "Meeting") was held and the following matter was voted upon:
(1) To re-elect two directors to the Board of Directors of the Fund.
NAME OF DIRECTOR FOR WITHHELD
---------------- --------- --------
George W. Landau 6,372,359 96,923
William W. Priest, Jr. 6,362,049 107,233
In addition to the directors re-elected at the Meeting, Enrique R. Arzac, James
J. Cattano and Steven N. Rappaport continue as directors of the Fund.
Effective August 9, 2004, Michael E. Kenneally was appointed as Director,
Chairman of the Board, Chief Executive Officer and President. Joseph D.
Gallagher, who previously held these positions, resigned from the Fund effective
the same day.
18
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, 2004) as to the U.S. federal tax status of dividends and
distributions received by the Fund's shareholders in respect of such year. Of
the $2.23 per share distribution paid in respect of such year, $0.47 per share
was derived from net investment income and $1.76 per share was derived from net
realized long-term capital gains. The Fund has met the requirements to pass
through all ordinary income as qualified dividends as noted on Box 1B on Form
1099-DIV. Please note that to utilize the lower tax rate for qualifying dividend
income, shareholders must have held their shares in the Fund for at least 61
days during the 121 day period beginning 60 days before the ex-dividend date.
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 2004.
Notification for calendar year 2004 was mailed in January 2005. 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.
19
DESCRIPTION OF INVESTLINK(SM) PROGRAM (UNAUDITED)
The InvestLink(SM) Program is sponsored and administered by EquiServe Trust
Company, N.A., with EquiServe, Inc. acting as service agent to the
aforementioned and, not by The Chile Fund, Inc. (the "Fund"). EquiServe Trust
Company, N.A., will act as program administrator (the "Program Administrator")
of the InvestLink(SM) Program (the "Program"). The purpose of the Program is to
provide existing shareholders with a simple and convenient way to invest
additional funds and reinvest dividends in shares of the Fund's common stock
("Shares") at prevailing prices, with reduced brokerage commissions and fees.
In order to participate in the Program, you must be a registered holder of at
least one Share of stock of the Fund. 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. All cash payments must be drawn on a U.S. bank
and payable in U.S. dollars. Checks must be made payable to EquiServe. 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. 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 investment date
for cash payments is the 25th day of each month (or the next trading day if the
25th is not a trading day). The investment date for dividend reinvestment is the
dividend payment date. The Program Administrator uses dividends and funds of
participants to purchase Shares of the Fund 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. All sale requests
having an
20
anticipated market value of $100,000.00 or more are expected to be submitted in
written form. In addition, all sale requests received by the Program
Administrator within thirty (30) days of an address change are expected to be
submitted in written form.
EquiServe Trust Company, N.A., 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 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
21
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.
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 shareholder may participate in the Program. 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 shareholder 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:
(800) 730-6001 (U.S. and Canada) or (781) 575-3100 (outside U.S. and Canada).
All correspondence regarding the Program should be directed to: EquiServe Trust
Company, N.A., InvestLink(SM) Program, P.O. Box 43010, Providence, RI
02940-3010.
InvestLink is a service mark of EquiServe Trust Company, N.A.
22
INFORMATION CONCERNING DIRECTORS AND OFFICERS (UNAUDITED)
TERM NUMBER OF
OF OFFICE PORTFOLIOS IN
AND FUND
POSITION(S) LENGTH PRINCIPAL COMPLEX OTHER
NAME, ADDRESS AND HELD WITH OF TIME OCCUPATION(S) DURING OVERSEEN BY DIRECTORSHIPS
DATE OF BIRTH FUND SERVED THE PAST FIVE YEARS DIRECTOR HELD BY DIRECTOR
--------------------------- --------------- ------------- -------------------------- ------------- ---------------------
INDEPENDENT DIRECTORS
Enrique R. Arzac Lead Director; Since 1996; Professor of Finance and 8 Director of The Adams
c/o Credit Suisse Asset Nominating current term Economics, Graduate School Express Company (a
Management, LLC Committee ends at the of Business, Columbia closed-end investment
Attn: General Counsel Chairman and 2006 annual University since 1971 company); Director of
466 Lexington Avenue Audit Committee meeting Petroleum and
New York, New York Member Resources Corporation
10017-3140 (a closed-end
investment company)
Date of Birth: 10/02/41
James J. Cattano Director; Since 1989; President, Primary 4 None
c/o Primary Resources, Inc. Nominating current term Resources, Inc. (an
55 Old Field Point Road Committee ends at the international trading
Greenwich, Connecticut Member and 2005 annual and manufacturing
06830 Audit Committee meeting company specializing in
Chairman the sale of agricultural
Date of Birth: 06/24/43 commodities throughout
Latin American markets)
since October 1996
George W. Landau Director; Since 1989; Senior Advisor, Latin 5 Director of GAM
c/o Credit Suisse Asset Nominating and current term America, The Coca-Cola Funds, Inc.
Management, LLC Audit Committee ends at the Company since 1988;
Attn: General Counsel Member 2007 annual Advisor of Guardian
466 Lexington Avenue meeting Industries (a glass
New York, New York manufacturer) since 1992
10017-3140
Date of Birth: 03/04/20
Steven N. Rappaport Director; Since 2003; Partner of Lehigh Court, 42 Director of
c/o Lehigh Court, LLC Nominating and current term LLC and RZ Capital (a Presstek, Inc. (a
40 East 52nd Street Audit Committee ends at the private investment firms) digital imaging
New York, New York Member 2005 annual since July 2002; technologies company);
10022 meeting Transition Advisor to Director of Wood
SunGard Securities Resources, LLC (a
Date of Birth: 07/10/48 Finance, Inc. from February plywood manufacturing
2002 to July 2002; company)
President of SunGard
Securities Finance,
Inc. from 2001 to
February 2002; President
of Loanet, Inc. (an
on-line accounting
service) from 1997 to 2001
23
TERM NUMBER OF
OF OFFICE PORTFOLIOS IN
AND FUND
POSITION(S) LENGTH PRINCIPAL COMPLEX OTHER
NAME, ADDRESS AND HELD WITH OF TIME OCCUPATION(S) DURING OVERSEEN BY DIRECTORSHIPS
DATE OF BIRTH FUND SERVED THE PAST FIVE YEARS DIRECTOR HELD BY DIRECTOR
--------------------------- --------------- ------------- -------------------------- ------------- -----------------------
INTERESTED DIRECTORS
William W. Priest, Jr.* Director Since 1997; Chief Executive Officer 47 Director of Globe
c/o Epoch Investment current term of J Net Enterprises, Wireless, LLC (a
Partners ends at the Inc. (a technology maritime communications
667 Madison Avenue 2007 annual holding company) since company); Director of
New York, New York meeting June 2004; Chief InfraRed X (a medical
10021 Executive Officer of device company);
Epoch Investment Director of J Net
Date of Birth: 09/24/41 Partners, Inc. since Enterprises, Inc.
April 2004; Co-Managing
Partner, Steinberg Priest
& Sloane Capital
Management, LLC from 2001
to March 2004; Chairman
and Managing Director of
CSAM from 2000 to
February 2001, Chief
Executive Officer and
Managing Director of CSAM
from 1990 to 2000
Michael E. Kenneally*/** Director; Since 2004; Chairman and Global Chief 44 None
c/o Credit Suisse Asset Chairman of the current term Executive Officer of CSAM
Management, LLC Board of ends at the since 2003; Chairman and
466 Lexington Avenue Directors, Chief 2006 annual Chief Investment Officer
New York, New York Executive meeting of Banc of America
10017-3140 Officer and Capital Management from
President 1998 to March 2003;
Date of Birth: 03/30/54 Officer of other Credit
Suisse Funds
POSITION LENGTH
NAME, ADDRESS AND HELD WITH OF TIME
DATE OF BIRTH FUND SERVED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
--------------------------- --------------- ------------ --------------------------------------------------
OFFICERS
Matthew J.K. Hickman*** Chief Since 2004 Vice President of CSAM since December 2003;
c/o Credit Suisse Asset Investment Financial Advisor with Global Advisors from July
Management, LLC Officer 2003 to November 2003; General Manager of Compass
466 Lexington Avenue Group Investment Advisors S.A. from February 2002
New York, New York to July 2003; Financial Advisor with Credit Suisse
10017-3140 First Boston from August 2000 to February 2002;
Director of ABN AMRO from September 1998 to August
Date of Birth: 01/21/64 2000; Officer of other Credit Suisse Funds
Emily Alejos
c/o Credit Suisse Asset Investment Since 1999 Director of CSAM; Associated with CSAM since 1997;
Management, LLC Officer Officer of other Credit Suisse Funds
466 Lexington Avenue
New York, New York
10017-3140
Date of Birth: 10/27/63
24
POSITION(S) LENGTH
NAME, ADDRESS AND HELD WITH OF TIME
DATE OF BIRTH FUND SERVED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
--------------------------- --------------- ------------ --------------------------------------------------
OFFICERS-(CONCLUDED)
Michael A. Pignataro Chief Financial Since 1993 Director and Director of Fund Administration of
c/o Credit Suisse Asset Officer and CSAM; Associated with CSAM since 1984; Officer of
Management, LLC Secretary other Credit Suisse Funds
466 Lexington Avenue
New York, New York
10017-3140
Date of Birth: 11/15/59
Emidio Morizio Chief Since 2004 Director and Global Head of Compliance of CSAM;
c/o Credit Suisse Asset Compliance Associated with CSAM since July 2000; Vice
Management, LLC Officer President and Director of Compliance of
466 Lexington Avenue Forstmann-Leff Associates from 1998 to June 2000;
New York, New York Officer of other Credit Suisse Funds
10017-3140
Date of Birth: 09/21/66
Ajay Mehra Chief Legal Since 2004 Director and Deputy General Counsel of CSAM since
c/o Credit Suisse Asset Officer September 2004; Senior Associate of Shearman &
Management, LLC Sterling LLP from September 2000 to September 2004;
466 Lexington Avenue Senior Counsel of the SEC Division of Investment
New York, New York Management from June 1997 to September 2000;
10017-3140 Officer of other Credit Suisse Funds
Date of Birth: 08/14/70
J. Kevin Gao Senior Vice Since 2004 Vice President and legal counsel of CSAM;
c/o Credit Suisse Asset President Associated with CSAM since July 2003; Associated
Management, LLC with the law firm of Willkie Farr & Gallagher LLP
466 Lexington Avenue from 1998 to 2003; Officer of other Credit Suisse
New York, New York Funds
10017-3140
Date of Birth: 10/13/67
Robert M. Rizza Treasurer Since 1999 Assistant Vice President of CSAM since January
c/o Credit Suisse Asset 2001; Associated with CSAM since 1998; Officer of
Management, LLC other Credit Suisse Funds
466 Lexington Avenue
New York, New York
10017-3140
Date of Birth: 12/09/65
----------
* Designates a director who is an "interested person" of the Fund as defined
under the Investment Company Act of 1940, as amended. Mr. Kenneally is an
interested person of the Fund by virtue of his current position as an
officer of CSAM. Mr. Priest is an interested person of the Fund because up
to December 31, 2002 he was retained by CSAM to provide consulting
services.
** Effective August 9, 2004, Michael E. Kenneally was appointed as Director,
Chairman of the Board of Directors, Chief Executive Officer and President.
Joseph D. Gallagher who previously held these positions has resigned
effective August 9, 2004.
*** Effective February 12, 2004, Matthew J.K. Hickman was appointed as Chief
Investment Officer. Yaroslaw Aranowicz who previously held the position has
resigned from CSAM.
25
ANNUAL CERTIFICATIONS (UNAUDITED)
The Fund's Chief Executive Officer has filed an annual certification with the
NYSE that, as of the date of the certification, he was unaware of any violation
by the Fund of the NYSE's corporate governance listing standards. The Fund's
Chief Executive Officer and Chief Financial Officer have also filed
certifications with the SEC as part of the Fund's Form N-CSR filings that cover
certain public disclosure documents of the Fund, including its annual and
semi-annual reports to stockholders.
PROXY POLICY AND PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
Information regarding how The Chile Fund, Inc. (the "Fund") voted proxies
related to its portfolio securities during the 12-month period ended June 30,
2004 as well as the policies and procedures that the Fund uses to determine how
to vote proxies relating to its portfolio securities are available:
- By calling 1-800-293-1232;
- On the Fund's website, www.csam.com/us
- On the website of the Securities and Exchange Commission,
http://www.sec.gov.
The Fund files a complete schedule of its portfolio holdings for the first and
third quarters of its fiscal year with the SEC on Form N-Q. The Fund's Forms N-Q
are available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the SEC's Public Reference Room may be obtained by calling
1-800-SEC-0330.
26
OTHER FUNDS MANAGED BY CREDIT SUISSE ASSET MANAGEMENT, LLC
Credit Suisse Capital Appreciation Fund
Credit Suisse Cash Reserve Fund
Credit Suisse Emerging Markets Fund
Credit Suisse Fixed Income Fund
Credit Suisse Global Fixed Income Fund
Credit Suisse Global Small Cap Fund
Credit Suisse High Income Fund
Credit Suisse International Focus Fund
Credit Suisse Japan Equity Fund
Credit Suisse Large Cap Value Fund
Credit Suisse Mid-Cap Growth Fund
Credit Suisse New York Municipal Fund
Credit Suisse Select Equity Fund
Credit Suisse Short Duration Bond Fund
Credit Suisse Small Cap Growth Fund
Credit Suisse Small Cap Value 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, private equity, 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.
27
This page left intentionally blank.
SUMMARY OF GENERAL INFORMATION (UNAUDITED)
The Fund--The Chile Fund, Inc.--is a closed-end, non-diversified management
investment company whose shares trade on the New York Stock Exchange, Inc. 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, 2004, CSAM managed over $27 billion in the U.S. and,
together with its global affiliates, managed assets of over $308 billion in 15
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, Inc. 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.csam.com/us.
CLOSED-END FUNDS
SINGLE COUNTRY
The Brazilian Equity Fund, Inc. (BZL)
The First Israel Fund, Inc. (ISL)
The Indonesia Fund, Inc. (IF)
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
Enrique R. Arzac Lead Director
James J. Cattano Director
George W. Landau Director
William W. Priest, Jr. Director
Steven N. Rappaport Director
Michael E. Kenneally Director, Chairman of the Board, Chief Executive
Officer and President
Matthew J.K. Hickman Chief Investment Officer
Emily Alejos Investment Officer
J. Kevin Gao Senior Vice President
Ajay Mehra Chief Legal Officer
Emidio Morizio Chief Compliance Officer
Michael A. Pignataro Chief Financial Officer and Secretary
Robert M. Rizza Treasurer
INVESTMENT ADVISER
Credit Suisse Asset Management, LLC
466 Lexington Avenue
New York, NY 10017
ADMINISTRATOR
Bear Stearns Funds Management Inc.
383 Madison Avenue
New York, NY 10179
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
SHAREHOLDER SERVICING AGENT
EquiServe Trust Company, N.A.
P.O. Box 43010
Providence, RI 02940
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
Two Commerce Square
Philadelphia, PA 19103
LEGAL COUNSEL
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, NY 10019
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]
3911-AR-04
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics applicable to its Chief Executive
Officer, President, Chief Financial Officer and Chief Accounting Officer, or
persons performing similar functions. A copy of the code is filed as Exhibit
12(a)(1) to this Form. There were no amendments to the code during the fiscal
year ended December 31, 2004. There were no waivers or implicit waivers from the
code granted by the registrant during the fiscal year ended December 31, 2004.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's governing board has determined that it has two audit committee
financial experts serving on its audit committee: Enrique R. Arzac and Steven N.
Rappaport. Each audit committee financial expert is "independent" for purposes
of this item.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) through (d). The information in the table below is provided for services
rendered to the registrant by its independent registered public accounting firm,
PricewaterhouseCoopers LLP ("PwC"), for its fiscal years ended December 31, 2003
and December 31, 2004.
2003 2004
--------------------------------------------------------------------------------
Audit Fees $ 56,022 $ 71,450
Audit-Related Fees(1) $ 3,000 $ 7,000
Tax Fees(2) $ 7,482 $ 7,482
All Other Fees -- --
Total $ 66,504 $ 85,932
(1) Services include agreed-upon procedures in connection with the registrant's
semi-annual financial statements ($3,000 per year), the registrant's third
quarter 2004 Form N-Q filing ($1,500) and a special review of the tax
provisions for local chilean taxes ($2,500) in 2004.
(2) Tax services in connection with the registrant's excise tax calculations
and review of the registrant's applicable tax returns.
The information in the table below is provided with respect to non-audit
services that directly relate to the registrant's operations and financial
reporting and that were rendered by PwC to the registrant's investment adviser,
Credit Suisse Asset Management, LLC ("CSAM"), and any service provider to the
registrant controlling, controlled by or under common control with CSAM that
provided ongoing services to the registrant ("Covered Services Provider"), for
the registrant's fiscal years ended December 31, 2003 and December 31, 2004.
2
2003 2004
----------------------------------------------------------------------
Audit-Related Fees N/A N/A
Tax Fees N/A N/A
All Other Fees N/A N/A
Total N/A N/A
(e)(1) Pre-Approval Policies and Procedures. The Audit Committee ("Committee")
of the registrant is responsible for pre-approving (i) all audit and permissible
non-audit services to be provided by the independent registered public
accounting firm to the registrant and (ii) all permissible non-audit services to
be provided by the independent registered public accounting firm to CSAM and any
Covered Services Provider if the engagement relates directly to the operations
and financial reporting of the registrant. The Committee may delegate its
responsibility to pre-approve any such audit and permissible non-audit services
to the Chairperson of the Committee, and the Chairperson shall report to the
Committee, at its next regularly scheduled meeting after the Chairperson's
pre-approval of such services, his or her decision(s). The Committee may also
establish detailed pre-approval policies and procedures for pre-approval of such
services in accordance with applicable laws, including the delegation of some or
all of the Committee's pre-approval responsibilities to other persons (other
than CSAM or the registrant's officers). Pre-approval by the Committee of any
permissible non-audit services shall not be required so long as: (i) the
aggregate amount of all such permissible non-audit services provided to the
registrant, CSAM and any Covered Services Provider constitutes not more than 5%
of the total amount of revenues paid by the registrant to its independent
registered public accounting firm during the fiscal year in which the
permissible non-audit services are provided; (ii) the permissible non-audit
services were not recognized by the registrant at the time of the engagement to
be non-audit services; and (iii) such services are promptly brought to the
attention of the Committee and approved by the Committee (or its delegate(s))
prior to the completion of the audit.
(e)(2) The information in the table below sets forth the percentages of fees for
services (other than audit, review or attest services) rendered by PwC to the
registrant for which the pre-approval requirement was waived pursuant to Rule
2-01(c)(7)(i)(C) of Regulation S-X:
2003 2004
-------------------------------------------------------------
Audit-Related Fees N/A N/A
Tax Fees N/A N/A
All Other Fees N/A N/A
Total N/A N/A
3
The information in the table below sets forth the percentages of fees for
services (other than audit, review or attest services) rendered by PwC to CSAM
and any Covered Services Provider required to be approved pursuant to Rule
2-01(c)(7)(ii)of Regulation S-X, for the registrant's fiscal years ended
December 31, 2003 and December 31, 2004:
2003 2004
--------------------------------------------------------------------------------
Audit-Related Fees N/A N/A
Tax Fees N/A N/A
All Other Fees N/A N/A
Total N/A N/A
(f) Not Applicable.
(g) The aggregate fees billed by PwC for non-audit services rendered to the
registrant, CSAM and Covered Service Providers for the fiscal years ended
December 31, 2003 and December 31, 2004 were $10,482 and $14,482, respectively.
(h) Not Applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934,
as amended. The members of the committee are Enrique R. Arzac, James Cattano,
George Landau and Steven N. Rappaport.
ITEM 6. SCHEDULE OF INVESTMENTS.
Included as part of the report to shareholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
4
CREDIT SUISSE ASSET MANAGEMENT, LLC
CREDIT SUISSE FUNDS
CREDIT SUISSE INSTITUTIONAL FUNDS
CSAM CLOSED-END FUNDS
PROXY VOTING POLICY AND PROCEDURES
Introduction
Credit Suisse Asset Management, LLC ("CSAM") is a fiduciary that owes each
of its clients duties of care and loyalty with respect to proxy voting. The
duty of care requires CSAM to monitor corporate events and to vote proxies.
To satisfy its duty of loyalty, CSAM must cast proxy votes in the best
interests of each of its clients.
The Credit Suisse Funds, Credit Suisse Institutional Funds, and CSAM
Closed-End Funds (the "Funds"), which have engaged Credit Suisse Asset
Management, LLC as their investment adviser, are of the belief that the
proxy voting process is a means of addressing corporate governance issues
and encouraging corporate actions both of which can enhance shareholder
value.
Policy
The Proxy Voting Policy (the "Policy") set forth below is designed to
ensure that proxies are voted in the best interests of CSAM's clients. The
Policy addresses particular issues and gives a general indication of how
CSAM will vote proxies. The Policy is not exhaustive and does not include
all potential issues.
Proxy Voting Committee
The Proxy Voting Committee will consist of a member of the Portfolio
Management Department, a member of the Legal and Compliance Department, and
a member of the Operations Department (or their designees). The purpose of
the Proxy Voting Committee is to administer the voting of all clients'
proxies in accordance with the Policy. The Proxy Voting Committee will
review the Policy annually to ensure that it is designed to promote the
best interests of CSAM's clients.
For the reasons disclosed below under "Conflicts," the Proxy Voting
Committee has engaged the services of an independent third party
(initially, Institutional Shareholder Services ("ISS")) to assist in issue
analysis and vote recommendation for proxy proposals. Proxy proposals
addressed by the Policy will be voted in accordance with the Policy. Proxy
proposals addressed by the Policy that require a case-by-case analysis will
be voted in accordance with the vote
5
recommendation of ISS. Proxy proposals not addressed by the Policy will
also be voted in accordance with the vote recommendation of ISS. To the
extent that the Proxy Voting Committee proposes to deviate from the Policy
or the ISS vote recommendation, the Committee shall obtain client consent
as described below.
CSAM investment professionals may submit a written recommendation to the
Proxy Voting Committee to vote in a manner inconsistent with the Policy
and/or the recommendation of ISS. Such recommendation will set forth its
basis and rationale. In addition, the investment professional must confirm
in writing that he/she is not aware of any conflicts of interest concerning
the proxy matter or provide a full and complete description of the
conflict.
Conflicts
CSAM is the institutional and mutual fund asset management arm of Credit
Suisse First Boston, which is part of Credit Suisse Group, one of the
world's largest financial organizations. As part of a global, full service
investment-bank, broker-dealer, and asset-management organization, CSAM and
its affiliates and personnel may have multiple advisory, transactional,
financial, and other interests in securities, instruments, and companies
that may be purchased or sold by CSAM for its clients' accounts. The
interests of CSAM and/or its affiliates and personnel may conflict with the
interests of CSAM's clients in connection with any proxy issue. In
addition, CSAM may not be able to identify all of the conflicts of interest
relating to any proxy matter.
Consent
In each and every instance in which the Proxy Voting Committee favors
voting in a manner that is inconsistent with the Policy or the vote
recommendation of ISS (including proxy proposals addressed and not
addressed by the Policy), it shall disclose to the client conflicts of
interest information and obtain client consent to vote. Where the client is
a Fund, disclosure shall be made to any one director who is not an
"interested person," as that term is defined under the Investment Company
Act of 1940, as amended, of the Fund.
Recordkeeping
CSAM is required to maintain in an easily accessible place for five years all
records relating to proxy voting.
These records include the following:
- a copy of the Policy;
- a copy of each proxy statement received on behalf of CSAM clients;
6
- a record of each vote cast on behalf of CSAM clients;
- a copy of all documents created by CSAM personnel that were material
to making a decision on a vote or that memorializes the basis for the
decision; and
- a copy of each written request by a client for information on how CSAM
voted proxies, as well as a copy of any written response.
CSAM reserves the right to maintain certain required proxy records with ISS
in accordance with all applicable regulations.
Disclosure
CSAM will describe the Policy to each client. Upon request, CSAM will
provide any client with a copy of the Policy. CSAM will also disclose to
its clients how they can obtain information on their proxy votes.
ISS will capture data necessary for Funds to file Form N-PX on an annual
basis concerning their proxy voting record in accordance with applicable
law.
Procedures
The Proxy Voting Committee will administer the voting of all client
proxies. CSAM has engaged ISS as an independent third party proxy voting
service to assist in the voting of client proxies. ISS will coordinate with
each client's custodian to ensure that proxy materials reviewed by the
custodians are processed in a timely fashion. ISS will provide CSAM with an
analysis of proxy issues and a vote recommendation for proxy proposals. ISS
will refer proxies to the Proxy Voting Committee for instructions when the
application of the Policy is not clear. The Proxy Voting Committee will
notify ISS of any changes to the Policy or deviating thereof.
PROXY VOTING POLICY
Operational Items
Adjourn Meeting
Proposals to provide management with the authority to adjourn an
annual or special meeting will be determined on a case-by-case basis.
Amend Quorum Requirements
Proposals to reduce quorum requirements for shareholder meetings below
a majority of the shares outstanding will be determined on a
case-by-case basis.
7
Amend Minor Bylaws
Generally vote for bylaw or charter changes that are of a housekeeping
nature.
Change Date, Time, or Location of Annual Meeting
Generally vote for management proposals to change the
date/time/location of the annual meeting unless the proposed change is
unreasonable. Generally vote against shareholder proposals to change
the date/time/location of the annual meeting unless the current
scheduling or location is unreasonable.
Ratify Auditors
Generally vote for proposals to ratify auditors unless: (1) an auditor
has a financial interest in or association with the company, and is
therefore not independent; (2) fees for non-audit services are
excessive, or (3) there is reason to believe that the independent
auditor has rendered an opinion, which is neither accurate nor
indicative of the company's financial position. Generally vote on a
case-by-case basis on shareholder proposals asking companies to
prohibit their auditors from engaging in non-audit services (or capping
the level of non-audit services). Generally vote on a case-by-case
basis on auditor rotation proposals taking into consideration: (1)
tenure of audit firm; (2) establishment and disclosure of a renewal
process whereby the auditor is regularly evaluated for both audit
quality and competitive price; (3) length of the rotation period
advocated in the proposal, and (4) significant audit related issues.
Board of Directors
Voting on Director Nominees in Uncontested Elections
Generally votes on director nominees on a case-by-case basis. Votes
may be withheld: (1) from directors who attended less than 75% of the
board and committee meetings without a valid reason for the absences;
(2) implemented or renewed a dead-hand poison pill; (3) ignored a
shareholder proposal that was approved by a majority of the votes cast
for two consecutive years; (4) ignored a shareholder proposal approved
by a majority of the shares outstanding; (5) have failed to act on
takeover offers where the majority of the shareholders have tendered
their shares; (6) are inside directors or affiliated outside directors
and sit on the audit, compensation, or nominating committee; (7) are
inside directors or affiliated outside directors and the full board
serves as the audit, compensation, or nominating committee or the
company does not have one of these committees; or (8) are audit
committee members and the non-audit fees paid to the auditor are
excessive
Cumulative Voting
8
Proposals to eliminate cumulative voting will be determined on a
case-by-case basis. Proposals to restore or provide for cumulative
voting in the absence of sufficient good governance provisions and/or
poor relative shareholder returns will be determined on a case-by-case
basis.
Director and Officer Indemnification and Liability Protection
Proposals on director and officer indemnification and liability
protection generally evaluated on a case-by-case basis. Generally vote
against proposals that would: (1) eliminate entirely directors' and
officers' liability for monetary damages for violating the duty of
care; or (2) expand coverage beyond just legal expenses to acts, such
as negligence, that are more serious violations of fiduciary
obligation than mere carelessness. Generally vote for only those
proposals providing such expanded coverage in cases when a director's
or officer's legal defense was unsuccessful if: (1) the director was
found to have acted in good faith and in a manner that he reasonably
believed was in the best interests of the company, and (2) only if the
director's legal expenses would be covered.
Filling Vacancies/Removal of Directors
Generally vote against proposals that provide that directors may be
removed only for cause. Generally vote for proposals to restore
shareholder ability to remove directors with or without cause.
Proposals that provide that only continuing directors may elect
replacements to fill board vacancies will be determined on a
case-by-case basis. Generally vote for proposals that permit
shareholders to elect directors to fill board vacancies.
Independent Chairman (Separate Chairman/CEO)
Generally vote for shareholder proposals requiring the position of
chairman be filled by an independent director unless there are
compelling reasons to recommend against the proposal, including: (1)
designated lead director, elected by and from the independent board
members with clearly delineated duties; (2) 2/3 independent board; (3)
all independent key committees; or (4) established governance
guidelines.
Majority of Independent Directors
Generally vote for shareholder proposals requiring that the board
consist of a majority or substantial majority (two-thirds) of
independent directors unless the board composition already meets the
adequate threshold. Generally vote for shareholder proposals requiring
the board audit, compensation, and/or nominating committees be
composed exclusively of independent directors if they currently do not
meet that standard. Generally withhold votes from insiders and
affiliated outsiders sitting on the audit, compensation, or nominating
committees. Generally withhold votes from insiders and affiliated
outsiders on boards that are
9
lacking any of these three panels. Generally withhold votes from
insiders and affiliated outsiders on boards that are not at least
majority independent.
Term Limits
Generally vote against shareholder proposals to limit the tenure of
outside directors.
Proxy Contests
Voting on Director Nominees in Contested Elections
Votes in a contested election of directors should be decided on a
case-by-case basis, with shareholders determining which directors are
best suited to add value for shareholders. The major decision factors
are: (1) company performance relative to its peers; (2) strategy of
the incumbents versus the dissidents; (3) independence of
directors/nominees; (4) experience and skills of board candidates; (5)
governance profile of the company; (6) evidence of management
entrenchment; (7) responsiveness to shareholders; or (8) whether
takeover offer has been rebuffed.
Amend Bylaws without Shareholder Consent
Proposals giving the board exclusive authority to amend the bylaws
will be determined on a case-by-case basis. Proposals giving the board
the ability to amend the bylaws in addition to shareholders will be
determined on a case-by-case basis.
Confidential Voting
Generally vote for shareholder proposals requesting that corporations
adopt confidential voting, use independent vote tabulators and use
independent inspectors of election, as long as the proposal includes a
provision for proxy contests as follows: In the case of a contested
election, management should be permitted to request that the dissident
group honor its confidential voting policy. If the dissidents agree,
the policy may remain in place. If the dissidents will not agree, the
confidential voting policy may be waived. Generally vote for
management proposals to adopt confidential voting.
Cumulative Voting
Proposals to eliminate cumulative voting will be determined on a
case-by-case basis. Proposals to restore or provide for cumulative
voting in the absence of sufficient good governance provisions and/or
poor relative shareholder returns will be determined on a case-by-case
basis.
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Antitakeover Defenses and Voting Related Issues
Advance Notice Requirements for Shareholder Proposals/Nominations
Votes on advance notice proposals are determined on a case-by-case
basis.
Amend Bylaws without Shareholder Consent
Proposals giving the board exclusive authority to amend the bylaws
will be determined on a case-by-case basis. Generally vote for
proposals giving the board the ability to amend the bylaws in addition
to shareholders.
Poison Pills (Shareholder Rights Plans)
Generally vote for shareholder proposals requesting that the company
submit its poison pill to a shareholder vote or redeem it. Votes
regarding management proposals to ratify a poison pill should be
determined on a case-by-case basis. Plans should embody the following
attributes: (1) 20% or higher flip-in or flip-over; (2) two to three
year sunset provision; (3) no dead-hand or no-hand features; or (4)
shareholder redemption feature
Shareholders' Ability to Act by Written Consent
Generally vote against proposals to restrict or prohibit shareholders'
ability to take action by written consent. Generally vote for
proposals to allow or make easier shareholder action by written
consent.
Shareholders' Ability to Call Special Meetings
Proposals to restrict or prohibit shareholders' ability to call
special meetings or that remove restrictions on the right of
shareholders to act independently of management will be determined on
a case-by-case basis.
Supermajority Vote Requirements
Proposals to require a supermajority shareholder vote will be
determined on a case-by-case basis Proposals to lower supermajority
vote requirements will be determined on a case-by-case basis.
Merger and Corporate Restructuring
Appraisal Rights
Generally vote for proposals to restore, or provide shareholders with,
rights of appraisal.
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Asset Purchases
Generally vote case-by-case on asset purchase proposals, taking into
account: (1) purchase price, including earnout and contingent
payments; (2) fairness opinion; (3) financial and strategic benefits;
(4) how the deal was negotiated; (5) conflicts of interest; (6) other
alternatives for the business; or (7) noncompletion risk (company's
going concern prospects, possible bankruptcy).
Asset Sales
Votes on asset sales should be determined on a case-by-case basis
after considering: (1) impact on the balance sheet/working capital;
(2) potential elimination of diseconomies; (3) anticipated financial
and operating benefits; (4) anticipated use of funds; (5) value
received for the asset; fairness opinion (if any); (6) how the deal
was negotiated; or (6) Conflicts of interest
Conversion of Securities
Votes on proposals regarding conversion of securities are determined
on a case-by-case basis. When evaluating these proposals, should
review (1) dilution to existing shareholders' position; (2) conversion
price relative to market value; (3) financial issues: company's
financial situation and degree of need for capital; effect of the
transaction on the company's cost of capital; (4) control issues:
change in management; change in control; standstill provisions and
voting agreements; guaranteed contractual board and committee seats
for investor; veto power over certain corporate actions; (5)
termination penalties; (6) conflict of interest: arm's length
transactions, managerial incentives. Generally vote for the conversion
if it is expected that the company will be subject to onerous
penalties or will be forced to file for bankruptcy if the transaction
is not approved.
Corporate Reorganization
Votes on proposals to increase common and/or preferred shares and to
issue shares as part of a debt restructuring plan are determined on a
case-by-case basis, after evaluating: (1) dilution to existing
shareholders' position; (2) terms of the offer; (3) financial issues;
(4) management's efforts to pursue other alternatives; (5) control
issues; (6) conflict of interest. Generally vote for the debt
restructuring if it is expected that the company will file for
bankruptcy if the transaction is not approved.
Reverse Leveraged Buyouts
Votes on proposals to increase common and/or preferred shares and to
issue shares as part of a debt restructuring plan are determined on a
case-by-case basis, after evaluating: (1) dilution to existing
shareholders' position; (2) terms of the offer; (3) financial issues;
(4) management's efforts to pursue other alternatives; (5) control
issues; (6) conflict of interest. Generally vote
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for the debt restructuring if it is expected that the company will
file for bankruptcy if the transaction is not approved.
Formation of Holding Company
Votes on proposals regarding the formation of a holding company should
be determined on a case-by-case basis taking into consideration: (1)
the reasons for the change; (2) any financial or tax benefits; (3)
regulatory benefits; (4) increases in capital structure; (5) changes
to the articles of incorporation or bylaws of the company. Absent
compelling financial reasons to recommend the transaction, generally
vote against the formation of a holding company if the transaction
would include either of the following: (1) increases in common or
preferred stock in excess of the allowable maximum as calculated a
model capital structure; (2) adverse changes in shareholder rights;
(3) going private transactions; (4) votes going private transactions
on a case-by-case basis, taking into account: (a) offer price/premium;
(b) fairness opinion; (c) how the deal was negotiated; (d) conflicts
of interest; (e) other alternatives/offers considered; (f)
noncompletion risk.
Joint Ventures
Vote on a case-by-case basis on proposals to form joint ventures,
taking into account: (1) percentage of assets/business contributed;
(2) percentage ownership; (3) financial and strategic benefits; (4)
governance structure; (5) conflicts of interest; (6) other
alternatives; (7) noncompletion risk; (8) liquidations. Votes on
liquidations should be determined on a case-by-case basis after
reviewing: (1) management's efforts to pursue other alternatives such
as mergers; (2) appraisal value of the assets (including any fairness
opinions); (3) compensation plan for executives managing the
liquidation. Generally vote for the liquidation if the company will
file for bankruptcy if the proposal is not approved.
Mergers and Acquisitions
Votes on mergers and acquisitions should be considered on a
case-by-case basis, determining whether the transaction enhances
shareholder value by giving consideration to: (1) prospects of the
combined companies; (2) anticipated financial and operating benefits;
(3) offer price; (4) fairness opinion; (5) how the deal was
negotiated; (6) changes in corporate governance and their impact on
shareholder rights; (7) change in the capital structure; (8) conflicts
of interest.
Private Placements
Votes on proposals regarding private placements should be determined
on a case-by-case basis. When evaluating these proposals, should
review: (1) dilution to existing shareholders' position; (2) terms of
the offer; (3) financial issues; (4) management's efforts to pursue
alternatives such as mergers; (5) control issues; (6) conflict of
interest. Generally vote for the
13
private placement if it is expected that the company will file for
bankruptcy if the transaction is not approved.
Prepackaged Bankruptcy Plans
Votes on proposals to increase common and/or preferred shares and to
issue shares as part of a debt restructuring plan are determined on a
case-by-case basis, after evaluating: (1) dilution to existing
shareholders' position; (2) terms of the offer; (3) financial issues;
(4) management's efforts to pursue other alternatives; (5) control
issues; (6) conflict of interest. Generally vote for the debt
restructuring if it is expected that the company will file for
bankruptcy if the transaction is not approved.
Recapitalization
Votes case-by-case on recapitalizations (reclassifications of
securities), taking into account: (1) more simplified capital
structure; (2) enhanced liquidity; (3) fairness of conversion terms,
including fairness opinion; (4) impact on voting power and dividends;
(5) reasons for the reclassification; (6) conflicts of interest; (7)
other alternatives considered.
Reverse Stock Splits
Generally vote for management proposals to implement a reverse stock
split when the number of authorized shares will be proportionately
reduced. Generally vote for management proposals to implement a
reverse stock split to avoid delisting. Votes on proposals to
implement a reverse stock split that do not proportionately reduce the
number of shares authorized for issue should be determined on a
case-by-case basis.
Spinoffs
Votes on spinoffs should be considered on a case-by-case basis
depending on: (1) tax and regulatory advantages; (2) planned use of
the sale proceeds; (3) valuation of spinoff; fairness opinion; (3)
benefits that the spinoff may have on the parent company including
improved market focus; (4) conflicts of interest; managerial
incentives; (5) any changes in corporate governance and their impact
on shareholder rights; (6) change in the capital structure
Value Maximization Proposals
Vote case-by-case on shareholder proposals seeking to maximize
shareholder value.
Capital Structure
Adjustments to Par Value of Common Stock
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Generally vote for management proposals to reduce the par value of
common stock unless the action is being taken to facilitate an
antitakeover device or some other negative corporate governance
action. Generally vote for management proposals to eliminate par
value.
Common Stock Authorization
Votes on proposals to increase the number of shares of common stock
authorized for issuance are determined on a case-by-case basis.
Generally vote against proposals at companies with dual-class capital
structures to increase the number of authorized shares of the class of
stock that has superior voting rights. Generally vote for proposals to
approve increases beyond the allowable increase when a company's
shares are in danger of being delisted or if a company's ability to
continue to operate as a going concern is uncertain.
Dual-class Stock
Generally vote against proposals to create a new class of common stock
with superior voting rights. Generally vote for proposals to create a
new class of nonvoting or subvoting common stock if: (1) it is
intended for financing purposes with minimal or no dilution to current
shareholders; (2) it is not designed to preserve the voting power of
an insider or significant shareholder.
Issue Stock for Use with Rights Plan
Generally vote against proposals that increase authorized common stock
for the explicit purpose of implementing a shareholder rights plan.
Preemptive Rights
Votes regarding shareholder proposals seeking preemptive rights should
be determined on a case-by-case basis after evaluating: (1) the size
of the company; (2) the shareholder base; (3) the liquidity of the
stock
Preferred Stock
Generally vote against proposals authorizing the creation of new
classes of preferred stock with unspecified voting, conversion,
dividend distribution, and other rights ("blank check" preferred
stock). Generally vote for proposals to create "declawed" blank check
preferred stock (stock that cannot be used as a takeover defense).
Generally vote for proposals to authorize preferred stock in cases
where the company specifies the voting, dividend, conversion, and
other rights of such stock and the terms of the preferred stock appear
reasonable. Generally vote against proposals to increase the number of
blank check preferred stock authorized for issuance when no shares
have been issued or reserved for a specific purpose. Generally vote
case-by-case on proposals to increase the number of blank check
15
preferred shares after analyzing the number of preferred shares
available for issue given a company's industry and performance in
terms of shareholder returns.
Recapitalization
Vote case-by-case on recapitalizations (reclassifications of
securities), taking into account: (1) more simplified capital
structure; (2) enhanced liquidity; (3) fairness of conversion terms,
including fairness opinion; (4) impact on voting power and dividends;
(5) reasons for the reclassification; (6) conflicts of interest; (7)
other alternatives considered.
Reverse Stock Splits
Generally vote for management proposals to implement a reverse stock
split when the number of authorized shares will be proportionately
reduced. Generally vote for management proposals to implement a
reverse stock split to avoid delisting. Votes on proposals to
implement a reverse stock split that do not proportionately reduce the
number of shares authorized for issue should be determined on a
case-by-case basis.
Share Repurchase Programs
Generally vote for management proposals to institute open-market share
repurchase plans in which all shareholders may participate on equal
terms.
Stock Distributions: Splits and Dividends
Generally vote for management proposals to increase the common share
authorization for a stock split or share dividend, provided that the
increase in authorized shares would not result in an excessive number
of shares available for issuance.
Tracking Stock
Votes on the creation of tracking stock are determined on a
case-by-case basis, weighing the strategic value of the transaction
against such factors as: (1) adverse governance changes; (2) excessive
increases in authorized capital stock; (3) unfair method of
distribution; (4) diminution of voting rights; (5) adverse conversion
features; (6) negative impact on stock option plans; (7) other
alternatives such as a spinoff.
Executive and Director Compensation
Executive and Director Compensation
Votes on compensation plans for directors are determined on a
case-by-case basis.
16
Stock Plans in Lieu of Cash
Votes for plans which provide participants with the option of taking
all or a portion of their cash compensation in the form of stock are
determined on a case-by-case basis. Generally vote for plans which
provide a dollar-for-dollar cash for stock exchange. Votes for plans
which do not provide a dollar-for-dollar cash for stock exchange
should be determined on a case-by-case basis.
Director Retirement Plans
Generally vote against retirement plans for nonemployee directors.
Generally vote for shareholder proposals to eliminate retirement plans
for nonemployee directors.
Management Proposals Seeking Approval to Reprice Options
Votes on management proposals seeking approval to reprice options are
evaluated on a case-by-case basis giving consideration to the
following: (1) historic trading patterns; (2) rationale for the
repricing; (3) value-for-value exchange; (4) option vesting; (5) term
of the option; (6) exercise price; (7) participants; (8) employee
stock purchase plans. Votes on employee stock purchase plans should be
determined on a case-by-case basis. Generally vote for employee stock
purchase plans where: (1) purchase price is at least 85 percent of
fair market value; (2) offering period is 27 months or less, and (3)
potential voting power dilution (VPD) is ten percent or less.
Generally vote against employee stock purchase plans where either: (1)
purchase price is less than 85 percent of fair market value; (2)
Offering period is greater than 27 months, or (3) VPD is greater than
ten percent
Incentive Bonus Plans and Tax Deductibility Proposals
Generally vote for proposals that simply amend shareholder-approved
compensation plans to include administrative features or place a cap
on the annual grants any one participant may receive. Generally vote
for proposals to add performance goals to existing compensation plans.
Votes to amend existing plans to increase shares reserved and to
qualify for favorable tax treatment considered on a case-by-case
basis. Generally vote for cash or cash and stock bonus plans that are
submitted to shareholders for the purpose of exempting compensation
from taxes if no increase in shares is requested.
Employee Stock Ownership Plans (ESOPs)
Generally vote for proposals to implement an ESOP or increase
authorized shares for existing ESOPs, unless the number of shares
allocated to the ESOP is excessive (more than five percent of
outstanding shares.)
401(k) Employee Benefit Plans
17
Generally vote for proposals to implement a 401(k) savings plan for
employees.
Shareholder Proposals Regarding Executive and Director Pay
Generally vote for shareholder proposals seeking additional disclosure
of executive and director pay information, provided the information
requested is relevant to shareholders' needs, would not put the
company at a competitive disadvantage relative to its industry, and is
not unduly burdensome to the company. Generally vote against
shareholder proposals seeking to set absolute levels on compensation
or otherwise dictate the amount or form of compensation. Generally
vote against shareholder proposals requiring director fees be paid in
stock only. Generally vote for shareholder proposals to put option
repricings to a shareholder vote. Vote for shareholders proposals to
exclude pension fund income in the calculation of earnings used in
determining executive bonuses/compensation. Vote on a case-by-case
basis for all other shareholder proposals regarding executive and
director pay, taking into account company performance, pay level
versus peers, pay level versus industry, and long term corporate
outlook.
Performance-Based Option Proposals
Generally vote for shareholder proposals advocating the use of
performance-based equity awards (indexed, premium-priced, and
performance-vested options), unless: (1) the proposal is overly
restrictive; or (2) the company demonstrates that it is using a
substantial portion of performance-based awards for its top
executives.
Stock Option Expensing
Generally vote for shareholder proposals asking the company to expense
stock options unless the company has already publicly committed to
start expensing by a specific date.
Golden and Tin Parachutes
Generally vote for shareholder proposals to require golden and tin
parachutes to be submitted for shareholder ratification, unless the
proposal requires shareholder approval prior to entering into
employment contracts. Vote on a case-by-case basis on proposals to
ratify or cancel golden or tin parachutes.
May 19, 2004
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Form N-CSR disclosure requirement is not yet effective with respect to the
registrant.
18
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
None.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of directors since the registrant
last provided disclosure in response to the requirements of Item 7(d)(2)(ii)(g)
of Schedule 14A in its definitive proxy statement dated March 1, 2005.
ITEM 11. CONTROLS AND PROCEDURES.
(a) As of a date within 90 days from the filing date of this report, the
principal executive officer and principal financial officer concluded that the
registrant's disclosure controls and procedures (as defined in Rule 30a-3(c)
under the Investment Company Act of 1940 (the "Act")) were effective based on
their evaluation of the disclosure controls and procedures required by Rule
30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934.
(b) There were no changes in registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the
second fiscal quarter of the period covered by this report that have materially
affected, or are reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Registrant's Code of Ethics is an exhibit to this report.
(a)(2) The certifications of the registrant as required by Rule 30a-2(a) under
the Act are exhibits to this report.
(a)(3) Not applicable.
(b) The certifications of the registrant as required by Rule 30a-2(b) under
the Act are an exhibit to this report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE CHILE FUND, INC.
/s/ Michael E. Kenneally
------------------------
Name: Michael E. Kenneally
Title: Chief Executive Officer
Date: March 8, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Michael E. Kenneally
------------------------
Name: Michael E. Kenneally
Title: Chief Executive Officer
Date: March 8, 2005
/s/ Michael A. Pignataro
------------------------
Name: Michael A. Pignataro
Title: Chief Financial Officer
Date: March 8, 2005