<PAGE>
[LOGO] THE PORTUGAL FUND, INC.
------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
DEAR SHAREHOLDER:
We are pleased to report on the activities of The Portugal Fund, Inc. (the
"Fund") for the six months ended June 30, 1995.
At June 30, 1995, the Fund had a net asset value of $15.08 per share, as
compared to $14.33 per share at December 31, 1994. At June 30, 1995, $67 million
was invested in Portuguese securities, as compared to $67.7 million at December
31, 1994. At June 30, 1995, the Fund retained $13.1 million, primarily in U.S.
Treasury Bills, compared with $8.3 million at December 31, 1994.
POLITICAL AND ECONOMIC DEVELOPMENTS
During the first half of 1995, the Portuguese market and economy have been
increasingly dominated by political factors, as the country approaches a round
of general elections this October. During the third quarter, politics should
continue to move to the forefront.
At the mid-year point, the outcome of the general elections remains very much in
doubt. The Social Democratic Party (PSD), which falls slightly right of center
on the Portuguese political spectrum, has been in power for nearly a decade. In
recent years, the government's popular support has been significantly
diminished, as illustrated by the PSD's lackluster performance in last year's
elections for the European Parliament. At present, the center-left Socialist
Party, led by Antonio Guterres, holds a lead in most opinion polls, but the PSD
still stands easily within striking distance. The ruling party's leadership,
however, remains in disarray, and its ability to mount a convincing catch-up
campaign is somewhat questionable.
In economic terms, there is little meaningful distinction between the two major
parties. Both have expressed a strong commitment to maintaining Portugal's
positive stance on European integration, and both parties support further
privatization. It appears increasingly likely, however, that the election will
result in neither party achieving a parliamentary majority. Since there are no
natural coalition partners among the smaller parties for either the Social
Democrats or the Socialists -- their choices would come from either the radical
left or the extreme (and staunchly anti-Europe) right wing -- this could
translate into a degree of political gridlock. An ambiguous electoral result
could therefore have negative implications, at least in the short term, for
economic policy. We continue to believe strongly, however, that the long-term
program of economic reform that has reshaped the Portuguese economy during the
1990s will continue to move forward regardless of this fall's election results.
The Eurocentric policies of the Portuguese government have served to enforce a
degree of fiscal discipline -- the European Union's monetary convergence
guidelines require that the government deficit be reduced from its present level
of 5.6% of GDP to 3% in 1997 -- that perhaps Portugal would have been unable to
muster on its own. This is, of course, a positive trend for the equity market.
While political pressures have caused some relaxation of fiscal discipline in
the run-up to the election, we expect that the picture will continue to improve
as we move into 1996, whatever the electoral outcome. Meanwhile, the interest
rate environment remains reasonably benign, although further cuts in rates (not
likely in the near term) would certainly provide a welcome boost for the stock
market. Unlike Spain, it has been Portugal's
1
<PAGE>
THE PORTUGAL FUND, INC.
------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
policy in recent months to keep the Escudo in parity with the Deutschemark; this
has led to a significant overvaluation of the Escudo relative to the Peseta,
with a somewhat negative effect on the Portuguese trade balance. Nonetheless,
exports remain relatively strong, as accelerating economic growth in Portugal's
major European trading partners helps to boost import demand. The European
recovery should also improve the picture for the Portuguese tourism industry.
The economy is growing at a healthy pace, and the recession of 1993 is now
clearly in the past. GDP growth for 1995 should come in at 2.5% or slightly
more, and is likely to move toward 3% in 1996. The inflation picture, meanwhile,
remains very positive. In the course of the past two years, Portuguese inflation
has continued to decline, from a 9% rate in early 1993 to 6% by the mid-point of
1994, to a year-end low of under 4.5%. The government's inflation projection for
1995 is between 3.5% and 4.5%, and there should be no trouble in meeting this
goal. So far this summer, the consumer price index is rising at only perhaps
0.2% per month. This is the lowest inflation rate Portugal has experienced since
the 1960's, and we have seen no indications that the downward trend is likely to
reverse itself.
Meanwhile, the government's privatization program has continued on track, with
several successful closings during the first half of the year. While momentum is
likely to slow in the second half, interrupted by the electoral cycle, the new
government -- whether Social Democrat or Socialist -- should resume the program
with major sales in early 1996. These are likely to include companies in such
major infrastructure sectors as electricity generation and cement, followed by
the government-owned airline, tobacco monopoly and petroleum refineries. The
privatization program has had a profound effect upon the Portuguese market.
Already in the years between 1989 and 1992, the government's share of GDP shrunk
from 17% to 12%; this figure is expected to reach 9% or less by the end of 1995.
So far, the financial sector has felt the greatest impact, as the market share
of nationalized banks has declined from nearly 100% to less than 50%. Even more
dramatically, the recent completion of the privatization process has completely
eliminated government ownership in the insurance industry, where the state's
share quite recently approached 90%. Recent privatizations now account for
nearly half of the capitalization of the Portuguese equity market and 1995
privatizations should account for an additional $1.5 billion or more.
MARKET DEVELOPMENTS AND THE PORTFOLIO
From inception on November 8, 1989 to June 30, 1995, the Morgan Stanley Capital
International ("MSCI") Portugal Index decreased by 24.9%. During the same
period, the net asset value of the Fund increased by 13.9%. During the six
months ended June 30, 1995, the MSCI Portugal Index increased by 2.7%, compared
to an increase of 5.2% in the Fund's net asset value.
At present, the Portuguese equity market trades at a price/earnings ratio of
11.9 times projected 1995 earnings and 9.8 times projected 1996 earnings, levels
that are below the market's historic average P/E ratio. Earnings growth for 1995
should come in at about 27.5%, up from 18.3% in 1994. Dividend yield is
currently 4.2%. We believe that current valuations, combined with the prospects
for strong economic and earnings growth throughout 1995 and 1996, provide for an
encouraging investment outlook for the Fund in the coming year.
We wish to remind shareholders whose shares are registered in their own names
that they automatically participate in the Fund's reinvestment program. The
automatic Dividend Reinvestment plan can be of value
2
<PAGE>
THE PORTUGAL FUND, INC.
------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
to shareholders in maintaining their proportional ownership interest in the Fund
in an easy and convenient way. A shareholder whose shares are held in the name
of a broker/dealer or nominee should contact that party for details about
participating in the Plan. The Fund also offers shareholders a voluntary Cash
Purchase Plan. The Plan and the Cash Purchase Program are described on pages 15
through 17 of this report.
We appreciate your interest in the Fund, and would be pleased to respond to your
questions or comments.
Respectfully,
[LOGO]
Emilio Bassini
President and Chief Investment Officer*
*Emilio Bassini, who is a member of the Executive Committee of BEA Associates
and holds the offices of Chief Financial Officer and Executive Director of BEA
Associates, is primarily responsible for management of the Fund's assets. He has
served the Fund in such capacity since the commencement of the Fund's
operations. Mr. Bassini joined BEA Associates (formerly Basic Appraisals, Inc.
and BEA Associates Inc.) in 1984. Mr. Bassini is a Director, Chairman of the
Board, President and Chief Investment Officer of the Fund and is also a
Director, Chairman of the Board, President and Chief Investment Officer of The
Chile Fund, Inc., The Emerging Markets Infrastructure Fund, Inc., The Emerging
Markets Telecommunications Fund, Inc., The First Israel Fund, Inc., The Latin
America Equity Fund, Inc., and The Latin America Investment Fund, Inc. He is
also a Director, Chairman of the Board, President and Investment Officer of The
Brazilian Equity Fund, Inc., as well as the President and Secretary of The
Indonesia Fund, Inc.
3
<PAGE>
THE PORTUGAL FUND, INC.
------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PORTFOLIO SUMMARY
AS OF JUNE 30, 1995 (unaudited)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Retail Trade 19.40%
Cash and cash equivalents 16.10%
Foodstuffs, Beverages and
Tobacco 12.30%
Consumer Products 10.10%
Forest Products and Paper 9.90%
Construction and Public Works 8.70%
Banks 5.90%
Steel and Engineering 3.00%
Telecommunications 3.00%
Film Distribution 2.60%
Other 9.00%
100.00%
</TABLE>
THIS CHART REPRESENTS THE SECTOR ALLOCATION OF TOTAL NET ASSETS OF THE FUND.
TOP 10 PORTUGUESE EQUITY HOLDINGS, BY ISSUER, AS OF JUNE 30, 1995 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
OF
HOLDING SECTOR NET ASSETS
<C> <S> <C> <C>
------------------------------------------------------------------------------------------
1. Modelo Supermercados Retail Trade 14.17 %
------------------------------------------------------------------------------------------
2. Sonae Investimentos Consumer Products 10.11 %
------------------------------------------------------------------------------------------
3. Jeronimo Martins Food, Beverages and Tobacco 9.34 %
------------------------------------------------------------------------------------------
4. Continente S.A., Modelo
Hipermercados Retail Trade 5.25 %
------------------------------------------------------------------------------------------
5. Soares da Costa Construction and Public Works 4.25 %
------------------------------------------------------------------------------------------
6. Companhia de Celulose do Caima Forest Products and Paper 4.20 %
------------------------------------------------------------------------------------------
7. Corticeira Amorim Forest Products and Paper 3.91 %
------------------------------------------------------------------------------------------
8. Banco Totta and Acores Banks 3.25 %
------------------------------------------------------------------------------------------
9. Engil-Sociedade Construcao Civil Construction and Public Works 3.20 %
------------------------------------------------------------------------------------------
10. Portugal Telecom S.A. Telecommunications 3.03 %
------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
THE PORTUGAL FUND, INC.
------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
JUNE 30, 1995 (unaudited)
<TABLE>
<CAPTION>
VALUE
NO. OF SHARES DESCRIPTION (NOTE A)
--------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
EQUITY SECURITIES-PORTUGAL-83.89%
AUTO-1.49%
62,300 Salvador Caetano Industrias................................................... $ 1,193,710
-----------
BANKS-5.94%
122,902 Banco Portugues de Investimento............................................... 2,148,832
122,300 Banco Totta and Acores........................................................ 2,594,423
-----------
4,743,255
-----------
CHEMICALS AND PETROLEUM PRODUCTS-0.86%
22,200 Corporacao Industria do Norte................................................. 685,144
-----------
CONSTRUCTION AND PUBLIC WORKS-8.66%
82,600 Caima-Ceramica e Servicos*.................................................... 816,771
12,100 Construtora do Tamega......................................................... 72,037
135,436 Engil-Sociedade Construcao Civil.............................................. 2,131,643
29,160 Engil-Sociedade Construcao Civil Preferred.................................... 425,030
190,920 Soares da Costa............................................................... 3,392,939
12,250 Somague*...................................................................... 79,637
-----------
6,918,057
-----------
CONSUMER PRODUCTS-10.11%
337,300 Sonae Investimentos........................................................... 8,080,926
-----------
FILM DISTRIBUTION-2.63%
192,025 Filmes Lusomundo.............................................................. 2,102,473
-----------
FOOD, BEVERAGES AND TOBACCO-12.33%
99,000 Empresa Madeirense de Tabacos................................................. 965,390
146,400 Jeronimo Martins.............................................................. 7,463,629
45,446 Sumolis Industrial de Frutas e Bebidas........................................ 527,130
52,946 Unicer-Uniao Cervejeiro....................................................... 894,917
-----------
9,851,066
-----------
FOREST PRODUCTS AND PAPER-9.90%
96,050 Companhia de Celulose do Caima................................................ 3,352,125
207,500 Corticeira Amorim............................................................. 3,123,874
105,281 Sonae Industria*.............................................................. 1,439,455
-----------
7,915,454
-----------
HOTELS-0.39%
68,630 Sopete S.A. (Bearer)*......................................................... 312,312
-----------
<CAPTION>
VALUE
NO. OF SHARES DESCRIPTION (NOTE A)
--------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
INSURANCE-0.71%
35,500 Tranquilidade CIA De Seguros.................................................. $ 567,484
-----------
INVESTMENT COMPANIES-1.83%
74,000 Investmentos Participacoes e Gestas S.A.*..................................... 1,460,933
-----------
MANUFACTURERS AND DISTRIBUTORS OF METAL PRODUCTS, MACHINERY, AND HEAVY EQUIPMENT-1.34%
63,100 Empresa Fabril de Maquinas Electricas......................................... 751,331
227,153 Oliva Industrias Metalurgicas*................................................ 318,658
-----------
1,069,989
-----------
NON-METALLIC MINERAL PRODUCTS-0.90%
20,990 Vista Alegre (Fabrica
de Porcelana)................................................................ 293,809
32,600 VA (Grupo Participaco)........................................................ 426,092
-----------
719,901
-----------
RETAIL TRADE-19.42%
45,365 Continente S.A., Modelo Hipermercados......................................... 4,190,901
319,775 Modelo Supermercados.......................................................... 11,326,388
-----------
15,517,289
-----------
STEEL AND ENGINEERING--2.98%
35,416 Construcoes Metalomecanicas Mague S.A......................................... 882,415
310,100 Lisnave-Estalier Navais Lisboa*............................................... 1,496,041
-----------
2,378,456
-----------
TELECOMMUNICATIONS-3.03%
126,517 Portugal Telecom S.A.*........................................................ 2,424,151
-----------
TRANSPORTS AND WAREHOUSING-1.37%
21,700 Barbosa & Almeida S.A......................................................... 618,557
79,957 Tertir Terminais de Portugal*................................................. 472,741
-----------
$ 1,091,298
-----------
TOTAL EQUITY SECURITIES-PORTUGAL
(Cost $48,028,050)............................................................. 67,031,898
-----------
</TABLE>
5
<PAGE>
THE PORTUGAL FUND, INC.
------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (unaudited) (continued)
<TABLE>
<CAPTION>
PAR VALUE
(000) DESCRIPTION (NOTE A)
--------------------------------------------------------------------------------------------- -----------
SHORT-TERM INVESTMENTS-16.39%
<C> <S> <C>
UNITED STATES-15.46%
US$ 3,000 United States Treasury Bills
4.057%, 07/06/95**........................................................... $ 2,998,713
9,400 United States Treasury Bills
5.200%, 08/03/95**........................................................... 9,357,666
-----------
TOTAL UNITED STATES (Cost $12,349,224).......................................... 12,356,379
-----------
744 GRAND CAYMAN--0.93%
Brown Brothers Harriman & Co.
Call Account 5.000% (Cost $744,000)***....................................... 744,000
-----------
<CAPTION>
PAR VALUE
(000) DESCRIPTION (NOTE A)
--------------------------------------------------------------------------------------------- -----------
<C> <S> <C>
TOTAL SHORT-TERM INVESTMENTS
(Cost $13,093,224)............................................................. $13,100,379
-----------
TOTAL INVESTMENTS (Notes A, D)
(Cost $61,121,274)--100.28%.................................................... 80,132,277
-----------
LIABILITIES IN EXCESS OF
CASH AND OTHER ASSETS--(0.28)%................................................. (227,124)
-----------
NET ASSETS--100.00%............................................................. $79,905,153
------------
------------
<FN>
------------------------------
* Security is non-income producing.
** Effective yield on the date of purchase.
*** Variable rate account. Rates reset on a monthly
basis; amounts available generally on the same
business day requested.
US$ United States dollars.
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
THE PORTUGAL FUND, INC.
------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
(unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost $61,121,274) (Note A) $80,132,277
Cash 652
Dividends receivable 12,533
Prepaid insurance 15,814
-----------
Total Assets 80,161,276
-----------
LIABILITIES:
Payables:
Due to adviser (Note B) 196,420
Due to administrators (Note B) 15,905
Other accrued expenses 43,798
-----------
Total Liabilities 256,123
-----------
NET ASSETS (applicable to 5,299,361 shares of common stock outstanding) (Note
C) $79,905,153
-----------
-----------
NET ASSET VALUE PER SHARE ($79,905,153 DIVIDED BY 5,299,361) $15.08
-----------
-----------
Net assets consist of:
Capital stock, $0.001 par value; 5,299,361 shares issued and outstanding
(100,000,000 shares authorized) $ 5,299
Paid-in capital 73,066,980
Undistributed net investment income 944,956
Accumulated realized losses on investments and foreign currency related
transactions (13,123,250)
Net unrealized appreciation in value of investments and other assets and
liabilities denominated in foreign currency 19,011,168
-----------
Net assets applicable to shares outstanding $79,905,153
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
THE PORTUGAL FUND, INC.
------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(unaudited)
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income (Note A):
Dividends $1,579,501
Interest 306,891
Less: Foreign taxes withheld (269,614)
----------
Total Investment Income 1,616,778
----------
Expenses:
Investment advisory fees (Note B) 379,226
Custodian fees (Note B) 45,598
Administration fees (Note B) 42,067
Printing 26,040
Transfer agent fees 17,704
Audit fees 17,014
Directors' fees (Note B) 13,808
Insurance 9,760
Legal fees 5,079
Other 10,425
----------
Total Expenses 566,721
----------
Net Investment Income 1,050,057
----------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS:
Net realized gain/(loss) from:
Investments 4,434,851
Foreign currency related transactions (94,189)
Net change in unrealized appreciation in value of investments and translation
of other assets and liabilities denominated in foreign currency (1,402,991)
----------
Net realized and unrealized gain on investments and foreign currency related
transactions 2,937,671
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,987,728
----------
----------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
THE PORTUGAL FUND, INC.
------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEAR
JUNE 30, 1995 ENDED DECEMBER
(unaudited) 31, 1994
------------- -----------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 1,050,057 $ 329,048
Net realized gain on investments and foreign currency related
transactions 4,340,662 1,576,651
Net change in unrealized appreciation/(depreciation) in value of
investments and translation of assets and liabilities denominated in
foreign currency (1,402,991) 7,968,046
------------- -----------------
Net increase in net assets resulting from operations 3,987,728 9,873,745
------------- -----------------
Dividend to shareholders from:
Net investment income ($0.00 and $0.06 per share, respectively) -- (317,918)
------------- -----------------
Capital share transactions:
Proceeds from 702 and 89 shares, respectively, issued in reinvestment of
dividends 9,307 1,306
------------- -----------------
Total increase in net assets 3,997,035 9,557,133
NET ASSETS:
Beginning of period 75,908,118 66,350,985
------------- -----------------
End of period (including undistributed net investment income of $944,956
and distributions in excess of net investment income of $105,101,
respectively) $79,905,153 $ 75,908,118
------------- -----------------
------------- -----------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
THE PORTUGAL FUND, INC.
------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Contained below is per share operating performance data for a share of common
stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each period indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE SIX NOVEMBER 9,
MONTHS 1989*
ENDED JUNE FOR THE YEAR ENDED DECEMBER 31, THROUGH
30, 1995 ------------------------------------------------------- DECEMBER 31,
(UNAUDITED) 1994 1993 1992 1991 1990 1989
----------- --------- -------- --------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $14.33 $12.52 $8.90 $10.77 $10.96 $13.79 $13.79**
----------- --------- -------- --------- -------- --------- -------------
Net investment income 0.20 0.06 0.07 0.11 0.13 0.16 0.04
Net realized and unrealized
gain/(loss) on investments and
foreign currency related
transactions 0.55 1.81 3.55 (1.92) (0.21) (2.87) 0.04
----------- --------- -------- --------- -------- --------- -------------
Net increase/(decrease) in net
assets resulting from operations 0.75 1.87 3.62 (1.81) (0.08) (2.71) 0.08
----------- --------- -------- --------- -------- --------- -------------
Distributions to shareholders from:
Net investment income -- (0.06) -- (0.06) (0.11) (0.12) (0.04)
In excess of net investment
income -- -- -- -- -- -- (0.04)
----------- --------- -------- --------- -------- --------- -------------
Total distributions to shareholders -- (0.06) -- (0.06) (0.11) (0.12) (0.08)
----------- --------- -------- --------- -------- --------- -------------
Net asset value, end of period $15.08 $14.33 $12.52 $8.90 $10.77 $10.96 $13.79
----------- --------- -------- --------- -------- --------- -------------
----------- --------- -------- --------- -------- --------- -------------
Market value, end of period $13.50 $13.875 $14.125 $8.00 $9.75 $9.25 $17.00
----------- --------- -------- --------- -------- --------- -------------
----------- --------- -------- --------- -------- --------- -------------
Total investment return (a) (0.03)% (1.70)% 77.86% (17.05)% 6.72% (45.26)% 136.77%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's
omitted) $79,905 $75,908 $66,351 $47,134 $57,036 $58,084 $73,023
Ratio of expenses to average net
assets 1.49%(c) 1.41% 1.97% 1.92% 1.96% 2.04% 2.26%(c)
Ratio of net investment income to
average net assets 2.75%(c) 0.43% 0.66% 1.07% 1.20% 1.38% 2.03%(c)
Portfolio turnover 11.72%(b) 15.47% 24.47% 39.07% 13.31% 10.09% --
Average commission rate per share $0.11
<FN>
------------------------------
* Commencement of operations
** Initial public offering price of $15.00 per share less underwriting discount
of $1.05 per share offering expenses of $0.16 per share.
(a) Total investment return at market value is based on the changes in market
price of a share during the period and assumes reinvestment of distributions
at actual prices pursuant to the Fund's dividend reinvestment plan. Total
investment return does not reflect brokerage commissions or initial
underwriting discounts and has not been annualized.
(b) Not annualized.
(c) Annualized.
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
THE PORTUGAL FUND, INC.
------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited)
NOTE A. The Portugal Fund, Inc. (the "Fund") was incorporated in Maryland on
August 11, 1989 and commenced operations on November 9, 1989. The Fund is
registered under the Investment Company Act of 1940, as amended, as a
closed-end, non-diversified management investment company. Significant
accounting policies are as follows:
PORTFOLIO VALUATION: Investments are stated at value in the accompanying
financial statements. All equity securities for which market quotations are
readily available are valued at the last sales price prior to the time of
determination, or, if no sales price is available at that time, at the closing
price quoted for the securities (but if bid and asked quotations are available,
at the mean between the last current bid and asked prices). Securities that are
traded over-the-counter are valued at the mean between the current bid and the
asked prices, if available. All other securities and assets are valued at the
fair value as determined in good faith by the Board of Directors. Short-term
investments having a maturity of 60 days or less are valued on the basis of
amortized cost. The net asset value per share of the Fund is calculated weekly
and at the end of each month and at any other times determined by the Board of
Directors.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
income tax purposes. Interest income is recorded on an accrual basis; dividend
income is recorded on the ex-dividend date.
TAXES: No provision is made for U.S. federal income or excise taxes as it is the
Fund's intention to qualify as a regulated investment company and to make the
requisite distributions to its shareholders which will be sufficient to relieve
it from all or substantially all federal income and excise taxes.
At December 31, 1994, the Fund had a capital loss carryover for federal income
tax purposes of $17,020,089 of which $4,248,585 expires in 1999; $7,111,076
expires in 2000, $5,595,695 expires in 2001 and $64,733 expires in 2002.
Accumulated net realized losses differ for financial statement and tax purposes
primarily because of the deferral of wash sale losses. The character of
distributions made during the year from net investment income or net realized
gains may differ from their ultimate characterization for federal income tax
purposes due to U.S. generally accepted accounting principles/tax differences in
the character of income and expense recognition.
The Fund is subject to Portuguese corporate income tax at a rate of 15%-20% on
dividends received from Portuguese resident corporations from exchange-listed
shares and 15% from privatized companies within the first five years after the
privatization. Furthermore, the Fund is subject to a 25% corporate tax on
interest
11
<PAGE>
THE PORTUGAL FUND, INC.
------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
from Portuguese debt securities and bonds, although the effective rate on bonds
issued in 1989 (other than public debt bonds) is 20%. The tax is withheld by the
payor corporation. Capital gains realized by the Fund on the sale of securities
are exempt from Portuguese tax.
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(I) market value of investment securities, assets and liabilities at the
current rate of exchange; and
(II) purchases and sales of investments securities, income and expenses at
the rate 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 rate from that
which is due to changes in market prices of equity securities.
The Fund reports certain foreign currency related transactions as components of
realized gains for financial reporting purposes, whereas such components are
treated as ordinary income for Federal income tax purposes.
DISTRIBUTION 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, although it
currently expects to distribute such gains. 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.
OTHER: Securities denominated in currencies other than U.S. dollars are subject
to changes in value due to fluctuations in exchange rates.
The repatriation of both investment income and capital from Portugal is
controlled under regulations, including, in some cases, the need for certain
advance government notification or authority. Foreign investment in Portugal by
the Fund may be subject to the prior authorization of the Bank of Portugal or
the Portuguese Foreign Trade Institute, depending on the type of investment.
The Portuguese 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 high proportion of the shares of some Portuguese listed companies
are held by a limited number of persons, which may limit the number of shares
available for acquisition by the Fund. Restrictions on foreign ownership could
also restrict the Fund's ability to acquire shares in certain companies.
NOTE B. BEA Associates serves as the Fund's investment adviser. As compensation
for its advisory services, BEA Associates receives an annual fee, calculated
monthly and paid quarterly, equal to 1.00% of the Fund's average monthly net
assets. In addition, BEA receives from the Fund an administration fee which
represents a reimbursement of certain Fund expenses. For the six months ended
June 30, 1995, the advisory and administration fees amounted to $379,226 and
$2,041, respectively.
12
<PAGE>
THE PORTUGAL FUND, INC.
------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
Through June 29, 1995, PFPC Inc. ("PFPC") served as the Fund's administrator.
The Fund paid PFPC a fee that was computed monthly and paid quarterly at an
annual rate of 0.10% of the value of the Fund's weekly net assets, with a
minimum annual fee. For the period January 1, 1995 through June 29, 1995, PFPC
earned $39,600 for administrative services.
Effective June 30, 1995, Bear Stearns Funds Management Inc. ("BSFM") serves as
the Fund's administrator. The Fund will pay BSFM a monthly fee that is computed
weekly at an annual rate of 0.09% of the Fund's average weekly net assets.
The Fund pays each of its Directors who is not a director, officer or employee
of BEA Associates, the administrator, or any affiliate thereof an annual fee of
$5,000 plus $500 for each Board of Directors meeting attended. In addition, the
Fund will reimburse these Directors for travel and out-of-pocket expenses
incurred in connection with Board of Directors meetings.
Through June 13, 1995, Citibank, N.A. served as the custodian of the Fund's
foreign assets and PNC Bank, N.A., served as the custodian of the Fund's assets
in the United States. Effective June 14, Brown Brothers Harriman & Co. serves as
the custodian for all of the Fund's U.S. and foreign assets.
NOTE C. The authorized capital stock of the Fund is 100,000,000 shares of common
stock, $0.001 par value. Of the 5,299,361 shares outstanding at June 30, 1995,
BEA Associates owned 7,206 shares.
NOTE D. For U.S. federal income tax purposes, the cost of securities owned at
June 30, 1995 was $61,565,098. Accordingly, the net unrealized appreciation of
investments (including investments denominated in foreign currency) of
$18,567,179 was composed of gross appreciation of $25,104,637 for those
investments having an excess of value over cost and gross depreciation of
$6,537,458 for those investments having an excess of cost over value.
For the six months ended June 30, 1995, purchases and sales of securities, other
than short-term obligations, aggregated $7,644,272 and $11,380,864,
respectively.
NOTE E. The Fund, along with 15 other U.S. regulated investment companies for
which BEA serves as investment adviser, has a credit agreement with The First
National Bank of Boston. The agreement provides that each fund is permitted to
borrow an amount equal to the lesser of $50,000,000 or 25% of the net assets of
the fund. However, at no time shall the aggregate outstanding principal amount
of all loans to any of the 16 funds exceed $50,000,000. The line of credit will
bear interest at (i) the greater of the bank's prime rate or the Federal Funds
Effective Rate plus 0.50% or (ii) the Adjusted Eurodollar Rate plus 1.50%. The
Fund had no amounts outstanding under the line of credit agreement at June 30,
1995.
13
<PAGE>
THE PORTUGAL FUND, INC.
------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
NOTE F. Quarterly Results of Operations:
<TABLE>
<CAPTION>
NET GAIN/(LOSS) NET INCREASE/
ON INVESTMENT AND (DECREASE) IN
FOREIGN CURRENCY NET ASSETS
INVESTMENT NET INVESTMENT DENOMINATED RESULTING FROM
INCOME INCOME/(LOSS) TRANSACTIONS OPERATIONS MARKET PRICE
--------------- --------------- ------------------- ---------------- ON NYSE
TOTAL PER TOTAL PER TOTAL PER TOTAL PER ----------------
QUARTER ENDED (000) SHARE (000) SHARE (000) SHARE (000) SHARE HIGH LOW
------------------- ------ ------- ------ ------- --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, 1995..... $ 120 $0.02 $(151) $ (0.03) $ 723 $ 0.13 $ 572 $ 0.10 $13.875 $10.875
June 30, 1995...... 1,497 0.29 1,201 0.23 2,215 0.42 3,416 0.65 14.250 12.375
------ ------- ------ ------- --------- ------- ------- -------
Totals............. $1,617 $0.31 $1,050 $ 0.20 $ 2,938 $ 0.55 $ 3,988 $ 0.75
------ ------- ------ ------- --------- ------- ------- -------
------ ------- ------ ------- --------- ------- ------- -------
March 31, 1994..... $ 72 $0.01 $(209) $ (0.04) $ 15,347 $ 2.90 $15,138 $ 2.86 $15.875 $12.625
June 30, 1994...... 1,124 0.21 900 0.17 (10,769) (2.03) (9,869) (1.86) 13.875 12.000
September 30,
1994.............. 107 0.02 (179) (0.04) 7,338 1.39 7,159 1.35 15.875 11.625
December 31, 1994.. 104 0.02 (183) (0.03) (2,371) (0.45) (2,554) (0.48) 17.000 13.500
------ ------- ------ ------- --------- ------- ------- -------
Totals............. $1,407 $0.26 $ 329 $ 0.06 $ 9,545 $ 1.81 $ 9,874 $ 1.87
------ ------- ------ ------- --------- ------- ------- -------
------ ------- ------ ------- --------- ------- ------- -------
March 31, 1993..... $ 80 $0.02 $(170) $ (0.03) $ 3,445 $ 0.65 $ 3,275 $ 0.62 $ 8.750 $ 7.875
June 30, 1993...... 1,288 0.24 1,025 0.19 2,029 0.38 3,054 0.57 10.125 8.500
September 30,
1993.............. 46 0.01 (243) (0.05) 8,789 1.66 8,546 1.61 12.125 10.000
December 31, 1993.. 61 0.01 (243) (0.04) 4,581 0.86 4,338 0.82 14.125 12.000
------ ------- ------ ------- --------- ------- ------- -------
Totals............. $1,475 $0.28 $ 369 $ 0.07 $ 18,844 $ 3.55 $19,213 $ 3.62
------ ------- ------ ------- --------- ------- ------- -------
------ ------- ------ ------- --------- ------- ------- -------
</TABLE>
--------------------------------------------------------------------------------
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS
On April 25, 1995, the Fund's Annual Meeting of Shareholders was held and the
following matters were voted upon:
(1) To reelect two directors to the Board of Directors of the Fund.
<TABLE>
<CAPTION>
VOTES BROKER
NAME OF DIRECTOR VOTES FOR AGAINST VOTES WITHHELD NON-VOTES
------------------------- ---------- ------------ -------------- ----------
<S> <C> <C> <C> <C>
Daniel Sigg.............. 4,061,471 -- 103,319 1,134,571
Martin Torino............ 4,060,670 -- 104,120 1,134,571
</TABLE>
In addition to the directors elected at the meeting, Emilio Bassini, James
Cattano, and Jonathan Lubell continue to serve as directors of the Fund.
(2) To ratify the selection of Coopers & Lybrand L.L.P. as independent public
accountants for the year ending December 31, 1995.
<TABLE>
<CAPTION>
BROKER
VOTES FOR VOTES AGAINST VOTES WITHHELD NON-VOTES
---------- ------------- --------------- ----------
<S> <C> <C> <C>
4,073,378 67,115 24,297 1,134,571
</TABLE>
14
<PAGE>
THE PORTUGAL FUND, INC.
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DESCRIPTION OF THE FUND'S DIVIDEND REINVESTMENT AND
CASH PURCHASE PLAN
Pursuant to the Fund's Dividend Reinvestment and Cash Purchase Plan (the
"Plan"), each shareholder will be deemed to have elected, unless the Fund's
transfer agent, as the Plan Agent (the "Plan Agent"), is otherwise instructed by
the shareholder in writing, to have all dividends and distributions, net of any
applicable U.S. withholding tax, automatically reinvested in additional shares
of the Fund. Shareholders who do not participate in the Plan will receive all
dividends and distributions in cash, net of any applicable U.S. withholding tax,
paid in dollars by check mailed directly to the shareholder by the Plan Agent,
as dividend-paying agent. Shareholders who do not wish to have dividends and
distributions automatically reinvested should notify the Plan Agent for the Fund
at the address set forth below. Dividends and distributions with respect to
shares registered in the name of a broker-dealer or other nominee (i.e., in
"street name") will be reinvested under the Plan unless such service is not
provided by the broker or nominee or the shareholder elects to receive dividends
and distributions in cash. A shareholder whose shares are held by the broker or
nominee that does not provide a dividend reinvestment program may be required to
have his shares registered in his own name to participate in the Plan. Investors
who own shares of the Fund's common stock registered in street name should
contact the broker or nominee for details concerning participation in the Plan.
Certain distributions of cash attributable to (a) some of the dividends and
interest amounts paid to the Fund and (b) certain capital gains earned by the
Fund that are derived from securities of certain foreign issuers are subject to
taxes payable by the Fund at the time amounts are remitted. Such taxes, if any,
will be borne by the Fund and allocated to all shareholders in proportion to
their interests in the Fund.
The Plan Agent serves as agent for the shareholders in administering the Plan.
If the Board of Directors of the Fund declares an income dividend or a capital
gains distribution payable either in the Fund's common stock or in cash, as
shareholders may have elected, nonparticipants in the Plan will receive cash and
participants in the Plan will receive common stock to be issued by the Fund. If
the market price per share on the valuation date equals or exceeds net asset
value per share on that date, the Fund will issue new shares to participants
valued at net asset value or, if the net asset value is less than 95% of the
market price on the valuation date, then valued at 95% of the market price. If
net asset value per share on the valuation date exceeds the market price per
share on that date, participants in the Plan will receive shares of stock from
the Fund valued at the market price.
The valuation date is the dividend or distribution payment date or, if that date
is not a New York Stock Exchange trading day, the next preceding trading day. If
the Fund should declare an income dividend or capital gains distribution payable
only in cash, the Plan Agent will, as agent for the participants, buy Fund
shares in the open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts on, or shortly after, the payment date.
Participants in the Plan have the option of making additional cash payments to
the Plan Agent, semiannually, in any amount from $100 to $3,000, for investment
in the Fund's common stock. The Plan Agent will use all funds received from
participants to purchase Fund shares in the open market on or about
15
<PAGE>
THE PORTUGAL FUND, INC.
------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
February 15 and August 15 of each year. Any voluntary cash payments received
more than 30 days prior to these dates will be returned by the Plan Agent and
interest will not be paid on any uninvested cash payments. To avoid unnecessary
cash accumulations, and also to allow ample time for receipt and processing by
the Plan Agent, it is suggested that participants send in voluntary cash
payments to be received by the Plan Agent approximately 10 days before February
15 or August 15, as the case may be. A participant may withdraw a voluntary cash
payment by written notice, if the notice is received by the Plan Agent not less
than 48 hours before the payment is to be invested. A participant's tax basis in
his shares acquired through this optional investment right will equal his cash
payments to the Plan, including any cash payments used to pay brokerage
commissions allocable to his acquired shares.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in the name of the
participant and each shareholder's proxy will include those shares purchased
pursuant to the Plan.
In the case of a shareholder, such as a bank, broker or nominee, that holds
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are to participate in the
Plan.
There is no charge to participants for reinvesting dividends or capital gains
distributions payable in either stock or cash. The Plan Agent's fees for the
handling of reinvestment of such dividends and capital gains distributions will
be paid by the Fund. There will be no brokerage charges with respect to shares
issued directly by the Fund as a result of dividends or capital gains
distributions payable either in stock or in cash. However, each participant will
be charged by the Plan Agent a pro rata share of brokerage commissions incurred
with respect to the Plan Agent's open market purchases in connection with
voluntary cash payments made by the participant or the reinvestment of dividends
or capital gain distributions payable only in cash. Brokerage charges for
purchasing small amounts of stock for individual accounts through the Plan are
expected to be less than the usual brokerage charges for such transactions
because the Plan Agent will be purchasing stock for all participants in blocks
and prorating the lower commission thus obtainable. Brokerage commissions will
vary based on, among other things, the broker selected to effect a particular
purchase and the number of participants on whose behalf such purchase is being
made. The Fund cannot predict, therefore, whether the cost to a participant who
makes a voluntary cash payment will be less than if a participant were to make
an open market purchase of the Fund's common stock on his own behalf.
The receipt of dividends and distributions in the stock under the Plan will not
relieve participants of any income tax (including withholding tax) that may be
payable on such dividends or distributions.
The Fund and the Plan Agent reserve the right to terminate the Plan as applied
to any voluntary cash payments made and any dividend or distribution paid
subsequent to notice of the termination sent to the members of the Plan at least
30 days before the semiannual contribution date, in the case of voluntary cash
payments, or the record date for dividends or distributions. The Plan also may
be amended by the Fund or the Plan Agent, but (except when necessary or
appropriate to comply with applicable law, rules or policies of
16
<PAGE>
THE PORTUGAL FUND, INC.
------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
a regulatory authority) only by at least 30 days' written notice to members of
the Plan. All correspondence concerning the Plan should be directed as follows:
Inquiries made before September 5, 1995 should be directed to PNC Bank, National
Association, c/o PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809 or
by telephone at 1-800-852-4750. Inquiries made on or after September 5, 1995,
should be directed to Bank of Boston, Investor Relations Department, P.O. Box
644, Mail Stop 45-02-09, Boston, Massachusetts 02102-0644 or by telephone at
1-800-730-6001.
17
<PAGE>
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INVESTMENT ADVISER
BEA Associates
New York, New York
ADMINISTRATOR
Bear Stearns Funds Management Inc.
New York, New York
TRANSFER AGENT AND REGISTRAR
PNC Bank, N.A.
Philadelphia, Pennsylvania
CUSTODIAN
Brown Brothers Harriman & Co.
Boston, Massachusetts
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
This report, including the financial statements herein, is sent to the
shareholders of the Fund for their information. The financial information
included herein is taken from the records of the Fund without examination by
independent accountants who do not express an opinion thereon. It is not a
prospectus, circular or representation intended for use in the purchase or sale
of shares of the Fund or of any securities mentioned in this report.
THE PORTUGAL FUND, INC.
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[LOGO]
THE PORTUGAL FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 1995
(UNAUDITED)
