<PAGE>
THE PORTUGAL FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 1996
<PAGE>
CONTENTS
Letter to Shareholders 1
Portfolio Summary 5
Schedule of Investments 6
Statement of Assets and Liabilities 8
Statement of Operations 9
Statement of Changes in Net Assets 10
Financial Highlights 11
Notes to Financial Statements 12
Results of Annual Meeting of Shareholders 15
Description of Dividend Reinvestment and Cash Purchase Plan 16
PICTURED ON THE COVER IS THE INTERIOR OF THE BOLSA DE VALORES DE LISBOA (THE
"LISBON EXCHANGE"). THE LISBON EXCHANGE IS ONE OF TWO STOCK EXCHANGES IN
PORTUGAL.
- --------------------------------------------------------------------------------
<PAGE>
LETTER TO SHAREHOLDERS
August 22, 1996
DEAR SHAREHOLDER:
We are pleased to report on the activities of The Portugal Fund, Inc. (the
"Fund") for the six months ended June 30, 1996.
PERFORMANCE
At June 30, 1996, the Fund's net assets were $80.9 million. The Fund's net asset
value ("NAV") was $15.27 per share, as compared to $13.29 on December 31, 1995.
For the period January 1, 1996 through June 30, 1996, the Fund's total return
based on NAV was 14.90%. By comparison, the total return of the Morgan Stanley
Capital International Portugal Index (the "Index") was 24.51%. From the
commencement of investment operations on November 9, 1989 through June 30, 1996,
the Fund's total return, based on NAV and assuming reinvestment of dividends and
distributions, was 16.96%. The Index declined 13.76% during this period.
WHY PORTUGAL?
It is helpful to periodically review our fundamental reasons for investing in
Portugal. Briefly, the following are among the strongest factors supporting our
belief that Portugal is a very positive environment for investors:
-Its stable political climate.
-Its inflation/interest rate setting is constructive for long-term
investment.
-Relative to many other European markets, its equity valuation levels are
cheaper and its projected earnings growth for equities is higher.
-The cornerstone of Portugal's monetary policy is the maintenance of
exchange rate stability in order to maintain relatively steady domestic
prices. Although it is unlike the inflation-focused approach of many other
nations, it works quite well in Portugal.
-By law, the government is prohibited from accumulating an operating
deficit.
-The government is committed to meeting the strict financial and economic
targets for admission to the European Monetary Union established by the
Maastricht Treaty.
POLITICAL/ECONOMIC COMMENTARY
In the period surrounding the election of Portugal's new Socialist-led
government in January of this year, there was some initial uncertainty
concerning the Socialists' ability to oversee the economy. This uncertainty has
ended,
- --------------------------------------------------------------------------------
1
<PAGE>
LETTER TO SHAREHOLDERS
however, as the Socialists have smoothly maintained the sound, market-oriented
policies of their Social Democrat predecessors. Little has changed, with the
major exception of a stronger commitment by the Socialists to social programs.
For investors, this is favorable. It indicates that an economic approach
conducive to equity investing will be maintained and that Portugal's political
stability will remain intact. Because the Socialists do not have a clear
parliamentary majority, they are compelled to act in accordance with consensus
viewpoints.
The economic story in Portugal thus far in 1996 has been a positive one, as the
gradual abatement of the recession that commenced in the early 1990's continues.
Inflation is down, exports are up and consumer activity is increasing. Helping
this economic resurgence has been a substantial decline in interest rates; since
January, short-term rates have dropped to the low 7% range from nearly 9% and
the benchmark government long-bond yield has fallen to about 8.5% from just
under 10% in the same period. In addition, the significant narrowing of the
closely monitored interest-rate spread between Portuguese and German government
bonds, implies that international investors are responding well to the improving
economy.
An exciting development for investors has been the ongoing privatization
process. Since the government began to privatize state-owned companies in 1989,
roughly 1.3 trillion escudos ($8.7 billion at year-end 1995 exchange rates) has
been raised. In June, the sale of 21% of Portugal Telecom, SA ("PT") equity
alone raised nearly 40% of the amount targeted from privatizations for the
entire year. Upcoming sales over the next few months and into 1997 include more
of PT as well as stakes in Cimpor Cimentos de Portugal, SA (cement), Banco de
Fomento e Exterior, SA (a major financial group) and Electricidade de Portugal,
SA (the electricity monopoly holding company).
THE PORTFOLIO
We regard the Portuguese equity market as a classic emerging market story in
which the twin themes of increased consumer spending and infrastructure
development play a powerful role. Along with our optimistic view of the economy,
this belief prompted us to make some changes in the portfolio since our last
report:
-With the expectation that interest rates would drop and the economy would
continue to improve, we reduced our cash holdings from nearly 20% of total
assets to a far more bullish 2%. This is a historic low for the Fund's cash
position.
-We used the cash to significantly increase our holdings both in financial
firms and infrastructure-related companies.
-We added three banks and an insurance company to the portfolio and raised
our positions in one existing holding in each sector. Overall, the Fund's
combined holdings in banking and insurance more than doubled, to about 16%
of total net assets from about 7.5% at December 31, 1995.
-We also added two cement companies, raised our position in a third and
substantially boosted our stake in PT. Total holdings in construction and
telecommunications rose to nearly 25% of total net assets from just over
19% in the previous period.
- --------------------------------------------------------------------------------
2
<PAGE>
LETTER TO SHAREHOLDERS
-We modestly trimmed our position in the Fund's largest holding,
Estabelecimentos Jeronimo Martins & Filho S.G.P.S., SA. Even so, strong
price appreciation raised the portfolio's exposure to this company to 15.9%
of total net assets, versus 11.5% at December 31, 1995.
OUTLOOK
Our outlook for Portuguese equities is positive both for the near and medium
terms:
-Real GDP is projected to grow at a steady, non-inflationary 2-3% pace both
in 1996 and 1997.
-We would not be surprised if short-term interest rates were further reduced
in this year's second half.
-Inflation should continue its decline of the last few years, falling to
around 3% in 1996 and then in the high-2% range in 1997.
-Extensive future privatization should have substantial benefits for the
market, including:
-Attracting greater attention from foreign investors.
-Raising liquidity and trading volume.
-Increasing the capability for diversification within Portugal and
European portfolios.
-Enhancing overall prospects for valuation and growth.
- Improving perceptions of Portugal's economy via the use of proceeds to
strengthen the government's financial condition.
-Regardless of whether Portugal is accepted into the European Monetary
Union, its disciplined adherence to the Maastricht standards should serve
to perpetuate economic stability.
-The government is actively encouraging consolidation in some industries
(e.g., paper and banking) in order to raise their international
competitiveness.
-The government intends to increase its preferential lending to companies
involved in technology and exports.
We wish to remind shareholders whose shares are registered in their own name
that they automatically participate in the Fund's dividend reinvestment program.
The automatic Dividend Reinvestment Plan (the "Plan") can be of value to
shareholders in maintaining their proportional ownership interest in the Fund in
an easy and convenient way. A shareholder whose shares are held in the name of a
broker/dealer or nominee should contact that party for details about
participating in the Plan. The Fund also offers shareholders a voluntary Cash
Purchase Plan. The Plan and the Cash Purchase Plan are described on pages 16 and
17 of this report.
- --------------------------------------------------------------------------------
3
<PAGE>
LETTER TO SHAREHOLDERS
We appreciate your continued confidence in the Fund and would be pleased to
respond to your questions and comments.
Respectfully,
[SIG]
Emilio Bassini
President and Chief Investment Officer*
- --------------------------------------------------------------------------------
*Emilio Bassini, who is a member of the Executive Committee and Executive
Director of BEA Associates, is primarily responsible for management of the
Fund's assets. He has served 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
the President and Secretary of The Indonesia Fund, Inc. and Director, Chairman
of the Board, President and Investment Officer of The Brazilian Equity Fund,
Inc. He is also the managing principal of Bassini, Playfair + Associates LLC.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
PORTFOLIO SUMMARY - AS OF JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AS A PERCENT OF NET ASSETS
<S> <C> <C>
30-Jun-96 31-Dec-95
Banking 9.49 5.20
Construction & Public Works 17.51 14.44
Consumer Products 9.56 10.24
Foodstuffs, Beverages & Tobacco 20.63 17.00
Forest Products & Paper 9.56 8.99
Insurance 6.61 2.29
Retail Trade 7.12 4.73
Telecommunications 7.32 4.82
Transportation Warehousing 2.11 2.57
Other 8.18 7.00
Cash & Cash Equivalents 1.91 19.90
</TABLE>
TOP 10 HOLDINGS, BY ISSUER
<TABLE>
<CAPTION>
Percent of Net
Holding Sector Assets
<C> <S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
1. Estabelecimentos Jeronimo Martins & Filho S.G.P.S., SA Foodstuffs, Beverages & Tobacco 15.9
- --------------------------------------------------------------------------------------------------------------------------------
2. Sonae Investimentos S.G.P.S., SA Consumer Products 9.6
- --------------------------------------------------------------------------------------------------------------------------------
3. Portugal Telecom, SA Telecommunications 7.3
- --------------------------------------------------------------------------------------------------------------------------------
4. Modelo Continente S.G.P.S., SA Retail Trade 7.1
- --------------------------------------------------------------------------------------------------------------------------------
5. Sociedade de Investimento e Gestao S.G.P.S., SA Semapa Construction & Public Works 6.0
- --------------------------------------------------------------------------------------------------------------------------------
6. Engil S.G.P.S., SA Construction & Public Works 4.9
- --------------------------------------------------------------------------------------------------------------------------------
7. Banco Totta & Acores, SA Banking 4.7
- --------------------------------------------------------------------------------------------------------------------------------
8. Corticeira Amorim, SA Forest Products & Paper 4.6
- --------------------------------------------------------------------------------------------------------------------------------
9. Cimpor Cimentos de Portugal, SA Construction & Public Works 4.5
- --------------------------------------------------------------------------------------------------------------------------------
10. Companhia de Seguros Tranquilidade Insurance 4.1
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
No. of Value
Description Shares (Note A)
<CAPTION>
- -----------------------------------------------------
<S> <C> <C>
EQUITY SECURITIES-98.09%
PORTUGAL-98.09%
AUTO-1.10%
Salvador Caetano
Industrias Metalurgicas
Veiculos
Transportes, SA......... 69,776 $ 892,153
-----------
BANKING-9.49%
Banco Comercial
Portugues, SA
(Registered)............ 53,200 629,197
Banco Comercial
Portugues, SA, Series
A....................... 24,000 1,194,000
Banco Espirito Santo e
Comercial de Lisboa, SA
(Registered)............ 126,000 2,025,065
Banco Totta & Acores, SA
(Registered)............ 195,718 3,832,489
-----------
7,680,751
-----------
CHEMICALS & PETROLEUM PRODUCTS-1.27%
Corporacao Industrial do
Norte, SA (Bearer)...... 31,080 818,618
Proholding S.G.P.S.,
SA...................... 8,200 208,877
-----------
1,027,495
-----------
CONSTRUCTION & PUBLIC WORKS-17.51%
Caima-Ceramica e Servicos
S.G.P.S., SA+........... 82,600 735,059
Cimpor Cimentos de
Portugal, SA............ 173,900 3,617,597
Engil S.G.P.S., SA....... 478,131 3,998,138
Oliva Industrias
Metalurgicas, SA+....... 227,153 130,696
Sociedade de Contrucoes
Soares da Costa, SA..... 97,920 832,580
Sociedade de Investimento
e Gestao S.G.P.S., SA
Semapa.................. 400,000 4,858,662
-----------
14,172,732
-----------
CONSUMER PRODUCTS-9.56%
Sonae Investimentos
S.G.P.S., SA............ 297,500 7,740,776
-----------
FILM DISTRIBUTION-1.47%
Filmes Lusomundo
S.G.P.S., SA............ 192,025 1,192,011
-----------
<CAPTION>
No. of Value
Description Shares (Note A)
- -----------------------------------------------------
<S> <C> <C>
FOODSTUFFS, BEVERAGES & TOBACCO-20.63%
Empresa Madeirense de
Tabacos, SA............. 99,000 $ 874,041
Estabelecimentos Jeronimo
Martins & Filho
S.G.P.S., SA............ 142,700 12,863,116
Sumolis Companhia
Industrial de Frutas e
Bebidas, SA............. 45,446 341,379
Unicer-Uniao Cervejeira,
SA...................... 146,946 2,621,928
-----------
16,700,464
-----------
FOREST PRODUCTS & PAPER-9.56%
Caima Companhia de
Celulose do Caima, SA... 90,950 2,035,044
Corticeira Amorim, SA.... 327,500 3,691,193
Sonae Industria, SA+..... 242,381 2,015,946
-----------
7,742,183
-----------
HOTELS & RESTAURANTS-0.88%
Mague-Gestao e
Participacoes, SA....... 35,416 566,034
Sopete-Sociedade Poveira
de Empreendimentos
Turistico, SA
(Bearer)+............... 68,630 149,175
-----------
715,209
-----------
INSURANCE-6.61%
Companhia de Seguros
Mundial Confianca,
SA+..................... 246,600 2,033,695
Companhia de Seguros
Tranquilidade........... 179,400 3,314,541
-----------
5,348,236
-----------
MANUFACTURERS & DISTRIBUTORS OF METAL PRODUCTS,
MACHINERY & HEAVY EQUIPMENT-0.73%
Empresa Fabril de
Maquinas Electricas,
SA...................... 63,100 592,993
-----------
MISCELLANEOUS MANUFACTURING-1.54%
Crisal Cristais de
Alcobaca, SA............ 63,500 1,249,932
-----------
NON-METALIC MINERAL PRODUCTS-1.19%
Fabrica de Porcelanas da
Vista Alegre, SA........ 20,990 439,535
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
- -----------------------------------------------------
<S> <C> <C>
NON-METALIC MINERAL PRODUCTS (CONTINUED)
VA Grupo-Vista Alegre
Participacoes, SA....... 32,600 $ 523,112
-----------
962,647
-----------
RETAIL TRADE-7.12%
Modelo Continente
S.G.P.S., SA............ 197,265 5,759,492
-----------
TELECOMMUNICATIONS-7.32%
Portugal Telecom, SA..... 226,317 5,921,913
-----------
TRANSPORTATION & WAREHOUSING-2.11%
Fabrica de Vidros Barbosa
& Almeida, SA........... 43,400 824,042
Lisnave-Estaleiros Navais
de
Lisboa, SA+............. 295,100 584,836
<CAPTION>
No. of Value
Description Shares (Note A)
- -----------------------------------------------------
<S> <C> <C>
TRANSPORTATION & WAREHOUSING (CONTINUED)
Tertir Terminais de
Portugal, SA+........... 79,957 $ 295,963
-----------
1,704,841
-----------
TOTAL INVESTMENTS-98.09%
(Cost $68,021,356) (Notes A,D)......... 79,403,828
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES-1.91%...................... 1,544,115
-----------
NET ASSETS-100.00%...................... $80,947,943
-----------
-----------
- ---------------------------------------------------------
+ Security is non-income producing.
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
7
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $68,021,356)
(Note A)............................... $79,403,828
Cash (including $76,814 of foreign
currencies with a cost of $77,281)
(Note A)............................... 670,560
Receivables:
Investments sold...................... 1,139,640
Dividends............................. 43,755
Prepaid expenses........................ 22,213
-----------
Total Assets............................ 81,279,996
-----------
LIABILITIES
Payables:
Advisory fees (Note B)................ 183,762
Administration fees (Note B).......... 15,383
Other accrued expenses................ 132,908
-----------
Total Liabilities....................... 332,053
-----------
NET ASSETS (applicable to 5,302,545
shares of common stock outstanding)
(Note C)............................... $80,947,943
-----------
-----------
NET ASSET VALUE PER SHARE ($80,947,943
DIVIDED BY 5,302,545)................. $15.27
-----------
-----------
NET ASSETS CONSIST OF
Capital stock, $0.001 par value;
5,302,545 shares issued and outstanding
(100,000,000 shares authorized)........ $ 5,302
Paid-in capital......................... 73,106,374
Undistributed net investment income..... 1,158,909
Accumulated net realized loss on
investments and foreign currency
related transactions................... (4,706,189)
Net unrealized appreciation in value of
investments and translation of other
assets and liabilities denominated in
foreign currency....................... 11,383,547
-----------
Net assets applicable to shares
outstanding............................ $80,947,943
-----------
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Income (Note A):
Dividends............................. $ 1,944,079
Interest.............................. 117,143
Less: Foreign taxes withheld.......... (297,829)
-----------
Total Investment Income............... 1,763,393
-----------
Expenses:
Investment advisory fees (Note B)..... 364,658
Custodian fees........................ 66,239
Administration fees (Note B).......... 38,826
Audit and legal fees.................. 27,077
Printing.............................. 22,452
Accounting fees....................... 17,118
Insurance............................. 12,822
Transfer agent fees................... 12,720
Directors' fees....................... 10,920
NYSE listing fees..................... 8,042
Other................................. 4,004
-----------
Total Expenses........................ 584,878
-----------
Net Investment Income................. 1,178,515
-----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized loss from:
Investments........................... (756,540)
Foreign currency related
transactions......................... (45,794)
Net change in unrealized appreciation in
value of investments and translation of
other assets and liabilities
denominated in foreign currency........ 10,101,725
-----------
Net realized and unrealized gain on
investments and foreign currency
related transactions................... 9,299,391
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................ $10,477,906
-----------
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months For the Year
Ended June 30, 1996 Ended
(unaudited) December 31, 1995
<S> <C> <C>
--------------------------------------------
INCREASE/(DECREASE) IN NET ASSETS
Operations:
Net investment income................. $ 1,178,515 $ 889,969
Net realized gain/(loss) on
investments and foreign currency
related transactions................. (802,334) 13,709,468
Net change in unrealized appreciation
in value of investments and
translation of other assets and
liabilities denominated in foreign
currency............................. 10,101,725 (19,132,337)
------------- -----------------
Net increase/(decrease) in net
assets resulting from operations... 10,477,906 (4,532,900)
------------- -----------------
Dividends and distributions to
shareholders:
Net investment income................. -- (804,629)
Net realized gain on foreign currency
related transactions................. -- (149,256)
------------- -----------------
Total dividends and distributions to
shareholders....................... -- (953,885)
------------- -----------------
Capital share transactions:
Proceeds from 3,184 shares and 702
shares, respectively, issued in
reinvestment of dividends............ 39,397 9,307
------------- -----------------
Total increase/(decrease) in net
assets............................. 10,517,303 (5,477,478)
------------- -----------------
NET ASSETS
Beginning of period..................... 70,430,640 75,908,118
------------- -----------------
End of period (including undistributed
net investment income of $1,158,909 and
distribution in excess of net
investment income of $19,606,
respectively).......................... $80,947,943 $ 70,430,640
------------- -----------------
------------- -----------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
10
<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
November 9,
For the Six 1989*
Months Ended For the Years Ended December 31, through
June 30, 1996 -------------------------------------------------------------- December 31,
(unaudited) 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period.......................... $13.29 $14.33 $12.52 $8.90 $10.77 $10.96 $13.79 $13.79**
------------- ------- ------- ------- ------- ------- ------- --------------
Net investment income............ 0.22 0.17 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.................... 1.76 (1.03) 1.81 3.55 (1.92) (0.21) (2.87) 0.04
------------- ------- ------- ------- ------- ------- ------- --------------
Net increase/(decrease) in net
assets resulting from
operations...................... 1.98 (0.86) 1.87 3.62 (1.81) (0.08) (2.71) 0.08
------------- ------- ------- ------- ------- ------- ------- --------------
Dividends and distributions to
shareholders:
Net investment income.......... -- (0.15) (0.06) -- (0.06) (0.11) (0.12) (0.04)
In excess of net investment
income.......................... -- -- -- -- -- -- -- (0.04)
Net realized gain on foreign
currency
related transactions.......... -- (0.03) -- -- -- -- -- --
------------- ------- ------- ------- ------- ------- ------- --------------
Total dividends and distributions
to shareholders................. -- (0.18) (0.06) -- (0.06) (0.11) (0.12) (0.08)
------------- ------- ------- ------- ------- ------- ------- --------------
Net asset value, end of period... $15.27 $13.29 $14.33 $12.52 $8.90 $10.77 $10.96 $13.79
------------- ------- ------- ------- ------- ------- ------- --------------
------------- ------- ------- ------- ------- ------- ------- --------------
Market value, end of period...... $12.500 $11.125 $13.875 $14.125 $8.000 $9.750 $9.250 $17.000
------------- ------- ------- ------- ------- ------- ------- --------------
------------- ------- ------- ------- ------- ------- ------- --------------
Total investment return(a)....... 12.36% (18.65)% (1.35)% 76.56% (17.34)% 6.58% (44.91)% 22.49%
------------- ------- ------- ------- ------- ------- ------- --------------
------------- ------- ------- ------- ------- ------- ------- --------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000
omitted)........................ $80,948 $70,431 $75,908 $66,351 $47,134 $57,036 $58,084 $73,023
Ratio of expenses to average net
assets.......................... 1.55%(b) 1.58% 1.41% 1.97% 1.92% 1.96% 2.04% 2.26%(b)
Ratio of net investment income to
average net assets.............. 3.13%(b) 1.18% 0.43% 0.66% 1.07% 1.20% 1.38% 2.03%(b)
Portfolio turnover rate.......... 10.32%(c) 35.73% 15.47% 24.47% 39.07% 13.31% 10.09% --
Average commission rate per
share(d)........................ $0.0038 -- -- -- -- -- -- --
</TABLE>
- ---------------------------------------------------------------------------
* Commencement of operations.
** Initial public offering price of $15.00 per share less underwriting
discount of $1.05 per share and 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, if any, at actual prices pursuant to the Fund's
dividend reinvestment plan. Total investment return does not reflect
brokerage commissions or initial underwriting discounts and has not
been annualized. In addition, such returns have been restated to
reflect the reinvestment of dividends on the ex-dividend date.
(b) Annualized.
(c) Not annualized.
(d) Disclosure is required for fiscal years beginning on or after
September 1, 1995.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
11
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE A. SIGNIFICANT ACCOUNTING POLICIES
The Portugal Fund, Inc. (the "Fund") was incorporated in Maryland on August 11,
1989 and commenced investment 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 securities for which market quotations are readily
available are valued at the closing price quoted for the securities prior to the
time of determination (but if bid and asked quotations are available, at the
mean between the current bid and asked prices). Securities that are traded
over-the-counter are valued at the mean between the last 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 Board of Directors has established general guidelines for
calculating fair value of non-publicly traded securities. At June 30, 1996, the
Fund held no securities valued in good faith by the Board of Directors. The net
asset value per share of the Fund is calculated weekly, at the end of each month
and at any other times determined by the Board of Directors.
CASH: Deposits held at Brown Brothers Harriman & Co., the Fund's custodian, in a
variable rate account are classified as cash. At June 30, 1996, the interest
rate was 4.6875% which resets on a daily basis. Amounts on deposit are generally
available on the same business day.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
income tax purposes. Interest income is recorded on an accrual basis; dividend
income is recorded on the ex-dividend date.
TAXES: No provision is made for U.S. federal income or excise taxes as it is the
Fund's intention to continue to qualify as a regulated investment company and to
make the requisite distributions to its shareholders which will be sufficient to
relieve it from all or substantially all U.S. federal income and excise taxes.
At December 31, 1995, the Fund had a capital loss carryover for U.S. federal
income tax purposes of $3,383,884 which expires in 2002.
For U.S. federal income tax purposes, realized foreign exchange losses incurred
after October 31, 1995, within the fiscal year, are deemed to arise on the first
day of the following fiscal year. The Fund incurred and elected to defer such
losses of $76,147.
The Fund is subject to withholding taxes of 15%-20% on dividends received from
Portuguese corporations. Capital gains realized by the Fund on the sale of
securities are exempt from Portuguese tax.
FOREIGN CURRENCY TRANSLATIONS: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(I) market value of investment securities, assets and liabilities at the
current rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
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12
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
The Fund does not isolate that portion of gains and losses in investments in
equity securities which is due to changes in the foreign exchange rates from
that which is due to changes in market prices of equity securities. Accordingly,
realized and unrealized foreign currency gains and losses with respect to such
securities are included in the reported net realized and unrealized gains and
losses on investment transactions balances.
Net currency gains from valuing foreign currency denominated assets and
liabilities at period end exchange rates are reflected as a component of net
unrealized appreciation/depreciation on investments, foreign currency holdings,
and other assets and liabilities denominated in foreign currency.
Net realized foreign exchange losses represent foreign exchange gains and losses
from transactions in foreign currencies and forward foreign currency contracts,
exchange gains or losses realized between the trade date and settlement 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.
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 components are treated as ordinary income for
U.S. federal income tax purposes.
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.
federal income tax purposes due to U.S. generally accepted accounting
principles/tax differences in the character of income and expense recognition.
OTHER: Securities denominated in currencies other than U.S. dollars are subject
to changes in value due to fluctuations in exchange rates.
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 from the Minister of Finance, from the
Bank of Portugal or the Portuguese Foreign Trade Institute, depending on the
type of investment or subject to the rules concerning public tender offers.
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.
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13
<PAGE>
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THE PORTUGAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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NOTE B. AGREEMENTS
BEA Associates ("BEA") serves as the Fund's investment adviser with respect to
all investments. As compensation for its advisory services, BEA receives from
the Fund an annual fee, calculated weekly and paid quarterly, equal to 1.00% of
the Fund's average weekly net assets. For the six months ended June 30, 1996,
BEA earned $364,658 for advisory services. BEA also provides certain
administrative services to the Fund and is reimbursed by the Fund for costs
incurred on behalf of the Fund. For the six months ended June 30, 1996, BEA was
reimbursed $4,004 for administrative services rendered to the Fund.
Bear Stearns Funds Management Inc. ("BSFM") serves as the Fund's administrator.
The Fund pays BSFM a monthly fee that is computed weekly at an annual rate of
0.09% of the Fund's average weekly net assets. For the six months ended June 30,
1996, BSFM earned $34,822 for administrative services.
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 5,302,545 shares outstanding at June 30, 1996, BEA
owned 7,169 shares.
NOTE D. INVESTMENT IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at June 30,
1996 was $68,465,180. Accordingly, the net unrealized appreciation of
investments (including investments denominated in foreign currency) of
$10,938,648, was composed of gross appreciation of $12,617,974 for those
investments having an excess of value over cost and gross depreciation of
$1,679,326 for those investments having an excess of cost over value.
For the six months ended June 30, 1996, purchases and sales of securities, other
than short-term obligations, were $20,833,993 and $7,219,283, respectively.
NOTE E. CREDIT AGREEMENT
The Fund, along with 17 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 18 funds exceed $50,000,000. The line of credit will bear
interest at (i) the greater of the bank's prime rate or the Federal Funds
Effective Rate plus 0.50% or (ii) the Adjusted Eurodollar Rate plus 1.50%. The
Fund had no amounts outstanding under the credit agreement during the six months
ended June 30, 1996.
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14
<PAGE>
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
On April 23, 1996, the annual meeting of shareholders of The Portugal Fund, Inc.
(the "Fund") was held and the following matters were voted upon:
(1) To re-elect three directors to the Board of Directors of the Fund.
<TABLE>
<CAPTION>
NAME OF DIRECTOR FOR WITHHELD NON-VOTES
- ----------------------------------------------------------------------------------- ---------- --------- ----------
<S> <C> <C> <C>
Enrique R. Arzac* 4,100,508 131,030 1,071,007
Emilio Bassini 4,097,667 133,871 1,071,007
James J. Cattano 4,090,740 140,798 1,071,007
</TABLE>
- --------------
* On February 13, 1996, the Board of Directors increased the size of the Fund's
Board of Directors to 6 and Dr. Enrique R. Arzac was elected to fill the newly
created vacancy. The election of Dr. Arzac was submitted to the Fund's
shareholders for their ratification at the annual meeting of shareholders.
In addition to the directors re-elected at the meeting, Jonathan Lubell, Daniel
Sigg and Martin M. Torino 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, 1996.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTES
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
4,183,482 22,174 25,882 1,071,007
</TABLE>
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15
<PAGE>
DESCRIPTION OF DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to The Portugal Fund, Inc.'s (the "Fund") Dividend Reinvestment and
Cash Purchase Plan (the "Plan"), each shareholder will be deemed to have
elected, unless the Fund's transfer agent as the Plan Agent (the "Plan Agent"),
is otherwise instructed by the shareholder in writing, to have all dividends and
distributions, net of any applicable U.S. withholding tax, automatically
reinvested in additional shares of the Fund. Shareholders who do not participate
in the Plan will receive all dividends and distributions in cash, net of any
applicable U.S. withholding tax, paid in dollars by check mailed directly to the
shareholder by the Plan Agent, as dividend-paying agent. Shareholders who do not
wish to have dividends and distributions automatically reinvested should notify
the Plan Agent for the Fund, at the address set forth below. Dividends and
distributions with respect to shares registered in the name of a broker-dealer
or other nominee (i.e., in "street name") will be reinvested under the Plan
unless such service is not provided by the broker or nominee or the shareholder
elects to receive dividends and distributions in cash. A shareholder whose
shares are held by a broker or nominee that does not provide a dividend
reinvestment program may be required to have his shares registered in his own
name to participate in the Plan. Investors who own shares of the Fund's common
stock registered in street name should contact the broker or nominee for details
concerning participation in the Plan.
Certain distributions of cash attributable to (a) some of the dividends and
interest amounts paid to the Fund and (b) certain capital gains earned by the
Fund that are derived from securities of certain foreign issuers are subject to
taxes payable by the Fund at the time amounts are remitted. Such taxes, if any,
will be borne by the Fund and allocated to all shareholders in proportion to
their interests in the Fund.
The Plan Agent serves as agent for the shareholders in administering the Plan.
If the Board of Directors of the Fund declares an income dividend or a capital
gains distribution payable either in the Fund's common stock or in cash, as
shareholders may have elected, nonparticipants in the Plan will receive cash and
participants in the Plan will receive common stock to be issued by the Fund. If
the market price per share on the valuation date equals or exceeds net asset
value per share on that date, the Fund will issue new shares to participants
valued at net asset value or, if the net asset value is less than 95% of the
market price on the valuation date, then valued at 95% of the market price. If
net asset value per share on the valuation date exceeds the market price per
share on that date, participants in the Plan will receive shares of stock from
the Fund valued at the market price.
The valuation date is the dividend or distribution payment date or, if that date
is not a New York Stock Exchange trading day, the next preceding trading day. If
the Fund should declare an income dividend or capital gains distribution payable
only in cash, the Plan Agent will, as agent for the participants, buy Fund
shares in the open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts on, or shortly after, the payment date.
Participants in the Plan have the option of making additional cash payments to
the Plan Agent, semiannually, in any amount from $100 to $3,000, for investment
in the Fund's common stock. The Plan Agent will use all funds received from
participants to purchase Fund shares in the open market on or about February 15
and August 15 of each year. Any voluntary cash payments received more than 30
days prior to these dates will be returned by the Plan Agent and interest will
not be paid on any uninvested cash payments. To avoid unnecessary cash
accumulations, and also to allow ample time for receipt and processing by the
Plan Agent, it is suggested that participants send in voluntary cash payments to
be received by the Plan Agent approximately 10 days before February 15 or August
15, as the case may be. A participant may withdraw a voluntary cash payment by
written notice, if the notice is received by the Plan Agent
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16
<PAGE>
DESCRIPTION OF DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (CONTINUED)
not less than 48 hours before the payment is to be invested. A participant's tax
basis in his shares acquired through his optional investment right will equal
his cash payments to the Plan, including any cash payments used to pay brokerage
commissions allocable to his acquired shares.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in the name of the
participant and each shareholder's proxy will include those shares purchased
pursuant to the Plan.
In the case of a shareholder, such as a bank, broker or nominee, that holds
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are to participate in the
Plan.
There is no charge to participants for reinvesting dividends or capital gains
distributions payable in either stock or cash. The Plan Agent's fees for the
handling of reinvestment of such dividends and capital gains distributions will
be paid by the Fund. There will be no brokerage charges with respect to shares
issued directly by the Fund as a result of dividends and capital gains
distributions payable either in stock or in cash. However, each participant will
be charged by the Plan Agent a pro rata share of brokerage commissions incurred
with respect to the Plan Agent's open market purchases in connection with
voluntary cash payments made by the participant or the reinvestment of dividends
and capital gains distributions payable only in cash. Brokerage charges for
purchasing small amounts of stock for individual accounts through the Plan are
expected to be less than the usual brokerage charges for such transactions
because the Plan Agent will be purchasing stock for all participants in blocks
and prorating the lower commission thus obtainable. Brokerage commissions will
vary based on, among other things, the broker selected to effect a particular
purchase and the number of participants on whose behalf such purchase is being
made. The Fund cannot predict, therefore, whether the cost to a participant who
makes a voluntary cash payment will be less than if a participant were to make
an open market purchase on the Fund's common stock on his own behalf.
The receipt of dividends and distributions in stock under the Plan will not
relieve participants of any income tax (including withholding tax) that may be
payable on such dividends and distributions.
Experience under the Plan may indicate that changes in the Plan are desirable.
Accordingly the Fund and the Plan Agent reserve the right to terminate the Plan
as applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to notice of the termination sent to the members of the Plan at
least 30 days before the semiannual contribution date, in the case of voluntary
cash payments, or the record date for dividends or distributions. The Plan also
may be amended by the Fund or the Plan Agent, but (except when necessary or
appropriate to comply with applicable law, rules or policies of a regulatory
authority) only by at least 30 days' written notice to members of the Plan. All
correspondence concerning the Plan should be directed to the Plan Agent, The
First National Bank of Boston, Investor Relations Department, P.O. Box 644, Mail
Stop 45-02-09, Boston, Massachusetts 02102-0644 or by telephone at
1-800-730-6001.
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17
<PAGE>
SUMMARY OF GENERAL INFORMATION
The Fund--The Portugal Fund, Inc.--is a closed-end, non-diversified
management investment company whose shares trade on the New York Stock
Exchange. Its investment objective is to seek total return, consisting of
capital appreciation and current income through investments primarily in
Portuguese securities. The Fund is managed and advised by BEA Associates
("BEA"). BEA is a diversified asset manager, handling equity, balanced, fixed
income, international and derivative based accounts. Portfolios include
international and emerging market investments, common stocks, taxable and
non-taxable bonds, options, futures and venture capital. BEA manages money
for corporate pension and profit-sharing funds, union funds, endowments and
other charitable institutions and private individuals. As of June 30, 1996,
BEA managed approximately $28.7 billion in assets. BEA also advises eight
other international closed-end funds: The Brazilian Equity Fund, Inc., The
Chile Fund, Inc., The First Israel Fund, Inc., The Emerging Markets
Infrastructure Fund, Inc., The Emerging Markets Telecommunications Fund,
Inc., The Indonesia Fund, Inc., The Latin America Equity Fund, Inc. and The
Latin America Investment Fund, Inc.
SHAREHOLDER INFORMATION
The market price is published in: THE NEW YORK TIMES (daily) under the
designation "Portugl" and THE WALL STREET JOURNAL (daily), and BARRON'S (each
Monday) under the designation "PortugalFd". The Fund's New York Stock
Exchange trading symbol is PGF. Weekly comparative net asset value (NAV) and
market price information about The Portugal 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."
To request an annual report, or to be placed on the Fund's mailing list,
shareholders should call 1-800-293-1232.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN--SUMMARY
An automatic Dividend Reinvestment and Cash Purchase Plan (the "Plan") is
available to provide shareholders with automatic reinvestment of their
dividend income and capital gain distributions in additional shares of the
Fund's common stock.
As per the Plan, each shareholder will be automatically reinvested in
additional shares of the Fund by The First National Bank of Boston, unless
otherwise instructed by the shareholder in writing. Shareholders who do not
participate in the Plan will receive all dividends and distributions in cash
paid by check in U.S. dollars. Shares registered in street name will be
reinvested under the Plan, unless the broker-dealer or other nominee does not
provide a dividend reinvestment plan or the shareholder elects to receive
their dividends in cash.
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<PAGE>
DIRECTORS AND CORPORATE OFFICERS
Emilio Bassini Chairman of the Board
of Directors, President
and Chief Investment Officer
Enrique R. Arzac Director
James J. Cattano Director
Jonathan Lubell Director
Daniel Sigg Director and
Senior Vice President
Martin M. Torino Director
Paul P. Stamler Senior Vice President
Michael A. Pignataro Chief Financial Officer
and Secretary
Rachel D. Manney Vice President and Treasurer
INVESTMENT ADVISER
BEA Associates
One Citicorp Center
153 East 53rd Street
New York, NY 10022
ADMINISTRATOR
Bear Stearns Funds Management Inc.
245 Park Avenue
New York, NY 10167
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
SHAREHOLDER SERVICING AGENT
The First National Bank of Boston
P.O. Box 1865
Mail Stop 45-02-62
Boston, MA 02105-1865
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, PA 19103
LEGAL COUNSEL
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, NY 10022
This report, including the financial statements herein, is sent to the
shareholders of the Fund for their information. 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.
[PGF LISTED NYSE LOGO]
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