<PAGE>
[PHOTO]
THE PORTUGAL FUND, INC.
------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 1997
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders.................................................... 1
Portfolio Summary......................................................... 6
Schedule of Investments................................................... 7
Statement of Assets and Liabilities....................................... 9
Statement of Operations................................................... 10
Statement of Changes in Net Assets........................................ 11
Financial Highlights...................................................... 12
Notes to Financial Statements............................................. 13
Results of Annual Meeting of Shareholders................................. 16
Description of Dividend Reinvestment and Cash Purchase Plan............... 17
</TABLE>
PICTURED ON THE COVER IS THE AMOREIRAS SHOPPING CENTER LOCATED IN LISBON,
PORTUGAL.
- --------------------------------------------------------------------------------
<PAGE>
LETTER TO SHAREHOLDERS
August 15, 1997
DEAR SHAREHOLDER:
I am pleased to report on the activities of The Portugal Fund, Inc. (the "Fund")
for the six months ended June 30, 1997.
At June 30, 1997, the Fund's net assets were $112.7 million. Net asset value
("NAV") per share was $21.19, as compared to $17.43 at December 31, 1996.
PERFORMANCE
For the period January 1, 1997 through June 30, 1997, the Fund's total return,
based on NAV was 21.6%, as compared to 30.6% for the Morgan Stanley Capital
International Portugal Index (the "Index").
The Fund's underperformance relative to the Index in the first half of 1997
mainly was a function of the inability to fully capture the impact of
large-capitalization stocks, which have been quite strong. This was most evident
in telecommunications. Portugal Telecom, S.A. accounts for about 33% of the
Index and has performed extremely well. Although the Fund is heavily weighted in
telecom, legal diversification requirements prevent us from being Index-weighted
in this sector.
It also should be noted that, despite recent relative underperformance, the Fund
has outperformed the Index since inception on November 9, 1989. From that date
through June 30, 1997, the Fund returned 63.2% based on NAV and assuming the
reinvestment of dividends and distributions, versus 23.2% for the Index. I
believe that this return supports the Fund's basic charter, which is to generate
superior returns over the longer term through broad portfolio diversification.
INVESTMENT PERSPECTIVE
Portuguese equities have outperformed many other emerging equity markets as well
as all developed markets on a year-to-date basis. This reflects several factors,
and I would like to draw your attention to the three most important:
First, the Portuguese economy continues to enjoy remarkably sound performance.
Economic growth forecasts have been raised to 3.8% from 2.5% at the beginning of
the year. Exports and domestic demand, notably in construction and capital
goods, continue to drive growth. The annual inflation rate for June was 1.8%,
the lowest level since March 1969. The government currently projects average
inflation for full-year 1997 at a maximum of 2.1%, versus 3.1% for 1996. Though
the central bank has cut short-term interest rates by a full percentage point
since the end of 1996, I still see scope for further rate cuts later this year.
Second, the government's sale of 30% of Electricidade de Portugal, S.A. ("EDP")
to the public in mid-June was a huge success. EDP instantly became Portugal's
largest-capitalization stock, making it one of the likely vehicles of choice
- --------------------------------------------------------------------------------
1
<PAGE>
LETTER TO SHAREHOLDERS
among investors seeking exposure to the Portuguese market. In addition, the
offering was substantially oversubscribed (I.E, about $86 billion was bid for
$2.33 billion in stock). I regard such high interest among investors as a clear
reflection of their confidence in Portugal's favorable investment environment.
Finally, Morgan Stanley Capital International ("MSCI") announced that it would
shift Portugal on December 2, 1997 from its current listing in the widely used
Emerging Markets Free Index to MSCI's EAFE (I.E., Europe Australia Far East)
index. EAFE includes larger economies such as Japan and those of Western Europe
and is considered a standard benchmark for the performance of aggregate
developed equity markets. Portugal's inclusion within EAFE means that it will
become part of most index-oriented international portfolios and, thus, could
attract much greater attention and investment inflows.
There is little doubt that Portugal is in compliance with most of the strict
economic criteria for inclusion in the first round of European Monetary Union.
Its biggest obstacle to inclusion has been political, due to Germany's
insistence that first-round members come only from the biggest nations. This may
well change, however, as Germany's own compliance with the criteria is somewhat
questionable and the newly elected Socialist government in France is demanding
the inclusion of more nations at the outset.
Hence, the market performed well for a variety of reasons. As Portugal gains
greater visibility with a broader range of investors, furthermore, the
environment for equities should remain quite positive.
PORTFOLIO STRATEGY
Since becoming Chief Investment Officer of the Fund at the start of the year, I
have begun to implement certain changes in investment policy, albeit consistent
with the Fund's charter. Foremost among these are the reduction of the number of
securities within the Fund and an emphasis on less-liquid securities that appear
to have outstanding medium-term prospects. I intend to keep a strong overall
liquidity profile for the Fund, however, and thus will continue to seek
opportunities among the larger stocks.
The following are two good examples of attractive larger stocks.
PORTUGAL TELECOM, S.A.
Portugal Telecom, S.A. ("PT"), the government-owned telephone monopoly,
possesses substantial strategic value to the world's global telecommunications
giants. This is most clearly indicated by its inclusion in the Concert alliance
headed by British Telecom plc ("BT") and MCI Communications. In the government's
sale of PT shares planned for late 1997, furthermore, BT and MCI have agreed to
buy a combined 1.5% stake and Telefonica de Espana will buy 3.5%.
Membership in Concert will improve PT's position in its domestic market in
several important ways:
- - BT, one of the strongest potential entrants into the Portuguese market, has
been neutralized as a competitive threat.
- --------------------------------------------------------------------------------
2
<PAGE>
LETTER TO SHAREHOLDERS
- - As the only European telecom provider to have fully rebalanced its tariff
structure, BT can provide unmatched expertise to PT in its own rebalancing
efforts.
- - Access to Concert products will enable PT to offer state-of-the-art telephony
to multinational corporations with facilities in Portugal, as soon as late
1997. PT's ability to deliver the same level of performance to small- and
medium-size companies, which form Portugal's largest business customer sector,
will set an extremely high standard for potential competitors to meet.
- - BT's status as a world leader in the development of telecom transmission
systems will give PT access to leading-edge research and technology.
- - PT will be able to take advantage of the significant economies of scale in
procurement costs created by the merger of BT and MCI.
In addition to PT's membership in Concert, I note these other positive factors
about the company:
- - Portugal's government recently announced its intention to spend $2.1 billion
on building up the nation's telecom infrastructure by the start of competition
in 2000.
- - Digitalization of PT's network, which will allow the delivery of
high-margin/value-added services such as call waiting and teleconferencing,
reached 79% at year-end 1996 and should be complete by 1999.
- - PT is a prodigious generator of excess cash flow, with which it can create
shareholder value via debt reduction, stock repurchases, dividend increases
and high-return investments.
- - PT's earnings will continue to be enhanced by a highly successful
cost-reduction program.
- - PT controls half of Portugal's cellular telephony market, whose dynamic growth
is among Europe's strongest. I anticipate that Portugal will be able to raise
its cellular penetration level to the European average (I.E., around 16% of
the population) by the end of 1998.
BANCO COMMERCIAL PORTUGUES, S.A.
Banco Commercial Portugues, S.A. ("BCP") is Portugal's largest non-government
financial entity in terms of total assets. Its main lines of business are
banking (68% of 1996 net profit), followed by insurance (7%) and mortgages (4%).
A variety of other sources (E.G., investment management, securities trading and
brokerage, corporate finance) account for the remainder.
BCP is somewhat unusual for a large European bank in that its roots do not
extend back to the distant past. Rather, BCP was founded in 1985 by a team of
experienced bankers seeking to prosper from the deregulation of the Portuguese
banking industry. Their stated intention was to pursue financial services
markets underdeveloped by state-owned banks.
Much consolidation among Portuguese banks has occurred in recent years, as more
banks were privatized, competition intensified and the domestic market matured.
Five banking groups now control roughly 85% of the market. BCP's management
anticipated this trend and determined that it should build a large market
position in
- --------------------------------------------------------------------------------
3
<PAGE>
LETTER TO SHAREHOLDERS
banking and other financial services to be most competitive. Accordingly, BCP
acquired 50% ownership of its nearest competitor, Banco Portugues do Atlantico
("BPA"), in 1995. The BPA acquisition gave BCP the commanding presence it was
looking for. [Note: BCP bought an additional 25% of BPA in July 1997. I view
this positively both from a strategic perspective and because the purchase will
not result in any dilution of earnings per share.]
At present, several factors are generating strong growth among the surviving
Portuguese banks. These include the initial stage of benefits from the tough
restructuring measures prompted by consolidation; accelerating volume growth in
mortgages and consumer lending driven by falling interest rates; increasing
focus on cross-selling of products; rising fee-based income streams; and
stabilizing profit margins.
Our investment thesis for BCP is straightforward. I believe that its shares will
appreciate as a result of the industry drivers cited above as well as favorable
company specifics.
Most notable among the latter are the cost savings and efficiencies derived from
the integration of BPA. At the end of 1996, BCP absorbed a major charge against
earnings to restructure BPA's operating and financial condition, thus allowing
it a much fresher start in 1997. Substantial cost savings from the early
retirements and layoffs caused by the restructuring should begin to materialize
toward the end of this year. Further savings will gradually be realized from the
merger of back offices and redesign of bank branches.
There are other positives for BCP, as well. Income from insurance, credit cards
and securities trading is experiencing rapid growth. Insurance and investment
management are being boosted by more aggressive cross-selling to bank customers.
Looking further ahead, BCP has discussed the possibility of expanding insurance
sales into Eastern Europe, and analysts speculate that it may sell off some
non-core assets for handsome capital gains.
OUTLOOK
Our outlook for Portuguese equities is quite optimistic. In my view, the
combination of Portugal's inclusion within the EAFE index and continued
privatizations could result in a substantial inflow of investment capital from
non-emerging sources.
In addition, a key issue for investors remains whether the country will become a
charter member of European Monetary Union ("EMU"). Based purely on compliance
with the strict fiscal and economic criteria for EMU membership, Portugal is
better-qualified than most European nations. As noted earlier, though, political
considerations are playing a major role in the membership process.
I believe that Portugal's macroeconomic climate is very favorable for investment
regardless of the EMU outcome. Like that of the U.S., there appears to be an
unusually compelling union of moderate growth and controlled inflation. I note
in this context that sentiment in the fixed income market clearly reflects
investor confidence: yield spreads between Portuguese and core European
government bonds are lower than ever before; and Portugal's local-currency debt
is highly regarded by the top debt-rating agencies (E.G., ratings of AAA by
Standard & Poors and Aa2 by Moody's Investors Service).
- --------------------------------------------------------------------------------
4
<PAGE>
LETTER TO SHAREHOLDERS
I appreciate your interest in the Fund, and would be pleased to respond to your
questions or comments.
Respectfully,
/s/ Richard W. Watt
Richard W. Watt
President and Chief Investment Officer *
I wish to remind shareholders whose shares are registered in their own name that
they automatically participate in the Fund's dividend reinvestment program. The
automatic Dividend Reinvestment Plan (the "Plan") can be of value to
shareholders in maintaining their proportional ownership interest in the Fund in
an easy and convenient way. A shareholder whose shares are held in the name of a
broker/dealer or nominee should contact that party for details about
participating in the Plan. The Fund also offers shareholders a voluntary Cash
Purchase Plan. The Plan and the Cash Purchase Plan are described on pages 17 and
18 of this report.
- --------------------------------------------------------------------------------
* Richard W. Watt, who is a Managing Director of BEA Associates, is primarily
responsible for management of the Fund's assets. Mr. Watt has served the Fund in
such capacity since January 1, 1997. He joined BEA Associates on August 2, 1995.
Mr. Watt formerly was associated with Gartmore Investment Limited in London,
where he was head of emerging markets investments and research. In this
capacity, he led a team of four portfolio managers and was manager of a
closed-end fund focusing on smaller Latin American companies. Before joining
Gartmore Investment Limited in 1992, Mr. Watt was a Director of Kleinwort Benson
International Investments in London, where he was responsible for research,
analysis and trading of equities in Latin America and other regions. Mr. Watt is
a Director, President and Chief Investment Officer of the Fund. He also is
Director, President and Chief Investment Officer of The Brazilian Equity Fund,
Inc., The 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.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
PORTFOLIO SUMMARY - AS OF JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET ASSETS
6/30/97 12/31/96
<S> <C> <C>
Banking 19.76 7.89
Chemicals & Petroleum Products 1.97 2.11
Construction & Public Works 19.07 21.52
Consumer Products 0.00 7.97
Electric-Integrated 4.23 0.00
Film Distribution 1.54 2.39
Foodstuffs, Beverages & Tobacco 6.25 15.10
Forest Products & Paper 10.65 6.90
Insurance 8.61 8.67
Miscellaneous Manufacturing 2.69 1.59
Retail Trade 0.93 4.83
Telecommunications 17.53 13.78
Transportation & Warehousing 2.80 1.71
Other 1.40 2.72
Cash & Cash Equivalents 2.57 2.82
</TABLE>
TOP 10 HOLDINGS, BY ISSUER
<TABLE>
<CAPTION>
Percent of Net
Holding Sector Assets
<C> <S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
1. Portugal Telecom, S.A. Telecommunications 13.6
- ------------------------------------------------------------------------------------------------------------------
2. Cimpor Cimentos de Portugal, S.A. Construction & Public Works 12.6
- ------------------------------------------------------------------------------------------------------------------
3. Banco Commercial Portugues, S.A. Banking 9.5
- ------------------------------------------------------------------------------------------------------------------
4. BPI S.G.P.S., S.A. Banking 5.3
- ------------------------------------------------------------------------------------------------------------------
5. Banco Espirito Santo e Comercial de Lisboa, S.A. Banking 4.9
- ------------------------------------------------------------------------------------------------------------------
6. Engil S.G.P.S., S.A. Construction & Public Works 4.7
- ------------------------------------------------------------------------------------------------------------------
7. Companhia de Seguros Mundial Confianca, S.A. Insurance 4.7
- ------------------------------------------------------------------------------------------------------------------
8. Estabelecimentos Jeronimo Martins & Filho S.G.P.S., S.A. Foodstuffs, Beverages & Tobacco 4.4
- ------------------------------------------------------------------------------------------------------------------
9. Electricidade de Portugal, S.A. Electric-Integrated 4.2
- ------------------------------------------------------------------------------------------------------------------
10. Companhia de Seguros Tranquilidade Insurance 3.9
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
<S> <C> <C>
- -------------------------------------------------------------------------------------------
EQUITY OR EQUITY-LINKED SECURITIES-97.43%
BANKING-19.75%
Banco Commercial Portugues, S.A., (Registered).............. 423,200 $ 7,990,193
Banco Commercial Portugues, S.A., Series A.................. 40,500 2,774,250
Banco Espirito Santo e Comercial de Lisboa, S.A.,
(Registered)............................................... 245,300 5,557,918
BPI S.G.P.S., S.A........................................... 305,800 5,949,064
-------------
22,271,425
-------------
CHEMICALS & PETROLEUM PRODUCTS-1.97%
Corporacao Industrial do Norte, S.A., (Bearer).............. 40,580 2,224,282
-------------
CONSTRUCTION & PUBLIC WORKS-19.07%
Caima-Ceramica e Servicos S.G.P.S., S.A.+................... 82,600 635,257
Cimpor Cimentos de Portugal, S.A............................ 608,171 14,170,068
Engil S.G.P.S., S.A......................................... 433,431 5,293,087
Oliva Industrias Metalurgicas, S.A.+........................ 227,153 0
Sociedade de Contrucoes Soares da Costa, S.A.+.............. 149,000 1,396,435
-------------
21,494,847
-------------
ELECTRIC-INTEGRATED-4.23%
Electricidade de Portugal, S.A.............................. 262,450 4,767,782
-------------
FILM DISTRIBUTION-1.54%
Filmes Lusomundo S.G.P.S., S.A.............................. 192,025 1,734,225
-------------
FOODSTUFFS, BEVERAGES & TOBACCO-6.25%
Estabelecimentos Jeronimo Martins & Filho S.G.P.S., S.A..... 70,299 4,909,398
Sumolis Companhia Industrial de Frutas e Bebidas, S.A....... 321,346 2,135,548
-------------
7,044,946
-------------
FOREST PRODUCTS & PAPER-10.65%
Caima Companhia de Celulose do Caima, S.A................... 80,750 1,486,066
Corticeira Amorim, S.A...................................... 380,500 3,760,577
<CAPTION>
No. of Value
Description Shares (Note A)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
FOREST PRODUCTS & PAPER (CONTINUED)
Portucel Industrial-Empresa Produtora de Celulosa, S.A...... 577,100 $ 4,277,718
Sonae Industria, S.A.+...................................... 265,681 2,476,393
Sonae Industria, S.A., Rights (expiring 07/04/97)+.......... 265,681 1,509
-------------
12,002,263
-------------
HOTELS & RESTAURANTS-0.05%
Sopete-Sociedade Poveira de Empreendimentos Turistico, S.A.,
(Bearer)+.................................................. 18,630 55,026
-------------
INSURANCE-8.61%
Companhia de Seguros Mundial Confianca, S.A.+............... 359,700 5,291,646
Companhia de Seguros Tranquilidade.......................... 218,900 4,413,922
-------------
9,705,568
-------------
MISCELLANEOUS MANUFACTURING-2.69%
Crisal Cristais de Alcobaca, S.A............................ 124,000 2,021,409
Crisal Cristais de Alcobaca, S.A. (New)Section+............. 62,000 1,010,704
-------------
3,032,113
-------------
NON-METALIC MINERAL PRODUCTS-1.36%
Fabrica de Porcelanas da Vista Alegre, S.A.................. 20,990 624,196
VA Grupo-Vista Alegre Participacoes, S.A.................... 32,600 911,957
-------------
1,536,153
-------------
RETAIL TRADE-0.94%
Modelo Continente S.G.P.S., S.A............................. 25,500 1,055,889
-------------
TELECOMMUNICATIONS-17.52%
Portugal Telecom, S.A....................................... 226,317 9,126,959
Portugal Telecom, S.A. ADR.................................. 155,961 6,257,935
Telecel-Comunicacaoes Pessoais, S.A. ADR+................... 52,730 4,372,816
-------------
19,757,710
-------------
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION & WAREHOUSING-2.80%
Fabrica de Vidros Barbosa & Almeida, S.A.................... 152,200 $ 3,151,969
-------------
TOTAL INVESTMENTS-97.43%
(Cost $88,384,950) (Notes A,D)............................................ 109,834,198
CASH AND OTHER ASSETS IN EXCESS
OF LIABILITIES-2.57%...................................................... 2,900,082
-------------
NET ASSETS-100.00%......................................................... $ 112,734,280
-------------
-------------
- ---------------------------------------------------------
+ Security is non-income producing.
Section New shares are not entitled to dividends until
approximately 90 days from the date such shares were
issued.
ADR American Depositary Receipts.
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $88,384,950) (Note A)..................... $ 109,834,198
Cash (including $206,645 of foreign currency with a cost of $206,645)
(Note A)............................................................. 4,240,277
Prepaid expenses...................................................... 30,440
---------------
Total Assets.......................................................... 114,104,915
---------------
LIABILITIES
Payables:
Investments purchased............................................... 921,462
Advisory fee (Note B)............................................... 262,677
Administration fees (Note B)........................................ 17,377
Other accrued expenses.............................................. 169,119
---------------
Total Liabilities..................................................... 1,370,635
---------------
NET ASSETS (applicable to 5,319,276 shares of common stock
outstanding) (Note C)................................................ $ 112,734,280
---------------
---------------
NET ASSET VALUE PER SHARE ($112,734,280 DIVIDED BY 5,319,276)........ $21.19
---------------
---------------
NET ASSETS CONSIST OF
Capital stock, $0.001 par value; 5,319,276 shares issued and
outstanding (100,000,000 shares authorized).......................... $ 5,319
Paid-in capital....................................................... 73,346,864
Undistributed net investment income................................... 917,670
Accumulated net realized gain on investments and foreign currency
related transactions................................................. 17,008,971
Net unrealized appreciation in value of investments and translation of
other assets and liabilities denominated in foreign currency......... 21,455,456
---------------
Net assets applicable to shares outstanding........................... $ 112,734,280
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Income (Note A):
Dividends........................................................... $ 2,017,189
Interest............................................................ 56,353
Less: Foreign taxes withheld........................................ (278,641)
---------------
Total Investment Income............................................. 1,794,901
---------------
Expenses:
Investment advisory fees (Note B)................................... 595,965
Custodian fees...................................................... 95,584
Administration fees (Note B)........................................ 49,447
Printing............................................................ 37,192
Accounting fees..................................................... 31,073
Audit and legal fees................................................ 30,657
Transfer agent fees................................................. 15,157
Directors' fees..................................................... 14,380
NYSE listing fees................................................... 8,024
Insurance........................................................... 7,608
Other............................................................... 7,449
---------------
Total Expenses...................................................... 892,536
Less: Fee waivers (Note B).......................................... (87,798)
---------------
Net Expenses...................................................... 804,738
---------------
Net Investment Income............................................... 990,163
---------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized gain/(loss) from:
Investments......................................................... 19,139,695
Foreign currency related transactions............................... (48,419)
Net change in unrealized appreciation in value of investments and
translation of other assets and liabilities denominated in foreign
currency............................................................. 13,435
---------------
Net realized and unrealized gain on investments and foreign currency
related transactions................................................. 19,104,711
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.................. $ 20,094,874
---------------
---------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six For the Year
Months Ended Ended
June 30, 1997 December 31,
(unaudited) 1996
<S> <C> <C>
-------------------------------
INCREASE IN NET ASSETS
Operations:
Net investment income............................................... $ 990,163 $ 598,220
Net realized gain on investments and foreign currency related
transactions....................................................... 19,091,276 1,594,647
Net change in unrealized appreciation in value of investments and
translation of other assets and liabilities denominated in foreign
currency........................................................... 13,435 20,160,199
-------------- --------------
Net increase in net assets resulting from operations.............. 20,094,874 22,353,066
-------------- --------------
Dividends to shareholders:
Net investment income............................................... -- (424,204)
-------------- --------------
Capital share transactions (Note C):
Proceeds from 16,731 shares and 3,184 shares, respectively, issued
in reinvestment of dividends....................................... 240,506 39,398
-------------- --------------
Total increase in net assets...................................... 20,335,380 21,968,260
-------------- --------------
NET ASSETS
Beginning of period................................................... 92,398,900 70,430,640
-------------- --------------
End of period (including undistributed net investment income of
$917,670 for the six months ended June 30, 1997)..................... $ 112,734,280 $ 92,398,900
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
11
<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 For the Years Ended 1989*
Ended December 31, through
June 30, 1997 -------------------------------------------------------------------------- December 31,
(unaudited) 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of
period............... $17.43 $13.29 $14.33 $12.52 $8.90 $10.77 $10.96 $13.79 $13.79**
-------------- -------- -------- -------- -------- -------- -------- -------- -------------
Net investment
income............... 0.18 0.11 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......... 3.58+ 4.11 (1.03) 1.81 3.55 (1.92) (0.21) (2.87) 0.04
-------------- -------- -------- -------- -------- -------- -------- -------- -------------
Net
increase/(decrease)
in net assets
resulting from
operations........... 3.76 4.22 (0.86) 1.87 3.62 (1.81) (0.08) (2.71) 0.08
-------------- -------- -------- -------- -------- -------- -------- -------- -------------
Dividends and
distributions to
shareholders:
Net investment
income............. -- (0.08) (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......... -- (0.08) (0.18) (0.06) -- (0.06) (0.11) (0.12) (0.08)
-------------- -------- -------- -------- -------- -------- -------- -------- -------------
Net asset value, end
of period............ $21.19 $17.43 $13.29 $14.33 $12.52 $8.90 $10.77 $10.96 $13.79
-------------- -------- -------- -------- -------- -------- -------- -------- -------------
-------------- -------- -------- -------- -------- -------- -------- -------- -------------
Market value, end of
period............... $17.500 $13.750 $11.125 $13.875 $14.125 $8.000 $9.750 $9.250 $17.000
-------------- -------- -------- -------- -------- -------- -------- -------- -------------
-------------- -------- -------- -------- -------- -------- -------- -------- -------------
Total investment
return(a)............ 27.27% 24.28% (18.65)% (1.35)% 76.56% (17.34)% 6.58% (44.91)% 22.49%
-------------- -------- -------- -------- -------- -------- -------- -------- -------------
-------------- -------- -------- -------- -------- -------- -------- -------- -------------
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
period (000
omitted)............. $112,734 $92,399 $70,431 $75,908 $66,351 $47,134 $57,036 $58,084 $73,023
Ratio of expenses to
average net assets,
net of fee waivers... 1.57%(b) 1.62% 1.58% 1.41% 1.97% 1.92% 1.96% 2.04% 2.26%(b)
Ratio of expenses to
average net assets,
excluding fee
waivers.............. 1.92%(b) 1.81% 1.76% 1.59% 2.00% -- -- -- --
Ratio of net
investment income to
average net assets... 1.94%(b) 0.75% 1.18% 0.43% 0.66% 1.07% 1.20% 1.38% 2.03%(b)
Portfolio turnover
rate................. 38.37% 35.94% 35.73% 15.47% 24.47% 39.07% 13.31% 10.09% --
Average commission
rate per share(c).... $0.0673 $0.0584 -- -- -- -- -- -- --
</TABLE>
- ---------------------------------------------------------------------------
* Commencement of investment 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.
+ Includes a $0.01 per share decrease to the Fund's net asset value
resulting from the dilutive impact of shares issued pursuant to the
Fund's Dividend Reinvestment Plan.
(a) Total investment return at market value is based on the changes in
market price of a share during the period and assumes reinvestment of
dividends and distributions, if any, at actual prices pursuant to the
Fund's Dividend Reinvestment Plan. Total investment return does not
reflect brokerage commissions or initial underwriting discounts and
has not been annualized.
(b) Annualized.
(c) Disclosure is required for fiscal years beginning on or after
September 1, 1995. Represents average commission rate per share
charged to the Fund on purchases and sales of investments subject to
such commissions during the period.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
12
<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:
MANAGEMENT ESTIMATES: The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make certain
estimates and assumptions that may affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
PORTFOLIO VALUATION: Investments are stated at value in the accompanying
financial statements. All securities for which market quotations are readily
available are valued at the 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 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, 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, 1997, the interest
rate was 4.9375% 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, 1996, the Fund had a capital loss carryover for U.S. federal
income tax purposes of $1,621,337 which expires in 2002.
The Fund may be subject to Portuguese corporate income tax at a maximum rate of
17.50% 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.
The Fund does not isolate that portion of gains and losses in investments in
equity securities which is due
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
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 in value of investments and translation of
other assets and liabilities denominated in foreign currency.
Net realized foreign exchange losses represent foreign exchange gains and losses
from transactions in foreign currency and forward foreign currency contracts,
exchange gains or losses realized between the trade date and settlement date on
security transactions, and the difference between the amounts of interest and
dividends recorded on the Fund's books and the U.S. dollar equivalent of the
amounts actually received.
DISTRIBUTIONS OF INCOME AND GAINS: The Fund distributes at least annually to
shareholders, substantially all of its net investment income and net realized
short-term capital gains, if any. The Fund determines annually whether to
distribute any net realized long-term capital gains in excess of net realized
short-term capital losses, including capital loss carryovers, if any. An
additional distribution may be made to the extent necessary to avoid the payment
of a 4% U.S. federal excise tax. Dividends and distributions to shareholders are
recorded by the Fund on the ex-dividend date.
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for U.S.
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 trade 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.
NOTE B. AGREEMENTS
BEA Associates ("BEA") serves as the Fund's investment adviser with respect to
all investments. As compensation for its advisory services, BEA receives from
the Fund an annual fee, calculated weekly and paid quarterly, equal to 1.20% of
the first $50 million of the Fund's average weekly net assets, 1.15% of the next
$50 million and 1.10% of amounts over $100 million. BEA has agreed to waive its
portion of the advisory fee previously payable to the Fund's former sub-adviser.
For the six months ended June 30, 1997, BEA earned
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
$595,965 for advisory services, of which BEA waived $87,798. 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, 1997,
BEA was reimbursed $3,712 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,
1997, BSFM earned $45,735 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 5,319,276 shares outstanding at June 30, 1997, 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,
1997 was $88,828,775. Accordingly, the net unrealized appreciation of
investments (including investments denominated in foreign currency) of
$21,005,423 was composed of gross appreciation of $28,435,193 for those
investments having an excess of value over cost and gross depreciation of
$7,429,770 for those investments having an excess of cost over value.
For the six months ended June 30, 1997, total purchases and sales of securities,
other than short-term investments, were $38,758,110 and $37,861,003,
respectively.
NOTE E. CREDIT AGREEMENT
The Fund, along with 18 other U.S. regulated investment companies for which BEA
serves as investment adviser, has a credit agreement with The First National
Bank of Boston. The agreement provides that each fund is permitted to borrow an
amount equal to the lesser of $50,000,000 or 25% of the net assets of the fund.
However, at no time shall the aggregate outstanding principal amount of all
loans to any of the 19 funds exceed $50,000,000. The line of credit will bear
interest at (i) the greater of the bank's prime rate or the Federal Funds
Effective Rate plus 0.50% or (ii) the Adjusted Eurodollar Rate plus 1.50%. The
Fund had no amounts outstanding under the credit agreement during the six months
ended June 30, 1997.
- --------------------------------------------------------------------------------
15
<PAGE>
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
On April 22, 1997, 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 four directors to the Board of Directors of the Fund.
<TABLE>
<CAPTION>
NAME OF DIRECTOR FOR WITHHELD NON-VOTES
- ------------------------------ ---------- --------- ----------
<S> <C> <C> <C>
Dr. Enrique R. Arzac 3,660,384 250,597 1,408,295
Richard W. Watt 3,649,262 261,719 1,408,295
Jonathan W. Lubell 3,646,992 263,989 1,408,295
William W. Priest, Jr. 3,649,960 261,021 1,408,295
</TABLE>
In addition to the directors re-elected at the meeting, James J. Cattano 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, 1997.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTES
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
3,873,645 20,670 16,666 1,408,295
</TABLE>
- --------------------------------------------------------------------------------
16
<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 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 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
- --------------------------------------------------------------------------------
17
<PAGE>
DESCRIPTION OF DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (CONTINUED)
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 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 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.
- --------------------------------------------------------------------------------
18
<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, public pension funds, union funds, endowments and other charitable
institutions and private individuals. As of June 30, 1997, BEA managed
approximately $31.9 billion in assets.
SHAREHOLDER INFORMATION
The market price is published in: THE NEW YORK TIMES (daily) under the
designation "Portugal" 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 Latin America Investment Fund, Inc.'s shares are published
each Sunday in THE NEW YORK TIMES and each Monday in THE WALL STREET JOURNAL and
BARRON's, as well as other newspapers, in a table called "Closed End Funds."
THE BEA GROUP OF FUNDS
LITERATURE REQUEST--Call today for free descriptive information on the
closed-end funds or a prospectus on any of the open-end mutual funds listed
below. The prospectus contains more complete information, including fees,
charges and expenses, and should be read carefully before investing or sending
money.
<TABLE>
<S> <C>
CLOSED-END FUNDS BEA ADVISOR FUNDS
SINGLE COUNTRY OPEN-END MUTUAL FUNDS
The Brazilian Equity Fund, Inc. (BZL) BEA Emerging Markets Equity Fund
The Chile Fund, Inc. (CH) BEA Global Telecommunications Fund
The First Israel Fund, Inc. (ISL) BEA High Yield Fund
The Indonesia Fund, Inc. (IF) BEA International Equity Fund
MULTIPLE COUNTRY
The Emerging Markets Infrastructure Fund, Inc. (EMG)
The Emerging Markets Telecommunications Fund, Inc.
(ETF)
The Latin America Equity Fund, Inc. (LAQ)
The Latin America Investment Fund, Inc. (LAM)
FIXED INCOME For shareholder information or a copy of
BEA Income Fund, Inc. (FBF) a prospectus for any of the open- end
BEA Strategic Income Fund, Inc. (FBI) mutual funds, please call,
1-800-401-2230.
For closed-end fund information Visit our website on the Internet:
please call, 1-800-293-1232. http://www.beafunds.com
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
DIRECTORS AND CORPORATE OFFICERS
William W. Priest, Jr. Chairman of the Board of Directors
Richard W. Watt President, Chief Investment Officer
and Director
Dr. Enrique R. Arzac Director
James J. Cattano Director
Jonathan W. Lubell Director
Martin M. Torino Director
Paul P. Stamler Senior Vice President
Michael A. Pignataro Chief Financial Officer and
Secretary
Wendy S. Setnicka Assistant 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. [LOGO]
- --------------------------------------------------------------------------------
3912-SAR-6/97
