<PAGE>
[GRAPHIC]
The Portugal Fund, Inc.
- -----------------------
SEMI-ANNUAL REPORT
JUNE 30, 1998
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders....................................................................... 1
Portfolio Summary............................................................................ 6
Schedule of Investments...................................................................... 7
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.................................................... 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 3, 1998
DEAR SHAREHOLDER:
I am writing to report on the activities of The Portugal Fund, Inc. (the "Fund")
for the six months ended June 30, 1998.
At June 30, 1998, the Fund's net assets were $136.0 million. Net asset value
("NAV") per share was $25.44, as compared to $19.45 at December 31, 1997.
PERFORMANCE
For the period January 1, 1998 through June 30, 1998, the Fund's total return,
based on NAV, was 30.8%, as compared to 29.7% for the Morgan Stanley Capital
International Portugal Index (the "Index").
The Fund's outperformance of the Index benchmark was largely due to positive
stock selection in the telecommunications sector. I chose to overweight
Telecel-Comunicacaoes Pessoais, S.A., the mobile service provider (which I
discuss in greater detail later in this report), at the expense of Portugal
Telecom, S.A., the incumbent fixed-line operator. Offsetting this, however, was
an underweight stance (I.E., relative to the Index) in the banking sector, in
which I reduced positions based on valuation concerns. Bank stocks ended up
outperforming as a result both of consolidation activity and the high liquidity
levels that have helped to drive the market throughout 1998 thus far.
INVESTMENT PERSPECTIVE
PORTUGAL HAS OUTPERFORMED OTHER EUROPEAN MARKETS
(Total returns on MSCI indices, January-June 1998)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Portugal 29.7%
EAFE Europe 26.7%
Netherlands 23.2%
Switzerland 20.7%
U.K. 15.7%
Denmark 10.9%
</TABLE>
SOURCE: MORGAN STANLEY CAPITAL INTERNATIONAL
Following a vibrant 1997, Portugal continues to be among the strongest European
equity markets thus far in 1998. As the chart above indicates, Portugal has
outperformed many of its European counterparts.
- --------------------------------------------------------------------------------
1
<PAGE>
LETTER TO SHAREHOLDERS
Several factors are most responsible for the market's strength year to date:
LOCAL LIQUIDITY CONDITIONS. Domestic investment funds and pension plans are
aggressively raising their exposure to equities. 26% of total assets in
investment funds, for example, was allocated to equities at the end of the first
quarter, up significantly from 9% at year-end 1996. There is still plenty of
room left to go: Portugal's equity allocation is considerably lower than that of
other European nations.
EUROPEAN MONETARY UNION. This has aided Portuguese stocks in two ways. First,
the requirement that individual-nation European interest rates converge into a
single pan-European rate has forced Portuguese rates significantly downward.
Second, Portugal's selection as a first-round EMU member has raised investor
confidence even higher than previously.
THE "INDEX EFFECT." The Portuguese market has also benefited from increased
inflows of foreign funds as a result of Portugal's move in late 1997 from
emerging-to-developed market status within the MSCI group of benchmark
international indices.
MERGER AND ACQUISITION ACTIVITY. Consolidation in the banking sector (both real
and rumored) has pushed up the prices of bank stocks. Since banks account for
about one-third of the market, moreover, Portuguese stocks in general have risen
as well.
In my view, the market has probably run its course in the near term. It is
important to keep in mind, though, that Portugal's macroeconomic environment
remains highly favorable for investment. Economic growth is accelerating, for
example. I project GDP to rise about 4% in 1998 vs. 3.6% in 1997. Inflation
should keep stable and low, at about 2.2% for 1998 vs. 2.1% in 1997. The Central
Bank has cut short-term interest rates in several stages to 4.2% from 4.9% at
year-end 1997. I would not be surprised to see another 20-50 basis points in
cuts through the end of the year. Finally, analysts project corporate earnings
per share to grow at a 27% rate this year, compared to 15-19% in other European
countries.
PORTFOLIO STRUCTURE
TOP 10 HOLDINGS, BY ISSUER*
<TABLE>
<CAPTION>
PERCENT OF
HOLDING SECTOR NET ASSETS
<C> <S> <C> <C>
1. Portugal Telecom Telecom. 17.2
2. EDP Electricity 14.7
3. Semapa Construction 5.5
4. Jeronimo Martins Food/Bev/Tobacco 5.0
5. Mundial Confianca Insurance 4.4
6. Tranquilidade Insurance 4.1
7. Sonae Investimentos Consumer 3.9
8. CIN Chemicals 3.6
9. Banco Espirito Santo Banking 3.6
10. BCP Banking 3.4
*Company names and sectors are abbreviations of those found
in the chart on page 6.
</TABLE>
SECTOR BREAKDOWN
(as a percent of net assets)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COUNTRY BREAKDOWN
<S> <C>
(as a percent of net assets)
Banking 10.01%
Cellular Telecom. 2.97%
Chemicals 3.64%
Construction 9.89%
Consumer 3.90%
Electric 14.69%
Food/Bev/Tobacco 7.45%
Forest Prod. & Paper 4.31%
Insurance 8.47%
Telecom. 17.24%
Transportation 5.19%
Other* 12.24%
*Other includes cash and other assets in excess of
liabilities
</TABLE>
*Other includes cash and other assets in excess of liabilities.
- --------------------------------------------------------------------------------
2
<PAGE>
LETTER TO SHAREHOLDERS
I mentioned earlier that I chose to capture some of the Fund's profits in the
Portuguese banking sector, whose performance in recent months was outstanding.
It is important to note here that this decision was strictly made on the basis
of the high valuations to which bank stocks have risen. Indeed, the fundamentals
for banks remain quite positive: I would be inclined to rebuild the Fund's bank
holdings if valuations subside to less elevated levels.
More generally, I continue to concentrate the portfolio in the shares of
high-quality, blue-chip companies, in the belief that they are best-positioned
to benefit from rising demand for Portuguese stocks by domestic and foreign
investors. Should overall valuations become more attractive, however, I am also
interested in the so-called "second-line," smaller-capitalization names with
good growth potential.
I would now like to more specifically discuss two stocks that are representative
of my current strategy.
Portugal's largest non-government financial entity in terms of assets, BANCO
COMERCIAL PORTUGUES, S.A. ("BCP") is the country's second-largest lender. BCP is
well-diversified, as it also has meaningful presence in insurance, mortgages and
investment management. In addition, conservative banking practices and the
upcoming sale of a 30% interest in Banco Portugues do Atlantico leave BCP in
excellent financial condition and flush with cash.
Within the larger context of the consolidation of Portugal's banking sector, I
am confident that BCP will be a survivor. In my mind, then, the major question
about BCP will be one of long-term growth strategy (I.E., what to do with all
that cash?). There are several possibilities, among them acquisition within
Portugal (and there are rumors of a possible merger with BPI-S.G.P.S., S.A.);
expansion of overseas banking operations in Poland, Brazil or Spain; or a
strengthening of their insurance business elsewhere in Europe.
I have trimmed the Fund's position in BCP to take advantage of strong
appreciation, but I will likely buy more when they address their strategy issue
more directly.
TELECEL-COMUNICACAOES PESSOAIS, S.A. ("Telecel") is one of Portugal's two
providers of mobile phone service (the other being Portugal Telecom's TMN
subsidiary). It was launched in 1992 and had its initial public offering in late
1996. San Francisco-based AirTouch Communications, Inc., a major player in
mobile telephony both in the U.S. and overseas, holds a controlling 51% equity
stake.
I like Telecel for several reasons. For starters, earnings should grow at an
average 25% annualized rate for the 1997-2000 period. The Portuguese mobile
telephony market has tremendous potential: market penetration is presently only
about 17% and is projected to reach as high as 37% by mid-2000, and subscriber
growth is explosive and should remain so for some time.
Telecel currently enjoys a healthy 50% market share both in terms of revenues
and subscribers. A third competitor, Optimus S.A., is expected to begin
operating during the second half of this year. While this is undoubtedly
problematic for Telecel, I believe fears of Optimus as a near-term threat are
overdone. Consequently, Telecel's operating results may well exceed
expectations. Telecel also has first-rate management, U.S.-quality financial
reporting and, through the AirTouch connection, important access to deep
pockets, operating expertise elsewhere in Europe and strong technological and
marketing resources.
- --------------------------------------------------------------------------------
3
<PAGE>
LETTER TO SHAREHOLDERS
In the space of only a few years, Telecel has gained blue-chip status and
better-than-average share liquidity. One final consideration: Telecel is not
included in the Fund's Index benchmark, meaning that the Fund's relative
performance will be affected positively as a result of appreciation in this
stock. As noted previously, this was the case during the first half of the year.
OUTLOOK
My near-term outlook for the Portuguese equity market is mixed. Its considerable
positives (I.E., EMU-driven convergence of European interest rates, favorable
macroeconomic environment) are offset by its strength and valuations. Banks, for
instance, appear very expensive at their current level of four times book value.
That said, I am taking a cautious investment stance and staying with the
blue-chip, relatively liquid companies that should fare best during any sort of
correction phase. I have also not yet invested the proceeds from my reduction of
the portfolio's banking sector holdings, meaning that the Fund's cash position
remains somewhat higher than usual. My intention is to use the cash prudently as
attractive opportunities arise.
PORTUGAL: UNDERVALUED IN EUROPE
(P/E ratio as multiple of CAGR 1997-2000, as of 7/1/98)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Italy 1.03
Portugal 1.07
France 1.13
Germany 1.27
Belgium 1.42
Netherlands 1.49
Spain 1.76
U.K. 1.99
</TABLE>
SOURCE: BANCO FINANTIA
Looking further ahead, I see much potential for significant appreciation over a
multi-year time horizon. As the chart above indicates, the Portuguese market is
actually rather undervalued relative to many other major markets when its
price/earnings ratio is compared to the projected growth rate for earnings per
share over the 1997-2000 period.
- --------------------------------------------------------------------------------
4
<PAGE>
LETTER TO SHAREHOLDERS
I believe it is only a matter of time before a broader spectrum of investors
detects this discrepancy and buys Portuguese stocks accordingly. My bullish
long-term view is very much intact.
Sincerely yours,
[SIG]
Richard W. Watt
Chief Investment Officer*
FROM BEA ASSOCIATES:
I. 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 17 through 18 of this report.
II. Like other financial and business organizations, the Fund and its portfolio
could be adversely affected if the computer systems they rely on do not
properly process date-related information and data involving the years 2000
and after. We at BEA Associates are taking steps that we believe are
reasonable to address this problem in our own computer system and are
seeking assurances that comparable steps are being taken by the Fund's other
major service providers. BEA Associates is also attempting to evaluate the
potential impact of this problem on the issues of investment securities that
the portfolio purchases. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on the Fund
and portfolio.
- --------------------------------------------------------------------------------
*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. 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
President, Chief Investment Officer and a Director of the Fund. He also is
President, Chief Investment Officer and a Director 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, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AS A PERCENT OF NET ASSETS
<S> <C> <C>
6/30/98 12/31/97
Banking 10.01 18.50
Cellular Telecommunications 2.97 0.67
Chemicals & Petroleum Products 3.64 2.47
Construction & Public Works 9.89 8.00
Consumer Products 3.90 0.00
Electric-Integrated 14.69 24.05
Foodstuffs, Beverages & Tobacco 7.45 7.43
Forest Products & Paper 4.31 3.75
Insurance 8.47 10.12
Telecommunications 17.24 28.34
Transportation & Warehousing 5.19 5.28
Other 0.00 2.25
Cash & Cash Equivalents 12.24 -10.86
</TABLE>
TOP 10 HOLDINGS, BY ISSUER
<TABLE>
<CAPTION>
Percent of Net
Holding Sector Assets
<C> <S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
1. Portugal Telecom, S.A. Telecommunications 17.2
- --------------------------------------------------------------------------------------------------------------------------------
2. Electricidade de Portugal, S.A. Electric-Integrated 14.7
- --------------------------------------------------------------------------------------------------------------------------------
3. Semapa-Sociedade de Investimento e Gestao S.G.P.S., S.A. Construction & Public Works 5.5
- --------------------------------------------------------------------------------------------------------------------------------
4. Jeronimo Martins, S.G.P.S., S.A. Foodstuffs, Beverages & Tobacco 5.0
- --------------------------------------------------------------------------------------------------------------------------------
5. Companhia de Seguros Mundial Confianca, S.A. Insurance 4.4
- --------------------------------------------------------------------------------------------------------------------------------
6. Companhia de Seguros Tranquilidade Insurance 4.1
- --------------------------------------------------------------------------------------------------------------------------------
7. Sonae Investimentos, S.G.P.S., S.A. Consumer Products 3.9
- --------------------------------------------------------------------------------------------------------------------------------
8. Corporacao Industrial do Norte, S.A. Chemicals & Petroleum Products 3.6
- --------------------------------------------------------------------------------------------------------------------------------
9. Banco Espirito Santo e Comercial de Lisboa, S.A. Banking 3.6
- --------------------------------------------------------------------------------------------------------------------------------
10. Banco Comercial Portugues, S.A. Banking 3.4
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
<S> <C> <C>
- ---------------------------------------------------------------------
EQUITY OR EQUITY-LINKED
SECURITIES-87.76%
BANKING-10.01%
Banco Comercial Portugues, S.A.,
(Registered)........................... 55,700 $ 1,583,362
Banco Comercial Portugues, S.A., Series
A...................................... 29,000 3,074,000
Banco Espirito Santo e Comercial de
Lisboa, S.A. (New)+Section............. 40,235 1,176,890
Banco Espirito Santo e Comercial de
Lisboa, S.A., (Registered)............. 123,800 3,721,845
BPI-S.G.P.S., S.A....................... 125,700 4,061,009
------------
13,617,106
------------
CELLULAR TELECOMMUNICATIONS-2.97%
Telecel-Comunicacaoes Pessoais, S.A.
ADR.................................... 22,730 4,040,665
------------
CHEMICALS & PETROLEUM PRODUCTS-3.64%
Corporacao Industrial do Norte, S.A.,
(Bearer)............................... 66,680 4,947,417
------------
CONSTRUCTION & PUBLIC WORKS-9.89%
Cimpor-Cimentos de Portugal, S.G.P.S.,
S.A.................................... 122,271 4,300,784
Mota e Companhia, S.A................... 61,100 1,033,178
Semapa-Sociedade de Investimento e
Gestao S.G.P.S., S.A................... 296,900 7,482,430
Sociedade de Construcoes Soares da
Costa, S.A.+........................... 77,100 639,330
------------
13,455,722
------------
CONSUMER PRODUCTS-3.90%
Sonae Investimentos, S.G.P.S., S.A...... 97,000 5,303,949
------------
ELECTRIC-INTEGRATED-14.69%
Electricidade de Portugal, S.A.......... 858,950 19,989,846
------------
FOODSTUFFS, BEVERAGES & TOBACCO-7.45%
Jeronimo Martins, S.G.P.S., S.A......... 141,746 6,817,258
Sumolis-Companhia Industrial de Frutas e
Bebidas, S.A........................... 321,346 2,507,927
<CAPTION>
No. of Value
Description Shares (Note A)
- ---------------------------------------------------------------------
<S> <C> <C>
FOODSTUFFS, BEVERAGES & TOBACCO (CONTINUED)
Unicer-Uniao Cervejeira, S.A.
(Registered)........................... 36,500 $ 806,912
------------
10,132,097
------------
FOREST PRODUCTS & PAPER-4.31%
Corticeira Amorim, S.A.................. 184,900 3,547,478
Portucel Industrial-Empresa Produtora de
Celulose, S.A.......................... 290,300 2,311,258
------------
5,858,736
------------
INSURANCE-8.47%
Companhia de Seguros Mundial Confianca,
S.A.+.................................. 225,300 5,995,456
Companhia de Seguros Tranquilidade...... 204,150 5,532,213
------------
11,527,669
------------
TELECOMMUNICATIONS-17.24%
Portugal Telecom, S.A................... 283,250 15,029,071
Portugal Telecom, S.A. ADR.............. 159,061 8,420,292
------------
23,449,363
------------
TRANSPORTATION & WAREHOUSING-5.19%
Barbosa & Almeida-Fabrica de Vidros,
S.A.................................... 202,200 4,443,770
Brisa-Auto Estradas de Portugal, S.A.... 61,125 2,617,131
------------
7,060,901
------------
TOTAL INVESTMENTS-87.76%
(Cost $85,045,511) (Notes A,D)........................ 119,383,471
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES-12.24%.................................... 16,650,150
------------
NET ASSETS-100.00%..................................... $136,033,621
------------
------------
- ---------------------------------------------------------
+ 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.
7
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $85,045,511)
(Note A)............................... $119,383,471
Cash (Note A)........................... 17,146,131
Dividends receivable.................... 31,689
Prepaid expenses........................ 16,586
------------
Total Assets............................ 136,577,877
------------
LIABILITIES
Payables:
Investment advisory fee (Note B)...... 363,366
Administration fees (Note B).......... 24,383
Other accrued expenses................ 156,507
------------
Total Liabilities....................... 544,256
------------
NET ASSETS (applicable to 5,346,340
shares of common stock outstanding)
(Note C)............................... $136,033,621
------------
------------
NET ASSET VALUE PER SHARE ($136,033,621
DIVIDED BY 5,346,340)................. $25.44
------------
------------
NET ASSETS CONSIST OF
Capital stock, $0.001 par value;
5,346,340 shares issued and outstanding
(100,000,000 shares authorized)........ $ 5,346
Paid-in capital......................... 73,803,536
Undistributed net investment income..... 1,290,244
Accumulated net realized gain on
investments and foreign currency
related transactions................... 26,596,845
Net unrealized appreciation in value of
investments and translation of other
assets and liabilities denominated in
foreign currency....................... 34,337,650
------------
Net assets applicable to shares
outstanding............................ $136,033,621
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Income (Note A):
Dividends............................. $ 2,325,211
Interest.............................. 211,018
Less: Foreign taxes withheld.......... (390,497)
-----------
Total Investment Income............... 2,145,732
-----------
Expenses:
Investment advisory fees (Note B)..... 764,830
Custodian fees........................ 98,392
Administration fees (Note B).......... 63,254
Accounting fees....................... 37,273
Printing.............................. 37,192
Audit and legal fees.................. 34,291
Directors' fees....................... 14,381
Transfer agent fees................... 14,157
NYSE listing fees..................... 8,024
Insurance............................. 6,894
Other................................. 6,447
-----------
Total Expenses........................ 1,085,135
Less: Fee waivers (Note B)............ (103,341)
-----------
Net Expenses.......................... 981,794
-----------
Net Investment Income................... 1,163,938
-----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized gain/(loss) from:
Investments........................... 22,725,730
Foreign currency related
transactions......................... (216,349)
Net change in unrealized appreciation in
value of investments and translation of
other assets and liabilities
denominated in foreign currency........ 8,459,833
-----------
Net realized and unrealized gain on
investments and foreign currency
related transactions................... 30,969,214
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................ $32,133,152
-----------
-----------
</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, 1998 Ended
(unaudited) December 31, 1997
<S> <C> <C>
------------------------------------------
INCREASE IN NET ASSETS
Operations:
Net investment income................. $ 1,163,938 $ 251,992
Net realized gain on investments and
foreign currency related
transactions......................... 22,509,381 28,138,380
Net change in unrealized appreciation
in value of investments and
translation of other assets and
liabilities denominated in foreign
currency............................. 8,459,833 4,435,796
------------------- -----------------
Net increase in net assets resulting
from operations.................... 32,133,152 32,826,168
------------------- -----------------
Dividends and distributions to
shareholders:
Net investment income................. -- (53,193)
Net realized gain on investments...... -- (21,968,611)
------------------- -----------------
Total dividends and distributions to
shareholders....................... -- (22,021,804)
------------------- -----------------
Capital share transactions (Note C):
Proceeds from 27,064 shares and 16,731
shares, respectively, issued in
reinvestment of dividends............ 456,699 240,506
------------------- -----------------
Total increase in net assets........ 32,589,851 11,044,870
------------------- -----------------
NET ASSETS
Beginning of period..................... 103,443,770 92,398,900
------------------- -----------------
End of period (including undistributed
net investment income of $1,290,244 and
$126,306, respectively)................ $136,033,621 $103,443,770
------------------- -----------------
------------------- -----------------
</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 Six
Months
Ended
June 30, For the Years Ended December 31,
1998 -------------------------------------------------------------------------------
(unaudited) 1997 1996 1995 1994 1993 1992 1991
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of
period........................ $19.45 $17.43 $13.29 $14.33 $12.52 $8.90 $10.77 $10.96
------------ --------- --------- --------- --------- --------- -------- --------
Net investment income.......... 0.22 0.05 0.11 0.17 0.06 0.07 0.11 0.13
Net realized and unrealized
gain/ (loss) on investments
and foreign currency related
transactions.................. 5.77+ 6.11+ 4.11 (1.03) 1.81 3.55 (1.92) (0.21)
------------ --------- --------- --------- --------- --------- -------- --------
Net increase/(decrease) in net
assets resulting from
operations.................... 5.99 6.16 4.22 (0.86) 1.87 3.62 (1.81) (0.08)
------------ --------- --------- --------- --------- --------- -------- --------
Dividends and distributions to
shareholders:
Net investment income........ -- (0.01) (0.08) (0.15) (0.06) -- (0.06) (0.11)
In excess of net investment
income...................... -- -- -- -- -- -- -- --
Net realized gain on
investments and foreign
currency related
transactions ............... -- (4.13) -- (0.03) -- -- -- --
------------ --------- --------- --------- --------- --------- -------- --------
Total dividends and
distributions to
shareholders.................. -- (4.14) (0.08) (0.18) (0.06) -- (0.06) (0.11)
------------ --------- --------- --------- --------- --------- -------- --------
Net asset value, end of
period........................ $25.44 $19.45 $17.43 $13.29 $14.33 $12.52 $8.90 $10.77
------------ --------- --------- --------- --------- --------- -------- --------
------------ --------- --------- --------- --------- --------- -------- --------
Market value, end of period.... $20.125 $15.813 $13.750 $11.125 $13.875 $14.125 $8.000 $9.750
------------ --------- --------- --------- --------- --------- -------- --------
------------ --------- --------- --------- --------- --------- -------- --------
Total investment return(a)..... 27.27% 43.21% 24.28% (18.65)% (1.35)% 76.56% (17.34)% 6.58%
------------ --------- --------- --------- --------- --------- -------- --------
------------ --------- --------- --------- --------- --------- -------- --------
RATIOS/ SUPPLEMENTAL DATA
Net assets, end of period (000
omitted)...................... $136,034 $103,444 $92,399 $70,431 $75,908 $66,351 $47,134 $57,036
Ratio of expenses to average
net assets, net of fee
waivers....................... 1.48%(b) 1.56% 1.62% 1.58% 1.41% 1.97% 1.92% 1.96%
Ratio of expenses to average
net assets, excluding fee
waivers....................... 1.64%(b) 1.73% 1.81% 1.76% 1.59% 2.00% -- --
Ratio of net investment income
to average net assets......... 1.76%(b) 0.23% 0.75% 1.18% 0.43% 0.66% 1.07% 1.20%
Portfolio turnover rate........ 22.76% 72.25% 35.94% 35.73% 15.47% 24.47% 39.07% 13.31%
<CAPTION>
For the Period
November 9, 1989*
through
1990 December 31, 1989
<S> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of
period........................ $13.79 $13.79**
--------- --------
Net investment income.......... 0.16 0.04
Net realized and unrealized
gain/ (loss) on investments
and foreign currency related
transactions.................. (2.87) 0.04
--------- --------
Net increase/(decrease) in net
assets resulting from
operations.................... (2.71) 0.08
--------- --------
Dividends and distributions to
shareholders:
Net investment income........ (0.12) (0.04)
In excess of net investment
income...................... -- (0.04)
Net realized gain on
investments and foreign
currency related
transactions ............... -- --
--------- --------
Total dividends and
distributions to
shareholders.................. (0.12) (0.08)
--------- --------
Net asset value, end of
period........................ $10.96 $13.79
--------- --------
--------- --------
Market value, end of period.... $9.250 $17.000
--------- --------
--------- --------
Total investment return(a)..... (44.91)% 22.49%
--------- --------
--------- --------
RATIOS/ SUPPLEMENTAL DATA
Net assets, end of period (000
omitted)...................... $58,084 $73.023
Ratio of expenses to average
net assets, net of fee
waivers....................... 2.04% 2.26%(b)
Ratio of expenses to average
net assets, excluding fee
waivers....................... -- --
Ratio of net investment income
to average net assets......... 1.38% 2.03%(b)
Portfolio turnover rate........ 10.09% --
</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.
- --------------------------------------------------------------------------------
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:
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 Board of Directors has established general guidelines for calculating fair
value of non-publicly traded and/or non-readily marketable securities. At June
30, 1998, 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 on each
business day, with the exception of those days on which the New York Stock
Exchange is closed.
CASH: Deposits held at Brown Brothers Harriman & Co., the Fund's custodian, in a
variable rate account are classified as cash. At June 30, 1998, the interest
rate was 5.25% 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.
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
- --------------------------------------------------------------------------------
12
<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.
On August 12, 1998, a dividend in the aggregate amount of $4,223,609 equal to
$0.79 per share was declared. The dividend was comprised entirely of ordinary
income. The dividend is payable on September 25, 1998 to shareholders of record
as of September 11, 1998.
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
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
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, 1998, BEA earned $764,830 for
advisory services, of which BEA waived $103,341. 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, 1998, BEA was
reimbursed $3,720 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,
1998, BSFM earned $59,534 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 5,346,340 shares outstanding at June 30, 1998, 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,
1998 was $85,156,523. Accordingly, the net unrealized appreciation of
investments (including investments denominated in foreign currency) of
$34,226,948 was composed of gross appreciation of $35,302,245 for those
investments having an excess of value over cost and gross depreciation of
$1,075,297 for those investments having an excess of cost over value.
For the six months ended June 30, 1998, purchases and sales of securities, other
than short-term investments, were $28,161,755 and $54,631,403, 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 BankBoston, N.A. 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,
1998.
NOTE F.EUROPEAN ECONOMIC AND
MONETARY UNION (EMU)
Certain European countries have agreed to enter into EMU, in an effort to, among
other things, reduce barriers between countries, increase competition among
companies, reduce government subsidies in certain industries, and reduce or
eliminate currency fluctuations among these countries. Among other things, EMU
establishes a single common European currency (the "Euro") that will be
introduced on January 1, 1999 and is expected to replace the existing national
currencies of all EMU participants by July 1, 2002. Upon introduction of the
Euro, certain securities (beginning with government and corporate bonds) will be
redenominated in the Euro, and thereafter, will be listed, trade and make
dividend and other payments only in Euros.
-- If the Euro, or EMU as a whole, does not take effect as planned, the
Fund's investments could be adversely affected. For example, sharp
currency fluctuations, exchange rate volatility, and other disruptions of
the markets could occur.
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
-- Withdrawal from EMU by a participating country could also have a negative
effect on the Fund's investments, for example if securities redenominated
in Euros are transferred back into that country's national currency.
-- Gains or losses resulting from the Euro conversion may be taxable to Fund
shareholders under foreign tax laws.
-- Computer, accounting, and trading systems must be capable of recognizing
the Euro as a distinct currency. Like other investment companies and
business organizations, the Fund could be adversely affected if the
systems used by the investment adviser, the Fund's other service
providers, or entities with which the Fund or its service providers do
business do not properly address this issue prior to Euro conversion over
the first weekend of 1999 (January 1, through January 3). These issues may
negatively affect the operations of the companies the Fund invests in as
well.
This is not expected to effect the Fund's investment value in U.S. dollar terms,
since the Euro will be converted into the dollar in the same way that Portuguese
escudos and other European currencies are currently converted at the prevailing
exchange rates.
Assuming the implementation of EMU and the Euro proceeds accordingly, the
national currencies of participating countries will cease to exist and all
accounting will be in Euros following the transition period. However, regardless
of whether or not full convergence is realized on the date specified, it is not
expected that pricing in Euros will have any special impact on the value of your
investment. Of course, problems could develop that might be unfavorable for the
Fund, but are not anticipated at this time.
- --------------------------------------------------------------------------------
15
<PAGE>
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
On April 24, 1998, 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 two directors to the Board of Directors of the Fund.
<TABLE>
<CAPTION>
NAME OF DIRECTOR FOR WITHHELD NON-VOTES
- ------------------------------------------------------------------------------------- ---------- --------- ----------
<S> <C> <C> <C>
William W. Priest, Jr. 3,656,980 234,055 1,455,305
Martin M. Torino 3,657,704 233,331 1,455,305
</TABLE>
In addition to the directors re-elected at the meeting, Dr. Enrique R. Arzac,
James J. Cattano, Jonathan W. Lubell and Richard W. Watt continue to serve as
directors of the Fund.
(2) To ratify the selection of PricewaterhouseCoopers LLP (formerly Coopers &
Lybrand L.L.P.) as independent public accountants for the year ending December
31, 1998.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTES
- ---------- --------- --------- ----------
<S> <C> <C> <C>
3,348,140 21,043 521,852 1,455,305
</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 BankBoston, N.A.,
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, 1998, BEA managed
approximately $35.6 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 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."
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 Global Income Fund, Inc. (FBI) mutual funds, please call,
1-800-401-2230.
For closed-end fund information
please call, 1-800-293-1232. Visit our website on the Internet:
http://www.beafunds.com
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
DIRECTORS AND CORPORATE OFFICERS
Dr. Enrique R. Arzac Director
James J. Cattano Director
Jonathan W. Lubell Director
Martin M. Torino Director
William W. Priest, Jr. Chairman of the Board of Directors
Richard W. Watt President, Chief Investment Officer
and Director
Jane L. Caron Investment Officer
Hal Liebes Senior Vice President
Michael A. Pignataro Chief Financial Officer and
Secretary
Rocco A. Del Guercio Vice President
Wendy S. Setnicka 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
BankBoston, N.A.
P.O. Box 1865
Mail Stop 45-02-62
Boston, MA 02105-1865
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, PA 19103
LEGAL COUNSEL
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019-6099
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-98
