<PAGE>
The Portugal Fund, Inc.
-----------------------
Annual Report
December 31, 1998
[GRAPHIC]
<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
Report of Independent Accountants............................................................ 15
Results of Annual Meeting of Shareholders.................................................... 16
Tax Information.............................................................................. 16
Description of InvestLink(SM) Program........................................................ 17
</TABLE>
PICTURED ON THE COVER IS A SCENIC VIEW OF LISBON, PORTUGAL FROM THE MAR DE
PALHA.
- --------------------------------------------------------------------------------
<PAGE>
LETTER TO SHAREHOLDERS
February 12, 1999
DEAR SHAREHOLDER:
I am writing to report on the activities of The Portugal Fund, Inc. (the "Fund")
for the year ended December 31, 1998.
At December 31, 1998, the Fund's net assets were $98.1 million. Net asset value
("NAV") per share was $18.31 (net of dividends paid of $5.69 per share), as
compared to $19.45 at December 31, 1997.
PERFORMANCE: SLIGHTLY BEHIND BENCHMARK
For the year ended December 31, 1998, the Fund's total return, based on NAV and
assuming reinvestment of dividends and distributions, was 26.3%, versus 27.9%
for the Morgan Stanley Capital International Portugal Index (the "Index").
The Fund underperformed the Index benchmark due to a combination of sector
allocation and cash management. The most prominent negative in terms of sector
allocation was my underweighting of banks. As I will describe, banks are the
most heavily represented industry in the Portuguese equity market, and they
soared in 1998 on expectations of industry consolidation. I underweighted banks
relative to the Index in part because of their high valuations; at one point
during the year, they were trading at multiples of greater than five times book
value. Historically, such valuations for banks are very rich, and have typically
led to significant disappointments in the group's share prices.
1998: A GOOD YEAR FOR PORTUGUESE STOCKS
The Portuguese equity market was among the world's strongest in 1998. As
measured by Morgan Stanley Capital International's ("MSCI's") individual country
indices, Portugal was the 11th-best performer. Its 27.9% return ranked it
comfortably ahead of aggregate developed-nation markets (e.g., MSCI's World
Index, which rose 24.8%) and dramatically higher than the emerging markets with
which it is often grouped (e.g., MSCI's Emerging Markets Free Index, which fell
25.3%).
THREE FACTORS WERE MOST RESPONSIBLE FOR PORTUGAL'S ROBUST SHOWING:
INTEREST-RATE CONVERGENCE. One of the key themes for investment in Portugal in
recent years has been European Monetary Union ("EMU"). Investors have
particularly focused on the requirement that individual-country short-term
interest rates in Europe converge into a single European rate for the launch of
the new euro currency on January 1, 1999. Portuguese short-term rates fell 190
basis points in 1998 (to 3.00% from 4.90%) precisely for this reason, climaxing
with a 75-basis-point cut on December 3, 1998 in coordination with the other EMU
member nations.
The macroeconomic benefits of lower interest rates should continue to play a
meaningful role in keeping Portugal attractive to equity investors, as well as
foreign sources of capital more generally.
- --------------------------------------------------------------------------------
1
<PAGE>
LETTER TO SHAREHOLDERS
EXPECTED FINANCIAL-SECTOR CONSOLIDATION. Portuguese stock prices also received a
boost from expectations of consolidation within the financial sector, which is
the biggest component of the equity market (I.E., about 28% of total
capitalization). The likelihood of consolidation has risen over the last few
years and remains driven by two forces. These are the need to cut costs to
improve bottom-line performance; and the recognition that competitiveness in the
era of the pan-European marketplace will require the greater financial muscle
and operating efficiencies that only the larger institutions possess.
Even the largest Portuguese banks have only a small share of the broader Iberian
financial market, which includes Portugal and Spain. They could thus be
hard-pressed to compete against the larger Spanish and non-Iberian institutions
that are likely to expand into Portugal when its banking market is opened. For
many Portuguese banks, then, the only recourse will be to submit to acquisition
by bigger companies.
MINIMAL EXPOSURE TO EMERGING MARKETS/HIGH EXPOSURE TO EUROPE. Fortunately for
Portuguese equities in 1998, the nation's economy is minimally exposed to the
battered economies of Asia, Latin America and Russia. Emerging markets account
for only about 5% of Portuguese exports, for instance, including just 1% to
Brazil and 0.3% to Russia. In fact, over 80% of Portuguese trade is with
countries in the European Union, whose economic prospects are considerably more
favorable.
PORTFOLIO STRATEGY: MAINTAINING EMPHASIS ON BLUE-CHIPS
TOP 10 HOLDINGS, BY ISSUER *
<TABLE>
<CAPTION>
% OF
NET
HOLDING SECTOR ASSETS
------------------------ ----------------- --------
<C> <S> <C> <C>
1. Portugal Telecom Telecom. 20.5
2. EDP Electric 15.1
3. Jeronimo Martins Food/Bev./Tobacco 10.9
4. Mundial Confianca Insurance 6.1
5. BCP Banking 5.7
6. Banco Espirito Santo Banking 5.7
7. BPI Banking 5.0
8. Tranquilidade Insurance 4.7
9. Cimpor Construction 4.0
10. Brisa Transportation 3.7
*Company names are abbreviations of those found in the
chart on page 6.
</TABLE>
SECTOR BREAKDOWN
(% OF NET ASSETS)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SECTOR BREAKDOWN
<S> <C>
Banking 16.50%
Construction 7.82%
Consumer 3.54%
Electricity 15.07%
Food/Bev./Tobacco 14.17%
Insurance 12.07%
Telecom. 20.45%
Transportation 6.48%
Other* 3.90%
</TABLE>
*Other includes chemicals & petroleum products, forest products & paper and cash
and other assets in excess of liabilities.
My fundamental strategy continues to emphasize the shares of high-quality,
blue-chip companies. I believe that these are best-positioned to benefit from
rising demand for Portuguese stocks by domestic and foreign investors. In
addition, I intend to engage in selective buying of the so-called "second-line,"
smaller-capitalization names with good growth potential, as especially
attractive opportunities arise.
- --------------------------------------------------------------------------------
2
<PAGE>
LETTER TO SHAREHOLDERS
A good example of my blue-chip preference is COMPANHIA DE SEGUROS MUNDIAL
CONFIANCA, S.A. ("Mundial"), a banking and insurance giant that has been one of
the Fund's largest holdings since the latter part of 1996. Mundial is one of the
largest financial groups in Portugal. Although its substantial auto, life and
other insurance operations are, by themselves, notably attractive, it is
Mundial's banking operations that give its shares the potential for exceptional
long-term appreciation.
Mundial was an early participant in and beneficiary of Portugal's bank
privatization program, having purchased 80% of Banco Pinto & Sotto Mayor, S.A.
("BPSM") in 1994, shortly after BPSM was privatized. BPSM enjoys a strong brand
image and a loyal customer base within its core retail banking business. More
important, it provides Mundial with controlling interests in Banco Totta e
Acores, S.A. ("BTA"), Credito Predial Portugues, S.A. (a major mortgage bank)
and Banco Chemical Finance, S.A.
I see plenty of upside in Mundial shares, specifically because of its banking
operations:
- - The company has been slow to cross-sell its admirably wide menu of insurance,
banking and investment products. BPSM's and BTA's extensive branch networks
give Mundial a powerful distribution system that significantly enhances the
potential gains of such cross-selling.
- - There is meaningful scope for cost savings in BPSM's eventual consolidation of
BTA's operations. When redundancies are eliminated and operational functions
are merged, costs should fall and profits rise.
Another outstanding blue-chip is JERONIMO MARTINS S.G.P.S., S.A. ("JM"), a top
Portuguese food retailer and leading consumer goods manufacturer. JM is
Portugal's second-largest retailer of any kind as measured by its number of
stores.
The key to JM's investment appeal is its simultaneous exposure to the thriving
Portuguese economy and shrewd diversification into other countries. At home, JM
is the dominant operator of supermarkets (with a market share of around 45%) and
also owns prominent chains of hypermarkets and cash-and-carry stores. Over the
years, it has managed its domestic operations in a prudent manner that has
generated above-average shareholder returns through thick and thin.
Management recognized several years ago that the company could not continue to
achieve strong growth if limited to the Portuguese market. It thus began to
expand overseas, beginning with stores in Poland and England in 1995 and moving
into Brazil in late 1997.
I am impressed with JM's defensive nature: just as its established and
profitable presence in Portugal provides it with a steady source of cash to fund
its overall needs, it partially offsets domestic business risk by moving into
other markets. The food and other consumer products that it makes, furthermore,
enjoy unfettered access to retail shelves and give the company an additional
revenue stream.
JM is one of the largest Portuguese non-financial, non-government-linked
companies that is publicly traded, and the Fund has owned its shares since the
Fund's inception in 1989. For the reasons I have described, I expect JM to
remain among the Fund's core holdings well into the future.
- --------------------------------------------------------------------------------
3
<PAGE>
LETTER TO SHAREHOLDERS
OUTLOOK: CAUTIOUSLY OPTIMISTIC
I continue to feel optimistic about the prospects for Portuguese equities in
1999--albeit with near-term caution based on valuation concerns--due to these
factors:
- - The theme of European interest-rate convergence, which proved so positive for
the Portuguese market in 1998, should continue to apply.
- - Corporate restructuring and consolidation activity is accelerating, especially
in the financial services sector.
- - The government intends to sell more of its stake in high-profile Portugal
Telecom, S.A., which should help to stimulate investor interest.
- - Larger, global-oriented investors are playing a more influential role in
trading activity. While this undoubtedly adds an element of risk to the
market, it also provides the key benefits of higher liquidity, greater demand
for research coverage and increased transparency of corporate disclosure.
I would like to close my remarks by noting an important development. This past
October, the Directors of the Fund proposed and approved a program to buy back a
substantial portion (I.E., up to 15%) of the Fund's outstanding shares. The
Directors strongly believed in the appropriateness of such a move, given that
the discount of the Fund's share price to its net asset value had widened to
compellingly attractive levels. I will be able to discuss the progress made in
this direction in my next semi-annual report.
Respectfully,
[SIG]
Richard W. Watt
President and Chief Investment Officer *
FROM CREDIT SUISSE ASSET MANAGEMENT:
I. Effective January 12, 1999, the Fund's investment adviser, BEA Associates,
changed its name to Credit Suisse Asset Management ("CSAM"). In making the
announcement, the firm said that it expected the new name to enhance its
recognition as a global asset manager. CSAM is the investment division of
Credit Suisse Group, one of the world's largest financial organizations,
with $600 billion in assets under management.
II. Effective on or about April 1, 1999, shareholders whose shares are
registered in their own name will automatically participate in a dividend
reinvestment program known as the InvestLink(SM) Program (the "Program").
The Program can be of value to shareholders in maintaining their
proportional ownership interest in the Fund in an
- --------------------------------------------------------------------------------
4
<PAGE>
LETTER TO SHAREHOLDERS
easy and convenient way. A shareholder whose shares are held in the name of
a broker/dealer or nominee should contact the Fund's Transfer Agent for
details about participating in the Program. The Program also provides for
additional share purchases. The Program is described on pages 17 through 19
of this report.
III. Many services provided to the Fund and its shareholders by Credit Suisse
Asset Management ("CSAM") and the Fund's service providers rely on the
functioning of their respective computer systems. Many computer systems
cannot distinguish the year 2000 from the year 1900, with resulting
potential difficulty in performing various calculations (the "Year 2000
Issue"). The Year 2000 Issue could potentially have an adverse impact on
the handling of security trades, the payment of interest and dividends,
pricing, account services and other Fund operations.
CSAM recognizes the importance of the Year 2000 Issue and is taking
appropriate steps necessary in preparation for the year 2000. At this time,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on the Fund, nor can there be any assurance that the Year 2000
Issue will not have an adverse effect on the Fund's investments or on global
markets or economies, generally.
CSAM anticipates that its systems will be adapted in time for the year 2000.
CSAM is seeking assurances that comparable steps are being taken by the
Fund's other major service providers. CSAM will be monitoring the Year 2000
Issue in an effort to ensure appropriate preparation.
- --------------------------------------------------------------------------------
*Richard W. Watt, who is a Managing Director of Credit Suisse Asset Management
("CSAM"), 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 CSAM 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 DECEMBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
THE PORTUGAL FUND
<S> <C> <C> <C> <C>
Plot Points for Sector Allocation- December 31,
1998
12/31/98 12/31/97
Banking 16.50% 18.50%
Chemicals & Petroleum Products 1.16% 2.47%
Construction & Public Works 7.82% 8.00%
Consumer Products 3.54% 0.00%
Electric-Integrated 15.07% 24.05%
Foodstuffs, Beverages & Tobacco 14.17% 7.43%
Forest Products & Paper 2.70% 3.75%
Insurance 12.07% 10.12%
Telecommunications 20.45% 28.34%
Transportation & Warehousing 6.48% 5.28%
Other 0.00% 2.92%
Cash & Cash Equivalents 0.04% (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 20.5
- -----------------------------------------------------------------------------------------------------------------------
2. Electricidade de Portugal, S.A. Electric-Integrated 15.1
- -----------------------------------------------------------------------------------------------------------------------
3. Jeronimo Martins S.G.P.S., S.A. Foodstuffs, Beverages & Tobacco 10.9
- -----------------------------------------------------------------------------------------------------------------------
4. Companhia de Seguros Mundial Confianca, S.A. Insurance 6.1
- -----------------------------------------------------------------------------------------------------------------------
5. Banco Comercial Portugues, S.A. Banking 5.7
- -----------------------------------------------------------------------------------------------------------------------
6. Banco Espirito Santo e Comercial de Lisboa, S.A. Banking 5.7
- -----------------------------------------------------------------------------------------------------------------------
7. BPI-S.G.P.S., S.A. Banking 5.0
- -----------------------------------------------------------------------------------------------------------------------
8. Companhia de Seguros Tranquilidade Insurance 4.7
- -----------------------------------------------------------------------------------------------------------------------
9. Cimpor-Cimentos de Portugal, S.G.P.S., S.A. Construction & Public Works 4.0
- -----------------------------------------------------------------------------------------------------------------------
10. Brisa-Auto Estradas de Portugal, S.A. Transportation & Warehousing 3.7
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
<S> <C> <C>
- --------------------------------------------------------------------
EQUITY OR EQUITY-LINKED
SECURITIES-99.96%
BANKING-16.50%
Banco Comercial Portugues, S.A.,
(Registered)........................... 75,700 $ 2,325,044
Banco Comercial Portugues, S.A., Series
A...................................... 29,000 3,306,000
Banco Espirito Santo e Comercial de
Lisboa, S.A., (Registered)............. 181,035 5,613,260
BPI-S.G.P.S., S.A....................... 145,700 4,939,656
-----------
16,183,960
-----------
CHEMICALS & PETROLEUM PRODUCTS-1.16%
Corporacao Industrial do Norte, S.A.,
(Bearer)............................... 28,471 1,137,009
-----------
CONSTRUCTION & PUBLIC WORKS-7.82%
Cimpor-Cimentos de Portugal, S.G.P.S.,
S.A.................................... 122,271 3,899,228
Mota e Companhia, S.A................... 61,100 728,982
Semapa-Sociedade de Investimento e
Gestao S.G.P.S., S.A................... 144,900 2,865,786
Sociedade de Construcoes Soares da
Costa, S.A., Rights+................... 74,900 174,431
-----------
7,668,427
-----------
CONSUMER PRODUCTS-3.54%
Sonae Investimentos, S.G.P.S., S.A...... 71,400 3,467,648
-----------
ELECTRIC-INTEGRATED-15.07%
Electricidade de Portugal, S.A.......... 671,950 14,779,779
-----------
FOODSTUFFS, BEVERAGES & TOBACCO-14.17%
Jeronimo Martins S.G.P.S., S.A.......... 196,246 10,725,224
Sumolis-Companhia Industrial de Frutas e
Bebidas, S.A........................... 321,346 2,303,391
Unicer-Uniao Cervejeira, S.A.,
(Registered)........................... 36,500 870,107
-----------
13,898,722
-----------
<CAPTION>
No. of Value
Description Shares (Note A)
- --------------------------------------------------------------------
<S> <C> <C>
FOREST PRODUCTS & PAPER-2.70%
Corticeira Amorim S.G.P.S., S.A......... 97,400 $ 1,396,316
Portucel Industrial-Empresa Produtora de
Celulose, S.A.......................... 191,400 1,254,350
-----------
2,650,666
-----------
INSURANCE-12.07%
Companhia de Seguros Imperio, S.A.+..... 150,000 1,220,891
Companhia de Seguros Mundial Confianca,
S.A.+.................................. 187,600 5,960,619
Companhia de Seguros Tranquilidade...... 146,050 4,656,687
-----------
11,838,197
-----------
TELECOMMUNICATIONS-20.45%
Portugal Telecom, S.A................... 282,926 12,959,324
Portugal Telecom, S.A. ADR.............. 159,061 7,098,097
-----------
20,057,421
-----------
TRANSPORTATION & WAREHOUSING-6.48%
Barbosa & Almeida-Fabrica de Vidros,
S.A.................................... 162,900 2,764,253
Brisa-Auto Estradas de Portugal, S.A.... 61,125 3,594,542
-----------
6,358,795
-----------
TOTAL INVESTMENTS-99.96%
(Cost $78,833,480) (Notes A,D)........................ 98,040,624
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES-0.04%...
42,940
-----------
NET ASSETS-100.00%..................................... $98,083,564
-----------
-----------
- ---------------------------------------------------------
+ Security is non-income producing.
ADR American Depositary Receipts.
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
7
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $78,833,480)
(Note A)............................... $ 98,040,624
Cash (Note A)........................... 26,706,258
Prepaid expenses........................ 1,420
------------
Total Assets............................ 124,748,302
------------
LIABILITIES
Payables:
Dividend.............................. 26,241,540
Investment advisory fee (Note B)...... 303,382
Administration fees (Note B).......... 12,137
Other accrued expenses................ 107,679
------------
Total Liabilities....................... 26,664,738
------------
NET ASSETS (applicable to 5,355,416
shares of common stock outstanding)
(Note C)............................... $ 98,083,564
------------
------------
NET ASSET VALUE PER SHARE ($98,083,564
DIVIDED BY 5,355,416)................. $18.31
------------
------------
NET ASSETS CONSIST OF
Capital stock, $0.001 par value;
5,355,416 shares issued and outstanding
(100,000,000 shares authorized)........ $ 5,355
Paid-in capital......................... 73,961,222
Undistributed net investment income..... 126,437
Accumulated net realized gain on
investments and foreign currency
related transactions................... 4,783,552
Net unrealized appreciation in value of
investments and translation of other
assets and liabilities denominated in
foreign currency....................... 19,206,998
------------
Net assets applicable to shares
outstanding............................ $ 98,083,564
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
STATEMENT OF OPERATIONS - FOR THE YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Income (Note A):
Dividends............................. $ 2,462,483
Interest.............................. 559,516
Less: Foreign taxes withheld.......... (404,370)
-----------
Total Investment Income............... 2,617,629
-----------
Expenses:
Investment advisory fees (Note B)..... 1,512,033
Custodian fees........................ 198,800
Administration fees (Note B).......... 128,376
Accounting fees....................... 77,998
Printing.............................. 75,000
Audit and legal fees.................. 67,002
Directors' fees....................... 29,899
Transfer agent fees................... 29,599
NYSE listing fees..................... 16,180
Insurance............................. 13,903
Other................................. 16,001
-----------
Total Expenses........................ 2,164,791
Less: Fee waivers (Note B)............ (205,639)
-----------
Net Expenses........................ 1,959,152
-----------
Net Investment Income................. 658,477
-----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized gain/(loss) from:
Investments........................... 30,767,160
Foreign currency related
transactions......................... (264,269)
Net change in unrealized appreciation in
value of investments and translation of
other assets and liabilities
denominated in foreign currency........ (6,670,819)
-----------
Net realized and unrealized gain on
investments and foreign currency
related transactions................... 23,832,072
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................ $24,490,549
-----------
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended December
31,
-----------------------------
1998 1997
<S> <C> <C>
-----------------------------
INCREASE/(DECREASE) IN NET ASSETS
Operations:
Net investment income ................ $ 658,477 $ 251,992
Net realized gain on investments and
foreign currency related
transactions......................... 30,502,891 28,138,380
Net change in unrealized appreciation
in value of investments and
translation of other assets and
liabilities denominated in foreign
currency............................. (6,670,819) 4,435,796
------------ ------------
Net increase in net assets resulting
from operations.................... 24,490,549 32,826,168
------------ ------------
Dividends and distributions to
shareholders:
Net investment income ................ (394,077) (53,193)
Net realized gain on investments ..... (30,071,072) (21,968,611)
------------ ------------
Total dividends and distributions to
shareholders ...................... (30,465,149) (22,021,804)
------------ ------------
Capital share transactions (Note C):
Proceeds from 36,140 shares and 16,731
shares, respectively, issued in
reinvestment of dividends and
distributions........................ 614,394 240,506
------------ ------------
Total increase/(decrease) in net
assets............................. (5,360,206) 11,044,870
------------ ------------
NET ASSETS
Beginning of year....................... 103,443,770 92,398,900
------------ ------------
End of year (including undistributed net
investment income of $126,437 and
$126,306, respectively)................ $ 98,083,564 $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 Years Ended December 31,
-------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
<S> <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
--------- --------- --------- --------- --------- -------- --------
Net investment income........ 0.12 0.05 0.11 0.17 0.06 0.07 0.11
Net realized and unrealized
gain/ (loss) on investments
and foreign currency related
transactions................ 4.43+ 6.11+ 4.11 (1.03) 1.81 3.55 (1.92)
--------- --------- --------- --------- --------- -------- --------
Net increase/(decrease) in
net assets resulting from
operations.................. 4.55 6.16 4.22 (0.86) 1.87 3.62 (1.81)
--------- --------- --------- --------- --------- -------- --------
Dividends and distributions
to shareholders:
Net investment income...... (0.07) (0.01) (0.08) (0.15) (0.06) -- (0.06)
In excess of net investment
income.................... -- -- -- -- -- -- --
Net realized gain on
investments and foreign
currency related
transactions.............. (5.62) (4.13) -- (0.03) -- -- --
--------- --------- --------- --------- --------- -------- --------
Total dividends and
distributions to
shareholders................ (5.69) (4.14) (0.08) (0.18) (0.06) -- (0.06)
--------- --------- --------- --------- --------- -------- --------
Net asset value, end of
period...................... $18.31 $19.45 $17.43 $13.29 $14.33 $12.52 $8.90
--------- --------- --------- --------- --------- -------- --------
--------- --------- --------- --------- --------- -------- --------
Market value, end of
period...................... $15.625 $15.813 $13.750 $11.125 $13.875 $14.125 $8.000
--------- --------- --------- --------- --------- -------- --------
--------- --------- --------- --------- --------- -------- --------
Total investment return(a)... 32.56% 43.21% 24.28% (18.65)% (1.35)% 76.56% (17.34)%
--------- --------- --------- --------- --------- -------- --------
--------- --------- --------- --------- --------- -------- --------
RATIOS/ SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted)............... $98,084 $103,444 $92,399 $70,431 $75,908 $66,351 $47,134
Ratio of expenses to average
net assets, net of fee
waivers..................... 1.50% 1.56% 1.62% 1.58% 1.41% 1.97% 1.92%
Ratio of expenses to average
net assets, excluding fee
waivers..................... 1.66% 1.73% 1.81% 1.76% 1.59% 2.00% --
Ratio of net investment
income to average net
assets...................... 0.51% 0.23% 0.75% 1.18% 0.43% 0.66% 1.07%
Portfolio turnover rate...... 48.52% 72.25% 35.94% 35.73% 15.47% 24.47% 39.07%
<CAPTION>
For the Period
through
1991 1990 December 31, 1989
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of
period...................... $10.96 $13.79 $13.79**
--------- ------- -------
Net investment income........ 0.13 0.16 0.04
Net realized and unrealized
gain/ (loss) on investments
and foreign currency related
transactions................ (0.21) (2.87) 0.04
--------- ------- -------
Net increase/(decrease) in
net assets resulting from
operations.................. (0.08) (2.71) 0.08
--------- ------- -------
Dividends and distributions
to shareholders:
Net investment income...... (0.11) (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................ (0.11) (0.12) (0.08)
--------- ------- -------
Net asset value, end of
period...................... $10.77 $10.96 $13.79
--------- ------- -------
--------- ------- -------
Market value, end of
period...................... $9.750 $9.250 $17.000
--------- ------- -------
--------- ------- -------
Total investment return(a)... 6.58% (44.91)% 22.49%
--------- ------- -------
--------- ------- -------
RATIOS/ SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted)............... $57,036 $58,084 $73,023
Ratio of expenses to average
net assets, net of fee
waivers..................... 1.96% 2.04% 2.26%(b)
Ratio of expenses to average
net assets, excluding fee
waivers..................... -- -- --
Ratio of net investment
income to average net
assets...................... 1.20% 1.38% 2.03%(b)
Portfolio turnover rate...... 13.31% 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 $0.02 and $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 in 1998 and 1997, respectively.
(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
- --------------------------------------------------------------------------------
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
December 31, 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 December 31, 1998, the interest
rate was 4.125% 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 (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 or losses from valuing foreign currency denominated assets
and liabilities at period end exchange rates are reflected as a component of net
unrealized appreciation/depreciation in value of investments, and translation of
other assets and liabilities denominated in foreign 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.
At December 31, 1998, the Fund reclassified $264,269 of net realized losses from
foreign currency related transactions to undistributed net investment income.
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
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
THE PORTUGAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
$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 year ended December 31, 1998, BEA earned $1,512,033 for advisory
services, of which BEA waived $205,639. 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 year ended December 31, 1998, BEA was reimbursed $10,801
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 year ended December 31,
1998, BSFM earned $117,575 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 5,355,416 shares outstanding at December 31, 1998, BEA
owned 7,206 shares.
NOTE D. INVESTMENT IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at December
31, 1998 was $78,833,480. Accordingly, the net unrealized appreciation of
investments (including investments denominated in foreign currency) of
$19,207,144 was composed of gross appreciation of $23,828,252 for those
investments having an excess of value over cost and gross depreciation of
$4,621,108 for those investments having an excess of cost over value.
For the year ended December 31, 1998, purchases and sales of securities, other
than short-term investments, were $56,817,661 and $97,559,362, respectively.
NOTE E. CREDIT AGREEMENT
The Fund, along with 10 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 $25,000,000 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 11
funds exceed $25,000,000. 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 year ended and at December 31,
1998.
NOTE F. SHARE REPURCHASE PROGRAM
On October 21, 1998, the Fund announced that its Board of Directors has
authorized the repurchase by the Fund of up to 15% of the Fund's outstanding
common stock, for the purposes of enhancing shareholder value. The Fund's Board
has authorized management of the Fund to repurchase such shares in open market
transactions at prevailing market prices from time to time and in a manner
consistent with the Fund continuing to seek to achieve its investment
objectives. The Board's actions were taken in light of the significant discounts
at which the Fund's shares recently have been trading. It is intended both to
provide additional liquidity to those shareholders that elect to sell their
shares and to enhance the net asset value of the shares held by those
shareholders that maintain their investment. The repurchase program will be
subject to review by the Board of Directors of the Fund. From October 21, 1998
to December 31, 1998, the Fund did not repurchase any of its shares.
- --------------------------------------------------------------------------------
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of The Portugal Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and financial highlights present fairly, in all material
respects, the financial position of The Portugal Fund, Inc. (the "Fund") at
December 31, 1998, and the results of its operations for the year then ended,
changes in net assets for each of the two years in the period then ended and its
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 19, 1999
- --------------------------------------------------------------------------------
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>
TAX INFORMATION (UNAUDITED)
The Fund is required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise its shareholders within 60 days of the Fund's year end
(December 31, 1998) as to the U.S. federal tax status of dividends and
distributions received by the Fund's shareholders in respect of such year. Of
the $5.69 per share distribution paid in respect of such year, $2.07 was derived
from ordinary income and $3.62 was derived from net realized long-term capital
gains. There were no distributions which would qualify for the dividend received
deduction available to corporate shareholders.
The Fund has made an election under Section 853 to pass through foreign taxes
paid by the Fund to its shareholders. The total amount of foreign taxes that
were passed through to shareholders for the year ending December 31, 1998 were
$404,370, equal to $0.08 per share. This information is given to meet certain
requirements of the Internal Revenue Code of 1986, as amended. Shareholders
should refer to their Form 1099-DIV to determine the amount includable on their
respective tax returns for 1998.
Notification for calendar year 1998 was mailed in January 1999. The notification
will reflect the amount to be used by calendar year taxpayers on their U.S.
federal income tax returns along with Form 1099-DIV.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of their distribution. They will generally not be entitled to a foreign
tax credit or deduction for the withholding taxes paid by the Fund.
In general, distributions received by tax-exempt recipients (e.g., IRAs and
Keoghs) need not be reported as taxable income for U.S. federal income tax
purposes. However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7)
plans) may need this information for their annual information reporting.
Shareholders are advised to consult their own tax advisers with respect to the
tax consequences of their investments in the Fund.
- --------------------------------------------------------------------------------
16
<PAGE>
DESCRIPTION OF INVESTLINK-SM-* PROGRAM
The InvestLink Program is sponsored and administered by BankBoston, N.A., not by
The Portugal Fund, Inc. (the "Fund"). BankBoston, N.A. will act as program
administrator (the "Program Administrator") of the InvestLink Program (the
"Program"). The purpose of the Program is to provide interested investors with a
simple and convenient way to invest funds and reinvest dividends in shares of
the Fund's common stock ("Shares") at prevailing prices, with reduced brokerage
commissions and fees.
An interested investor may join the Program at any time. Purchases of Shares
with funds from a participant's cash payment or automatic account deduction will
begin on the next day on which funds are invested. If a participant selects the
dividend reinvestment option, automatic investment of dividends generally will
begin with the next dividend payable after the Program Administrator receives
his enrollment form. Once in the Program, a person will remain a participant
until he terminates his participation or sells all Shares held in his Program
account, or his account is terminated by the Program Administrator. A
participant may change his investment options at any time by requesting a new
enrollment form and returning it to the Program Administrator.
A participant will be assessed certain charges in connection with his
participation in the Program. First-time investors will be subject to an initial
service charge which will be deducted from their initial cash deposit. All
optional cash deposit investments will be subject to a service charge. Sales
processed through the Program will have a service fee deducted from the net
proceeds, after brokerage commissions. In addition to the transaction charges
outlined above, participants will be assessed per share processing fees (which
include brokerage commissions). Participants will not be charged any fee for
reinvesting dividends.
The number of Shares to be purchased for a participant depends on the amount of
his dividends, cash payments or bank account or payroll deductions, less
applicable fees and commissions, and the purchase price of the Shares. The
Program Administrator uses dividends and funds of participants to purchase
Shares of the Fund's common stock in the open market. Such purchases will be
made by participating brokers as agent for the participants using normal cash
settlement practices. All Shares purchased through the Program will be allocated
to participants as of the settlement date, which is usually three business days
from the purchase date. In all cases, transaction processing will occur within
30 days of the receipt of funds, except where temporary curtailment or
suspension of purchases is necessary to comply with applicable provisions of the
Federal Securities laws or when unusual market conditions make prudent
investment impracticable. In the event the Program Administrator is unable to
purchase Shares within 30 days of the receipt of funds, such funds will be
returned to the participants.
The average price of all Shares purchased by the Program Administrator with all
funds received during the time period from two business days preceding any
investment date up to the second business day preceding the next investment date
shall be the price per share allocable to a participant in connection with the
Shares purchased for his account with his funds or dividends received by the
Program Administrator during such time period. The average price of all Shares
sold by the Program Administrator pursuant to sell orders received during such
time period shall be the price per share allocable to a participant in
connection with the Shares sold for his account pursuant to his sell orders
received by the Program Administrator during such time period.
BankBoston, N.A., as Program Administrator, administers the Program for
participants, keeps records, sends statements of account to participants and
performs other duties relating to the Program.
- --------------------------------------------------------------------------------
17
<PAGE>
DESCRIPTION OF INVESTLINK-SM-* PROGRAM (CONTINUED)
Each participant in the Program will receive a statement of his account
following each purchase of Shares. The statements will also show the amount of
dividends credited to such participant's account (if applicable), as well as the
fees paid by the participant. In addition, each participant will receive copies
of the Fund's annual and semi-annual reports to shareholders, proxy statements
and, if applicable, dividend income information for tax reporting purposes.
If the Fund is paying dividends on the Shares, a participant will receive
dividends through the Program for all Shares held on the dividend record date on
the basis of full and fractional Shares held in his account, and for all other
Shares of the Fund registered in his name. The Program Administrator will send
checks to the participants for the amounts of their dividends that are not to be
automatically reinvested at no cost to the participants.
Shares of the Fund purchased under the Program will be registered in the name of
the accounts of the respective participants. Unless requested, the Fund will not
issue to participants certificates for Shares of the Fund purchased under the
Program. The Program Administrator will hold the Shares in book-entry form until
a Program participant chooses to withdraw his Shares or terminate his
participation in the Program. The number of Shares purchased for a participant's
account under the Program will be shown on his statement of account. This
feature protects against loss, theft or destruction of stock certificates.
A participant may withdraw all or a portion of the Shares from his Program
account by notifying the Program Administrator. After receipt of a participant's
request, the Program Administrator will issue to such participant certificates
for the whole Shares of the Fund so withdrawn or, if requested by the
participant, sell the Shares for him and send him the proceeds, less applicable
brokerage commissions, fees, and transfer taxes, if any. If a participant
withdraws all full and fractional Shares in his Program account, his
participation in the Program will be terminated by the Program Administrator. In
no case will certificates for fractional Shares be issued. The Program
Administrator will convert any fractional Shares held by a participant at the
time of his withdrawal to cash.
Participation in any rights offering, dividend distribution or stock split will
be based upon both the Shares of the Fund registered in participants' names and
the Shares (including fractional Shares) credited to participants' Program
accounts. Any stock dividend or Shares resulting from stock splits with respect
to Shares of the Fund, both full and fractional, which participants hold in
their Program accounts and with respect to all Shares registered in their names
will be automatically credited to their accounts.
All Shares of the Fund (including any fractional share) credited to his account
under the Program will be voted as the participant directs. The participants
will be sent the proxy materials for the annual meetings of shareholders. When a
participant returns an executed proxy, all of such Shares will be voted as
indicated. A participant may also elect to vote his Shares in person at the
Shareholders' meeting.
A participant will receive tax information annually for his personal records and
to help him prepare his U.S. federal income tax return. The automatic
reinvestment of dividends does not relieve him of any income tax which may be
payable on dividends. For further information as to tax consequences of
participation in the Program, participants should consult with their own tax
advisors.
The Program Administrator in administering the Program will not be liable for
any act done in good faith or for any good faith omission to act. However, the
Program Administrator will be liable for loss or damage due to error caused by
its negligence, bad faith or
- --------------------------------------------------------------------------------
18
<PAGE>
DESCRIPTION OF INVESTLINK-SM-* PROGRAM (CONTINUED)
willful misconduct. Shares held in custody by the Program Administrator are not
subject to protection under the Securities Investors Protection Act of 1970.
The participant should recognize that neither the Fund nor the Program
Administrator can provide any assurance of a profit or protection against loss
on any Shares purchased under the Program. A participant's investment in Shares
held in his Program account is no different than his investment in directly held
Shares in this regard. The participant bears the risk of loss and the benefits
of gain from market price changes with respect to all of his Shares. Neither the
Fund nor the Program Administrator can guarantee that Shares purchased under the
Program will, at any particular time, be worth more or less than their purchase
price. Each participant must make an independent investment decision based on
his own judgment and research.
While the Program Administrator hopes to continue the Program indefinitely, the
Program Administrator reserves the right to suspend or terminate the Program at
any time. It also reserves the right to make modifications to the Program.
Participants will be notified of any such suspension, termination or
modification in accordance with the terms and conditions of the Program. The
Program Administrator also reserves the right to terminate any participant's
participation in the Program at any time. Any question of interpretation arising
under the Program will be determined in good faith by the Program Administrator
and any such good faith determination will be final.
Any interested investor may participate in the Program. To participate in the
Program, an investor who is not already a registered owner of the Shares must
make an initial investment of at least $250.00. All other cash payments or bank
account deductions must be at least $100.00, up to a maximum of $100,000.00
annually. An interested investor may join the Program by reading the Program
description, completing and signing the enrollment form and returning it to the
Program Administrator. The enrollment form and information relating to the
Program (including the terms and conditions) may be obtained by calling the
Program Administrator at one of the following telephone numbers: First Time
Investors--(800) 337-8571; Current Shareholders--(800) 730-6001. All
correspondence regarding the Program should be directed to: BankBoston, N.A.,
InvestLink Program, P.O. Box 8040, Boston, MA 02266-8040.
- ---------------------------------------------
*InvestLink-SM- is a service mark of Boston EquiServe Limited Partnership.
- --------------------------------------------------------------------------------
19
<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 investing primarily in Portuguese securities. The
Fund is managed and advised by Credit Suisse Asset Management ("CSAM"), formerly
known as BEA Associates. CSAM 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. CSAM manages money
for corporate pension and profit-sharing funds, public pension funds, union
funds, endowments and other charitable institutions and private individuals. As
of December 31, 1998, CSAM managed approximately $35.3 billion in assets in the
U.S.
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 CSAM CLOSED-END FUNDS
LITERATURE REQUEST--Call today for free descriptive information on the
closed-end funds listed below at 1-800-293-1232 or visit our website on the
Internet: http://www.cefsource.com.
<TABLE>
<S> <C>
CLOSED-END FUNDS
SINGLE COUNTRY
The Brazilian Equity Fund, Inc. (BZL)
The Chile Fund, Inc. (CH)
The First Israel Fund, Inc. (ISL)
The Indonesia Fund, Inc. (IF)
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
BEA Income Fund, Inc. (FBF)
BEA Strategic Global Income Fund, Inc. (FBI)
</TABLE>
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that The Portugal Fund, Inc. may from time to
time purchase shares of its capital stock in the open market.
- --------------------------------------------------------------------------------
<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
Hal Liebes Senior Vice President
Michael A. Pignataro Chief Financial Officer and
Secretary
Rocco A. Del Guercio Vice President
INVESTMENT ADVISER
Credit Suisse Asset Management
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. 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-AR-98
