0000912057-95-006985.txt : 19950829 0000912057-95-006985.hdr.sgml : 19950829 ACCESSION NUMBER: 0000912057-95-006985 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950828 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PORTUGAL FUND INC CENTRAL INDEX KEY: 0000854580 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05891 FILM NUMBER: 95567803 BUSINESS ADDRESS: STREET 1: C/O BEA ASSOCIATES INC STREET 2: 103 BELLEVUE PARKWAY CITY: WILMINGTON STATE: DE ZIP: 19809 BUSINESS PHONE: 3027912919 MAIL ADDRESS: STREET 1: 103 BELLEVUE PARKWAY CITY: WILMINGTON STATE: DE ZIP: 19809 N-30D 1 N-30D [LOGO] THE PORTUGAL FUND, INC. ------------------------------ ------------------------------------------------------------------------ ------------------------------------------------------------------------ LETTER TO SHAREHOLDERS DEAR SHAREHOLDER: We are pleased to report on the activities of The Portugal Fund, Inc. (the "Fund") for the six months ended June 30, 1995. At June 30, 1995, the Fund had a net asset value of $15.08 per share, as compared to $14.33 per share at December 31, 1994. At June 30, 1995, $67 million was invested in Portuguese securities, as compared to $67.7 million at December 31, 1994. At June 30, 1995, the Fund retained $13.1 million, primarily in U.S. Treasury Bills, compared with $8.3 million at December 31, 1994. POLITICAL AND ECONOMIC DEVELOPMENTS During the first half of 1995, the Portuguese market and economy have been increasingly dominated by political factors, as the country approaches a round of general elections this October. During the third quarter, politics should continue to move to the forefront. At the mid-year point, the outcome of the general elections remains very much in doubt. The Social Democratic Party (PSD), which falls slightly right of center on the Portuguese political spectrum, has been in power for nearly a decade. In recent years, the government's popular support has been significantly diminished, as illustrated by the PSD's lackluster performance in last year's elections for the European Parliament. At present, the center-left Socialist Party, led by Antonio Guterres, holds a lead in most opinion polls, but the PSD still stands easily within striking distance. The ruling party's leadership, however, remains in disarray, and its ability to mount a convincing catch-up campaign is somewhat questionable. In economic terms, there is little meaningful distinction between the two major parties. Both have expressed a strong commitment to maintaining Portugal's positive stance on European integration, and both parties support further privatization. It appears increasingly likely, however, that the election will result in neither party achieving a parliamentary majority. Since there are no natural coalition partners among the smaller parties for either the Social Democrats or the Socialists -- their choices would come from either the radical left or the extreme (and staunchly anti-Europe) right wing -- this could translate into a degree of political gridlock. An ambiguous electoral result could therefore have negative implications, at least in the short term, for economic policy. We continue to believe strongly, however, that the long-term program of economic reform that has reshaped the Portuguese economy during the 1990s will continue to move forward regardless of this fall's election results. The Eurocentric policies of the Portuguese government have served to enforce a degree of fiscal discipline -- the European Union's monetary convergence guidelines require that the government deficit be reduced from its present level of 5.6% of GDP to 3% in 1997 -- that perhaps Portugal would have been unable to muster on its own. This is, of course, a positive trend for the equity market. While political pressures have caused some relaxation of fiscal discipline in the run-up to the election, we expect that the picture will continue to improve as we move into 1996, whatever the electoral outcome. Meanwhile, the interest rate environment remains reasonably benign, although further cuts in rates (not likely in the near term) would certainly provide a welcome boost for the stock market. Unlike Spain, it has been Portugal's 1 THE PORTUGAL FUND, INC. ------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- policy in recent months to keep the Escudo in parity with the Deutschemark; this has led to a significant overvaluation of the Escudo relative to the Peseta, with a somewhat negative effect on the Portuguese trade balance. Nonetheless, exports remain relatively strong, as accelerating economic growth in Portugal's major European trading partners helps to boost import demand. The European recovery should also improve the picture for the Portuguese tourism industry. The economy is growing at a healthy pace, and the recession of 1993 is now clearly in the past. GDP growth for 1995 should come in at 2.5% or slightly more, and is likely to move toward 3% in 1996. The inflation picture, meanwhile, remains very positive. In the course of the past two years, Portuguese inflation has continued to decline, from a 9% rate in early 1993 to 6% by the mid-point of 1994, to a year-end low of under 4.5%. The government's inflation projection for 1995 is between 3.5% and 4.5%, and there should be no trouble in meeting this goal. So far this summer, the consumer price index is rising at only perhaps 0.2% per month. This is the lowest inflation rate Portugal has experienced since the 1960's, and we have seen no indications that the downward trend is likely to reverse itself. Meanwhile, the government's privatization program has continued on track, with several successful closings during the first half of the year. While momentum is likely to slow in the second half, interrupted by the electoral cycle, the new government -- whether Social Democrat or Socialist -- should resume the program with major sales in early 1996. These are likely to include companies in such major infrastructure sectors as electricity generation and cement, followed by the government-owned airline, tobacco monopoly and petroleum refineries. The privatization program has had a profound effect upon the Portuguese market. Already in the years between 1989 and 1992, the government's share of GDP shrunk from 17% to 12%; this figure is expected to reach 9% or less by the end of 1995. So far, the financial sector has felt the greatest impact, as the market share of nationalized banks has declined from nearly 100% to less than 50%. Even more dramatically, the recent completion of the privatization process has completely eliminated government ownership in the insurance industry, where the state's share quite recently approached 90%. Recent privatizations now account for nearly half of the capitalization of the Portuguese equity market and 1995 privatizations should account for an additional $1.5 billion or more. MARKET DEVELOPMENTS AND THE PORTFOLIO From inception on November 8, 1989 to June 30, 1995, the Morgan Stanley Capital International ("MSCI") Portugal Index decreased by 24.9%. During the same period, the net asset value of the Fund increased by 13.9%. During the six months ended June 30, 1995, the MSCI Portugal Index increased by 2.7%, compared to an increase of 5.2% in the Fund's net asset value. At present, the Portuguese equity market trades at a price/earnings ratio of 11.9 times projected 1995 earnings and 9.8 times projected 1996 earnings, levels that are below the market's historic average P/E ratio. Earnings growth for 1995 should come in at about 27.5%, up from 18.3% in 1994. Dividend yield is currently 4.2%. We believe that current valuations, combined with the prospects for strong economic and earnings growth throughout 1995 and 1996, provide for an encouraging investment outlook for the Fund in the coming year. We wish to remind shareholders whose shares are registered in their own names that they automatically participate in the Fund's reinvestment program. The automatic Dividend Reinvestment plan can be of value 2 THE PORTUGAL FUND, INC. ------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- to shareholders in maintaining their proportional ownership interest in the Fund in an easy and convenient way. A shareholder whose shares are held in the name of a broker/dealer or nominee should contact that party for details about participating in the Plan. The Fund also offers shareholders a voluntary Cash Purchase Plan. The Plan and the Cash Purchase Program are described on pages 15 through 17 of this report. We appreciate your interest in the Fund, and would be pleased to respond to your questions or comments. Respectfully, [LOGO] Emilio Bassini President and Chief Investment Officer* *Emilio Bassini, who is a member of the Executive Committee of BEA Associates and holds the offices of Chief Financial Officer and Executive Director of BEA Associates, is primarily responsible for management of the Fund's assets. He has served the Fund in such capacity since the commencement of the Fund's operations. Mr. Bassini joined BEA Associates (formerly Basic Appraisals, Inc. and BEA Associates Inc.) in 1984. Mr. Bassini is a Director, Chairman of the Board, President and Chief Investment Officer of the Fund and is also a Director, Chairman of the Board, President and Chief Investment Officer of The Chile Fund, Inc., The Emerging Markets Infrastructure Fund, Inc., The Emerging Markets Telecommunications Fund, Inc., The First Israel Fund, Inc., The Latin America Equity Fund, Inc., and The Latin America Investment Fund, Inc. He is also a Director, Chairman of the Board, President and Investment Officer of The Brazilian Equity Fund, Inc., as well as the President and Secretary of The Indonesia Fund, Inc. 3 THE PORTUGAL FUND, INC. ------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- PORTFOLIO SUMMARY AS OF JUNE 30, 1995 (unaudited) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC Retail Trade 19.40% Cash and cash equivalents 16.10% Foodstuffs, Beverages and Tobacco 12.30% Consumer Products 10.10% Forest Products and Paper 9.90% Construction and Public Works 8.70% Banks 5.90% Steel and Engineering 3.00% Telecommunications 3.00% Film Distribution 2.60% Other 9.00% 100.00%
THIS CHART REPRESENTS THE SECTOR ALLOCATION OF TOTAL NET ASSETS OF THE FUND. TOP 10 PORTUGUESE EQUITY HOLDINGS, BY ISSUER, AS OF JUNE 30, 1995 (unaudited) --------------------------------------------------------------------------------
PERCENT OF HOLDING SECTOR NET ASSETS ------------------------------------------------------------------------------------------ 1. Modelo Supermercados Retail Trade 14.17 % ------------------------------------------------------------------------------------------ 2. Sonae Investimentos Consumer Products 10.11 % ------------------------------------------------------------------------------------------ 3. Jeronimo Martins Food, Beverages and Tobacco 9.34 % ------------------------------------------------------------------------------------------ 4. Continente S.A., Modelo Hipermercados Retail Trade 5.25 % ------------------------------------------------------------------------------------------ 5. Soares da Costa Construction and Public Works 4.25 % ------------------------------------------------------------------------------------------ 6. Companhia de Celulose do Caima Forest Products and Paper 4.20 % ------------------------------------------------------------------------------------------ 7. Corticeira Amorim Forest Products and Paper 3.91 % ------------------------------------------------------------------------------------------ 8. Banco Totta and Acores Banks 3.25 % ------------------------------------------------------------------------------------------ 9. Engil-Sociedade Construcao Civil Construction and Public Works 3.20 % ------------------------------------------------------------------------------------------ 10. Portugal Telecom S.A. Telecommunications 3.03 % ------------------------------------------------------------------------------------------
4 THE PORTUGAL FUND, INC. ------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS JUNE 30, 1995 (unaudited)
VALUE NO. OF SHARES DESCRIPTION (NOTE A) --------------------------------------------------------------------------------------------- ----------- EQUITY SECURITIES-PORTUGAL-83.89% AUTO-1.49% 62,300 Salvador Caetano Industrias................................................... $ 1,193,710 ----------- BANKS-5.94% 122,902 Banco Portugues de Investimento............................................... 2,148,832 122,300 Banco Totta and Acores........................................................ 2,594,423 ----------- 4,743,255 ----------- CHEMICALS AND PETROLEUM PRODUCTS-0.86% 22,200 Corporacao Industria do Norte................................................. 685,144 ----------- CONSTRUCTION AND PUBLIC WORKS-8.66% 82,600 Caima-Ceramica e Servicos*.................................................... 816,771 12,100 Construtora do Tamega......................................................... 72,037 135,436 Engil-Sociedade Construcao Civil.............................................. 2,131,643 29,160 Engil-Sociedade Construcao Civil Preferred.................................... 425,030 190,920 Soares da Costa............................................................... 3,392,939 12,250 Somague*...................................................................... 79,637 ----------- 6,918,057 ----------- CONSUMER PRODUCTS-10.11% 337,300 Sonae Investimentos........................................................... 8,080,926 ----------- FILM DISTRIBUTION-2.63% 192,025 Filmes Lusomundo.............................................................. 2,102,473 ----------- FOOD, BEVERAGES AND TOBACCO-12.33% 99,000 Empresa Madeirense de Tabacos................................................. 965,390 146,400 Jeronimo Martins.............................................................. 7,463,629 45,446 Sumolis Industrial de Frutas e Bebidas........................................ 527,130 52,946 Unicer-Uniao Cervejeiro....................................................... 894,917 ----------- 9,851,066 ----------- FOREST PRODUCTS AND PAPER-9.90% 96,050 Companhia de Celulose do Caima................................................ 3,352,125 207,500 Corticeira Amorim............................................................. 3,123,874 105,281 Sonae Industria*.............................................................. 1,439,455 ----------- 7,915,454 ----------- HOTELS-0.39% 68,630 Sopete S.A. (Bearer)*......................................................... 312,312 ----------- VALUE NO. OF SHARES DESCRIPTION (NOTE A) --------------------------------------------------------------------------------------------- ----------- INSURANCE-0.71% 35,500 Tranquilidade CIA De Seguros.................................................. $ 567,484 ----------- INVESTMENT COMPANIES-1.83% 74,000 Investmentos Participacoes e Gestas S.A.*..................................... 1,460,933 ----------- MANUFACTURERS AND DISTRIBUTORS OF METAL PRODUCTS, MACHINERY, AND HEAVY EQUIPMENT-1.34% 63,100 Empresa Fabril de Maquinas Electricas......................................... 751,331 227,153 Oliva Industrias Metalurgicas*................................................ 318,658 ----------- 1,069,989 ----------- NON-METALLIC MINERAL PRODUCTS-0.90% 20,990 Vista Alegre (Fabrica de Porcelana)................................................................ 293,809 32,600 VA (Grupo Participaco)........................................................ 426,092 ----------- 719,901 ----------- RETAIL TRADE-19.42% 45,365 Continente S.A., Modelo Hipermercados......................................... 4,190,901 319,775 Modelo Supermercados.......................................................... 11,326,388 ----------- 15,517,289 ----------- STEEL AND ENGINEERING--2.98% 35,416 Construcoes Metalomecanicas Mague S.A......................................... 882,415 310,100 Lisnave-Estalier Navais Lisboa*............................................... 1,496,041 ----------- 2,378,456 ----------- TELECOMMUNICATIONS-3.03% 126,517 Portugal Telecom S.A.*........................................................ 2,424,151 ----------- TRANSPORTS AND WAREHOUSING-1.37% 21,700 Barbosa & Almeida S.A......................................................... 618,557 79,957 Tertir Terminais de Portugal*................................................. 472,741 ----------- $ 1,091,298 ----------- TOTAL EQUITY SECURITIES-PORTUGAL (Cost $48,028,050)............................................................. 67,031,898 -----------
5 THE PORTUGAL FUND, INC. ------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (unaudited) (continued)
PAR VALUE (000) DESCRIPTION (NOTE A) --------------------------------------------------------------------------------------------- ----------- SHORT-TERM INVESTMENTS-16.39% UNITED STATES-15.46% US$ 3,000 United States Treasury Bills 4.057%, 07/06/95**........................................................... $ 2,998,713 9,400 United States Treasury Bills 5.200%, 08/03/95**........................................................... 9,357,666 ----------- TOTAL UNITED STATES (Cost $12,349,224).......................................... 12,356,379 ----------- 744 GRAND CAYMAN--0.93% Brown Brothers Harriman & Co. Call Account 5.000% (Cost $744,000)***....................................... 744,000 ----------- PAR VALUE (000) DESCRIPTION (NOTE A) --------------------------------------------------------------------------------------------- ----------- TOTAL SHORT-TERM INVESTMENTS (Cost $13,093,224)............................................................. $13,100,379 ----------- TOTAL INVESTMENTS (Notes A, D) (Cost $61,121,274)--100.28%.................................................... 80,132,277 ----------- LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS--(0.28)%................................................. (227,124) ----------- NET ASSETS--100.00%............................................................. $79,905,153 ------------ ------------ ------------------------------ * Security is non-income producing. ** Effective yield on the date of purchase. *** Variable rate account. Rates reset on a monthly basis; amounts available generally on the same business day requested. US$ United States dollars.
See accompanying notes to financial statements. 6 THE PORTUGAL FUND, INC. ------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1995 (unaudited) ASSETS: Investments, at value (Cost $61,121,274) (Note A) $80,132,277 Cash 652 Dividends receivable 12,533 Prepaid insurance 15,814 ----------- Total Assets 80,161,276 ----------- LIABILITIES: Payables: Due to adviser (Note B) 196,420 Due to administrators (Note B) 15,905 Other accrued expenses 43,798 ----------- Total Liabilities 256,123 ----------- NET ASSETS (applicable to 5,299,361 shares of common stock outstanding) (Note C) $79,905,153 ----------- ----------- NET ASSET VALUE PER SHARE ($79,905,153 DIVIDED BY 5,299,361) $15.08 ----------- ----------- Net assets consist of: Capital stock, $0.001 par value; 5,299,361 shares issued and outstanding (100,000,000 shares authorized) $ 5,299 Paid-in capital 73,066,980 Undistributed net investment income 944,956 Accumulated realized losses on investments and foreign currency related transactions (13,123,250) Net unrealized appreciation in value of investments and other assets and liabilities denominated in foreign currency 19,011,168 ----------- Net assets applicable to shares outstanding $79,905,153 ----------- -----------
See accompanying notes to financial statements. 7 THE PORTUGAL FUND, INC. ------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995 (unaudited) INVESTMENT INCOME: Income (Note A): Dividends $1,579,501 Interest 306,891 Less: Foreign taxes withheld (269,614) ---------- Total Investment Income 1,616,778 ---------- Expenses: Investment advisory fees (Note B) 379,226 Custodian fees (Note B) 45,598 Administration fees (Note B) 42,067 Printing 26,040 Transfer agent fees 17,704 Audit fees 17,014 Directors' fees (Note B) 13,808 Insurance 9,760 Legal fees 5,079 Other 10,425 ---------- Total Expenses 566,721 ---------- Net Investment Income 1,050,057 ---------- NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS AND FOREIGN CURRENCY RELATED TRANSACTIONS: Net realized gain/(loss) from: Investments 4,434,851 Foreign currency related transactions (94,189) Net change in unrealized appreciation in value of investments and translation of other assets and liabilities denominated in foreign currency (1,402,991) ---------- Net realized and unrealized gain on investments and foreign currency related transactions 2,937,671 ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,987,728 ---------- ----------
See accompanying notes to financial statements. 8 THE PORTUGAL FUND, INC. ------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED FOR THE YEAR JUNE 30, 1995 ENDED DECEMBER (unaudited) 31, 1994 ------------- ----------------- INCREASE/(DECREASE) IN NET ASSETS: Operations: Net investment income $ 1,050,057 $ 329,048 Net realized gain on investments and foreign currency related transactions 4,340,662 1,576,651 Net change in unrealized appreciation/(depreciation) in value of investments and translation of assets and liabilities denominated in foreign currency (1,402,991) 7,968,046 ------------- ----------------- Net increase in net assets resulting from operations 3,987,728 9,873,745 ------------- ----------------- Dividend to shareholders from: Net investment income ($0.00 and $0.06 per share, respectively) -- (317,918) ------------- ----------------- Capital share transactions: Proceeds from 702 and 89 shares, respectively, issued in reinvestment of dividends 9,307 1,306 ------------- ----------------- Total increase in net assets 3,997,035 9,557,133 NET ASSETS: Beginning of period 75,908,118 66,350,985 ------------- ----------------- End of period (including undistributed net investment income of $944,956 and distributions in excess of net investment income of $105,101, respectively) $79,905,153 $ 75,908,118 ------------- ----------------- ------------- -----------------
See accompanying notes to financial statements. 9 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. --------------------------------------------------------------------------------
FOR THE PERIOD FOR THE SIX NOVEMBER 9, MONTHS 1989* ENDED JUNE FOR THE YEAR ENDED DECEMBER 31, THROUGH 30, 1995 ------------------------------------------------------- DECEMBER 31, (UNAUDITED) 1994 1993 1992 1991 1990 1989 ----------- --------- -------- --------- -------- --------- ------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $14.33 $12.52 $8.90 $10.77 $10.96 $13.79 $13.79** ----------- --------- -------- --------- -------- --------- ------------- Net investment income 0.20 0.06 0.07 0.11 0.13 0.16 0.04 Net realized and unrealized gain/(loss) on investments and foreign currency related transactions 0.55 1.81 3.55 (1.92) (0.21) (2.87) 0.04 ----------- --------- -------- --------- -------- --------- ------------- Net increase/(decrease) in net assets resulting from operations 0.75 1.87 3.62 (1.81) (0.08) (2.71) 0.08 ----------- --------- -------- --------- -------- --------- ------------- Distributions to shareholders from: Net investment income -- (0.06) -- (0.06) (0.11) (0.12) (0.04) In excess of net investment income -- -- -- -- -- -- (0.04) ----------- --------- -------- --------- -------- --------- ------------- Total distributions to shareholders -- (0.06) -- (0.06) (0.11) (0.12) (0.08) ----------- --------- -------- --------- -------- --------- ------------- Net asset value, end of period $15.08 $14.33 $12.52 $8.90 $10.77 $10.96 $13.79 ----------- --------- -------- --------- -------- --------- ------------- ----------- --------- -------- --------- -------- --------- ------------- Market value, end of period $13.50 $13.875 $14.125 $8.00 $9.75 $9.25 $17.00 ----------- --------- -------- --------- -------- --------- ------------- ----------- --------- -------- --------- -------- --------- ------------- Total investment return (a) (0.03)% (1.70)% 77.86% (17.05)% 6.72% (45.26)% 136.77% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's omitted) $79,905 $75,908 $66,351 $47,134 $57,036 $58,084 $73,023 Ratio of expenses to average net assets 1.49%(c) 1.41% 1.97% 1.92% 1.96% 2.04% 2.26%(c) Ratio of net investment income to average net assets 2.75%(c) 0.43% 0.66% 1.07% 1.20% 1.38% 2.03%(c) Portfolio turnover 11.72%(b) 15.47% 24.47% 39.07% 13.31% 10.09% -- Average commission rate per share $0.11 ------------------------------ * Commencement of operations ** Initial public offering price of $15.00 per share less underwriting discount of $1.05 per share offering expenses of $0.16 per share. (a) Total investment return at market value is based on the changes in market price of a share during the period and assumes reinvestment of distributions at actual prices pursuant to the Fund's dividend reinvestment plan. Total investment return does not reflect brokerage commissions or initial underwriting discounts and has not been annualized. (b) Not annualized. (c) Annualized.
See accompanying notes to financial statements. 10 THE PORTUGAL FUND, INC. ------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (unaudited) NOTE A. The Portugal Fund, Inc. (the "Fund") was incorporated in Maryland on August 11, 1989 and commenced operations on November 9, 1989. The Fund is registered under the Investment Company Act of 1940, as amended, as a closed-end, non-diversified management investment company. Significant accounting policies are as follows: PORTFOLIO VALUATION: Investments are stated at value in the accompanying financial statements. All equity securities for which market quotations are readily available are valued at the last sales price prior to the time of determination, or, if no sales price is available at that time, at the closing price quoted for the securities (but if bid and asked quotations are available, at the mean between the last current bid and asked prices). Securities that are traded over-the-counter are valued at the mean between the current bid and the asked prices, if available. All other securities and assets are valued at the fair value as determined in good faith by the Board of Directors. Short-term investments having a maturity of 60 days or less are valued on the basis of amortized cost. The net asset value per share of the Fund is calculated weekly and at the end of each month and at any other times determined by the Board of Directors. INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are accounted for on the trade date. The cost of investments sold is determined by use of the specific identification method for both financial reporting and income tax purposes. Interest income is recorded on an accrual basis; dividend income is recorded on the ex-dividend date. TAXES: No provision is made for U.S. federal income or excise taxes as it is the Fund's intention to qualify as a regulated investment company and to make the requisite distributions to its shareholders which will be sufficient to relieve it from all or substantially all federal income and excise taxes. At December 31, 1994, the Fund had a capital loss carryover for federal income tax purposes of $17,020,089 of which $4,248,585 expires in 1999; $7,111,076 expires in 2000, $5,595,695 expires in 2001 and $64,733 expires in 2002. Accumulated net realized losses differ for financial statement and tax purposes primarily because of the deferral of wash sale losses. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes due to U.S. generally accepted accounting principles/tax differences in the character of income and expense recognition. The Fund is subject to Portuguese corporate income tax at a rate of 15%-20% on dividends received from Portuguese resident corporations from exchange-listed shares and 15% from privatized companies within the first five years after the privatization. Furthermore, the Fund is subject to a 25% corporate tax on interest 11 THE PORTUGAL FUND, INC. ------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (unaudited) (continued) from Portuguese debt securities and bonds, although the effective rate on bonds issued in 1989 (other than public debt bonds) is 20%. The tax is withheld by the payor corporation. Capital gains realized by the Fund on the sale of securities are exempt from Portuguese tax. FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis: (I) market value of investment securities, assets and liabilities at the current rate of exchange; and (II) purchases and sales of investments securities, income and expenses at the rate of exchange prevailing on the respective dates of such transactions. The Fund does not isolate that portion of gains and losses on investments in equity securities which is due to changes in the foreign exchange rate from that which is due to changes in market prices of equity securities. The Fund reports certain foreign currency related transactions as components of realized gains for financial reporting purposes, whereas such components are treated as ordinary income for Federal income tax purposes. DISTRIBUTION OF INCOME AND GAINS: The Fund distributes at least annually to shareholders substantially all of its net investment income and net realized short-term capital gains, if any. The Fund determines annually whether to distribute any net realized long-term capital gains in excess of net realized short-term capital losses, including capital loss carryovers if any, although it currently expects to distribute such gains. An additional distribution may be made to the extent necessary to avoid the payment of a 4% U.S. federal excise tax. Dividends and distributions to shareholders are recorded by the Fund on the ex-dividend date. OTHER: Securities denominated in currencies other than U.S. dollars are subject to changes in value due to fluctuations in exchange rates. The repatriation of both investment income and capital from Portugal is controlled under regulations, including, in some cases, the need for certain advance government notification or authority. Foreign investment in Portugal by the Fund may be subject to the prior authorization of the Bank of Portugal or the Portuguese Foreign Trade Institute, depending on the type of investment. The Portuguese securities markets are substantially smaller, less liquid and more volatile than the major securities markets in the United States. Consequently, acquisition and disposition of securities by the Fund may be inhibited. A high proportion of the shares of some Portuguese listed companies are held by a limited number of persons, which may limit the number of shares available for acquisition by the Fund. Restrictions on foreign ownership could also restrict the Fund's ability to acquire shares in certain companies. NOTE B. BEA Associates serves as the Fund's investment adviser. As compensation for its advisory services, BEA Associates receives an annual fee, calculated monthly and paid quarterly, equal to 1.00% of the Fund's average monthly net assets. In addition, BEA receives from the Fund an administration fee which represents a reimbursement of certain Fund expenses. For the six months ended June 30, 1995, the advisory and administration fees amounted to $379,226 and $2,041, respectively. 12 THE PORTUGAL FUND, INC. ------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (unaudited) (continued) Through June 29, 1995, PFPC Inc. ("PFPC") served as the Fund's administrator. The Fund paid PFPC a fee that was computed monthly and paid quarterly at an annual rate of 0.10% of the value of the Fund's weekly net assets, with a minimum annual fee. For the period January 1, 1995 through June 29, 1995, PFPC earned $39,600 for administrative services. Effective June 30, 1995, Bear Stearns Funds Management Inc. ("BSFM") serves as the Fund's administrator. The Fund will pay BSFM a monthly fee that is computed weekly at an annual rate of 0.09% of the Fund's average weekly net assets. The Fund pays each of its Directors who is not a director, officer or employee of BEA Associates, the administrator, or any affiliate thereof an annual fee of $5,000 plus $500 for each Board of Directors meeting attended. In addition, the Fund will reimburse these Directors for travel and out-of-pocket expenses incurred in connection with Board of Directors meetings. Through June 13, 1995, Citibank, N.A. served as the custodian of the Fund's foreign assets and PNC Bank, N.A., served as the custodian of the Fund's assets in the United States. Effective June 14, Brown Brothers Harriman & Co. serves as the custodian for all of the Fund's U.S. and foreign assets. NOTE C. The authorized capital stock of the Fund is 100,000,000 shares of common stock, $0.001 par value. Of the 5,299,361 shares outstanding at June 30, 1995, BEA Associates owned 7,206 shares. NOTE D. For U.S. federal income tax purposes, the cost of securities owned at June 30, 1995 was $61,565,098. Accordingly, the net unrealized appreciation of investments (including investments denominated in foreign currency) of $18,567,179 was composed of gross appreciation of $25,104,637 for those investments having an excess of value over cost and gross depreciation of $6,537,458 for those investments having an excess of cost over value. For the six months ended June 30, 1995, purchases and sales of securities, other than short-term obligations, aggregated $7,644,272 and $11,380,864, respectively. NOTE E. The Fund, along with 15 other U.S. regulated investment companies for which BEA serves as investment adviser, has a credit agreement with The First National Bank of Boston. The agreement provides that each fund is permitted to borrow an amount equal to the lesser of $50,000,000 or 25% of the net assets of the fund. However, at no time shall the aggregate outstanding principal amount of all loans to any of the 16 funds exceed $50,000,000. The line of credit will bear interest at (i) the greater of the bank's prime rate or the Federal Funds Effective Rate plus 0.50% or (ii) the Adjusted Eurodollar Rate plus 1.50%. The Fund had no amounts outstanding under the line of credit agreement at June 30, 1995. 13 THE PORTUGAL FUND, INC. ------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (unaudited) (continued) NOTE F. Quarterly Results of Operations:
NET GAIN/(LOSS) NET INCREASE/ ON INVESTMENT AND (DECREASE) IN FOREIGN CURRENCY NET ASSETS INVESTMENT NET INVESTMENT DENOMINATED RESULTING FROM INCOME INCOME/(LOSS) TRANSACTIONS OPERATIONS MARKET PRICE --------------- --------------- ------------------- ---------------- ON NYSE TOTAL PER TOTAL PER TOTAL PER TOTAL PER ---------------- QUARTER ENDED (000) SHARE (000) SHARE (000) SHARE (000) SHARE HIGH LOW ------------------- ------ ------- ------ ------- --------- ------- ------- ------- ------- ------- March 31, 1995..... $ 120 $0.02 $(151) $ (0.03) $ 723 $ 0.13 $ 572 $ 0.10 $13.875 $10.875 June 30, 1995...... 1,497 0.29 1,201 0.23 2,215 0.42 3,416 0.65 14.250 12.375 ------ ------- ------ ------- --------- ------- ------- ------- Totals............. $1,617 $0.31 $1,050 $ 0.20 $ 2,938 $ 0.55 $ 3,988 $ 0.75 ------ ------- ------ ------- --------- ------- ------- ------- ------ ------- ------ ------- --------- ------- ------- ------- March 31, 1994..... $ 72 $0.01 $(209) $ (0.04) $ 15,347 $ 2.90 $15,138 $ 2.86 $15.875 $12.625 June 30, 1994...... 1,124 0.21 900 0.17 (10,769) (2.03) (9,869) (1.86) 13.875 12.000 September 30, 1994.............. 107 0.02 (179) (0.04) 7,338 1.39 7,159 1.35 15.875 11.625 December 31, 1994.. 104 0.02 (183) (0.03) (2,371) (0.45) (2,554) (0.48) 17.000 13.500 ------ ------- ------ ------- --------- ------- ------- ------- Totals............. $1,407 $0.26 $ 329 $ 0.06 $ 9,545 $ 1.81 $ 9,874 $ 1.87 ------ ------- ------ ------- --------- ------- ------- ------- ------ ------- ------ ------- --------- ------- ------- ------- March 31, 1993..... $ 80 $0.02 $(170) $ (0.03) $ 3,445 $ 0.65 $ 3,275 $ 0.62 $ 8.750 $ 7.875 June 30, 1993...... 1,288 0.24 1,025 0.19 2,029 0.38 3,054 0.57 10.125 8.500 September 30, 1993.............. 46 0.01 (243) (0.05) 8,789 1.66 8,546 1.61 12.125 10.000 December 31, 1993.. 61 0.01 (243) (0.04) 4,581 0.86 4,338 0.82 14.125 12.000 ------ ------- ------ ------- --------- ------- ------- ------- Totals............. $1,475 $0.28 $ 369 $ 0.07 $ 18,844 $ 3.55 $19,213 $ 3.62 ------ ------- ------ ------- --------- ------- ------- ------- ------ ------- ------ ------- --------- ------- ------- -------
-------------------------------------------------------------------------------- RESULTS OF ANNUAL MEETING OF SHAREHOLDERS On April 25, 1995, the Fund's Annual Meeting of Shareholders was held and the following matters were voted upon: (1) To reelect two directors to the Board of Directors of the Fund.
VOTES BROKER NAME OF DIRECTOR VOTES FOR AGAINST VOTES WITHHELD NON-VOTES ------------------------- ---------- ------------ -------------- ---------- Daniel Sigg.............. 4,061,471 -- 103,319 1,134,571 Martin Torino............ 4,060,670 -- 104,120 1,134,571
In addition to the directors elected at the meeting, Emilio Bassini, James Cattano, and Jonathan Lubell continue to serve as directors of the Fund. (2) To ratify the selection of Coopers & Lybrand L.L.P. as independent public accountants for the year ending December 31, 1995.
BROKER VOTES FOR VOTES AGAINST VOTES WITHHELD NON-VOTES ---------- ------------- --------------- ---------- 4,073,378 67,115 24,297 1,134,571
14 THE PORTUGAL FUND, INC. ------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- DESCRIPTION OF THE FUND'S DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN Pursuant to the Fund's Dividend Reinvestment and Cash Purchase Plan (the "Plan"), each shareholder will be deemed to have elected, unless the Fund's transfer agent, as the Plan Agent (the "Plan Agent"), is otherwise instructed by the shareholder in writing, to have all dividends and distributions, net of any applicable U.S. withholding tax, automatically reinvested in additional shares of the Fund. Shareholders who do not participate in the Plan will receive all dividends and distributions in cash, net of any applicable U.S. withholding tax, paid in dollars by check mailed directly to the shareholder by the Plan Agent, as dividend-paying agent. Shareholders who do not wish to have dividends and distributions automatically reinvested should notify the Plan Agent for the Fund at the address set forth below. Dividends and distributions with respect to shares registered in the name of a broker-dealer or other nominee (i.e., in "street name") will be reinvested under the Plan unless such service is not provided by the broker or nominee or the shareholder elects to receive dividends and distributions in cash. A shareholder whose shares are held by the broker or nominee that does not provide a dividend reinvestment program may be required to have his shares registered in his own name to participate in the Plan. Investors who own shares of the Fund's common stock registered in street name should contact the broker or nominee for details concerning participation in the Plan. Certain distributions of cash attributable to (a) some of the dividends and interest amounts paid to the Fund and (b) certain capital gains earned by the Fund that are derived from securities of certain foreign issuers are subject to taxes payable by the Fund at the time amounts are remitted. Such taxes, if any, will be borne by the Fund and allocated to all shareholders in proportion to their interests in the Fund. The Plan Agent serves as agent for the shareholders in administering the Plan. If the Board of Directors of the Fund declares an income dividend or a capital gains distribution payable either in the Fund's common stock or in cash, as shareholders may have elected, nonparticipants in the Plan will receive cash and participants in the Plan will receive common stock to be issued by the Fund. If the market price per share on the valuation date equals or exceeds net asset value per share on that date, the Fund will issue new shares to participants valued at net asset value or, if the net asset value is less than 95% of the market price on the valuation date, then valued at 95% of the market price. If net asset value per share on the valuation date exceeds the market price per share on that date, participants in the Plan will receive shares of stock from the Fund valued at the market price. The valuation date is the dividend or distribution payment date or, if that date is not a New York Stock Exchange trading day, the next preceding trading day. If the Fund should declare an income dividend or capital gains distribution payable only in cash, the Plan Agent will, as agent for the participants, buy Fund shares in the open market, on the New York Stock Exchange or elsewhere, for the participants' accounts on, or shortly after, the payment date. Participants in the Plan have the option of making additional cash payments to the Plan Agent, semiannually, in any amount from $100 to $3,000, for investment in the Fund's common stock. The Plan Agent will use all funds received from participants to purchase Fund shares in the open market on or about 15 THE PORTUGAL FUND, INC. ------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- February 15 and August 15 of each year. Any voluntary cash payments received more than 30 days prior to these dates will be returned by the Plan Agent and interest will not be paid on any uninvested cash payments. To avoid unnecessary cash accumulations, and also to allow ample time for receipt and processing by the Plan Agent, it is suggested that participants send in voluntary cash payments to be received by the Plan Agent approximately 10 days before February 15 or August 15, as the case may be. A participant may withdraw a voluntary cash payment by written notice, if the notice is received by the Plan Agent not less than 48 hours before the payment is to be invested. A participant's tax basis in his shares acquired through this optional investment right will equal his cash payments to the Plan, including any cash payments used to pay brokerage commissions allocable to his acquired shares. The Plan Agent maintains all shareholder accounts in the Plan and furnishes written confirmations of all transactions in the account, including information needed by shareholders for personal and tax records. Shares in the account of each Plan participant will be held by the Plan Agent in the name of the participant and each shareholder's proxy will include those shares purchased pursuant to the Plan. In the case of a shareholder, such as a bank, broker or nominee, that holds shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of shares certified from time to time by the shareholder as representing the total amount registered in the shareholder's name and held for the account of beneficial owners who are to participate in the Plan. There is no charge to participants for reinvesting dividends or capital gains distributions payable in either stock or cash. The Plan Agent's fees for the handling of reinvestment of such dividends and capital gains distributions will be paid by the Fund. There will be no brokerage charges with respect to shares issued directly by the Fund as a result of dividends or capital gains distributions payable either in stock or in cash. However, each participant will be charged by the Plan Agent a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with voluntary cash payments made by the participant or the reinvestment of dividends or capital gain distributions payable only in cash. Brokerage charges for purchasing small amounts of stock for individual accounts through the Plan are expected to be less than the usual brokerage charges for such transactions because the Plan Agent will be purchasing stock for all participants in blocks and prorating the lower commission thus obtainable. Brokerage commissions will vary based on, among other things, the broker selected to effect a particular purchase and the number of participants on whose behalf such purchase is being made. The Fund cannot predict, therefore, whether the cost to a participant who makes a voluntary cash payment will be less than if a participant were to make an open market purchase of the Fund's common stock on his own behalf. The receipt of dividends and distributions in the stock under the Plan will not relieve participants of any income tax (including withholding tax) that may be payable on such dividends or distributions. The Fund and the Plan Agent reserve the right to terminate the Plan as applied to any voluntary cash payments made and any dividend or distribution paid subsequent to notice of the termination sent to the members of the Plan at least 30 days before the semiannual contribution date, in the case of voluntary cash payments, or the record date for dividends or distributions. The Plan also may be amended by the Fund or the Plan Agent, but (except when necessary or appropriate to comply with applicable law, rules or policies of 16 THE PORTUGAL FUND, INC. ------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- a regulatory authority) only by at least 30 days' written notice to members of the Plan. All correspondence concerning the Plan should be directed as follows: Inquiries made before September 5, 1995 should be directed to PNC Bank, National Association, c/o PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809 or by telephone at 1-800-852-4750. Inquiries made on or after September 5, 1995, should be directed to Bank of Boston, Investor Relations Department, P.O. Box 644, Mail Stop 45-02-09, Boston, Massachusetts 02102-0644 or by telephone at 1-800-730-6001. 17 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INVESTMENT ADVISER BEA Associates New York, New York ADMINISTRATOR Bear Stearns Funds Management Inc. New York, New York TRANSFER AGENT AND REGISTRAR PNC Bank, N.A. Philadelphia, Pennsylvania CUSTODIAN Brown Brothers Harriman & Co. Boston, Massachusetts INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P. Philadelphia, Pennsylvania This report, including the financial statements herein, is sent to the shareholders of the Fund for their information. The financial information included herein is taken from the records of the Fund without examination by independent accountants who do not express an opinion thereon. It is not a prospectus, circular or representation intended for use in the purchase or sale of shares of the Fund or of any securities mentioned in this report. THE PORTUGAL FUND, INC. ----------------------------- [LOGO] THE PORTUGAL FUND, INC. SEMI-ANNUAL REPORT JUNE 30, 1995 (UNAUDITED)