The net profit of the financial year ended on 31 December 2004 was in the amount of Euro 500,085,704.

In accordance with the law and the company’s articles of association, 5% of the net profit of the financial year should be allocated to the legal reserve until the latter amounts to at least 20% of the share capital.

In compliance with the law and the company’s articles of association, the Board of Directors proposes that Euro 25,004,286, corresponding to 5% of the net profit of the year, be allocated to the legal reserve.

In view of Portugal Telecom’s present financial situation and assets and the aforementioned mandatory allocation of the net profit of the financial year, in the amount of Euro 500,085,704, the Board of Directors proposes that, of the remaining yearly net profit in the amount of Euro 475,08,418, an amount of Euro 66,811,650 be allocated to retained earnings and an amount of Euro 408,269,768 be paid by way of dividends, corresponding to a dividend of Euro 0,35 per share with respect to the total amount of issued shares.

Also considering that the global amount of Euro 408,269,768, allocated in the preceding number for dividends, was calculated, as is standard practice, on the basis of a unit dividend per share issued (in the present case, Euro 0,35 per share), and that it is not possible to determine precisely the number of own shares that will be held in portfolio on the date of payment of dividends without limiting the company’s ability of intervention, namely in the increase of liquidity of its securities, it is hereby recommended, with regard to the resolution for distribution of dividends as provided for in number four herein:

that each share issued be paid the dividend of Euro 0,35 that presided over the preparation of the proposal;

not to pay, and to carry forward to a new account, the unit amount corresponding to the shares that belong to the company (own shares) on the first day of the dividend payment period.

Also considering the right to a dividend vested in such shares as a result from exercising the right to convert convertible bonds issued, it is further recommended, with regard to the resolution for distribution of dividends as provided for in number four herein:

that each share entitled to a dividend resulting from the exercise of the right to convert convertible bonds issued be paid the said amount of Euro 0,35 per share;

that the payment in connection with each share resulting from the exercise of the right to convert convertible bonds issued be also carried out by using free reserves.

the general regime applicable to commercial companies with regard to the purchase and disposal of own shares;

the convenience for the company in being able to continue to make use, in the general terms, of the possibilities that are inherent to such operations;

that the same interest exists also with regard to subsidiaries, which may even be obligated to purchase or dispose of company shares, namely as provided in the terms of issue of own securities, an interest which, without prejudice to the provision in Article 319, no. 3 of the Companies Code, is also convenient to provide for;

that the Board of Directors made public its intention of developing a share buyback programme;

that Regulation no. (CE)2273/2003 of the Commission, of 22 December 2003, establishing a special regime containing, in particular, exemption requirements from the general regime of market abuse for certain share buyback programmes, requirements which is convenient to be taken into account even in the case of acquisitions out of the scope of the programmes included therein,

To approve the purchase by the company, or by any subsidiaries, present or future, of own shares, including any rights to the purchase or attribution thereof, subject to a decision by the Board of Directors of the acquiring company and in the following terms:

Maximum number of shares to be purchased: up to the limit corresponding to ten percent of the share capital, with deduction of any disposals made, without prejudice to such quantity as may be required for fulfilling the buyer’s obligations established by law, by contract or by an issue of securities, or arising from any contractual obligation to execute the company’s stock options plan, subject, if applicable, to subsequent disposal, as established by law, of such shares as may exceed the said limit, and without prejudice to the acquisition of own shares for the purpose of executing a resolution for a capital reduction resolved by the general meeting, in which case the specific limits stipulated in the reduction resolution shall
Subject to the requirements established by law and in this resolution, acquisition made by the Board of Directors within the scope of a share buyback programme is hereby approved, such acquisition being made in any of the forms established in this resolution, namely in subparagraph c) of this number 1). apply;

Time during which the acquisition may be made: eighteen months from the date of this resolution;

Forms of acquisition: subject to the terms and limits imperatively established by law, acquisition of shares, or rights of acquisition or attribution of shares, for a price, in any form, in a stock-exchange, and over-the-counter acquisition, in compliance with the principle of equality of shareholders as established by law, in particular from a financial institution (namely, Citigroup Global Markets Limited and ABN AMRO Bank N.V.) with which the company has entered into an equity swap agreement or other similar instruments, or acquisition at any title for, or by virtue of, the fulfilment of an obligation established by law or contract, or conversion or exchange of convertible or exchangeable securities issued by the company or a subsidiary, in accordance with the relevant terms of issue or any contracts executed with regard to any conversion or exchange;

Minimum and maximum consideration of acquisitions: the price of onerous acquisition should fall within an interval of fifteen percent less or more with reference to the lower and the average trading price, respectively, of the shares to be purchased in the domestic exchanges during the 5 exchange sessions immediately preceding the date of purchase or the constitution of the right of acquisition or attribution of shares, or correspond to the acquisition price resulting from any contracted financial instruments, from the terms of issue, carried out by the company or any subsidiary, of securities convertible in, or exchangeable for, company shares, or from contracts entered into in connection with such conversions or exchanges;

Time of acquisition: to be determined by the administrative body of the acquiring company, taking into account the situation of the securities market and the convenience or obligations of the purchaser, the company or any subsidiary thereof, and being made in one or more times and in such proportions as the said board of directors may stipulate.

To approve the disposal of own shares that may have been acquired, subject to a resolution of the selling company’s administrative body and in the following terms:

Minimum number of shares to be disposed of: the number corresponding to the minimum block of shares which at the time of disposal is legally stipulated for the shares of the company, or such lesser quantity as may be sufficient to fulfil any obligation undertaken by virtue of the law, a contract or the issue of other securities;

Time during which the disposal may take place: eighteen months from the date of this resolution;

Forms of disposal: subject to the terms and conditions imperatively established by law, onerous disposal in any form, in particular by sale or exchange, to be made at the stock exchange or over-the-counter to certain entities designated by the selling company’s administrative body, in compliance with the principle of equality of shareholders as established by law, in particular financial institutions counter-parties in derivatives agreements, or any gratuitous disposal within the scope of an attribution to employees, with a total maximum limit equal to the amount corresponding to 50 shares per employee or where the disposal is decided within the scope of, or in connection with, a proposal of allocation of profits or distribution of reserves in kind, without prejudice to, in the case of any disposal in fulfilment of an obligation or arising from the issue of other securities by the company or subsidiary, or of contracts related to such issue, or contractual obligation to execute the stock options plan of the company, it being made in accordance with the relevant applicable terms and conditions;

Minimum price: a consideration of no more than fifteen percent below the average trading price in the domestic stock exchange of the shares to be disposed of during the 5 exchange sessions immediately preceding the date of disposal, or such price as may be stipulated or result from the terms and conditions of issue of other securities, namely convertible or exchangeable securities, or from any contract entered into in connection with such issue, conversion or exchange, in the case of a disposal arising therefrom;

Time of disposal: to be determined by the administrative body of the selling company, taking into account the conditions of the securities market and the convenience or obligations of the seller, the company or any subsidiary, and made in one or more times and in such proportions as such administrative body may stipulate.

To approve to indicate to the Board of Directors that, without prejudice to its freedom of decision and action within the scope of the resolutions in numbers 1 and 2, it takes into account, in the terms and depending on the circumstances that it deems relevant (and, especially, as regards acquisitions comprised in repurchase programmes aimed at the satisfaction of conversion rights of bonds or other securities, or stock options or similar rights, or others that may be the object of the Regulation referred in Whereas E)), in addition to the recommendations of the Comissão do Mercado de Valores Mobiliários at each moment in force, the following practices advisable as regards the acquisition and disposal of own shares under the authorizations granted in accordance with the previous numbers:

public disclosure to the public, before the beginning of the acquisition and disposal operations, of the content of the preceding authorization, in particular, its goal, the maximum counter-value of the acquisition, the maximum number of shares to be acquired and the term authorized for such purpose;

record maintenance of each operation carried out within the scope of the previous authorizations;

public disclosure of the operations carried out until the end of the seventh day of the negotiation session following the date in which such operations take place;

execution of the operations in conditions of time, form and volume that do not disturb the regular functioning of the market, namely trying to avoid its execution in sensitive moments of the negotiation, in particular, at the opening and closing of the session, in moments of disturbance in the market, in moments close to the disclosure of material events or of announcement of results;

carrying out of the acquisitions at a price not higher than the highest of the last independent operation and of the independent offer of the greatest amount at the time of acquisition in the official listing market of Euronext Lisbon;

limitation of the acquisitions to 25% of the daily average negotiation volume, or to 50% of such volume through communication to the competent authority and disclosure to the market;

abstaining from disposal during the possible execution of a repurchase programme within the scope of Whereas E).

The company’s permanent concern and the prominence and leading role it has always assumed in terms of corporate governance;

That several of the Portuguese Securities Market Commission’s most recent recommendations on the governance of listed companies, which the company agrees to and adopts, have an effect on the company’s articles of association,

(…)

Shareholders intending to be present at a general meeting must, no later than five working days prior to the respective meeting, demonstrate that their shares have been entered in a book-entry account, in addition to producing the declaration referred to in number twelve, within the same time frame.

Holders of share certificates, when lawfully permitted and when intending to participate in a general meeting, must have their shares registered in their name in the company’s share registry, no later than five days prior to the date scheduled for the meeting, or, within the same time frame, demonstrate that such shares have been deposited with a financial intermediary, which shall be legally acceptable in lieu of such a registration, in addition to producing the declaration referred to in number twelve.

(…)

Each Euro 500 of share capital shall be entitled to one vote, with shareholders having less share capital being entitled to form groups, and arrange to be represented by one of the group’s members, in order to make up the number of shares required to exercise their voting rights.

Votes in respect of all of the matters set out in a call to a general shareholders’ meeting may be cast by mail or electronic post, in accordance with the relevant terms and conditions set forth in such call to a meeting, with the chairman of the General Meeting being able to subject votes cast by electronic post to verification procedures in order to ensure that such terms and conditions were met.

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That the board of directors has announced its intention of developing a significant share buyback programme;

That a corresponding resolution to reduce share capital by the cancellation of company shares to be acquired up to the equivalent of 10% of then existing share capital was passed at the annual shareholders’ meeting of 2004;

That, in light of the market conditions and in the execution of the resolution mentioned in B above, the company, prior to the date established in such resolution, acquired a total of 87,799,950 ordinary shares, corresponding to 7% of its then existing share capital, has cancelled such shares and executed the corresponding capital reduction;

That the extension of the share buyback programme is justified in order to acquire the shares remaining from prior buyback program, which it was not possible to acquire in 2004, and to acquire and cancel up to an additional 10% of the share capital, including the shares whose intended acquisition was announced by the board of directors on 14 September 2004;

That it is foreseen that the company is in a position to exclusively use assets which, in accordance with articles 32 and 33 of the Commercial Companies Code, could be distributed to shareholders, in order to repurchase shares in connection with the share buyback program; however, taking into account the current legal regime (namely that corporate creditors are protected by a means other than judicial authorisation), it is considered advisable that the capital reduction should be effected through the cancellation of company shares acquired further to this resolution;

That, paragraph b), of number 2, of article 463 of the Commercial Companies Code requires the company to set up a special reserve in an amount equivalent to the nominal value of company shares to be cancelled that have been acquired further to this resolution;

That, pursuant to the terms and conditions of certain bond issuances, the share buyback program and related capital reduction may impact the conversion price of convertible bonds issued by the company.

To reduce the share capital by Euro 116,648,505 through the cancellation of 116,648,505 company shares, with the shares to be cancelled being the shares to be acquired by the company further to this resolution and with the reduction intended for the special purpose of executing the share buyback programme and corresponding release of excess capital.

To approve the acquisition of up to 116,648,505 ordinary shares in connection with the capital reduction mentioned in 1) above, which acquisition, including the quantities referred to, is in addition to and independent from acquisitions referred to in the general resolution on the acquisition and cancellation of company shares approved under Item 6 on the agenda of this meeting, with the terms and conditions of such general resolution applying to the acquisitions herein decided, with the following specific exceptions:

The acquisition period is the one referred to in 4);

The acquisitions shall exclusively be made on a stock exchange, with the exception of the 50 class A shares referred to in number 3 of this resolution.

That, the capital reduction not being limited to a certain class of shares, the shares to be acquired under the preceding number 2 may include 50 class A shares, in the event that the relevant public shareholding entity(ies) should intend to sell them, provided that this is executed in due compliance with the legal requirements applicable to such capital reduction, which in this case require that the number of ordinary shares to be acquired are reduced to a number corresponding to the difference between the total number referred to in number 2 and the number of class A shares acquired.

That an acquisition period of up to 23 December 2005 should be established for the acquisitions referred to in numbers 2 and 3 (provided that the full acquisition of up to 116,648,505 shares has not been completed prior to that date), with the total capital reduction being limited to the amount comprising the number of company shares which have been acquired and cancelled up to such date.

That the other procedural terms of the reduction be fixed by the board of directors, without, however, prejudice to other matters resulting from the rules in force, namely Commission Regulation (CE) no. 2273/2003 of 22 September and CMVM recommendations on a company’s acquisition of its own shares, the board of directors being bound, with a view to limiting the board of directors’ discretionary authority, to comply with the following minimum procedures and parameters:

The placement of at least one buy order per week;

The total number of orders in each week not to be less than 10% of the average daily trading volume in the 5 immediately preceding stock market sessions; and

The total buy orders to permit the completion of the acquisition of not less than the amount referred to in number 1 of this proposal.

To approve the setting up, to the extent required by paragraph b), of no. 2 of article 463 of the Commercial Companies Code, of a special reserve in the amount of up to Euro 116,648,505, which is the nominal value of company shares to be cancelled, acquired pursuant to the execution of this resolution.

To approve the eventual readjustment of the conversion ratio of the convertible bonds issued by the company, whose issue was approved by a resolution of the shareholders’ meeting of 5 February 2001 and by the board of directors' resolutions of 22 and 29 November 2001, under the terms contained in the conditions for issuance of such bonds, to be created under this resolution and calculated and executed by the board of directors.

As a consequence of the capital reduction resolution and effective as from the date thereof, to amend numbers 1 and 2, paragraph a) of article 4 of the company’s articles of association, to read as follows:

The company shall have a fully paid up share capital of Euro 1,049,836,545.

The company’s share capital comprises 1,049,836,545 shares with a nominal value of one euro each, with the following distribution:

a) 1,049,836,045 ordinary shares;

b) (...)”

That the wording of numbers 1 and 2, paragraph a) of article 4 of the company’s articles of association, now approved, should be considered automatically and proportionally readjusted if the share capital reduction, effectively executed, is less than for the full amount;

That the board of directors be authorised to consider that this resolution has been adopted contemporaneously with the resolution on the reduction of share capital.

The capital reduction resolution passed by this meeting, in respect of this item of the agenda;

That the company has entered into and has derivatives agreements in force that may result in the acquisition by the company of its own shares;

That such an acquisition could be of corporate interest and may increase the flexibility of the capital reduction or assist in the completion of the capital reduction;

Such contribution should be limited, however, to shares whose original acquisition from the shareholders took place in the stock exchange,

The share capital reduction resolved by this general meeting may lead, as an automatic effect, to the percentage enlargement of shareholders’ participation, namely of those who do not dispose of shares to be cancelled;

Article 9 of the articles of association establishes that shareholders directly or indirectly with activity competing with the activity developed by companies controlled by Portugal Telecom, SGPS, S.A. cannot, without the general meeting’s authorization, hold ordinary shares representing more than ten percent of the share capital, the excess being subject to redemption, in accordance with number 4 of the referred article 9;

In this context it seems reasonable and adequate, if the shareholders with competing activity, as provided in article 9 of the articles of association, exclusively by virtue of the share capital reduction, surpasses the holding of 10% of the share capital, not to apply the referred redemption to the exceeding shares, but only to the extent that it is the direct consequence of the share capital reduction resolved by this general meeting and always without prejudice to the limitation of the vote counting to 10%, as foreseen in article 13 of the articles of association,

The convenience of pursuing the continued strengthening of Portugal Telecom, SGPS, S.A.’s shareholders’ equity, aiming at sizing it to adequate levels that enable sustaining the company’s business and internationalisation plans, which requires resorting to public funds on a diversified and broad funding basis;

That the internationalisation and diversification of the company’s funding sources and shareholding base is a factor of reinforcement of solidity and autonomy, the promotion of which is of the utmost interest;

That in this context it appears convenient to keep the options open for a possible new issue, by a external subsidiary of Portugal Telecom, SGPS, S.A. and possibly with a guarantee or support from the latter, of bonds or other securities to be placed, in particular, with specialised segments of international institutional investors, securities which under certain conditions confer on the investors the right of conversion into or exchange for Portugal Telecom, SGPS, S.A.’s ordinary shares (exchangeable securities), thus resuming the experience of two issues made earlier with considerable international success;

That for preserving such openness it is important to create the legal mechanisms that would enable the external subsidiary carrying out such issue of exchangeable securities to have access to such Portugal Telecom, SGPS, S.A.’s ordinary shares as may be required to meet the exchanges that would take place;

That within the Portuguese legal framework, and as in the two issues previously made by Portugal Telecom International Finance, B.V., the said capacity of the subsidiary issuing exchangeable securities to have access to the ordinary shares, if and when required, in order to fulfil the undertakings of optional exchange by the investors, involves a resolution to issue and place at the service of such international issue a suitable number of Portugal Telecom, SGPS, S.A.’s convertible bonds that may give rise, at such times and quantities as needed, to new shares;

That the possibility of implementing the said issue also requires, as provided in the company’s articles of association, that the parameters applicable to the issue of Portugal Telecom, SGPS, S.A.’s convertible bonds, which support the international issue of exchangeable securities by a subsidiary, be henceforth approved by the general meeting without prejudice to any possible subsequent readjustments;

That additional flexibility may be assured by means of a resolution conferring on the Board of Directors the power to determine the time of the issue, in one or more series.

To approve the possible issue by Portugal Telecom, SGPS, S.A. of convertible bonds approved by resolution of the Board of Directors, as provided for in the law and in the articles of association and in accordance with the following main parameters, without prejudice to any adaptation or development as may be decided by the Board of Directors, namely considering the final characteristics of the issue of convertible or exchangeable securities that it may support:

Up to the maximum aggregate amount of or the currency equivalent to Euro 600,000,000.

To be defined in accordance with the market conditions on the date of the issue.

One single final maturity at par, with possibility for early repayment at the option of the issuer, in particular from the end of the third year.

The number of bonds required for conversion of the bonds’ nominal amount in cash into one share shall be determined by the conversion price, calculated by adding a conversion premium to the market price in the domestic stock exchange of one share at the time of issue.

The anticipated conversion premium, to be adjusted at the time of the issue in accordance with the market conditions, shall not be less than 20% of the trading price considered, which could be the Euronext Lisbon closing price in the session immediately before the date of issue (or of issue of the first series), subject to anti-dilution clauses as are usual in the market.

The conversion price initially determined shall prevail during the whole period of the issue, without prejudice to any possible readjustment by application of anti-dilution clauses as are usual in the market, in situations regulated in the issue resolution and under the terms or formulas stipulated therein.

The maximum number of ordinary shares that can be initially issued in the increase or increases of capital as are implicit in the resolution of issue of convertible bonds may not exceed the equivalent to 5% of Portugal Telecom, SGPS, S.A.’s share capital at the date of the resolution, without prejudice to the possibility of being exceeded at a later time as a result of subsequent readjustments to the conversion price referred to in the preceding paragraph.

of The conversion may be requested daily, after an initial term stipulated in the resolution of issue, such periods of time stipulated in the resolution of issue being deemed a “conversion period” as provided in and for the purposes of article 370, number 1, subparagraph b) and number 3, subparagraph a) of the Companies Code.

The conversion or exchange shall be made exclusively with ordinary shares.

In one time only or in series, determined by the Board of Directors.

To approve forthwith, as a result of the issue of convertible bonds in the final terms as stipulated, such capital increase or increases as may be required to meet any applications for conversion requests which may be submitted.

This resolution is conditional upon publication and coming into effect of legal statute developing the legal regime provided in Law no. 11/90 of 5th April.

The resolution adopted by this meeting, within the scope of item 8 of the Agenda, approving the parameters for the issue of convertible bonds to be resolved by the Board of Directors;

The contents of the explanatory report organized by the Board of Directors as provided in article 366, no. 2, subparagraph c), article 367, no. 2 and article 460 of the Companies Code,

Bearing in mind that the issue of convertible bonds as may be resolved by the Board of Directors, which parameters and implicit share capital increase have been approved within the scope of item 8 of this meeting’s Agenda, is intended to support the issue to be made by a external subsidiary of Portugal Telecom, SGPS, S.A. as provided therein, to waiver the shareholders’ right of pre-emption in the subscription of the possible issue of convertible bonds;

That, therefore, the possible issue be made for subscription in its entirety by a external subsidiary of Portugal Telecom, SGPS, S.A. to make in the international market an issue of securities convertible into or exchangeable for ordinary shares of Portugal Telecom, SGPS, S.A., in particular the company Portugal Telecom International Finance, B.V., or another company wholly owned, directly or indirectly, by Portugal Telecom, SGPS, S.A., either existing or to be incorporated, or by financial institution undertaking to place the said convertible bonds at the service of the conversion or exchange applications arising from such issue.

To approve, in any case where approval is legally required and subject to a resolution of the administrative body, the acquisition of own bonds, already issued or to be issued, in any of its forms, in the following terms:

Maximum number of bonds to be acquired: the number corresponding to the total of each issue, without prejudice to the limits stipulated by law, deducting any disposals made;

Time during which the acquisition may be made: eighteen months from the date of this resolution;

Forms of acquisition: purchase, in any form, namely original purchase or onerous secondary acquisition for a price in a stock exchange in which the securities are listed or over-the-counter purchase, whether or not made through financial intermediaries, besides the cases of conversion of convertible bonds, and which may be followed by cancellation;

Minimum and maximum consideration of acquisitions: the price of onerous secondary acquisition should be contained in an interval of fifteen percent less or more with reference to the lower and the average listing price, respectively, of the bonds to be purchased in the stock exchanges where the acquisition is made during the 5 exchange sessions immediately preceding to the acquisition.

In the case of an issue not listed in a domestic exchange and placed in the international market, that interval shall be with reference to the average purchase price quoted in the AIBD (Association of International Bond Dealers)’s “Bond Book” in the week prior to the acquisition, regardless of whether the bonds are listed in a foreign exchange or not.

In the case of an issue neither listed nor referenced in the said “Bond Book”, that interval shall be with reference to the estimated value calculated by a financial intermediary or independent consultant appointed by the Board of Directors.

In the case of an acquisition in connection or in compliance with the conditions of issue of other securities, or of a contract related to such issue, the price shall be that arising from the terms of such issue or contract;

Time of acquisition: to be determined by the administrative body having regard to the situation of the market and the convenience or obligations arising from the law, contract or issue of other securities leading to the purchase, being made in one or more times and in such proportions as the administrative body may stipulate.

To approve, except in the cases of conversion or redemption and subject to the specific authority of the administrative body, the disposal of own bonds including those that may have been acquired, subject to resolution of the administrative body and in the following terms:

Minimum number of bonds to be disposed of: the number corresponding to the minimum block of shares which at the time of disposal is legally stipulated for the bonds of the company, or such lesser quantity as may be sufficient to fulfil any obligation undertaken by virtue of the law, a contract or the issue of other securities;

Time during which the disposal may take place: eighteen months from the date of this resolution;

Form of disposal: onerous disposal in any form, namely sale or exchange, to be made in a stock exchange or over-the-counter in favour of certain entities designated by the administrative body (in compliance, in the case of bonds convertible in shares, with the principle of equality of shareholders as provided in the law) or, in case of a disposal in connection with or for execution of a stock options programme or fulfilment of obligations undertaken arising from the law, the issue of other securities or a contract, including a contract related to the issue of convertible or exchangeable securities or to the conversion thereof, in the relevant terms and conditions;

Minimum price: no more than fifteen percent below the prices stated in no. 1, subparagraph d) of this resolution, as applicable, or such other price as may be stipulated in accordance with the terms and conditions of a stock options programme or issue of other securities, including convertible securities, or of a contract related to such programme, issue or conversion, where the disposal is made in connection or in compliance with the respective applicable terms;

Time of disposal: to be determined by the administrative body, taking into account market conditions and the convenience or obligations undertaken, and being made in one or more times and in such proportions as the administrative body may stipulate.