<PAGE> 1
October 31, 1995
Dear Shareholder:
After an upbeat second quarter, the Philippine stock market turned in a
weak performance in the third quarter of 1995. The Philippine Stock Exchange
(PSE) composite index slid 6.68% in dollar terms due to concerns over rises in
inflation and interest rates late in the quarter. Moreover, Philippine market
P/Es, although based on strong 1995 earnings, were climbing to high levels. The
slowdown in the flow of funds to emerging markets by international fund
managers, due to higher returns in U.S. markets and concerns about the U.S.
dollar, also contributed to the market's decline.
While The First Philippine Fund was not spared this retreat, it continued
to outperform the market. The Fund's net asset value (NAV) declined by only
4.40% at the end of September to $19.75, the stock price dipped 4.44% to $16.13,
and the discount of stock price to NAV stood at 18.35%. Taking a longer term
perspective, the Fund's cumulative increase in NAV (adjusted for all dividends
and dilution from the recent rights offering) was 142% since the Fund's
inception compared to only 64.7% for the PSE composite index -- a substantial
77.3% difference in performance.
THE PHILIPPINE GROWTH TRAJECTORY IS ON TRACK
Despite this third quarter malaise in the PSE, the Philippine macroeconomy
has picked up a brisker pace. GNP grew over five percent in the first half of
the year -- a performance that is finally comparable with the record of other
countries in the region. While the agriculture sector faltered due to bad
weather, the industrial sector has strongly rebounded and benefitted from robust
investments. The service sector followed the lead of industry with surges in
tourism and the deregulation and liberalization of the banking sector.
Investments, exports and consumer expenditures are all fuelling the current
economic expansion. Investments in fixed capital, construction, and durable
equipment are all expanding at double digit rates. Exports have increased over
15% in the first seven months of 1995. Consumer confidence and rising incomes
have boosted private expenditures to their highest level in three years. The
expansion of remittances by overseas Filipino workers has continued to raise the
net factor income from abroad and has acted as an effective counterbalance to
rising imports. All these, plus continuing economic reforms to improve
competitiveness and lower costs, a supportive monetary policy, robust corporate
earnings, and political stability point toward a sustainable growth rate above
6% in the year ahead.
The economy, however, is not without concerns. Shortages in basic
commodities such as rice and sugar fanned inflation. Inflation soared to 11.8%
in September, due primarily to the increase in the price of rice, a major
component of the consumer price index. Price speculation arising from the
impending oil price hike also contributed to this upswing. However, this trend
seems temporary and should be reversed with the recent importation of rice and
the expected increase in harvests in the fourth quarter. Meanwhile, government
has opted to defer the oil price hike until the first quarter of 1996 to enable
the public to recover from the rice crisis. Nationwide inflation averaged 7.2%
for the first nine months of 1995, still a good 2.4% lower than the average
posted in the same period in 1994 and is expected to average 7.5% for the year.
Infrastructure bottlenecks, current account deficits, poor income
distribution and the low savings rate must also be addressed in order for the
country to sustain growth. Government has in fact begun to institute programs
and reforms to attack these issues. Larger private sector involvement in Build-
<PAGE> 2
Operate-Transfer (BOT) projects is being encouraged. A major tax reform package
is being developed. The oil industry is expected to be deregulated next year.
Government is also strengthening regional growth centers and stepping up public
investment in rural infrastructure to ensure that the benefits of growth are
felt nationwide. Capital market reforms are on-going, and mutual funds are being
encouraged to harness savings and allow for wider domestic participation in the
PSE.
A PERIOD OF CONSOLIDATION FOR THE REST OF THE YEAR
Very early in the third quarter, the PSE was buoyed by external factors.
Cuts in two key interest rates by the US Federal Reserve and the Bank of Japan
sparked a major rally. However, this would be the final rally for the quarter
with no other major positive developments following to sustain the upward
movement. Sectorally, the oil sector yielded the best quarterly return of 18.64%
due to optimism over the gas drilling in Manila Bay. Property likewise gained on
the strength of robust corporate earnings. However, the mining index dropped
7.5% due in part to the drop in gold prices during the quarter. Similarly, the
consumer-industrial index fell 7% due mainly to the collapse of the price of
Petron as a result of the delay in the oil price hike and the looming
deregulation of the industry. High P/Es also contributed to sell-offs of
companies in this sector. The fourth quarter is expected to be a period of
further market consolidation.
With sound fundamentals in place, we expect the Philippine GNP to sustain a
growth rate of 6.5% in 1996. We also expect that the current P/Es relative to
the region will be sustained by the momentum in corporate earnings. However, an
economy with sustainable growth will benefit sectors across the board. Hence, we
will continue to stick with companies with strong market influence, sound
financial prospects and innovative management. Our portfolio is currently
overweighted in the banking, property, construction and mining sectors. The
outlook in earnings growth and P/Es have caused us to underweight the oil
exploration and shipping/transportation sectors.
Euromoney magazine this quarter named the Philippine Secretary of Finance
as the Finance Minister of the Year. This prestigious award is an outstanding
personal achievement, but more than that, it serves as recognition of the
present administration's on-going economic and financial reform program and its
palpable positive results. The global community has begun to take notice of the
Philippines as an emerging market with great promise. We have known this to be a
fact for quite some time. We look forward to even greater achievements in the
coming year for the Philippines and The First Philippine Fund.
Thank you for your continued support.
Sincerely yours,
/s/ LILIA C. CLEMENTE
Lilia C. Clemente
President
2
<PAGE> 3
THE FIRST PHILIPPINE FUND INC.
SCHEDULE OF NET ASSETS
September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
Number of
Shares Value
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
PHILIPPINE SECURITIES (100.2%)
- -----------------------------------------------------------------------------------------------
COMMON STOCK (96.9%)
Banking (16.2%)
Bankard Inc. (b) 6,470,000 $ 2,382,966
Citytrust Banking Corp. 30,000 961,059
Far East Bank and Trust Company 388,400 10,356,340
Metro Bank & Trust Company 517,770 9,634,316
Philippine Commercial International Bank 728,118 6,564,655
Philippine Savings Bank 2,526,341 5,960,866
- -----------------------------------------------------------------------------------------------
35,860,202
- -----------------------------------------------------------------------------------------------
Conglomerates (10.5%)
Aboitiz Equity Ventures, Inc. (b) 18,318,400 3,443,705
Ayala Corp. -- A 11,711,769 9,435,916
Benpres Holdings GDR (b)(e)(g) 387,492 2,375,323
First Philippine Holdings -- A 4,067,499 6,320,112
Metro Pacific Corporation 10,374,333 1,691,575
- -----------------------------------------------------------------------------------------------
23,266,631
- -----------------------------------------------------------------------------------------------
Construction (3.6%)
Bacnotan Consolidated Industries 594,359 4,058,926
Davao Union Cement -- A 4,000,000 859,390
Seacem Holdings (b) 24,000,000 3,038,557
- -----------------------------------------------------------------------------------------------
7,956,873
- -----------------------------------------------------------------------------------------------
Electronics (1.0%)
Ionics Circuits Inc. (b) 60,000 81,719
Matsushita Electric Philippines (a) 4,855,395 2,142,223
- -----------------------------------------------------------------------------------------------
2,223,942
- -----------------------------------------------------------------------------------------------
Engineering (0.5%)
Engineering Equipment, Inc. 14,964,000 1,090,796
- -----------------------------------------------------------------------------------------------
Food and Beverage (19.8%)
Alaska Milk Corp. (b) 13,372,000 2,719,033
La Tondena Distillers, Inc. (e) 2,487,800 2,863,380
RFM Corp. 12,037,375 3,186,568
San Miguel Corp. -- A 12,211,409 29,515,395
Selecta Dairy Products, Inc. (b) 10,000,000 1,055,055
Universal Robina 9,298,800 4,459,428
- -----------------------------------------------------------------------------------------------
43,798,859
- -----------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
Number of
COMMON STOCK (CONTINUED) Shares Value
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
Mining (1.9%)
Manila Mining Corp. -- A (a) 714,500,000 $ 2,192,979
Manila Mining Corp. -- B 57,750,000 188,327
United Paragon Mining Corp. (a)(b) 6,960,000,000 1,869,173
- -----------------------------------------------------------------------------------------------
4,250,479
- -----------------------------------------------------------------------------------------------
Oil (0.1%)
Basic Petroleum and Mining -- A (b) 361,849,988 166,591
Basic Petroleum and Mining -- B (b) 194,166,659 96,841
Philodrill Corp. -- A (b) 44,334,545 15,308
Philodrill Corp. -- B (b) 39,436,363 15,130
- -----------------------------------------------------------------------------------------------
293,870
- -----------------------------------------------------------------------------------------------
Packaging (0.6%)
Steniel Manufacturing Corp. 7,259,999 1,420,525
- -----------------------------------------------------------------------------------------------
Real Estate Development (17.3%)
Ayala Land, Inc. -- B 10,622,811 11,818,973
Belle Corporation (b) 27,600,008 4,712,067
Cebu Holding Inc. (b) 6,960,000 707,616
C & P Homes Inc. (b) 5,464,500 3,406,796
Filinvest Land, Inc. (b) 22,125,000 7,130,251
Grand Plaza Hotel Corp. (a)(b)(c) 5,681,500 2,997,147
Pryce Properties Corp. 25,000,000 1,784,002
Robinson's Land -- B (b) 15,300,000 2,171,878
SM Prime Holdings, Inc. (b) 12,000,000 3,591,022
- -----------------------------------------------------------------------------------------------
38,319,752
- -----------------------------------------------------------------------------------------------
Shipping/Ship Repair (2.2%)
ATI Holdings, Inc. (a)(b) 52,500,000 2,014,195
Cebu Shipyard & Engineering Works -- A (a)(b) 33,386 4,867
Keppel Philippines Holdings -- A (b) 5,325,860 2,002,434
Kepphil Shipyard, Inc. -- A (b) 858,648 64,567
William Lines, Inc. (b)(e) 2,694,300 857,959
- -----------------------------------------------------------------------------------------------
4,944,022
- -----------------------------------------------------------------------------------------------
Telecommunications (12.8%)
Digital Telecommunications (a)(b) 1,125,000 539,517
Globe Telecom (b) 2,340,398 1,144,833
Philippine Long Distance Telephone ADR (f) 391,510 25,986,476
Pilipino Telephone Corp. (b)(e) 650,700 617,872
- -----------------------------------------------------------------------------------------------
28,288,698
- -----------------------------------------------------------------------------------------------
Tires and Auto (0.3%)
Sime Darby Pilipinas, Inc. (a) 879,327 742,190
- -----------------------------------------------------------------------------------------------
Utilities (10.1%)
Manila Electric Co. -- A 3,147,462 19,079,186
Petron Corp. 7,100,000 3,336,850
- -----------------------------------------------------------------------------------------------
22,416,036
- -----------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost $128,986,502) 214,872,875
- -----------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
Par
SCHEDULE OF NET ASSETS (CONTINUED) Maturity (000) Value
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
BONDS (3.0%)
Bacnotan Consolidated Ind.
Convertible Bond 5.5% (e) 06/21/04 $ 1,750 $ 1,776,250
International Container Terminal Services Inc. 6.0% 02/19/00 2,500 2,625,000
JG Summit Convertible Bond 3.5% (e) 12/23/03 3,000 2,212,500
- -------------------------------------------------------------------------------------------------
TOTAL BONDS
(Cost $7,434,623) 6,613,750
- -------------------------------------------------------------------------------------------------
CALL ACCOUNTS (0.3%)
Philippine Peso (d)
(Cost $606,286) 606,286
- -------------------------------------------------------------------------------------------------
TOTAL PHILIPPINE SECURITIES 222,092,911
- -------------------------------------------------------------------------------------------------
UNITED STATES SECURITIES (0.4%)
- -------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (0.4%)
Prudential Funding Co.
6.25325%
(Cost $904,000) 10/02/95 904 904,000
- -------------------------------------------------------------------------------------------------
TOTAL UNITED STATES SECURITIES 904,000
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS **
(Cost $137,931,411) 100.6 % 222,996,911
Liabilities in excess of other assets (0.6)% (1,305,707)
- -------------------------------------------------------------------------------------------------
TOTAL NET ASSETS
(applicable to 11,225,000
common shares outstanding) 100.0% $221,691,204
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
($221,691,204 / 11,225,000) $ 19.75
- -------------------------------------------------------------------------------------------------
** Cost of Total Investments:
Common Stock $128,986,502
Bonds 7,434,623
Call Accounts 606,286
Commercial Paper 904,000
------------
$137,931,411
------------
------------
(a) At fair value as determined by the Board of Directors.
(b) Non-income producing security.
(c) Common stock has a warrant offering of 1 warrant for every 5 Common Shares owned,
expiring on 12/9/97. The warrants are valued at zero as determined by the Board of
Directors.
(d) Daily interest is being accrued at a rate of 4% of the outstanding balance.
(e) Pursuant to Rule 144A under the Securities Act of 1933, all or a portion of these
securities can only be sold to qualified institutional investors.
(f) ADR -- American Depository Receipt.
(g) GDR -- Global Depository Receipt.
</TABLE>
5
<PAGE> 6
DIRECTORS AND OFFICERS
- ------------
Peter Favila
Director and Chairman
Lilia C. Clemente
Director and President
Leopoldo M. Clemente, Jr.
Director, Executive Vice President and Managing Director
Stephen Bosworth
Director
M.A.T. Caparas
Director
Adrian C. Cassidy
Director
Edgardo B. Espiritu
Director
Joseph A. O'Hare, S.J.
Director
Robert B. Oxnam
Director
Stephen J. Solarz
Director
Valentin A. Araneta
Executive Vice President and Managing Director
Efren Cruz
Vice President
Roberto U. Ticzon
Vice President
Thomas J. Prapas
Treasurer
William H. Bohnett
Secretary
Angelito C. Imperio
Assistant Secretary
Maria Distefano
Assistant Secretary
EXECUTIVE OFFICES
- ------------
152 West 57th Street, New York, NY 10019
(For latest net asset value and market
data, please call 212-765-0700; regarding
shareholder account inquiries, please call
1-800-432-8224)
- ------------
INVESTMENT ADVISER
Clemente Capital, Inc.
- ------------
ADMINISTRATOR
PFPC Inc.
- ------------
TRANSFER AGENT AND REGISTRAR
The Bank of New York
- ------------
CUSTODIAN
Brown Brothers Harriman & Co.
- ------------
LEGAL COUNSEL
Fulbright & Jaworski L.L.P.
- ------------
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
<PAGE> 7
SUMMARY OF GENERAL
INFORMATION
- ------------
THE FUND
The First Philippine Fund Inc. is a closed-end investment company whose
shares trade on the New York Stock Exchange. The Fund seeks long-term capital
appreciation primarily through investment in equity securities of Philippine
companies. The Fund is managed by Clemente Capital, Inc.
- ------------
SHAREHOLDER INFORMATION
Daily market prices for the Fund's shares are published in the New York
Stock Exchange Composite Transactions section of most newspapers under the
designation "FtPhil". The Fund's New York Stock Exchange trading symbol is FPF.
Net asset value (NAV) and market price information about The First Philippine
Fund Inc. shares are published each Monday in The Wall Street Journal, The New
York Times and in other newspapers. For shareholders account inquires call
1-800-432-8224
- ------------
DIVIDEND REINVESTMENT PLAN
Through its voluntary Dividend Reinvestment Plan, shareholders of The First
Philippine Fund Inc. may elect to receive dividends and capital gains
distributions in the form of additional shares of the Fund.
This report, including the financial information herein, is transmitted to the
shareholders of The First Philippine Fund Inc. for their information. This is
not a prospectus, circular or representation intended for use in the purchase of
shares of the Fund or any securities mentioned in this report.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its common stock in the open market.
[LOGO]
The First Philippine Fund Inc.
QUARTERLY REPORT
SEPTEMBER 30, 1995
