<PAGE> 1
August 17, 1995
Dear Shareholder:
"The Philippines is back in business," President Ramos declared when he
assumed office two years ago, and any doubts that remained at the start of 1995
are quickly fading away. Despite a series of global financial shocks, Philippine
economic growth is accelerating, and the nation's stock market turned in the
finest second quarter performance in Asia.
The Philippine market's 17.3% gains (in US$) were made possible by the
return of foreign money to the Asia/Pacific markets in the recent quarter (after
the flight generated by the Mexico scare), and by the Ramos victory in recent
national elections. The First Philippine Fund's net asset value (NAV) rose
10.84% in the second quarter to $20.66, the stock price was up 9.76%, to
$16.875, and the discount of stock price to NAV stood at 18.32% on June 30,
1995. Over the entire fiscal year, the Fund's NAV increased 4.63% (before
considering the Fund's capital gain distribution of $2.10 per share and the
dilutive effect of the rights offering on NAV of $1.42) compared to a 5.99% rise
in the 30-company Philippine Stock Exchange (PSE) composite index. Since
inception, The First Philippine Fund's cumulative increase in NAV before
dividend and capital gain distributions was 141.44% versus 76.8% for the PSE
composite.
A TIGER IN THE MAKING
The obstacles, man-made and natural, have been swept aside and the
long-awaited moment has finally come to pass. Sustainable growth is at hand,
along with the confidence needed to compete in an ever expanding global
marketplace, and the Philippine nation stands poised to join the dynamic
economies of Asia's Pacific Rim. The path followed is by now well known in Asia:
wide-ranging economic and financial reform, large doses of investment, and
export-driven growth. To these familiar ingredients, the Philippine people added
a deep and abiding commitment to democratic institutions and ideals, and
patiently produced dramatic change that was the natural outgrowth of the "people
power" unleashed in February 1986.
We believe economic growth will accelerate to 5-6% over the next two years,
and, with the continuity of economic reforms assured by the recent electoral
victory of the Ramos coalition, gains in real GDP may well approach the 8-10%
"tiger" levels seen elsewhere in the region. The rapid growth of investment
spending reflects the confident mood of both domestic and foreign businesses,
while the fast pace of export expansion strongly suggests that the
liberalization and restructuring of Philippine industry is paying dividends in
the form of improved global competitiveness. If further evidence is needed of
the spreading positive assessment of the Philippines, we need only look at the
recent actions of international credit agencies. Moody's, Duff and Phelps, and
Standard and Poor's all upgraded the foreign currency debt rating of the
Philippines very soon after the May elections. They were responding to the
country's impressive progress with structural reforms, and to the political
stability that has taken root.
The problems that must still be addressed include a low savings rate, a
widening trade deficit, public finances in need of reform, and an inflation rate
that is inching upward in response to increased liquidity and pending oil price
hikes. But the global investment community gives the Ramos government high
grades for its very credible efforts to contain these problems, and for its
commitment to on-going reforms and infrastructure development, and the new-found
international confidence in the Philippines is not likely to evaporate any time
soon. The Philippine peso, for example, under attack in the early part of 1995
given its overvaluation and the stir caused by Mexico, has recovered some lost
ground as investors put most of their fears to rest. There is a general
acceptance of the need
<PAGE> 2
to devalue the peso some 4-5% annually, in order to maintain the nation's
competitiveness, as well as a widespread belief that the Ramos government can
carry out this policy in an orderly manner. The likely success of such a policy
will serve to reinforce the confidence of foreign investors.
In the wake of successful economic and political reform, the stock market
is coming of age. Both in terms of market capitalization, and in terms of market
returns, the Philippine equity market has outpaced almost all of Asia with
growth of over 800% between 1990 and 1994. Much of the improvement has come from
a surge of IPO's (initial public offerings) as the recovering economy produces
one dynamic company after another seeking capital that will allow them continued
growth. And the offerings have been greeted eagerly by the increasing number of
investors who are convinced that the Philippine time has come, and that the
nation's "potential" is now ready to be tapped.
THE STRONG FUNDAMENTALS CONTINUE
In the second quarter the PSE was propelled by superb corporate earnings
results, by accelerating economic growth, and by an election outcome that
greatly contributed to on-going political stability. Philippine stocks are no
longer a bargain after the sharp gains of the second quarter, but the longer-
term prospects are very bright, given corporate earnings growth of 20-25%, an
accelerating economy, low interest rates, a stable exchange rate, and manageable
inflation. At the same time, a long list of IPO's will keep the market alive,
and a budding mutual fund industry in the Philippines will provide support for
equities.
The solid economic and corporate fundamentals suggest that it is best to
pass up the high risk/high return plays that are likely to surface in a
liquidity-driven market, in favor of companies whose prospects are rooted in the
great potential that we have identified for the Philippines. In our estimation,
it is such companies that will outperform over the long run. We expect to be
fully invested, with some re-allocation out of blue chips into upcoming
second-liners and interesting IPO's.
We no longer have to speak of the Philippine promise. The long-awaited
transition is at hand. An economy that grew by less than 2% per year in the five
years ending 1994 should now grow by more than 6% annually over the next five
years. The foundations for this change are in place, and the resulting economic
and political conditions both encourage and reward risk-taking. The private
sector in particular has been called on by the Ramos administration to unlock
the great wealth that lies hidden in the economy, and these efforts promise some
exciting times to come in the Philippine stock market.
As always, we 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 INVESTMENTS
June 30, 1995
<TABLE>
<CAPTION>
Number of
Shares Value
<S> <C> <C>
-----------------------------------------------------------------------------------------------
PHILIPPINE SECURITIES (99.4%)
-----------------------------------------------------------------------------------------------
COMMON STOCK (96.2%)
Banking (16.5%)
Bankard Inc. (c) 6,470,000 $ 1,695,042
Citytrust Banking 30,000 961,914
Far East Bank and Trust 390,600 9,927,661
Metro Bank & Trust Co. 782,216 16,975,439
Philippine Commercial International Bank (c) 485,215 3,585,893
Philippine Savings Bank 165,550 5,049,230
-----------------------------------------------------------------------------------------------
38,195,179
-----------------------------------------------------------------------------------------------
Conglomerates (11.3%)
Aboitiz Equity Ventures (c) 18,318,400 3,724,708
Ayala Corp. -- A 11,711,769 9,502,589
Benpres Holdings GDR (c)(h)(f) 386,582 3,189,302
First Philippine Holdings -- A 4,067,499 7,475,266
JG Summit 3,290,000 951,982
Metro Pacific -- A 10,374,333 1,277,827
-----------------------------------------------------------------------------------------------
26,121,674
-----------------------------------------------------------------------------------------------
Construction (3.1%)
Bacnotan Consolidated Industries 594,359 3,904,443
Davao Union Cement -- A 4,000,000 875,890
Seacem Holdings (c) 24,000,000 2,439,978
-----------------------------------------------------------------------------------------------
7,220,311
-----------------------------------------------------------------------------------------------
Drug and Personal Health Care (0.2%)
Interphil Laboratories, Inc. -- A (c) 1,823,500 139,754
Interphil Laboratories, Inc. -- B (c) 4,302,500 343,204
-----------------------------------------------------------------------------------------------
482,958
-----------------------------------------------------------------------------------------------
Electronics (0.9%)
Ionics Circuits Inc (c) 60,000 39,884
Matsushita Electric Philippines (b) 4,855,396 2,040,960
-----------------------------------------------------------------------------------------------
2,080,844
-----------------------------------------------------------------------------------------------
Engineering (0.5%)
Engineering Equipment, Inc. 14,964,000 1,170,251
-----------------------------------------------------------------------------------------------
Food and Beverage (21.2%)
Alaska Milk Corp. (c) 13,372,000 2,875,811
La Tondena Distillers, Inc. (c)(f) 2,487,800 2,966,994
RFM Corp. 12,014,250 3,147,551
San Miguel Corp. -- A 12,858,510 35,698,530
Selecta Dairy (c) 10,000,000 1,192,618
Universal Robina 6,436,800 3,272,011
-----------------------------------------------------------------------------------------------
49,153,515
-----------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
3
<PAGE> 4
<TABLE>
<CAPTION>
Number of
COMMON STOCK (CONTINUED) Shares Value
<S> <C> <C>
-----------------------------------------------------------------------------------------------
Mining (2.0%)
Manila Mining Co. -- A 714,500,000 $ 2,444,621
Manila Mining Co. -- B 57,750,000 225,815
United Paragon Mining Co. (c) 6,960,000,000 1,905,060
-----------------------------------------------------------------------------------------------
4,575,496
-----------------------------------------------------------------------------------------------
Oil (0.1%)
Basic Petroleum and Mining -- A (c) 361,849,988 141,491
Basic Petroleum and Mining -- B (c) 194,166,659 83,516
Philodrill Corp. -- A (c) 44,334,545 16,469
Philodrill Corp. -- B (c) 39,436,363 14,649
-----------------------------------------------------------------------------------------------
256,125
-----------------------------------------------------------------------------------------------
Packaging (0.5%)
Steniel Manufacturing 7,260,000 1,135,528
-----------------------------------------------------------------------------------------------
Real Estate Development (10.9%)
Ayala Land, Inc. -- B 9,122,811 10,523,302
Belle Resources Corp. A (c) 17,599,999 2,993,665
Cebu Holding Inc. (c) 6,960,000 762,024
Filinvest Land (c) 16,625,000 4,810,550
Grand Plaza Hotel Corp. (b)(c)(d) 5,681,500 2,776,990
Pryce Properties Corp. (c) 20,000,000 1,235,630
Robinson Land -- B (c) 15,300,000 2,093,924
-----------------------------------------------------------------------------------------------
25,196,085
-----------------------------------------------------------------------------------------------
Shipping/Ship Repair (2.7%)
ATI Holdings, Inc. (b)(c) 52,500,000 2,052,866
Cebu Shipyard & Engineering Works -- A (b)(c) 155,694 19,786
Keppel Philippines Holdings -- A (c) 5,325,860 2,186,656
Kepphil Shipyard, Inc. -- A (c) 10,733,100 1,112,173
William Lines (c)(f) 2,694,300 874,431
-----------------------------------------------------------------------------------------------
6,245,912
-----------------------------------------------------------------------------------------------
Telecommunications (13.2%)
Digital Telecommunications (b)(c) 1,125,000 549,875
Globe Telecom (c) 2,340,398 1,235,449
Philippine Long Distance Telephone ADR (g) 402,020 28,844,935
Pilipino Telephone Corp. (c)(f) 117,500 91,890
-----------------------------------------------------------------------------------------------
30,722,149
-----------------------------------------------------------------------------------------------
Tires and Auto (0.4%)
Sime Darby Pilipinas, Inc. 879,327 928,358
-----------------------------------------------------------------------------------------------
Utilities (12.7%)
Manila Electric Co. -- A 3,147,462 21,045,437
Petron Corp. 12,875,000 8,432,637
-----------------------------------------------------------------------------------------------
29,478,074
-----------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost $123,608,327) 222,962,459
-----------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
4
<PAGE> 5
<TABLE>
<CAPTION>
Number of
SCHEDULE OF INVESTMENTS (CONTINUED) Shares Value
<S> <C> <C>
-----------------------------------------------------------------------------------------------
ENTITLEMENTS (0.0%) (i)
Banking (0.0%)
Philippine Commercial International Bank 121,303 $ 137,553
-----------------------------------------------------------------------------------------------
TOTAL ENTITLEMENTS
(Cost $23,811) 137,553
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Par
Maturity (000) Value
<S> <C> <C> <C>
-----------------------------------------------------------------------------------------------
BONDS (2.9%)
Bacnotan Consolidated Ind. Convertible Bond 5.5% (f) 06/21/04 $1,750 1,627,500
International Container Terminal Services Inc. 6.0% 02/19/00 2,500 2,875,000
JG Summit Convertible Bond 3.5% (f) 12/23/03 3,000 2,137,500
-----------------------------------------------------------------------------------------------
TOTAL BONDS
(Cost $7,445,692) 6,640,000
-----------------------------------------------------------------------------------------------
CALL ACCOUNTS (0.3%)
Philippine Peso (e)
(Cost $636,378) 636,923
-----------------------------------------------------------------------------------------------
TOTAL PHILIPPINE SECURITIES 230,376,935
-----------------------------------------------------------------------------------------------
UNITED STATES SECURITIES (0.6%)
-----------------------------------------------------------------------------------------------
COMMERCIAL PAPER (0.6%)
Prudential Funding Co. 5.9029%
(Cost $1,364,000) 07/03/95 1,364 1,364,000
-----------------------------------------------------------------------------------------------
TOTAL UNITED STATES SECURITIES 1,364,000
-----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(Cost $133,078,208) (a) $231,740,935
============
(a) Aggregate cost is the same for Federal income tax purposes. The aggregate
gross unrealized appreciation (depreciation) for all securities is as
follows:
Excess of market value over tax cost $107,463,367
Excess of tax cost over market value (8,800,640)
------------
$ 98,662,727
============
(b) At fair value as determined by the Board of Directors.
(c) Non-income producing security.
(d) 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.
(e) Daily interest is being accrued at a rate of 4% of the outstanding balance.
(f) 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.
(g) ADR -- American Depository Receipt
(h) GDR -- Global Depository Receipt
(i) Entitlements represent rights to subscribe to additional shares of the respective
company's common stock.
</TABLE>
See Accompanying Notes to Financial Statements
5
<PAGE> 6
THE FIRST PHILIPPINE FUND INC.
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES June 30, 1995
<S> <C>
------------------------------------------------------------------------------------------------------------------
ASSETS
Investments at value (Cost $132,441,830)......................................................................... $231,104,012
Cash (including Philippine pesos of $636,923 with a cost of $636,378)............................................ 637,472
Dividends receivable............................................................................................. 351,726
Interest receivable.............................................................................................. 112,146
Receivable for investments sold.................................................................................. 767,127
Prepaid insurance................................................................................................ 13,204
------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS..................................................................................................... 232,985,687
------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased................................................................................ 489,026
Accrued expenses payable......................................................................................... 639,683
------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES................................................................................................ 1,128,709
------------------------------------------------------------------------------------------------------------------
NET ASSETS
(applicable to 11,225,000 common shares outstanding).......................................................... $231,856,978
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
($231,856,978 + 11,225,000)................................................................................... $ 20.66
------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Capital stock................................................................................................... $ 112,250
Paid-in capital................................................................................................. 130,360,080
Accumulated net investment loss................................................................................. (209,579)
Accumulated net realized gain on investments.................................................................... 2,931,470
Accumulated net unrealized appreciation on investments, foreign currency holdings, and other assets and
liabilities denominated in foreign currency................................................................... 98,662,757
------------------------------------------------------------------------------------------------------------------
NET ASSETS....................................................................................................... $231,856,978
------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the
Year Ended
STATEMENT OF OPERATIONS June 30, 1995
<S> <C>
------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Interest (net of taxes withheld $29,599)........................................................................ $ 879,907
Dividends (net of taxes withheld $334,320)...................................................................... 1,034,445
------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME.......................................................................................... 1,914,352
------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment advisory fee......................................................................................... 2,209,579
Custodian fees.................................................................................................. 587,224
Trustee fee..................................................................................................... 331,437
Administration fee.............................................................................................. 220,958
Transfer agent fees............................................................................................. 24,957
Legal fees...................................................................................................... 168,221
Printing........................................................................................................ 83,908
Directors fees.................................................................................................. 75,500
Audit fees...................................................................................................... 55,999
Insurance....................................................................................................... 16,581
Amortization of organizational costs............................................................................ 11,634
Miscellaneous................................................................................................... 240,724
------------------------------------------------------------------------------------------------------------------
Total operating expenses......................................................................................... 4,026,722
Interest expense................................................................................................ 125,191
------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES................................................................................................... 4,151,913
------------------------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS.............................................................................................. (2,237,561)
------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS, FOREIGN CURRENCY HOLDINGS, AND OTHER ASSETS AND
LIABILITIES DENOMINATED IN FOREIGN CURRENCIES:
Net realized gain (loss) on:
Security transactions......................................................................................... 3,999,098
Foreign currency transactions................................................................................. (71,720)
------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments................................................................................................... 8,924,509
Foreign currency holdings and other assets and liabilities denominated in foreign currency.................... 869
------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments, foreign currency holdings and other assets and liabilities
denominated in foreign currency............................................................................. 12,852,756
------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................................. $10,615,195
------------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
6
<PAGE> 7
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
June 30, June 30,
STATEMENTS OF CHANGES IN NET ASSETS 1995 1994
-----------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment loss....................................... $ (2,237,561) $ (2,001,805)
Net realized gain on security transactions................ 3,999,098 22,330,893
Net realized gain (loss) on foreign currency
transactions............................................ (71,720) 248,817
Net change in unrealized appreciation on investments,
foreign currency holdings and other assets and
liabilities denominated in foreign currency............. 8,925,378 60,439,221
-----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations......... 10,615,195 81,017,126
-----------------------------------------------------------------------------------------------
Dividends and distributions to shareholders from:
Net realized long-term gains ($0.85 & $0.18 per share,
respectively)............................................. (7,633,000) (1,616,400)
Net realized short-term gains ($1.25 & $0.58 per share,
respectively)............................................. (11,225,000) (5,208,400)
-----------------------------------------------------------------------------------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS DECLARED..................... (18,858,000) (6,824,800)
-----------------------------------------------------------------------------------------------
Capital share transactions:
Proceeds from issuance of 2,245,000 shares sold in
connection with rights offering (net of sales
commissions of $1,289,752 and offering costs of
$502,106)............................................... 32,601,542 0
-----------------------------------------------------------------------------------------------
Total increase in net assets................................. 24,358,737 74,192,326
Net assets:
Beginning of period....................................... 207,498,241 133,305,915
-----------------------------------------------------------------------------------------------
End of period (including accumulated net investment loss
of ($209,579) and ($25,322), respectively).............. $231,856,978 $207,498,241
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
7
<PAGE> 8
THE FIRST PHILIPPINE FUND INC.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For The Year Ended June 30,
-----------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $23.11 $14.84 $14.58 $10.35 $10.97
-----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.20) (0.22) (0.07) 0.05 0.40+
Net realized and unrealized gains (losses) on investments,
foreign currency holdings and other assets and liabilities
denominated in foreign currency 1.27 9.25 0.90 4.37 (0.43)
-----------------------------------------------------------------------------------------------------------------
Net increase (decrease) from investment operations 1.07 9.03 0.83 4.42 (0.03)
-----------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -- -- -- (0.19) (0.59)
Distributions from net realized long-term gains (0.85) (0.18) (0.32) -- --
Distributions from net realized short-term gains (1.25) (0.58) (0.25) -- --
-----------------------------------------------------------------------------------------------------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS (2.10) (0.76) (0.57) (0.19) (0.59)
-----------------------------------------------------------------------------------------------------------------
DILUTIVE EFFECT OF CAPITAL SHARE RIGHTS OFFERING (1.42) -- -- -- --
-----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $20.66 $23.11 $14.84 $14.58 $10.35
-----------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD $16.88 $18.25 $13.00 $11.50 $7.50
-----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN
Based on market value* 7.06% 45.62% 19.19% 56.61% (13.01)%
-----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $231,857 $207,498 $133,306 $130,955 $92,975
Ratios to average net assets:
Operating expense 1.81% 1.79% 1.72% 1.79% 1.90%
Interest expense .01% -- -- -- --
-----------------------------------------------------------------------------------------------------------------
Total expense 1.82% 1.79% 1.72% 1.79% 1.90%
Net investment income (loss) (1.01)% (1.08)% (0.45)% .42% 3.92%
Portfolio turnover 20.50% 39.35% 37.30% 21.61% 1.03%
-----------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment return is calculated assuming a purchase of common
stock at the current market price on the first day and a sale at the
current market price on the last day of each period reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to be
reinvested at prices obtained under the Fund's dividend reinvestment plan.
The rights offering in the year ended June 30, 1995, was fully subscribed
under the terms of the offering. Total investment return does not reflect
sales charges and brokerage commissions.
+ Net income for the year ended June 30, 1991 includes net gains from
foreign currency transactions of $0.04 per share.
See Accompanying Notes to Financial Statements
8
<PAGE> 9
SELECTED QUARTERLY FINANCIAL DATA
(Unaudited)
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
QUARTER ENDED
06/30/95 03/31/95 12/31/94 09/30/94
------------------ ------------------ ------------------ ------------------
Per Per Per Per
Total Share Total Share Total Share Total Share
<S> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------
Investment income $ 611 $ 0.05 $ 568 $ 0.05 $ 403 $ 0.04 $ 332 $ 0.04
Net investment loss (470) (0.03) (437) (0.02) (590) (0.07) (741) (0.08)
Distribution from net realized
long-term gains (7,633) (0.85)
Distribution from net realized
short-term gains (11,225) (1.25)
Net realized gain (loss) and change in
net unrealized appreciation
(depreciation) on investments,
foreign currency holdings, and other
assets and liabilities denominated
in foreign currency 23,051 1.99 (34,855) (3.46) 2,086 0.23 22,571 2.51
Net asset value $231,857 $20.66 $209,277 $18.64 $211,966 $23.60 $229,328 $25.54
------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
06/30/94 03/31/94 12/31/93 09/30/93
------------------ ------------------ ------------------ ------------------
Per Per Per Per
Total Share Total Share Total Share Total Share
<S> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------
Investment income $ 358 $ 0.04 $ 435 $ 0.05 $ 214 $ 0.02 $ 307 $ 0.03
Net investment loss (764) (0.09) (391) (0.04) (530) (0.06) (317) (0.03)
Distribution from net realized
long-term gains (1,616) (0.18)
Distribution from net realized
short-term gains (5,209) (0.58)
Net realized gain (loss) and change in
net unrealized appreciation
(depreciation) on investments,
foreign currency holdings, and other
assets and liabilities denominated
in foreign currency 8,687 0.98 (31,240) (3.49) 91,994 10.25 13,578 1.51
Net asset value $207,498 $23.11 $199,575 $22.22 $231,206 $25.75 $146,567 $16.32
------------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
9
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 1995
------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The First Philippine Fund Inc. (the "Fund") was incorporated in the State of
Maryland on September 11, 1989. The Fund is registered under the Investment
Company Act of 1940, as amended, as a non-diversified, closed-end investment
management company. Organizational costs were amortized on a straight line basis
over five years from the commencement of the Fund's operations.
1. 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 or lacking any sales,
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 asked prices. Securities totalling $7,440,477 (3.2% of net assets), for
which market values are not readily available, are carried at fair value as
determined in good faith by or under the supervision of the Board of
Directors. Short-term investments having a maturity 60 days or less are
valued on the basis of amortized cost.
2. 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 or when known. The
collectibility of income receivable from foreign securities is evaluated
periodically, and any resulting allowances for uncollectible amounts are
reflected currently in the determination of investment income.
3. TAX STATUS: No provision is made for U.S. Federal income or excise taxes
as it is the Fund's intention to continue to qualify as a regulated
investment company and to make the requisite distributions to its
shareholders which will be sufficient to relieve it from all or
substantially all U.S. Federal income and excise taxes. For the year ended
June 30, 1995, no U.S. Federal income or excise tax provision was required.
Dividends and interest income are subject to withholding tax at various
rates not exceeding 25% and such tax is recorded on the accrual basis at the
time when the related income is recorded.
4. FOREIGN CURRENCY: 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, and other assets and liabilities
at the Philippine peso exchange rate at the end of the period; and
(II) purchases and sales of investment securities, income and expenses at
the Philippine peso rate of exchange prevailing on the respective dates
of such transactions. Exchange gains or losses are realized upon ultimate
receipt or disbursement.
The Fund does not generally isolate the effect of fluctuations in foreign
exchange rates from the effect of fluctuations in the market prices of
securities held whether realized or unrealized. However, the Fund does
isolate the effect of fluctuations in foreign currency rates when
determining the gain or loss upon the sale or maturity of foreign currency
denominated debt obligations pursuant to U.S. Federal income tax
regulations; such amounts are categorized as foreign exchange gain or loss
for both financial reporting and income tax reporting purposes.
Realized gains or losses on foreign currency transactions represent net
foreign exchange gains or losses from the disposition of foreign currencies,
currency gains or losses realized between the trade and settlement dates on
securities transactions, and between amounts of interest, dividends and
foreign withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent amounts actually received or paid.
The change in unrealized appreciation or depreciation of foreign currency
holdings and other assets and liabilities denominated in foreign currencies
represents the change in the value of the foreign currencies and other
assets and liabilities arising as a result of changes in foreign exchange
rates.
Foreign security and currency transactions may involve certain conditions
and risks not typically associated with those of domestic origin as a result
of, among other factors, the level of government supervision and regulation
of foreign securities markets and the possibilities of political or economic
instability.
10
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 1995 (CONT'D)
------------
5. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS: The Fund may enter into
forward currency contracts in several circumstances. When the Fund enters
into a contract for the purchase or sale of securities denominated in a
foreign currency, or when the Fund anticipates the receipt in a foreign
currency of interest or dividend payments, the Fund may desire to "lock-in"
the U.S. dollar price of the security or the U.S. dollar equivalent of such
interest or dividend payment, as the case may be. Risks may arise upon
entering these contracts from the potential inability of counterparties to
meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar.
6. DISTRIBUTION OF INCOME AND GAINS: The Fund intends to distribute to
shareholders, at least annually, substantially all of its net investment
income and expects to distribute annually any net capital gains in excess of
net capital losses. An additional distribution may be made to the extent
necessary to avoid the payment of a 4% Federal excise tax.
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations which may differ from generally accepted accounting principles.
These book/tax differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such
amounts are reclassified within the capital accounts based on their federal
tax-basis treatment; temporary differences do not require reclassification.
Dividends and distributions which exceed net investment income and net
realized capital gains for financial reporting purposes but not for tax
purposes are reported as dividends in excess of net investment income or
distribution in excess of net realized capital gains. To the extent they
exceed net investment income and net realized capital gains for tax
purposes, they are reported as distributions of paid-in capital.
Foreign currency losses incurred after October 31 (post-October losses)
within the taxable year are deemed to arise on the first business day of the
Fund's next taxable year. The Fund incurred and will elect to defer net
capital foreign currency losses of $184,257 during the year ended June 30,
1995. As of June 30, 1995, the Fund had temporary book/tax differences
primarily attributable to post-October losses and permanent book/tax
differences primarily attributable to foreign currency losses and net
operating loss. During the year ended June 30, 1995, the Fund reclassified
$2,053,304 from accumulated net investment losses to accumulated net
realized gain on investments and paid-in capital, amounting to $935,340 and
$1,117,964, respectively, relating to such permanent book and tax
differences. Net investment loss and net assets were not affected by the
change.
7. REPURCHASE AGREEMENTS: The Fund may enter into repurchase agreements with
respect to dollar-denominated debt securities of United States issuers. The
Fund's custodian takes possession of collateral pledged for investments in
repurchase agreements. To the extent that any repurchase transaction exceeds
one business day, the value of the collateral is marked-to-market on a daily
basis to ensure the adequacy of the collateral. If the seller defaults, the
value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by
the Fund may be delayed or limited.
B. MANAGEMENT AND INVESTMENT ADVISORY SERVICES
The Fund has entered into an Investment Advisory Agreement for portfolio
management services with Clemente Capital, Inc. (the "Investment Adviser") and a
Trust Agreement with Philippine National Bank (the "Trustee") for certain
services relating to the Philippine Trust. The Investment Advisory Agreement is
approved on an annual basis and provides for the Investment Adviser to receive a
fee computed weekly and payable monthly at the annual rate of 1% of the Fund's
average weekly net assets. For the year ended June 30, 1995, the Investment
Adviser earned $2,209,579 from the Fund, of which $233,627 was payable to the
Investment Adviser at June 30, 1995.
PNB Investments Limited (the "Philippine Adviser"), a wholly-owned
subsidiary of the Trustee, provides the Investment Adviser with investment
advice, research and assistance pursuant to a Research Agreement with the
Investment Adviser. For its services, the Philippine Adviser receives from the
Investment Adviser a fee at an annual rate of .35% of the Fund's average weekly
net assets. For the year ended June 30, 1995, the Investment Adviser paid
$773,352 to the Philippine Adviser.
11
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 1995 (CONT'D)
------------
Substantially all of the Fund's assets are invested through and held in the
Philippine Trust. Under the Trust Agreement, the Trustee receives a monthly fee
at the annual rate of .15% of the Fund's average weekly net assets held in the
Philippine Trust, subject to a minimum fee of $150,000 for administration of the
Philippine Trust. The Trust Agreement remains in effect for the life of the Fund
unless terminated in accordance with its terms. For the year ended June 30,
1995, the Trustee earned fees of $331,437, of which $83,794 was payable to the
Trustee at June 30, 1995.
PFPC Inc. (the "Administrator") provides administrative and accounting
assistance to the Fund. Under the Administration Agreement, the Administrator
receives a fee payable monthly at an annual rate of .10% of the Fund's average
weekly net assets, subject to a minimum annual fee of $124,800. For the year
ended June 30, 1995, the Administrator earned fees of $220,958, of which $55,863
was payable to the Administrator at June 30, 1995.
The Fund pays each of its Directors who is not a director, officer or
employee of the Investment Adviser, the Philippine Adviser or the Trustee, in
addition to certain out-of-pocket expenses, an annual fee of $8,000 plus $500
for each meeting of the Board or of a committee of the Board attended in person.
Director fees payable at June 30, 1995 were $12,000, which is included in
accrued expenses.
The Fund paid or accrued approximately $168,000 for the year ended June 30,
1995, for legal services to a law firm of which the Fund's secretary is a
partner.
C. CAPITAL STOCK
The authorized capital stock of the Fund is 25,000,000 shares of common
stock $.01 par value. Of the 11,225,000 shares outstanding at June 30, 1995,
Clemente Capital, Inc. and PNB Investments Limited each owned 5,000 shares.
During the year ended June 30, 1995, the Fund issued 2,245,000 shares of
common stock in connection with a rights offering of the Fund's shares, at a
subscription price of $15.32; this represented 90% of average reported sales
prices for the week prior to the exercise date. Shareholders of record on
January 3, 1995 were issued one non-transferable right for each whole share of
common stock owned. The rights entitled the shareholders the opportunity to
subscribe for one share of common stock for every five rights held. Shareholders
who fully exercised all rights issued to them in the primary subscription were
entitled to subscribe for additional shares pursuant to an oversubscription
privilege. The Fund paid $1,289,752 for sales commissions and $502,106 in other
offering costs which were charged to additional paid-in capital. Included in
offering costs is approximately $229,000 paid to the Fund's legal counsel in
connection with the rights offering to a firm in which the Fund's secretary is a
partner.
D. PORTFOLIO ACTIVITY
Purchases and sales of securities, other than short-term obligations,
aggregated $52,912,149 and $44,339,339, respectively, for the year ended June
30, 1995.
E. SHORT-TERM LOAN AGREEMENT
On January 11, 1995, the Fund entered into a short-term loan agreement with
the parent company of the Administrator. The weighted average interest rate
during the term of the loan was 7.01%. The Fund borrowed a weighted average
balance of $14,484,444 for 45 days and incurred a total of $125,191 in interest
expense on the loan. The Fund had no outstanding borrowings at June 30, 1995.
12
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 1995 (CONT'D)
------------
F. OTHER
The Fund has obtained the approval of the Central Bank for the registration
and conversion into pesos of all proceeds of the initial offering to be invested
in the Philippine securities markets, which by its terms ensures repatriation of
such investment and the remittance of profits and dividends accruing thereon.
Notwithstanding the foregoing, the right of the Fund to repatriate its
investments in Philippine securities and to receive profits, capital gains and
dividends in foreign exchange is subject to the power of the Central Bank, with
the approval of the President of the Philippines, to restrict the availability
of foreign exchange in the imminence of or during an exchange crisis or in times
of national emergency.
There are nationality restrictions on the ownership of certain equity
securities of Philippine companies. Based on confirmations which the Fund
received from Philippine governmental authorities, the Fund believes that it is
permitted to make certain investments through the Philippine Trust that are
otherwise available only to Philippine nationals.
At June 30, 1995, 99.4% of the Fund was invested in Philippine securities.
Future economic and political developments in that country could adversely
affect the liquidity and/or value of the Philippine securities in which the Fund
is invested.
13
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
------------
To the Board of Directors and
Shareholders of
The First Philippine Fund Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The First Philippine Fund Inc. (the
"Fund") at June 30, 1995, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the five years in the period then
ended, in conformity with generally accepted accounting principles. The
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at June
30, 1995 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
August 17, 1995
14
<PAGE> 15
TAX INFORMATION
------------
The Fund is required by Subchapter M of the Internal Revenue Code of 1986,
as amended, to advise its shareholders within 60 days of the Fund's fiscal year
end (June 30, 1995) as to the U.S. federal tax status of distributions received
by the Fund's shareholders during such fiscal year. Of the $2.10 per share total
dividends paid during such fiscal year $1.25 was derived from net realized
short-term capital gains and $0.85 was derived from net realized long-term
capital gains.
Because the Fund's fiscal year is not the calendar year, another
notification will be sent in respect of calendar year 1995. The second
notification, which will reflect the amount to be used by calendar year
taxpayers on their Federal income tax returns, will be made in conjunction with
Form 1099 DIV and will be mailed in January 1996. Shareholders are advised to
consult their own tax advisers with respect to the tax consequences of their
investment in the Fund.
Foreign shareholders will generally be subject to U.S. withholding tax on
the amount of their dividend.
Dividends received by tax-exempt recipients (e.g., IRAs and Keoghs) need
not be reported as taxable income for U.S. Federal income tax purposes. However,
some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may need
this information for their annual information reporting.
This information is given to meet certain requirements of the Internal
Revenue Code. Shareholders should refer to their Form 1099-DIV to determine the
amounts includable on their respective tax returns for 1995.
SUMMARY OF THE FUND'S DIVIDEND REINVESTMENT PLAN
------------
The following is a summary of the Fund's Dividend Reinvestment Plan (the
"Plan"). Shareholders may participate in the Plan by completing an enrollment
card available from The Bank of New York (the "Plan Agent"), and sending it to
the Plan Agent at the address below.
The Fund intends to distribute to shareholders, at least annually, its net
investment income from dividends and interest and, to the extent necessary, its
net realized capital gains. Pursuant to the Plan, shareholders may elect to have
all cash distributions automatically reinvested by the Plan Agent in Fund shares
pursuant to the Plan.
If the directors of the Fund declare a dividend from net investment income
or a capital gains distribution payable either in the Fund's Common Stock or in
cash, participants in the Plan will receive shares of 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 at net asset value or, if the net asset value is less than 95%
of the market price on the valuation date, then the Fund will issue such new
shares at 95% of the market price. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the New York
Stock Exchange, the next preceding trading day. If the net asset value exceeds
the market price of the Fund shares at such time or if the Fund should declare a
dividend or distribution payable only in cash, participants in the Plan will be
deemed to have elected to receive shares of stock from the Fund valued at the
market price on the valuation date. The Fund may not issue shares below net
asset value. Accordingly, the Plan Agent, as agent for the participants, will
use the amount of the distribution to purchase Fund shares in the open market,
on the New York Stock Exchange or elsewhere, for the participants' accounts on,
or in any event within 30 days after, the payment date. If, before the Plan
15
<PAGE> 16
Agent has completed its purchases, the market price exceeds the net asset value
per share, the average per share purchase price paid by the Plan Agent may
exceed net asset value per share, resulting in the acquisition of fewer shares
than if the dividend or distribution had been paid in shares issued by the Fund.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
for personal tax records. In the case of shareholders, such as banks, brokers or
nominees, which hold 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 of shares
registered in the shareholder's name and held for the account of beneficial
owners who are participating in the Plan.
There is no charge to participants for reinvesting dividends or
distributions. The Plan Agent's fees for the handling of the reinvestment of
dividends and distributions will be paid by the Fund. However, each
participant's account will be charged a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open market purchases in connection
with the reinvestment of dividends or distributions.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income tax which may be payable or required to be withheld
on such dividends or distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to notice of the change
sent to all shareholders at least 90 days before the record date for such
dividend or distribution. The Plan also may be amended or terminated by the Plan
Agent upon at least 90 days written notice to all shareholders. Participants may
terminate participation in the Plan at any time upon giving written notice 30
days prior to the applicable dividend or distribution payment date. Additional
information about the Plan may be obtained by writing: The Plan Agent at 101
Barclay Street, New York, New York 10286, Attention: The First Philippine Fund
Inc.
REPORT OF THE FUND'S ANNUAL MEETING
------------
The Fund held its annual meeting on October 20, 1994. At that meeting, the
shareholders voted to elect three Class I directors for a three year term:
Adrian C. Cassidy, M.A.T. Caparas and Stephen J. Solarz. The shareholders also
voted to ratify the selection of Price Waterhouse LLP as the Fund's independent
accountants for the year ending June 30, 1995. The results of the voting were as
follows:
<TABLE>
<CAPTION>
ABSTENTIONS
AND
BROKER
FOR AGAINST WITHHELD NON-VOTES
--------- ------ ------- ------
<S> <C> <C> <C> <C>
Adrian C. Cassidy...................... 5,695,223 103,204
M.A.T. Caparas......................... 5,671,594 126,833
Stephen J. Solarz...................... 5,675,563 122,864
Selection of Price Waterhouse LLP...... 5,740,615 24,780 33,032
</TABLE>
16
<PAGE> 17
DIRECTORS AND OFFICERS
------------
Arsenio M. Bartolome III
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> 18
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 and The
New York Times and in other newspapers. For shareholder account inquiries 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.
ANNUAL REPORT
JUNE 30, 1995
