<PAGE> 1
November 1, 1996
Dear Shareholder:
After having reached a record high in early July, the Philippine stock
market entered into a period of consolidation. For the September quarter of
1996, the Philippine Stock Exchange composite index (Phisix) slipped 3.42% (in
US$ terms). From July through October, the Fund's fiscal year-to-date, the
Phisix depreciated by 9.79%.
The First Philippine Fund's net asset value (NAV) has held better ground
during this correction, slipping 5.48% in the September quarter, but only 8.64%
in the fiscal year-to-date. As of September 30, the Fund's NAV stood at $20.02
per share and its share price was $16.375, a discount of 18.21% to NAV. This
discount has narrowed from 20.33% at the end of the previous quarter.
Since the Fund's inception, the Fund has continued to significantly
outperform the Phisix. The Fund has appreciated by 160.17% as of the end of the
September quarter (after adjusting for dividends and the effect of the rights
offering in 1995), while the Phisix has risen by only 96.95%.
THE PHILIPPINE DEVELOPMENT MODEL
While other Southeast Asian economies are exhibiting signs of slowing
down -- with overheating concerns, manpower shortages, and anemic exports -- the
Philippines continues on its brisk upward trajectory. The third quarter of 1996
continued to usher in excellent economic news:
- Real GNP for the second quarter grew 7.7%, the best quarterly result in 6
years. Buoyed by the recovery of agriculture, GNP grew 7.1% for the first
half of 1996 versus 5.2% a year ago.
- Inflation abated to a surprisingly low year-on-year rate of 4.4% in
September despite fuel price increases precipitated by the partial
deregulation of the oil industry.
- Gross international reserves reached $11.5 billion as of October 4 -- an
all-time high.
- As of the end of September, the balance of payments reached a surplus of
$3.9 billion, with the help of higher inflows of foreign investments,
remittances from overseas contract workers, and investment incomes.
On the political front, an historic peace agreement between the government
and the Moro National Liberation Front was signed on September 2, ending years
of hostility in resource-rich Mindanao and removing a significant barrier to
investments in the region.
All of this good news bolsters the case that the foundations for sustained
growth are firmly in place. What makes this all the more noteworthy is that the
Philippines has been able to achieve robust development within a democratic
environment. The Philippine Secretary of Finance was recently quoted in The Wall
Street Journal as saying that the Philippines "is dedicated to formulating a new
model of Third World economic development that combines growth with equity,
modernization with environmental consciousness -- all in the context of
democracy." While there are still some crucial pieces of reform that require
implementation -- the comprehensive tax reform program, for example -- the
evidence certainly suggests that the Philippines is on its way to achieving this
goal.
<PAGE> 2
MARKET TAKES A BREATHER
The Philippine market's weakness in the September quarter came as a result
of profit-taking by investors after the market provided over 30% year-to-date
returns in July. This correction was more pronounced in the property sector, the
best performing sector for the year. Many global fund managers rebalanced their
portfolios and shifted funds out of emerging Asia-Pacific markets. Speculation
on the direction of US interest rates over the summer dampened interest in
global equities. Seven equity offerings of Philippine securities in the period
also added to the liquidity squeeze.
We believe that this correction is healthy and temporary, and it provides
the Fund with ample opportunities to pick up fundamentally sound stocks at
bargain prices. We remain bullish on the Philippine economy and its
corporations. The Philippines is a young market with some measure of volatility.
But it is moving, we believe, in the right direction. The Asia Pacific Economic
Cooperation (APEC) summit in Subic Bay this month will serve to highlight to the
world the country's achievements and favorable outlook. As the Fund has shown by
its growth since inception, there is much value to be harnessed in the
Philippines over the long term.
Thank you once again for your continued support.
Sincerely yours,
/s/ LILIA C. CLEMENTE
Lilia C. Clemente
2
<PAGE> 3
THE FIRST PHILIPPINE FUND INC.
SCHEDULE OF NET ASSETS
September 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Number of
Shares Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
PHILIPPINE SECURITIES (99.7%)
- ------------------------------------------------------------------------------------------------
COMMON STOCK (94.1%)
Banking (18.4%)
Bankard, Inc. (b) 6,470,000 $ 1,774,155
Citytrust Banking Corp. 30,000 1,502,456
Far East Bank and Trust Company 1,417,500 4,966,676
Metro Bank & Trust Company 585,413 13,934,677
PDCP Development Bank (a)(b) 1,009,500 884,278
Philippine Commercial International Bank 657,138 9,072,344
Philippine Savings Bank (b) 3,048,355 6,791,666
Security Bank Corp. (b) 448,560 1,110,424
Union Bank of Philippines (b) 1,000,000 1,409,148
- ------------------------------------------------------------------------------------------------
41,445,824
- ------------------------------------------------------------------------------------------------
Conglomerates (17.0%)
Aboitiz Equity Ventures, Inc. (b) 23,813,920 3,083,647
Alsons Consolidated Resources (b) 55,000,000 4,859,656
Ayala Corp. -- A 17,567,646 14,552,169
Benpres Holdings GDR (b)(d)(f) 742,491 5,665,206
First Philippine Holdings -- A 2,056,320 2,466,926
Guoco Holdings (PHLS), Inc. 4,360,000 979,701
Metro Pacific Corporation 20,718,097 5,996,783
Uniwide Holdings, Inc. (b)(d) 3,587,000 648,903
- ------------------------------------------------------------------------------------------------
38,252,991
- ------------------------------------------------------------------------------------------------
Construction/Engineering (6.6%)
Bacnotan Consolidated Industries 876,899 3,673,645
Davao Union Cement -- A 10,030,000 2,941,349
DMCI Holdings Inc. (b) 3,877,000 2,879,289
EEI Corp. 30,000,000 2,216,552
HI Cement Corp. (b)(d) 930,000 311,688
Seacem Holdings (b) 24,000,000 2,833,530
- ------------------------------------------------------------------------------------------------
14,856,053
- ------------------------------------------------------------------------------------------------
Electronics (1.3%)
Ionics Circuits, Inc. (b) 120,000 85,691
Matsushita Electric Philippines (a) 5,340,935 1,830,689
Solid Group, Inc. (b)(d) 4,150,000 932,513
- ------------------------------------------------------------------------------------------------
2,848,893
- ------------------------------------------------------------------------------------------------
Food and Beverage (9.9%)
Alaska Milk Corp. (b) 10,708,000 783,005
La Tondena Distillers, Inc. (d) 2,487,800 4,690,029
San Miguel Corp. -- A 9,835,351 14,795,916
Selecta Dairy Products, Inc. 2,500,000 97,117
Universal Robina 3,702,000 1,868,130
- ------------------------------------------------------------------------------------------------
22,234,197
- ------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
Number of
COMMON STOCK (CONTINUED) Shares Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Mining (0.5%)
Manila Mining Corp. -- A (a)(b) 1,000,300,000 $ 647,641
Manila Mining Corp. -- B (b) 80,850,000 52,346
United Paragon Mining Corp. (b) 2,500,000,000 571,276
- ------------------------------------------------------------------------------------------------
1,271,263
- ------------------------------------------------------------------------------------------------
Oil (0.1%)
Basic Petroleum and Mining -- A (b) 361,849,988 134,366
Basic Petroleum and Mining -- B (b) 194,166,659 73,949
Philodrill Corp. -- A (b) 44,334,545 16,885
Philodrill Corp. -- B (b) 39,436,363 15,019
- ------------------------------------------------------------------------------------------------
240,219
- ------------------------------------------------------------------------------------------------
Real Estate Development (21.9%)
Ayala Land, Inc. -- B 15,934,217 19,419,390
Belle Corporation (b) 14,100,008 4,134,900
C & P Homes, Inc. 5,744,500 3,883,341
Empire East Land Holdings (b)(d) 1,081,000 576,380
Fil-Estate Land, Inc. 2,880,000 2,659,862
Filinvest Development Corp. (b) 2,000,000 761,702
Filinvest Land, Inc. (b) 18,187,500 6,580,388
Primetown Properties Corp. (b) 3,375,000 848,345
Pryce Properties Corp. 35,000,000 2,399,360
Robinson's Land -- B (b) 19,000,000 3,762,806
SM Prime Holdings, Inc. 14,400,000 3,345,394
Universal Rightfield Property (b) 6,100,000 778,269
- ------------------------------------------------------------------------------------------------
49,150,137
- ------------------------------------------------------------------------------------------------
Shipping/Ship Repair (3.6%)
Asian Terminals, Inc. (a) 39,999,000 7,159,816
Keppel Philippines Holdings -- A (a)(b) 7,988,785 867,123
- ------------------------------------------------------------------------------------------------
8,026,939
- ------------------------------------------------------------------------------------------------
Telecommunications (7.8%)
Digital Telecommunications (a)(b) 11,250,000 499,866
Globe Telecom (b) 2,340,398 1,292,447
Philippine Long Distance Telephone ADR (e) 225,510 14,094,375
Pilipino Telephone Corp. (b)(d) 1,217,500 1,669,269
- ------------------------------------------------------------------------------------------------
17,555,957
- ------------------------------------------------------------------------------------------------
Utilities (7.0%)
Manila Electric Co. -- A 2,531,701 9,931,263
Petron Corp. 15,725,000 5,689,435
- ------------------------------------------------------------------------------------------------
15,620,698
- ------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost $122,421,337) 211,503,171
- ------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
Par
SCHEDULE OF NET ASSETS (CONTINUED) Maturity (000) Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (3.2%)
Bacnotan Consolidated Ind. Convertible Bond 5.5% (d) 06/21/04 $1,750 $ 1,627,500
International Container Terminal Services Inc. 6.0% 02/19/00 2,500 3,000,000
JG Summit Convertible Bond 3.5% (d) 12/23/03 3,000 2,565,000
- -------------------------------------------------------------------------------------------------
TOTAL BONDS
(Cost $7,391,232) 7,192,500
- -------------------------------------------------------------------------------------------------
CALL ACCOUNTS (2.4%)
Philippine Peso (c)
(Cost $5,402,275) 5,391,416
- -------------------------------------------------------------------------------------------------
TOTAL PHILIPPINE SECURITIES 224,087,087
- -------------------------------------------------------------------------------------------------
UNITED STATES SECURITIES (0.4%)
- -------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (0.4%)
Prudential Funding Co.
5.35159%
(Cost $942,000) 10/02/96 942 942,000
- -------------------------------------------------------------------------------------------------
TOTAL UNITED STATES SECURITIES 942,000
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS**
(Cost $136,156,844) 100.1 % 225,029,087
Liabilities in excess of other assets (0.1)% (311,825)
- -------------------------------------------------------------------------------------------------
TOTAL NET ASSETS
(applicable to 11,225,000
common shares outstanding) 100.0 % $224,717,262
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
($224,717,262 / 11,225,000) $ 20.02
- -------------------------------------------------------------------------------------------------
** Cost of Total Investments:
Common Stock $122,421,337
Bonds 7,391,232
Call Accounts 5,402,275
Commercial Paper 942,000
------------
$136,156,844
============
</TABLE>
(a) At fair value as determined by the Board of Directors.
(b) Non-income producing security.
(c) Daily interest is being accrued at a rate of 4% of the outstanding balance.
(d) 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.
(e) ADR -- American Depository Receipt.
(f) GDR -- Global Depository Receipt.
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
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
1-800-937-5449)
- ------------
INVESTMENT ADVISER
Clemente Capital, Inc.
- ------------
ADMINISTRATOR
PFPC Inc.
- ------------
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company
- ------------
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 and The
New York Times and in other newspapers. For general information visit us at our
web site www.clementecapital.com. For shareholder account inquiries call
1-800-937-5449.
- ------------
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, 1996
