<PAGE> 1
February 15, 1996
Dear Fellow Shareholder:
The Philippine Stock Exchange Index (Phisix) continued to correct for most
of the fourth quarter of 1995, falling to a 25-month low (2,196.48) in late
November. However, by the end of the year investors, looking toward 1996, lifted
the market over 18% from the November low. As a result, the Phisix declined only
1.9% in the quarter, while The First Philippine Fund's net asset value (NAV) was
off 7.5%, to $17.23 per share. The Fund's stock price moved in line with this
decrease, ending the quarter at $13.875, down 7.9%. More recently, in the month
of January 1996, the Fund leaped ahead 13.0%, as the Philippine market continued
its recovery.
For the full calendar year, the Fund was down 17.5% while the Phisix
dropped 13.3%. However, from inception-to-date the Fund still leads the Phisix.
Since the launch of the Fund in November 1989, the Fund has risen 123.9%, while
the stock market index has appreciated 61.7%.
FUNDAMENTAL GROWTH STILL STRONG; INFLATION A WORRY BUT NOT OUT OF HAND
Economic growth in the Philippines accelerated in 1995. The gross national
product (GNP) grew 5.7% in 1995 as compared to 5.3% growth in 1994, while the
gross domestic product (GDP) accelerated to 4.8% from 4.4% in 1994. We consider
these as strong numbers, given the fact that a series of devastating typhoons
hit the archipelago in the second half of the year. The typhoons dampened
agricultural and industrial production (together, contributing about 60% to
GDP). The acceleration in both GNP and GDP is expected to continue in 1996, with
the Philippine government targeting GNP growth between 6.5-7.5% and GDP growth
between 6.2-6.9%.
After jumping up to 11.3% in September, inflation remained in double digits
for the rest of the year. Several factors will keep inflation in the low double
digit range for the first few months of 1996. The expanded-value added tax
(E-VAT) which took effect January 1, 1996, the recently granted oil price
increase (average increase of PhP 0.55/liter), and an increase in the minimum
wage (PhP 20.00 increase) will all conspire to keep inflation in the 10-12%
range for the first few months of this year. The government is countering these
inflationary pressures by: 1) alleviating the food situation with the
importation of rice, sugar and corn; 2) lowering the cost of imported
intermediate goods with the implementation of a tariff restructuring program;
and 3) tightening domestic liquidity, with the Central Bank (BSP) limiting
monetary growth to 22-25%. The double digit rate should taper off, however, as
we approach the end of the first half of 1996, and should stabilize in the mid-
to high single digits for the rest of the year.
MARKET REFORMS AND LIBERALIZATION CONTINUE
Government bureaucracy and red tape, once a hallmark of Philippine business
and a stumbling block for foreign investors, have been reduced and replaced with
various forms of incentives and innovative investment schemes (e.g.
build-operate-transfer, build-operate-own, etc.). As a result, foreign direct
investment has seen an unprecedented surge over the last couple of years.
Under the leadership of President Fidel Ramos, liberalization of the
economy continues to be a high priority. The lifting of foreign exchange
controls has led to a market determined foreign exchange rate. The opening up of
the telecommunications sector has led to stiff competition resulting in improved
services and a rise in the telephone density rate to about 2-2.5 telephone lines
per 100 people.
<PAGE> 2
Mining laws have been relaxed and the country has seen the entry of foreign
mining heavyweights like Western Mining and Echo Bay Mines. The ten foreign
banking institutions that were granted banking licenses have begun operations.
Still to come are the expected liberalization of the energy and retail sectors.
The outlook for corporate earnings is very positive. Earnings at the
country's top companies are expected to accelerate from 23% this year to 25% in
1997. Sectors like telecommunications, construction, power and energy, property,
and banking will benefit from strong demand. In the telecommunications sector
demand is strong across the entire spectrum of services -- land line telephony,
wireless, paging, and international -- all of which suffer from low penetration
rates. Leading construction and engineering firms are experiencing strong growth
in their businesses due to the multitude of infrastructure projects that are
required to meet the needs of a developing nation. Hand in hand with the growth
of the economy is the demand for power and energy. Growth in electricity demand
still outstrips GDP growth. Office space and residential housing, especially
low- and middle income housing, is in short supply. Property developers will
benefit from this unbalanced situation which should persist for a few more
years.
This positive outlook for the Philippines must be tempered with some
concerns. Inflation still has the power to spook investors. Although we expect a
return to single digit inflation by some time in the middle of the year,
infrastructure bottlenecks, such as the impossible traffic situation and the
overly taxed water supply in Manila, must be properly addressed. A low savings
rate and unequal distribution of wealth, though nagging problems, are being
confronted by such efforts as the development of a local mutual fund industry.
We are confident, however, that these problems are being given the priority they
require by the national government and feel that the stage has been set for a
continuation of sustainable, steady growth.
We look forward to facing the challenge of the coming year and thank you
for your steadfast support.
Sincerely yours,
/s/ LILIA C. CLEMENTE
Lilia C. Clemente
President
2
<PAGE> 3
THE FIRST PHILIPPINE FUND INC.
SCHEDULE OF INVESTMENTS (Unaudited)
December 31, 1995
<TABLE>
<CAPTION>
Number of
Shares Value
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
PHILIPPINE SECURITIES (99.8%)
- -----------------------------------------------------------------------------------------------
COMMON STOCK (89.5%)
Banking (14.2%)
Bankard Inc. (c) 6,470,000 $ 2,369,421
Citytrust Banking Corp. 30,000 921,263
Far East Bank and Trust Company 133,400 3,613,108
Metro Bank & Trust Company 518,330 10,069,321
Philippine Commercial International Bank (c) 728,118 6,721,773
Philippine Savings Bank 3,031,609 5,319,830
- -----------------------------------------------------------------------------------------------
29,014,716
- -----------------------------------------------------------------------------------------------
Conglomerates (12.1%)
Aboitiz Equity Ventures, Inc. (c) 18,318,400 3,494,011
Ayala Corp. -- A 11,711,769 9,829,058
Benpres Holdings GDR (c)(f)(h) 387,491 1,937,455
First Philippine Holdings -- A 4,067,499 5,508,362
Metro Pacific Corporation 20,574,333 3,806,573
- -----------------------------------------------------------------------------------------------
24,575,459
- -----------------------------------------------------------------------------------------------
Construction (4.4%)
Bacnotan Consolidated Industries 656,205 3,754,892
Davao Union Cement -- A 4,000,000 808,728
DMCI Holdings Inc. (c) 3,877,000 1,390,242
Seacem Holdings (c) 24,000,000 3,112,841
- -----------------------------------------------------------------------------------------------
9,066,703
- -----------------------------------------------------------------------------------------------
Electronics (1.3%)
Ionics Circuits Inc (c) 60,000 81,254
Matsushita Electric Philippines (b) 4,855,395 2,546,795
- -----------------------------------------------------------------------------------------------
2,628,049
- -----------------------------------------------------------------------------------------------
Engineering (0.4%)
Engineering Equipment, Inc. 14,964,000 867,677
- -----------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
3
<PAGE> 4
<TABLE>
<CAPTION>
Number of
COMMON STOCK (continued) Shares Value
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
Food and Beverage (13.8%)
Alaska Milk Corp. (c) 13,372,000 $ 1,938,415
La Tondena Distillers, Inc. (f) 2,487,800 2,752,201
RFM Corp. 12,037,375 2,571,500
San Miguel Corp. -- A 7,839,409 15,401,296
Selecta Dairy Products, Inc. 12,500,000 906,004
Universal Robina 9,298,800 4,611,444
- -----------------------------------------------------------------------------------------------
28,180,860
- -----------------------------------------------------------------------------------------------
Mining (1.5%)
Manila Mining Corp. -- A (b) 714,500,000 1,308,309
Manila Mining Corp. -- B 57,750,000 107,948
United Paragon Mining Corp. (b)(c) 6,960,000,000 1,593,042
- -----------------------------------------------------------------------------------------------
3,009,299
- -----------------------------------------------------------------------------------------------
Oil (0.1%)
Basic Petroleum and Mining -- A (c) 361,849,988 165,644
Basic Petroleum and Mining -- B (c) 194,166,659 88,884
Philodrill Corp. -- A (c) 44,334,545 13,530
Philodrill Corp. -- B (c) 39,436,363 12,035
- -----------------------------------------------------------------------------------------------
280,093
- -----------------------------------------------------------------------------------------------
Packaging (0.6%)
Steniel Manufacturing Corp. 7,259,999 1,163,195
- -----------------------------------------------------------------------------------------------
Real Estate Development (17.9%)
Ayala Land, Inc. -- B 10,622,811 12,967,497
Belle Corporation (c) 27,600,008 3,790,342
Cebu Holding Inc. (c) 6,960,000 610,666
C & P Homes Inc. (c) 5,464,500 4,012,803
Fil-Estate Land Inc. (c) 30,000 22,602
Filinvest Development Corp. (c) 1,000,000 667,582
Filinvest Land Inc. (c) 12,125,000 3,885,328
Grand Plaza Hotel Corp. (b)(c)(d) 5,681,500 3,251,030
Pryce Properties Corp. 25,000,000 1,754,788
Robinson's Land -- B (c) 15,300,000 2,159,533
SM Prime Holdings Inc. (c) 12,000,000 3,433,280
- -----------------------------------------------------------------------------------------------
36,555,451
- -----------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
4
<PAGE> 5
<TABLE>
<CAPTION>
Number of
COMMON STOCK (continued) Shares Value
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
Shipping/Ship Repair (2.7%)
ATI Holdings, Inc. (b)(c) 52,500,000 $ 2,002,747
Cebu Shipyard & Engineering Works -- A (b)(c) 33,386 4,330
Keppel Philippines Holdings -- A (c) 6,657,325 2,539,607
Kepphil Shipyard, Inc. -- A (c) 858,648 46,513
William Lines, Inc. (f) 2,694,300 791,413
- -----------------------------------------------------------------------------------------------
5,384,610
- -----------------------------------------------------------------------------------------------
Telecommunications (11.6%)
Digital Telecommunications (b)(c) 11,250,000 500,687
Globe Telecom (c) 2,340,398 1,160,646
Philippine Long Distance Telephone ADR (g) 383,510 20,757,479
Pilipino Telephone Corp. (c)(f) 1,217,500 1,230,783
- -----------------------------------------------------------------------------------------------
23,649,595
- -----------------------------------------------------------------------------------------------
Utilities (8.9%)
Manila Electric Co. -- A 2,597,462 14,367,589
Petron Corp. 7,100,000 3,656,443
- -----------------------------------------------------------------------------------------------
18,024,032
- -----------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost $121,506,727) 182,399,739
- -----------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
5
<PAGE> 6
<TABLE>
<CAPTION>
Par
SCHEDULE OF INVESTMENTS (continued) Maturity (000) Value
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
BONDS (3.1%)
Bacnotan Consolidated Ind. Convertible Bond 5.5% (f) 06/21/04 $1,750 $ 1,583,750
International Container Terminal Services Inc. 6.0% 02/19/00 2,500 2,375,000
JG Summit Convertible Bond 3.5% (f) 12/23/03 3,000 2,227,500
- -----------------------------------------------------------------------------------------------
TOTAL BONDS
(Cost $7,423,704) 6,186,250
- -----------------------------------------------------------------------------------------------
CALL ACCOUNTS (7.2%)
Philippine Peso (e)
(Cost $14,679,927) 14,668,163
- -----------------------------------------------------------------------------------------------
TOTAL PHILIPPINE SECURITIES 203,254,152
- -----------------------------------------------------------------------------------------------
UNITED STATES SECURITIES (0.2%)
- -----------------------------------------------------------------------------------------------
COMMERCIAL PAPER (0.2%)
Prudential Funding Co. 5.65354%
(Cost $502,000) 01/02/96 502 502,000
- -----------------------------------------------------------------------------------------------
TOTAL UNITED STATES SECURITIES 502,000
- -----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(Cost $144,112,358) (a) $203,756,152
------------
</TABLE>
(a) Aggregate cost is the same for Federal income tax purposes. The aggregate
gross unrealized appreciation (depreciation) for all securities is as
follows:
<TABLE>
<S> <C>
Excess of market value over tax cost $ 75,238,560
Excess of tax cost over market value (15,594,766)
------------
$ 59,643,794
============
</TABLE>
(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.
See Accompanying Notes to Financial Statements
6
<PAGE> 7
THE FIRST PHILIPPINE FUND INC.
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
<TABLE>
<CAPTION>
December 31, 1995
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments at value (Cost $129,432,431)...................................................................... $189,087,989
Cash (including Philippine pesos of $14,668,163 with a cost of $14,679,927)................................... 14,668,632
Dividends receivable.......................................................................................... 432,095
Interest receivable........................................................................................... 110,331
Receivable for investments sold............................................................................... 2,361,272
Prepaid insurance............................................................................................. 6,565
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS.................................................................................................. 206,666,884
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased............................................................................. 1,165,377
Accrued expenses payable...................................................................................... 649,631
Dividend payable.............................................................................................. 11,449,500
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES............................................................................................. 13,264,508
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS
(applicable to 11,225,000 common shares outstanding)....................................................... $193,402,376
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
($193,402,376 / 11,225,000)................................................................................ $ 17.23
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Capital stock................................................................................................ $ 112,250
Paid-in capital.............................................................................................. 130,360,080
Accumulated net investment loss.............................................................................. (1,494,810)
Accumulated net realized gain on investments................................................................. 4,764,662
Accumulated net unrealized appreciation on investments, foreign currency holdings, and other assets and
liabilities denominated in foreign currencies.............................................................. 59,660,194
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS.................................................................................................... $193,402,376
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
For the Six
Months Ended
STATEMENT OF OPERATIONS (Unaudited) December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Interest (net of taxes withheld $4,446)...................................................................... $ 190,902
Dividends (net of taxes withheld $156,382)................................................................... 467,955
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME....................................................................................... 658,857
- ---------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment advisory fee...................................................................................... 1,103,551
Custodian fees............................................................................................... 247,236
Trustee fee.................................................................................................. 165,533
Administration fee........................................................................................... 110,355
Transfer agent fees.......................................................................................... 21,588
Legal fees................................................................................................... 80,736
Printing..................................................................................................... 23,189
Directors fees............................................................................................... 38,401
Audit fees................................................................................................... 32,063
Insurance.................................................................................................... 6,639
Miscellaneous................................................................................................ 114,797
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES................................................................................................ 1,944,088
- ---------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS........................................................................................... (1,285,231)
- ---------------------------------------------------------------------------------------------------------------------------------
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...................................................................................... 13,338,192
Foreign currency transactions.............................................................................. (55,500)
- ---------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments................................................................................................ (39,018,963)
Foreign currency holdings and other assets and liabilities denominated in foreign currencies............... 16,400
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized losses on investments, foreign currency holdings and other assets and
liabilities denominated in foreign currencies............................................................ (25,719,871)
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................................... $(27,005,102)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
7
<PAGE> 8
<TABLE>
<CAPTION>
For the Six
THE FIRST PHILIPPINE FUND INC. Months Ended For the
December 31, 1995 Year Ended
STATEMENTS OF CHANGES IN NET ASSETS (unaudited) June 30, 1995
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment loss.................................... $ (1,285,231) $ (2,237,561)
Net realized gain on security transactions............. 13,338,192 3,999,098
Net realized gain (loss) on foreign currency
transactions......................................... (55,500) (71,720)
Net change in unrealized appreciation on investments,
foreign currency holdings and other assets and
liabilities denominated in foreign currencies........ (39,002,563) 8,925,378
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations............................................. (27,005,102) 10,615,195
- ------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders from:
Net realized long-term gains ($1.02 & $0.85 per share,
respectively).......................................... (11,449,500) (7,633,000)
Net realized short-term gains ($0.00 & $1.25 per share,
respectively).......................................... 0 (11,225,000)
- ------------------------------------------------------------------------------------------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS DECLARED.................. (11,449,500) (18,858,000)
- ------------------------------------------------------------------------------------------------------
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)............................................ 0 32,601,542
- ------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets................... (38,454,602) 24,358,737
Net assets:
Beginning of period.................................... 231,856,978 207,498,241
- ------------------------------------------------------------------------------------------------------
End of period (including accumulated loss of
($1,494,810) and ($209,579), respectively)........... $ 193,402,376 $ 231,856,978
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
8
<PAGE> 9
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year Ended June 30,
December 31, 1995 -----------------------------------------------------
(unaudited) 1995 1994 1993
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period............................. $20.66 $23.11 $14.84 $14.58
- ------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)....... (0.12) (0.20) (0.22) (0.07)
Net realized and unrealized gains
(losses) on investments, foreign
currency holdings and other
assets and liabilities
denominated in foreign
currencies....................... (2.29) 1.27 9.25 0.90
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from
investment operations.............. (2.41) 1.07 9.03 0.83
- ------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment
income........................... -- -- -- --
Distributions from net realized
long-term gains.................. (1.02) (0.85) (0.18) (0.32)
Distributions from net realized
short-term gains................. -- (1.25) (0.58) (0.25)
- ------------------------------------------------------------------------------------------------------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS.... (1.02) (2.10) (0.76) (0.57)
- ------------------------------------------------------------------------------------------------------------------
DILUTIVE EFFECT OF CAPITAL SHARE
RIGHTS OFFERING.................... -- (1.42) -- --
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period....... $17.23 $20.66 $23.11 $14.84
- ------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF
PERIOD............................. $13.875 $16.875 $18.25 $13.00
- ------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN
Based on market value*............. (12.00)%*** 7.06% 45.62% 19.19%
- ------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
000's)............................. $193,402 $231,857 $207,498 $133,306
Ratios to average net assets:
Operating expenses................. 1.76%** 1.82% 1.79% 1.72%
Net investment income (loss)....... (1.16)%** (1.01)% (1.08)% (0.45)%
Portfolio turnover................... 24.03% 20.50% 39.35% 37.30%
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
For the Year Ended June 30,
-------------------------------------
1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period............................. $10.35 $10.97
- -----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)....... 0.05 0.40+
Net realized and unrealized gains
(losses) on investments, foreign
currency holdings and other
assets and liabilities
denominated in foreign
currencies....................... 4.37 (0.43)
- -----------------------------------------------------------------------------
Net increase (decrease) from
investment operations.............. 4.42 (0.03)
- -----------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment
income........................... (0.19) (0.59)
Distributions from net realized
long-term gains.................. -- --
Distributions from net realized
short-term gains................. -- --
- -----------------------------------------------------------------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS.... (0.19) (0.59)
- -----------------------------------------------------------------------------
DILUTIVE EFFECT OF CAPITAL SHARE
RIGHTS OFFERING.................... -- --
- -----------------------------------------------------------------------------
Net asset value, end of period....... $14.58 $10.35
- -----------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF
PERIOD............................. $11.50 $7.50
- -----------------------------------------------------------------------------
TOTAL INVESTMENT RETURN
Based on market value*............. 56.61% (13.01)%
- -----------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
000's)............................. $130,955 $92,975
Ratios to average net assets:
Operating expenses................. 1.79% 1.90%
Net investment income (loss)....... .42% 3.92%
Portfolio turnover................... 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 rights offering. Total investment return does not reflect sales
charges and brokerage commissions.
** Annualized
*** Nonannualized
+ 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
9
<PAGE> 10
THE FIRST PHILIPPINE FUND INC.
SELECTED QUARTERLY FINANCIAL DATA
(Unaudited)
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
QUARTER ENDED
12/31/95 09/30/95 06/30/95 03/31/95
----------------- ----------------- ----------------- -----------------
Per Per Per Per
Total Share Total Share Total Share Total Share
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Investment income................. $ 261 $ 0.02 $ 398 $ 0.04 $ 611 $ 0.05 $ 568 $ 0.05
Net investment loss............... (656) (0.06) (629) (0.06) (470) (0.03) (437) (0.02)
Distribution from net realized
long-term gains................. (11,450) (1.02)
Net realized gain (loss) and
change in net unrealized
appreciation (depreciation) on
investments, foreign currency
holdings, and other assets and
liabilities denominated in
foreign currencies.............. (16,183) (1.44) (9,537) (0.85) 23,051 1.99 (34,855) (3.46)
Net asset value................... $193,402 $17.23 $221,691 $19.75 $231,857 $20.66 $209,277 $18.64
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
12/31/94 09/30/94 06/30/94 03/31/94
----------------- ----------------- ----------------- -----------------
Per Per Per Per
Total Share Total Share Total Share Total Share
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income................. $ 403 $ 0.04 $ 332 $ 0.04 $ 358 $ 0.04 $ 435 $ 0.05
Net investment loss............... (590) (0.07) (741) (0.08) (764) (0.09) (391) (0.04)
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,
and other assets and liabilities
denominated in foreign
currencies...................... 2,086 0.23 22,571 2.51 8,687 0.98 (31,240) (3.49)
Net asset value................... $211,966 $23.60 $229,328 $25.54 $207,498 $23.11 $199,575 $22.22
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
10
<PAGE> 11
THE FIRST PHILIPPINE FUND INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
(Unaudited)
- ------------
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 totaling $11,206,940 (6% of net assets), for
which market values are not readily available or average trading volume is
small relative to the Fund's holdings, 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.
11
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
- ------------
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.
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 classification.
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 elected to defer net capital
foreign currency losses of $184,257 for 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 loss 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
12
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
- ------------
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 the 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 six months ended December 31, 1995, the
Investment Adviser earned $1,103,551 from the Fund, of which $217,090 was
payable to the Investment Adviser at December 31, 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 six months ended December 31, 1995, the Investment Adviser
paid $386,243 to the Philippine Adviser.
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 six months ended
December 31, 1995, the Trustee earned fees of $165,533, of which $77,563 was
payable to the Trustee at December 31, 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 six
months ended December 31, 1995, the Administrator earned fees of $110,355, of
which $51,709 was payable to the Administrator at December 31, 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 December 31, 1995 were $12,000, which is included in
accrued expenses.
The Fund paid or accrued approximately $84,300 for the six months ended
December 31, 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 December 31, 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
13
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (continued)
(Unaudited)
- ------------
prices for the week prior to 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 law firm in which the Fund's secretary is a partner.
D. PORTFOLIO ACTIVITY
Purchases and sales of securities, other than short-term obligations,
aggregated $25,824,545 and $39,413,132, respectively, for the six months ended
December 31, 1995.
E. 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 December 31, 1995, 99.8% 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.
14
<PAGE> 15
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
1-800-432-8224)
- ------------
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> 16
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.
[THE FIRST PHILIPPINE FUND INC. LOGO]
The First Philippine Fund Inc.
SEMI-ANNUAL REPORT
DECEMBER 31, 1995
