<PAGE> 1
May 6, 1996
Dear Shareholder:
The Philippine Stock Exchange composite index (Phisix) surged in the first
five weeks of 1996, continuing its recovery from its 25-month low in November.
The advance came largely on the back of renewed interest by foreign investors,
the official announcement of a 5.7% gross national product (GNP) growth rate in
1995, and a quarter point cut in US interest rates. Following periods of
correction and rallies, the Phisix ended the quarter strongly at 2,900.75, 11.9%
higher (in dollar terms) than its close at year-end 1995.
The First Philippine Fund moved largely in tandem with the Phisix. Its net
asset value (NAV) rose by 10.8% to $19.10 at the end of March. The Fund's stock
price advanced by 13.5% to close at $15.75, a discount of 17.5% to NAV. The Fund
has since overtaken the market. The Fund's NAV rose to $20.17 per share as of
April 30, up 17.0% year to date, compared to 13.4% for the Phisix. Since the
Fund's inception, the Fund has appreciated by 148.2% versus the Phisix's rise of
80.6% as of the end of the quarter.
ON THE PATH OF A STABLE, SUSTAINABLE GROWTH
The Philippines entered 1996 propelled by the momentum of a 5.7% GNP
growth. Despite a tough year for agriculture, the GNP per capita breached the
$1,000 level last year. Key indicators continue to show that the economy is on a
stable growth path. Industry (especially utilities, manufacturing and
construction) was the principal driver of last year's growth, with services
following its lead. This trend is expected to continue in 1996. Weather
permitting, agriculture can achieve a modest recovery. The country's export
growth of 28.9%, the highest in Asia, outpaced import growth. This, too, is
expected to continue, resulting over-all in a projected GNP growth of between
6.5%-7.5% for the year.
Investors, however, have continued to monitor inflation in the first
quarter. Average inflation for the period was at 11.6%, more than twice that of
the same period in 1995. The price increase was largely due to the rice shortage
last September, followed by the implementation of the expanded value-added tax
(EVAT), fuel price increases, and the subsequent wage adjustments this quarter.
Other cost-push pressures -- arising from shortages in sugar and corn, an
impending increase in power rates, and a further rise in oil prices due to the
deregulation of the oil industry -- are expected to keep inflation in double
digits for the first half of the year. Thereafter, inflation should taper off to
single digits.
While much has been achieved to realize significant growth, more needs to
be done to sustain it. Herein lies the challenge for the national government in
1996. Necessary, but perhaps politically unpopular, economic policies are on tap
to be implemented this year. This began with the long overdue EVAT
implementation in January and the oil price hikes in February in preparation for
full deregulation of the oil industry next year. Also expected to be tackled are
the liberalization of the retail industry, capital market reforms, and a
comprehensive tax reform package. Furthermore, it is not too early for
government to begin to address its social agenda to insure that growth is
accompanied by equity.
STRONG CORPORATE EARNINGS EXPECTED
The outlook for Philippine companies remains attractive. Corporate earnings
growth is forecast at 24% for 1996 and 25% for 1997, the highest among its Asian
peers. This projection was bolstered by first quarter earnings results where
most companies exhibited significant gains. The market's first quarter
<PAGE> 2
surge, however, was led mostly by second-liners as blue chips turned in a mixed
performance. San Miguel, PLDT and Petron all posted declining profits, but
heavyweights Ayala Land and Ayala Corp. outperformed the market. Sectorally, the
property index posted the highest quarterly gain at 22.7%. Speculative
positioning in oil counters resulted in the oil index appreciating 19.6%. The
commercial-industrial index advanced by a more modest 7%.
We expect a period of stabilization near term. While the market may be
vulnerable to some correction after having gone up 37% since last November,
fundamentals should minimize any downswings. We believe that second-liners will
continue to outperform and remain cautious on most blue chips due to unexciting
earnings prospects in the medium term. We are bullish on banks, which will be
fueled by strong loan growth from an expanding GNP, as well as cement and
construction companies, which benefit from increased infrastructure spending.
Cellular phone service providers are experiencing strong subscriber growth, and
selected property companies -- those that cater to the low/medium-cost
markets -- are facing large demand.
The Philippine market's strong first quarter performance should augur well
for the entire year. Philippine companies are growing, competing and improving
in a stable, yet responsive regulatory environment. We look forward to
continuing our work of discovering and harnessing value in this attractive
emerging market.
As always, we thank you 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
March 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Number of
Shares Value
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
PHILIPPINE SECURITIES (99.2%)
- -----------------------------------------------------------------------------------------------
COMMON STOCK (94.5%)
Banking (16.4%)
Bankard Inc. (b) 6,470,000 $ 3,334,160
Citytrust Banking Corp. 30,000 984,845
Far East Bank and Trust Company 133,400 3,666,374
Metro Bank & Trust Company 518,330 12,860,805
Philippine Commercial International Bank 728,118 8,338,184
Philippine Savings Bank 3,048,355 5,992,682
- -----------------------------------------------------------------------------------------------
35,177,050
- -----------------------------------------------------------------------------------------------
Conglomerates (13.1%)
Aboitiz Equity Ventures, Inc. (b) 18,318,400 3,496,278
Ayala Corp. -- A 11,711,764 11,400,160
Benpres Holdings GDR (b)(e)(g) 387,491 2,569,065
First Philippine Holdings -- A 4,880,998 5,962,207
Metro Pacific Corporation 20,574,333 4,712,219
- -----------------------------------------------------------------------------------------------
28,139,929
- -----------------------------------------------------------------------------------------------
Construction/Engineering (5.1%)
Bacnotan Consolidated Industries 876,404 3,412,346
Davao Union Cement -- A 4,000,000 855,060
DMCI Holdings Inc. (b) 3,877,000 2,515,899
Engineering Equipment, Inc. 14,964,000 1,062,451
Seacem Holdings (b) 24,000,000 3,069,054
- -----------------------------------------------------------------------------------------------
10,914,810
- -----------------------------------------------------------------------------------------------
Electronics (1.2%)
Ionics Circuits Inc (b) 60,000 89,323
Matsushita Electric Philippines (a) 4,855,395 2,409,441
- -----------------------------------------------------------------------------------------------
2,498,764
- -----------------------------------------------------------------------------------------------
Food and Beverage (12.6%)
Alaska Milk Corp. (b) 13,372,000 1,582,364
La Tondena Distillers, Inc. (e) 2,487,800 2,991,400
RFM Corp. 12,037,375 2,297,472
San Miguel Corp. -- A 7,559,409 14,860,845
Selecta Dairy Products, Inc. 12,500,000 725,274
Universal Robina 9,298,800 4,525,698
- -----------------------------------------------------------------------------------------------
26,983,053
- -----------------------------------------------------------------------------------------------
Mining (1.2%)
Manila Mining Corp. -- A (a) 714,500,000 1,063,690
Manila Mining Corp. -- B 57,750,000 85,974
United Paragon Mining Corp. (a)(b) 6,960,000,000 1,461,236
- -----------------------------------------------------------------------------------------------
2,610,900
- -----------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
Number of
COMMON STOCK (CONTINUED) Shares Value
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
Oil (0.1%)
Basic Petroleum and Mining -- A (b) 361,849,988 $ 179,564
Basic Petroleum and Mining -- B (b) 194,166,659 103,765
Philodrill Corp. -- A (b) 44,334,545 15,231
Philodrill Corp. -- B (b) 39,436,363 13,548
- -----------------------------------------------------------------------------------------------
312,108
- -----------------------------------------------------------------------------------------------
Packaging (0.5%)
Steniel Manufacturing Corp. 7,259,997 983,815
- -----------------------------------------------------------------------------------------------
Real Estate Development (21.2%)
Ayala Land, Inc. -- B 10,622,811 17,233,632
Belle Corporation (b) 27,600,008 3,582,091
Cebu Holdings Inc. (b) 6,960,000 557,926
C & P Homes Inc. 5,464,500 4,119,704
Fil-Estate Land Inc. (b) 2,880,000 2,391,113
Filinvest Development Corp. (b) 1,000,000 725,274
Filinvest Land Inc. (b) 12,125,000 5,669,781
Grand Plaza Hotel Corp. (a)(b)(c) 5,681,500 3,253,140
Pryce Properties Corp. 25,000,000 1,584,151
Robinson's Land -- B (b) 15,300,000 2,715,769
SM Prime Holdings Inc. (b) 12,000,000 3,572,928
- -----------------------------------------------------------------------------------------------
45,405,509
- -----------------------------------------------------------------------------------------------
Shipping/Ship Repair (4.6%)
Asian Terminal Inc. (a) 30,000,000 6,985,533
Cebu Shipyard & Engineering Works -- A (a)(b) 33,386 4,333
Keppel Philippines Holdings -- A (b) 6,657,323 2,287,129
William, Gothong and Aboitiz (e) 2,694,300 647,940
- -----------------------------------------------------------------------------------------------
9,924,935
- -----------------------------------------------------------------------------------------------
Telecommunications (9.9%)
Digital Telecommunications (a)(b) 11,250,000 501,011
Globe Telecom (b) 2,340,398 1,183,734
Philippine Long Distance Telephone ADR (f) 333,510 17,759,408
Pilipino Telephone Corp. (b)(e) 1,217,500 1,649,855
- -----------------------------------------------------------------------------------------------
21,094,008
- -----------------------------------------------------------------------------------------------
Utilities (8.6%)
Manila Electric Co. -- A 2,597,462 15,368,424
Petron Corp. 7,100,000 3,049,013
- -----------------------------------------------------------------------------------------------
18,417,437
- -----------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost $123,143,027) 202,462,318
- -----------------------------------------------------------------------------------------------
</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% (e) 06/21/04 $ 1,750 $ 1,627,500
International Container Terminal Services Inc. 6.0% 02/19/00 2,500 2,625,000
JG Summit Convertible Bond 3.5% (e) 12/23/03 3,000 2,565,000
- -------------------------------------------------------------------------------------------------
TOTAL BONDS
(Cost $7,412,894) 6,817,500
- -------------------------------------------------------------------------------------------------
CALL ACCOUNTS (1.5%)
Philippine Peso (d)
(Cost $3,268,167) 3,270,340
- -------------------------------------------------------------------------------------------------
TOTAL PHILIPPINE SECURITIES 212,550,158
- -------------------------------------------------------------------------------------------------
UNITED STATES SECURITIES (1.4%)
- -------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (1.4%)
American Express Co.
5.40243%
(Cost $3,013,000) 04/01/96 3,013 3,013,000
- -------------------------------------------------------------------------------------------------
TOTAL UNITED STATES SECURITIES 3,013,000
- -------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS**
(Cost $136,837,088) 100.6 % 215,563,158
Liabilities in excess of others assets (0.6)% (1,213,231)
- -------------------------------------------------------------------------------------------------
TOTAL NET ASSETS
(applicable to 11,225,000
common shares outstanding) 100.0 % $214,349,927
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
($214,349,927 / 11,225,000) $ 19.10
- -------------------------------------------------------------------------------------------------
** Cost of Total Investments:
Common Stock $123,143,027
Bonds 7,412,894
Call Accounts 3,268,167
Commercial Paper 3,013,000
------------
$136,837,088
============
</TABLE>
(a) At fair value as determined by the Board of Directors.
(b) Non-income producing security.
(c) Common stock has a warrant offering of 1 warrant for every 5 Common Shares
owned, expiring on 12/9/97. The warrants are valued at zero as determined
by the Board of Directors.
(d) Daily interest is being accrued at a rate of 4% of the outstanding balance.
(e) Pursuant to Rule 144A under the Securities Act of 1933, all or a portion of
these securities can only be sold to qualified institutional investors.
(f) ADR -- American Depository Receipt.
(g) GDR -- Global Depository Receipt.
5
<PAGE> 6
NOTICE OF NEW TRANSFER AGENT AND REGISTRAR
The Fund is pleased to announce that American Stock Transfer & Trust
Company has become the Fund's new transfer agent and registrar effective March
1, 1996. American Stock Transfer also provides various shareholder services and
handles inquiries from shareholders through the Fund's toll-free number,
1-800-937-5449.
<PAGE> 7
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> 8
SUMMARY OF GENERAL
INFORMATION
- ----------------------------------------------------------
THE FUND
The First Philippine Fund
Inc. is a closed-end investment
company whose shares trade on the
New York Stock Exchange. The Fund
seeks long-term capital
appreciation primarily through
investment in equity securities of
Philippine companies. The Fund is
managed by Clemente Capital, Inc.
- ----------------------------------------------------------
SHAREHOLDER INFORMATION
Daily market prices for the
Fund's shares are published in the
New York Stock Exchange Composite
Transactions section of most
newspapers under the designation
"FtPhil". The Fund's New York
Stock Exchange trading symbol is
FPF. Net asset value (NAV) and
market price information about The
First Philippine Fund Inc. shares
are published each Monday in The
Wall Street Journal, The New York
Times and in other newspapers. For
shareholders account 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.
The First Philippine Fund Inc.
QUARTERLY REPORT
MARCH 31, 1996
