<PAGE>
May 7, 1997
Dear Fellow Shareholder:
We are pleased to report that, in the March quarter of 1997, The First
Philippine Fund's net asset value (NAV) grew by 2.76% to $19.37 per share, while
the benchmark Philippine Stock Exchange composite index (Phisix) rose by only
1.37% in US-dollar terms. This outperformance continues the Fund's lead over the
Phisix since the Fund's inception. Over its lifetime, the Fund's NAV has
appreciated by 172.0% (adjusted for dividends and the effect of the rights
offering in 1995) versus the Phisix's appreciation of 99.4%.
The Fund's share price closed at $15.75 at the end of the March quarter and
appreciated by 4.13% from the end of 1996. The share price represents a discount
of 18.69% to the Fund's NAV. This discount has narrowed from the 19.76% discount
at the end of the prior quarter.
PHILIPPINE STOCK MARKET REVIEW
Continuing the upward momentum at the end of 1996, the Philippine stock
market began 1997 strongly with the Phisix peaking at a record high of 3447.60
on February 3, a year-to-date appreciation of 8.5% in US-dollar terms. The
market's early ascent was founded on the release of good macroeconomic figures
for 1996, healthy corporate earnings, and increased liquidity due to a 1% cut in
the banks' reserve requirements, as well as the return of foreign funds to the
market.
Thereafter, the market embarked on an extended period of consolidation as a
slew of global and local events began to send shivers in the market. Speculation
over and the eventual 25 basis point increase in the U.S. Federal funds rate
caused volatility in global markets. Local trends and events which further
contributed to negative sentiment on the Philippines included: (1) a forecasted
oversupply in the high-end of the office and residential property market before
1999; (2) the rapid growth of bank loans; (3) a significant increase in the use
of foreign currency loans; (4) the announcement of a liquidity problem by one of
the country's largest sugar millers; (5) a rising trade deficit; and (6)
comparisons with Thailand's banking and property crisis.
OUTLOOK FOR THE SECOND HALF OF 1997
We continue to believe that the Philippine economy is healthy and sound,
with few signs of overheating. Corporate earnings growth at 25-28% for the year
is one of the highest in the region. Export growth remains high while the
current account deficit is at a manageable level. Competent management by the
country's economic authorities has resulted in a budget surplus, relatively low
inflation, interest rates at levels conducive to robust growth, and a relatively
stable currency.
Partly as a result of lessons learned from Thailand, government managers
have moved to limit the exposure of Philippine banks to the real estate sector
to 20% of their loan portfolios. We see this as a prudent preemptive measure
considering the current exposure is only at 10.9%. The Central Bank has also
lowered the limit on property loans from 70% to 60% of the property's appraised
value. As real estate companies have low debt-to-equity ratios, the industry
should be able to weather any oversupply that may occur in the future.
<PAGE>
Overall, we believe the banking industry continues to face a bright future.
Philippine banks possess strong balance sheets, high capital adequacy ratios
averaging 17%, an industry return on equity of 18%, above average asset quality,
low levels of non-performing assets, and adequate loan loss provisioning.
FUNDAMENTALS SHALL PREVAIL
Despite these arguments, the Philippine market continues to weaken. For the
four months ended April 30, the Phisix retreated significantly by 16.66% in
US-dollar terms on the escalation of these concerns. Foreign investors have been
net sellers of Philippine stocks. This trend may continue in the near-term. The
Fund's NAV, however, declined by only 14.43% during this same period. The share
price of $13.875 represented a narrower discount of 14.0% at the end of April.
The Fund continues to outperform the Phisix in this period due to our
diverse and defensive positioning. We remain steadfast in our belief in the
attractive fundamentals of the Philippine economy and its corporations, and we
maintain our confidence in the abilities of its economic and business managers.
From our perspective, we view this as a time of great opportunity as share
prices have been battered to bargain levels. The Fund is positioned for a market
recovery and we look forward to reaping its benefits.
On behalf of The First Philippine Fund, thank you again for your continued
support.
Sincerely yours,
Lilia C. Clemente
President and Director
2
<PAGE>
THE FIRST PHILIPPINE FUND INC.
SCHEDULE OF NET ASSETS
March 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Number of
Shares Value
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
PHILIPPINE SECURITIES (99.8%)
- -----------------------------------------------------------------------------------------------------------------
COMMON STOCK (95.9%)
Banking (17.6%)
Bankard, Inc. (b) 6,470,000 $ 1,889,445
Bank of the Philippine Islands 800,000 5,431,031
Equitable Banking Corp. (a) (b) (d) 25,000 107,426
Far East Bank and Trust Company 83,370 369,943
Metro Bank & Trust Company 604,370 15,701,197
Philippine Commercial International Bank 507,138 7,501,188
Philippine Savings Bank (b) 3,048,355 6,127,463
Security Bank Corp. (b) 448,560 884,633
Union Bank of Philippines (b) 200,000 219,972
- -----------------------------------------------------------------------------------------------------------------
38,232,298
- -----------------------------------------------------------------------------------------------------------------
Conglomerates (18.1%)
Alsons Consolidated Resources (b) 55,000,000 3,838,131
Ayala Corp. -- A 19,967,646 18,932,421
Benpres Holdings GDR (b) (f) 742,491 5,680,056
First Philippine Holdings -- A 2,570,400 2,875,822
Guoco Holdings (Phils), Inc. 4,360,000 744,112
Metro Pacific Corporation 20,718,097 6,286,069
Uniwide Holdings, Inc. (b) (d) 3,587,000 925,081
- -----------------------------------------------------------------------------------------------------------------
39,281,692
- -----------------------------------------------------------------------------------------------------------------
Construction/Engineering (6.3%)
Bacnotan Consolidated Industries 476,899 1,456,001
Davao Union Cement -- A (a) 15,266,608 2,605,520
DMCI Holdings Inc. (b) 3,877,000 2,756,997
EEI Corp. 30,000,000 1,888,725
HI Cement Corp. (d) 5,430,000 2,059,392
Seacem Holdings (b) 32,640,000 2,995,745
- -----------------------------------------------------------------------------------------------------------------
13,762,380
- -----------------------------------------------------------------------------------------------------------------
Electronics (1.6%)
Ionics Circuits, Inc. 120,000 80,783
Matsushita Electric Philippines (a) 5,340,933 2,349,711
Solid Group, Inc. (b) (d) 4,150,000 1,101,756
- -----------------------------------------------------------------------------------------------------------------
3,532,250
- -----------------------------------------------------------------------------------------------------------------
Food and Beverage (13.0%)
Alaska Milk Corp. (b) 10,708,000 1,015,284
La Tondena Distillers, Inc. (d) 1,897,800 5,074,332
San Miguel Corp. -- A 9,835,351 20,142,942
Selecta Dairy Products, Inc. (b) 2,500,000 279,706
Universal Robina 3,702,000 1,684,833
- -----------------------------------------------------------------------------------------------------------------
28,197,097
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Number of
COMMON STOCK (CONTINUED) Shares Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mining (0.7%)
Manila Mining Corp. -- A (b) 561,000,000 $ 404,255
United Paragon Mining Corp. (b) 1,320,000,000 1,101,377
- -----------------------------------------------------------------------------------------------------------------
1,505,632
- -----------------------------------------------------------------------------------------------------------------
Oil (0.1%)
Basic Petroleum and Mining -- A (b) 361,849,988 137,236
Basic Petroleum and Mining -- B (b) 194,166,659 73,640
Philodrill Corp. -- A (b) 44,334,545 18,496
Philodrill Corp. -- B (b) 39,436,363 16,452
- -----------------------------------------------------------------------------------------------------------------
245,824
- -----------------------------------------------------------------------------------------------------------------
Port Operations (2.3%)
Asian Terminals, Inc. (b) 20,474,900 4,736,864
Keppel Philippines Holdings -- A (b) 1,961,785 238,090
- -----------------------------------------------------------------------------------------------------------------
4,974,954
- -----------------------------------------------------------------------------------------------------------------
Real Estate Development (23.2%)
Ayala Land, Inc. -- B 21,034,216 23,932,434
Belle Corporation (b) 14,100,008 4,491,981
C & P Homes, Inc. (b) 8,616,750 4,085,007
Empire East Land Holdings (b) (d) 1,081,000 420,232
Filinvest Development Corp. 2,000,000 568,893
Filinvest Land, Inc. (b) 18,187,501 5,794,175
Pryce Properties Corp. (b) 40,250,000 2,686,692
Robinson's Land -- B (b) 19,000,000 3,278,720
SM Prime Holdings, Inc. 14,400,000 4,205,257
Universal Rightfield Property (b) 6,100,000 913,832
- -----------------------------------------------------------------------------------------------------------------
50,377,223
- -----------------------------------------------------------------------------------------------------------------
Telecommunications (5.6%)
Digital Telecommunications (a) (b) 11,250,000 497,781
Globe Telecom (b) 2,863,976 1,303,437
Philippine Long Distance Telephone ADR (e) 160,510 9,610,536
Pilipino Telephone Corp. (b) (d) 1,217,500 727,259
- -----------------------------------------------------------------------------------------------------------------
12,139,013
- -----------------------------------------------------------------------------------------------------------------
Utilities (7.4%)
Manila Electric Co. -- A 2,101,700 9,804,267
Petron Corp. 15,725,001 6,411,187
- -----------------------------------------------------------------------------------------------------------------
16,215,454
- -----------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost $117,482,534) 208,463,817
- -----------------------------------------------------------------------------------------------------------------
ENTITLEMENTS (0.0%)
Banking
Far East Bank and Trust Company (g) (Cost $0) 166,760 0
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Par
SCHEDULE OF NET ASSETS (CONTINUED) Maturity (000) Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS (2.5%)
Bacnotan Consolidated Ind. Convertible Bond 5.50% (d) 06/21/04 $ 1,750 $ 1,435,000
International Container Terminal Services Inc. 6.0% 02/19/00 2,500 4,000,000
- --------------------------------------------------------------------------------------------------------------------
TOTAL BONDS
(Cost $4,369,978) 5,435,000
- --------------------------------------------------------------------------------------------------------------------
CALL ACCOUNTS (1.4%)
Philippine Peso (c)
(Cost $3,083,310) 3,077,493
- --------------------------------------------------------------------------------------------------------------------
TOTAL PHILIPPINE SECURITIES 216,976,310
- --------------------------------------------------------------------------------------------------------------------
UNITED STATES SECURITIES (0.6%)
- --------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (0.6%)
General Electric Corp.
5.50168%
(Cost $1,285,000) 04/02/97 1,285 1,285,000
- --------------------------------------------------------------------------------------------------------------------
TOTAL UNITED STATES SECURITIES 1,285,000
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS ** 100.4%
(Cost $126,220,822) 218,261,310
Liabilities in excess of other assets (0.4)% (791,697)
- --------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS
(applicable to 11,225,000 common
shares outstanding) 100.0% $ 217,469,613
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
($217,469,613 divided by 11,225,000) $ 19.37
- --------------------------------------------------------------------------------------------------------------------
** Cost of Total Investments:
Common Stock $ 117,482,534
Entitlements 0
Bonds 4,369,978
Call Accounts 3,083,310
Commercial Paper 1,285,000
--------------
$ 126,220,822
--------------
--------------
</TABLE>
<TABLE>
<S> <C>
(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.
(g) Entitlements represent the right to subscribe to additional shares of the respective company's common stock.
</TABLE>
5
<PAGE>
(This Page Has Been Left Blank Intentionally)
<PAGE>
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
Joaquin G. Hofilena
Vice President
Imelda Singzon
Vice President
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 or access http://www.clementecapital.com. For
shareholder account inquiries, 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>
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 general information visit us at our web
site http://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.
[First Philippine Fund Inc LOGO]
The First Philippine Fund Inc.
Quarterly Report
March 31, 1997
