[FIRST PHILIPPINE FUND INC. LOGO]
Quarterly Report
March 31, 1998
<PAGE>
Directors and Officers
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Peter Favila
Director and Chairman
Lilia C. Clemente
Director and President
Leopoldo M. Clemente, Jr.
Director, Executive Vice President and Managing 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
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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.)
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Investment Adviser
Clemente Capital, Inc.
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Administrator
PFPC Inc.
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Transfer Agent and Registrar
American Stock Transfer & Trust Company
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Custodian
Brown Brothers Harriman & Co.
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Legal Counsel
Fulbright & Jaworski L.L.P.
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Independent Accountants
Price Waterhouse LLP
<PAGE>
May 13, 1998
Dear Shareholder:
We are pleased to report that, in the March quarter of 1998, The First
Philippine Fund's net asset value (NAV) grew by 23.52% to $9.19 per share -- a
sharp reversal of a declining trend since the Asian financial crisis began last
year. This rebound came behind the strong performance of the Philippine stock
market where the Philippine composite index (Phisix) grew by 27.03% in U.S.
dollar terms in the quarter. Aiding this recovery was the Philippine peso's 6.1%
appreciation in the quarter to P37.817 per U.S. dollar at the end of March from
P40.116 at the end of December last year.
The Fund's share price closed at $8.875 at the end of the March quarter, an
appreciation of 30.28% since the end of 1997. The discount of the share price to
the Fund's NAV decreased further to only 3.43% on March 31.
With the Fund's positive performance in the March quarter, the Fund widened
its long-term lead over its benchmark. Since the inception of the Fund in
October 1989 up to the end of March 1998, the Fund has gained 29.06% (adjusted
for all dividends and the effect of the 1995 rights offering), while the Phisix
is still showing a loss of 3.43% in U.S. dollar terms.
A VOLATILE MARKET IN THE MARCH QUARTER
The Philippine stock market moved in tandem with other Asian stock markets
during the March quarter as the Asian crisis deepened. The market showed unusual
volatility, dropping 27% in the first nine days of January. At this time, the
peso plunged, alongside other Asian currencies, to P46.50 per U.S. dollar and
prime lending rates hit a high of 31.5%. The collapse of investor confidence in
the region, especially in Indonesia, and rumors of bankruptcies and bank
closures domestically heavily weighed the Philippine market down.
However, Asian markets and currencies rebounded with vigor in February and
March. Confidence returned behind the progress of reforms in Thailand and South
Korea, and Indonesia entered into a new agreement with the International
Monetary Fund at this time. A rush of new liquidity into bombed-out Asian stocks
accompanied by strengthening local currencies created spectacular Asian market
rallies.
This rally in the Philippine market was buoyed by: (1) a strengthening
peso, moderating interest rates, and higher but manageable inflation numbers;
(2) the announcement of the 1997 GNP growth rate at 5.8% and GDP at 5.1%, which,
although slower than 1996 growth rates, was much better than expected; (3) the
passage and full implementation of a new oil industry deregulation bill; and (4)
rumors of mergers and acquisitions involving some of the largest Philippine
companies.
Looking forward, we expect the market to continue to be volatile, as it
will be buffeted by events in the region and a difficult operating environment
at home. However, despite an expected slowdown in growth and corporate profits,
the Philippines' relative strengths have begun to shine through. There is a
growing consensus among economists and analysts that, because of the country's
more solid fundamentals, the Asian crisis will least affect the Philippines. We
have long maintained that the economy and the financial system are fundamentally
sound, and continue to do so now. As serious
<PAGE>
economic, and in some cases political and social, turmoil persists in the
region, we are confident the Philippines can decouple from its neighbors and
emerge as the best Southeast Asian investment destination.
A BANNER YEAR FOR THE PHILIPPINES
1998 is a banner year in Philippine history for two events occurring in the
current quarter.
Firstly, elections were held on May 11 for the new set of leaders that will
bring the country into the next century. Official results are not yet available,
and no winners have yet been proclaimed. What is certain, however, is that the
elections were generally peaceful. The Philippines has once again proudly proven
that, while its politics can be noisy and festive, it is also transparent and
orderly -- a testament to a thriving democracy. When the Ramos administration
ends its tenure at the end of June, it hands over a country strengthened by
significant structural economic and social reforms -- certainly, a solid
foundation upon which the new leadership can build.
Secondly, June 12, 1998 marks the centennial of Philippine independence
from three and a half centuries of Spanish colonial rule. All throughout the
country, and in many Filipino communities abroad, this milestone will be
cherished and commemorated. That date also marks one hundred years of mutually
beneficial relations with the United States. The First Philippine Fund joins the
Filipino people in the spirit of celebration and looks forward to a further
deepening of the cooperative ties between the Philippines and the United States.
On behalf of the Board of Directors, thank you once again for your
continued faith in and support of the Fund.
Sincerely yours,
/s/ Lilia C. Clemente
-------------------------
Lilia C. Clemente
President and Director
2
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THE FIRST PHILIPPINE FUND INC.
SCHEDULE OF NET ASSETS
March 31, 1998
(unaudited)
<TABLE>
<CAPTION>
Number of
Shares Value
<S> <C> <C>
- ------------------------------------------------------------------------------------------
PHILIPPINE SECURITIES -- (100.6%)
- ------------------------------------------------------------------------------------------
COMMON STOCK (95.3%)
Banking (10.6%)
Bank of the Philippine Islands 1,273,000 $ 3,770,156
Bankard, Inc. (b) 6,470,000 410,609
Far East Bank and Trust Company 200,088 264,548
Metropolitan Bank & Trust Company 593,955 5,497,112
PCI Leasing & Finance, Inc. (b) 2,320,000 114,107
Philippine Commercial International Bank, Inc. 150,000 745,696
Security Bank Corp. (b) 147,072 94,309
Union Bank of Philippines (b) 200,000 95,195
- ------------------------------------------------------------------------------------------
10,991,732
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Conglomerates (20.6%)
Aboitiz Equity Ventures, Inc. (b) 3,886,000 224,012
Alsons Consolidated Resources, Inc. (b) 15,980,000 431,013
Ayala Corporation 27,256,554 12,613,102
Benpres Holdings Corp. GDR (b)(f) 1,239,486 4,926,957
First Philippine Holdings Corp. -- A (a) 4,256,999 1,801,094
Guoco Holdings (Phils), Inc. 4,360,000 129,127
Metro Pacific Corp. (b) 11,700,000 723,960
Uniwide Holdings, Inc. (b) (d) 8,687,000 427,263
- ------------------------------------------------------------------------------------------
21,276,528
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Construction/Engineering (4.5%)
Davao Union Cement Corp. 15,266,622 783,173
DMCI Holdings Inc. (b) 32,404,000 2,570,590
HI Cement Corp. (d) 5,430,000 761,007
Southeast Asia Cement Holdings Inc. (b) 32,640,000 543,755
- ------------------------------------------------------------------------------------------
4,658,525
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Electronics (1.3%)
Ionics Circuits, Inc. 150,000 78,338
Matsushita Electric Philippines Corp. (a) 5,875,026 1,087,497
Solid Group, Inc. (b) (d) 4,150,000 226,062
- ------------------------------------------------------------------------------------------
1,391,879
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Food and Beverage (11.8%)
Alaska Milk Corp. (b) 10,708,000 617,274
Cosmos Bottling Corp. (b) 2,200,000 302,509
La Tondena Distillers, Inc. 1,897,800 1,530,605
San Miguel Corp. -- A 7,603,584 8,243,566
Selecta Dairy Products, Inc. 2,500,000 168,575
Universal Robina Corp. 6,162,000 1,303,541
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12,166,070
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</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Number of
COMMON STOCK (Continued) Shares Value
<S> <C> <C>
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Port Operations (3.0%)
Asian Terminals, Inc. (a) 20,474,990 $ 1,245,273
International Container Terminal Services, Inc. (b) 12,577,000 1,829,164
Keppel Philippines Holdings, Inc. -- A (a) (b) 1,193,082 37,859
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3,112,296
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Real Estate Development (24.3%)
Ayala Land, Inc. 24,892,768 12,012,932
Belle Corporation (b) 17,900,008 1,041,331
C & P Homes, Inc. 22,716,750 2,042,387
Empire East Land Holdings Inc. (b) (d) 9,176,280 203,826
Filinvest Land, Inc. (b) 21,237,499 2,330,582
Pryce Corp. (b) 35,650,000 1,300,923
Robinson's Land Corp. -- B (b) 20,961,000 1,363,515
SM Prime Holdings, Inc. 23,050,000 4,510,405
Universal Rightfield Property Holdings, Inc. (b) 6,100,000 161,303
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24,967,204
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Telecommunications (11.5%)
Digital Telecommunications Phils., Inc. (b) 25,600,000 1,326,811
Philippine Long Distance Telephone Co. ADR (e) 371,020 10,342,183
Pilipino Telephone Corp. (b) (d) 1,217,500 206,045
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11,875,039
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Utilities (7.7%)
Manila Electric Co. -- A 1,940,000 3,847,476
Petron Corp. (b) 26,070,002 4,136,235
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7,983,711
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TOTAL COMMON STOCK
(Cost $113,186,499) 98,422,984
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WARRANTS (0.5%)
Real Estate (0.0%)
Belle Corporation (b) 2,993,333 11,477
Food and Beverage (0.5%)
Jollibee Foods Corp. (b) (d) 1,000,000 528,863
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TOTAL WARRANTS
(Cost $488,211) 540,340
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ENTITLEMENTS (0.0%)
Banking
Far East Bank & Trust Company (b) (g) (Cost $0) 100,044 0
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</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Par
SCHEDULE OF NET ASSETS (Continued) Maturity (000) Value
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
BONDS (0.6%)
Bacnotan Consolidated Industries Inc.
Convertible Bond 5.50% (Cost $1,750,000) 06/21/04 $ 1,750 $ 577,500
- --------------------------------------------------------------------------------------------------
<CAPTION>
Par
(000)*
<S> <C> <C> <C>
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PHILIPPINE TREASURY BILLS (2.9%)
Philippine Treasury Bill 17.375%
(Cost $2,990,897) 04/22/98 124,180 2,990,897
- --------------------------------------------------------------------------------------------------
CALL ACCOUNTS (1.3%)
Philippine Pesos (c)
(Cost $1,238,725) 1,309,782
- --------------------------------------------------------------------------------------------------
TOTAL PHILIPPINE SECURITIES
(Cost $119,654,332) 103,841,503
- --------------------------------------------------------------------------------------------------
<CAPTION>
Par
(000)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
UNITED STATES SECURITIES -- 0.4%
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COMMERCIAL PAPER -- 0.4%
American Express Credit Corp.
5.6918%
(Cost $419,000) 04/01/98 $ 419 419,000
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TOTAL UNITED STATES SECURITIES 419,000
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TOTAL INVESTMENTS** 101.00%
(Cost $120,073,332) 104,260,503
Liabilities in excess of other
assets (1.00%) (1,048,584)
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TOTAL NET ASSETS
(applicable to 11,225,000 common shares
outstanding) 100.00% $103,211,919
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NET ASSET VALUE PER SHARE
($103,211,919 divided by 11,225,000) $ 9.19
- --------------------------------------------------------------------------------------------------
</TABLE>
* Denominated in Philippine Pesos.
** Cost of Total Investments:
<TABLE>
<S> <C>
Common Stock $113,186,499
Warrants 488,211
Entitlements 0
Bonds 1,750,000
Philippine Treasury Bills 2,990,897
Call Accounts 1,238,725
Commercial Paper 419,000
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$120,073,332
============
</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.
(g) Entitlements represent the right to subscribe to additional
shares of the respective company's common stock.
5
<PAGE>
SUMMARY OF GENERAL
INFORMATION
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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.
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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.
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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.
