[FIRST PHILIPPINE LOGO OMITTED]
QUARTERLY REPORT
SEPTEMBER 30, 2000
<PAGE>
November 1, 2000
Dear Shareholder:
THE PHILIPPINE STOCK MARKET AND ECONOMY
The Philippine stock market continued to show considerable weakness in the
third quarter of 2000. Market sentiment remained bearish and trading volumes
stayed thin behind unresolved political concerns such as the crisis in Mindanao,
weakening economic fundamentals, and global investors' preferences for larger,
less volatile markets.
While the Philippine composite index ("Phisix") dropped by only 6.5% in peso
terms in the quarter, a significant 6.4% depreciation of the Philippine peso to
P46.213 per US dollar at the end of September caused the Phisix to decline by a
more substantial 12.5% in US-dollar terms. This performance marks the market's
third straight quarterly contraction. For the first nine months of the year, the
Phisix plunged by 33.1% in local terms and by 41.6% in US-dollar terms, after
adjusting for a 12.8% depreciation of the peso over this period.
The Philippine economy's better-than-expected performance in the second
quarter of 2000 did little to stimulate the stock market and currency. The
country's gross domestic product grew by 4.5% year-on-year, better than the
previous quarter's 3.4%, and beating the market consensus of 3.6%. The higher
figure was mainly due to an increase in agriculture and services output,
expansion in consumer spending, and a gain in exports. The sustainability of the
economy's momentum, however, was placed in doubt by a budget deficit that
already exceeded full year targets by August, a fast weakening peso, higher oil
prices and unemployment, and declining import growth.
FUND PERFORMANCE AND PORTFOLIO
Amidst this difficult investment environment, The First Philippine Fund's
("Fund") net asset value ("NAV") - which stood at $4.56 per share on September
29, 2000 - declined in the quarter by 13.0%, in line with the Phisix, the Fund's
benchmark. The Fund's share price closed at $3.44 at the end of the quarter,
declining by 15.4% and trading at a 24.6% discount to NAV. For the first nine
months of 2000, the Fund's NAV declined by 41.5%, similar to the benchmark, and
the Fund's share price depreciated by 46.1%.
The continued deterioration of confidence in the government, the economy and
the currency prompted a more decisively defensive strategy for the Fund. The
Fund reduced its exposure to Philippine equities to 81.2% of the portfolio's
total net assets at the end of the September quarter, while the Fund's cash
position stood at 5.5%. The balance of 13.3% was invested in a well-balanced
basket of seven US-traded global industry leaders that do business in the
Philippines.
Companies in this basket include the blue chips CITIGROUP, INC. - whose
subsidiary Citibank is the largest active foreign bank operating in the
Philippines, INTEL CORP. - the country's largest semiconductor exporter,
COCA-COLA CO. the leading soft drink in the country, and AMERICA ONLINE INC. -
which outsources its customer support operations in the Philippines.
Diversification, risk management, and performance potential guided the formation
of the Fund's non-Philippine portfolio and will continue to direct its
management.
<PAGE>
RECENT POLITICAL DEVELOPMENTS
Intended as a temporary defensive measure, the aforementioned action seeks
to minimize the Fund's exposure to current Philippine market and currency risk
within the parameters set forth in the Fund's prospectus. Such defensive
positioning has been timely in light of recent events in the Philippines where
corruption charges against President Estrada and popular calls for his
resignation or impeachment have caused market sentiment to further deteriorate
and the peso to precipitously drop to over P51.00 per US dollar. In October, the
Fund substantially outperformed its benchmark, as the positive returns from the
Fund's non-Philippine portfolio mitigated the impact on the Fund of the stock
market's steep decline.
Recognizing, however, that developments are occurring rapidly and that an
orderly resolution to the political crisis may appear sooner than expected, the
Fund's continued emphasis on liquid Philippine blue chips and market leaders
will allow it to capture a substantial portion of the upside coming from any
sharp sentiment-driven rallies.
We continue to believe there exist many good Philippine companies whose
share prices have been battered not because of fundamental flaws in their
operations, but because they trade in the Philippine stock market at this time
of political turmoil. Share prices of many of these companies are approaching
historic lows. Indeed, bargains abound for investors possessing the luxury of a
long-term view. The Fund is poised to take advantage of this historic
opportunity to add to its positions in such quality Philippine companies with
resilient income streams.
Your continued support of The First Philippine Fund in these most
interesting times is greatly appreciated.
Sincerely,
/s/LILIA C. CLEMENTE
Lilia C. Clemente
DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
THE FIRST PHILIPPINE FUND INC.
SCHEDULE OF NET ASSETS
SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
PHILIPPINE COMMON STOCK (81.0%) Sector Shares Value
---------------------------------------------- ------------------------ ---------- ----------
<S> <C> <C> <C>
Aboitiz Equity Ventures, Inc. Conglomerates 17,200,000 $ 483,847
ABS-CBN Broadcasting Corp. PDR (d) (f) Media 1,550,000 1,442,235
Alsons Consolidated Resources, Inc. (a) (b) Conglomerates 15,320,000 72,932
Asian Terminals, Inc. (a) Port Operations 24,949,980 515,596
Ayala Corporation Conglomerates 39,964,323 5,880,540
Ayala Land, Inc. Real Estate Development 16,489,585 1,677,040
Bank of the Philippine Islands Financials 1,849,069 2,180,647
Bankard, Inc. Financials 6,470,000 224,006
Belle Corporation (b) Real Estate Development 11,900,008 247,203
Benpres Holdings Corp. (b) Conglomerates 19,109,700 1,571,351
Cosmos Bottling Corp. Food and Beverage 6,650,000 345,357
Del Monte Pacific Ltd. (d) (g) Food and Beverage 2,400,000 586,113
Digital Telecommunications Phils., Inc. (b) Telecommunications 20,200,000 244,780
DMCI Holdings, Inc. (b) Construction/Engineering 25,604,000 221,617
Filinvest Land, Inc. (b) Real Estate Development 25,487,499 750,070
International Container Terminal Services,
Inc.(b) Port Operations 7,643,750 152,170
Ionics Circuits, Inc. Technology 950,000 272,380
Jollibee Foods Corporation Food and Beverage 2,999,500 778,872
La Tondena Distillers, Inc. Food and Beverage 1,897,800 1,273,057
Manila Electric Co. - A Power/Energy 2,574,000 2,952,026
Metro Pacific Corp. (b) Conglomerates 30,550,000 370,199
Metropolitan Bank & Trust Company Financials 487,120 1,770,847
Music Corporation (b) Technology 1,900,000 160,344
Philippine Long Distance Telephone Co. ADR (e) Telecommunications 405,020 6,935,968
Pryce Corporation (b) Conglomerates 19,490,000 328,959
San Miguel Corp. - A Food and Beverage 4,866,942 5,107,798
San Miguel Corp. - B Food and Beverage 600,000 642,676
SM Prime Holdings, Inc. Real Estate Development 21,350,000 2,171,359
Solid Group, Inc. (b) (d) Technology 4,150,000 73,637
SPI Technologies (b) Technology 900,500 159,784
Union Cement Corp. (b) (d) Construction/Engineering 22,038,041 376,735
Universal Robina Corp. Food and Beverage 6,162,000 606,693
Uniwide Holdings, Inc. (b) (d) Conglomerates 20,687,000 241,728
------------
TOTAL COMMON STOCK
(Cost $68,013,818) 40,818,566
------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
WARRANTS (0.0%) Sector Shares Value
------------------------------------------------ ----------------- ----------- -------------
<S> <C> <C> <C>
Jollibee Foods Corporation 03/24/03 (b) (d) Food and Beverage 89,985 $ 22,393
Music Corporation (a) (b) Electronics 111,764 939
----------
TOTAL WARRANTS (Cost $1,118) 23,332
----------
Units/Par
BONDS (1.4%) (000)
------------------------------------------------ -----------
Bacnotan Consolidated Industries, Inc.
Convertible Bonds 5.5% 06/21/04
(Cost $1,750,000) $ 1,750 708,750
----------
CALL ACCOUNTS (3.0%)
------------------------------------------------
Philippine Pesos (c)
(Cost $1,561,971) 1,515,538
----------
TOTAL PHILIPPINE SECURITIES 43,066,186
----------
UNITED STATES COMMON STOCK (13.6%) Sector Shares Value
------------------------------------------------ ----------------- ----------- -------------
America Online Inc. (b) Technology 19,000 1,021,250
Citigroup, Inc. Financials 19,866 1,074,006
Coca-Cola Co. Food and Beverage 20,000 1,102,500
General Electric Co. Conglomerates 18,000 1,038,375
Intel Corp. Technology 14,400 598,050
Nokia ADR (e) Technology 25,000 995,313
Pfizer Inc. Healthcare 21,600 970,650
----------
TOTAL COMMON STOCK
(Cost $7,225,784) 6,800,144
----------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Par
COMMERCIAL PAPER (1.0%) (000) Value
----------------------------------- ----------- -------------
<S> <C> <C>
American Express Credit Corp.
6.603% 10/02/00 (Cost $532,000) 532 $ 532,000
-----------
TOTAL INVESTMENTS - 100%
(Cost $79,084,691) ** 50,398,330
Assets in excess of liabilities 777,891
-----------
TOTAL NET ASSETS
(applicable to 11,225,000 common shares outstanding) $51,176,221
===========
NET ASSET VALUE PER SHARE
($51,176,221/ 11,225,000) $ 4.56
===========
** Cost of Total Investments
Common Stock $75,239,602
Warrants 1,118
Bonds 1,750,000
Call Accounts 1,561,971
Commercial Paper 532,000
-----------
$79,084,691
===========
<FN>
(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) PDR - Philippine Depository Receipt
(g) Singapore security
</FN>
</TABLE>
5
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<PAGE>
DIRECTORs and Officers
------------
Benjamin P. Palma Gil
Director and Chairman
Lilia C. Clemente
DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Leopoldo M. Clemente, Jr.
DIRECTOR, EXECUTIVE VICE PRESIDENT AND MANAGING DIRECTOR
M.A.T. Caparas
DIRECTOR
Roberto de Ocampo
DIRECTOR
John Anthony B. Espiritu
DIRECTOR
Andres R. Narvasa
DIRECTOR
Joseph A. O'Hare, S.J.
DIRECTOR
Robert B. Oxnam
DIRECTOR
Stephen J. Solarz
DIRECTOR
Santiago S. Cua, Jr.
EXECUTIVE VICE PRESIDENT AND MANAGING DIRECTOR
Joaquin G. Hofilena
VICE PRESIDENT AND TREASURER
Imelda Singzon
VICE PRESIDENT
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
PricewaterhouseCoopers 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.
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