February 10, 2000
Dear Shareholder:
The year 1999 was a year of economic recovery for the Philippines with real
GDP growth of 3.2% compared with a 0.5% decline in 1998. The Philippine economy
expanded at its fastest pace in two years in the fourth quarter of 1999 as
industry revived and favorable weather boosted agricultural harvests. GDP in
this period rose 4.6% from a year earlier, beating estimates. The stronger pick
up in domestic demand, high current account surplus, and a robust export growth,
particularly in the electronics sector, underpinned this growth. However, the
Philippine stock market exhibited a mixed pattern in 1999 with a strong first
half and a poor second half reflecting weak investor sentiment and marginal
improvement in corporate earnings.
We are happy to report that The First Philippine Fund Inc. (Fund) reverted
back to growth in the fourth quarter. The Fund's net asset value (NAV) per share
stood at $7.80 on December 31, 1999, increasing by 4.28% in the quarter. This
brought the Fund's 1999 performance to a positive return of 6.41%. It is a
modest performance given a Philippine stock market beset by frail sentiment,
thin trading volumes, and substantial volatility.
The Fund outperformed its underlying market over these periods. The
Philippine stock market composite index (Phisix) had U.S. dollar returns of
3.65% in the fourth quarter of 1999 and 5.73% for the full year. By the end of
1999, the Fund increased its outperformance over its benchmark (measured over
the life of the Fund and adjusted for all dividends and the effect of the 1995
rights offering) to 22.78%.
On December 31, 1999, the Fund's share price closed at $6.375, unchanged
from the end of the previous quarter and at an 18.27% discount to NAV. For the
full year 1999, the Fund's share price appreciated by 8.5%.
ENCOURAGING SIGNALS TO START THE NEW YEAR
The Phisix weakened for most of the fourth quarter. Were it not for a sharp
year-end rally, the Phisix would not have shown its moderate appreciation. The
domestic concerns that affected the market were not new: politics, corporate
results below consensus expectations, and economic figures that, while showing
continued recovery, seemed dull when compared against those of other Asian
countries. These were combined with external events -- such as the U.S. interest
rate hike in November, elections in Malaysia and Indonesia, and China's
anticipated entry into the World Trade Organization -- which drew investor
attention away from small markets like the Philippines. Finally, thin trading
volumes induced by Y2K jitters added to an unappealing stock market environment.
But the year-end and early 2000 brought about significant positive
developments with the potential of shifting market sentiment:
o The 1999 economic report card was encouraging. Going forward in 2000, we
expect the country's GDP economic growth to strengthen further to 4%. The
country will continue to benefit from the strong recovery in global
demand for electronics given the dominance of electronic exports in its
total exports. Resilient growth in the broad services sector will be a
key driver of growth along with the filtering through of the positive
impact of reflationary fiscal spending, expansionary monetary policy and
another sizable current account surplus.
o Inflation in January continued to be benign at 2.6%, its smallest rise in
13 years; but we expect inflation in 2000 to pick up to 7.5%, compared
with an average of 7% for 1999, due to a rise in oil prices and a
somewhat weak peso.
<PAGE>
o There have been some positive political developments, i.e. President
Estrada's decision to shelve constitutional changes and implement a
cabinet revamp with newly appointed secretaries of Finance, Trade and
Industry, and Local Government. New commissioners of internal revenue and
customs were also named. Government is intent on improving revenue
collections to address the country's ballooning budget deficit.
o The Congress is now focused on structural reforms in the key areas of
power, retail and banking industries.
o A five-man council of senior economic advisers was created. Its members
include some of the most respected names in Philippine business and
politics.
STRONG UPSIDE POTENTIAL
We believe that the market has been oversold and much of the bad news has
already been discounted. At this point, there should be little further downside
and the market should, at worst, trade within a narrow band. However, potential
is high for a significant rally given that the Philippines, in an Asian context,
is severely under-owned by foreign investors. With now compelling market
valuations (at a 16x price-earnings ratio based on year 2000 earnings), positive
momentum on the political front, and the demise of Y2K concerns, such a rally is
possible.
Its sustainability, however, will be determined by the performance of the
economy and corporate earnings. We maintain our belief that the economy will
exhibit more signs of broad-based sustainable growth, and earnings will improve
(up 30% in 2000) as the on-going corporate restructuring exercises begin to have
a positive impact. Likewise, the final passage of key reform legislation --
including (1) the Omnibus Power Bill (which aims to deregulate the power
industry and reduce power rates by encouraging competition in the generation and
retail supply sectors); (2), the Retail Trade Liberalization Bill (which seeks
to open up retailing, currently restricted to Filipino nationals, to
foreigners); (3) the General Banking Law of 1999 (a measure allowing foreigners
to own 100% of banks); and (4) the Securities Reform Act (which will improve
disclosure requirements of listed companies and clamp down on insider trading)
- -- should come through in 2000 and should create a more open, transparent and
encouraging business environment.
Given this outlook, the Fund will seek to be more fully invested in
Philippine equities and remain selective in its stock picks, giving greater
importance to fundamentally sound companies with quality earnings and
management, restructuring stories, and those that are the beneficiaries of
reforms and emerging high-technology convergence themes.
On behalf of the directors and officers of The First Philippine Fund, thank
you once again for your continued support.
Sincerely,
/s/ Lilia C. Clemente
---------------------
Lilia C. Clemente
Director, President and Chief Executive Officer
2
<PAGE>
THE FIRST PHILIPPINE FUND INC.
SCHEDULE OF INVESTMENTS
December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Number of
Shares Value
- -----------------------------------------------------------------------------------------------------------------
PHILIPPINE SECURITIES -- (99.8%)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (90.8%)
Banking (11.0%)
Bank of the Philippine Islands 1,248,400 $ 3,593,588
Bankard, Inc. (b) (c) 6,470,000 521,800
Equitable PCI Bank 540,000 1,199,315
Far East Bank & Trust Company 330,171 614,492
Metropolitan Bank & Trust Company 524,520 3,774,649
- -----------------------------------------------------------------------------------------------------------------
9,703,844
- -----------------------------------------------------------------------------------------------------------------
Broadcasting (1.2%)
ABS-CBN Broadcasting Corp. PDR (c) (g) 850,000 1,054,643
- -----------------------------------------------------------------------------------------------------------------
1,054,643
- -----------------------------------------------------------------------------------------------------------------
Conglomerates (18.5%)
Aboitiz Equity Ventures, Inc. 17,200,000 939,004
Alsons Consolidated Resources, Inc. (b) 15,980,000 198,273
Ayala Corporation 38,249,436 11,152,684
Benpres Holdings Corp. (c) 19,009,700 2,877,542
Guoco Holdings (Phils), Inc. (c) 4,360,000 108,194
Metro Pacific Corp. (c) 30,550,000 879,398
Uniwide Holdings, Inc. (c) (e) 8,687,000 92,695
- -----------------------------------------------------------------------------------------------------------------
16,247,790
- -----------------------------------------------------------------------------------------------------------------
Construction/Engineering (1.9%)
Davao Union Cement Corp. (b) (c) 10,066,622 169,867
DMCI Holdings, Inc. (c) 25,604,000 686,196
HI Cement Corp. (c) (e) 16,290,000 533,594
Southeast Asia Cement Holdings, Inc. (c) 23,320,000 271,984
- -----------------------------------------------------------------------------------------------------------------
1,661,641
- -----------------------------------------------------------------------------------------------------------------
Electronics (0.5%)
Ionics Circuits, Inc. (c) 150,000 52,112
Music Corporation (c) 1,900,000 249,888
Solid Group, Inc. (c) (e) 4,150,000 129,758
- -----------------------------------------------------------------------------------------------------------------
431,758
- -----------------------------------------------------------------------------------------------------------------
Food and Beverage (15.1%)
Cosmos Bottling Corp. 6,650,000 405,951
Del Monte Pacific Ltd. (c) 2,400,000 1,167,217
La Tondena Distillers, Inc. 1,897,800 1,507,013
</TABLE>
See Accompanying Notes to Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
Number of
COMMON STOCK (CONTINUED) Shares Value
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
RFM Corporation 1,208,334 $ 125,937
San Miguel Corp. -- A 5,723,942 8,096,300
San Miguel Corp. -- B 600,000 848,677
Universal Robina Corp. 6,162,000 1,100,958
- -----------------------------------------------------------------------------------------------------------------
13,252,053
- -----------------------------------------------------------------------------------------------------------------
Port Operations (3.0%)
Asian Terminals, Inc. (b) (c) 40,949,980 1,219,415
International Container Terminal Services, Inc. (c) 15,287,500 1,384,668
- -----------------------------------------------------------------------------------------------------------------
2,604,083
- -----------------------------------------------------------------------------------------------------------------
Real Estate Development (19.2%)
Ayala Land, Inc. 26,541,321 6,915,576
Belle Corporation (c) 23,900,008 1,126,855
C & P Homes, Inc. (c) 35,916,750 401,076
Filinvest Land, Inc. (c) 16,487,499 1,677,472
Pryce Corporation (b) (c) 27,620,000 1,329,664
Robinson's Land Corp. (b) 10,480,500 832,240
SM Prime Holdings, Inc. 24,050,000 4,535,709
Universal Rightfield Property Holdings, Inc. (c) 6,100,000 42,384
- -----------------------------------------------------------------------------------------------------------------
16,860,976
- -----------------------------------------------------------------------------------------------------------------
Telecommunications (12.5%)
Digital Telecommunications Phils., Inc. (c) 37,800,000 1,313,217
Philippine Long Distance Telephone Co. ADR (f) 371,020 9,600,142
Pilipino Telephone Company (c) (e) 1,217,500 33,838
- -----------------------------------------------------------------------------------------------------------------
10,947,197
- -----------------------------------------------------------------------------------------------------------------
Utilities (7.9%)
Manila Electric Co. -- A 2,145,000 5,083,317
Petron Corporation 23,630,002 1,876,421
- -----------------------------------------------------------------------------------------------------------------
6,959,738
- -----------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost $94,961,775) 79,723,723
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Maturity
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
WARRANTS (1.5%)
Real Estate (0.0%)
Belle Corporation (c) 10/06/00 2,993,333 28,226
Food and Beverage (1.5%)
Jollibee Foods Corporation (c) (d) 03/24/03 2,999,500 1,265,361
Electronics (0.0%)
Music Corporation (b) (c) N/A 111,764 1,076
- --------------------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost $1,472,623) 1,294,663
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
Units/Par
SCHEDULE OF INVESTMENTS (CONTINUED) Maturity (000) Value
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
BONDS (0.8%)
Bacnotan Consolidated Industries, Inc. Convertible
Bond 5.5% (Cost $1,750,000) 06/21/04 $ 1,750 $ 665,000
- --------------------------------------------------------------------------------------------------------------
CALL ACCOUNTS (6.7%)
Philippine Pesos (Cost $5,932,007)(d) 5,926,844
- --------------------------------------------------------------------------------------------------------------
TOTAL PHILIPPINE SECURITIES
(Cost $104,116,405) 87,610,230
- --------------------------------------------------------------------------------------------------------------
UNITED STATES SECURITIES (0.2%)
- --------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (0.2%)
American Express Credit Corp. 2.50052%
(Cost $175,000) 01/03/00 175 175,000
- --------------------------------------------------------------------------------------------------------------
TOTAL UNITED STATES SECURITIES 175,000
- --------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost $104,291,405) (a) $ 87,785,230
------------
</TABLE>
<TABLE>
<S> <C>
(a) Aggregate cost for Federal Income tax purposes is $104,291,405. Aggregate gross unrealized appreciation
(depreciation) for all securities is as follows:
</TABLE>
<TABLE>
<S> <C>
Excess of market value over tax cost $ 18,004,910
Excess of tax cost over market value (34,511,085)
--------------
$ (16,506,175)
==============
</TABLE>
<TABLE>
<S> <C>
(b) At fair value as determined by the Board of Directors.
(c) Non-income producing security.
(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) PDR -- Philippine Depository Receipt
</TABLE>
See Accompanying Notes to Financial Statements.
5
<PAGE>
THE FIRST PHILIPPINE FUND INC.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) December 31, 1999
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Investments at value (Cost $104,291,405)............................................................ $ 87,785,230
Cash................................................................................................ 12,068
Dividends receivable................................................................................ 96,195
Interest receivable................................................................................. 51,153
Prepaid insurance................................................................................... 4,027
- -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS........................................................................................ 87,948,673
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES
Accrued expenses payable............................................................................ 401,964
Payable for securities purchased.................................................................... 1,076
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES................................................................................... 403,040
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS
(applicable to 11,225,000 common shares outstanding)............................................... $ 87,545,633
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
($87,545,633/11,225,000)........................................................................... $ 7.80
- -----------------------------------------------------------------------------------------------------------------
Net assets consist of:
Capital stock...................................................................................... $ 112,250
Paid-in capital.................................................................................... 122,296,805
Accumulated net investment loss.................................................................... (2,802,702)
Accumulated net realized loss on investments....................................................... (15,554,409)
Accumulated net unrealized depreciation on investments, foreign currency holdings, and other assets
and liabilities denominated in foreign currency.................................................. (16,506,311)
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS.......................................................................................... $ 87,545,633
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the
Six Months Ended
STATEMENT OF OPERATIONS (UNAUDITED) December 31, 1999
<S> <C>
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Interest (net of taxes withheld $4,477)............................................................ $ 75,003
Dividends (net of taxes withheld $92,128).......................................................... 284,630
- -----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME............................................................................. 359,633
- -----------------------------------------------------------------------------------------------------------------
EXPENSES
Investment advisory fee............................................................................ 450,979
Trustee fee........................................................................................ 75,212
Custodian fees..................................................................................... 66,393
Administration fee................................................................................. 62,747
Transfer agent fees................................................................................ 4,404
Legal fees......................................................................................... 64,193
Audit fees......................................................................................... 29,135
Directors fees..................................................................................... 28,886
Printing........................................................................................... 19,695
Insurance.......................................................................................... 4,033
- -----------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES...................................................................................... 805,677
- -----------------------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS................................................................................. (446,044)
- -----------------------------------------------------------------------------------------------------------------
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............................................................................ (1,398,938)
Foreign currency transactions.................................................................... (242,331)
- -----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments...................................................................................... (19,623,410)
Foreign currency holdings and other assets and liabilities denominated in foreign currency....... (136)
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized losses on investments, foreign currency holdings and other assets and
liabilities denominated in foreign currency.................................................... (21,264,815)
- -----------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS................................................ $(21,710,859)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements.
6
<PAGE>
<TABLE>
<CAPTION>
For the
Six Months Ended For the
December 31, 1999 Year Ended
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) June 30, 1999
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment loss.................................................... $ (446,044) $ (800,157)
Net realized loss on security transactions............................. (1,398,938) (12,230,804)
Net realized gain (loss) on foreign currency transactions.............. (242,331) 359,115
Net change in unrealized appreciation (depreciation) on
investments, foreign currency holdings and other assets
and liabilities denominated in foreign currency...................... (19,623,546) 48,860,091
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations........... (21,710,859) 36,188,245
- ------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of period.................................................... 109,256,492 73,068,247
- ------------------------------------------------------------------------------------------------------------------
End of period (including accumulated losses of ($2,802,702) and
($2,114,327), respectively).......................................... $ 87,545,633 $ 109,256,492
- -=================================================================================================================
</TABLE>
See Accompanying Notes to Financial Statements.
7
<PAGE>
THE FIRST PHILIPPINE FUND INC.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
For the Six
Months
Ended
December 31, For the Year Ended June 30,
1999 ---------------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.73 $ 6.51 $ 16.61 $ 21.18 $ 20.66 $ 23.11
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (0.04) (0.07) (0.06) (0.21) (0.20) (0.20)
Net realized and unrealized gains (losses)
on investments, foreign currency
holdings and other assets and
liabilities denominated in foreign
currencies (1.89) 3.29 (10.04) (2.86) 1.74 1.27
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from investment
operations (1.93) 3.22 (10.10) (3.07) 1.54 1.07
- --------------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -- -- -- -- -- --
Distributions from net realized long-term
gains -- -- -- (1.50) (1.02) (0.85)
Distributions from net realized short-term
gains -- -- -- -- -- (1.25)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS -- -- -- (1.50) (1.02) (2.10)
- --------------------------------------------------------------------------------------------------------------------------------
DILUTIVE EFFECT OF CAPITAL SHARE OFFERING -- -- -- -- -- (1.42)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.80 $ 9.73 $ 6.51 $ 16.61 $ 21.18 $ 20.66
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD $ 6.375 $ 8.63 $ 5.75 $ 13.75 $ 16.88 $ 16.88
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN
Based on market value* (26.09)%*** 50.00% (58.18)% (10.88)% 7.03% 7.06%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) $ 87,546 $109,256 $73,068 $186,465 $237,790 $231,857
Ratios to average net assets:
Operating expenses 1.78%** 2.07% 1.91% 1.75% 1.77% 1.82%
Interest expense -- -- -- -- -- 0.06%
-------- -------- ------- -------- -------- --------
Total expenses 1.78%** 2.07% 1.91% 1.75% 1.77% 1.88%
Net investment loss (0.99)%** (1.02)% (0.68)% (1.10)% (1.00)% (1.01)%
Portfolio turnover 14.57% 16.26% 23.10% 15.32% 24.20% 20.50%
- --------------------------------------------------------------------------------------------------------------------------------
</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.
*** Non-annualized
See Accompanying Notes to Financial Statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1999
(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. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
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 $4,272,335 (5% 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 of 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 December 31, 1999, 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.
The Fund has a capital loss carry forward in the amount of $8,361,654, of
which $466,990 and $7,894,664 are available as a reduction of future net
capital gains realized for the years ended 2005 and 2007, respectively.
Capital and 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 after October 31, 1998 incurred
and will elect to defer net capital losses of $5,793,817 during the year
ended June 30, 1999.
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.
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.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1999 (CONT'D)
(Unaudited)
- ------------
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 reclassification. 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.
As of June 30, 1999, the Fund had temporary book/tax differences primarily
attributable to post-October losses and passive foreign investment company
("PFIC") mark-to-market, and permanent book/tax differences primarily
attributable to foreign currency gains and net operating loss. During the
year ended June 30, 1999, the Fund decreased accumulated net investment loss
by $1,045,319 and increased accumulated net realized loss on investment of
$359,115 with an offsetting decrease to paid-in-capital of $686,204. 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 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, 1999, the
Investment Adviser earned $450,979 from the Fund, of which $53,497 was payable
to the Investment Adviser at December 31, 1999.
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
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 1999 (CONT'D)
(Unaudited)
- ------------
fee at an annual rate of .35% of the Fund's average weekly net assets. For the
six months ended December 31, 1999, the Investment Adviser paid $157,843 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, 1999, the Trustee earned fees of $75,212, of which $10,405 was
payable to the Trustee at December 31, 1999.
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, 1999, the Administrator earned fees of $62,747, of
which $10,570 was payable to the Administrator at December 31, 1999.
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 an
annual fee of $8,000 plus $750 for each meeting of the Board or of a committee
of the Board attended in person plus certain out-of-pocket expenses. Director
fees payable at December 31, 1999 were $16,500 which is included in accrued
expenses.
The Fund paid or accrued approximately $64,193 for the six months ended
December 31, 1999, for legal services.
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, 1999,
Clemente Capital, Inc. and PNB Investments Limited each owned 5,000 shares.
D. PORTFOLIO ACTIVITY
Purchases and sales of securities, other than short-term obligations,
aggregated $6,286,601 and $8,769,093, respectively, for the six months ended
December 31, 1999.
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, 1999, 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.
11
<PAGE>
REPORT OF THE FUND'S ANNUAL MEETING
The Fund held its annual meeting on October 28, 1999. At the meeting, the
shareholders voted to elect four Class III directors for a three year term:
Lilia C. Clemente, Roberto de Ocampo, Joseph A. O'Hare, S.J. and Robert B.
Oxnam. The shareholders also voted to ratify the selection of
PricewaterhouseCoopers LLP as the Fund's independent accountants for the year
ending June 30, 2000. The results of the voting were as follows:
<TABLE>
<CAPTION>
Abstentions
and Broker
For Against Withheld Non-Votes
--------- ------- -------- -----------
<S> <C> <C> <C> <C>
Lilia C. Clemente................................................. 7,665,319 211,271
Roberto de Ocampo................................................. 7,663,021 213,570
Joseph A. O'Hare, S.J............................................. 7,663,021 213,570
Robert B. Oxnam................................................... 7,665,319 211,271
Selection of PricewaterhouseCoopers LLP........................... 7,778,120 32,078 66,391
</TABLE>
12
<PAGE>
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<PAGE>
[This page intentionally left blank]
<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.
- -------------------------------------------------------------------------------
[FIRST PHILIPPINE FUND LOGO]
Semi-Annual Report
December 31, 1999
