May 9, 2000
Dear Shareholder:
On March 31, 2000, the net asset value (NAV) of The First Philippine Fund
Inc. (Fund) stood at $6.19 per share. While the Fund's NAV decreased by 20.64%
in the quarter, its performance bested that of its benchmark, the Philippine
composite index (Phisix), which declined by a more sizeable 23.03% in US-dollar
terms in the same period. The Fund's share price closed at $4.875 on March 31,
2000, posting a quarterly decline of 23.53% and a discount to NAV of 21.24%.
Over its lifetime, the Fund continues to lead the Phisix significantly by 20.15%
after adjusting for all distributions to shareholders and the effect of the 1995
rights offering.
WEAKNESS IN SOUTHEAST ASIAN MARKETS TO START THE YEAR
The Philippine stock market suffered from a considerable withdrawal of
foreign portfolio investments in the March quarter of 2000. While the Phisix was
the second worst performing market in the quarter after Cyprus, it joined in the
weakness experienced by the Korean and other Southeast Asian markets (save for
Malaysia), which all corrected after posting hefty positive returns in 1999.
In general, investor sentiment in the Philippines was eroded by political
and local stock market concerns, such as the BW Resources insider trading
investigation. External factors including rising US interest rates, the flight
of investment monies into larger markets where so-called "new economy" stocks
are plentiful, and the reduction in the weighting of the Philippines in
benchmark indices also contributed to the sell-down. An anticipated rebound in
the Philippine stock market did not occur in the March quarter. While blue chip
valuations were compelling, portfolio investors were not attracted to a small,
thinly traded market that did not offer a variety of technology, media or
telecommunications issues, the sectors of choice in the quarter.
THE ECONOMY MOVES IN THE RIGHT DIRECTION
For the most part, investors ignored the positive signals emanating from
the economy:
o Real GDP grew by 4.6% in the fourth quarter of 1999, the strongest year
on year growth since 1997. While the main growth driver was the low
comparison base for agriculture, the rebound in manufacturing and
construction sectors was encouraging. Full year GDP growth came in at
3.2% versus a slight contraction in 1998, showing that recovery is on
track.
o The country's inflation rate came in surprisingly low at 2.6% in January
and 3% in February, comparing favorably against 1999's average of 6.8%.
o Philippine exports, buoyed by the strong demand for electronics, grew by
19% for the full year 1999, the best growth rate in Asia.
o Benchmark interest rates, the 91-day t-bills, stayed flat at 8.8-8.9% in
the quarter. The peso was likewise generally stable, depreciating by 1.9%
in the quarter.
o The official budget deficit for January amounted to only P114 m,
significantly lower than year-ago programmed and estimated levels due to
improvements in revenue collection.
o The banking sector's non-performing loans for January improved to 13.43%
from the previous year's high of 14.6%. Loan growth has been gradually
expanding.
o Foreign exchange reserve levels were at a record high of US$16 billion in
March.
o The Retail Trade Liberalization Act was passed into law in the quarter,
the first of several more reform measures expected to pass through
Congress this year.
<PAGE>
THE CHALLENGE OF RESTORING CONFIDENCE
While the Philippine market will continue to be pressured by external
events (such as further hikes in US interest rates) and volatility in global
markets (from the correction in technology stocks), we feel that the domestic
concerns besetting it stem more from the political than the economic, more a
matter of sentiment than fundamentals. In the year to date, the economy has
shown signs of a recovery on track. Reform measures in retailing, banking, power
and the securities market are beginning to be signed into law. A shift in
sentiment toward government -- specifically toward the newly appointed economic
management team and new leadership at both the Securities and Exchange
Commission and the Philippine Stock Exchange -- can be the catalyst to restore
confidence and bring liquidity back to the market. A sustained rally, however,
will have to be based on continued progress in the economy, structural reforms
in the capital market, a recovery in corporate earnings of 25-30%, and effective
governance and political leadership.
Weighing these risks as well as the attractive valuations present in the
market, we believe the Fund is well positioned to capture the country's economic
recovery and market turnaround. Market risk will be mitigated by diversification
and disciplined stock selection. The Fund will continue to favor undervalued
blue chip companies, those that are the beneficiaries of reforms, and those that
are reorienting themselves to compete in the new economy.
On behalf of the directors and officers of the Fund, thank you very much.
Your continued support 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
March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Number of
Shares Value
- -----------------------------------------------------------------------------------------------------------------
PHILIPPINE SECURITIES -- (99.6%)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (91.7%)
Banking (10.9%)
Bank of the Philippine Islands 1,248,400 2,841,002
Bankard, Inc. (a) (b) 6,470,000 622,024
Equitable PCI Bank 540,000 775,447
Far East Bank & Trust Company 330,171 482,166
Metropolitan Bank & Trust Company 524,520 2,834,139
- -----------------------------------------------------------------------------------------------------------------
7,554,778
- -----------------------------------------------------------------------------------------------------------------
Broadcasting (3.1%)
ABS-CBN Broadcasting Corp. PDR (b) (d) (f) 1,550,000 2,188,093
- -----------------------------------------------------------------------------------------------------------------
2,188,093
- -----------------------------------------------------------------------------------------------------------------
Computer Services (0.4%)
SPI Technologies, Inc. (b) 900,500 273,968
- -----------------------------------------------------------------------------------------------------------------
273,968
- -----------------------------------------------------------------------------------------------------------------
Conglomerates (19.5%)
Aboitiz Equity Ventures, Inc. 17,200,000 837,268
Alsons Consolidated Resources, Inc. (a) (b) 15,980,000 221,696
Ayala Corporation 38,249,436 8,471,739
Benpres Holdings Corp. (b) 19,109,700 3,209,291
Metro Pacific Corp. (b) 30,550,000 587,414
Uniwide Holdings, Inc. (b) (d) 20,687,000 251,753
- -----------------------------------------------------------------------------------------------------------------
13,579,161
- -----------------------------------------------------------------------------------------------------------------
Construction/Engineering (1.7%)
DMCI Holdings, Inc. (b) 25,604,000 454,922
Southeast Asia Cement Holdings, Inc. (b) 23,319,999 244,063
Union Cement Corp. (b) (d) 22,038,041 509,569
- -----------------------------------------------------------------------------------------------------------------
1,208,554
- -----------------------------------------------------------------------------------------------------------------
Electronics (1.1%)
Ionics Circuits, Inc. (b) 150,000 39,247
Music Corporation (b) 1,900,000 485,567
Solid Group, Inc. (b) (d) 4,150,000 230,297
- -----------------------------------------------------------------------------------------------------------------
755,111
- -----------------------------------------------------------------------------------------------------------------
Food and Beverage (15.3%)
Cosmos Bottling Corp. 6,650,000 420,824
Del Monte Pacific Ltd. (b) (d) 2,400,000 750,649
La Tondena Distillers, Inc. 1,897,800 1,073,939
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Number of
COMMON STOCK (CONTINUED) Shares Value
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
RFM Corporation 1,208,334 $ 70,584
San Miguel Corp. -- A 5,723,942 6,756,832
San Miguel Corp. -- B 600,000 708,270
Universal Robina Corp. 6,162,000 884,871
- -----------------------------------------------------------------------------------------------------------------
10,665,969
- -----------------------------------------------------------------------------------------------------------------
Port Operations (2.0%)
Asian Terminals, Inc. (a) (b) 40,949,980 1,056,491
International Container Terminal Services, Inc. (b) 7,643,750 342,318
- -----------------------------------------------------------------------------------------------------------------
1,398,809
- -----------------------------------------------------------------------------------------------------------------
Real Estate Development (14.2%)
Ayala Land, Inc. 16,841,321 2,787,348
Belle Corporation (b) 23,900,008 756,219
C & P Homes, Inc. (b) 35,916,750 262,255
Filinvest Land, Inc. (b) 25,487,499 1,414,387
Pryce Corporation (a) (b) 27,620,000 1,008,373
Robinson's Land Corp. (a) 10,480,500 714,243
SM Prime Holdings, Inc. 21,350,000 2,909,994
- -----------------------------------------------------------------------------------------------------------------
9,852,819
- -----------------------------------------------------------------------------------------------------------------
Telecommunications (16.0%)
Digital Telecommunications Phils., Inc. (b) 37,800,000 938,422
Philippine Long Distance Telephone Co. ADR (e) 463,520 10,168,470
- -----------------------------------------------------------------------------------------------------------------
11,106,892
- -----------------------------------------------------------------------------------------------------------------
Utilities (7.5%)
Manila Electric Co. -- A 2,145,000 3,811,152
Petron Corporation (b) 23,630,002 1,426,335
- -----------------------------------------------------------------------------------------------------------------
5,237,487
- -----------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost $90,519,644) 63,821,641
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Maturity
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
WARRANTS (1.2%)
Food and Beverage (1.2%)
Jollibee Foods Corporation (b) (d) 03/24/03 2,999,500 784,808
Electronics (0.0%)
Music Corporation (a) (b) N/A 111,764 1,056
- --------------------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost $1,472,622) 785,864
- --------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Units/Par
SCHEDULE OF NET ASSETS (CONTINUED) Maturity (000) Value
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
BONDS (1.0%)
Bacnotan Consolidated Industries, Inc. Convertible
Bond 5.5% (Cost $1,750,000) 06/21/04 $ 1,750 $ 700,000
- --------------------------------------------------------------------------------------------------------------
CALL ACCOUNTS (5.7%)
Philippine Pesos (c) (Cost $4,041,176) 3,982,789
- --------------------------------------------------------------------------------------------------------------
TOTAL PHILIPPINE SECURITIES
(Cost $97,783,442) 69,290,294
- --------------------------------------------------------------------------------------------------------------
UNITED STATES SECURITIES (0.4%)
- --------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (0.4%)
Associates Corp. of North America 6.21321%
(Cost $308,000) 04/03/00 308 308,000
- --------------------------------------------------------------------------------------------------------------
TOTAL UNITED STATES SECURITIES 308,000
- --------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost $98,091,442)** 69,598,294
Liabilities in excess of Assets (148,105)
- --------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS
(applicable to 11,225,000 common shares outstanding) $ 69,450,189
- --------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
($69,450,189/11,225,000) $ 6.19
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
**Cost of Total Investments
Common Stock $ 90,519,644
Warrants 1,472,622
Bonds 1,750,000
Call Accounts 4,041,176
Commercial Paper 308,000
--------------
$ 98,091,442
==============
</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) PDR -- Philippine Depository Receipt.
</TABLE>
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