[GRAPHIC OMITTED]
THE FIRST PHILIPPINE FUND INC.
ANNUAL REPORT
JUNE 30, 2000
<PAGE>
July 25, 2000
Dear Shareholder:
The First Philippine Fund Inc.'s (Fund) net asset value (NAV) per share
stood at $5.24 on June 30, 2000, decreasing by 15.35% in the quarter. In the
same period, the Fund's benchmark, the Philippine composite index (Phisix),
declined by 13.35% in US dollar terms. While the stock market remained weak in
the past quarter, investment returns of Philippine securities were further
dampened by a substantial 5.0% depreciation of the Philippine peso against the
US dollar.
The Fund's share price closed at $4.0625 on June 30, registering a quarterly
decline of 16.67%. On that date, the discount of the Fund's shares to NAV stood
at 22.47%. As of June 30, 2000, the Fund was invested in the securities of 36
Philippine companies and the Fund's cash position stood at 9.54% of the
portfolio.
For the Fund's fiscal year ending June 30, 2000, the Fund's NAV declined by
46.15% and the Fund's share price depreciated by 52.90%. Over the same period,
the Fund's benchmark declined by 45.78% in US dollar terms.
MARKET REVIEW
Negative sentiment on the Philippine stock market persisted in the June
quarter of 2000. After a strong first week behind bargain hunting on blue chips,
the market embarked on another virtual freefall, losing 22% in peso terms in
less than two months. The market, however, recovered in June as investors picked
up oversold conglomerate, consumer and property stocks. All told, the composite
index dropped by 8.8% in peso terms in the quarter. But with the peso's 5.0%
depreciation, the Phisix lost 13.4% of its value in US dollar terms.
Political jitters once again headlined investors' concerns. The armed
conflict against Muslim insurgents in Mindanao escalated. This included a spate
of still unresolved hostage situations in the south and bomb explosions in high
traffic shopping malls in Manila. Reform legislation -- such as the signing into
law of the General Banking Act and the elevation of the Omnibus Power Bill into
the Bicameral Committee -- progressed in the quarter. This is a positive sign,
but it did little to stimulate the market.
Accompanying the political concerns, moreover, was the slowing of the
country's economic growth momentum. The Philippines GDP growth rate for the
first quarter of 2000 was measured at 3.4%, behind a marked improvement in
output from the industry sector. While the country remains on a positive growth
path, the country's GDP growth came in below the government's expectations. The
June quarter also saw a weakening peso, slightly higher interest rates, a
widening budget deficit and lower-than-expected corporate earnings.
<PAGE>
External events such as the volatility of the US stock markets, the sharp
correction in technology stocks globally and in the Philippines, higher oil
prices, and the jitters surrounding US interest rate policy likewise took their
toll on the market and on the Fund.
OUTLOOK
Until political concerns, such as the Mindanao crisis, ease and the
country's economic performance perks up, the stock market will remain
challenged. But with the amount of foreign net selling of Philippine stocks
bottoming out, the market's downside risk would appear to be limited. With the
market currently thinly traded and under-owned, the potential for a dramatic and
significant rally is high upon any turn in sentiment or the emergence of the
appropriate market catalyst.
The Fund's strategy will remain a selective and defensive one. However,
preference will continue to be given to liquid blue chips that will benefit from
any change in sentiment toward the Philippines, undervalued companies, earnings
growth stories, and beneficiaries of the new reform legislation.
Thank you once again for your continued support.
Sincerely,
/S/SIGNATURE
Lilia C. Clemente
DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
THE FIRST PHILIPPINE FUND INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 2000
Number of
Shares Value
--------------------------------------------------------------------------------
PHILIPPINE SECURITIES -- (98.1%)
--------------------------------------------------------------------------------
COMMON STOCK (87.8%)
Banking (10.3%)
Bank of the Philippine Islands 1,479,255 $ 2,667,604
Bankard, Inc. (c) 6,470,000 403,880
Equitable PCI Bank 540,000 549,326
Metropolitan Bank & Trust Company 524,520 2,449,611
--------------------------------------------------------------------------------
6,070,421
--------------------------------------------------------------------------------
Broadcasting (3.3%)
ABS-CBN Broadcasting Corp. PDR (e) (g) 1,550,000 1,917,208
--------------------------------------------------------------------------------
1,917,208
--------------------------------------------------------------------------------
Computer Services (0.3%)
SPI Technologies, Inc. (c) 900,500 166,555
--------------------------------------------------------------------------------
166,555
--------------------------------------------------------------------------------
Conglomerates (17.6%)
Aboitiz Equity Ventures, Inc. 17,200,000 596,490
Alsons Consolidated Resources, Inc.(b) (c) 15,980,000 147,782
Ayala Corporation 38,249,436 7,074,550
Benpres Holdings Corp. (c) 19,109,700 1,833,520
Metro Pacific Corp. (c) 30,550,000 444,975
Uniwide Holdings, Inc. (c) (e) 20,687,000 229,574
--------------------------------------------------------------------------------
10,326,891
--------------------------------------------------------------------------------
Construction/Engineering (1.3%)
DMCI Holdings, Inc. (c) 25,604,000 343,336
Union Cement Corp. (c) 22,038,041 412,707
--------------------------------------------------------------------------------
756,043
--------------------------------------------------------------------------------
Electronics (0.6%)
Ionics Circuits, Inc. 150,000 32,946
Music Corporation (c) 1,900,000 219,638
Solid Group, Inc. (c) (e) 4,150,000 134,326
--------------------------------------------------------------------------------
386,910
--------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements
3
<PAGE>
Number of
COMMON STOCK (CONTINUED) Shares Value
--------------------------------------------------------------------------------
Food and Beverage (18.3%)
Cosmos Bottling Corp. 6,650,000 $ 362,842
Del Monte Pacific Ltd. (e) (h) 2,400,000 624,646
La Tondena Distillers, Inc. 1,897,800 1,404,055
San Miguel Corp.-- A 5,723,942 6,881,487
San Miguel Corp.-- B 600,000 742,145
Universal Robina Corp. 6,162,000 755,060
--------------------------------------------------------------------------------
10,770,235
--------------------------------------------------------------------------------
Port Operations (1.4%)
Asian Terminals, Inc. (b) 27,949,980 620,350
International Container
Terminal Services, Inc. (c) 7,643,750 226,204
--------------------------------------------------------------------------------
846,554
--------------------------------------------------------------------------------
Real Estate Development (12.2%)
Ayala Land, Inc. 20,209,585 2,569,827
Belle Corporation (c) 11,900,008 286,131
C & P Homes, Inc. (c) 6,466,750 29,902
Filinvest Land, Inc. (c) 25,487,499 1,107,819
Pryce Corporation (c) 26,500,000 606,547
SM Prime Holdings, Inc. 21,350,000 2,566,758
--------------------------------------------------------------------------------
7,166,984
--------------------------------------------------------------------------------
Telecommunications (14.8%)
Digital Telecommunications Phils., Inc. (c) 27,020,000 462,275
Philippine Long Distance Telephone Co. ADR (f) 463,520 8,227,480
--------------------------------------------------------------------------------
8,689,755
--------------------------------------------------------------------------------
Utilities (7.7%)
Manila Electric Co.-- A 2,574,000 3,749,150
Petron Corporation (c) 23,630,002 775,775
--------------------------------------------------------------------------------
4,524,925
TOTAL COMMON STOCK
(Cost $79,054,017) 51,622,481
--------------------------------------------------------------------------------
WARRANTS (1.5%) Maturity
Food and Beverage (1.5%)
Jollibee Foods Corporation (c) (e) 03/24/03 3,089,485 857,139
Electronics (0.0%)
Music Corporation (b) (c) N/A 111,764 1,003
--------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost $1,472,623) 858,142
--------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements
4
<PAGE>
Units/Par
SCHEDULE OF INVESTMENTS (CONTINUED) Maturity (000) Value
--------------------------------------------------------------------------------
BONDS (1.2%)
Bacnotan Consolidated Industries, Inc. Convertible Bond 5.5%
(Cost $1,750,000) 06/21/04 $1,750 $ 708,750
--------------------------------------------------------------------------------
INVESTMENT IN CURRENCY (7.6%)
Philippine Pesos (d) (Cost $4,711,540) 4,504,348
--------------------------------------------------------------------------------
TOTAL PHILIPPINE SECURITIES
(Cost $86,988,180) 57,693,721
--------------------------------------------------------------------------------
UNITED STATES SECURITIES (1.9%)
--------------------------------------------------------------------------------
COMMERCIAL PAPER (1.9%)
American Express Credit Corp. 6.88%
(Cost $1,141,000) 07/03/00 1,141 1,141,000
--------------------------------------------------------------------------------
TOTAL UNITED STATES SECURITIES 1,141,000
--------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.00%)
(Cost $88,129,180) (a) $58,834,721
===========
(a) Aggregate cost for Federal Income tax purposes is $88,129,180. Aggregate
gross unrealized appreciation (depreciation) for all securities is as
follows:
Excess of market value over tax cost $4,927,109
Excess of tax cost over market value (34,221,568)
------------
$(29,294,459)
------------
------------
(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. At
June 30, 2000, these securities amounted to a value of $3,762,893 or 6.4%
of net assets.
(f) ADR -- American Depository Receipt.
(g) PDR -- Philippine Depository Receipt.
(h) Singapore security -- 1% of Total Investments.
See Accompanying Notes to Financial Statements
5
<PAGE>
THE FIRST PHILIPPINE FUND INC.
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES June 30, 2000
---------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C>
Investments at value (Cost $88,129,180) ....................................................... $ 58,834,721
Cash .......................................................................................... 852
Dividends receivable .......................................................................... 47,674
Interest receivable ........................................................................... 2,855
Receivable for securities sold ................................................................ 261,172
---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS .................................................................................. 59,147,274
---------------------------------------------------------------------------------------------------------------
LIABILITIES
Accrued expenses payable ...................................................................... 347,762
Payable for securities purchased .............................................................. 1,003
---------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES ............................................................................. 348,765
---------------------------------------------------------------------------------------------------------------
NET ASSETS
(applicable to 11,225,000 common shares outstanding) ....................................... $ 58,798,509
---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
($58,798,509/11,225,000) ................................................................... $5.24
---------------------------------------------------------------------------------------------------------------
Net assets consist of:
Capital stock .............................................................................. $ 112,250
Paid-in capital ............................................................................ 120,749,059
Accumulated net investment loss ............................................................ (96,576)
Accumulated net realized loss on investments ............................................... (32,669,002)
Net unrealized depreciation on investments, foreign currency holdings,
and other assets and liabilities denominated in foreign currency .......................... (29,297,222)
--------------------------------------------------------------------------------------------------------------
NET ASSETS .................................................................................... $ 58,798,509
--------------------------------------------------------------------------------------------------------------
<CAPTION>
For the
Year Ended
STATEMENT OF OPERATIONS June 30, 2000
---------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of taxes withheld $204,297) .................................................. $ 645,346
Interest (net of taxes withheld $13,735) .................................................... 172,329
---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME ........................................................................ 817,675
---------------------------------------------------------------------------------------------------------------
EXPENSES
Investment advisory fee ..................................................................... 801,311
Custodian fees .............................................................................. 152,998
Trustee fee ................................................................................. 150,000
Administration fee .......................................................................... 124,800
Transfer agent fees ......................................................................... 7,644
Legal fees .................................................................................. 121,982
Audit fees .................................................................................. 51,596
Directors fees .............................................................................. 49,526
Printing .................................................................................... 35,883
Insurance ................................................................................... 8,060
Miscellaneous ............................................................................... 5,132
---------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES ................................................................................. 1,508,932
---------------------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS ............................................................................ (691,257)
---------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS, FOREIGN CURRENCY
HOLDINGS, AND OTHER ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES:
Net realized loss on:
Security transactions ...................................................................... (17,016,187)
Foreign currency transactions .............................................................. (336,082)
---------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments ................................................................................ (32,411,763)
Foreign currency holdings and other assets and liabilities denominated in foreign currency . (2,694)
---------------------------------------------------------------------------------------------------------------
Net realized and unrealized losses on investments, foreign currency holdings
and other assets and liabilities denominated in foreign currency ........................... (49,766,726)
---------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................................... $(50,457,983)
---------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
6
<PAGE>
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
STATEMENT OF CHANGES IN NET ASSETS June 30, 2000 June 30, 1999
---------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
<S> <C> <C>
Net investment loss ................................................... $ (691,257) $ (800,157)
Net realized loss on security transactions ............................ (17,016,187) (12,230,804)
Net realized gain (loss) on foreign currency transactions ............. (336,082) 359,115
Net change in unrealized appreciation (depreciation)
on investments, foreign currency holdings and other
assets and liabilities denominated in foreign currency ............. (32,414,457) 48,860,091
---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations ........ (50,457,983) 36,188,245
---------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of period ................................................... 109,256,492 73,068,247
---------------------------------------------------------------------------------------------------------------
End of period (including accumulated losses of ($96,576) and
($2,114,327), respectively) ........................................ $ 58,798,509 $109,256,492
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
See Accompanying Notes to Financial Statements
7
<PAGE>
THE FIRST PHILIPPINE FUND INC.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
For the Year Ended June 30
-----------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................... $ 9.73 $ 6.51 $ 16.61 $ 21.18 $ 20.66
-----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss .................................. (0.06) (0.07) (0.06) (0.21) (0.20)
Net realized and unrealized gains (losses) on investments,
foreign currency holdings and other assets and liabilities
denominated in foreign currencies ................... (4.43) 3.29 (10.04) (2.86) 1.74
-----------------------------------------------------------------------------------------------------------------
Net increase (decrease) from investment operations ...... (4.49) 3.22 (10.10) (3.07) 1.54
-----------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS
Distributions from net investment income .............. -- -- -- -- --
Distributions from net realized long-term gains ....... -- -- -- (1.50) (1.02)
Distributions from net realized short-term gains ...... -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS ........................ -- -- -- (1.50) (1.02)
-----------------------------------------------------------------------------------------------------------------
Net asset value, end of period ........................... $5.24 $9.73 $6.51 $16.61 $21.18
-----------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD .................... $4.06 $8.63 $5.75 $13.75 $16.88
-----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN
Based on market value* ................................ (52.90)% 50.00% (58.18)% (10.88)% 7.03%
-----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) ..................... $58,799 $109,256 $73,068 $186,465 $237,790
Ratios to average net assets:
Operating expenses ................................... 1.88% 2.07% 1.91% 1.75% 1.77%
Net investment loss .................................. (0.86)% (1.02)% (0.68)% (1.10)% (1.00)%
Portfolio turnover ....................................... 14.37% 16.26% 23.10% 15.32% 24.20%
-----------------------------------------------------------------------------------------------------------------
</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. Total Investment
return does not reflect sales charges and brokerage commissions.
See Accompanying Notes to Financial Statements
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2000
========
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 $769,135 ( 1% 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 June 30, 2000, no U.S. Federal
income or excise tax provision was incurred. 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 $17,052,998, of
which $466,990, $7,894,664 and $8,691,344 are available as a reduction of
future net capital gains realized for the years ended 2005, 2007 and 2008,
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, 1999 incurred
and will elect to defer net capital losses of $15,616,004 and foreign
currency loss of $96,576 during the year ended June 30, 2000.
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 -- JUNE 30, 2000 (CONT'D)
======
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. 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, 2000, the Fund had temporary book/tax differences primarily
attributable to post-October losses and permanent book/tax differences
primarily attributable to foreign currency losses, net operating loss and
sale of PFICs. During the year ended June 30, 2000, the Fund decreased
accumulated net investment loss by $2,709,008 and increased accumulated net
realized loss on investment of $1,161,262 with an offsetting decrease to
paid-in-capital of $1,547,746. 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 year ended June 30, 2000, the Investment
Adviser earned $801,311 from the Fund, of which $95,070 was payable to the
Investment Adviser at June 30, 2000.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS -- JUNE 30, 2000 (CONT'D)
======
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 fee at an annual rate of .35% of the Fund's average weekly
net assets. For the year June 30, 2000, the Investment Adviser paid $280,459 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 year ended June 30,
2000, the Trustee earned fees of $150,000, of which $37,397 was payable to the
Trustee at June 30, 2000.
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 year
ended June 30, 2000, the Administrator earned fees of $124,800, of which $21,450
was payable to the Administrator at June 30, 2000.
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 June 30, 2000 were $14,082 which is included in accrued
expenses.
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 June 30, 2000,
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 $10,814,445 and $13,587,445, respectively, for the year ended June
30, 2000.
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 June 30, 2000, 98.1% 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 INDEPENDENT ACCOUNTANTS
======
To the Board of Directors and
Shareholders of
The First Philippine Fund Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The First Philippine Fund Inc. (the
"Fund") at June 30, 2000, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the five years in the period then
ended, in conformity with accounting principles generally accepted in the United
States. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 2000 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, PA
August 11, 2000
12
<PAGE>
TAX INFORMATION (UNAUDITED)
======
The Fund is required by Subchapter M of the Internal Revenue Code of 1986,
as amended, to advise its shareholders within 60 days of the Fund's fiscal year
end (June 30, 2000) as to the U.S. Federal tax status of distributions received
by the Fund's shareholders during such fiscal year.
Because the Fund's fiscal year is not the calendar year, another
notification will be sent in respect of calendar year 2000. The second
notification, which will reflect the amount to be used by calendar year
taxpayers on their Federal income tax returns, will be made in conjunction with
Form 1099-DIV and will be mailed in January 2001. Shareholders are advised to
consult their own tax advisers with respect to the tax consequences of their
investment in the Fund.
Foreign shareholders will generally be subject to U.S. withholding tax on
the amount of their dividend.
Dividends received by tax-exempt recipients (e.g. IRA's and Keoghs) need not
be reported as taxable income for U.S. Federal income tax purposes. However,
some retirement trusts (e.g., corporate, Keogh and 403(b)(7) plans) may need
this information for their annual information reporting.
This information is given to meet certain requirements of the Internal
Revenue Code. Shareholders should refer to their Form 1099-DIV to determine the
amounts includable on their respective tax returns for 2000.
SUMMARY OF THE FUND'S DIVIDEND REINVESTMENT PLAN
======
The following is a summary of the Fund's Dividend Reinvestment Plan (the
"Plan"). Shareholders may participate in the Plan by completing an enrollment
card available from American Stock Transfer & Trust Company (the "Plan Agent"),
and forwarding it to the address below.
The Fund intends to distribute to shareholders, at least annually, its net
investment income from dividends and interest and, to the extent necessary, its
net realized capital gains. Pursuant to the Plan, shareholders may elect to have
all cash distributions automatically reinvested by the Plan Agent in Fund shares
pursuant to the Plan.
If the directors of the Fund declare a dividend from net investment income
or a capital gains distribution payable either in the Fund's Common Stock or in
cash, participants in the Plan will receive shares of Common Stock, to be issued
by the Fund. If the market price per share on the valuation date equals or
exceeds net asset value per share on that date, the Fund will issue new shares
to participants at net asset value or, if the net asset value is less than 95%
of the market price on the valuation date, then the Fund will issue such new
shares at 95% of the market price. The valuation date will be the dividend or
distribution payment date or, if that date is not a trading day on the New York
Stock Exchange, the next preceding trading day. If the net asset value exceeds
the market price of the Fund shares at such time or if the Fund should declare a
dividend or distribution payable only in cash, participants in the Plan will be
deemed to have elected to receive shares of stock from the Fund valued at the
market price on the valuation date. The Fund may not issue shares below net
asset value. Accordingly, the Plan Agent, as agent for the participants, will
use the amount of the distribution to purchase Fund shares in the open market,
on the New York Stock Exchange or elsewhere, for the participants accounts on,
or in any event within 30 days after, the payment date. If, before the Plan
Agent has completed its purchases, the market price exceeds the net asset value
per share, the average per share purchase price paid by the Plan Agent may
exceed net asset value per
13
<PAGE>
share, resulting in the acquisition of fewer shares than if the dividend or
distribution had been paid in shares issued by the Fund.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
for personal tax records. In the case of shareholders, such as banks, brokers or
nominees, which hold shares for others who are certified from time to time by
the shareholder as representing the total amount of shares registered in the
shareholder's name and held for the account of beneficial owners who are
participating in the Plan.
There is no charge to participants for reinvesting dividends or
distributions. The Plan Agent's fees for the handling of the reinvestment of
dividends and distributions will be paid by the Fund. However, each
participant's account will be charged a pro rata share of brokerage commissions
incurred with respect to the Plan Agent's open market purchases in connection
with the reinvestment of dividends or distributions.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income tax which may be payable or required to be withheld
on such dividends or distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid for such dividend or distribution.
The Plan also may be amended or terminated by the Plan Agent upon at least 30
days written notice to all shareholders. Participants may terminate
participation in the Plan at any time upon giving written notice 30 days prior
to the applicable dividend or distribution payment date. Additional information
about the Plan may be obtained by writing American Stock Transfer & Trust
Company (the Plan Agent) at 59 Maiden Lane, New York, NY 10007. Attention
Shareholder Services: The First Philippine Fund Inc.
14
<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.
--------------------------------------------------------------------------------
