[FIRST PHILIPPINE LOGO OMITTED]
SEMI-ANNUAL REPORT
DECEMBER 31, 2000
February 7, 2001
Dear Shareholder:
On January 20, 2001, Vice President Gloria Macapagal-Arroyo was sworn in as
the fourteenth President of the Philippines. Mrs. Macapagal-Arroyo's ascension
to the nation's highest office was brought about by the second bloodless "people
power" revolution in Philippine history. Since then, the new administration has
assembled its cabinet and has begun to tackle the challenges of governing a
nation.
The First Philippine Fund Inc. (the "Fund") is pleased by these
developments. We welcome not only the change in leaders, but also, and perhaps
more importantly, what this change signifies - the Filipinos' outright rejection
of cronyism, corruption, and policy drift in government and their deep
conviction in the need for good governance, morality in leadership, and a rule
of law that applies to all. We are happy to see the manifestation of unity among
various sectors of society, one in a desire to move the country forward. We are
pleased that these events have, once again, occurred peacefully.
INVESTMENT RESULTS
Surely a new dawn has risen in the Philippines in 2001, after a year of much
difficulty and uncertainty. As investors in the Philippines, we have seen the
past year's struggles evident in the financial markets, and reflected in the
performance of the Fund.
The Fund's net asset value ("NAV") per share stood at $4.35 on December 29,
2000, decreasing by 4.6% in the fourth quarter of 2000. In the same period, the
Fund's benchmark, the Philippine stock market composite index ("Phisix"),
declined by 3.7% in US-dollar terms. Over the last six months, the Fund's NAV
declined by 17.0% while the Phisix contracted by 15.7% in US-dollar terms. For
the full year 2000, the Fund's NAV and benchmark declined by 44.2% and 43.8%,
respectively.
The stock market's weakness was exacerbated by the considerable depreciation
of the peso against the US dollar. At the end of 2000, the peso stood at
P49.986/US$, depreciating by 7.5% in the fourth quarter, by 13.5% in the second
half, and by 19.4% in the full year of 2000.
The Fund's share price closed at $3.375 on December 29, 2000, declining by
1.8% in the fourth quarter, by 16.9% over the last six months, and by 47.1% in
2000. The Fund's shares traded at a 22.4% discount to NAV at the end of 2000.
MARKET REVIEW
Both the stock market and the peso exhibited extreme volatility in a fourth
quarter fraught with political drama. The allegations of former President Joseph
Estrada's involvement in illegal gambling activity first surfaced in October. As
the investigation of these charges commenced, the clamor for the President's
resignation or impeachment grew louder. The House of Representatives formally
impeached the President on November 13 and the ensuing impeachment trial began
on December 7.
With the country focused on politics, the markets largely ignored a laudable
third quarter economic report. Real gross domestic product ("GDP") grew by 4.8%
year on year in the third quarter, above the second quarter's 4.5% growth and
market consensus of 4%. For the first nine months of 2000, GDP rose 4.2% year on
year. The economy in the third quarter was buoyed by improvements in investments
and personal consumption, as well as industrial and agricultural output.
Instead, analysts highlighted the economy's vulnerabilities and doubted the
sustainability of this economic performance. Concerns centered on:
o The impact of the political crisis on consumer and investor confidence.
o The impact of the plummeting peso on corporate earnings and interest rates.
o The massive fiscal deficit, caused by poor tax collection and disappointing
privatization proceeds, and its impact on interest rates and government
spending. o Slowing exports, behind an uncertain global electronics cycle and
an imminent slowdown in global economies in 2001.
o Rising inflation, behind rising oil prices and labor costs.
o Higher unemployment and its impact on consumer spending.
Indeed, the country's economic report for fourth quarter (released in
January 2001) showed a marked slowdown. GDP grew by 3.6% year on year, its
slowest pace in three quarters, as the political uncertainty pushed the peso to
record lows, triggered interest rate hikes, and prompted businesses and
consumers to cut back on spending. For all of 2000, GDP grew by 3.9%, just shy
of the government's 4% target.
A NEW BEGINNING
The establishment of new leadership in the Philippines in January prompted a
fundamental change to the market and our outlook. We believe that the huge
political risk overhang clouding the market has been lifted. We believe
confidence in the Philippine economy and corporate sector is on its way to being
restored. Already, we have seen the peso strengthen and the stock market recover
significantly.
The new government surely inherits a poverty-stricken economy and a huge
budget deficit. At the same time, it faces a global economic slowdown.
Nonetheless, we are optimistic that the new government can now focus time and
energy to face the many daunting challenges of 2001. The changes have certainly
made the Philippines a more attractive investment destination now than in the
recent past.
2
Therefore, in the coming months, the Fund will seek to liquidate its
non-Philippine portfolio and raise investments in Philippine securities.
Recognizing the many challenges that still lie ahead for the country, however,
we will conduct the reinvestment process gradually, seeking the best
opportunities to maximize the Fund's investments. The Fund will continue to
favor the blue chips liquid and well-established Philippine companies - and
those that retain resilient earnings streams in this time of economic slowdown.
These same stocks are likely to benefit from the return of foreign investor
interest in the Philippines.
Your support of the Fund throughout these most extraordinary times is very
much appreciated. We look forward to reaping with you the rewards of the
Philippines' recovery.
Sincerely,
/s/LILIA C. CLEMENTE
Lilia C. Clemente
DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER
/s/JOAQUIN G. HOFILENA
Joaquin G. Hofilena
VICE PRESIDENT AND PORTFOLIO MANAGER
3
THE FIRST PHILIPPINE FUND INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2000 (UNAUDITED)
Sector Shares Value
-----------------------------------------------------------------------------------------------------------------
PHILIPPINE COMMON STOCK -- (74.6%)
-----------------------------------------------------------------------------------------------------------------
Aboitiz Equity Ventures, Inc. Conglomerates 17,200,000 $ 488,617
ABS-CBN Broadcasting Corp. PDR (e) (g) Media 1,550,000 1,519,425
Alsons Consolidated Resources, Inc.(b) (c) Conglomerates 15,320,000 75,855
Asian Terminals, Inc. (b) Port Operations 24,949,980 559,036
Ayala Corporation Conglomerates 36,464,323 5,617,079
Ayala Land, Inc. Real Estate Development 16,489,585 1,781,374
Bank of the Philippine Islands Financials 1,349,068 1,565,357
Bankard, Inc. Financials 6,470,000 199,332
Belle Corporation (c) Real Estate Development 5,900,008 81,443
Benpres Holdings Corp. (c) Conglomerates 19,109,700 1,108,673
Cosmos Bottling Corp. Food and Beverage 6,650,000 299,334
Del Monte Pacific Ltd. (e) (h) Food and Beverage 2,400,000 636,667
Digital Telecommunications Phils., Inc. (c) Telecommunications 20,200,000 185,892
DMCI Holdings, Inc. (c) Construction/Engineering 25,604,000 138,300
Filinvest Land, Inc. (c) Real Estate Development 25,487,499 693,454
International Container Terminal Services, Inc. (c) Port Operations 7,643,750 119,276
Ionics Circuits, Inc. Technology 950,000 299,334
Jollibee Foods Corporation Food and Beverage 3,089,485 599,528
La Tondena Distillers, Inc. Food and Beverage 1,897,800 1,157,982
Manila Electric Co. - A Power/Energy 2,574,000 2,523,226
Metro Pacific Corp. (c) Conglomerates 15,550,000 186,652
Metropolitan Bank & Trust Company (c) Financials 487,120 1,783,359
Music Corporation (c) Technology 1,900,000 108,330
Philippine Long Distance Telephone Co. ADR (f) Telecommunications 340,020 6,056,606
Pryce Corporation (b) (c) Conglomerates 19,490,000 319,726
San Miguel Corp. - A Food and Beverage 4,866,942 4,722,256
SM Prime Holdings, Inc. Real Estate Development 21,350,000 2,477,294
SPI Technologies (c) Technology 900,500 138,716
Union Cement Corp. (c) (e) Construction/Engineering 22,038,041 308,619
Universal Robina Corp. (b) Food and Beverage 6,162,000 567,063
Uniwide Holdings, Inc. (c) (e) Conglomerates 20,687,000 211,066
-----------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost $60,989,878) 36,528,871
-----------------------------------------------------------------------------------------------------------------
WARRANTS (0.0%)
Music Corporation (b) (c)
(Cost $1,118) 111,764 868
-----------------------------------------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements
4
Units/Par
SCHEDULE OF INVESTMENTS (CONTINUED) Sector (000) Value
--------------------------------------------------------------------------------------------------------------
BONDS (1.5%)
Bacnotan Consolidated Industries, Inc. Convertible Bond
5.5%, 06/21/04 (Cost $1,750,000) $1,750 $ 717,500
--------------------------------------------------------------------------------------------------------------
CALL ACCOUNTS (6.9%)
Philippine Pesos (d)
(Cost $3,521,587) 3,389,438
--------------------------------------------------------------------------------------------------------------
TOTAL PHILIPPINE SECURITIES 40,636,677
--------------------------------------------------------------------------------------------------------------
UNITED STATES COMMON STOCK (13.8%) Shares
------
America Online Inc. (c) Technology 19,000 661,200
Citigroup, Inc Financials 19,866 1,014,408
Coca-Cola Co. Food and Beverage 20,000 1,218,750
Enron Corp. Power/Energy 6,000 498,750
General Electric Co. Conglomerates 18,000 862,875
Intel Corp. Technology 14,400 432,900
Nokia ADR (f) Technology 25,000 1,087,500
Pfizer Inc. Healthcare 21,600 993,600
--------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost $7,704,961) 6,769,983
--------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (3.2%)
American Express Credit Corp.
6.48467%, 01/02/01 (Cost $1,563,000) 1,563 1,563,000
--------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(Cost $75,530,544) (a) $ 48,969,660
=============
(a) At cost for Federal Income tax purposes $75,530,544. Aggregate gross
unrealized appreciation (depreciation) for all securities is as follows:
Excess of market value over tax cost $ 5,438,102
Excess of tax cost over market value (31,998,986)
-------------
(26,560,884)
=============
(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.
(h) Singapore security.
See Accompanying Notes to Financial Statements
5
THE FIRST PHILIPPINE FUND INC.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) December 31, 2000
--------------------------------------------------------------------------------------------------------------------
ASSETS
Investments at value (Cost $75,530,544) ........................................................ $ 48,969,660
Cash ........................................................................................... 32,437
Dividends receivable ........................................................................... 21,780
Interest receivable ............................................................................ 50,912
Prepaid Insurance .............................................................................. 1,699
--------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ................................................................................... 49,076,488
--------------------------------------------------------------------------------------------------------------------
LIABILITIES
Accrued expenses payable ....................................................................... 249,033
Payable for securities purchased ............................................................... 868
-------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES .............................................................................. 249,901
-------------------------------------------------------------------------------------------------------------------
NET ASSETS
(applicable to 11,225,000 common shares outstanding) ........................................ $ 48,826,587
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
($48,826,587/11,225,000) .................................................................... $4.35
--------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Capital stock ............................................................................... $ 112,250
Paid-in capital ............................................................................. 120,749,059
Accumulated net investment loss ............................................................. (638,215)
Accumulated net realized loss on investments ................................................ (44,835,892)
Net unrealized depreciation on investments, foreign currency holdings,
and other assets and liabilities denominated in foreign currency ........................... (26,560,615)
--------------------------------------------------------------------------------------------------------------------
NET ASSETS ..................................................................................... $ 48,826,587
--------------------------------------------------------------------------------------------------------------------
For the
Six Months Ended
STATEMENT OF OPERATIONS (UNAUDITED) December 31, 2000
--------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of taxes withheld $104,628) .................................................. $ 338,816
Interest (net of taxes withheld $5,421) ..................................................... 115,743
--------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME ........................................................................ 454,559
--------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment advisory fee ..................................................................... 256,588
Trustee fee ................................................................................. 75,617
Administration fee .......................................................................... 62,913
Custodian fees .............................................................................. 46,520
Transfer agent fees ......................................................................... 4,034
Legal fees .................................................................................. 59,508
Audit fees .................................................................................. 27,725
Directors fees .............................................................................. 26,215
Printing .................................................................................... 19,155
Insurance ................................................................................... 1,382
Miscellaneous ............................................................................... 6,073
--------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES ................................................................................. 585,730
--------------------------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS ............................................................................ (131,171)
--------------------------------------------------------------------------------------------------------------------
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 ...................................................................... (12,166,891)
Foreign currency transactions .............................................................. (410,468)
--------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments ................................................................................ 2,736,339
Foreign currency holdings and other assets and liabilities denominated in foreign currency . 269
--------------------------------------------------------------------------------------------------------------------
Net realized and unrealized losses on investments, foreign currency holdings
and other assets and liabilities denominated in foreign currency ........................... (9,840,751)
--------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................................... $ (9,971,922)
--------------------------------------------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements
6
For the
Six Months Ended For the
December 31, 2000 Year Ended
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED) JUNE 30, 2000
---------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment loss ................................................... $ (131,171) $ (691,257)
Net realized loss on security transactions ............................ (12,166,891) (17,016,187)
Net realized gain (loss) on foreign currency transactions ............. (410,468) (336,082)
Net change in unrealized appreciation (depreciation)
on investments, foreign currency holdings and other
assets and liabilities denominated in foreign currency ............. 2,736,608 (32,414,457)
---------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations ................... (9,971,922) (50,457,983)
---------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of period ................................................... 58,798,509 109,256,492
---------------------------------------------------------------------------------------------------------------
End of period (including accumulated losses of ($638,215) and
($96,576), respectively) ........................................... $ 48,826,587 $ 58,798,509
===============================================================================================================
See Accompanying Notes to Financial Statements
7
THE FIRST PHILIPPINE FUND INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
For the Six
Months Ended For the Year Ended June 30
December 31, 2000 ---------------------------------------------------------
(Unaudited) 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ................... $5.24 $ 9.73 $ 6.51 $ 16.61 $ 21.18 $ 20.66
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss ................................. (0.01) (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 .................. (0.88) (4.43) 3.29 (10.04) (2.86) 1.74
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from investment operations ..... (0.89) (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 ......................... $4.35 $5.24 $9.73 $6.51 $16.61 $21.18
------------------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD .................. $3.38 $4.06 $8.63 $5.75 $13.75 $16.88
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN
Based on market value* .............................. (16.92)%*** (52.90)% 50.00% (58.18)% (10.88)% 7.03%
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) ................... $48,827 $58,799 $109,256 $73,068 $186,465 $237,790
Ratios to average net assets:
Operating expenses ................................. 2.28%** 1.88% 2.07% 1.91% 1.75% 1.77%
Net investment loss ................................ (0.51)%** (0.86)% (1.02)% (0.68)% (1.10)% (1.00)%
Portfolio turnover ..................................... 43.75% 14.37% 16.26% 23.10% 15.32% 24.20%
------------------------------------------------------------------------------------------------------------------------------------
* 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.
** Annualized.
*** Non-annualized.
See Accompanying Notes to Financial Statements
8
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2000
(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 $1,522,548
(3% 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
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 $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 elected 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
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2000 (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. 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 and 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 six months ended December 31, 2000, the
Investment Adviser earned $256,588 from the Fund, of which $50,077 was payable
to the Investment Adviser at December 31, 2000.
10
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2000 (CONT'D)
(UNAUDITED)
==========
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 six months December 31, 2000, the Investment Adviser paid
$89,806 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, 2000, the Trustee earned fees of $75,617, of which $37,808 was
payable to the Trustee at December 31, 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 six
months ended December 31, 2000, the Administrator earned fees of $62,913, of
which $20,857 was payable to the Administrator at December 31, 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 December 31, 2000 Were $13,214 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 December 31, 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 $10,420,804 and $10,232,376, respectively, for the six months ended
December 31, 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 December 31, 2000, 83% 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
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DIRECTORS AND OFFICERS
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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
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.
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This report, including the financial information herein, is transmitted to the
shareholders of The First Philippine Fund Inc. for their information. This is
not a prospectus, circular or representation intended for use in the purchase of
shares of the Fund or any securities mentioned in this report.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its common stock in the open market.
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