April 30, 2001
Dear Shareholder:
First Quarter Review
Despite the initial market surge in January after Gloria Macapagal-Arroyo
was installed as the Philippines' new president, the Philippine stock market
continued to contract on a quarterly basis. In the first quarter of 2001, the
Philippine composite index (Phisix), the Fund's benchmark, declined by 2.0% in
US dollar terms. While the market's decline is slight and is in fact the
market's best performance in five quarters, the significant gains achieved in
mid-January and sustained until mid-February were reversed.
Political concerns lingered. Former President Joseph Estrada's petition
with the Supreme Court challenging the legitimacy of the Arroyo administration
weighed down sentiment. The Supreme Court has since ruled in favor of the
current government. With the ruling, Mr. Estrada loses immunity from suit and
has been arrested on charges of economic plunder. In the meantime, elections are
scheduled on May 14 for thirteen senators as well as all members of Congress and
local government officials. The government needs to secure a majority in
Congress in order to be able to pass and implement its reform agenda most
efficiently. Recent surveys have indicated that this outcome is likely.
The macroeconomic issues facing the government remain daunting, but early
indications appear positive. The budget deficit for the first two months of the
year fell within programmed levels, with the success due more to spending cuts
rather than revenue generation. Interest rates have been cut by 550 basis points
since their peak last year, and the peso, while showing a recent weakening
alongside the yen, has remained generally stable at around P50 per US dollar.
Corporate earnings for 2000 were expectedly weak as a result of declining
margins, hefty provisioning, foreign exchange losses and high interest costs,
especially during the fourth quarter of 2000. While an earnings recovery is
expected for 2001 and forecast earnings were upgraded after People Power II,
these forecasts remain at risk from the projected slowing of the country's
macroeconomic growth.
The weakness of the US and Japanese economies took center stage in the
latter part of the first quarter and the Philippine stock market declined in
tandem with global markets.
First Philippine Fund Performance
The First Philippine Fund Inc.'s (Fund) per share net asset value (NAV)
declined by 6.67% in the past quarter to US$4.06. Reflecting the volatility of
its underlying market, the Fund's total net assets reached its peak in the
quarter at US$54.7 million in mid-February 2001 before contracting to US$45.5
million at the quarter's end. The Fund's share price closed at $3.20 on March
30, declining by 5.19% in the quarter.
The Fund's performance relative to its benchmark came largely as a result
of its highly conservative posture during a sharp Philippine market rally in
January. With its large cash position (9.9% of the portfolio at the start of the
quarter) and low exposure to Philippine securities (76.3% of the portfolio), the
Fund expectedly fell behind after the market spike in the days after People
Power II. It was, however, able to reduce the gap in the remainder of the
quarter while the Philippine market was consolidating.
In the last few months, the Fund adopted the following significant changes:
o In the December 2000 semi-annual report, the Fund indicated it would
liquidate its non-Philippine portfolio and raise investments in Philippine
securities. This was achieved by the end of the first quarter. Investments
in Philippine securities were raised from 76.3% of the portfolio at the end
of the December 2000 quarter to 90.5% at the end of the March 2001 quarter.
o The Fund's Board of Directors, in its last meeting on April 26, authorized
an aggressive and continuing share repurchase program over the next two
years of up to 20% of the Fund's outstanding shares. The Board is
optimistic that, over time, the buyback program will help to narrow the
discount the Fund's shares trade to its NAV.
Market Outlook
Going forward, we expect the market to remain muted due to various
uncertainties - the need to consolidate political power bases, the challenges of
the domestic economy, and the impact of a global slowdown. In general, investors
are in a wait-and-see posture for more positive indicators after the May
elections. The market's consolidation, however, has opened attractive
opportunities for further rebuilding of the portfolio. The Fund will pursue a
bargain-hunting strategy, accumulating discounted blue chips at attractive
valuations, in anticipation of a post-election run up, and a possible pick-up in
global markets by the second half of the year.
Even after the recent dramatic changes in the Philippines, there will
undoubtedly remain many political and economic challenges ahead. The road will
remain bumpy. Yet, we are confident the country is moving in the right direction
- towards transparency and good governance, a rule of law applied to all, and
reforms to create a level playing field.
Thank you for your continued support of The First Philippine Fund.
Sincerely,
/s/ Lilia C. Clemente
-----------------------------------------------
Lilia C. Clemente
Director, President and Chief Executive Officer
2
The First Philippine Fund Inc.
SCHEDULE OF NET ASSETS
March 31, 2001 (Unaudited)
Number of Shares Value
----------------------------------------------------------------------------------------
PHILIPPINE SECURITIES (94.1%)
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COMMON STOCK (87.1%)
Conglomerates (16.7%)
Aboitiz Equity Ventures, Inc. 17,200,000 $ 487,736
Alsons Consolidated Resources, Inc. (a)(b) 15,000,000 54,688
Ayala Corp. 36,464,323 5,465,475
Benpres Holdings (b) 29,109,700 1,391,483
Metro Pacific Corp. (b) 15,550,000 157,481
Pryce Corp. (b) 19,490,000 122,378
Uniwide Holdings, Inc. (b)(d) 20,687,000 121,513
----------------------------------------------------------------------------------------
7,800,754
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Construction/Engineering (1.2%)
DMCI Holdings, Inc. (b) 25,604,000 168,546
Union Cement Corp. (b)(d) 22,038,041 388,347
----------------------------------------------------------------------------------------
556,893
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Financial Services (10.7%)
Bank of the Philippine Islands 1,349,068 1,899,095
Bankard Inc. 6,470,000 193,952
Equitable PCI Bank, Inc. 673,900 723,435
Metropolitan Bank & Trust Company 487,120 2,150,901
----------------------------------------------------------------------------------------
4,967,383
----------------------------------------------------------------------------------------
Food and Beverage (16.6%)
Cosmos Bottling Corp. (a) 5,109,000 263,879
Del Monte Pacific Ltd. (b)(g) 2,400,000 599,737
Jollibee Foods Corp. 3,404,945 810,357
La Tondena Distillers, Inc. 2,035,000 1,236,556
San Miguel Corp. -A 4,536,442 4,272,642
Universal Robina Corp. 6,162,000 561,645
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7,744,816
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Media (5.1%)
ABS-CBN Broadcasting Corp. PDR (d)(f) 2,670,000 2,352,494
----------------------------------------------------------------------------------------
2,352,494
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Port Operations (1.5%)
Asian Terminals, Inc. 24,949,980 545,785
International Container Terminal Services, Inc.(b) 7,643,750 161,016
----------------------------------------------------------------------------------------
706,801
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3
The First Philippine Fund Inc.
SCHEDULE OF NET ASSETS (Continued)
March 31, 2001 (Unaudited)
Number of Shares Value
----------------------------------------------------------------------------------------
PHILIPPINE SECURITIES (Continued)
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COMMON STOCK (Continued)
Real Estate Development (15.2%)
Ayala Land, Inc. 26,589,585 $ 2,962,118
Belle Corp. (b) 5,900,008 46,606
Filinvest Land, Inc. (b) 27,387,499 1,065,079
SM Prime Holdings, Inc. 24,100,000 3,026,473
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7,100,276
----------------------------------------------------------------------------------------
Technology (1.7%)
Ionics Circuits, Inc. 1,900,000 442,568
Music Corp. (b) 1,900,000 103,907
SPI Technologies (b) 900,500 223,433
----------------------------------------------------------------------------------------
769,908
----------------------------------------------------------------------------------------
Telecommunications (14.2%)
Digital Telecommunications Phils., Inc. (b) 20,200,000 212,756
Global Telecom, Inc. 17,000 235,006
Philippine Long Distance Telephone Co. ADR (e) 430,020 6,170,787
----------------------------------------------------------------------------------------
6,618,549
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Utilities (4.2%)
Manila Electric Co.-- A 2,257,600 1,943,408
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1,943,408
----------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost $65,989,795) 40,561,282
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WARRANTS (0.0%)
Electronics (0.0%)
Music Corp. (a)(b) 111,764 879
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TOTAL WARRANTS
(Cost $1,118) 879
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4
Units/Per
SCHEDULE OF NET ASSETS (Continued) Maturity Shares Value
--------------------------------------------------------------------------------------------------------
BONDS (1.4%)
Bacnotan Consolidated Industries, Inc., 5.50%
(Cost $1,750,000) 06/21/04 $ 1,750 $ 656,250
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INVESTMENTS IN FOREIGN CURRENCY (5.6%)
Philippine Pesos (c)
(Cost $2,657,441) 2,621,345
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TOTAL PHILIPPINE SECURITIES
(Cost $70,398,354) 43,839,756
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UNITED STATES SECURITIES (5.9%)
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COMMERCIAL PAPER (5.9%)
American Express Credit Corp., 5.402%
(Cost $2,764,000) 04/02/01 2,764 2,764,000
--------------------------------------------------------------------------------------------------------
TOTAL UNITED STATES SECURITIES 2,764,000
--------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100.0%)
(Cost $73,162,354)** 46,603,756
Liabilities less other assets (1,073,648)
--------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS
(applicable to 11,225,000 common shares outstanding) $ 45,530,108
--------------------------------------------------------------------------------------------------------
NET ASET VALUE PER SHARE
($45,530,108/11,225,000) $ 4.06
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** Cost of Total Investments
Common Stock $ 65,989,795
Warrants 1,118
Bonds 1,750,000
Foreign Currency 2,657,441
Commercial Paper 2,764,000
------------
$ 73,162,354
============
((a) At fair value as determined by the Board of Directors.
(b) Non-income producing security.
(c) Daily interest is being accurued 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 securties can only be sold to qualified institutional investors.
(e) ADR--American Depository Receipt.
(f) PDR--Philippine Depository Receipt.
(g) Singapore Security.#The First Philippine Fund, Inc.
5
[This Page Intentionally Left Blank]
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
SUMMARY OF GENERAL INFORMATION
============
THE FUND
The First Philippine Fund Inc. is a closed-end investment company whose
shares trade on the New York Stock Exchange. The Fund seeks long-term capital
appreciation primarily through investment in equity securities of Philippine
companies. The Fund is managed by Clemente Capital, Inc.
============
SHAREHOLDER INFORMATION
Daily market prices for the Fund's shares are published in the New York
Stock Exchange Composite Transactions section of most newspapers under the
designation "FtPhil". The Fund's New York Stock Exchange trading symbol is FPF.
Net asset value (NAV) and market price information about The First Philippine
Fund Inc. shares are published each Monday in The Wall Street Journal, The New
York Times and in other newspapers. For general information visit us at our web
site http://www.clementecapital.com. For shareholder account inquiries call
1-800-937-5449.
============
DIVIDEND REINVESTMENT PLAN
Through its voluntary Dividend Reinvestment Plan, shareholders of The First
Philippine Fund Inc. may elect to receive dividends and capital gains
distributions in the form of additional shares of the Fund.
--------------------------------------------------------------------------------
This report, including the financial information herein, is transmitted to the
shareholders of The First Philippine Fund Inc. for their information. This is
not a prospectus, circular or representation intended for use in the purchase of
shares of the Fund or any securities mentioned in this report.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its common stock in the open market.
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The First Philippine Fund Inc.
Quarterly Report
March 31, 2001