[Logo omitted]
The First Philippine Fund Inc.
SEMI-ANNUAL REPORT
DECEMBER 31, 2002
January 31, 2003
Dear Shareholder:
The second half of 2002 was another trying period for the Philippine stock
market. In this period, the Philippine composite index ("Phisix") declined by
16.42% in US-dollar terms behind a myriad of concerns. A gaping budget deficit,
political gridlock resulting in delays in key reforms, rising regulatory risk,
and peace and order concerns all contributed to weak investor sentiment and thin
trading volumes in the stock market. Sagging business confidence was evident in
sluggish investment figures and lending growth.
The concerns that plagued the market were not confined to the Philippines,
however. Stock markets around the world were pressured by the uncertainty of
economic growth in the United States and Europe, restructuring worries in Japan,
high-profile corporate scandals, rising oil prices, the threat of global
terrorism and jitters over a possible war in Iraq. The Phisix closed the year
2002 lower by 15.37% in US-dollar terms, erasing the slight positive return it
achieved in the first half of the year.
The First Philippine Fund Inc. (the "Fund") replicated the performance of
its benchmark, the Phisix, in the second half of 2002. The Fund's per share net
asset value (NAV) declined 16.56% over this period to $2.67 on December 31,
2002. For the full year 2002, however, the Fund significantly outperformed its
benchmark by over 2%, with a full year NAV decline of only 13.31%. The Fund's
share price closed at $2.24 on December 31, 2002, declining by 12.84% and by
21.13% in the full year and second half of 2002, respectively.
MARKET POSITIVES IGNORED
The stock market's performance hardly reflected the surprising economic
growth achieved by the Philippines in the past year. The country's gross
domestic product (GDP) rose 4.6% and its gross national product (GNP) grew 5.2%
in 2002. This economic growth is the strongest recorded since the Asian
financial crisis in 1997 and exceeded the high end of official and consensus
forecasts.
Industry was buoyed by increased production in mining and quarrying as well
as a rebound in private construction for housing and shopping malls. Services
continued to benefit from the deregulation of the telecommunications sector.
Trade continued to be propped up by strong consumer demand. Even agriculture
turned in positive growth despite the adverse impact of El Nino on certain
crops. On the demand side, robust private consumption and a recovery in exports,
especially in the fourth quarter of 2002, underpinned growth.
The government gives credit to its policies that have created a stable
macroeconomic environment. Inflation was stable throughout the past year,
interest rates were significantly lower than in the previous year, and tariff
rates were reduced. The government forecasts that, with continuation of
stability, growth will be sustained in 2003 in the area of 4.2-5.2% for GDP and
4.5-5.4% for GNP.
Another positive was the fact that corporate earnings also grew, albeit
modestly, in 2002, after an extended period of restructuring to strengthen
balance sheets and improve cash flows. While the earnings gains came largely
from telecommunications and food companies, the profits of cyclical companies
appear to have bottomed last year.
A SURPRISE TO START THE NEW YEAR
At the end of 2002, President Gloria Macapagal-Arroyo herself delivered a
surprise announcement. In response to criticism that her administration was too
preoccupied with political concerns and had lost focus on key economic reforms,
the President abandoned plans to run in the 2004 presidential election. The
general public appeared to approve of the move, ushering in a new year with
hopes that policy-making would be "de-politicized" and that major challenges -
such as the budget deficit, tax reform, and peace and order - would be more
forcefully addressed.
For 2003, we are hopeful that, freed from political distraction, President
Macapagal-Arroyo and her government can achieve meaningful political and
economic reform. Her year-end pronouncement lifted the market in early January.
However, sustaining the rally requires concrete achievements.
With the global and domestic outlook still rife with uncertainties at this
time, the Fund will remain defensive as usual. We will continue to remove
illiquid and smaller holdings and focus only on liquid names. Within these
liquid names, we will shift out of more expensive stocks and seek to take
advantage of undervalued situations. We will favor companies with quality
management, resilient, if not growing, earnings (such as telecommunication and
consumer companies), and solid leadership positions in their industry. The Fund
will also continue with its share repurchase program.
Thank you once again for your continued support.
Sincerely yours,
/S/Signature
Lilia C. Clemente
DIRECTOR, PRESIDENT & CEO
/S/Signature
Joaquin G. Hofilena
VICE PRESIDENT AND PORTFOLIO MANAGER
2
THE FIRST PHILIPPINE FUND INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2002 (UNAUDITED)
Number of Shares Value
---------------------------------------------------------------------------------------------------------------------------
PHILIPPINE SECURITIES (99.4%)
---------------------------------------------------------------------------------------------------------------------------
COMMON STOCK (96.6%)
CONGLOMERATES (12.7%)
Aboitiz Equity Ventures, Inc. 17,200,000 $ 729,936
Ayala Corp. - A 30,364,323 2,451,770
Benpres Holdings Corp. (c) 29,109,700 60,128
Metro Pacific Corp. (c) 15,550,000 46,719
---------------------------------------------------------------------------------------------------------------------------
3,288,553
---------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION/ENGINEERING (1.0%)
DMCI Holdings, Inc. (c) 25,604,000 67,311
Union Cement Corp. (c) 22,038,041 186,223
---------------------------------------------------------------------------------------------------------------------------
253,534
---------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES (12.4%)
Bank of the Philippine Islands 2,014,881 1,267,482
Bankard, Inc. (c) 6,470,000 97,195
Equitable PCI Bank, Inc. (c) 1,066,000 540,466
Metropolitan Bank & Trust Co. (c) 2,197,000 1,299,536
---------------------------------------------------------------------------------------------------------------------------
3,204,679
---------------------------------------------------------------------------------------------------------------------------
FOOD AND BEVERAGE (27.9%)
Del Monte Pacific Ltd. (b) 2,400,000 594,981
Jollibee Foods Corp. 3,190,545 1,093,391
La Tondena Distillers, Inc. 1,237,800 813,516
San Miguel Corp. - A 3,845,086 4,332,166
Universal Robina Corp. 6,778,200 385,024
---------------------------------------------------------------------------------------------------------------------------
7,219,078
---------------------------------------------------------------------------------------------------------------------------
MEDIA (3.1%)
ABS-CBN Broadcasting Corp. PDR (c)(e) 2,649,900 808,594
---------------------------------------------------------------------------------------------------------------------------
808,594
---------------------------------------------------------------------------------------------------------------------------
PORT OPERATIONS (1.3%)
International Container Terminal Services, Inc. 7,643,750 347,352
---------------------------------------------------------------------------------------------------------------------------
347,352
---------------------------------------------------------------------------------------------------------------------------
REAL ESTATE DEVELOPMENT (20.8%)
Ayala Land, Inc. 26,589,585 2,271,803
Belle Corp. (c) 5,900,008 38,777
Filinvest Land, Inc. (c) 59,731,873 930,962
SM Prime Holdings, Inc. 24,100,000 2,149,604
---------------------------------------------------------------------------------------------------------------------------
5,391,146
---------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY (1.5%)
Ionics, Inc. 2,165,000 39,028
SPI Technologies, Inc. (c) 1,585,532 349,833
---------------------------------------------------------------------------------------------------------------------------
388,861
---------------------------------------------------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements
3
THE FIRST PHILIPPINE FUND INC.
SCHEDULE OF INVESTMENTS (CONT'D)
DECEMBER 31, 2002 (UNAUDITED)
Number of Shares Value
---------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS (14.5%)
Digital Telecommunications Philippines, Inc. (c) 20,200,000 $ 151,726
Globe Telecommunications, Inc. (c) 145,000 1,218,453
Philippine Long Distance Telephone Co. ADR (c)(d) 475,020 2,389,351
---------------------------------------------------------------------------------------------------------------------------
3,759,530
---------------------------------------------------------------------------------------------------------------------------
UTILITIES (1.4%)
Manila Electric Co. - A (c) 2,257,600 347,623
---------------------------------------------------------------------------------------------------------------------------
347,623
---------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost $59,153,477) 25,008,950
---------------------------------------------------------------------------------------------------------------------------
Par
Maturity (000)
---------------------------------------------------------------------------------------------------------------------------
BOND (2.8%)
Bacnotan Consolidated Industries, Inc., 5.50%
(Cost $1,750,000) 06/21/04 $1,750 735,000
---------------------------------------------------------------------------------------------------------------------------
TOTAL PHILIPPINE SECURITIES
(Cost $60,903,477) 25,743,950
---------------------------------------------------------------------------------------------------------------------------
UNITED STATES SECURITIES (0.6%)
---------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER (0.4%)
The Societe Generale Group, 1.22% 01/02/03 100 100,000
---------------------------------------------------------------------------------------------------------------------------
CALL DEPOSIT (0.2%)
BBH Grand Cayman Call Deposit 55 55,000
---------------------------------------------------------------------------------------------------------------------------
TOTAL UNITED STATES SECURITIES
(Cost $155,000) 155,000
---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (100%)
(Cost $61,058,477) (a) $ 25,898,950
------------
(a) Aggregate cost for Federal income tax purposes is $61,058,477. Aggregate
gross unrealized appreciation (depreciation) for all securities is as
follows:
Excess of market value over tax cost $ 2,403,654
Excess of tax cost over market value (37,563,181)
------------
$(35,159,527)
------------
(b) Singapore security - 2.3% of total investments.
(c) Non-income producing security.
(d) ADR - American Depository Receipt.
(e) PDR - Philippine Depository Receipt.
See Accompanying Notes to Financial Statements
4
THE FIRST PHILIPPINE FUND INC.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) December 31, 2002
---------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments at value (Cost $61,058,477) .............................................. $ 25,898,950
Cash ................................................................................. 705
Foreign Currency value (Cost $282,923) ............................................... 282,951
Receivable for securities sold ....................................................... 20,383
Dividends receivable ................................................................. 52,554
Interest receivable .................................................................. 51,175
Prepaid expenses ..................................................................... 7,878
---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ......................................................................... 26,314,596
---------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for treasury stock repurchased ............................................... 15,045
Advisory fee payable ................................................................. 42,069
Accrued expenses payable ............................................................. 50,881
---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES .................................................................... 107,995
---------------------------------------------------------------------------------------------------------------------------
NET ASSETS
(applicable to 9,832,800 common shares outstanding) ............................... $ 26,206,601
---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
($26,206,601/9,832,800) ........................................................... $2.67
---------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Capital Stock Issued .............................................................. $ 112,250
Paid-in Capital ................................................................... 119,167,739
Cost of 1,392,200 shares held in treasury ......................................... (4,132,006)
Accumulated net investment loss ................................................... (244,579)
Accumulated net realized loss on investments ...................................... (53,537,583)
Net unrealized depreciation on investments, foreign currency holdings
and other assets and liabilities denominated in foreign currency ................. (35,159,220)
---------------------------------------------------------------------------------------------------------------------------
NET ASSETS ........................................................................... $ 26,206,601
---------------------------------------------------------------------------------------------------------------------------
For the Six Months Ended
STATEMENT OF OPERATIONS December 31, 2002 (Unaudited)
---------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of taxes $69,404) .................................................. $ 218,041
Interest (net of taxes $1,212) .................................................... 57,101
---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME .............................................................. 275,142
---------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment advisory fee ........................................................... 147,248
Trustee fee ....................................................................... 75,617
Administration fee ................................................................ 62,913
Legal fee ......................................................................... 75,099
Custodian fee ..................................................................... 32,388
Audit fee ......................................................................... 18,901
Directors fee ..................................................................... 23,505
NYSE Listing fee .................................................................. 15,802
Printing .......................................................................... 16,035
Insurance ......................................................................... 5,664
Transfer agent fee ................................................................ 4,083
Miscellaneous ..................................................................... 42,466
---------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES ....................................................................... 519,721
---------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS .................................................................. (244,579)
---------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY HOLDINGS
AND OTHER ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES: Net
realized loss on:
Security transactions ............................................................ (3,116,536)
Foreign currency transactions .................................................... (10,298)
Net change in unrealized appreciation (depreciation):
Investments ...................................................................... (2,133,863)
Foreign currency holding and other assets and liabilities denominated in foreign
currency ....................................................................... 261
---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized losses on investments, foreign currency holdings
and other assets and liabilities denominated in foreign currency ................. (5,260,436)
---------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................. $(5,505,015)
---------------------------------------------------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements
5
THE FIRST PHILIPPINE FUND INC.
For the
Six Months Ended For the
December 31, 2002 Year Ended
STATEMENT OF CHANGES IN NET ASSETS (Unaudited) June 30, 2002
---------------------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS
Operations:
Net investment loss .............................................. $ (244,579) $ (514,599)
Net realized loss on security transactions ....................... (3,116,536) (2,512,427)
Net realized gain (loss) on foreign currency transactions ........ (10,298) 3,745
Net change in unrealized depreciation on investments,
foreign currency holdings and other assets and liabilities
denominated in foreign currency ............................... (2,133,602) (3,750,236)
---------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations .............. (5,505,015) (6,773,517)
---------------------------------------------------------------------------------------------------------------------------
Capital share transactions:
Shares repurchased ............................................... (911,171) (2,930,465)
---------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ...................................... (6,416,186) (9,703,982)
---------------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of period .............................................. 32,622,787 42,326,769
---------------------------------------------------------------------------------------------------------------------------
End of period (including accumulated net investment loss of
($244,579) and $0, respectively) .............................. $26,206,601 $32,622,787
===========================================================================================================================
See Accompanying Notes to Financial Statements
6
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, 2002 -------------------------------------------------------
(Unaudited) 2002 2001 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period ................ $ 3.20 $ 3.80 $ 5.24 $ 9.73 $ 6.51 $ 16.61
---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss .............................. (0.03) (0.05) (0.03) (0.06) (0.07) (0.06)
Net realized and unrealized gains (losses) on
investments, foreign currency holdings and other
assets and liabilities denominated in foreign
currencies ...................................... (0.62) (0.65) (1.56) (4.43) 3.29 (10.04)
---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from investment operations .. (0.65) (0.70) (1.59) (4.49) 3.22 (10.10)
---------------------------------------------------------------------------------------------------------------------------
LESS DIVIDENDS AND DISTRIBUTIONS
Distributions from net realized long-term gains .. -- -- -- -- -- --
---------------------------------------------------------------------------------------------------------------------------
TOTAL DIVIDENDS AND DISTRIBUTIONS ................... -- -- -- -- -- --
---------------------------------------------------------------------------------------------------------------------------
SHARES REPURCHASED
Effect of shares repurchased ..................... 0.12 0.10 0.15 -- -- --
---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net asset value ........... (0.53) (0.60) (1.44) (4.49) 3.22 (10.10)
---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ..................... $ 2.67 $ 3.20 $ 3.80 $ 5.24 $ 9.73 $ 6.51
---------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD ............... $ 2.24 $ 2.84 $ 3.19 $ 4.06 $ 8.63 $ 5.75
---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN
Based on market value* ........................... (21.13)%***(10.97)% (21.43)% (52.90)% 50.00% (58.18)%
---------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) ................ $26,207 $32,623 $42,327 $58,799 $109,256 $73,068
Ratios to average net assets:
Operating expenses .............................. 3.53%** 3.00% 2.38% 1.88% 2.07% 1.91%
Net investment loss ............................. (1.66)%** (1.41)% (0.71)% (0.86)% (1.02)% (0.68)%
Portfolio turnover .................................. 2.57% 3.04% 34.71% 14.37% 16.26% 23.10%
---------------------------------------------------------------------------------------------------------------------------
* 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
*** Not Annualized
See Accompanying Notes to Financial Statements
7
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2002 (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 management
investment 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 recent sales, at the mean between the 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
for which market values are not readily available 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 accrued
as earned; dividend income is recorded on the ex-dividend date.
Dividends and interest income are subject to withholding tax at various
rates not exceeding 25% and such tax is recorded at the time when the
related income is recorded.
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 six
months ended December 31, 2002, no U.S. Federal income or excise tax
provision was required.
The Fund has a capital loss carry forward in the amount of $48,194,629,
of which $466,990, $7,894,664, $8,691,344, $26,411,868 and $4,729,763
are available as a reduction of future net capital gains distributed
and expire in the years ended 2005, 2007, 2008, 2009 and 2010
respectively. It is uncertain whether the Fund will realize these
benefits before they expire.
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 per the
Philippine Dealing System at the valuation date; and
(II) purchases and sales of investment securities, income and expense
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 fluctuation 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.
8
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2002 (CONT'D) (UNAUDITED)
The change in unrealized appreciation/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. 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.
6. 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 investment in the 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 maintain 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 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, 2002, the
Investment Adviser earned $147,248 from the Fund, of which $42,069 was payable
to the Investment Adviser at December 31, 2002.
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 0.35% of the Fund's average weekly
net assets. For the six months ended December 31, 2002, the Investment Adviser
paid $51,537 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 0.15% 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, 2002, the Trustee earned fees of $75,617, of which $37,414 was
payable to the Trustee at December 31, 2002.
9
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2002 (CONT'D) (UNAUDITED)
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 0.10% of the Fund's average
weekly net assets, subject to a minimum annual fee of $124,800. For the six
months ended December 31, 2002, the Administrator earned fees of $62,913, of
which $20,857 was payable to the Administrator at December 31, 2002.
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. Directors'
fees payable at December 31, 2002 were $13,005, which were 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 9,832,800 shares outstanding at December 31, 2002,
the Investment Adviser owned 6,000 shares.
D. SHARE REPURCHASE PROGRAM
On May 4, 2001, the Fund commenced a share repurchase program for the
purpose of enhancing shareholder value and reducing the discount at which the
Fund's shares traded from their net asset value. From that date through December
31, 2002, the Fund repurchased 1,392,200 shares or 12.40% of its Common Stock at
an average price per share of $2.86 and an average discount of 10.81% from net
asset value per share. For the six months ended December 31, 2002, the Fund
repurchased 355,500 shares or 3.16% of its Common Stock at an average price per
share of $2.51 and an average discount of 11.83% from net asset value per share.
The Fund expects to continue to repurchase its outstanding shares at such time
and in such amounts as it believes will further the accomplishment of the
foregoing objectives subject to review by the Board of Directors.
E. PORTFOLIO ACTIVITY
Purchases and sales of securities, other than short-term obligations,
aggregated $725,546 and $1,186,492, respectively, for the six months ended
December 31, 2002.
F. OTHER
The Fund has obtained the approval of the Central Bank for the registration
and conversion into pesos of all proceeds of the Fund to be invested in the
Philippine securities markets, which 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, 2002, 98.2% 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.
10
REPORT OF THE FUND'S ANNUAL MEETING (UNAUDITED)
The Fund held its annual meeting on October 31, 2002. At the meeting, the
shareholders voted to elect three Class III directors for a three year term:
Lilia C. Clemente, Roberto de Ocampo and Joseph A. O'Hare, S.J. The shareholders
also voted to consider ratifying the selection of PricewaterhouseCoopers LLP as
the Fund's independent accountants for the year ending June 30, 2003; to
consider and act upon a proposal to liquidate all the assets of the Fund and
dissolve the Fund; and to transact such other business as may properly come
before the meeting or any adjournments thereof. The results of the voting were
as follows:
ABSTENTIONS
AND BROKER
FOR AGAINST WITHHELD NON-VOTES
---------------------------------------------------------------------------------------------------------------------------
Lilia C. Clemente 6,014,329 994,735
Roberto de Ocampo 6,070,740 938,324
Joseph A. O'Hare, S.J. 6,070,620 938,444
Ratification of PricewaterhouseCoopers LLP 6,352,720 558,067 98,276
Proposal to Liquidate and Dissolve the Fund 1,437,259 1,838,399 36,226
Approval to transact such business as may
properly come before the meeting 5,923,849 905,076 180,134
11
SUMMARY OF THE FUND'S DIVIDEND REINVESTMENT PLAN (UNAUDITED)
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 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. The Plan Agent will provide such confirmations to
banks, brokers or nominees which hold shares for others and who are certified 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 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.
12
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DIRECTORS AND OFFICERS
Lilia C. Clemente
DIRECTOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Leopoldo M. Clemente, Jr.
DIRECTOR, EXECUTIVE VICE PRESIDENT AND MANAGING DIRECTOR
Roberto de Ocampo
DIRECTOR
John Anthony B. Espiritu
DIRECTOR
Joseph A. O'Hare, S.J.
DIRECTOR
Stephen J. Solarz
DIRECTOR
Flor Gozon Tarriela
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.