UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5902
The First Philippine Fund, Inc.
--------------------------------------------------
(Exact name of registrant as specified in charter)
575 Madison Avenue
8th Floor
New York, NY 10022
---------------------------------------------------
(Address of principal executive offices) (Zip code)
Joaquin G. Hofilena
575 Madison Avenue
8th Floor
New York, NY 10022
--------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including areacode: 212-605-0486
Date of fiscal year end: June 30, 2003
Date of reporting period: June 30, 2003
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
Item 1. Reports to Stockholders.
July 30, 2003 Dear Shareholder:
For the past fourteen years, we have published reports on The First
Philippine Fund Inc. (the "Fund"). With the liquidation of the Fund, it is with
mixed emotions that we write this last report. The Fund has lived through a most
colorful period in Philippine history with major coup attempts, earthquakes,
typhoons, volcanoes, four Philippine presidents, the 1997 Asian financial
crisis, and the world's economic slowdown. The past four years have been tough
ones for investors, with world markets down significantly. Despite these
volatile events and dramatic market swings over the past fourteen years, the
Fund paid out $66 million in dividends and outperformed its benchmark, the
Philippine Composite Index, since the Fund's inception through June 30, 2003.
In a special shareholder meeting on June 11, 2003, the Fund's shareholders
approved the proposal to liquidate and dissolve the Fund. The Fund's Board of
Directors recommended this liquidation proposal in March. It concluded that,
given the Fund's small size, its high expense ratio, the poor liquidity and
trading volume on the Philippine stock market, a weaker Philippine peso from
year ago levels, and numerous uncertainties domestically and globally that
unfavorably affected short-term investor sentiment on the Philippines, the
Fund's liquidation was in the best interest of shareholders. On June 11, 2003,
50.69% of the Fund's total outstanding shares were voted in favor of
liquidation. A simple majority carried the vote as 55.59% of total shares were
voted earlier to approve an amendment to the Fund's Articles of Incorporation
providing for the approval of liquidation by a majority of the outstanding
shares of the Fund.
The Fund's shares were de-listed from the New York Stock Exchange on June
18, 2003. Since then, the Fund's portfolio has been fully liquidated.
On June 30, 2003, the Fund's audited net asset value ("NAV") per share stood
at $2.67. (This figure does not include the deduction of anticipated liquidation
expenses incurred after June 30, 2003.) Total net assets were just over $26.0
million. Over the Fund's 2003 fiscal year, the Fund's NAV depreciated by 16.56%.
Over the first half of 2003, the Fund's NAV performance was flat. The Fund's
share price closed at $2.60 on June 18, 2003, the last trading day of the Fund's
shares. From June 30, 2002 to June 18, 2003, the Fund's share price declined by
8.45%. However, for the calendar year through June 18, 2003, the Fund's share
price appreciated by 16.07%. The Fund's shares traded at a 1.72% discount to NAV
on its last trading day.
The Fund made its first distribution to shareholders on July 29, 2003 in the
amount of $2.52 per share or a total of $24,526,152. This amount represents
nearly 95% of the Fund's current net assets. The amount and date of a second
distribution has not been determined and will depend in part on the developments
in Walter S. Baer vs. The First Philippine Fund Inc. (Index No. 2002-122369), a
purported class action lawsuit filed against the Fund in New York state court.
The Fund believes the lawsuit is without merit and has continued to contest it.
The Fund has made a motion to dismiss the lawsuit. In a court hearing on July 7,
2003, the court indicated that such motion to dismiss would be granted. The Fund
is awaiting the court's written decision.
While the Fund will no longer exist, we continue to have belief and
confidence in the long-term prospects for the Philippine economy. To the
courage, determination and strength of purpose exhibited by its People Power
movements in 1986 and 2001, the country must now add the unity that will
translate self-interest into cohesion, consensus and the common good. This means
sustainable economic growth and a sense of nationhood that results in the
confident pursuit of national interests in a global context.
On behalf of the Fund's Board of Directors, we thank you for your interest
in the Philippines and support of The First Philippine Fund. Mabuhay!
Sincerely yours,
/S/SIGNATURE
Director, President & CEO
The First Philippine Fund Inc.
SCHEDULE OF INVESTMENTS
June 30, 2003
Number of Shares Value
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PHILIPPINE SECURITIES (2.6%)
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COMMON STOCK (2.6%)
Food and Beverage (0.0%)
FWBC Holdings (b)(c) 2,599,545 $ 0
0
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Telecommunications (2.6%)
Globe Telecommunications, Inc. 51,000 576,492
576,492
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TOTAL COMMON STOCK
(Cost $386,457) 576,492
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UNITED STATES SECURITIES (97.4%)
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CALL ACCOUNT (97.4%)
JPM Chase Overnight Deposit 21,751,941 21,751,941
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TOTAL UNITED STATES SECURITIES
(Cost $21,751,941) 21,751,941
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TOTAL INVESTMENTS (100%)(d)
(Cost $22,138,398) (a) $22,328,433
===========
(a) Aggregate cost for Federal income tax purposes is $22,138,398.
Aggregate gross unrealized appreciation for all securities is
as follows:
Excess of market value over tax cost $ 190,035
(b) At fair value as determined by the Board of Directors. =========
(c) Non-income producing security.
(d) Total Investments does not include Foreign Currency holdings
with a value of $3,923,505 and a cost of $3,909,591.
See Accompanying Notes to Financial Statements
2
The First Philippine Fund Inc.
STATEMENT OF ASSETS AND LIABILITIES June 30, 2003
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ASSETS
Investments at value (Cost $22,138,398) ....................................... $ 22,328,433
Foreign Currency value (Cost $3,909,591) ...................................... 3,923,505
Interest receivable ........................................................... 325
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TOTAL ASSETS .................................................................. 26,252,263
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LIABILITIES
Advisory fee payable .......................................................... 31,162
Accrued expenses payable ...................................................... 191,729
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TOTAL LIABILITIES ............................................................. 222,891
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NET ASSETS
(applicable to 9,732,600 common shares outstanding) ........................ $ 26,029,372
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NET ASSET VALUE PER SHARE
($26,029,372/9,732,600) .................................................... $ 2.67*
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Net Assets consist of:
Capital Stock Issued ....................................................... $ 112,250
Paid-in Capital ............................................................ 118,365,500
Cost of 1,492,400 shares held in treasury .................................. (4,368,658)
Accumulated net investment loss ............................................ (229,455)
Accumulated net realized loss on investments ............................... (88,054,214)
Net unrealized appreciation on investments and foreign currency holdings.... 203,949
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NET ASSETS .................................................................... $ 26,029,372
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For the
Year Ended
STATEMENT OF OPERATIONS June 30, 2003
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INVESTMENT INCOME
Dividends (net of taxes $113,817) .......................................... $ 353,201
Interest (net of taxes $1,850) ............................................. 115,899
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TOTAL INVESTMENT INCOME ....................................................... 469,100
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EXPENSES
Investment advisory fee .................................................... 277,122
Legal fee .................................................................. 348,875
Trustee fee ................................................................ 150,000
Administration fee ......................................................... 124,800
Custodian fee .............................................................. 88,707
Directors fee .............................................................. 45,432
Printing ................................................................... 31,190
NYSE Listing fee ........................................................... 26,914
Audit fee .................................................................. 17,000
Insurance .................................................................. 16,440
Transfer agent fee ......................................................... 6,949
Miscellaneous .............................................................. 132,664
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TOTAL EXPENSES ................................................................ 1,266,093
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NET INVESTMENT LOSS ........................................................... (796,993)
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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 .................................................... (37,643,465)
Foreign currency transactions ............................................ (234,701)
Net change in unrealized appreciation:
Investments .............................................................. 33,229,567
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Net realized and unrealized losses on investments, foreign currency holdings
and other assets and liabilities denominated in foreign currency ......... (4,648,599)
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NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS .......................... $ (5,445,592)
---------------------------------------------------------------------------------------------------------
* This figure does not include the deduction of anticipated liquidation expenses
incurred after June 30, 2003.
See Accompanying Notes to Financial Statements
3
The First Philippine Fund Inc.
For the For the
Year Ended Year Ended
STATEMENT OF CHANGES IN NET ASSETS June 30, 2003 June 30, 2002
---------------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS
Operations:
Net investment loss ..................................... $ (796,993) $ (514,599)
Net realized loss on security transactions .............. (37,643,465) (2,512,427)
Net realized gain (loss) on foreign currency transactions (234,701) 3,745
Net change in unrealized appreciation (depreciation)
on investments, foreign currency holdings and other
assets and liabilities denominated in foreign currency 33,229,567 (3,750,236)
---------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations ...... (5,445,592) (6,773,517)
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Capital share transactions:
Shares repurchased ...................................... (1,147,823) (2,930,465)
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Total decrease in net assets .............................. (6,593,415) (9,703,982)
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Net assets
Beginning of year ....................................... 32,622,787 42,326,769
---------------------------------------------------------------------------------------------------------------
End of year (including accumulated net investment loss of
$(229,455) and $0 respectively) ...................... $ 26,029,372 $ 32,622,787
---------------------------------------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements
4
The First Philippine Fund Inc.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each year)
For the Year Ended June 30,
-------------------------------------------------------------
2003 2002 2001 2000 1999
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PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year ............................ $ 3.20 $ 3.80 $ 5.24 $ 9.73 $ 6.51
----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss ........................................ (0.08) (0.05) (0.03) (0.06) (0.07)
Net realized and unrealized gains (losses) on investments,
foreign currency holdings and other assets and liabilities
denominated in foreign currencies ........................ (0.57) (0.65) (1.56) (4.43) 3.29
----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) from investment operations ............ (0.65) (0.70) (1.59) (4.49) 3.22
----------------------------------------------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year .................................. $ 2.67** $ 3.20 $ 3.80 $ 5.24 $ 9.73
----------------------------------------------------------------------------------------------------------------------------------
PER SHARE MARKET VALUE, END OF PERIOD ......................... $ 2.60 (1) $ 2.8 $ 3.19 $ 4.06 $ 8.63
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TOTAL INVESTMENT RETURN
Based on market value* ..................................... (8.45)% (10.97) (21.43)% (52.90)% 50.00%
----------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's) .......................... $26,029 $32,623 $42,327 $58,799 $109,256
Ratios to average net assets:
Operating expenses ....................................... 4.57% 3.00% 2.38% 1.88% 2.07%
Net investment loss ...................................... (2.88)% (1.41)% (0.71)% (0.86)% (1.02)%
Portfolio turnover ............................................ 3.22% 3.04% 34.71% 14.37% 16.26%
----------------------------------------------------------------------------------------------------------------------------------
* 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.
** This figure does not include the deduction of anticipated liquidation
expenses incurred after June 30, 2003.
1 The shares of The First Philippine
Fund Inc. were delisted from the New York Stock Exchange effective June 18,
2003.
See Accompanying Notes to Financial Statements
5
Notes to Financial Statements -- June 30, 2003
--------------------------------------------------------------------------------
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
accounting principles generally accepted in the United States of America,
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. 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 year
ended June 30, 2003, no U.S. Federal income or excise tax provision was
required. The Fund has a capital loss carry forward in the amount of
$50,985,563, of which $466,990, $7,894,664, $8,691,344, $26,411,868,
$4,729,763 and $ 2,790,934 are available as a reduction of future net
capital gains distributed and expire in the years ended 2005, 2007,
2008, 2009, 2010 and 2011 respectively. It is unlikely the Fund will
realize these benefits before they expire. Fund liquidation will result
in a loss of this benefit. 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, 2002 incurred and will elect to defer
net capital losses of $37,068,651 during the year ended June 30, 2003.
The tax character of net assets at June 30, 2003 was the same as the
book character.
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.
6
Notes to Financial Statements -- June 30, 2003 (cont'd)
--------------------------------------------------------------------------------
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.
As of June 30, 2003, 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. During the year ended June 30, 2003, the Fund decreased
accumulated net investment loss by $802,239 with an offsetting decrease
to paid-in-capital of $802,239. The Fund also increased accumulated net
investment loss by $234,701 with an offsetting decrease to accumulated
net realized loss on investments of $234,701. Net assets were not
affected by these changes.
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 year ended June 30, 2003, the Investment
Adviser earned $277,122 from the Fund, of which $31,162 was payable to the
Investment Adviser at June 30, 2003.
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 year ended June 30, 2003, the Investment Adviser paid
$92,283 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 year ended June 30,
2003, the Trustee earned fees of $150,000, of which $37,397 was payable to the
Trustee at June 30, 2003.
7
Notes to Financial Statements -- June 30, 2003 (cont'd)
--------------------------------------------------------------------------------
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 year
ended June 30, 2003, the Administrator earned fees of $124,800, of which $20,516
was payable to the Administrator at June 30, 2003.
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 June 30, 2003 were $5,000, 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 9,732,600 shares outstanding at June 30, 2003, 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 June 30,
2003, the Fund repurchased 1,492,400 shares or 13.30% of its Common Stock at an
average price per share of $2.80 and an average discount of 10.85% from net
asset value per share. For the year ended June 30, 2003, the Fund repurchased
455,700 shares or 4.06% of its Common Stock at an average price per share of
$2.45 and an average discount of 11.77% from net asset value per share.
E. Portfolio Activity
Purchases and sales of securities, other than short-term obligations,
aggregated $724,546 and $27,187,134, respectively, for the year ended June 30,
2003.
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 June 30, 2003, 2.2% of the net assets 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.
G. Subsequent Event
At the June 11, 2003 shareholder meeting, shareholders voted in favor of a
Plan of Liquidation of the Fund. The Fund will be liquidated at net asset value.
The first distribution, in the amount of $2.52 per share, or approximately 95%
of net assets, was made on July 29, 2003.
8
REPORT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
To the Board of Directors and Shareholders
of The First Philippine Fund Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The First Philippine Fund Inc. (the
"Fund") at June 30, 2003, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the five years in the period then
ended, in conformity with accounting principles generally accepted in the United
States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 2003 by
correspondence with the custodian and trustee, provide a reasonable basis for
our opinion.
As explained in Note G, the Fund's shareholders voted on June 11, 2003 in
favor of a plan of liquidation of the Fund.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
August 26, 2003
9
REPORT OF THE FUND'S SPECIAL SHAREHOLDER MEETING (Unaudited)
--------------------------------------------------------------------------------
The Fund held a special meeting on June 11, 2003. At the meeting, the
shareholders voted to amend the Articles of Incorporation to allow a simple
majority vote to approve liquidation and further voted to liquidate the Fund at
net asset value. The results of the voting were as follows:
Abstentions
and Broker
For Against Non-Votes
-----------------------------------------------------------------------------
Amend Articles of Incorporation 5,410,911 559,615 95,295
Approve Liquidation of Fund 4,934,347 1,106,003 25,471
10
The First Philippine Fund Inc.
FUND MANAGEMENT SUMMARY
DIRECTORS AND OFFICERS
Number of
Term of Portfolios
Office* Principal Occupation(s) in Fund
Name, (Age), Address and and Length During Past 5 Years Overseen by Complex
Position(s) with Company of Time Served And Other Directorships Held Director
------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED DIRECTORS
Roberto de Ocampo1 (57) Class III President, Asian Institute of Management, since September 1
Director 2005 1999; Chairman, Philand Group of Companies, since June
6760 SGV Building Since 1998 1999; Chairman, Prime East Properties, Inc., since June 1999;
Ayala Avenue Secretary of Finance, Republic of the Philippines, 1993 to
Makati City, January 1998; Director ABS-CBN Broadcasting Corp., Alaska
Metro Manila, Philippines Milk Corp., and PSi Technologies (a semiconductor
corporation).
------------------------------------------------------------------------------------------------------------------------------
John Anthony B. Espiritu (40) Class II Managing Director of SynEx Management Advisors, Inc., 1
Director 2004 Manila, Philippines, since March 2001; Chairman and
Ritz Tower Since 1998 President of EBECOM Holdings Co., Inc., Makati City,
Makati City Metro Manila, Philippines since May 1995; President and
Metro Manila, Philippines Chief Executive Officer of Westmont Bank, Manila,
Philippines from July 1998 to December 1999 and other
offices since 1994; President of Philippine Racing
Club, Inc.,
Manila, Philippines from June 1998 to February 2001;
Chairman/Executive Director, Western State Bank, Duarte,
California since May 1992.
------------------------------------------------------------------------------------------------------------------------------
Joseph A. O'Hare, S.J. (72) Class III President of Fordham University from 1984 to June 2003; 1
Director 2005 Chairman, New York City Campaign Finance Board since
Fordham University Since 1989 1988 (re-appointed in 1994 and 1999).
Bronx, NY 10458
------------------------------------------------------------------------------------------------------------------------------
Stephen J. Solarz (62) Class I Member, United States House of Representatives from 1975 1
Director 2003 to 1992; President, Solarz Associates (an international con-
1120 Bellview Road Since 1994 sulting firm) since 1992; Senior Counselor, Apco Associates
McLean, VA 22102 (a public affairs company) since 1995; Director of
Global Santa Fe (an oil drilling company) and Samsonite
Corp. (a luggage manufacturer).
------------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS
Florencia Gozon Tarriela (53)2 Class I Undersecretary of Finance and Alternate Member of the 1
Director 2003 Monetary Board, Bangko Sentral ng Pilipinas from 2000 to
PNB Financial Center Since 2002 January 2001; various positions culminating in Vice
Pres. Diosdado President and Deputy Country Corporate Officer of
Macapagal Blvd. Citibank, N.A. in the Philippines from 1972 to 2000;
Pasay City, Philippines Director, Philippine National Bank since 2002.
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11
The First Philippine Fund Inc.
FUND MANAGEMENT SUMMARY (cont'd)
DIRECTORS AND OFFICERS
Number of
Term of Portfolios
Office* Principal Occupation(s) in Fund
Name, (Age), Address and and Length During Past 5 Years Overseen by Complex
Position(s) with Company of Time Served And Other Directorships Held Director
--------------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS (continued)
Lilia C. Clemente1,2 (62) Class III Chairman and Chief Executive Officer of Clemente 1
Director, President and Chief 2005 Capital, Inc. since 1986; Director of Clemente Capital, Inc.
Executive Officer Since 1989
Clemente Capital, Inc.
575 Madison Avenue
New York, NY 10022
--------------------------------------------------------------------------------------------------------------------------------
Leopoldo M. Clemente, Jr.1,2 (65) Class II President and Chief Investment Officer of Clemente Capital, 1
Director, Executive Vice 2004 Inc. since 1987; President of Clemente Strategic Value Fund,
President and Managing Since 1989 Inc. from 1987 to 2001 and Cornerstone Strategic Return
Director Fund, Inc. from April 2000 to April 2001; Director of
Clemente Capital, Inc. Clemente Capital, Inc.
575 Madison Avenue
New York, NY 10022
--------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Santiago S. Cua, Jr. (50) Since 1998 Senior Executive Vice President of Philippine National Bank N/A
Executive Vice President and since July 1998; Senior Executive Vice President, Westmont
Managing Director Bank, Manila, Philippines from June 1994 to July 1998.
Philippine National Bank
Pres. Diosdado Macapagal Blvd.
Metro Manila, Philippines
--------------------------------------------------------------------------------------------------------------------------------
Joaquin G. Hofilena (36) Since 1996 Portfolio Manager and Investment Analyst of Clemente N/A
Vice President and Treasurer Capital, Inc. since April 1996.
Clemente Capital, Inc.
575 Madison Avenue
New York, NY 10022
--------------------------------------------------------------------------------------------------------------------------------
Imelda Singzon (52) Since 1998 Senior Vice President of Philippine National Bank since N/A
Vice President August 1994.
PNB Investments Limited
Pres. Diosdado Macapagal Blvd.
Metro Manila, Philippines
--------------------------------------------------------------------------------------------------------------------------------
* Board members are elected at the annual shareholder meeting and serve
three-year staggered terms; Class I expiring in 2003, Class II in 2004 and
Class III in 2005.
1 Lilia C. Clemente and Leopoldo M. Clemente, Jr. are wife and husband. Lilia
C. Clemente and Roberto de Ocampo are first cousins.
2 Mr. and Mrs. Clemente and Ms. Tarriela are deemed to be interested persons
because: (a) of their affiliation with the Fund's investment adviser,
Clemente Capital, Inc., the Fund's Philippine adviser, PNB Investments
Limited or Philippine National Bank; (b) they are officers of the Fund; or
(c) both (a) and (b).
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
Florencia 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
--------------------------------------------
575 Madison Avenue, New York, NY 10022
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 have been traded 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 have been 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 have been 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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
[OBJECT OMITTED]
Annual Report
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial Expert.
Not applicable.
Item 4. Principal Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
On March 27, 2003, the Fund's Board of Directors recommended the
liquidation of the Fund. On June 11, 2003, the Fund's shareholders approved
the proposal and the Fund commenced its plan of liquidation. As of June 30,
2003, the Fund held only two securities. Since then, the Fund has sold one
position and written off the other. On July 29, 2003, the Fund distributed
nearly 95% of its net assets to shareholders. The remaining net assets will
be held in cash until its final distribution to shareholders.
Item 8. [Reserved]
Item 9. Controls and Procedures.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of the report that includes the disclosure
required by this paragraph, based on their evaluation of these controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Exchange Act
(17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17
CFR 270.30a-3(d)) that occurred during the registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
Item 10. Exhibits.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 are attached hereto.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) The First Philippine Fund, Inc.
By (Signature and Title)* /s/ Lilia C. Clemente
--------------------------------------------
Lilia C. Clemente, Chief Executive Officer
(principal executive officer)
Date August 26, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Lilia C. Clemente
--------------------------------------------
Lilia C. Clemente, Chief Executive Officer
(principal executive officer)
Date August 26, 2003
By (Signature and Title)* /s/ Joaquin G. Hofilena
--------------------------------------------
Joaquin G. Hofilena, Chief Financial Officer
(principal financial officer)
Date September 2, 2003
* Print the name and title of each signing officer under his or her signature.