First
Financial
Fund
ANNUAL
REPORT
March 31, 2001
Letter To Shareholders May 7, 2001
Dear Fellow Shareholder:
Uncertainties abound. A new President, new tax cuts, unprecedented Fed cuts,
an unprecedented drop in Nasdaq stocks, a new "bear" market, last week a new
"bull" market -- it seems the more investors dwell on these complex, convoluted
(we say, inscrutable) issues, the more opportunities seem to arise in
individual stocks. That is one reason we did well last quarter. Another was
lower interest rates and our focus on the beneficiaries. Still another was
investors espousing value over growth and strong balance sheets over cash poor
ones. The proverbial bird in hand over the two in the bush is making a
comeback.
TOTAL RETURN
For The Periods Ended 3/31/01
6 Mos. 1 Year 3 Years 5 Years
First Financial Fund's NAV 21.8% 49.4% -2.9% 13.8%
S&P 500 -18.8 -21.7 3.0 14.2
NASDAQ Composite* -49.9 -59.8 0.1 10.8
NASDAQ Banks* 5.9 23.0 -5.3 12.3
SNL All Daily Thrift* 23.2 62.2 0.6 18.3
SNL MBS REITS 7.2 25.1 -15.7 3.1
SNL Mortgage Banks* 50.6 79.6 -14.1 -3.0
1Source: Prudential Investments Fund Management LLC. The Fund's total return
represents the change in net asset value from the beginning of the period noted
through March 31, 2001 and assumes the reinvestment of dividends and
distributions. Past performance is no guarantee of future results. Returns
based on market price performance of the Fund's shares would be different.
* Principal only.
Note: Returns for periods greater than one year are annualized.
Looking at the economy through the eyes of the financial sector, we see little
evidence of a "second half snapback." Quite the contrary. The growth of
problem credits has not slowed overall and in some categories has accelerated.
Distress in the large, levered corporate arena has begun to seep into the
middle market. On the consumer side, the credit card repayment rate has
recently begun to subside -- a pretty reliable indicator of an acceleration of
future charge-offs. Less equity cushion on home collateralized lending leaves
these loans and home prices vulnerable to a protracted period of layoffs.
Brokerage and investment banking depend heavily on the velocity of money. So,
while the institutional investor is still trading and merger activity is
strong, IPO's are few and far between and the retail investor has gone dormant.
Overall, the first quarter earnings of most portfolio holdings came in as
projected (in stark contrast to the results in technology and
telecommunications) but earnings quality declined.
1
On the positive side of the ledger, we are seeing mergers between financials
that, in general, promise greater odds of success for the surviving entity.
The days of huge premium deals based on fantasy cost savings and difficult
revenue synergies have come and gone. We trust the same fate awaits pooling
accounting this summer. Also positive for the incumbent financials is the end
of zero-cost financing for internet only distributors. The delivery of
financial services over the internet will continue to accelerate. But winning
over and securing the trust of the notoriously intransigent financial services
customer has been too costly for almost all internet only models to survive
We agree with the latest remarks of the master, Warren Buffet, that "the
long-term prospects for equities in general is far from exciting." This may
be the best single advertisement for a sound, disciplined approach to
investing over the next several years.
Sincerely,
Nicholas C. Adams
Portfolio Manager
Senior Vice President
Wellington Management Company, LLP
2
Portfolio of Investments as of March 31, 2001 FIRST FINANCIAL FUND, INC.
-------------------------------------------------------------------------------
Shares Description Value (Note 1)
------------------------------------------------------------
LONG-TERM INVESTMENTS--78.5%
COMMON STOCKS--78.3%
------------------------------------------------------------
Banks & Thrifts 48.7%
12,800 Abington Bancorp, Inc. $ 168,800
34,600 Algiers Bancorp, Inc. 311,400
145,300 American Financial Holdings, Inc.* 3,105,787
110,600 Astoria Financial Corp. 5,910,187
129,700 Bostonfed Bancorp, Inc. 3,009,040
89,640 Broadway Financial Corp. 806,760
225,500 Capital Crossing Bank* 4,425,437
86,600 CBES Bancorp, Inc. 1,044,613
142,538 CCF Holding Co. 1,710,456
101,900 Commerce Bancorp, Inc. 6,114,000
118,000 Commercial Bank New York 3,761,250
60,000 Community Bank San Jose
California(a) 1,591,200
155,500 Community Financial Corp. 2,196,438
408,700 Connecticut Bancshares Inc.* 8,531,612
195,000 Dime Bancorp, Inc. 45,703
2,000 Downey Financial Corp. 90,600
53,500 East West Bancorp, Inc. 1,029,875
25,000 Eldorado Bancshares, Inc. 300,000
202,900 Fidelity Federal Bancorp. 355,075
24,000 First Financial Corp. 330,000
227,750 First Republic Bank 5,010,500
313,500 FirstFed America Bancorp, Inc. 4,705,635
252,000 FirstFed Bancorp, Inc. 1,890,000
345,100 FirstFed Financial Corp. 9,662,800
199,000 Hawthorne Financial Corp.* 3,383,000
19,999 HFB Financial Corp. 227,489
19,500 Iberiabank Corp. 465,563
110,000 J.P. Morgan Chase & Co. 4,939,000
41,600 Lincoln Bancorp Indiana 553,800
25,000 M & T Bank Corp. 1,747,500
358,400 Metris Companies, Inc. 7,447,552
219,600 MetroCorp Bancshares, Inc. 2,401,875
224,000 North Valley Bancorp. 3,010,000
210,000 Northeast Pennsylvania Financial
Corp. 2,541,000
87,000 Old Kent Financial Corp. 3,306,000
134,100 Oregon Trail Financial Corp. 1,894,163
471,800 Pacific Century Financial Corp.* 8,964,200
102,900 Pacific Crest Capital, Inc. 1,826,475
34,600 Peoples Financial Corp. 207,600
165,930 Perpetual Federal Savings Bank 2,405,985
508,300 Port Financial Corp. $ 9,276,475
94,900 PrivateBankcorp, Inc.* 1,512,469
317,300 Provident Financial Holdings, Inc.* 6,762,456
40,650 Redwood Financial, Inc.* 315,037
45,000 River Valley Bancorp. 753,750
47,800 Rowan Bancorp, Inc.* 705,050
140,000 Southwest Bancorp, Inc. 3,220,000
32,500 St. Landry Financial Corp.* 227,500
21,100 Team Financial, Inc. 154,294
238,200 Thistle Group Holdings Co.* 2,337,337
7,276 Tri-County Bancorp, Inc. 90,950
199,600 Troy Financial Corp.* 3,068,850
118,000 UCBH Holdings, Inc. 5,745,125
184,900 Unionbancal Corp. 5,371,345
158,900 Woronoco Bancorp, Inc.* 2,462,933
------------
153,431,941
------------
------------------------------------------------------------
Other Financial Intermediaries--25.6%
210,000 American Physicians Capital, Inc. 3,832,500
271,100 Anthracite Capital, Inc. 2,616,115
574,200 Banner Central Finance Co. 407,682
7,700 Digital Insight Corp. 88,550
227,875 First Mortgage Corp.* 655,141
155,504 Fortress Investment Corp.(a) 2,021,552
286,702 Hanmi Financial Corp.* 4,891,854
272,590 Healthcare Financial Partners,
Inc.(a) 4,184,256
574,200 Hispanic Express, Inc. 407,682
35,000 Istar Financial, Inc. 807,450
74,200 Landamerica Financial Group, Inc. 2,640,036
808,800 LNR Property Corp. 22,929,480
1,074,000 Ocwen Financial Corp.* 9,118,260
310,600 Pacific Union Bank* 3,591,312
223,000 Rait Investment Trust 3,075,170
959,315 Resource America, Inc. 10,192,722
323,000 Silicon Valley Bancshares 7,590,500
73,900 Vista Bancorp, Inc. 1,653,512
------------
80,703,774
------------
--------------------------------------------------------------------------------
See Notes to Financial Statements. 3
Portfolio of Investments as of March 31, 2001 FIRST FINANCIAL FUND, INC.
-------------------------------------------------------------------------------
Shares Description Value (Note 1)
------------------------------------------------------------
Savings & Loan--4.0%
238,500 Citizens First Bancorp, Inc. $ 3,175,031
170,000 First Federal Bancshares, Inc. 2,433,125
184,400 Floridafirst Bancorp, Inc. 2,766,000
83,300 Ledger Capital Corp. 916,300
80,000 Quaker City Bancorp, Inc. 1,910,000
55,900 Richmond County Financial Corp. 1,642,063
------------
12,842,519
------------
Total common stocks
(cost $206,107,442) 246,978,234
------------
------------------------------------------------------------
Warrants*
109,036 Healthcare Financial Partners, Inc.
expiring December '01(a) 0
1 Golden State Bancorp, Inc.
expiring January '01 1
------------
Total warrants
(cost $0) 1
------------
Principal
Amount
(000)
------------------------------------------------------------
Convertible Bonds--0.2%
$1,000 Online Resources & Communications
Zero Coupon, 9/30/05 600,000
------------
Total long-term investments
(cost $207,107,442) 247,578,235
------------
SHORT-TERM INVESTMENTS--18.0%
Repurchase Agreement--18.0%
$56,701 Paribas Corp., 5.27%, dated 3/30/01,
due 4/2/01 in the amount of
$56,725,901 (cost $56,701,000;
collateralized by $51,507,000 U.S.
Treasury Notes 6.875%, due
5/15/06, value of collateral
including interest $58,002,420) $ 56,701,000
------------
------------------------------------------------------------
Certificates of Deposit
2 Brookline Savings,
6.00%, 5/27/01 1,507
22 First Federal Savings Bank,
4.00%, 4/14/01 22,034
22 Naugatuck Valley Savings & Loan
Assoc., 3.00%, 4/25/01 21,524
------------
Total certificates of deposit
(cost $45,065) 45,065
------------
Total short-term investments
(cost $56,746,065) 56,746,065
------------
------------------------------------------------------------
Total Investments--96.5%
(cost $263,853,507; Note 3) 304,324,300
Other assets in excess of
liabilities--3.5% 11,068,038
------------
Net Assets--100% $315,392,338
------------
------------
---------------
* Non-income-producing security.
(a) Indicates a fair valued security.
--------------------------------------------------------------------------------
See Notes to Financial Statements. 4
Statement of Assets and Liabilities FIRST FINANCIAL FUND, INC.
--------------------------------------------------------------------------------
Assets March 31, 2001
Investments, at value (cost $207,152,507).................................................................. $247,623,300
Repurchase agreement, at value (cost $56,701,000).......................................................... 56,701,000
Cash....................................................................................................... 379
Receivable for investments sold............................................................................ 13,659,240
Dividends and interest receivable.......................................................................... 346,665
Other assets............................................................................................... 177,045
--------------
Total assets............................................................................................ 318,507,629
--------------
Liabilities
Payable for investments purchased.......................................................................... 1,606,053
Advisory fee payable....................................................................................... 1,234,686
Accrued expenses........................................................................................... 128,526
Administration fee payable................................................................................. 116,369
Deferred directors' fees................................................................................... 29,657
--------------
Total liabilities....................................................................................... 3,115,291
--------------
Net Assets................................................................................................. $315,392,338
--------------
--------------
Net assets were comprised of:
Common stock, at par; 25,064,981 shares issued.......................................................... $ 25,065
Paid-in capital in excess of par........................................................................ 278,076,064
Cost of 540,294 shares held in treasury................................................................. (4,766,416)
--------------
273,334,713
Undistributed net investment income..................................................................... 2,060,597
Accumulated net realized losses......................................................................... (473,765)
Net unrealized appreciation on investments.............................................................. 40,470,793
--------------
Net assets, March 31, 2001.............................................................................. $315,392,338
--------------
--------------
Net asset value per share ($315,392,338 / 24,524,687 shares of common stock outstanding)................... $12.86
--------------
--------------
--------------------------------------------------------------------------------
See Notes to Financial Statements. 5
FIRST FINANCIAL FUND, INC.
Statement of Operations
------------------------------------------------------------
Year Ended
Net Investment Income March 31, 2001
Income
Dividends................................ $ 5,926,442
Interest................................. 2,977,539
--------------
Total income.......................... 8,903,981
--------------
Expenses
Investment advisory fee.................. 1,664,134
Administration fee....................... 384,392
Legal fees and expenses.................. 324,000
Reports to shareholders.................. 205,000
Custodian's fees and expenses............ 75,000
Transfer agent's fees and expenses....... 52,000
Listing fees............................. 43,000
Directors fees........................... 28,000
Audit fee................................ 22,000
Miscellaneous............................ 22,719
--------------
Total operating expenses.............. 2,820,245
Loan interest (Note 4)................... 2,649,461
--------------
Total expenses........................ 5,469,706
--------------
Net investment income....................... 3,434,275
--------------
Realized and Unrealized
Gain on Investments
Net realized gain on investment
transactions............................. 15,308,555
Net change in unrealized depreciation of
investments.............................. 85,599,520
--------------
Net gain on investments..................... 100,908,075
--------------
Net Increase in Net Assets
Resulting from Operations................... $104,342,350
--------------
--------------
FIRST FINANCIAL FUND, INC.
Statement of Cash Flows
------------------------------------------------------------
Year Ended
Increase (Decrease) in Cash March 31, 2001
Cash flows provided from operating activities
Dividends and interest received............ $ 8,839,836
Operating expenses paid.................... (2,300,193)
Loan interest paid......................... (2,412,022)
Purchases of short-term portfolio
investments............................. (36,966,659)
Purchases of long-term portfolio
investments............................. (212,003,594)
Proceeds from disposition of long-term
portfolio investments................... 293,516,291
Other assets............................... (61,675)
--------------
Net cash provided from operating
activities.............................. 48,611,984
--------------
Cash used for financing activities
Cash dividends paid........................ (2,462,878)
Cash used to reacquire Fund shares......... (1,148,855)
Repayment of loan.......................... (45,000,000)
--------------
Net cash used for financing activities..... (48,611,733)
--------------
Net increase in cash....................... 251
Cash at beginning of year.................. 128
--------------
Cash at end of year........................ $ 379
--------------
--------------
Reconciliation of Net Increase in Net Assets
to Net Cash Provided from Operating Activities
Net increase in net assets resulting from
operations................................. $ 104,342,350
--------------
Decrease in investments....................... 55,005,704
Net realized gain on investment
transactions............................... (15,308,555)
Net increase in unrealized appreciation
(depreciation) of investments.............. (85,599,520)
Increase in receivable for investments sold... (11,341,643)
Increase in dividends and interest
receivable................................. (64,145)
Increase in other assets...................... (61,675)
Increase in payable for investments
purchased.................................. 881,977
Increase in accrued expenses and other
liabilities................................ 757,491
--------------
Total adjustments....................... (55,730,366)
--------------
Net cash provided from operating activities... $ 48,611,984
--------------
--------------
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See Notes to Financial Statements. 6
FIRST FINANCIAL FUND, INC.
Statement of Changes in Net Assets
------------------------------------------------------------
Year Ended March 31,
Increase (Decrease) -------------------------------
in Net Assets 2001 2000
------------ -------------
Operations
Net investment income...... $ 3,434,275 $ 3,059,502
Net realized gain (loss) on
investment
transactions............ 15,308,555 (7,515,804)
Net change in unrealized
appreciation of
investments............. 85,599,520 2,825,134
------------ -------------
Net increase (decrease) in
net assets resulting
from operations......... 104,342,350 (1,631,168)
------------ -------------
Dividends and distributions (Note 1)
Dividends from net
investment income....... (2,462,878) (1,970,302)
Cost of Fund shares
reacquired.................... (1,148,855) (3,617,561)
------------ -------------
Total increase (decrease)..... 100,730,617 (7,219,031)
Net Assets
Beginning of year............. 214,661,721 221,880,752
------------ -------------
End of year(a)................ $315,392,338 $ 214,661,721
------------ -------------
------------ -------------
---------------
(a) Includes undistributed net
investment income of.......... $ 2,060,597 $ 1,089,200
------------ -------------
FIRST FINANCIAL FUND, INC.
Notes to Financial Statements
------------------------------------------------------------
First Financial Fund, Inc. (the 'Fund') was incorporated in Maryland on March 3,
1986, as a closed-end, diversified investment company. The Fund's primary
investment objective is to achieve long-term capital appreciation with the
secondary objective of current income by investing in securities issued by
savings and banking institutions, mortgage banking institutions and their
holding companies. The ability of issuers of debt securities held by the Fund to
meet their obligations may be affected by economic developments in a specific
industry or region.
------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Securities Valuation: Securities for which market quotations are readily
available--including securities listed on national securities exchanges and
those traded over-the-counter--are valued at the last quoted sales price on the
valuation date on which the security is traded. If such securities were not
traded on the valuation date, but market quotations are readily available, they
are valued at the most recently quoted bid price provided by an independent
pricing service or by principal market makers. Securities for which market
quotations are not readily available will be valued at fair value as determined
in good faith by or under the direction of the Board of Directors of the Fund.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
Repurchase Agreement: All securities are valued as of 4:15 p.m., New York time.
In connection with repurchase agreement transactions with financial
institutions, it is the Fund's policy that its custodian take possession of the
underlying collateral securities, the value of which exceeds the principal
amount of the repurchase transaction, including accrued interest. To the extent
that any repurchase transaction exceed one business day, the value of the
collateral is marked-to-market on a daily basis to ensure the adequacy of
collateral. If the seller defaults, and 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.
Cash Flow Information: The Fund invests in securities and pays dividends from
net investment income and distributions from net realized gains which are paid
in cash or are reinvested at the discretion of shareholders.
--------------------------------------------------------------------------------
7
Notes to Financial Statements FIRST FINANCIAL FUND, INC.
--------------------------------------------------------------------------------
These activities are reported in the Statement of Changes in Net Assets and
additional information on cash receipts and cash payments is presented in the
Statement of Cash Flows. Accounting practices that do not affect reporting
activities on a cash basis include carrying investments at value and amortizing
discounts on debt obligations.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains or losses on sales of securities are
calculated on the identified cost basis. Dividend income is recorded on the
ex-dividend date; interest income is recorded on the accrual basis. Expenses are
recorded on the accrual basis, which may require the use of certain estimates by
management.
Federal Income Taxes: It is the Fund's intention to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to shareholders.
Therefore, no federal income tax provision is required.
Dividends and Distributions: The Fund expects to declare and pay dividends from
net investment income and any net capital gains if any, annually. Dividends and
distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for wash
sales.
------------------------------------------------------------
Note 2. Agreements
The Fund has agreements with Wellington Management Company, LLP (the 'Investment
Adviser') and with Prudential Investments Fund Management LLC (the
'Administrator'). The Investment Adviser makes investment decisions on behalf of
the Fund; the Administrator provides occupancy and certain clerical and
accounting services to the Fund. The Fund bears all other costs and expenses.
The investment advisory agreement provides for the Investment Adviser to receive
a fee, computed monthly and payable quarterly, at the following annual rates:
.75% of the Fund's average month-end net assets up to and including $50 million,
and .625% of such assets in excess of $50 million. The administration agreement
provides for the Administrator to receive a fee, computed monthly and payable
quarterly, at the annual rate of .15% of the Fund's average month-end net
assets.
Note 3. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended March 31, 2001 were $212,885,571 and $304,857,932,
respectively.
The cost basis of the Fund's investments for federal income tax purposes,
including short-term investments, at March 31, 2001 was $265,143,840; and,
accordingly, net unrealized appreciation for federal income tax purposes was
$39,180,460 (gross unrealized appreciation--$53,456,987; gross unrealized
depreciation--$14,276,527).
For federal income tax purposes, the Fund utilized capital loss carryforward as
of March 31, 2001 of approximately $6,483,800. Accordingly, no capital gains
distributions are expected to be paid to shareholders until net gains have been
realized in excess of such carryforward. The Fund will elect to treat net
capital losses of approximately $6,703,000 incurred in the five month period
ended March 31, 2000 as having occurred in the current fiscal year.
------------------------------------------------------------
Note 4. Borrowings
The Fund has a credit agreement (the 'Agreement') with an unaffiliated lender.
The maximum commitment under the Agreement is $45,000,000. These borrowings may
be set to any desired maturity at a rate of interest determined by the lender at
the time of borrowing. The credit agreement expires on April 30, 2001. However,
the credit agreement was renewed prior to its expiration date under the same
terms. The expiration date of the renewed credit agreement is April 29, 2002.
While outstanding, the borrowings will bear interest, payable monthly. During
the period while the loan was outstanding, the average daily balance outstanding
for the year ended March 31, 2001 was $45,000,000 at a weighted average interest
rate of 6.89%. The highest face amount of borrowing outstanding at any month-end
during the year ended March 31, 2001 was $45,000,000. The Fund did not have a
loan balance at March 31, 2001.
------------------------------------------------------------
Note 5. Capital
There are 50 million shares of $.001 par value common stock authorized. Of the
25,064,981 shares issued as of March 31, 2001, the Investment Adviser owned
10,994 shares. During the year ended March 31, 2001, the Fund repurchased
104,094 of its own shares at a weighted average discount of 15.2%. During the
fiscal year ended March 31, 2000, the Fund issued 436,200 shares in connection
with a cash distribution paid in stock.
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8
Financial Highlights FIRST FINANCIAL FUND, INC.
--------------------------------------------------------------------------------
Year Ended March 31,
------------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........................... $ 8.72 $ 8.85 $ 18.94 $ 15.26 $ 13.71
-------- -------- -------- -------- --------
Income from investment operations
Net investment income........................................ .14 .12 .11 .14 .22
Net realized and unrealized gain (loss) on investments....... 4.09 (.20) (7.20) 6.84 4.84
-------- -------- -------- -------- --------
Total from investment operations.......................... 4.23 (.08) (7.09) 6.98 5.06
-------- -------- -------- -------- --------
Less dividends and distributions
Dividends from net investment income......................... (.10) (.08) (.05) (.14) (.21)
Distributions from net realized gains........................ -- -- (2.59) (2.68) (3.36)
Distributions in excess of net realized gains................ -- -- (.45) (.63) --
-------- -------- -------- -------- --------
Total dividends and distributions......................... (.10) (.08) (3.09) (3.45) (3.57)
-------- -------- -------- -------- --------
Increase resulting from Fund share repurchase................ .01 .03 -- -- .06
Net change resulting from the issuance of Fund shares........ -- -- .09 .15 --
-------- -------- -------- -------- --------
Net asset value, end of year(a).............................. $ 12.86 $ 8.72 $ 8.85 $ 18.94 $ 15.26
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Market price per share, end of year(a)....................... $ 11.29 $ 7.8125 $ 7.3125 $ 20.813 $ 14.500
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN(b):.................................. 49.40% 7.93% (53.65)% 72.59% 42.10%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................................ $315,392 $214,662 $221,881 $387,852 $270,496
Average net assets (000)..................................... $258,156 $230,163 $296,740 $320,484 $238,967
Ratios to average net assets:
Expenses, before loan interest, commitment fees and
nonrecurring expenses.................................. 1.09% 1.06% .94% .91% 1.03%
Total expenses............................................ 2.12% 2.20% 1.61% 1.25% 1.56%
Net investment income..................................... 1.33% 1.33% .91% .82% 1.43%
Portfolio turnover rate...................................... 85% 63% 65% 43% 70%
Total debt outstanding at end of year (000 omitted).......... $ -- $ 45,000 $ 45,000 $ 20,000 $ 18,400
Asset coverage per $1,000 of debt outstanding................ $ -- $ 5,768 $ 5,931 $ 20,393 $ 15,701
---------------
(a) NAV and market value are published in The Wall Street Journal each Monday.
(b) Total investment return is calculated assuming a purchase of common stock at
the current market value on the first day and a sale at the current market
value on the last day of each year reported. Dividends and distributions are
assumed for purposes of this calculation to be reinvested at prices obtained
under the dividend reinvestment plan. This calculation does not reflect
brokerage commissions.
Contained above is selected data for a share of common stock outstanding, total
investment return, ratios to average net assets and other supplemental data for
the year indicated. This information has been determined based upon information
provided in the financial statements and market price data for the Fund's
shares.
--------------------------------------------------------------------------------
See Notes to Financial Statements. 9
Report of Independent Accountants FIRST FINANCIAL FUND, INC.
--------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
First Financial Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations, of cash
flows and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of First Financial Fund, Inc.
(the 'Fund') at March 31, 2001, the results of its operations and its cash flows
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 March
31, 2001 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
May 22, 2001
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10
Tax Information (Unaudited) FIRST FINANCIAL FUND, INC.
--------------------------------------------------------------------------------
We are required by the Internal Revenue Code to advise you within 60 days of the
Fund's fiscal year end (March 31, 2001) as to the federal tax status of
dividends and distributions paid by the Fund during such fiscal year.
Accordingly, we are advising you that during the fiscal year ended March 31,
2001, the Fund paid dividends of $.10 per share, which are taxable as ordinary
income. Further, we wish to advise you that 100% of the dividends taxable as
ordinary income and paid in the fiscal year ended March 31, 2001 qualified for
the corporate dividend received deduction available to corporate taxpayers.
In January 2002, shareholders will receive a Form 1099-DIV or substitute Form
1099-DIV which reflects the amount of dividends to be used by calendar year
taxpayers on their 2001 federal income tax returns. Shareholders are advised to
consult their own tax advisers with respect to the tax consequences of their
investment in the Fund.
Other Information FIRST FINANCIAL FUND, INC.
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Dividend Reinvestment Plan. Shareholders may elect to have all distributions of
dividends and capital gains automatically reinvested in Fund shares (Shares)
pursuant to the Fund's Dividend Reinvestment Plan (the Plan.) Shareholders who
do not participate in the Plan will normally receive all distributions in cash
paid by check in United States dollars mailed directly to the shareholders of
record (or if the shares are held in streetname or other nominee name, then to
the nominee) by the custodian, as dividend disbursing agent, unless the Fund
declares a distribution payable in shares, absent a shareholder's specific
election to receive cash. Shareholders who wish to participate in the Plan
should contact the Fund at (800) 451-6788.
State Street Bank and Trust Co. (the Plan Agent) serves as agent for the
shareholders in administering the Plan. After the Fund declares a dividend or a
capital gains distribution, if (1) the market price is lower than net asset
value, the participants in the Plan will receive the equivalent in Shares valued
at the market price determined as of the time of purchase (generally, following
the payment date of the dividend or distribution); or if (2) the market price of
Shares on the payment date of the dividend or distribution is equal to or
exceeds their net asset value, participants will be issued Shares at the higher
of net asset value or 95% of the market price. If the Fund declares a dividend
or other distribution payable only in cash and the net asset value exceeds the
market price of Shares on the valuation date, the Plan Agent will, as agent for
the participants, receive the cash payment and use it to buy Shares in the open
market. If, before the Plan Agent has completed its purchases, the market price
exceeds the net asset value per share, the Plan Agent will halt open-market
purchases of the Fund's shares for this purpose, and will request that the Fund
pay the remainder, if any, in the form of newly-issued shares. The Fund will not
issue Shares under the Plan below net asset value.
There is no charge to participants for reinvesting dividends or capital gain
distributions, except for certain brokerage commissions, as described below. The
Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Fund. There will be no brokerage commissions
charged with respect to shares issued directly by the Fund. However, each
participant will pay 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 and distributions. The automatic reinvestment of
dividends and distributions will not relieve participants of any federal income
tax that may be payable on such dividends or distributions.
The Fund reserves the right to amend or terminate the Plan upon 90 days' written
notice to shareholders of the Fund.
Participants in the Plan may withdraw from the Plan upon written notice to the
Plan Agent or by telephone in accordance with specific procedures and will
receive certificates for whole Shares and cash for fractional Shares.
All correspondence concerning the Plan should be directed to the Plan Agent,
State Street Bank & Trust Company, P.O. Box 8200, Boston, MA 02266-8200.
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Directors
Eugene C. Dorsey
Robert E. LaBlanc
Douglas H. McCorkindale
Thomas T. Mooney
Clay T. Whitehead
Investment Adviser
Wellington Management Company, LLP
75 State Street
Boston, MA 02109
Administrator
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian and Transfer Agent
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase, from time to time, shares of
its common stock at market prices.
The views expressed in this report and the information about the Fund's
portfolio holdings are for the period covered by this report and are subject
to change thereafter.
This report is for stockholder information. This is not a prospectus intended
for use in the purchase or sale of Fund shares.
First Financial Fund, Inc.
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
For information call toll-free (800) 451-6788
320228109