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 811-4605
---------------------
FIRST FINANCIAL FUND, INC.
-------------------------------------------------------------
(Exact name of registrant as specified in charter)
1680 38th Street, Suite 800
BOULDER, CO 80301
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(Address of principal executive offices) (Zip code)
Stephen C. Miller, Esq.
1680 38th Street, Suite 800
BOULDER, CO 80301
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(Name and address of agent for service)
Registrant's telephone number, including area code: 303-444-5483
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Date of fiscal year end: March 31, 2004
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Date of reporting period: September 30, 2003
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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.
LETTER FROM THE CHAIRMAN NOVEMBER 11, 2003
FELLOW SHAREHOLDERS:
As the new Chairman of the Board of First Financial Fund, Inc., I would like to
take this opportunity to introduce myself and communicate with fellow
shareholders. As you are aware, at the recent annual shareholder meeting held in
August, shareholders replaced four of the Fund's five directors. Since then, we
have received a few calls from our shareholders asking whether the Board is
contemplating changing the adviser.
Nothing could be further from the truth! Speaking for the entire Board, I want
to emphasize that we are very pleased with the Fund's adviser, Wellington
Management Company, LLP, and more specifically with Nick Adams, the Fund's
portfolio manager. Wellington Management and Nick will continue in the same
roles they have since the inception of the Fund.
I also want to emphasize that the new Board intends to support Wellington
Management and Mr. Adams in ways they feel will benefit the Fund. In this
regard, after consultation with Wellington Management, the Board adopted a
resolution permitting the Fund to invest in foreign securities without
limitation. The resolution expands the universe of financial services companies
available for investment, many of which in recent years have non-U.S. parent
companies or which themselves are organized outside the U.S.
One other change has occurred. The Fund's prior administrator, Prudential
Investment LLC, was replaced with Fund Administrative Services, LLC, under
substantially similar terms until the Board has had time to consider a formal
proposal for enhanced administrative services.
The Board is impressed with the outstanding performance of the Fund in the past
few years and we look forward to a continued successful relationship with
Wellington Management and Mr. Adams. Thank you for your support of the Fund. We
remain committed to providing a quality investment fund to you, our
shareholders.
Sincerely,
/S/ Joel Looney
Joel Looney
Chairman of the Board
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1
LETTER FROM THE ADVISER NOVEMBER 11, 2003
DEAR SHAREHOLDERS:
Few readers appreciate a preachy portfolio manager. Nor should they. Watch out
when our urge to demonstrate understanding of the way the world works begets
precise and concrete conclusions as to what stocks should and shouldn't populate
your portfolio. The former is inscrutable enough without muddying the waters by
turning it into a stock picking exercise. To wit, all (ourselves included) who
have wrung their hands over consumer, corporate and public debt levels, trade
deficits, a jobless recovery and terrorism have missed a small monster of a move
in most stocks, made all the more annoying by the stingy returns of money
sitting in cash.
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TOTAL RETURN
FOR THE PERIODS ENDED 9/30/03
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6 MOS. 1 YEAR 3 YEARS 5 YEARS
FIRST FINANCIAL FUND'S NAV 26.4% 39.0% 33.0% 20.4%
S&P 500 18.4 24.4 -10.1 1.0
NASDAQ Composite* 33.4 52.7 -21.3 1.1
NASDAQ Banks* 19.0 17.8 13.4 8.4
SNL All Daily* 21.4 35.2 22.8 15.4
SNL MBS REITS* 26.5 40.2 36.3 10.8
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* Principal Only
And maybe that is the point worth noting. In response to 9/11, the Fed and the
federal government created a sea of liquidity and easier credit. As it became
clearer to investors that prognostication of crashes, deflation and changes in
the world order were a bit premature, that sea made its way back to the stock
pond. Given the rapid pickup in margin debt, bulletin board trading and, of
late, IPOs and secondary offerings, the flow was not a trickle but a torrent.
What good is a 1% yield in a money market account when the stock averages this
year have produced from 17% to 40+% returns?
Switching to the smaller world of financial services, we harbor a number of
concerns. First, and perhaps most troubling, is the greater dependency of banks
borrowing short and lending long. This mismatch is generally accompanied with
more leverage as well, built on the thesis that the Fed will not raise
short-term interest rates for the "foreseeable future." Indeed, both longer
duration and greater leverage is required to match the high-teen ROE's many
banks, thrifts and mortgage REIT's have promised their investors. There will be
wailing and grinding of teeth if the "foreseeable future" is sooner rather than
later. Second, we know that higher interest rates are a negative for certain
financial institutions
--------------------------------------------------------------------------------
2
dependent on the velocity of real estate transactions. Could a higher rate
scenario also severely impact real estate values? The latter would have broad
and potentially far more destructive impact on financial institutions. Finally,
merger activity has heated up again. Driven by speculative frenzy, the stocks of
many "target" institutions have soared. However, not all will be acquired and
the integration process of those that do get bought rarely runs smoothly.
For the Fund, all subsectors and, indeed, most of our holdings contributed
positively to overall performance. Two positions deserve special mention.
Countrywide Financial, a mortgage banker, benefited both from the Fed's easing
and its own efforts to more fully and vertically integrate the mortgage process.
Hudson City, a mutual holding company, received recognition for its tight
control of expenses, successful capital management and the potential for full
conversion from mutual to stock ownership. In both cases, a comprehensive
understanding of what made each company special helped us identify an attractive
investment.
Increasingly, though still in small bites, we are finding compelling
opportunities in financial institutions outside the U.S. The new property
casualty insurers, based mostly in Bermuda, offer a way to participate in the
hard market while avoiding the "legacy" issues still plaguing the older players.
We have also found value in banks in both Canada and Asia. Most of these
institutions have the liquidity and the balance sheet to grow earnings smartly
should the world economy accelerate, while offering a margin of safety if the
world proves more punk. Given our less sanguine view of the dollar, we can live
with the currency risk.
As always, we are grateful for your trust in us.
Sincerely,
/S/ Nicholas C. Adams
Nicholas C. Adams
--------------------------------------------------------------------------------
3
Portfolio of Investments as of September 30, 2003
(Unaudited) First Financial Fund, Inc.
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Shares Description Value (Note 1)
------------------------------------------------------------------------
LONG-TERM INVESTMENTS--91.7%
COMMON STOCKS-DOMESTIC--84.1%
------------------------------------------------------------------------
BANKS & THRIFTS--43.4%
12,800 Abington Bancorp, Inc. $ 407,936
538,450 Bay View Capital Corporation 3,268,392
60,900 BostonFed Bancorp, Inc. 1,842,225
129,280 Broadway Financial Corporation 1,784,064
152,685 CB Bancshares, Inc. 9,352,109
213,807 CCF Holding Company 4,637,474
154,100 City National Corporation 7,852,936
96,500 Commerce Bancorp, Inc. 4,623,315
60,000 Community Bank San Jose
California (a)(b) 2,571,000
195,000 Dime Bancorp, Inc.* 31,200
233,800 Downey Financial Corporation 10,925,474
413,565 Fidelity Federal Bancorp.* 636,890
20,199 First Citizens BancShares, Inc.,
Class A 2,135,034
111,000 First Community Bancorp, Inc. (a) 3,717,390
173,900 First Federal Bancshares, Inc. 5,479,589
239,550 First Republic Bank 7,385,327
378,700 FirstFed America Bancorp, Inc. 8,369,270
252,000 FirstFed Bancorp, Inc. 2,046,240
71,468 FNB Corporation 1,783,127
325,100 Franklin Bank Corporation 3,901,200
30,000 Hanmi Financial Corporation 598,200
286,400 Hawthorne Financial Corporation* 11,501,824
19,999 HFB Financial Corporation 399,980
204,600 Hibernia Corporation, Class A 4,145,196
79,300 IBERIABANK Corporation 4,172,766
219,600 MetroCorp Bancshares, Inc. 2,755,980
336,000 North Valley Bancorp 5,191,200
116,500 Northeast Pennsylvania Financial
Corporation 2,038,750
136,200 Pacific Crest Capital, Inc. 2,891,390
380,059 Pacific Union Bank 7,050,094
165,930 Perpetual Federal Savings Bank 3,733,425
308,750 Provident Financial Holdings, Inc. 9,268,675
40,650 Redwood Financial, Inc.* 701,212
45,000 River Valley Bancorp 1,811,700
420,000 Southwest Bancorp, Inc. 7,077,000
32,500 St. Landry Financial Corporation(a)(d)*
(12/01/98-cost $471,413) 422,500
100,000 Sterling Eagle (a) (b) 1,000,000
335,542 Taylor Capital Group, Inc. 7,744,309
21,100 Team Financial, Inc. 236,531
35,000 TriCo Bancshares 1,001,000
Shares Description Value (Note 1)
------------------------------------------------------------------------
BANKS & THRIFTS--(CONTINUED)
43,000 UMB Financial Corporation $ 2,028,310
320,400 UnionBanCal Corporation 15,891,840
36,750 Westbank Corporation 658,928
172,000 Woronoco Bancorp, Inc. 4,816,000
------------
179,887,002
------------
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MORTGAGE & REITS--15.4%
400,000 American Financial Realty Trust;
REIT 5,640,000
77,000 Arbor Realty Trust, Inc.(a)(c); REIT 5,775,000
306,100 Countrywide Financial Corporation 23,961,508
228,300 Freddie Mac 11,951,505
219,738 iStar Financial, Inc.; REIT 8,558,795
45,500 INMC Mortgage Holdings, Inc. 1,054,235
272,590 Medical Office Properties, Inc., (a)(c);
REIT 2,447,858
155,504 Newcastle Investment Corporation;
REIT 3,575,037
155,504 Newcastle Investment Holdings;
Corporation (a)(b); REIT 758,082
------------
63,722,020
------------
------------------------------------------------------------------------
SAVINGS & LOANS--12.0%
24,400 Charter Financial Corporation 752,740
71,800 Chesterfield Financial Corporation 1,616,218
238,500 Citizens First Bancorp, Inc. 4,936,950
24,000 First PacTrust Bancorp, Inc. 493,200
221,600 FloridaFirst Bancorp, Inc. 5,830,296
97,500 Golden West Financial Corporation 8,727,225
90,000 HMN Financial, Inc. 1,935,000
533,900 Hudson City Bancorp, Inc. 16,465,476
33,100 Jefferson Bancshares, Inc. 473,330
439,200 Ocwen Financial Corporation* 1,998,360
295,600 Ohio Casualty Corporation* 4,286,200
94,800 Parkvale Financial Corporation 2,393,700
------------
49,908,695
------------
------------------------------------------------------------------------
INSURANCE--10.5%
16,500 Axis Capital Holdings Ltd. 411,675
275,300 Ceres Group, Inc.* 1,029,200
1,037,100 Meadowbrook Insurance Group, Inc.* 4,283,223
220,100 Penn-America Group, Inc. 3,297,098
276,700 Platinum Underwriters Holdings, Ltd. 7,775,270
388,500 Safety Insurance Group, Inc. 6,029,520
131,400 Travelers Property Casualty
Corporation, Class A 2,086,632
--------------------------------------------------------------------------------
See Notes to Financial Statements. 4
Portfolio of Investments as of September 30, 2003
(Unaudited) First Financial Fund, Inc.
--------------------------------------------------------------------------------
Shares Description Value (Note 1)
------------------------------------------------------------------------
INSURANCE--(CONTINUED)
55,300 XL Capital Ltd., Class A $ 4,282,432
36,300 White Mountains Insurance
Group, Ltd. 14,412,189
------------
43,607,239
------------
------------------------------------------------------------------------
OTHER--2.8%
1 Citigroup, Inc. 1
959,315 Resource America, Inc., Class A 11,396,662
------------
11,396,663
------------
Total common stocks - domestic
(cost $235,941,326) 348,521,619
------------
------------------------------------------------------------------------
COMMON STOCKS-FOREIGN--4.7%
------------------------------------------------------------------------
BERMUDA--3.4%
285,700 IPC Holdings Ltd., ADR 9,999,500
410,200 Quanta Capital Holdings Ltd. (a)(c) 4,102,000
------------
14,101,500
------------
------------------------------------------------------------------------
SOUTH KOREA--0.8%
338,237 Koram Bank, GDR 3,234,899
------------
------------------------------------------------------------------------
CANADA--0.5%
88,000 Canadian Western Bank 2,282,394
Total common stocks - foreign
(cost $17,120,452) 19,618,793
------------
------------------------------------------------------------------------
PREFERRED STOCKS--2.5%
62,350 Capital One Financial Corporation,
6.25% 2,831,937
270,365 Taylor Capital Trust, 9.75% 7,599,960
------------
Total preferred stocks
(cost $8,976,115) 10,431,897
------------
CONVERTIBLE BONDS--0.4%
1,000 Online Resources Communications,
8.00%, 9/30/05
(cost $1,000,000) 1,745,000
------------
Total long-term investments
(cost $263,037,893) 380,317,309
------------
Principal
Amount
(000) Description Value (Note 1)
------------------------------------------------------------------------
SHORT TERM INVESTMENTS--8.3%
------------------------------------------------------------------------
REPURCHASE AGREEMENTS--8.2%
$ 4,100 Agreement with ABN Tri-Party,
1.08%, dated 9/30/03, to be
repurchased at $4,100,123 on 10/01/03,
collateralized by $4,182,000 market
value of a U.S. Treasury Bond, 6.50%,
due 5/1/17 $ 4,100,000
30,100 Agreement with Gold Tri-Party,
1.10%, dated 9/30/03, to be
repurchased at $30,100,920 on 10/01/03,
collateralized by $30,702,000 market
value of a U.S. Treasury Bond, 5.00%,
due 10/1/33 30,100,000
------------
34,200,000
------------
------------------------------------------------------------------------
CERTIFICATE OF DEPOSITS--0.0%**
(cost $23,629)
24 First Federal Savings Bank
1.50%, 10/14/03 23,629
------------
Total short-term investments
(cost $34,223,629) 34,223,629
------------
------------------------------------------------------------------------
TOTAL INVESTMENTS--100%
(cost $297,261,522) 414,540,938
Liabilities in excess of
other assets-0.0% 156,614
------------
Net Assets--100% $414,697,552
============
------------
* Non-income producing security.
** Amount represents less than 0.1% of net assets.
(a) Indicates a fair valued security.
(b) Private Placement restricted as to resale and does not have a readily
available market. Date represents acquisition date.
(c) Security exempt from registration pursuant to Rule 144A under the
Securities Act of 1933, as amended.
(d) The security has been determined by the Manager to be an illiquid security
because it is restricted or because there is exceptionally low trading
volume in the primary trading market for the security at September 30,
2003.
ADR--American Depository Receipt.
GDR--Global Depository Receipt.
REIT--Real Estate Investment Trust.
--------------------------------------------------------------------------------
See Notes to Financial Statements. 5
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) FIRST FINANCIAL FUND, INC.
--------------------------------------------------------------------------------
SEPTEMBER 30, 2003
ASSETS --------------------
Investments, at value (Cost $297,261,522) (Note 1)
See accompanying schedule .............................................................. $ 414,540,938
Cash ................................................................................... 76,270
Dividends and interest receivable ...................................................... 478,054
Prepaid expenses and other assets ...................................................... 244,139
-------------
Total Assets ........................................................................ 415,339,401
-------------
LIABILITIES
Investment advisory fee payable (Note 2) ............................................... 315,009
Administration and Co-administration fees payable (Note 2) ............................. 213,185
Audit fees and expenses payable ........................................................ 16,225
Directors' fees and expenses payable (Note 2) .......................................... 8,250
Accrued expenses and other payables .................................................... 89,180
-------------
Total liabilities ................................................................... 641,849
-------------
NET ASSETS ............................................................................. $ 414,697,552
=============
Net assets consist of:
Undistributed net investment income ................................................. $ 3,481,773
Accumulated net realized gain on investments sold ................................... 44,413,543
Unrealized appreciation of investments .............................................. 117,279,416
Par value of Common Stock ........................................................... 22,791
Paid-in capital in excess of par value of Common Stock .............................. 249,500,029
-------------
Total Net Assets .................................................................... $ 414,697,552
=============
Net Asset Value, ($414,697,552 (DIVIDE) 22,791,382 shares of common stock outstanding).. $18.20
=============
--------------------------------------------------------------------------------
See Notes to Financial Statements. 6
FIRST FINANCIAL FUND, INC.
STATEMENT OF OPERATIONS (UNAUDITED)
--------------------------------------------------------------------------------
Six Months
Ended
NET INVESTMENT INCOME September 30, 2003
--------------------
Income
Dividends ............................. $ 3,803,066
Interest .............................. 330,456
--------------
Total Investment Income ......... 4,133,522
--------------
Expenses
Investment advisory fee (Note 2) ...... 1,268,903
Legal fees ............................ 450,978
Administration and
co-administration fees (Note 2) .... 187,931
Custodian's fees ...................... 70,318
Insurance expenses .................... 49,646
Directors' fees and expenses (Note 2) . 43,426
Transfer agent's fees and expenses .... 26,066
Audit fee ............................. 16,222
Other ................................. 116,269
--------------
Total expenses .................. 2,229,759
--------------
Net Investment Income ................... 1,903,763
--------------
REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS
Net realized gain/(loss) on:
Securities ............................ 26,913,819
Foreign currencies and net other assets (8,815)
--------------
Net realized gain on investments
during the period ..................... 26,905,004
Net change in unrealized appreciation of
investments during the period ......... 58,483,193
--------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS ........................... 85,388,197
--------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................ $ 87,291,960
==============
FIRST FINANCIAL FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
--------------------------------------------------------------------------------
Six Months
Ended Year Ended
INCREASE IN September 30, March 31,
NET ASSETS 2003 2003
------------- ------------
Operations
Net investment income ................... $ 1,903,763 $ 3,657,629
Net realized gain on investments
sold during the period ............... 26,905,004 57,512,075
Net change in unrealized
appreciation/(depreciation)
of investments during the
period ............................... 58,483,193 (16,492,824)
------------ ------------
Net increase in net assets
resulting from operations ............ 87,291,960 44,676,880
------------ ------------
Dividends and Distributions (Note 1)
Dividends paid from net
investment income .................... -- (3,937,223)
Distributions paid from net
realized capital gain to
shareholders ......................... -- (65,919,006)
Cost of Fund shares reacquired ............ (11,983,796) (638,426)
------------ ------------
Net increase/(decrease) in net
assets for the period ................... 75,308,164 (25,817,775)
NET ASSETS
Beginning of period ....................... 339,389,388 365,207,163
------------ ------------
End of period (including
undistributed net investment
income of $3,481,773 and
$1,578,010 respectively) ................ $414,697,552 $339,389,388
============ ============
--------------------------------------------------------------------------------
See Notes to Financial Statements. 7
FINANCIAL HIGHLIGHTS (UNAUDITED) FIRST FINANCIAL FUND, INC.
--------------------------------------------------------------------------------
Six Months
Ended Year Ended March 31,
September 30, 2003 ------------------------------------------------------
(Unaudited) 2003 2002 2001 2000 1999
----------- ------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ....................... $ 14.40 $ 15.46 $ 12.86 $ 8.72 $ 8.85 $ 18.94
-------- -------- -------- -------- -------- --------
Net investment income ...................................... 0.08 0.16 0.19 0.14 0.12 0.11
Net realized and unrealized gain/(loss) on investments ..... 3.64 1.72 3.99 4.09 (0.20) (7.20)
-------- -------- -------- -------- -------- --------
Total from investment operations ..................... 3.72 1.88 4.18 4.23 (0.08) (7.09)
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Dividends paid from net investment income .................. -- (0.17) (0.20) (0.10) (0.08) (0.05)
Distributions paid from net realized capital gains ......... -- (2.80) (1.46) -- -- (2.59)
Distributions in excess of net realized gains .............. -- -- -- -- -- (0.45)
-------- -------- -------- -------- -------- --------
Total dividends and distributions .................... -- (2.97) (1.66) (0.10) (0.08) (3.09)
-------- -------- -------- -------- -------- --------
Net Increase resulting from Fund share repurchase .......... 0.08 0.03 0.08 0.01 0.03 --
Net change resulting from the issuance of Fund shares ...... -- -- -- -- -- 0.09
-------- -------- -------- -------- -------- --------
Net asset value, end of period(a) .......................... $ 18.20 $ 14.40 $ 15.46 $ 12.86 $ 8.72 $ 8.85
======== ======== ======== ======== ======== ========
Market price per share, end of period(a) ................... $ 15.73 $ 13.97 $ 15.75 $ 11.29 $ 7.8125 $ 7.3125
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN BASED ON
MARKET VALUE(B): ....................................... 12.60% 8.24% 35.20% 49.40% 7.93% (53.65)%
RATIOS AND SUPPLEMENTAL DATA:
Ratio of expenses to average net assets .................... 1.21%(c) 1.29% 1.00% 2.12% 2.20% 1.61%
Ratio of net investment income to average net assets ....... 1.03%(c) 0.99% 1.32% 1.33% 1.33% 0.91%
SUPPLEMENTAL DATA
Portfolio Turnover Rate .................................... 30% 74% 114% 85% 63% 65%
Net assets, end of period (in 000's) . ..................... $414,698 $339,389 $365,207 $315,392 $214,662 $221,881
Number of shares outstanding at the end of period (in 000's) 22,791 23,576 23,622 24,525 24,629 25,065
---------------
(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.
(c) Annualized for the six months ended September 30, 2003.
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. 8
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) FIRST FINANCIAL FUND, INC.
--------------------------------------------------------------------------------
First Financial Fund, Inc. (the "Fund") was incorporated in Maryland on March 3,
1986, as a closed-end, diversified management investment company. The Fund's
primary investment objective is to achieve long-term capital appreciation with
the secondary objective of current income by investing at least 80% of
investable assets in finance and financial service-related companies, including
savings and banking institutions and their holding companies.
--------------------------------------------------------------------------------
NOTE 1. SIGNIFICANT 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 traded via NASDAQ are
valued at the NASDAQ Official Close Price ("NOCP"). Securities for which market
quotations are not readily available or for which the pricing agent or market
maker does not provide a valuation or methodology, or provides a valuation or
methodology that, in the judgement of the adviser, does not represent fair
value, are valued at fair value by a Valuation Committee appointed by the Board
of Directors, in consultation with the adviser.
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, which approximates fair value.
REPURCHASE AGREEMENTS: In connection with the repurchase agreement transactions
with United States 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 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, 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.
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 including amortization of premium and
accretion of discount on debt securities, as required 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 TAX: It is the Fund's policy to continue to meet the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income and capital gains, if any, 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 distributions of net realized capital gains, if any,
annually. Dividends and distributions to shareholders, which are determined in
accordance with federal income tax regulations and which may differ from
generally accepted accounting principles, are recorded on the ex-dividend date.
Permanent book/tax differences related to income and gains are reclassified to
paid-in capital when they arise.
--------------------------------------------------------------------------------
9
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) FIRST FINANCIAL FUND, INC.
--------------------------------------------------------------------------------
OTHER: 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
and disclosures in the financial statements. Actual results could differ from
those estimates.
--------------------------------------------------------------------------------
NOTE 2. AGREEMENTS
Wellington Management Company, LLP serves as the Investment Adviser (the
"Investment Adviser"). The Investment Adviser makes investment decisions on
behalf of the Fund. The Fund pays a quarterly fee at the following rates: 0.75%
of the Fund's average month-end net assets up to $50 million, and 0.625% of such
assets in excess of $50 million.
Fund Administrative Services, LLC ("FAS") serves as the Fund's Administrator.
Under the Administration Agreement, FAS provides certain administrative and
executive management services to the Fund including: providing the Fund's
principal offices and executive officers, overseeing and administering all
contracted service providers, making recommendations to the Board regarding
policies of the Fund, conducting shareholder relations, authorizing expenses and
other administrative tasks. Under the Administration Agreement, the Fund pays
FAS a monthly fee, calculated at an annual rate of 0.15% of the value of the
Fund's average monthly net assets.
The Fund pays each Director who is not a director, officer or employee of the
Adviser or FAS a fee of $8,000 per annum, plus $4,000 for each in-person meeting
of the Board of Directors and $500 for each telephone meeting. In addition, the
Fund will reimburse all Directors for travel and out-of-pocket expenses incurred
in connection with such meetings.
PFPC Inc. ("PFPC"), an indirect, majority-owned subsidiary of The PNC Financial
Services Group Inc., serves as the Fund's Co-Administrator. As Co-Administrator,
PFPC calculates the net asset value of the Fund's shares and generally assists
in all aspects of the Fund's administration and operation. The Fund pays PFPC a
fee on a monthly basis based on average net assets. PFPC Trust Company, an
indirect subsidiary of The PNC Financial Services Group Inc., serves as the
Fund's Custodian. As compensation to PFPC Trust Company, the Fund pays PFPC
Trust Company a monthly fee based on the Fund's average monthly gross assets.
--------------------------------------------------------------------------------
NOTE 3. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities for the period ended
September 30, 2003, excluding short-term investments, aggregated $103,837,820
and $116,263,091, respectively.
On September 30, 2003, aggregate gross unrealized appreciation for all
securities in which there is an excess of tax cost over value was $123,822,294
and aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over value was $6,542,878.
--------------------------------------------------------------------------------
NOTE 4. CAPITAL
At September 30, 2003, 50,000,000 of $0.001 par value Common Stock were
authorized.
--------------------------------------------------------------------------------
NOTE 5. SHARE REPURCHASE PROGRAM
In accordance with Section 23(c) of the Investment Company Act of 1940, as
amended, the Fund hereby gives notice that it may from time to time repurchase
shares of the Fund in the open market at the option of the Board of Directors
and upon such terms as the Directors shall determine.
For the six months ended September 30, 2003, the Fund repurchased 784,800 of its
own shares at an average discount of 15%.
--------------------------------------------------------------------------------
10
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) FIRST FINANCIAL FUND, INC.
--------------------------------------------------------------------------------
NOTE 6. BORROWINGS
The Fund has a credit agreement (the "Agreement") with an unaffiliated lender.
The maximum under the Agreement is $75,000,000. Interest on any such borrowings
is based on market rates and is payable quarterly and at maturity. The Fund may
utilize these borrowings (leverage) in order to increase the potential for gain
on amounts invested. There can be no guarantee that these gains will be
realized. There are increased risks with the use of leverage. These borrowings
may be set to any desired maturity at a rate of interest determined by the
lender at the time of borrowing.
--------------------------------------------------------------------------------
11
OTHER INFORMATION FIRST FINANCIAL FUND, INC.
--------------------------------------------------------------------------------
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.
Equiserve Trust Company, N.A. (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,
Equiserve Trust Company, N.A., P.O. Box 43011, Providence, RI 02940-3011.
--------------------------------------------------------------------------------
12
MEETING OF SHAREHOLDERS - VOTING RESULTS (UNAUDITED) FIRST FINANCIAL FUND, INC.
--------------------------------------------------------------------------------
On August 19, 2003, the Fund held its Annual Meeting of Shareholders to (1)
elect Susan L. Ciciora, Stephen C. Miller, Dr. Dean Jacobson and Joel W. Looney
as Directors of the Fund, and (2) Adoption of Amendment to Article III, Section
3 of the Fund's by-laws.
PROPOSAL 1: (VOTING BY SHAREHOLDERS):
ELECTION OF SUSAN L. CICIORA AS DIRECTOR OF THE FUND # OF VOTES CAST % OF VOTES CAST
---------------------------------------------------- -------------------- --------------------
Affirmative .............................................. 14,077,457.9119 90.2
Withheld ................................................. 1,524,620.8176 9.8
---------------- ------
TOTAL ........................................... 15,602,078.7295 100.0
================ ======
ELECTION OF STEPHEN C. MILLER AS DIRECTOR OF THE FUND # OF VOTES CAST % OF VOTES CAST
----------------------------------------------------- -------------------- --------------------
Affirmative .............................................. 14,081,363.9119 90.3
Withheld ................................................. 1,520,714.8176 9.7
---------------- ------
TOTAL ........................................... 15,602,078.7295 100.0
================ ======
ELECTION OF DR. DEAN JACOBSON AS DIRECTOR OF THE FUND # OF VOTES CAST % OF VOTES CAST
----------------------------------------------------- -------------------- --------------------
Affirmative .............................................. 14,092,172.6145 90.3
Withheld ................................................. 1,509,906.1150 9.7
---------------- ------
TOTAL ........................................... 15,602,078.7295 100.0
================ ======
ELECTION OF JOEL W. LOONEY AS DIRECTOR OF THE FUND # OF VOTES CAST % OF VOTES CAST
-------------------------------------------------- -------------------- --------------------
Affirmative .............................................. 14,097,975.6145 90.4
Withheld ................................................. 1,504,103.1150 9.6
---------------- ------
TOTAL ........................................... 15,602,078.7295 100.0
================ ======
PROPOSAL2: (VOTING BY SHAREHOLDERS):
ADOPTION OF AMENDMENT TO ARTICLE III, SECTION 3
OF THE FUND'S BY-LAWS # OF VOTES CAST % OF VOTES CAST
-------------------------------------------------- -------------------- --------------------
For ...................................................... 13,452,382.3801 86.2
Against .................................................. 1,998,342.3352 12.8
Abstain .................................................. 151,354.0142 1.0
---------------- ------
TOTAL ........................................... 15,602,078.7295 100.0
================ ======
--------------------------------------------------------------------------------
13
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logo
FIRST
FINANCIAL
FUND, INC.
SEMI-
ANNUAL
REPORT
SEPTEMBER 30, 2003
DIRECTORS
Richard I. Barr
Susan L. Ciciora
Dean Jacobson
Joel W. Looney
Stephen C. Miller
INVESTMENT ADVISER
Wellington Management Company, LLP
75 State Street
Boston, MA 02109
ADMINISTRATOR
Fund Administrative Services, LLC
1680 38th Street, Suite 800
Boulder, CO 80301
CUSTODIAN
PFPC Trust Company
8800 Tinicum Boulevard
Philadelphia, PA 19153
TRANSFER AGENT
Equiserve Trust Company, N.A.
P.O. Box 43011
Providence, RI 02940-3011
LEGAL COUNSEL
Willkie Farr & Gallagher, LLP
787 Seventh Avenue
New York, NY 10019-6099
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.
1680 38th Street, Suite 800
Boulder, CO 80301
For information call (303) 444-5483
The Fund's CUSIP number is:
320228109
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.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
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) First Financial Fund, Inc.
By (Signature and Title)* /S/ Stephen C. Miller
-------------------------------------------------------
Stephen C. Miller, President & Chief Executive Officer
(principal executive officer)
Date November 28, 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/ Stephen C. Miller
-------------------------------------------------------
Stephen C. Miller, President & Chief Executive Officer
(principal executive officer)
Date November 28, 2003
----------------------------------------------------------------------------
By (Signature and Title)* /S/ Carl D. Johns
-------------------------------------------------------
Carl D. Johns, Vice President and Treasurer
(principal financial officer)
Date November 28, 2003
----------------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.