(LOGO)
ANNUAL
REPORT
March 31, 2002
Letter To Shareholders April 30, 2002
Dear Fellow Shareholder:
The smell of accountability is in the air. And it's not just Enron. Wall
Street, the accounting profession, and overpaid corporate CEOs--all are
suffering from disclosure issues, specifically, a lack thereof. Ironic, isn't
it, this being the "information age"?
While we are spectacularly unqualified to opine on geo-socio-political
affairs, such ignorance will not prevent us from offering a solution to the
current corporate malaise. Look in the mirror. Over the last 20 years, we've
seen stock analysis evolve from dry, considered studies of the balance sheet
and cash flow to what seems like Derby day at Churchill Downs complete with
"whisper numbers," consensus expectations and minute-by-minute updates on
CNBC. Investors turn over stocks and mutual funds faster than a hand of
canasta. The public has paid CEOs with truckloads of stock options asking
only for a better-than-expected next quarter earnings number in return. Is it
any wonder, then, that a few short cuts were taken: a little barter revenue
here, a little special purpose vehicle there and don't count the options--they
are below the line. Simply put, the market got what it asked for--an upward
spiral of stock prices--but at a cost. The cost is what you read and gnash
your teeth about today.
TOTAL RETURNS
For the Periods Ended 3/31/02
6 Mos. 1 Year 3 Years 5 Years
First Financial Fund's NAV1 22.38% 35.20% 26.09% 13.21%
S&P 500 10.99 0.24 -2.53 10.18
NASDAQ Composite* 23.12 0.28 -9.16 8.60
NASDAQ Banks* 13.55 24.20 10.14 11.16
SNL All Daily Thrift* 5.54 13.73 12.47 13.79
SNL MBS REITS 20.80 53.18 12.21 1.67
SNL Mortgage Banks* 5.88 9.30 5.77 -2.52
1 Source: Lipper Analytical Services, Inc. The Fund's total return represents
the change in net asset value from the beginning of the period noted through
March 31, 2002 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.
Our bet that the yield curve would remain steep and credit costs high
proved remunerative this quarter, as did the market's love affair with small
cap and value. Given investors' increasing fascination with the quality of
earnings, our focus on strong balance sheets and understated
----------------------------------------------------------------------------
1
values seemed timely as well. Among our current worries are the sustainability
of strong residential and commercial real estate markets, the vulnerability
of "less than prime" borrowers and another terrorist attack. While the
current stock market offers few outstanding values, an especially skittish
climate has yielded more than the usual trading opportunities.
We appreciate your continued interest and support of the Fund.
Nicholas C. Adams
---------------------------------------------------------------------------
2
Portfolio of Investments as of March 31, 2002 FIRST FINANCIAL FUND, INC.
-------------------------------------------- -------------------------
Shares Description Value (Note 1)
------------------------------------------------------------
LONG-TERM INVESTMENTS--88.3%
COMMON STOCKS--86.3%
--------------------------------------------------------------
Banks & Thrifts--46.1%
12,800 Abington Bancorp, Inc. $ 210,560
34,600 Algiers Bancorp, Inc. 302,750
125,600 American Home Mortgage Holdings,
Inc. 1,946,800
339,500 Astoria Financial Corp. 9,862,475
645,950 Bay View Capital Corp. 4,418,298
125,300 Bostonfed Bancorp, Inc. 3,163,825
64,640 Broadway Financial Corp. 827,392
160,900 Capital Crossing Bank* 3,571,980
75,400 Capital One Financial Corp. 4,814,290
69,100 CB Bancshares, Inc. 2,564,301
86,600 CBES Bancorp, Inc. 1,177,760
142,538 CCF Holding Co. 3,028,933
24,400 Charter Financial Corp. 590,968
57,800 Charter One Financial, Inc. 1,804,516
60,000 Community Bank San Jose
California(a) 2,099,400
131,600 Connecticut Bancshares, Inc. 3,617,684
195,000 Dime Bancorp, Inc.* 25,350
190,400 Downey Financial Corp. 8,682,240
413,565 Fidelity Federal Bancorp.* 1,157,982
22,900 First Citizens BancShares, Inc. 2,357,784
45,000 First Community Bancorp, Inc. 1,183,500
29,000 First Financial Corp. 936,700
319,150 First Republic Bank* 9,063,860
297,100 FirstFed America Bancorp, Inc. 7,100,690
252,000 FirstFed Bancorp, Inc. 1,751,400
214,800 Friedman, Billings, Ramsey Group,
Inc. * 1,503,600
241,600 Golden State Bancorp, Inc. 7,173,104
199,525 Hanmi Financial Corp.* 3,391,921
291,400 Hawthorne Financial Corp.* 8,523,450
19,999 HFB Financial Corp. 291,985
50,000 Hibernia Corp. 955,000
19,500 Iberiabank Corp. 676,065
131,300 KeyCorp 3,499,145
175,000 Macatawa Bank Corp. 3,465,000
219,600 MetroCorp Bancshares, Inc. 2,569,320
224,000 North Valley Bancorp 3,673,600
90,000 Northeast Pennsylvania Financial
Corp. 1,471,500
339,200 Ocwen Financial Corp.* 2,235,328
102,900 Pacific Crest Capital, Inc. 2,510,760
341,660 Pacific Union Bank* 3,928,236
34,600 Peoples Financial Corp. $ 422,120
165,930 Perpetual Federal Savings Bank* 3,509,419
225,900 Port Financial Corp. 7,124,886
94,900 PrivateBankcorp, Inc.* 2,325,050
151,678 Progress Financial Corp.(a) 1,220,401
317,300 Provident Financial Holdings, Inc.* 9,388,907
40,650 Redwood Financial, Inc.* 389,021
45,000 River Valley Bancorp 1,073,250
47,800 Rowan Bancorp, Inc.* 1,625,200
82,280 Southern Financial Bancorp, Inc. 2,052,886
210,000 Southwest Bancorp, Inc. 4,255,860
32,500 St. Landry Financial Corp.(a)* 340,275
21,100 Team Financial, Inc. 187,790
150,800 Thistle Group Holdings Co. 1,898,572
35,000 Trico Bancshares 736,750
100,700 Unionbancal Corp. 4,432,814
77,595 Vista Bancorp, Inc. 2,095,065
172,000 Woronoco Bancorp, Inc. 3,225,000
------------
168,432,718
------------
---------------------------------------------------------------
Mortgage & REITS--13.5%
538,800 Apex Mortgage Capital, Inc. 6,244,692
131,600 Fannie Mae 10,512,208
227,875 First Mortgage Corp.* 1,197,483
218,800 IMPAC Mortgage Holdings, Inc. 2,061,096
272,590 Medical Office Properties, Inc.(a) 2,725,900
243,000 New Century Financial Corp.(a) 4,964,490
155,504 Newcastle Investment Corp. REIT(a) 2,973,237
219,970 Novastar Financial, Inc. 4,135,436
708,400 RAIT Investment Trust 14,274,260
------------
49,088,802
------------
------------------------------------------------------------
Other Financial Intermediaries--13.9%
30,600 Ambac Financial Group, Inc. 1,807,542
25,500 Aon Corp. 892,500
574,200 Banner Central Finance Co.* 1,177,110
447,000 Ceres Group, Inc.* 2,033,850
186,200 FBR Asset Investment Corp. 5,064,640
574,200 Hispanic Express, Inc.* 1,119,690
----------------------------------------------------------------
See Notes to Financial Statements. 3
Portfolio of Investments as of March 31, 2002 FIRST FINANCIAL FUND, INC.
--------------------------------------------- --------------------------
Shares Description Value (Note 1)
---------------------------------------------------------------
318,700 IPC Holdings Ltd., ADR (Bermuda) $ 10,370,498
64,000 Legg Mason, Inc. 3,397,120
84,300 Philadelphia Consolidated Holding
Corp.* 3,355,140
167,000 PMA Capital Corp. 3,830,980
170,300 Prudential Financial, Inc.* 5,287,815
959,315 Resource America, Inc. 10,581,244
73,200 Willis Group Holdings Ltd.* 1,808,040
------------
50,726,169
------------
------------------------------------------------------------
Savings & Loan--12.8%
114,600 Brookline Bancorp, Inc. 1,955,076
71,800 Chesterfield Financial Corp.* 1,262,244
238,500 Citizens First Bancorp, Inc. 4,545,810
181,800 Fidelity Bankshares, Inc. 3,272,400
35,500 First Bell Bancorp, Inc. 552,025
170,000 First Federal Bancshares, Inc. 2,852,600
184,400 FloridaFirst Bancorp, Inc. 3,374,520
163,100 Golden West Financial Corp. 10,356,850
90,000 HMN Financial, Inc. 1,444,500
320,300 Hudson City Bancorp, Inc. 10,396,938
95,000 Parkvale Financial Corp. 2,384,500
139,700 Quaker City Bancorp, Inc.* 4,425,697
------------
46,823,160
------------
Total common stocks
(cost $239,944,552) 315,070,849
------------
------------------------------------------------------------
Preferred Stocks--1.8%
121,000 Commerce Bancorp, Inc., 5.95%
(cost $6,050,000) 6,382,750
------------
Principal
Amount
(000)
------------------------------------------------------------
Convertible Bonds--0.2%
$1,000 Online Resources Communications
Zero Coupon, 9/30/05
(cost $1,000,000) 830,000
------------
Total long-term investments
(cost $246,994,552) 322,283,599
------------
Principal
Amount
(000) Description Value (Note 1)
-----------------------------------------------------------
SHORT-TERM INVESTMENTS--12.4%
Repurchase Agreement--12.4%
$45,403 Paribas Corp., 1.80%, dated
3/28/2002, due 4/1/2002 in the
amount of $45,412,080 (cost
$45,403,000; collateralized by
$37,259,000 U.S. Treasury Bonds,
8.125%, due 8/15/19, value of
collateral including interest
$46,332,399) $ 45,403,000
------------
------------------------------------------------------------
Certificates of Deposit
2 Brookline Savings,
2.25%, 5/29/02 1,576
23 First Federal Savings Bank,
3.25%, 4/14/02 22,666
22 Naugatuck Valley Savings & Loan
Assoc.,
3.00%, 4/27/02 22,375
------------
46,617
------------
Total short-term investments
(cost $45,449,617) 45,449,617
------------
------------------------------------------------------------
Total Investments--100.7%
(cost $292,444,169; Note 4) 367,733,216
Liabilities in excess of other
assets--(0.7%) (2,526,053)
------------
Net Assets--100% $365,207,163
------------
------------
---------------
* Non-income-producing security.
(a) Indicates a fair valued security.
ADR--American Depository Receipt.
REIT--Real Estate Investment Trust.
-------------------------------------------------------------------------------
See Notes to Financial Statements. 4
Statement of Assets and Liabilities FIRST FINANCIAL FUND, INC.
------------------------------------------------------------------------------
Assets March 31, 2002
Investments, at value (cost $247,041,169).................................................................. $322,330,216
Repurchase agreement, at value (cost $45,403,000).......................................................... 45,403,000
Cash....................................................................................................... 43,474
Receivable for investments sold............................................................................ 4,987,512
Dividends and interest receivable.......................................................................... 829,446
Other assets............................................................................................... 157,993
--------------
Total assets............................................................................................ 373,751,641
--------------
Liabilities
Payable for investments purchased.......................................................................... 7,786,034
Advisory fee payable....................................................................................... 536,177
Administration fee payable................................................................................. 124,932
Deferred directors' fees................................................................................... 34,895
Accrued expenses........................................................................................... 62,440
--------------
Total liabilities....................................................................................... 8,544,478
--------------
Net Assets................................................................................................. $365,207,163
--------------
--------------
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 1,442,594 shares held in treasury............................................................... (15,956,087)
--------------
262,145,042
Undistributed net investment income..................................................................... 1,857,604
Accumulated net realized gains.......................................................................... 25,915,470
Net unrealized appreciation on investments.............................................................. 75,289,047
--------------
Net assets, March 31, 2002.............................................................................. $365,207,163
--------------
--------------
Net asset value per share ($365,207,163 / 23,622,387 shares of common stock outstanding)................... $15.46
--------------
--------------
--------------------------------------------------------------------------------
See Notes to Financial Statements. 5
FIRST FINANCIAL FUND, INC.
Statement of Operations
------------------------------------------------------------
Year Ended
Net Investment Income March 31, 2002
Income
Dividends................................ $ 6,235,852
Interest................................. 1,718,685
--------------
Total income.......................... 7,954,537
--------------
Expenses
Investment advisory fee.................. 2,197,506
Administration fee....................... 512,401
Legal fees and expenses.................. 200,000
Insurance expense........................ 87,000
Reports to shareholders.................. 82,000
Custodian's fees and expenses............ 75,000
Transfer agent's fees and expenses....... 40,000
Listing fees............................. 40,000
Directors fees........................... 30,000
Audit fee................................ 26,000
Miscellaneous............................ 8,381
--------------
Total operating expenses.............. 3,298,288
Loan interest (Note 5)................... 134,764
--------------
Total expenses........................ 3,433,052
--------------
Net investment income....................... 4,521,485
--------------
Realized and Unrealized
Gain on Investments
Net realized gain on investment
transactions............................. 60,925,158
Net change in unrealized appreciation of
investments.............................. 34,818,254
--------------
Net gain on investments..................... 95,743,412
--------------
Net Increase in Net Assets
Resulting from Operations................... $100,264,897
--------------
--------------
FIRST FINANCIAL FUND, INC.
Statement of Changes in Net Assets
------------------------------------------------------------
Year Ended March 31,
Increase in ------------------------------
Net Assets 2002 2001
------------ ------------
Operations
Net investment income....... $ 4,521,485 $ 3,434,275
Net realized gain on
investment
transactions............. 60,925,158 15,308,555
Net change in unrealized
appreciation of
investments.............. 34,818,254 85,599,520
------------ ------------
Net increase in net assets
resulting from
operations............... 100,264,897 104,342,350
------------ ------------
Dividends and distributions (Note 1)
Dividends from net
investment income........ (4,724,478) (2,462,878)
Distributions from net
realized gains on
investment
transactions............. (34,535,923) --
Cost of Fund shares
reacquired.................. (11,189,671) (1,148,855)
------------ ------------
Total increase................. 49,814,825 100,730,617
Net Assets
Beginning of year.............. 315,392,338 214,661,721
------------ ------------
End of year(a)................. $365,207,163 $315,392,338
------------ ------------
------------ ------------
---------------
(a) Includes undistributed net
investment income of........ $ 1,857,604 $ 2,060,597
------------ ------------
------------------------------------------------------------------------------
See Notes to Financial Statements. 6
Notes to Financial Statements 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 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: 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 exceeds 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.
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 policy 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.
------------------------------------------------------------
Note 2. Agreements
The Fund has agreements with Wellington Management Company, LLP (the 'Investment
Adviser') and with Prudential Investments 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, 2002 were $342,926,500 and $363,763,432,
respectively.
------------------------------------------------------------
Note 4. Distributions and Tax Information
For the year ended March 31, 2002, the tax character of dividends paid was
$19,063,267 of ordinary income and $20,197,134 of long-term capital gains.
As of March 31, 2002, the accumulated undistributed earnings on a tax basis were
$12,121,422 of ordinary income and $15,738,060 of long-term capital gains.
--------------------------------------------------------------------------------
7
Notes to Financial Statements FIRST FINANCIAL FUND, INC.
-------------------------------------------------------------------------------
The United States federal income tax basis of the Fund's investments and the net
unrealized appreciation as of March 31, 2002 were as follows:
Total Net
Unrealized
Tax Basis Appreciation Depreciation Appreciation
-------------- ------------ ------------ ------------
$292,530,576 $ 80,778,941 $ (5,576,301) $ 75,202,640
The differences between book and tax basis are primarily attributable to
deferred losses on wash sales.
------------------------------------------------------------
Note 5. 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 Agreement expired on April 29, 2002. On May 6, 2002,
the Agreement was amended. The maximum commitment was increased to $75,000,000.
The expiration date of the amended Agreement is April 28, 2003. All other terms
and conditions are unchanged.
While outstanding, the borrowings will bear interest, payable monthly. During
the period while the loan was outstanding, the average daily balance for the
year ended March 31, 2002 was approximately $6,647,000 at a weighted average
interest rate of 2.32%. The highest face amount of borrowing at any month-end
during the year ended March 31, 2002 was $10,000,000. The Fund did not have a
loan balance at March 31, 2002.
------------------------------------------------------------
Note 6. Capital
There are 50 million shares of $.001 par value common stock authorized. Of the
25,064,981 shares issued as of March 31, 2002, the Investment Adviser owned
10,994 shares. During the years ended March 31, 2002 and 2001, the Fund
repurchased 902,300 and 104,094, respectively, of its own shares at a weighted
average discount of 14.8% and 15.2%, respectively.
-------------------------------------------------------------------------------
8
Financial Highlights FIRST FINANCIAL FUND, INC.
-------------------------------------------------------------------------------
Year Ended March 31,
-----------------------------------------------
2002 2001 2000 1999
-------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year....................................... $ 12.86 $ 8.72 $ 8.85 $ 18.94
-------- -------- -------- --------
Income from investment operations
Net investment income.................................................... .19 .14 .12 .11
Net realized and unrealized gain (loss) on investments................... 3.99 4.09 (.20) (7.20)
-------- -------- -------- --------
Total from investment operations...................................... 4.18 4.23 (.08) (7.09)
-------- -------- -------- --------
Less dividends and distributions
Dividends from net investment income..................................... (.20) (.10) (.08) (.05)
Distributions from net realized gains.................................... (1.46) -- -- (2.59)
Distributions in excess of net realized gains............................ -- -- -- (.45)
-------- -------- -------- --------
Total dividends and distributions..................................... (1.66) (.10) (.08) (3.09)
-------- -------- -------- --------
Increase resulting from Fund share repurchase............................ .08 .01 .03 --
Net change resulting from the issuance of Fund shares.................... -- -- -- .09
-------- -------- -------- --------
Net asset value, end of year(a).......................................... $ 15.46 $ 12.86 $ 8.72 $ 8.85
-------- -------- -------- --------
-------- -------- -------- --------
Market price per share, end of year(a)................................... $ 15.75 $ 11.29 $ 7.8125 $ 7.3125
-------- -------- -------- --------
-------- -------- -------- --------
TOTAL INVESTMENT RETURN(b):.............................................. 35.20% 49.40% 7.93% (53.65)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)............................................ $365,207 $315,392 $214,662 $221,881
Average net assets (000)................................................. $341,601 $258,156 $230,163 $296,740
Ratios to average net assets:
Expenses, before loan interest and commitment fees.................... .97% 1.09% 1.06% .94%
Total expenses........................................................ 1.00% 2.12% 2.20% 1.61%
Net investment income................................................. 1.32% 1.33% 1.33% .91%
Portfolio turnover rate.................................................. 114% 85% 63% 65%
Total debt outstanding at end of year (000 omitted)...................... $ -- $ -- $ 45,000 $ 45,000
Asset coverage per $1,000 of debt outstanding............................ $ -- $ -- $ 5,768 $ 5,931
1998
--------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year....................................... $ 15.26
--------
Income from investment operations
Net investment income.................................................... .14
Net realized and unrealized gain (loss) on investments................... 6.84
--------
Total from investment operations...................................... 6.98
--------
Less dividends and distributions
Dividends from net investment income..................................... (.14)
Distributions from net realized gains.................................... (2.68)
Distributions in excess of net realized gains............................ (.63)
--------
Total dividends and distributions..................................... (3.45)
--------
Increase resulting from Fund share repurchase............................ --
Net change resulting from the issuance of Fund shares.................... .15
--------
Net asset value, end of year(a).......................................... $ 18.94
--------
--------
Market price per share, end of year(a)................................... $ 20.813
--------
--------
TOTAL INVESTMENT RETURN(b):.............................................. 72.59%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)............................................ $387,852
Average net assets (000)................................................. $320,484
Ratios to average net assets:
Expenses, before loan interest and commitment fees.................... .91%
Total expenses........................................................ 1.25%
Net investment income................................................. .82%
Portfolio turnover rate.................................................. 43%
Total debt outstanding at end of year (000 omitted)...................... $ 20,000
Asset coverage per $1,000 of debt outstanding............................ $ 20,393
---------------
(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 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, 2002, 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 March 31, 2002 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York 10036
May 21, 2002
--------------------------------------------------------------------------------
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, 2002) 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,
2002, the Fund paid dividends of ordinary income of $.200 and distributions of
short-term capital gains of $.607, taxable as ordinary income, and long-term
capital gains of $.855, taxable as such. Further, we wish to advise you that
33.8% of the dividends taxable as ordinary income and paid in the fiscal year
ended March 31, 2002 qualified for the corporate dividend received deduction
available to corporate taxpayers.
In January 2003, 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 2002 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 (Unaudited) 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. Shareholders who wish to participate in the Plan
should contact the Fund at (800) 451-6788.
State Street Bank and Trust Company (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.
--------------------------------------------------------------------------------
11
Management of the Fund (Unaudited) FIRST FINANCIAL FUND, INC.
-------------------------------------------------------------------------------
Information pertaining to the Directors of the Fund is set forth below.
Directors
Term of Office
Position and Length
Name, Address and Age With Fund of Time Served*
----------------------------------------------------------------------
Richard I. Barr (65) Director Since 2001
6831 East Solano Drive (Class III)
Phoenix, AZ 85061
Eugene C. Dorsey (75) Director Since 1996
2010 Harbourside Drive, Pound2003 (Class I)
Longboat Key, FL 34228
Principal Occupations
and Other
Name, Address and Age Directorships Held**
----------------------------------------------------------------------------
Richard I. Barr (65) Director of Boulder Total Return Fund,
6831 East Solano Drive Inc. (since 1999) and USLIFE Income
Phoenix, AZ 85061 Fund, Inc. (since 2002); formerly
President and Director of Advantage
Sales and Marketing (1997-1999);
formerly President and Chief Executive
Officer of CBS Marketing (1976-1997);
former President, Arizona Food Brokers
Association (1996); former Director,
Association of Sales and Marketing
Companies (formerly National Food
Brokers Association) (1992-1998); former
Director, St. Mary's Food Bank
(1990-1996), and currently advisory
board member of Kansas University
Business School and Arizona State
University.
Eugene C. Dorsey (75) Retired. Director or Trustee of 78
2010 Harbourside Drive, Pound2003 portfolios within the Prudential Fund
Longboat Key, FL 34228 Complex and Director of The High Yield
Plus Fund, Inc.; formerly President,
Chief Executive Officer and Trustee,
Gannett Foundation (now Freedom Forum)
(1981-1989); former publisher of four
Gannett newspapers and Vice President of
Gannett Co., Inc. (publishing)
(1978-1981); past Chairman, Independent
Sector, Washington, D.C. (national
coalition of philanthropic
organizations) (1989-1992); and former
Chairman of the American Council for the
Arts; and former Director, Advisory
Board of Chase Manhattan Bank of
Rochester.
-------------------------------------------------------------------------------
12
Management of the Fund (Unaudited) FIRST FINANCIAL FUND, INC.
-------------------------------------------------------------------------------
Term of Office
Position and Length
Name, Address and Age With Fund of Time Served*
----------------------------------------------------------------------
Robert E. La Blanc (68) Director Since 1999
323 Highland Avenue (Class I)
Ridgewood, NJ 07450
Thomas T. Mooney (60)*** Director, Since 1986
55 St. Paul Street President and (as Director)
Rochester, NY 14604 Treasurer (Class II)
Clay T. Whitehead (63) Director Since 2000
P.O. Box 8090 (Class II)
McLean, VA 22106
Principal Occupations
During Past 5 Years
and Other
Name, Address and Age Directorships Held**
-----------------------------------------------------------------------------
Robert E. La Blanc (68) President of Robert E. La Blanc
323 Highland Avenue Associates, Inc. (information
Ridgewood, NJ 07450 technologies consulting) (since 1981);
Director or Trustee of 74 portfolios
within the Prudential Fund Complex;
Director of The High Yield Plus Fund,
Inc.; formerly Vice-Chairman of
Continental Telecom, Inc. (1979-1981);
formerly General Partner at Salomon
Brothers (1969-1979); Director of
Salient 3 Communications, Inc.
(telecommunications). Storage Technology
Corp. (computer equipment), Titan Corp.
(electronics), and Chartered
Semiconductor Manufacturing, Ltd.
(semiconductors); and Trustee of
Manhattan College.
Thomas T. Mooney (60)*** President of the Greater Rochester Metro
55 St. Paul Street Chamber of Commerce (since 1976);
Rochester, NY 14604 Director or Trustee 95 portfolios within
the Prudential Fund Complex; President,
Director and Treasurer of The High Yield
Plus Fund, Inc.; former Rochester City
Manager (during 1973); Trustee of Center
for Governmental Research, Inc.
(volunteer consulting); and Director of
Blue Cross of Rochester, Executive
Service Corps of Rochester, Monroe
County Water Authority and Rural/Metro
Medical Services, Inc. (ambulance
service).
Clay T. Whitehead (63) President of Clay Whitehead Associates
P.O. Box 8090 (telecommunications) (since 1987) and
McLean, VA 22106 National Exchange Inc. (new business
development firm) (since May 1983);
Director or Trustee of 91 portfolios
within the Prudential Fund Complex;
Director of The High Yield Plus Fund,
Inc., GTC Telecom, Inc.
(telecommunications), and Crosswalk.com
(website).
-------------------------------------------------------------------------------
13
Management of the Fund (Unaudited) FIRST FINANCIAL FUND, INC.
-------------------------------------------------------------------------------
Information pertaining to the officers of the Fund, other than Mr. Mooney (who
is listed above), is set forth below.
Officers
Term of Office
Position and Length
Name, Address and Age With Fund of Time Served*
----------------------------------------------------------------------
Arthur J. Brown (53) Secretary Since 1986
1800 Massachusetts Avenue, NW
Washington, D.C. 20036
R. Charles Miller (44) Assistant Since 1999
1800 Massachusetts Avenue, NW Secretary
Washington, D.C. 20036
Principal Occupations
Name, Address and Age During Past 5 Years
-----------------------------------------------------------------------------
Arthur J. Brown (53) Partner, Kirkpatrick & Lockhart LLP (law
1800 Massachusetts Avenue, NW firm and counsel to the Fund)
Washington, D.C. 20036
R. Charles Miller (44) Partner, Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
Washington, D.C. 20036
------------------
* The Board of Directors is divided into three classes, each of which has three terms. Class I's term expires this year.
Officers are generally elected by the Board to one year terms.
** This column includes only directorships of companies required to report to the Securities and Exchange Commission under the
Securities Exchange Act of 1934 (that is, 'public companies') or other investment companies registered under the Investment
Company Act of 1940 ('1940 Act'). Each Director of the Fund, except Mr. Barr, oversees three other portfolios within the
Fund's 'Fund Complex'. The Fund's Fund Complex consists of a group of investment companies and series of investment companies
that are advised by the Investment Adviser.
*** Indicates an 'interested person' of the Fund, as defined in the 1940 Act. Mr. Mooney is deemed to be an 'interested person'
solely by reason of his service as an officer of the Fund.
Revised Investment Policy (Unaudited) FIRST FINANCIAL FUND, INC.
-------------------------------------------------------------------------------
On May 21, 2002, the Board of Directors unanimously approved a new investment
policy for the Fund in order to comply with new Rule 35d-1 under the 1940 Act
(commonly known as the 'names rule'). The names rule requires many funds that
have names that signify certain investments to have an investment policy
requiring that 80% of their assets be invested in such investments. The Fund's
name includes the term 'financial,' which may suggest a particular type of
investment. Accordingly, the Board adopted a new fundamental investment policy
for the Fund as follows:
'Under normal circumstances, the Fund will invest at least 80% of its
assets (net assets, plus the amount of any borrowings for investment
purposes) in securities issued by finance and financial service-related
companies, including savings and banking institutions, the deposits of
which are insured by the Federal Deposit Insurance Corporation,
securities issued by mortgage banking institutions, REITs, and consumer
and industrial finance, insurance, brokerage, investment banking, asset
management, and other financial service companies, as well as in the
holding companies of such companies.'
The Investment Adviser expects the Fund to be in compliance with this revised
policy by the July 31, 2002 effective date of this new rule.
The Fund will retain its existing industry concentration policy to invest at
least 65% of its total assets in certain savings, banking and mortgage banking
institutions and their holding companies.
--------------------------------------------------------------------------------
14
Directors
Richard I. Barr
Eugene C. Dorsey
Robert E. La Blanc
Thomas T. Mooney
Clay T. Whitehead
Investment Adviser
Wellington Management Company, LLP
75 State Street
Boston, MA 02109
Administrator
Prudential Investments 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