FIRST FINANCIAL FUND, INC. (LOGO)
SEMI-
ANNUAL
REPORT
September 30, 2002
Letter To Shareholders October 31, 2002
Dear Fellow Shareholder:
They served humble pie this quarter and most of us got a good helping.
Unless you took refuge in treasuries, municipals, agency securities or
cash, there were few places to escape the carnage. Lessons learned
(or re-learned) included (a) stocks' earnings yields and treasury
yields can disconnect in an ugly fashion, (b) a recovering economy
does not a recovering stock market make, (c) stocks can fall a lot and
still fall a lot again, (d) balance sheets matter.
The balance sheet is the "ground-zero" of our worries these days. No
one dismisses the debacle on the corporate side, bloodied by Enron,
WorldCom, Conseco and the like. Indeed, close to 40% of all
speculative debt issued in the three debt boom years 1997 through 1999
has defaulted. Could the consumer be next? Left largely unscathed
during this past recession, the consumer keeps borrowing to buy cars,
homes, and lifestyle in a binge fed by yield starved financial
intermediaries and the lowest interest rates in a generation. Few
argue that the average consumer balance isn't stretched. But the
average won't matter as much as the distribution of that debt. Could
it be that, similar to the corporate debt fiasco, a disproportionate
share of the lending went to those who could least afford to pay the
loans back? The answer may already reside in the stocks of Fannie
Mae, Household International, Capital One, Americredit, the mortgage
insurers, Sears, Ford and other big consumer debt issuers or insurers:
all setting decided new lows.
Our government's balance sheet has taken a turn for the worse as well.
Less than two years ago, the talk was of a huge surplus and the
retirement of the 30-year treasury. Today, pundits project a $150 to
$200 billion deficit again. And, this deficit is largely to fund non-
productive assets: interest on debt, farm subsidies, national security
and war. Add to this a balance-of-payments deficit running at 4% to
5% of GDP. Will our disappointing equity markets and low yielding
treasuries and asset-back securities ever discourage our foreign
trading partners?
For the six months ending September 30th, the Fund's total return was
2.7%, compared to a return of -28.4% for the S&P 500 and -6.0% for the
NASDAQ Banks Composite.
TOTAL RETURNS
For the Periods Ended 9/30/02
6 Mos. 1 Year 3 Years 5 Years
First Financial Fund's NAV1 2.65% 25.62% 25.84% 6.67%
S&P 500 -28.36 -20.49 -12.89 -1.63
NASDAQ Composite* -36.49 -21.80 -24.71 -7.01
NASDAQ Banks* -5.96 6.78 9.33 3.03
SNL All Daily Thrift* -2.22 3.20 17.35 5.94
SNL MBS REITS 10.09 32.99 23.48 -0.80
SNL Mortgage Banks* 1.03 6.97 14.11 -8.10
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 September 30, 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 less than one year are not annualized.
-------------------------------------------------------------------------
1
Fortunately, inordinately strong balance sheets kept most of our
companies out of trouble. The Fund's positive return over the past
six months was due to favorable stock selection within the Mortgage
REIT and the Bank & Thrift sectors. The Fund benefited from REIT
investments such as RAIT Investment Trust and Novastar Financial REIT,
which were sold when they hit their price targets. Positions in small
to mid-sized banks such as Port Financial Corporation and Provident
Financial Holdings also proved favorable.
Our position in Capital One Financial Corporation, a consumer finance
company, was eliminated after it reported an unfavorable outlook on
the collectability of consumer credit cards bills. Some small to mid-
sized banks and thrifts (Astoria Financial, and Ocwen Financial
Corporation) had sharp share declines after reporting disappointing
second quarter 2002 results, but were retained due to their attractive
long-term prospects. Our position in Koram Bank, a South Korean-
based financial institution, also detracted from performance after a
decline in its second quarter earnings.
The Fund took a temporary defensive position during the month of
September, which added to total return. At the end of the period, our
cash position was over 20%.
Ahead, we are probably more optimistic than we ought to be. For
battle scarred, bottom-up practitioners with plenty of liquidity to
put to work, volatility is our best friend. We are encouraged, as
well, by an acceleration of merger activity in the banking sector, a
trend likely to persist as long as low interest rates and weak loan
demand reign.
We appreciate your continued interest and support of the Fund.
Nicholas C. Adams
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2
Portfolio of Investments as of September 30, 2002
(Unaudited) FIRST FINANCIAL FUND, INC.
------------------------------------------------------------------------------
Shares Description Value (Note 1)
------------------------------------------------------------
LONG-TERM INVESTMENTS--76.4%
COMMON STOCKS--75.6%
------------------------------------------------------------
Banks & Thrifts--38.1%
12,800 Abington Bancorp, Inc. $ 247,424
34,600 Algiers Bancorp, Inc. 252,580
367,000 Astoria Financial Corp. 8,954,800
538,450 Bay View Capital Corp. 3,053,012
90,300 Bostonfed Bancorp, Inc. 2,708,097
64,640 Broadway Financial Corp. 1,038,765
151,200 Capital Crossing Bank* 3,318,840
83,050 CB Bancshares, Inc. 2,943,292
86,600 CBES Bancorp, Inc. 1,507,706
142,538 CCF Holding Co. 3,048,888
94,235 Charter One Financial, Inc. 2,800,664
18,000 City National Corp. 841,860
60,000 Community Bank San Jose
California(a) 2,284,800
57,900 Compass Bancshares, Inc. 1,707,471
98,900 Connecticut Bancshares, Inc. 3,662,267
195,000 Dime Bancorp, Inc.* 17,550
249,900 Downey Financial Corp. 8,559,075
413,565 Fidelity Federal Bancorp.* 932,589
20,199 First Citizens BancShares, Inc. 2,120,895
111,000 First Community Bancorp, Inc. 3,204,570
223,150 First Republic Bank* 4,853,512
217,900 FirstFed America Bancorp, Inc. 5,249,211
252,000 FirstFed Bancorp, Inc. 1,890,000
71,468 FNB Corp. 1,203,521
241,600 Golden State Bancorp, Inc. 7,808,512
286,400 Hawthorne Financial Corp.* 7,560,960
19,999 HFB Financial Corp. 277,486
50,000 Hibernia Corp. 999,500
19,500 Iberiabank Corp. 733,785
689,280 Koram Bank* 4,693,445
219,600 MetroCorp Bancshares, Inc. 2,635,200
224,000 North Valley Bancorp 3,689,280
90,000 Northeast Pennsylvania Financial
Corp. 1,341,000
102,900 Pacific Crest Capital, Inc. 3,164,175
380,059 Pacific Union Bank* 4,260,461
165,930 Perpetual Federal Savings Bank* 3,152,670
195,400 Port Financial Corp. 7,817,954
403,050 Provident Financial Holdings, Inc.* 9,471,675
40,650 Redwood Financial, Inc.* 564,019
45,000 River Valley Bancorp $ 1,175,850
2,880 Southern Financial Bancorp, Inc. 83,434
210,000 Southwest Bancorp, Inc. 5,281,500
32,500 St. Landry Financial Corp.(a)* 357,500
21,100 Team Financial, Inc. 204,670
40,629 Thistle Group Holdings Co. 426,605
35,000 Trico Bancshares 885,500
82,300 Unionbancal Corp. 3,457,423
80,070 United National Bancorp 1,647,841
23,418 Washington Trust Bancorp, Inc. 462,271
35,000 Westbank Corp. 458,500
172,000 Woronoco Bancorp, Inc. 3,620,600
------------
142,633,205
------------
------------------------------------------------------------
Other Financial Intermediaries--16.3%
14,100 American International Group, Inc. 771,270
113,800 Americredit Corp.* 918,366
1,147,667 Brookline Bancorp, Inc. 13,486,235
536,400 Ceres Group, Inc.* 1,035,252
282,600 FBR Asset Investment Corp. 8,834,076
130,030 Fidelity National Financial, Inc. 3,735,762
8,800 First Pactrust Bancorp, Inc. 123,904
214,800 Friedman, Billings, Ramsey Group,
Inc. * 2,175,924
30,000 Hanmi Financial Corp.* 450,000
574,200 Hispanic Express, Inc.* 574,200
333,900 IPC Holdings Ltd., ADR (Bermuda) 9,806,643
1,210,100 Meadowbrook Insurance Group, Inc. 3,194,664
49,600 Merrill Lynch & Co., Inc. 1,634,320
339,200 Ocwen Financial Corp.* 983,680
170,100 Odyssey Re Holdings Corp. 2,825,361
959,315 Resource America, Inc. 7,674,520
83,700 Willis Group Holdings Ltd.* 2,803,113
------------
61,027,290
------------
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See Notes to Financial Statements. 3
Portfolio of Investments as of September 30, 2002
(Unaudited) FIRST FINANCIAL FUND, INC.
-------------------------------------------------------------------------------
Shares Description Value (Note 1)
-----------------------------------------------------------
Mortgage & REITs--9.2%
400,000 American Financial Realty Trust $ 4,120,000
258,000 Countrywide Mortgage Investments,
Inc. 12,164,700
227,875 First Mortgage Corp.* 854,531
184,700 Freddie Mac 10,324,730
85,300 IMPAC Mortgage Holdings, Inc. 951,095
272,590 Medical Office Properties, Inc. 3,162,044
155,504 Newcastle Investment Holdings Corp.
REIT(a) 3,001,227
------------
34,578,327
------------
------------------------------------------------------------
Savings & Loan--12.0%
24,400 Charter Financial Corp. 684,664
71,800 Chesterfield Financial Corp.* 1,312,145
238,500 Citizens First Bancorp, Inc. 4,285,845
35,500 First Bell Bancorp, Inc. 589,655
170,000 First Federal Bancshares, Inc. 3,235,100
107,900 First Niagara Financial Group, Inc. 3,408,561
221,600 FloridaFirst Bancorp, Inc. 3,909,024
141,500 Golden West Financial Corp. 8,798,470
90,000 HMN Financial, Inc. 1,571,400
577,400 Hudson City Bancorp, Inc. 9,371,202
94,800 Parkvale Financial Corp. 2,232,540
151,678 Progess Financial Corp. 1,425,773
127,750 Quaker City Bancorp, Inc.* 4,237,469
------------
45,061,848
------------
Total common stocks
(cost $235,350,516) 283,300,670
------------
------------------------------------------------------------
Preferred Stocks--0.5%
62,350 Capital One Financial Corp., 6.25%
(cost $2,216,990) 1,976,495
Principal
Amount
(000)
---------------------------------------------------------------
Convertible Bonds--0.3%
$1,000 Online Resources & Communications,
8.00%, 9/30/05
(cost $1,000,000) 880,000
------------
Total long-term investments
(cost $238,567,506) 286,157,165
------------
Principal
Amount
(000) Description Value (Note 1)
---------------------------------------------------------------
SHORT-TERM INVESTMENTS--23.2%
---------------------------------------------------------------
Repurchase Agreements--23.2%
$43,521 Paribas Corp., 1.88%, dated
9/30/2002, due 10/1/2002 in the
amount of $43,523,273 (cost
$43,521,000; collateralized by
$31,010,000 U.S. Treasury Bonds,
8.125%, due 8/15/2019, value of
collateral including interest
$44,392,290) $ 43,521,000
43,520 UBS Warburg, 1.87%, dated 9/30/2002,
due 10/1/2002 in the amount of
$43,522,261 (cost $43,520,000;
collateralized by $39,947,000 U.S.
Treasury Bonds, 8.75%, due
11/15/2008, value of collateral
including interest $44,413,030) 43,520,000
------------
87,041,000
------------
------------------------------------------------------------
Certificates of Deposit
2 Brookline Savings,
2.25%, 8/29/02 1,582
23 First Federal Savings Bank,
3.25%, 10/15/02 23,159
23 Naugatuck Valley Savings & Loan
Assoc.,
1.81%, 10/29/02 22,628
------------
47,369
------------
Total short-term investments
(cost $87,088,523) 87,088,369
------------
------------------------------------------------------------
Total Investments--99.6%
(cost $325,656,029; Note 4) 373,245,534
Other assets in excess of
liabilities--0.4% 1,621,676
------------
Net Assets--100% $374,867,210
------------
------------
---------------
* 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 (Unaudited) FIRST FINANCIAL FUND, INC.
-------------------------------------------------------------------------------
Assets September 30, 2002
Investments, at value (cost $238,615,029).................................................................. $286,204,534
Repurchase agreements, at value (cost $87,041,000)......................................................... 87,041,000
Cash....................................................................................................... 45,155
Receivable for investments sold............................................................................ 5,461,539
Dividends and interest receivable.......................................................................... 618,357
Prepaid assets............................................................................................. 268,149
--------------
Total assets............................................................................................ 379,638,734
--------------
Liabilities
Payable for investments purchased.......................................................................... 3,915,453
Advisory fee payable....................................................................................... 633,990
Administration fee payable................................................................................. 148,408
Accrued expenses........................................................................................... 73,673
--------------
Total liabilities....................................................................................... 4,771,524
--------------
Net Assets................................................................................................. $374,867,210
--------------
--------------
Net assets were comprised of:
Common stock, at par.................................................................................... $ 23,622
Paid-in capital in excess of par........................................................................ 262,121,420
--------------
262,145,042
Undistributed net investment income..................................................................... 3,838,165
Accumulated net realized gains.......................................................................... 61,294,498
Net unrealized appreciation on investments.............................................................. 47,589,505
--------------
Net assets, September 30, 2002.......................................................................... $374,867,210
--------------
--------------
Net asset value per share ($374,867,210 / 23,622,382 shares of common stock outstanding)................... $15.87
--------------
--------------
--------------------------------------------------------------------------------
See Notes to Financial Statements. 5
FIRST FINANCIAL FUND, INC.
Statement of Operations (Unaudited)
------------------------------------------------------------
Six Months
Ended
Net Investment Income September 30, 2002
Income
Dividends............................. $ 4,018,895
Interest.............................. 598,942
------------------
Total income....................... 4,617,837
------------------
Expenses
Investment advisory fee............... 1,255,326
Administration fee.................... 293,775
Legal fees and expenses............... 774,000
Reports to shareholders............... 99,000
Directors' fees....................... 70,000
Insurance expense..................... 41,000
Custodian's fees and expenses......... 40,000
Listing fee........................... 22,000
Transfer agent's fees and expenses.... 18,000
Audit fee............................. 13,000
Miscellaneous expenses................ 11,175
------------------
Total expenses..................... 2,637,276
------------------
Net investment income.................... 1,980,561
------------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain on investment
transactions.......................... 35,379,028
Net change in unrealized appreciation of
investments........................... (27,699,542)
------------------
Net gain on investments.................. 7,679,486
------------------
Net Increase in Net Assets
Resulting from Operations................ $ 9,660,047
------------------
------------------
FIRST FINANCIAL FUND, INC.
Statement of Changes in Net Assets (Unaudited)
------------------------------------------------------------
Six Months
Ended Year Ended
Increase in September 30 March 31,
Net Assets 2002 2001
Operations
Net investment income....... $ 1,980,561 $ 4,521,485
Net realized gain on
investment
transactions............. 35,379,028 60,925,158
Net change in unrealized
appreciation of
investments.............. (27,699,542) 34,818,254
------------ ------------
Net increase in net assets
resulting from
operations............... 9,660,047 100,264,897
------------ ------------
Dividends and distributions (Note 1)
Dividends from net
investment income........ -- (4,724,478)
Distributions from net
realized gains on
investment
transactions............. -- (34,535,923)
Cost of Fund shares reacquired
(Note 6).................... -- (11,189,671)
------------ ------------
Total increase................. 9,660,047 49,814,825
Net Assets
Beginning of period............ 365,207,163 315,392,338
------------ ------------
End of period(a)............... $374,867,210 $365,207,163
------------ ------------
------------ ------------
---------------
(a) Includes undistributed net
investment income of........ $ 3,838,165 $ 1,857,604
------------ ------------
-------------------------------------------------------------------------------
See Notes to Financial Statements. 6
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 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 (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 six months ended September 30, 2002 were $126,220,500 and $170,014,986,
respectively.
------------------------------------------------------------
Note 4. Tax Information
The United States federal income tax basis of the Fund's investments and the net
unrealized appreciation as of September 30, 2002 were as follows:
Total Net
Unrealized
Tax Basis Appreciation Depreciation Appreciation
-------------- ------------ ------------ ------------
$325,678,413 $ 63,428,857 $ 15,861,736 $ 47,567,121
The differences between book and tax basis are primarily attributable to
deferred losses on wash sales.
-------------------------------------------------------------------------------
7
Notes to Financial Statements (Unaudited) FIRST FINANCIAL FUND, INC.
-------------------------------------------------------------------------------
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. The Fund did not borrow any amounts pursuant to
the Agreement during the six months ended September 30, 2002
------------------------------------------------------------
Note 6. Capital
There are 50 million shares of $.001 par value common stock authorized. Of the
23,622,382 shares issued as of September 30, 2002, the Investment Adviser owned
10,994 shares. During the year ended March 31, 2002, the Fund repurchased
902,300 of its own shares at a weighted average discount of 14.8%.
------------------------------------------------------------
Note 7. Dividends
On November 19, 2002, the Board of Directors of the Fund declared dividends of
$0.168, $1.348 and $1.448 per share from ordinary income, short-term capital
gains and long-term capital gains, respectively, payable December 10, 2002 to
shareholders of record as of November 29, 2002.
--------------------------------------------------------------------------------
8
Financial Highlights (Unaudited) FIRST FINANCIAL FUND, INC.
-------------------------------------------------------------------------------
Six Months
Ended Year Ended March 31,
September 30, ----------------------------------
2002 2002 2001 2000
------------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................... $ 15.46 $ 12.86 $ 8.72 $ 8.85
------------- -------- -------- --------
Income from investment operations
Net investment income.............................................. .08 .19 .14 .12
Net realized and unrealized gain (loss) on investments............. .33 3.99 4.09 (.20)
------------- -------- -------- --------
Total from investment operations................................ .41 4.18 4.23 (.08)
------------- -------- -------- --------
Less dividends and distributions
Dividends from net investment income............................... -- (.20) (.10) (.08)
Distributions from net realized gains.............................. -- (1.46) -- --
Distributions in excess of net realized gains...................... -- -- -- --
------------- -------- -------- --------
Total dividends and distributions............................... -- (1.66) (.10) (.08)
------------- -------- -------- --------
Increase resulting from Fund share repurchase...................... -- .08 .01 .03
Net change resulting from the issuance of Fund shares.............. -- -- -- --
------------- -------- -------- --------
Net asset value, end of period(a).................................. $ 15.87 $ 15.46 $ 12.86 $ 8.72
------------- -------- -------- --------
------------- -------- -------- --------
Market price per share, end of period(a)........................... $ 12.73 $ 15.75 $ 11.29 $ 7.8125
------------- -------- -------- --------
------------- -------- -------- --------
TOTAL INVESTMENT RETURN(b):........................................ (19.17)% 35.20% 49.40% 7.93%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................................... $ 374,867 $365,207 $315,392 $214,662
Average net assets (000)........................................... $ 391,704 $341,601 $258,156 $230,163
Ratios to average net assets:
Expenses, before loan interest and commitment fees.............. 1.34%(c) .97% 1.09% 1.06%
Total expenses.................................................. 1.34%(c) 1.00% 2.12% 2.20%
Net investment income........................................... 1.01%(c) 1.32% 1.33% 1.33%
Portfolio turnover rate............................................ 39%(d) 114% 85% 63%
Total debt outstanding at end of period (000 omitted).............. $ -- $ -- $ -- $ 45,000
Asset coverage per $1,000 of debt outstanding...................... $ -- $ -- $ -- $ 5,768
1999 1998
-------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................... $ 18.94 $ 15.26
-------- --------
Income from investment operations
Net investment income.............................................. .11 .14
Net realized and unrealized gain (loss) on investments............. (7.20) 6.84
-------- --------
Total from investment operations................................ (7.09) 6.98
-------- --------
Less dividends and distributions
Dividends from net investment income............................... (.05) (.14)
Distributions from net realized gains.............................. (2.59) (2.68)
Distributions in excess of net realized gains...................... (.45) (.63)
-------- --------
Total dividends and distributions............................... (3.09) (3.45)
-------- --------
Increase resulting from Fund share repurchase...................... -- --
Net change resulting from the issuance of Fund shares.............. .09 .15
-------- --------
Net asset value, end of period(a).................................. $ 8.85 $ 18.94
-------- --------
-------- --------
Market price per share, end of period(a)........................... $ 7.3125 $ 20.813
-------- --------
-------- --------
TOTAL INVESTMENT RETURN(b):........................................ (53.65)% 72.59%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................................... $221,881 $387,852
Average net assets (000)........................................... $296,740 $320,484
Ratios to average net assets:
Expenses, before loan interest and commitment fees.............. .94% .91%
Total expenses.................................................. 1.61% 1.25%
Net investment income........................................... .91% .82%
Portfolio turnover rate............................................ 65% 43%
Total debt outstanding at end of period (000 omitted).............. $ 45,000 $ 20,000
Asset coverage per $1,000 of debt outstanding...................... $ 5,931 $ 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. Total investment returns for periods of less than one
full year are not annualized.
(c) Annualized.
(d) Not annualized.
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
Supplemental Proxy Information FIRST FINANCIAL FUND, INC.
-------------------------------------------------------------------------------
The annual meeting of stockholders of First Financial Fund, Inc. was held on
August 12, 2002 (the 'Meeting') at the offices of Prudential Investments LLC,
100 Mulberry Street, Newark, New Jersey. On May 22, 2002, the record date for
the Meeting, there were 23,622,382 Fund shares outstanding and entitled to vote.
The Meeting was held to elect two Class I Directors to the Fund's Board to serve
until 2005. Directors whose terms of office continue beyond this Meeting are
Thomas T. Mooney, Robert I. Barr and Clay T. Whitehead.
The following persons were nominated by the Board to stand for election at the
Meeting as Class I Directors: Eugene C. Dorsey and Robert E. La Blanc. A group
of stockholders advised by Stewart R. Horejsi (the 'Horejsi Group') nominated
Joel Looney and Dean Jacobson as Class I Directors.
The results of the voting at the Meeting, as independently certified by IVS
Associates, Inc., were as follows:
Nominee In Favor Withheld
------------------ ---------- ---------
Eugene C. Dorsey 7,817,386 187,166
Robert E. La Blanc 7,812,470 192,082
Joel Looney 11,174,771 153,216
Dean Jacobson 11,174,771 153,216
No nominee for election as a Class I Director received the vote of a majority of
the Fund's outstanding shares at the Meeting, which is required under the Fund's
By-laws in order to be elected as a Director. Therefore, no nominee was elected
at the Meeting and the incumbents, Messrs. Dorsey and La Blanc, remain on the
Fund's Board as 'holdover' Directors until their successors are duly elected and
qualified.
Shortly after the issuance of the Fund's press release announcing the results
noted above, Badlands Trust Company ('Badlands'), as trustee of one of the
members of the Horejsi Group, filed suit in United States District Court to
invalidate the Fund's By-law and to seat Messrs. Looney and Jacobson as Class I
Directors of the Fund. The District Court ruled for Badlands on these matters,
but the United States Court of Appeals for the Fourth Circuit stayed the effect
of the District Court's ruling until the Court of Appeals issues its appellate
decision. Pursuant to an order of the District Court, the Fund's Board,
consisting of the three Directors whose terms did not expire in 2002, may meet
and conduct business until these matters are resolved.
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10
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.
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.
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11
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
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Equiserve Trust Company, N.A.
P.O. Box 43011
Providence, RI 02940-3011
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 accompanying financial statements as of September 30, 2002 were
not audited and, accordingly, no opinion is expressed on them.
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
The Fund's CUSIP number is:
320228109