-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ef38gd7JDjoYtRe2Qr090rMMO0oImMf+nlSMExaVWBe8hIUJJ7j5lPnCy1/yX+OB UXh2Y9+bcJykb3UxtdygMQ== 0000790202-98-000003.txt : 19980611 0000790202-98-000003.hdr.sgml : 19980611 ACCESSION NUMBER: 0000790202-98-000003 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980610 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST FINANCIAL FUND INC CENTRAL INDEX KEY: 0000790202 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133341573 STATE OF INCORPORATION: MD FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-04605 FILM NUMBER: 98645313 BUSINESS ADDRESS: STREET 1: GATEWAY ENTER THREE 100 MULBERRY ST CITY: NEWARK STATE: NJ ZIP: 07102-4077 BUSINESS PHONE: 2013677530 MAIL ADDRESS: STREET 1: GATEWAY CENTER THREE 100 MULBERRY STREET CITY: NEWARK STATE: NJ ZIP: 07102-4077 FORMER COMPANY: FORMER CONFORMED NAME: FIRST SAVINGS & BANKING INSTITUTIONS FUND INC DATE OF NAME CHANGE: 19860402 N-30D 1 FIRST FINANCIAL FUND, INC. (ICON) ANNUAL REPORT March 31, 1998 Letter To Shareholders April 15, 1998 Dear Fellow Shareholder: The current bull market shows no sign of fatigue. Once again, our expectation of a market correction, our incredulity of record high valuations, and our stiff-necked stubbornness in refusing to "pay up" for financial stocks with takeover premiums, have dampened the Fund's returns relative to its benchmarks. The commercial finance and sub-prime lending sectors (which are not in the Fund's bank and thrift benchmarks) hurt the Fund's performance as well. Both areas, however, have been rebounding of late, set off by the acquisition industry leaders, The Money Store and Green Tree Financial. Indeed, the Fund's net asset value ("NAV") is up 5.9% so far in April. Investment returns for periods ended March 31, 1998 are as follows: Investment Objective The Fund seeks long-term capital appreciation and, as a secondary objective, current income by investing in a portfolio of securities issued by savings, banking and mortgage institutions. TOTAL RETURN For The Periods Ended March 31, 1998
6 Mos. 1 Year 3 Years 5 Years First Financial Fund's NAV1 8.0% 49.2% 44.9% 35.9% S&P 500 Index 17.2% 48.0% 32.8% 22.4% NASDAQ Composite2 8.9% 50.3% 31.0% 21.6% NASDAQ Banks2 17.0% 60.9% 42.3% 28.7% SNL All Daily Thrift2 17.9% 64.7% 46.2% 30.7%
1Source: Prudential Investments Fund Management. The Fund's total return represents the change in net asset value from the beginning of the period noted through March 31, 1998 and assumes the reinvestment of dividends and distributions. Past performance is no guarantee of future results. 2Principal only. Note: Returns for periods greater than one year are annualized. On March 31, 1998, First Financial Fund's shares closed at a NYSE market price of $20.81 per share, which represented a premium of 9.9% to the net asset value of $18.94 per share. Outlook and Strategy. The "Goldilocks" economy, one with moderate GDP growth and lower interest rates, and the torrid pace of merger activity are still the twin turbos of the bull market for financial stocks. Analysis of the former we will leave to the reader. As to the latter, the recent mergers of Nations Bank/BankAmerica and Citicorp/Travelers Group have set new precedents for the size and scope of consolidation. Every financial concern is now a potential target, no matter the size. Mergers across financial industry subsegments - e.g., banking and insurance - will cease to be an anomaly. Higher deal prices will be driven by investors' acceptance of current stock valuations, management claims of cost savings and revenue enhancements, and the machinations of acquisition accounting which has led to ever increasing "restructuring charges." - -------------------------------------------------- - ----------------------------- 1 We've stated before that the difficulty in finding absolute value in small bank and thrifts has led us to other areas of financial services. One area in particular is mortgage real estate investment trusts ("REITs"). We favor companies in this emerging industry that have organic origination capability or relationships and that are internally managed. Structurally, these entities hold the same residential and commercial mortgages as a bank or thrift but in a manner which is potentially more "general and administrative expense friendly" and tax-efficient. Some of these mortgage REITs have a projected yield of 10% or more versus Treasury securities that are now yielding less than 6%. We like that kind of absolute and relative return. Thank you for your confidence in us. Sincerely, Nicholas C. Adams Portfolio Manager Senior Vice President Wellington Management Company, LLP - -------------------------------------------------- - ----------------------------- 2 Portfolio of Investments as of March 31, 1998 FIRST FINANCIAL FUND, INC. - -------------------------------------------------- - ----------
Shares Description Value (Note 1) - -------------------------------------------------- - ---------- LONG-TERM INVESTMENTS--106.2% COMMON STOCKS--104.3% - -------------------------------------------------- - ---------- Banks & Thrifts--50.1% 242,700 Acadiana Bancshares, Inc. $ 5,521,425 210,000 Ambanc Holding Co., Inc. 3,990,000 50,000 Bay State Bancorp, Inc.* 1,481,250 125,000 Big Foot Financial Corp.* 2,593,750 240,762 Bostonfed Bancorp, Inc. 5,537,526 211,000 Cameron Financial Corp. 4,206,812 189,000 Catskill Financial Corp. 3,354,750 129,580 CCF Holding Co. 2,785,970 220,750 Commercial Federal Corp. 8,029,781 106,500 Community Financial Corp. 2,116,688 4,500 Covest Bancshares, Inc. 77,625 74,600 CSB Financial Group, Inc.* 1,007,100 134,500 Dime Bancorp, Inc. 4,043,406 324,345 Downey Financial Corp. 10,500,669 202,900 Fidelity Federal Bancorp 1,902,188 24,000 First Financial Corp. 393,000 311,100 FirstFed America Bancorp, Inc.* 6,571,987 126,000 FirstFed Bancorp, Inc. 3,024,000 201,000 Flushing Financial Corp. 4,999,875 154,000 Fort Bend Holding Corp. 4,158,000 345,000 GA Financial, Inc. 7,029,375 38,500 GBC Bancorp 2,550,625 143,742 Golden State Bancorp, Inc.* 5,489,148 210,000 GreenPoint Financial Corp. 7,546,875 85,000 GS Financial Corp. 1,726,563 115,800 Hallmark Capital Corp.* 1,765,950 16,666 HFB Financial Corp. 287,489 62,400 Highland Bancorp, Inc. 2,340,000 9,375 Independent Bankshares, Inc. 160,547 294,000 ITLA Capital Corp.* 5,990,250 246,000 Long Island Bancorp, Inc. 15,467,250 154,000 MECH Financial, Inc.* 4,581,500 50,000 Pamrapo Bancorp, Inc. 1,375,000 350,000 People's Bank 13,256,250 65,000 Peoples Financial Corp. 1,040,000 174,600 Perpetual Federal Savings Bank 3,710,250 95,300 Prestige Bancorp, Inc. 1,906,000 294,000 Provident Financial Holdings, Inc.* 6,762,000 357,900 RedFed Bancorp, Inc.* 7,113,262 85,850 Redwood Financial, Inc.* $ 1,126,781 84,999 Regent Bancshares Corp.* 1,274,985 189,800 Richmond County Financial Corp. 3,641,787 470,000 River Bank America* 2,585,000 47,800 Rowan Bancorp, Inc.* 1,027,700 125,600 SFS Bancorp, Inc. 2,983,000 40,500 Southern Community Bancshares, Inc. 708,750 11,531 Sun Bancorp, Inc.* 348,798 10,000 Telebanc Financial Corp.* 197,500 16,500 Three Rivers Financial Corp. 344,438 83,200 Tri-County Bancorp, Inc. 1,123,200 23,722 Vermont Financial Services Corp. 655,320 8,200 Warwick Community Bancorp, Inc.* 145,038 212,000 Western Bancorp*/D/DD (cost $5,936,000; purchased 1/26/98) 8,287,875 15,000 Westernbank Puerto Rico 225,000 168,000 Yonkers Financial Corp. 3,213,000 - ------------ 194,282,308 - -------------------------------------------------- - ---------- Other Financial Intermediaries--54.2% 400,000 Anthracite Capital, Inc. 6,000,000 248,200 Central Financial Acceptance Corp.* 2,900,837 560,000 Doral Financial Corp. 16,730,000 973,700 Dynex Capital, Inc. 11,684,400 258,050 Financial Federal Corp.* 6,580,275 70,000 Finova Group, Inc. 4,121,250 528,800 First Merchants Acceptance Corp.* 5,288 112,000 First Mortgage Corp.* 434,000 142,000 FIRSTPLUS Financial Group, Inc.* 5,964,000 706,000 Headlands Mortgage Co.* 11,869,625 143,100 Healthcare Financial Partners, Inc.* 6,779,362 603,400 IMC Mortgage Co.* 8,032,762 351,900 IMPAC Mortgage Holdings, Inc. 6,004,294 803,900 Imperial Credit Industries, Inc.* 18,690,675 128,016 Inco Homes Corp.* 336,042 188,800 LASER Mortgage Management, Inc. 3,079,800 196,000 Legg Mason, Inc. 11,625,250 230,411 Life Financial Corp.* 4,579,419 838,500 Long Beach Financial Corp.* 10,690,875 466,700 Novastar Financial, Inc.* 9,217,325
- -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 3 Portfolio of Investments as of March 31, 1998 FIRST FINANCIAL FUND, INC. - -------------------------------------------------- - ----------
Shares Description Value (Note 1) - -------------------------------------------------- - ---------- Other Financial Intermediaries (cont'd.) 312,300 Ocwen Asset Investment Corp. $ 5,328,619 520,100 Ocwen Financial Corp.* 14,432,775 99,000 PMC Commerical Trust 1,942,875 330,000 Prime Capital Corp., Inc.* 1,732,500 421,350 Resource Bancshares Mortgage Group, Inc. 6,688,931 545,300 Sundance Homes, Inc.* 1,158,763 807,600 Ugly Duckling Corp.* 8,681,700 378,000 WFS Financial Inc.* 3,732,750 581,700 Wilshire Financial Services Group, Inc.* 14,542,500 405,900 Wilshire Real Estate Investment Trust 6,494,400 - ------------ 210,061,292 - ------------ Total common stocks (cost $273,268,557) 404,343,600 - ------------ - -------------------------------------------------- - ---------- Preferred Stocks--0.7% 100,000 Community Bank, Inc. 13.00%, Ser. B (cost $2,400,000) 2,800,000 - ------------ - -------------------------------------------------- - ---------- Corporate Bonds--0.4% Principal Amount (000) $1,450 Resource America, Inc. 12.00%, 8/1/04 (cost $1,450,000) 1,533,375 - ------------ - -------------------------------------------------- - ---------- Warrants*--0.8% Warrants 50,000 Community Bank, Inc. expiring June '99 700,000 466,700 Novastar Financial, Inc.D/DD expiring February '01 (cost $769,355; purchased 12/9/96) 2,216,825 - ------------ Total warrants (cost $869,355) 2,916,825 - ------------ Total long-term investments (cost $277,987,912) 411,593,800 - ------------ SHORT-TERM INVESTMENTS--1.3% - -------------------------------------------------- - ---------- Repurchase Agreement--1.3% $5,208 Paribas Corp., 5.90%, due 4/1/98 in the amount of $5,208,854 (cost $5,208,000; value of collateral including accrued interest-$5,317,650) $ 5,208,000 - ------------ - -------------------------------------------------- - ---------- Certificates Of Deposit Brookline Saving, 1 5.00%, 5/29/98 1,301 First Federal Savings Bank, 3 5.00%, 4/14/98 3,018 Naugatuck Valley Savings & Loan Assoc., 1 4.10%, 4/25/98 1,175 - ------------ Total certificates of deposit (cost $5,494) 5,494 - ------------ Total short-term investments (cost $5,213,494) 5,213,494 - ------------ - -------------------------------------------------- - ---------- Total Investments--107.5% (cost $283,201,406; Note 3) 416,807,294 Liabilities in excess of other assets--(7.5%) (28,955,356) - ------------ Net Assets--100% $387,851,938 - ------------ - ------------
- --------------- * Non-income producing security. D Indicates a restricted security; the aggregate cost of such securities is $6,705,355. The aggregate value ($10,504,700) is approximately 2.7% of net assets. DD Fair Valued security. - -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 4 Statement of Assets and Liabilities FIRST FINANCIAL FUND, INC. - -------------------------------------------------- - ------------------------------ Assets March 31, 1998 Investments, at value (cost $283,201,406)..................................... ............................. $416,807,294 Cash.............................................. .................................................. ....... 616,479 Receivable for investments sold.............................................. .............................. 234,742 Dividends and interest receivable........................................ .................................. 822,875 Other assets............................................ .................................................. . 142,855 - -------------- Total assets............................................ ................................................ 418,624,245 - -------------- Liabilities Loan payable (Note 4)................................................ ...................................... 20,000,000 Payable for investments purchased......................................... ................................. 10,009,480 Advisory fee payable........................................... ............................................ 536,956 Administration fee payable........................................... ...................................... 125,119 Loan interest payable (Note 4)................................................ ............................. 56,778 Accrued expenses.......................................... ................................................. 31,360 Deferred directors' fees.............................................. ..................................... 12,614 - -------------- Total liabilities....................................... ................................................ 30,772,307 - -------------- Net Assets............................................ .................................................. ... $387,851,938 - -------------- - -------------- Net assets were comprised of: Common stock, at par; 20,477,040 shares issued............................................ .............. $ 20,477 Paid-in capital in excess of par............................................... ......................... 234,051,201 - -------------- 234,071,678 Undistributed net investment income............................................ ......................... 908,927 Accumulated net realized gains............................................. ............................. 19,265,445 Net unrealized appreciation of investments....................................... ....................... 133,605,888 - -------------- Net assets, March 31, 1998.............................................. ................................ $387,851,938 - -------------- - -------------- Net asset value per share ($387,851,938 /20,477,040 shares of common stock outstanding).................... $18.94 - -------------- - --------------
- -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 5 FIRST FINANCIAL FUND, INC. Statement of Operations - -------------------------------------------------- - ----------
Year Ended Net Investment Income March 31, 1998 Income Dividends (net of foreign withholding taxes of $23,333)..................... $ 5,361,983 Interest................................. 1,265,221 --- - ----------- Total income.......................... 6,627,204 --- - ----------- Expenses Investment advisory fee.................. 2,065,528 Administration fee....................... 480,727 Legal fees and expenses.................. 91,000 Custodian's fees and expenses............ 71,000 Insurance expense........................ 62,000 Listing fees............................. 32,000 Reports to shareholders.................. 25,000 Transfer agent's fees and expenses....... 24,000 Audit fee................................ 22,000 Directors' fees and expenses............. 16,000 Miscellaneous............................ 14,470 --- - ----------- Total operating expenses.............. 2,903,725 Loan interest (Note 4)................... 1,090,573 --- - ----------- Total expenses........................ 3,994,298 --- - ----------- Net investment income....................... 2,632,906 --- - ----------- Realized and Unrealized Gain on Investments Net realized gain on investment transactions............................. 47,574,880 Net change in unrealized appreciation of investments.............................. 81,471,172 --- - ----------- Net gain on investments..................... 129,046,052 --- - ----------- Net Increase in Net Assets Resulting from Operations................... $131,678,958 --- - ----------- --- - -----------
FIRST FINANCIAL FUND, INC. Statement of Cash Flows - -------------------------------------------------- - ----------
Year Ended Increase (Decrease) in Cash March 31, 1998 Cash flows provided from operating activities Dividends and interest received............ $ 6,334,577 Operating expenses paid.................... (2,793,775) Loan interest paid......................... (1,300,951) Purchases of short-term portfolio investments, net........................ 36,949,803 Purchases of long-term portfolio investments............................. (175,338,134) Proceeds from disposition of long-term portfolio investments................... 149,489,307 Deferred expenses and other assets......... (1,986) -- - ------------ Net cash provided from operating activities.............................. 13,338,841 -- - ------------ Cash used for financing activities Cash dividends paid........................ (14,322,612) Net increase in notes payable.............. 1,600,000 -- - ------------ Net cash used for financing activities..... (12,722,612) -- - ------------ Net increase in cash....................... 616,229 Cash at beginning of year.................. 250 -- - ------------ Cash at end of year........................ $ 616,479 -- - ------------ -- - ------------ Reconciliation of Net Increase in Net Assets to Net Cash Provided from for Operating Activities Net increase in net assets resulting from operations................................. $ 131,678,958 -- - ------------ Increase in investments....................... (2,501,529) Net realized gain on investment transactions............................... (47,574,880) Net increase in unrealized appreciation of investments................................ (81,471,172) Decrease in receivable for investments sold... 4,631,951 Increase in dividends and interest receivable................................. (292,627) Increase in deferred expenses and other assets..................................... (1,986) Increase in payable for investments purchased.................................. 8,970,554 Decrease in accrued expenses and other liabilities................................ (100,428) -- - ------------ Total adjustments....................... (118,340,117) -- - ------------ Net cash provided from operating activities... $ 13,338,841 -- - ------------ -- - ------------
- -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 6 FIRST FINANCIAL FUND, INC. Statement of Changes in Net Assets - -------------------------------------------------- - ----------
Year Ended March 31, Increase (Decrease) ---------------- - -------------- in Net Assets 1998 1997 ------------ - ------------ Operations Net investment income....... $ 2,632,906 $ 3,424,853 Net realized gain on investment transactions............. 47,574,880 62,347,973 Net increase in unrealized appreciation of investments.............. 81,471,172 12,733,565 ------------ - ------------ Net increase in net assets resulting from operations............... 131,678,958 78,506,391 ------------ - ------------ Dividends and distributions (Note 1) Dividends from net investment income........ (2,481,971) (3,196,846) Distributions from net realized gains........... (47,574,880) (51,149,539) Distributions in excess of net realized gains........... (11,105,995) - -- Value of Fund shares issued to shareholders in reinvestment of dividends and distributions.................. 46,840,234 37,704,525 Cost of Fund shares reacquired..................... -- (5,498,887) ------------ - ------------ Total increase................. 117,356,346 56,365,644 Net Assets Beginning of year.............. 270,495,592 214,129,948 ------------ - ------------ End of year.................... $387,851,938 $270,495,592 ------------ - ------------ ------------ - ------------
FIRST FINANCIAL FUND, INC. Notes to Financial Statements - -------------------------------------------------- - ---------- First Financial Fund, Inc. (the 'Fund') was incorporated in Maryland on March 3, 1986, as a closed-end, diversified investment company. The Fund had no operations until April 24, 1986, when it sold 10,000 shares of common stock for $100,000 to Wellington Management Company (the 'Investment Adviser'). Investment operations commenced on May 1, 1986. 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, banking, and mortgage 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: Each security traded on a national securities exchange will be valued on the basis of the last sales price on the valuation date on the principal exchange on which the security is traded. Securities traded in the over-the-counter market and on one or more exchanges will generally be valued using the quotations the Board of Directors or its delegate believe reflect most closely the value of such securities. Securities for which no trades have taken place that day and unlisted securities for which market quotations are readily available are valued at the latest bid price. Securities for which market quotations are not readily available will be valued at fair value as determined in good faith according to pricing procedures developed by the Investment Adviser and approved by the Board of Directors. 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. 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. 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. The Fund may invest up to 20% of its total assets in securities which are not readily marketable, including those which are restricted as to disposition under securities law ('restricted securities'). With regard to the restricted securities held by the Fund at March 31, 1998, the Fund may - -------------------------------------------------- - ------------------------------ See Notes to Financial Statements. 7 Notes to Financial Statements FIRST FINANCIAL FUND, INC. - -------------------------------------------------- - ------------------------------ not demand registration by the issuers. Restricted securities are valued pursuant to the valuation procedures noted above. Cash Flow Information: The Fund invests in securities and pays dividends from net investment income and distributions from net realized gains which are paid in cash or are reinvested at the discretion of shareholders. These activities are reported in the Statement of Changes in Net Assets and additional information on cash receipts and cash payments is presented in the Statement of Cash Flows. Accounting practices that do not affect reporting activities on a cash basis include carrying investments at value and amortizing discounts on debt obligations. Cash, as used in the Statement of Cash Flows, is the amount reported as 'Cash' in the Statement of Assets and Liabilities. Options: The Fund may either purchase or write options in order to hedge against adverse market movements or fluctuations in value caused by changes in prevailing interest rates or foreign currency exchange rates with respect to securities or currencies which the Fund currently owns or intends to purchase. When the Fund purchases an option, it pays a premium and an amount equal to that premium is recorded as an investment. When the Fund writes an option, it receives a premium and an amount equal to that premium is recorded as a liability. The investment or liability is adjusted daily to reflect the current market value of the option. If an option expires unexercised, the Fund realizes a gain or loss to the extent of the premium received or paid. If an option is exercised, the premium received or paid is an adjustment to the proceeds from the sale or the cost basis of the purchase in determining whether the Fund has realized a gain or loss. The difference between the premium and the amount received or paid on effecting a closing purchase or sale transaction is also treated as a realized gain or loss. Gain or loss on purchased options is included in net realized gain (loss) on investment transactions. The Fund, as writer of an option, has no control over whether the underlying securities or currencies may be sold (called) or purchased (put). As a result, the Fund bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. The Fund, as purchaser of an option, bears the risk of the potential inability of the counterparties to meet the terms of their contracts. Securities Transactions and Net Investment Income: Securities transactions are recorded on the trade date. Realized gains or losses on sales of securities are calculated on the identified cost basis. Dividend income is recorded on the ex-dividend date; interest income is recorded on the accrual basis. Expenses are recorded on the accrual basis which may require the use of certain estimates by management. Federal Income Taxes: It is the Fund's intention to continue to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to shareholders. Therefore, no federal income tax provision is required. Withholding taxes on foreign dividends are provided in accordance with the Fund's understanding of the applicable country's tax rules and rates. Dividends and Distributions: The Fund expects to declare and pay, at least annually, dividends from net investment income and any net capital gains. Dividends and distributions are recorded on the ex- dividend date. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for wash sales. - -------------------------------------------------- - ---------- Note 2. Agreements The Fund has agreements with the Investment Adviser and with Prudential Investments Fund Management LLC (the 'Administrator'). The Investment Adviser makes investment decisions on behalf of the Fund; the Administrator provides occupancy and certain clerical and accounting services to the Fund. The Fund bears all other costs and expenses. The investment advisory agreement provides for the Investment Adviser to receive a fee, computed monthly and payable quarterly, at the following annual rates: .75% of the Fund's average month-end net assets up to and including $50 million, and .625% of such assets in excess of $50 million. The administration agreement provides for the Administrator to receive a fee, computed monthly and payable quarterly, at the annual rate of .15% of the Fund's average month-end net assets. - -------------------------------------------------- - ---------- Note 3. Portfolio Securities Purchases and sales of investment securities, other than short-term investments, for the year ended March 31, 1998 were $184,308,688 and $144,857,356, respectively. During the year ended March 31, 1998, the Fund entered into $9,684,975 of securities transactions on a principal basis with Prudential Securities Incorporated, an affiliate of the Administrator. The cost basis of the Fund's investments for federal income tax purposes, including short-term investments, at March 31, 1998 was $283,647,360; - -------------------------------------------------- - ------------------------------ 8 Notes to Financial Statements FIRST FINANCIAL FUND, INC. - -------------------------------------------------- - ------------------------------ and, accordingly, net unrealized appreciation for federal income tax purposes was $133,159,934 (gross unrealized appreciation-- $157,959,502; gross unrealized depreciation--$24,799,568). - -------------------------------------------------- - ---------- Note 4. Borrowings The Fund has a credit agreement (the 'Agreement') with an unaffiliated lender. The maximum commitment under the Agreement is $45,000,000. These borrowings may be set to any desired maturity from one week to one year at a rate of interest determined by the lender at the time of borrowing. While outstanding, each borrowing will bear interest, payable at maturity. The average daily balance outstanding for the year ended March 31, 1998 was $16,299,178 at a weighted average interest rate of 6.39%. The highest face amount of borrowing outstanding at any month-end during the year ended March 31, 1998 was $32,000,000. The current borrowings of $20,000,000 (at a weighted average interest rate of 6.39%) mature throughout the period April 2, 1998 and April 29, 1998. - -------------------------------------------------- - ---------- Note 5. Capital There are 50 million shares of $.001 par value common stock authorized. Of the 20,477,040 shares issued as of March 31, 1998, the Investment Adviser owned 13,601 shares. During the fiscal years ended March 31, 1997 and 1998, the Fund issued 2,505,284 and 2,748,679 shares, respectively, in connection with cash distributions paid in stock. Of the 2,748,679 shares issued during the fiscal year ended March 31, 1998, 847,579 represent newly- issued shares and the remaining 1,901,100 represent reissued Treasury shares. - -------------------------------------------------- - ------------------------------ 9 Financial Highlights FIRST FINANCIAL FUND, INC. - -------------------------------------------------- - ------------------------------
Year Ended March 31, - -------------------------------------------------- - ---------- 1998 1997 1996 1995 1994 - -------- -------- -------- -------- - -------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of year.................. $ 15.26 $ 13.71 $ 11.05 $ 12.74 $ 16.52 - -------- -------- -------- -------- - -------- Income from investment operations Net investment income............................... .14 .22 .13 .05 .04 Net realized and unrealized gain (loss) on investments...................................... 6.84 4.84 4.99 2.76 3.27 - -------- -------- -------- -------- - -------- Total from investment operations................. 6.98 5.06 5.12 2.81 3.31 - -------- -------- -------- -------- - -------- Less dividends and distributions Dividends from net investment income................ (.14) (.21) (.15) (.03) (.05) Distributions from net realized gains............... (2.68) (3.36) (2.31) (4.38) (6.63) Distributions in excess of net realized gains....... (.63) -- -- - -- -- - -------- -------- -------- -------- - -------- Total dividends and distributions................ (3.45) (3.57) (2.46) (4.41) (6.68) - -------- -------- -------- -------- - -------- Increase resulting from Fund share repurchase....... -- .06 - -- -- .08 Net change resulting from the issuance of Fund shares........................................... .15 -- -- (.09) (.49) - -------- -------- -------- -------- - -------- Net asset value, end of year(a)..................... $ 18.94 $ 15.26 $ 13.71 $ 11.05 $ 12.74 - -------- -------- -------- -------- - -------- - -------- -------- -------- -------- - -------- Market price per share, end of year(a).............. $ 20.813 $ 14.500 $ 12.625 $ 11.125 $ 12.00 - -------- -------- -------- -------- - -------- - -------- -------- -------- -------- - -------- TOTAL INVESTMENT RETURN(b):......................... 72.59% 42.10% 35.46% 34.83% 24.22% RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (000)....................... $387,852 $270,496 $214,130 $158,214 $143,572 Average net assets (000)............................ $320,484 $238,967 $195,421 $164,322 $158,100 Ratios to average net assets: Expenses, before loan interest, commitment fees and nonrecurring expenses..................... .91% 1.03% 1.00% 1.03% 1.11% Total expenses................................... 1.25% 1.56% 1.23% 1.58% 1.36% Net investment income............................ .82% 1.43% .97% 0.46% 0.25% Portfolio turnover rate............................. 43% 70% 82% 103% 139% Total debt outstanding at end of year (000 omitted)......................................... $ 20,000 $ 18,400 $ 9,700 $ 16,000 $ 15,000 Asset coverage per $1,000 of debt outstanding....... $ 20,393 $ 15,701 $ 23,075 $ 10,888 $ 10,571 Average commission rate paid per share.............. $ .0483 $ .0530 $ .0415 -- --
- --------------- (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. 10 Report of Independent Accountants FIRST FINANCIAL FUND, INC. - -------------------------------------------------- - ------------------------------ To the Board of Directors and Shareholders of First Financial Fund, Inc. In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations, of cash flows and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of First Financial Fund, Inc. (the 'Fund') at March 31, 1998, the results of its operations and its cash flows for the year then ended and the changes in its net assets and the financial highlights for each of the two years in the period then ended, in conformity with generally accepted accounting principles. 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 generally accepted auditing standards 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, 1998 by correspondence with the custodian and brokers and the application of alternative auditing procedures where confirmations from brokers were not received, provide a reasonable basis for the opinion expressed above. The accompanying financial highlights for each of the three years in the period ended March 31, 1996 were audited by other independent accountants, whose opinion dated May 9, 1996 was unqualified. PRICE WATERHOUSE LLP 1177 Avenue of the Americas New York, New York 10036 May 14, 1998 - -------------------------------------------------- - ------------------------------ 11 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, 1998) 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, 1998, the Fund paid dividends and distributions totalling $3.45 per share, comprised of $.14 ordinary income and $1.89 short- term capital gains which are taxable as ordinary income and $1.42 long-term capital gains of which $.96 is taxable as 28% rate gains and $.46 is taxable as 20% rate gains. Further, we wish to advise you that 14.86% of the dividends taxable as ordinary income and paid in the fiscal year ended March 31, 1998 qualified for the corporate dividend received deduction available to corporate taxpayers. In January 1999, 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 1998 federal income tax returns. Shareholders are advised to consult their own tax advisers with respect to the tax consequences of their investment in the Fund. Other Information FIRST FINANCIAL FUND, INC. - -------------------------------------------------- - ------------------------------ Dividend Reinvestment Plan. Shareholders may elect to have all distributions of dividends and capital gains automatically reinvested in Fund shares (Shares) pursuant to the Fund's Dividend Reinvestment Plan (the Plan.) Shareholders who do not participate in the Plan will normally receive all distributions in cash paid by check in United States dollars mailed directly to the shareholders of record (or if the shares are held in streetname or other nominee name, then to the nominee) by the custodian, as dividend disbursing agent unless the Fund declares a distribution payable in shares, absent a shareholder's specific election to receive cash.. Shareholders who wish to participate in the Plan should contact the Fund at (800) 451-6788. State Street Bank and Trust Co. (the Plan Agent) serves as agent for the shareholders in administering the Plan. After the Fund declares a dividend or a capital gains distribution, if (1) the market price is lower than net asset value, the participants in the Plan will receive the equivalent in Shares valued at the market price determined as of the time of purchase (generally, following the payment date of the dividend or distribution); or if (2) the market price of Shares on the payment date of the dividend or distribution is equal to or exceeds their net asset value, participants will be issued Shares at the higher of net asset value or 95% of the market price. If the Fund declares a dividend or other distribution payable only in cash and the net asset value exceeds the market price of Shares on the valuation date, the Plan Agent will, as agent for the participants, receive the cash payment and use it to buy Shares in the open market. If, before the Plan Agent has completed its purchases, the market price exceeds the net asset value per share, the Plan Agent will halt open-market purchases of the Fund's shares for this purpose, and will request that the Fund pay the remainder, if any, in the form of newly- issued shares. The Fund will not issue Shares under the Plan below net asset value. There is no charge to participants for reinvesting dividends or capital gain distributions, except for certain brokerage commissions, as described below. The Plan Agent's fees for the handling of the reinvestment of dividends and distributions will be paid by the Fund. There will be no brokerage commissions charged with respect to shares issued directly by the Fund. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with the reinvestment of dividends and distributions. The automatic reinvestment of dividends and distributions will not relieve participants of any federal income tax that may be payable on such dividends or distributions. The Fund reserves the right to amend or terminate the Plan upon 90 days' written notice to shareholders of the Fund. Participants in the Plan may withdraw from the Plan upon written notice to the Plan Agent or by telephone in accordance with specific procedures and will receive certificates for whole Shares and cash for fractional Shares. All correspondence concerning the Plan should be directed to the Plan Agent, State Street Bank & Trust Company, P.O. Box 8200, Boston, MA 02266-8200. - -------------------------------------------------- - ------------------------------ 12 Directors Eugene C. Dorsey Douglas H. McCorkindale Thomas T. Mooney Investment Adviser Wellington Management Company, LLP 75 State Street Boston, MA 02109 Administrator Prudential Investments Fund Management LLC Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 Custodian and Transfer Agent State Street Bank and Trust Company One Heritage Drive North Quincy, MA 02171 Independent Accountants Price Waterhouse 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 -----END PRIVACY-ENHANCED MESSAGE-----