First
Financial
Fund, Inc.
ANNUAL
REPORT
March 31, 1997
<PAGE>
Letter To Shareholders April 16, 1997
Dear Fellow Shareholder:
Notwithstanding a respectable showing for the year ended March 31, 1997,
the stock market of late has left many investors edgy and insecure. The
S&P 500 Index gained only 2.7% for the first three months in 1997, while
its one-year return for the period ended March 31, 1997 was 19.8%.
During this one-year time period, the S&P 500 Index outperformed
approximately 90% of all open-end equity mutual funds. Our positive
performance reflected the strong showing of financial stocks, which
in turn benefited by continued industry consolidation, positive
earnings trends and a stable economy.
The performance of the First Financial Fund and various benchmarks
is shown as follows:
<TABLE>
TOTAL RETURN
For The Periods Ended March 31, 1997
<CAPTION>
6 Mos. 12 Mos.
<S> <C> <C>
First Financial Fund's NAV 15.7% 37.7%
S&P 500 Index 11.2% 19.8%
NASDAQ Composite* -0.4% 10.9%
NASDAQ Banks* 19.9% 30.9%
SNL Daily* 22.9% 38.1%
</TABLE>
* Principal only.
On March 31, 1997, First Financial Fund's shares closed at a market
price of $14.50 per share, which represented a discount of 5.0% to
the net asset value per share of $15.26.
Outlook and Strategy
Everybody knows that the Fed raised rates by 25 basis points. Everybody
suspects that they will do it again. In such an environment, financial
stocks generally underperform both relative to the broad market and in
the absolute. Blue Light specials abound. We will scrounge for
bargains, focusing in particular on financials with healthy balance
sheets and a decent prognosis in an environment of slowly rising
interest rates. We have been hurt of late by the Fund's outsized
positions in consumer finance stocks. They have significantly
underperformed the other finance subsectors. While much of the
carnage in consumer finance equities is well deserved and more
is to come, we believe select stocks in this area represent
outstanding value. As always, the wheat and the chaff will
become apparent over the long term.
A share of stock represents an ownership share in a company. That
share should reflect the intrinsic value of that company and will
wax or wane depending on business trends and management's ability
to manage through those trends. For all but a handful of companies,
1
<PAGE>
intrinsic value changes slowly. Entities of substance take time to
build or erode. We have been simply dumbfounded of late by the stock
market performance of individual companies, which in a matter of days
or even hours has changed 10, 20 or 50% or more. We posit that the
prospects for these companies could not possibly have varied to such
a degree in such a short time. Rather, it is a sign that the stock
market has become less a cool, rational exchange for the investor
and more a casino for the speculator. Ours here is not to moralize.
Still, we wouldn't mind seeing the stock market close for a year to
allow investors to focus on the fundamentals of the companies that
they own and not be distracted or disoriented by price movements.
What a joy to focus on individual businesses without all the stock
market gibberish! Alas, only a fantasy. Besides which, it is precisely
in times of panic and irrational behavior that we find our best
investments at the lowest prices.
The Fund is currently approximately 85% invested as of March 31,
1997. If financial stocks continue to languish, we will no doubt
put the cash to work. We are encouraged by current valuations and
look for better performance over the long term.
Sincerely,
Nicholas C. Adams
Portfolio Manager
Senior Vice President
Wellington Management Company, LLP
2
<PAGE>
Portfolio of Investments as of March 31, 1997 FIRST FINANCIAL FUND, INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--89.9%
COMMON STOCKS--84.1%
- ------------------------------------------------------------
Banks & Thrifts--54.8%
242,700 Acadiana Bancshares, Inc. $ 4,550,625
126,000 Affiliated Community Bancorp, Inc. 2,976,750
210,000 Ambanc Holding Co., Inc.* 2,782,500
117,900 Banknorth Group, Inc. 4,774,950
125,000 Big Foot Financial Corp.* 1,765,625
281,762 Bostonfed Bancorp, Inc. 4,261,650
211,000 Cameron Financial Corp. 3,376,000
189,000 Catskill Financial Corp.* 3,024,000
117,800 CCF Holding Co. 1,884,800
106,500 Community Financial Corp. 1,570,875
74,600 CSB Financial Group, Inc.* 811,275
210,000 Dime Bancorp, Inc.* 3,228,750
308,900 Downey Financial Corp. 6,255,225
187,200 Eastern Bancorp, Inc. 4,539,600
202,900 Fidelity Federal Bancorp 1,673,925
238,000 First Defiance Financial Corp. 3,242,750
224,800 FirstFed America Bancorp, Inc.* 3,062,900
63,000 FirstFed Bancorp, Inc. 1,701,000
3,000 FirstFed Bancshares, Inc. 51,375
24,000 First Financial Corp. 288,000
201,000 Flushing Financial Corp. 3,567,750
77,000 Fort Bend Holding Corp. 1,848,000
345,000 GA Financial, Inc. 5,131,875
42 Glendale Federal Bank, FSB* 966
105,000 GreenPoint Financial Corp. 5,407,500
57,900 Hallmark Capital Corp.* 1,042,200
84,700 Hamilton Bancorp, Inc.* 1,461,075
10,000 HFB Financial Corp. 222,500
62,400 Highland Federal Bank, FSB* 1,357,200
78,367 HUBCO, Inc. 1,763,257
175,000 Imperial Bancorp* 4,178,125
7,500 Independent Bankshares, Inc. 120,938
294,000 ITLA Capital Corp.* 4,189,500
196,000 Long Island Bancorp, Inc. 6,468,000
102,500 Mechanics Savings Bank* 1,704,063
181,000 Mid Continent Bancshares, Inc. 4,570,250
80,900 Ocean Financial Corp.* 2,234,862
64,800 OSB Financial Corp. 2,073,600
33,000 PennFed Financial Services, Inc. $ 775,500
266,000 People's Bank 8,445,500
65,000 Peoples Financial Corp. 975,000
174,600 Perpetual Federal Savings Bank 2,531,700
95,300 Prestige Bancorp, Inc.* 1,524,800
294,000 Provident Financial Holdings, Inc.* 4,446,750
357,900 RedFed Bancorp, Inc.* 4,921,125
93,800 Redwood Financial, Inc.* 1,008,350
470,000 River Bank America* 3,172,500
47,800 Rowan Bancorp, Inc.* 824,550
125,600 SFS Bancorp, Inc. 2,041,000
29,200 Southern Community Bancshares, Inc. 394,200
50,000 Southwest Bancorp* 950,000
50,000 Sun Bancorp, Inc.*/D/DD
(cost $650,000; purchased 9/28/94) 765,000
10,000 Telebanc Financial Corp.* 150,000
16,500 Three Rivers Financial Corp. 233,063
41,600 Tri-County Bancorp, Inc. 769,600
20,000 Washington Federal, Inc. 455,000
564,100 Westcorp, Inc. 8,179,450
7,500 Westernbank of Puerto Rico 123,750
168,000 Yonkers Financial Corp. 2,436,000
------------
148,287,074
- ------------------------------------------------------------
Other Financial Intermediaries--29.3%
224,000 Emergent Group, Inc.* 2,576,000
190,700 Financial Federal Corp.* 3,384,925
73,000 Finova Group, Inc. 4,936,625
427,000 First Financial Caribbean Corp. 11,048,625
528,800 First Merchants Acceptance Corp.* 4,098,200
112,000 First Mortgage Corp.* 462,000
164,000 IMC Mortgage Co.* 2,378,000
430,700 Imperial Credit Industries, Inc.* 8,506,325
213,600 Imperial Credit Mortgage Holdings,
Inc. 4,886,100
128,016 Inco Homes Corp.* 336,042
147,000 Legg Mason, Inc. 6,210,750
99,000 PMC Commerical Trust, Inc. 1,720,125
330,000 Prime Capital Corp., Inc.* 1,608,750
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of March 31, 1997 FIRST FINANCIAL FUND, INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
Other Financial Intermediaries (cont'd.)
2,084 Redwood Trust, Inc. $ 96,385
296,471 Resource Bancshares Mortgage Group,
Inc. 4,669,418
545,300 Sundance Homes, Inc.* 1,295,088
319,500 Thornburg Mortgage Asset Corp. 6,070,500
570,300 Ugly Duckling Corp.* 10,407,975
185,500 Ugly Duckling Corp.,*/D/DD
(cost $3,454,938; purchased
2/10/97) 3,238,134
22,600 United Companies Financial Corp. 466,125
52,000 Wilshire Financial Services Group,
Inc.* 754,000
------------
79,150,092
------------
Total common stocks (cost
$178,046,106) 227,437,166
------------
- ------------------------------------------------------------
Preferred Stock--1.0%
100,000 Community Bank, Inc.,
13.00%, Ser. B (cost $2,400,000) 2,700,000
------------
- ------------------------------------------------------------
Convertible Bond--2.1%
Principal Amount
(000)
$3,000 RAC Financial Group, Inc.,
7.25%, 8/15/03 (cost $3,415,094) 5,771,250
------------
- ------------------------------------------------------------
Warrants*--0.1%
Warrants
50,000 Community Bank, Inc.,
expiring June '99 187,500
3 Glendale Federal Bank, FSB
expiring March '99 0
300,000 UnionFed Financial Corp.,D
expiring September '98
(cost $0; purchased 3/24/97) 0
------------
Total warrants (cost $100,000) 187,500
------------
Units*--2.6%
466,700 Novastar Financial, Inc.D/DD
(1 conv. preferred and 1 warrant)
(cost $7,000,500; purchased
12/9/96) $ 7,000,500
------------
Total long-term investments
(cost $190,961,700) 243,096,416
------------
SHORT-TERM INVESTMENTS--15.6%
- ------------------------------------------------------------
Repurchase Agreement--15.6%
Principal Amount
(000)
$42,158 Swiss Bank Corp.,
6.35%, dated 3/31/97, due 4/1/97
in the amount of $42,165,436 (cost
$42,158,000; value of collateral
including accrued
interest-$43,300,089) 42,158,000
------------
- ------------------------------------------------------------
Certificates Of Deposit
3 First Federal Savings Bank,
4.20%, 4/14/97 2,919
1 Naugatuck Valley Savings & Loan
Assoc.,
4.00%, 4/28/97 1,140
1 Brookline Savings Bank,
5.00%, 5/29/97 1,238
------------
Total certificates of deposit
(cost $5,297) 5,297
------------
Total short-term investments
(cost $42,163,297) 42,163,297
------------
- ------------------------------------------------------------
Total Investments--105.5%
(cost $233,124,997; Note 3) 285,259,713
Liabilities in excess of other
assets--(5.5%) (14,764,121)
------------
Net Assets--100% $270,495,592
------------
------------
</TABLE>
- ---------------
* Non-income producing security.
D Indicates a restricted security; the aggregate cost of such securities is
$11,105,438. The aggregate value ($11,003,634) is approximately 4.1% of net
assets.
DD Fair Valued security.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
Statement of Assets and Liabilities FIRST FINANCIAL FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets March 31, 1997
<S> <C>
Investments, at value (cost $233,124,997).................................................................. $ 285,259,713
Cash....................................................................................................... 250
Receivable for investments sold............................................................................ 4,866,693
Dividends and interest receivable.......................................................................... 530,248
Deferred expenses and other assets......................................................................... 140,869
--------------
Total assets............................................................................................ 290,797,773
--------------
Liabilities
Loan payable (Note 4)...................................................................................... 18,400,000
Payable for investments purchased.......................................................................... 1,038,926
Advisory fee payable....................................................................................... 428,983
Loan interest payable (Note 4)............................................................................. 267,156
Administration fee payable................................................................................. 99,206
Accrued expenses........................................................................................... 46,332
Deferred directors' fees................................................................................... 21,578
--------------
Total liabilities....................................................................................... 20,302,181
--------------
Net Assets................................................................................................. $ 270,495,592
--------------
--------------
Net assets were comprised of:
Common stock, at par; 19,629,461shares issued........................................................... $ 19,629
Paid-in capital in excess of par........................................................................ 210,011,537
Cost of 1,901,100 shares held in treasury............................................................... (22,799,722)
--------------
187,231,444
Undistributed net investment income..................................................................... 757,992
Accumulated net realized gains.......................................................................... 30,371,440
Net unrealized appreciation of investments.............................................................. 52,134,716
--------------
Net assets, March 31, 1997.............................................................................. $ 270,495,592
--------------
--------------
Net asset value per share ($270,495,592 /17,728,361 shares of common stock outstanding).................... $15.26
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
FIRST FINANCIAL FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income March 31, 1997
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $33,616)..................... $ 6,219,364
Interest................................. 943,453
--------------
Total income.......................... 7,162,817
--------------
Expenses
Investment advisory fee.................. 1,556,042
Administration fee....................... 358,450
Reports to shareholders.................. 174,000
Custodian's fees and expenses............ 99,000
Legal fees and expenses.................. 74,000
Insurance expense........................ 61,000
Listing fees............................. 44,000
Directors' fees and expenses............. 35,000
Transfer agent's fees and expenses....... 34,000
Audit fee................................ 22,000
Miscellaneous............................ 15,221
--------------
Total operating expenses.............. 2,472,713
Loan interest (Note 4)................... 1,265,251
--------------
Total expenses........................ 3,737,964
--------------
Net investment income....................... 3,424,853
--------------
Realized and Unrealized
Gain on Investments
Net realized gain on investment
transactions............................. 62,347,973
Net increase in unrealized appreciation of
investments.............................. 12,733,565
--------------
Net gain on investments..................... 75,081,538
--------------
Net Increase in Net Assets
Resulting from Operations................... $ 78,506,391
--------------
--------------
</TABLE>
FIRST FINANCIAL FUND, INC.
Statement of Cash Flows
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Increase (Decrease) in Cash March 31, 1997
<S> <C>
Cash flows provided from operating activities
Dividends and interest received............ $ 6,880,188
Operating expenses paid.................... (2,354,088)
Loan interest paid......................... (1,027,739)
Purchases of short-term portfolio
investments, net........................ (50,263,870)
Purchases of long-term portfolio
investments............................. (182,010,374)
Proceeds from disposition of long-term
portfolio investments................... 242,224,464
Deferred expenses and other assets......... (32,638)
--------------
Net cash provided from operating
activities.............................. 13,415,943
--------------
Cash used for financing activities
Cash dividends paid........................ (16,641,860)
Cash used to reacquire Fund shares......... (5,498,887)
Net increase in notes payable.............. 8,700,000
--------------
Net cash used for financing activities..... (13,440,747)
--------------
Net decrease in cash....................... (24,804)
Cash at beginning of year.................. 25,054
--------------
Cash at end of year........................ $ 250
--------------
--------------
Reconciliation of Net Increase in Net Assets
to Net Cash Provided from for Operating
Activities
Net increase in net assets resulting from
operations................................. $ 78,506,391
--------------
Decrease in investments....................... 18,910,050
Net realized gain on investment
transactions............................... (62,347,973)
Net increase in unrealized appreciation of
investments................................ (12,733,565)
Increase in receivable for investments sold... (4,497,262)
Increase in dividends and interest
receivable................................. (282,629)
Increase in deferred expenses and other
assets..................................... (32,638)
Decrease in payable for investments
purchased.................................. (4,462,568)
Increase in accrued expenses and other
liabilities................................ 356,137
--------------
Total adjustments....................... (65,090,448)
--------------
Net cash provided from operating activities... $ 13,415,943
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
FIRST FINANCIAL FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended March 31,
Increase (Decrease) ------------------------------
in Net Assets 1997 1996
------------ ------------
<S> <C> <C>
Operations
Net investment income....... $ 3,424,853 $ 1,893,711
Net realized gain on
investment
transactions............. 62,347,973 44,064,406
Net increase in unrealized
appreciation of
investments.............. 12,733,565 28,675,777
------------ ------------
Net increase in net assets
resulting from
operations............... 78,506,391 74,633,894
------------ ------------
Dividends and distributions (Note 1)
Dividends from net
investment income........ (3,196,846) (2,148,396)
Distributions from net
realized gain on
investments.............. (51,149,539) (33,085,304)
Value of Fund shares issued
to shareholders in
reinvestment
of dividends and
distributions............ 37,704,525 16,515,513
Cost of Fund shares
reacquired............... (5,498,887) --
------------ ------------
Total increase................. 56,365,644 55,915,707
Net Assets
Beginning of year.............. 214,129,948 158,214,241
------------ ------------
End of year.................... $270,495,592 $214,129,948
------------ ------------
------------ ------------
</TABLE>
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 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 and 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: 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 regards to the restricted
securities held by the Fund at March 31, 1997, the Fund may
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
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, 1997 were $177,547,806 and $242,351,052,
respectively.
The cost basis of the Fund's investments, including short-term investments, at
March 31, 1997 was $233,596,224; and, accordingly, net unrealized appreciation
for federal income tax purposes was $51,663,489 (gross unrealized
appreciation--$63,845,888; gross unrealized depreciation--$12,182,399).
- --------------------------------------------------------------------------------
8
<PAGE>
Notes to Financial Statements FIRST FINANCIAL FUND, INC.
- -------------------------------------------------------------------------------
Note 4. Borrowings
The Fund has a credit agreement (the 'Agreement') with an unaffiliated lender.
The maximum commitment under the Agreement is $60,000,000. 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, 1997 was
$18,957,808 at a weighted average interest rate of 6.55%. The highest face
amount of borrowing outstanding at any month end during the year ended March 31,
1997 was $20,000,000. The Fund's borrowings on March 31, 1997 ($18,400,000 at
6.56%) matured on April 7, 1997.
- ------------------------------------------------------------
Note 5. Capital
There are 50 million shares of $.001 par value common stock authorized. Of the
19,629,461 shares issued as of March 31, 1997, the Investment Adviser owned
13,601 shares. During the fiscal years ended March 31, 1996 and 1997, the Fund
issued 1,300,435 and 2,505,284 shares, respectively, in connection with cash
distributions paid in stock. During the fiscal year ended March 31, 1997, the
Fund repurchased 400,000 shares at a weighted average discount per share of
14.16%.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9
<PAGE>
Financial Highlights FIRST FINANCIAL FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................. $ 13.71 $ 11.05 $ 12.74 $ 16.52 $ 10.50
-------- -------- -------- -------- --------
Income from investment operations
Net investment income............................... .22 .13 .05 .04 .08
Net realized and unrealized gain (loss) on
investments...................................... 4.84 4.99 2.76 3.27 7.89
-------- -------- -------- -------- --------
Total from investment operations................. 5.06 5.12 2.81 3.31 7.97
-------- -------- -------- -------- --------
Less dividends and distributions
Dividends from net investment income................ (.21) (.15) (.03) (.05) (.02)
Distributions in excess of net investment income.... -- -- -- -- --
Distributions from net capital gains................ (3.36) (2.31) (4.38) (6.63) (2.02)
-------- -------- -------- -------- --------
Total dividends and distributions................ (3.57) (2.46) (4.41) (6.68) (2.04)
-------- -------- -------- -------- --------
Increase resulting from Fund share repurchase....... .06 -- -- .08 .12
Capital charge resulting from the issuance of Fund
shares........................................... -- -- (.09) (.49) (.03)
-------- -------- -------- -------- --------
Net asset value, end of year(a)..................... $ 15.26 $ 13.71 $ 11.05 $ 12.74 $ 16.52
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Market price per share, end of year(a).............. $ 14.500 $ 12.625 $ 11.125 $ 12.00 $ 15.125
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN(b):......................... 42.10% 35.46% 34.83% 24.22% 72.89%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)....................... $270,496 $214,130 $158,214 $143,572 $154,090
Average net assets (000)............................ $238,967 $195,421 $164,322 $158,100 $125,361
Ratios to average net assets:
Expenses, before loan interest, commitment fees
and nonrecurring expenses..................... 1.03% 1.00% 1.03% 1.11% 1.13%
Total expenses................................... 1.56% 1.23% 1.58% 1.36% 1.21%
Net investment income............................ 1.43% .97% 0.46% 0.25% 0.62%
Portfolio turnover rate............................. 70% 82% 103% 139% 105%
Total debt outstanding at end of year (000
omitted)......................................... $ 18,400 $ 9,700 $ 16,000 $ 15,000 --
Asset coverage per $1,000 of debt outstanding....... $ 15,701 $ 23,075 $ 10,888 $ 10,571 --
Average commission rate paid per share.............. $ .0530 $ .0415 -- -- --
</TABLE>
- ---------------
(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
<PAGE>
Report of Independent Accountants FIRST FINANCIAL FUND, INC.
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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, 1997, the results of its operations, its cash flows,
the changes in its net assets and the financial highlights for the year 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 audit. We conducted our audit 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, 1997 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
financial highlights of the Fund for each of the four years in the period ended
March 31, 1996, and the statement of changes in net assets for the year ended
March 31, 1996 were audited by other independent accountants whose report dated
May 9, 1996, expressed an unqualified opinion on those financial highlights and
that statement.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
May 21, 1997
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11
<PAGE>
Supplemental Proxy Information (Unaudited) FIRST FINANCIAL FUND, INC.
- -------------------------------------------------------------------------------
The annual meeting of shareholders of the First Financial Fund, Inc. was held
on Wednesday, October 30, 1996 at the offices of Prudential Securities
Incorporated, One Seaport Plaza, New York, New York. The meeting was held for
the following purposes:
<TABLE>
<CAPTION>
(1) To elect Directors as follows:
Directors Class Term Expiring
--------- ----- --------
<S> <C> <C> <C>
Eugene C. Dorsey I 3 years 1998
Douglas H. McCorkindale II 3 years 1999
-------------------
</TABLE>
The director Thomas T. Mooney whose term of office continued beyond this
meeting was not voted upon at this meeting.
(2) To approve the proposed change of the Fund's fundamental investment
limitation on borrowing.
(3) To ratify the selection of Deloitte & Touche LLP as independent public
accountants for the fiscal year ending March 31, 1997.
(4) To consider and act upon such other business as may properly come before
the meeting and any adjournments thereof.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Director/Matter Votes for Votes against Abstentions
- --------------- ---------------- ------------- -----------
<S> <C> <C> <C>
(1) Eugene C. Dorsey 8,251,173 -- 486,814
Douglas H. McCorkindale 8,253,121 -- 484,866
(2) Amending of Investment Restrictions 6,874,280 821,486 304,138
(3) Deloitte & Touche LLP 8,501,432 113,045 118,037
(4) There was no other business voted upon at the annual meeting of shareholders.
</TABLE>
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, 1997) 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,
1997, the Fund paid dividends and distributions totalling $3.57 per share,
comprised of $.21 ordinary income and $1.52 short-term capital gains which are
taxable as ordinary income and $1.84 long-term capital gains which are taxed as
such. Further, we wish to advise you that 16.94% of the dividends taxable as
ordinary income and paid in the fiscal year ended March 31, 1997 qualified for
the corporate dividend received deduction available to corporate taxpayers.
In January 1998, 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 1997 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.
- --------------------------------------------------------------------------------
12
<PAGE>
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. 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 average per share purchase price paid
by the Plan Agent may exceed the net asset value per share, resulting in the
acquisition of fewer shares than if the dividend or distribution had been paid
in shares issued by the Fund. 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.
- --------------------------------------------------------------------------------
13
<PAGE>
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 Auditors
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
