(ICON)
ANNUAL
REPORT
March 31, 1998
<PAGE>
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
<TABLE>
<CAPTION>
6 Mos. 1 Year
3 Years 5 Years
<S> <C> <C>
<C> <C>
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%
</TABLE>
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
<PAGE>
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
<PAGE>
Portfolio of Investments as of March 31, 1998
FIRST FINANCIAL FUND, INC.
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
- --------------------------------------------------
- ----------
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
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of March 31, 1998
FIRST FINANCIAL FUND, INC.
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S>
<C>
- --------------------------------------------------
- ----------
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
- ------------
- ------------
</TABLE>
- ---------------
* 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
<PAGE>
Statement of Assets and Liabilities
FIRST FINANCIAL FUND, INC.
- --------------------------------------------------
- ------------------------------
<TABLE>
Assets
March 31, 1998
<S>
<C>
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
- --------------
- --------------
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 5
<PAGE>
FIRST FINANCIAL FUND, INC.
Statement of Operations
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income
March 31, 1998
<S> <C>
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
---
- -----------
---
- -----------
</TABLE>
FIRST FINANCIAL FUND, INC.
Statement of Cash Flows
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Year Ended
Increase (Decrease) in Cash
March 31, 1998
<S>
<C>
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
--
- ------------
--
- ------------
</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 1998
1997
------------
- ------------
<S> <C>
<C>
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
------------
- ------------
------------
- ------------
</TABLE>
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
<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, 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
<PAGE>
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
<PAGE>
Financial Highlights
FIRST FINANCIAL FUND, INC.
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Year Ended March 31,
- --------------------------------------------------
- ----------
1998 1997 1996 1995
1994
- -------- -------- -------- --------
- --------
<S>
<C> <C> <C> <C>
<C>
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 -- --
</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.
- --------------------------------------------------
- ------------------------------
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
<PAGE>
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
<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 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
